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Trinity Memorial Hospital of Cudahy Inc. v. Associated Hospital Service Inc.

decided: December 16, 1977.


Appeal from the United States District Court for the Eastern District of Wisconsin No. 73-C-262 - Robert W. Warren, Judge.

Cummings and Pell, Circuit Judges, and Prentice H. Marshall, District Judge.*fn* Marshall, District Judge, concurring.

Author: Pell

PELL, Circuit Judge.

Defendants Associated Hospital Service, Inc. (Plan), Blue Cross Association (BCA), and Califano (the Secretary) appeal from an order of the district court denying the defendants' motion to dismiss and granting plaintiff Trinity Hospital's motion for summary judgment and remanding the case to the Secretary for further proceedings. The first ground of the defendants' motion to dismiss was that the district court lacked jurisdiction over the subject matter. On appeal, the defendants-appellants again insist that the district court lacked jurisdiction to hear the case in light of Califano v. Sanders, 430 U.S. 99, 97 S. Ct. 980, 51 L. Ed. 2d 192, 45 U.S.L.W. 4209 (1977); and Weinberger v. Salfi, 422 U.S. 749, 95 S. Ct. 2457, 45 L. Ed. 2d 522 (1975). Because the Medicare Act, 42 U.S.C. § 1395 et seq., did not expressly authorize judicial review of provider reimbursement disputes for the accounting periods relevant to this case, the instant appeal presents for the first time before this court the question whether a statutory provision other than 28 U.S.C. § 1331 and 5 U.S.C. § 701 et seq. authorizes a suit against the United States or the Secretary where a provider of services under the Medicare Program seeks a refund of reimbursable costs or a decision by an impartial adjudicative body constituted of qualified persons not employed by BCA or other affiliated organizations.

I. Background

In early 1966, Trinity entered into an agreement with the Secretary with regard to the providing of services by Trinity to persons eligible for old age medical assistance under Part A of the Medicare Act. BCA and the Secretary entered into an agreement wherein BCA contracted to serve as fiscal intermediary in the administration of the Medicare program. BCA and the Plan entered into an agreement whereby Plan, as an agent of BCA, would perform certain duties as a fiscal intermediary. This contract resulted from Trinity's (and other providers') nomination of BCA as its fiscal intermediary. One of such duties which the Plan assumed was the determination by an annual audit of the Medicare reimbursable costs of Trinity incurred in the providing of such services. Actual payment of reimbursements are made by the Plan from funds provided directly to it by the Secretary.

Throughout the fiscal years ending September 30, 1968, September 30, 1969, and September 30, 1970, Trinity employed the combination method of reimbursement accounting set forth in 20 C.F.R. § 405.452.*fn1 In its required annual cost reports reflecting costs and expenses of the Medicare Program, Trinity characterized those services provided in its Intensive Care Unit, Coronary Care Unit and Ambulatory Care Unit (Special Services) as "ancillary" because of the nature of such services and because such characterization most effectively accomplished the stated objective of the Medicare Act of achieving the most accurate cost accounting.*fn2

After auditing Trinity's cost reports for the fiscal years ending on September 30, 1968, and September 30, 1969, and while Trinity's 1970 cost report was being prepared, the Plan, on October 15, 1970, submitted required audit adjustments to Trinity in which Special Services were characterized as "routine services" and informed Trinity that said characterization would be required in its 1970 cost report. On the basis of the cost reports initially prepared and submitted, Trinity concedes it owed the Plan because of overpayments approximately $18,440 for 1968 and $26,781 for 1969. The audit adjustments made by the Plan in Trinity's cost reports resulted in Trinity owing the Plan $40,785 for 1968 and $46,658 for 1969. The 1970 cost report initially prepared by Trinity resulted in the Plan owing Trinity $2,145 by reason of previous inadequate payments for Medicare Costs. On the basis of the changes made in that report by the Plan after the audit Trinity owed the Plan $17,200. The total amount owing by Trinity under the cost method utilized by it for the three years would have been $43,076; the total amount as computed by the audit method was $104,643, or a difference of $61,567.

Trinity paid the amount of disputed reimbursement as determined by the Plan's audit under protest and thereafter engaged in informal negotiations and discussions with Plan representatives to resolve the dispute. Trinity not only attempted to substantiate its cost accounting but also proposed an alternative to the Plan. Trinity proposed that if its accounting method was determined to be in error, such determined error must constitute a material error and a basis for amending its submitted cost reports. It accordingly proposed amending its cost reports to reflect the departmental method of accounting for Medicare costs. See note 1 supra. Had Trinity's proposed amendment been accepted, Trinity would have owed the Plan $30,115 for 1968, $29,074 for 1969 and $2,918 for 1970 for excess reimbursement. The total difference between the amended reports and the Plan's audit determination was $42,536.

The Plan maintained its audit position and would not permit Special Services to be characterized as "ancillary" nor would it accept Trinity's amended cost reports. Trinity filed an appeal with the BCA Medicare Providers Appeals Committee (the Committee). On July 12, 1972, Trinity participated in a hearing before the Committee with regard to the decisions by the Plan to characterize Special Services as routine and to refuse to accept Trinity's amendment. At the hearing, Trinity objected to the constitution and procedure*fn3 of the Committee on the basis that it did not comply with due process. The Committee affirmed the Plan's original determination and denied Trinity's claims. Despite the lack of any formal appeal procedure from the BCA Appeals Committee, Trinity requested the Secretary to review the Committee's decision and resolve the matter according to the Medicare Act and regulations established thereunder. Although there was at that time no provision for an administrative remedy subsequent to the decision of the BCA Provider Appeals Committee, either in the regulations promulgated by the Secretary or under the Medicare Act, the Secretary did review the decision but denied Trinity's request that the decision of the Plan and the Committee be set aside.

Subsequently, on May 15, 1973, Trinity commenced the instant action in the district court. In its complaint, Trinity asserted that the action arose under the Medicare Act and predicated jurisdiction on § 10 of the Administrative Procedure Act, 5 U.S.C. §§ 701-06, and on 28 U.S.C. § 1331. The complaint alleged that the hearing procedure established by BCA and approved by the Secretary for constituting the Appeals Committee and the selection of its members deprived Trinity of due process of law by reason of bias and lack of impartiality. The complaint further alleged that the Committee's action in denying Trinity's reimbursement claim failed to conform to the standards required of administrative agencies in adjudications. Specifically, Trinity alleged that the failure and the refusal of the Plan, the BCA, and the Secretary to make full reimbursement to Trinity for its Medicare costs on the basis that the Special Services were to be characterized as "ancillary services" breached a duty under the Medicare Act and the regulations and rules promulgated thereunder. Trinity sought as relief a judgment that the Committee decision be vacated, that the Committee, Plan, and Secretary be ordered to refund the reimbursable costs either in the sum of $61,567 or $42,536, or that the cause be remanded to the Secretary for further action with instructions that such action be by an impartial decision maker.

The district court determined that it had jurisdiction over the action by virtue of § 10 of the Administrative Procedure Act, relying on this court's since-reversed decision of Sanders v. Weinberger, 522 F.2d 1167 (7th Cir. 1975), rev'd sub nom. Califano v. Sanders, supra. Applying the scope of review specified in 5 U.S.C. § 706, the court determined that the composition of the Appeals Committee and the participation both before and during the hearing of counsel for BCA represented a clear violation of due process. Having determined that Trinity was entitled to summary judgment as a matter of law, the court entered the order here challenged.*fn4

II. Jurisdiction

Because the Califano v. Sanders Court squarely held that the Administrative Procedure Act is not a grant of jurisdiction, the major question in this appeal focuses on the proper reading of Weinberger v. Salfi, supra. The Secretary argues that § 1331 does not grant district courts subject matter jurisdiction over Medicare provider reimbursement disputes and that no other statute vests jurisdiction in the district courts to hear such matters. Trinity responds by arguing that the Secretary's reading of Salfi is overbroad and distorts the Court's holding in that case. It argues that Salfi must be read against a backdrop of forceful opinions, such as Rusk v. Cort, 369 U.S. 367, 7 L. Ed. 2d 809, 82 S. Ct. 787 (1962); Abbott Laboratories v. Gardner, 387 U.S. 136, 140, 18 L. Ed. 2d 681, 87 S. Ct. 1507 (1967); ...

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