Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.


December 4, 1981


The opinion of the court was delivered by: Leighton, District Judge.


This suit, invoking jurisdiction pursuant to 42 U.S.C. § 1395oo(d) and procedurally governed by 5 U.S.C. § 701 et seq., requires review of the Secretary's decisions which may be overturned only if they were arbitrary, capricious, an abuse of discretion, otherwise not in accordance with law, or unsupported by substantial evidence. The cause is before the court on cross-motions for summary judgment. There are no material issues of fact to be resolved. This being so, and from applicable law, the court concludes that on the issue whether, for the year in question, Medicare should reimburse the hospital a percentage of the costs it incurred in connection with its obligations under the Hill-Burton Act to provide free medical care to indigents; and on the issue whether for the same year the hospital should be reimbursed the costs it incurred in furnishing Medicare patients with bedside telephones, St. James is entitled to judgment as a matter of law. Therefore, its motion for summary judgment is granted; the Secretary's is denied.


St. James Hospital is a short-term, acute care general hospital located in Chicago Heights, Illinois. It is a qualified provider of medical services under Part A of the Medicare program, Title XVIII of the Social Security Act, 42 U.S.C. § 1395c et seq., which Congress enacted in 1965. These provisions of the Act furnish federal funding of medical care for the aged and disabled. Under these provisions, participating providers of health services like St. James Hospital, are reimbursed from trust funds for the "reasonable cost" of covered services. As defined in 42 U.S.C. § 1395x(v)(1)(A), "reasonable cost" means the actual cost of providing in-patient hospital care; it is an all-inclusive term, unless specifically identified and excluded by 42 U.S.C. § 1395y. Therefore, the Medicare program reimburses hospitals providing services to Medicare beneficiaries the lesser of their charges or the reasonable cost of furnishing such services.

The Secretary of Health and Human Services administers the program through fiscal intermediaries who review cost reports submitted by providers, and who determine the amount of costs that will be reimbursed. Fiscal intermediaries and other agents of the Secretary are guided by rules and regulations which must be consistent with the statute and necessary to the efficient discharge of the statutory functions. 42 C.F.R. § 405.420(g) is the regulation controlling the Hill-Burton issue, reimbursement of the claimed percentage of uncompensated care costs. It provides, in relevant part, that "[c]harity allowances have no relationship to beneficiaries of the health insurance program and are not allowable costs." The statutory provision authorizing publication of this regulation is 42 U.S.C. § 1395x(v)(1)(A) which states that "[t]he reasonable costs of any services shall be the cost actually incurred, . . . and shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included. . . ."

Between the years 1959 and 1967, St. James, as part of construction financing transactions, received Hill-Burton grants totaling $1,593,000. A condition of these grants, as provided in 42 U.S.C. § 291e(e)(2), was the obligation of the hospital to furnish indigents access to a reasonable volume of free or reduced-cost medical care. Accordingly, St. James provided free or reduced-cost care to those unable to pay, persons who were emergency cases or were in urgent need of hospital services. However, in 1972, as a result of litigation concerning obligations of Hill-Burton grantees, the Secretary promulgated 42 C.F.R. § 53.111 which, in Subparagraph (d), established a presumptive compliance guideline and furnished three methods of proving that a hospital has complied with the terms of a grant. St. James chose one of these and proceeded to budget for and pay the cost of uncompensated care for those unable to pay. In 1977, the year at issue in this case, and based on the adopted formula, the hospital provided such care in the amount of $159,300. This was a substantial monetary increase over the value of uncompensated care which St. James had provided prior to promulgation of the regulation. Then, spreading the total cost of uncompensated medical care for 1977 throughout its hospital operations, St. James calculated the percentage of its hospital services represented by Medicare patients and concluded that the same percentage of uncompensated care costs was a "reasonable cost" it had incurred in furnishing medical care to Medicare beneficiaries. It treated this amount as a cost arising out of a financial transaction; that is, the Hill-Burton construction grants. St. James included this sum in its 1977 cost report and asked for reimbursement of this amount. The Intermediary disallowed reimbursement on the ground that uncompensated care represented charity within the meaning of the Secretary's regulation, 42 C.F.R. § 405.420. With one of its three members dissenting, the Provider Reimbursement Review Board upheld the Intermediary; the disallowance ultimately became the Secretary's decision.

In the same cost year, St. James furnished bedside telephones used by staff and physician personnel for hospital purposes and by patients for personal use. Use of the telephones by hospital personnel included alerting the cardiac resuscitation team, calling for inhalation therapy, physical therapy, patient transport, and administrative personnel in the normal course of their duties. Patient usage of the telephones included not only communication with friends and family members, but also contacts with hospital staff persons such as the ombudsman, admitting and discharging personnel and social workers. In completing the cost report, St. James followed Section 2601.1 of the Provider Reimbursement Manual, but particularly, the Secretary's regulation published in 42 C.F.R. § 405.310(j) and providing that

    Notwithstanding any other provisions of this
  Part 405, no payment may be made for any expenses
  incurred for the following items or services:
    (j) Personal comfort items and services (for
  example a television set, or telephone service,

A provision of the Medicare Act, 42 U.S.C. § 1395y(a)(6) excludes certain costs from coverage by stating that

    Notwithstanding any other provision of this
  subchapter, no payment may be made under part A
  or part B of this subchapter for any expenses
  incurred for items or services —

(6) which constitute personal comfort items;

Prompted by what these sources instructed, all of them emanating from either the Secretary or her subordinates, the hospital made cost entries on Worksheet A-8 of its 1977 cost report. This operated to effect a self-disallowance of the patient telephone costs and thus obviated any need for an adjustment by the Intermediary.

The Intermediary denied all the reimbursements claimed in the cost report, and thereafter, St. James joined a number of Florida hospitals in a group appeal challenging refusal of the Medicare program to reimburse the costs of patient bedside telephones and, in the alternative, Medicare's requirement that average costing be used to determine the amount of non-allowable patient telephone costs rather than incremental or direct costing. The hospitals supported their claim for reimbursement of bedside telephone costs with clinical studies and expert medical testimony which they claimed demonstrated that for a hospital patient a bedside telephone was a part of therapy rather than an item of personal comfort. The Intermediary countered this evidence with the testimony of a college professor whose opinion was that the studies conducted by the hospitals were not statistically valid; he expressed the objection that they had been conducted by using an opportunity sample in which all consenting patients over the age of 18 were tested, rather than a sample that not only chose randomly among a hospital's patients, but included nonhospitalized members of the community.

After hearing the case, the Board found "[t]hat the Providers involved in this appeal [St. James and the Florida hospitals], have conducted in-depth studies and offered expert testimony which demonstrated that patient telephones have therapeutic value. The Board is very impressed with the Providers' arguments and, in fact, agrees that the patient telephone should be a covered service. However, this Board does not have the authority to rule on coverage issues and is locked into the Regulation that states that the patient telephone is a luxury item. The Board finds that the controlling Regulations and Program Policy require the exclusion from allowable costs of all costs associated with telephone services and other personal comfort items which are used for the convenience of patients." On these findings, the Board decided "[t]hat the Intermediary's adjustment to disallow patient telephone cost is affirmed." This decision, as in the Hill-Burton issue, also became that of the Secretary.



In support of the contention that it is entitled to judgment as a matter of law on the free medical care issue, St. James Hospital argues that the Provider Reimbursement Review Board erred in finding the Intermediary presented substantial evidence which showed that the Hill-Burton uncompensated care costs constituted charity care. As a matter of fact, argues the hospital, the record before the Board, and thus the one before the Secretary, showed that the Intermediary did not present any evidence. According to the hospital, its evidence established, without contradiction, that the free care it gave to indigents during the cost year involved was rendered by it pursuant to legal compulsion under Hill-Burton regulations, 42 C.F.R. ยงยง 53.111, 124.06 and 124.607(b), all of them directions issued to hospitals like St. James by the Secretary. Noncompliance with the Secretary's regulations meant possible loss of licensure, and enforcement against it of contractual obligations it assumed under the grant agreements to provide such services. The hospital argues that the uncompensated care it furnished (1) was not rendered voluntarily, (2) would not have been furnished but for the legal compulsion enforced by the Secretary, (3) constituted a cost of providing care through the Hill-Burton financed facility just as interest and other financing costs are costs of providing care, and ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.