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St. Marys Hospital Medical Center v. Heckler

January 22, 1985

ST. MARYS HOSPITAL MEDICAL CENTER, PLAINTIFF-APPELLEE
v.
MARGARET M. HECKLER, SECRETARY, DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT-APPELLANT



Appeal from the United States District Court for the Western District of Wisconsin. No 83 C 445- John C. Shabaz, Judge.

Author: Cummings

Before CUMMINGS, Chief Judge, ESCHBACH, Circuit Judge, and SWYGERT, Senior Circuit Judge.

CUMMINGS, Chief Judge.

This appeal arises from the challenge by St. Marys Hospital Medical Center ("St. Marys") to the Secretary of Health and Human Services' (the "Secretary") method of calculating St. Mary's apportionment of laboratory costs between Medicare and non-Medicare patients under Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. ("Medicare"). The district court found in favor of St. Marys. We reverse.

I.

St. Marys is a short-term acute-care hospital located in Madison, Wisconsin. In 1972 it introduced a program, later known as Shared Laboratory Services ("SLS"), that was designed to spread the hospital's fixed laboratory costs. Through SLS, St. Marys, in cooperation with Methodist Hospital in Madison, sold laboratory services to non-hospital patients, including private physicians, clinics, and small hospitals. These clients would provide several services that the test-taking procedures required to be done and that St. Marys fulfilled for its own patients, viz., ordering the tests, drawing and processing the sample, recording the test results in the patient's records. SLS provided its own courier service to transport samples to be tested and Methodist Hospital billed the SLS clients. The two hospitals shared the expenses of these two activities. St. Marys states that its SLS fees are lower than those it charges its own patients because of competition with commercial laboratories and allegedly lower costs (Br. 6). St. Marys admits that the costs of the SLS program exceed the revenue derived from it (id. at 30 n.21.)*fn1

Medicare reimburses St. Marys for the laboratory services provided Medicare patients by determining first the ratio of Medicare charges to total charges, and then multiplying total costs by that ratio. Thus if Medicare patients account for thirty percent of the laboratory's charges, then Medicare will reimburse the hospital thirty percent of its laboratory's total costs.*fn2 This formula assumes that the ratio of Medicare charges to total charges equals that of Medicare costs to total costs. To protect the integrity of this assumption, the Secretary requires a provider to "gross-up" any discounted charges to the level of the regular charges made to all other paying patients before the hospital calculates the ratio of Medicare charges to other charges. Not doing so would mean that total charges would equal less than would otherwise be the case, so that Medicare charges would comprise a larger percentage of the total, resulting in Medicare's bearing a disproportionately heavy burden of the laboratory's costs.

In 1978, St. Marys attempted to account for SLS' lower charges by revenue offset, subtracting SLS revenues from total laboratory costs and total charges before calculating the ratio of Medicare charges to other charges.*fn3 The intermediary*fn4 overseeing St. Marys' Medicare reimbursement refused to accept this method, requiring St. Marys to gross-up SLS charges instead. In 1979, St. Marys calculated the ratio of Medicare charges to total charges by including SLS revenues at their actual and not their grossed-up level. Again the intermediary disallowed this approach and required St. Marys to gross-up the SLS charges. In both years St. Marys justified its action by claiming that the SLS services were not similar to tests provided hospital patients, so that grossing-up was unwarranted. Moreover, St. Marys claimed that SLS services cost less than did the same tests provided to its patients.

St. Marys appealed both the 1978 and 1979 adjustments to the Provider Reimbursement Review Board ("PRRB" or the "Board"). The hospital also retained Ernst & Whinney, a national accounting firm, to conduct an industrial engineering work-measurement study to ascertain whether St. Marys could document both of its assertions-that the SLS services were markedly different from, and substantially less expensive than, tests provided its patients. The PRRB rejected the Ernst & Whinney study as neither accurate nor verifiable and dismissed St. Marys' objections. The Secretary did not appeal this decision, so that it became the final administrative decision. St. Marys appealed to federal district court under 42 U.S.C. § 1395oo(f)(1). The trial court reversed the PRRB in a judgment entered December 30, 1983. Although agreeing that the Ernst & Whinney study was inaccurate "in some respects" (Mem. Order of Dec. 24, 1983 at 2),*fn5 it found that SLS costs in fact were always less than those of tests for hospital patients. The court remanded to the PRRB, ordering it to resolve any inaccuracies in St. Marys' study and to apply a method of cost apportionment that would not require grossing-up SLS charges. The Secretary filed a motion for reconsideration on January 9, 1984, but the trial court reaffirmed its decision on January 17, 1984. Notice of appeal was filed in this Court on March 15, 1984. We reverse.

II

Plaintiff contends that the Secretary's notice of appeal was untimely because her motion for reconsideration did not seek specific relief, and, even if requisite specificity was present, it was not timely served. Fed. R. App. P. 4(a)(1) permits the government sixty days in which to file an appeal from a judgment. The filing of one of four post-judgment motions tolls this period.*fn6 Our jurisdiction depends on the adequacy of the motion for reconsideration filed by the Secretary.

Plaintiff misunderstands the substantive requirements for a Rule 59 motion. The motion need only be in writing, specify the grounds on which the motion is based, and request relief. Fed. R. Civ. P. 7(b)(1); Martinez v. Trainor, 556 F.2d 818, 819-820 (7th Cir. 1977). Even if the federal rules required that the requested relief as well as the grounds for it be set forth with specificity, the Secretary's instant motion meets these requirements. St. Marys' reliance on Western Transportation Co. v. E. I. Du Pont de Nemours and Co., 682 F.2d 1233 (7th Cir. 1982), is misplaced, for that case deals with the particularity of grounds for relief, not the specificity of the relief requested. In Western Transportation, the disputed motion asked the district court to reexamine its dismissal of some of the moving party's claims, without delineating any reasons whatsoever for the request. In contrast, the motion at issue here identified two specific errors in reasoning that the Secretary believed the trial court had made. The motion also requested that if the trial judge did not agree with the Secretary's interpretation, the district court either modify or clarify its remand order. Supp. App. 3-5. As such, the motion detailed both the action it requested and the reasons for its request, thus falling well within the specificity requirements of the federal rules.

Since the motion made does request "that the judgment be altered or amended," Western Transportation, 682 F.2d at 1236, it falls within the intent of Fed. R. Civ. P.59(e). The critical factor in classifying a motion under Rule 59 is whether "the motion questioned the substantive validity of the judgment and not merely its form," St. Paul Fire and Marine Insurance Co. v. Continental Casualty Co., 684 F.2d 691, 694 (10th Cir. 1982). The Secretary fashioned her motion as falling within Fed. R. Civ. P. 52(b) rather than Rule 59(e) (Supp. App. 2 n.1), but that fact is not dispositive. Browder v. Director, 434 U.S. 257, 261-262 n.5, 54 L. Ed. 2d 521, 98 S. Ct. 556. "'Any motion that draws into question the correctness of the judgment is functionally a motion under Civil Rule 59(e), whatever its label.'" United States v. City of Chicago, 631 F.2d 469, 474 (7th Cir. 1980) (quoting 9 Moore's Federal Practice P204.12[1], at 4-67 (2d ed. 1980)).

The more serious objection is that involving service. The Secretary concedes that through inadvertence her motion for reconsideration was not served on opposing counsel, though it was timely filed (Reply Br.20). We assume arguendo that the motion would have had to have been both filed and served before it would have been timely for purposes of Fed. R. App. P.4 (a)(1). Nonetheless, the exception the Supreme Court enunciated in Thompson v. Immigration and Naturalization Service, 375 U.S. 384, 84 S. Ct. 397, 11 L. Ed. 2d 404 (per curiam), applies here.*fn7 In Thompson the Rule 59 motion at issue was untimely because it was filed and served more than ten days after entry of judgment. The notice of appeal filed in the case would have been timely had the post-judgment motion tolled the appeals period. Opposing counsel did not object to the motion and the district court explicitly informed ...


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