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decided: January 25, 1971.


Smith and Feinberg, Circuit Judges, and Levet, District Judge.*fn*

Author: Feinberg

FEINBERG, Circuit Judge:

Plaintiffs Dr. James V. Aquavella and Dr. Salmon Harvey instituted this action after defendant Secretary of Health, Education and Welfare (HEW) suspended payments under the Medicare Act to Glen Oaks Nursing Home, which the doctors operated as a partnership. Plaintiffs claim that the suspension was imposed without statutory authority and in a manner that violated due process. The United States District Court for the Western District of New York, Chief Judge John O. Henderson, dismissed plaintiffs' original and amended complaints for lack of jurisdiction. The former was dismissed on the ground that the Medicare Act, 42 U.S.C. §§ 1395-1395 ll, precluded judicial review and the latter on the ground that the suspension of payments was not final action under section 10 of the Administrative Procedure Act, 5 U.S.C. §§ 701-706. This appeal is from both orders.*fn1 For reasons explained below, we reverse and remand for a decision on the merits.

The Glen Oaks Nursing Home, a private 60-bed "extended-care facility" under the Act, furnished post-hospital care for patients who no longer needed intensive hospital care but were not yet well enough to go home. Glen Oaks began operation in April 1967, and was qualified at that time as a "provider of services" under the Medicare Act.*fn2 To obtain such qualification, Glen Oaks had entered into an appropriate agreement with the Secretary of HEW which incorporated certain provisions of the Act.*fn3 The most pertinent of these was the promise not to charge patients for services payable by the Government under the Medicare program. A provider of services under the Act is reimbursed not by the patient but by the Secretary or by certain private organizations, under contract to the Secretary, that act as fiscal intermediaries. In the present case, appellee Aetna Life and Casualty Company (Aetna) has served as Glen Oaks's fiscal intermediary since 1968, Approximately 98 per cent of the patients at Glen Oaks qualified to receive Medicare benefits and, therefore, the institution was almost entirely dependent on Medicare payments for its revenues.

Although all of the intricacies of payment to a provider of services under the Medicare Act are not relevant here, some background information is necessary. The Secretary, through the Social Security Administration, determines the "reasonable cost"*fn4 of services covered by the Act and periodically pays the amount so determined. By statute, reimbursement is to be no less often than monthly but the Secretary may make "necessary adjustments on account of previously made overpayments or underpayments."*fn5 Where, as here, a fiscal intermediary is nominated by a provider, that intermediary makes the initial determinations of amount and reimburses the provider.*fn6 In order to protect the financial well being of a provider, the Secretary or a fiscal intermediary will make periodic cash advances, "current financing," as well as reimbursements for costs already incurred.*fn7 From April 1968 to July 1969, Aetna apparently reviewed and allowed, with few exceptions, the amounts requested by Glen Oaks and made payments approximately every two weeks. In addition, Aetna made an annual review of the Glen Oaks operation and approved additional reimbursement as a "necessary adjustment."

Appellant's difficulties began in the spring of 1969. At that time, the Bureau of Health Insurance of the Social Security Administration conducted a review of audited and unaudited cost reports submitted by providers in order to verify the accuracy of payments made under the Medicare program. By affidavit of Thomas G. Bell, Deputy Director of the Bureau, it is alleged that the review identified Glen Oaks as one of several extended care facilities that had claimed and had been paid for unusually large amounts of ancillary services. The Bureau and Aetna thereafter scheduled an on-site review of the Glen Oaks program and billing procedures. The review team, a registered nurse, a government accountant, and an employee of Aetna, surveyed Glen Oaks in April 1969. The Secretary alleges that this survey uncovered certain irregularities at Glen Oaks. The alleged abuses can be summarized as follows: (1) billing for services not covered by the Act; (2) overutilization of occupational and physical therapy; and (3) increasing the semi-private routine service charge from $32.50 per day to $52.00 per day within one year without submitting adequate cost justification. In light of these conclusions and because Aetna, as of July 14, 1969, had extended $96,000 in current financing to Glen Oaks,*fn8 the Secretary instructed Aetna to stop making payments to Glen Oaks. The suspension was to continue until an audit of the Glen Oaks operations was completed in order to determine either whether the payments were proper or the amount of overpayments. Appellant contends that payments were suspended without any prior notice or reasonable opportunity to be heard before or after the suspension and that this was improper.

In July 1969, plaintiffs instituted the present action to enjoin defendants from withholding reimbursement and to obtain other relief. By opinion dated July 30, 1969, the district court dismissed the complaint. 306 F. Supp. 860, 862-863. Plaintiffs soon thereafter ceased doing business as an extended care facility because of alleged weekly costs of $25,000, and the alleged impossibility of converting to a "private" institution "overnight." In October 1969, the district court allowed plaintiffs to amend their complaint and to reargue defendants' motion to dismiss, but again dismissed the action.*fn9 Id. at 863-864.

It is helpful at the outset to state the exact issue before us. It is whether a district court has jurisdiction to review the Secretary's decision, alleged to be without statutory authority and in violation of the Constitution, to suspend payments to a provider of services under the Medicare Act. What is not at issue is whether Glen Oaks was overpaid or what was the amount of such overpayment or even the scope of the district court's jurisdiction to review such issues. Because all parties apparently agree that the Medicare Act by its terms does not provide for judicial review in this case, our attention is directed to whether the Administrative Procedure Act (APA) does.*fn10


Under section 10 of the APA, the initial question is whether the Medicare Act "preclude[s] judicial review" in these circumstances. In making this inquiry, we are aware that "the question [should be] phrased in terms of 'prohibition' rather than 'authorization' because * * * judicial review of final agency action by an aggrieved person will not be cut off unless there is persuasive reason to believe that such was the purpose of Congress." Abbott Laboratories v. Gardner, 387 U.S. 136, 140, 87 S. Ct. 1507, 1510, 18 L. Ed. 2d 681 (1967). It is with this presumption of reviewability in mind that we examine the Secretary's argument that suspension of payments is not judicially reviewable.

The Medicare Act expressly provides procedures for judicial review in two types of determinations relevant to a provider of services: that an institution is not qualified to be a provider and that a provider of services agreement should be terminated.*fn11 Moreover, the Medicare Act*fn12 incorporates the review provisions of the Social Security Act, which state in part that:

The findings and decisions of the Secretary after a hearing shall be binding upon all individuals who are parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. * * *

42 U.S.C. § 405(h) (1969).

From these provisions, appellees fashion two arguments. The first is that section 405(h) operates here as an express preclusion of judicial review. The logic is that because no decisions of the Secretary can be reviewed except as provided in the Medicare Act and because the Act does not provide for review of a suspension of payments, the district court did not have jurisdiction. The second argument is that the Act impliedly precludes review. Appellees claim that because Congress carefully selected the types of Medicare determinations involving extended care facilities to be reviewed, Congress ...

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