Appeals from a judgment of the United States District Court for the Eastern District of New York, Jack B. Weinstein, Chief Judge, which, inter alia, dismissed due process counterclaim of defendant Schwartz as a provider of Medicare services, and awarded Schwartz $273,449.98 on a cross-claim against codefendant Goldberg.
Kearse, Winter, and Pratt, Circuit Judges.
These appeals arise out of the adjudications of (1) a claim of plaintiff United States to recover overpayments made by the Secretary of Health, Education and Welfare ("Secretary") to defendant Gerald Schwartz, individually and doing business as Woodcrest Nursing Home ("Woodcrest") as a provider of Medicare services, (2) a counterclaim by Schwartz asserting a want of due process in the administrative treatment of Woodcrest's Medicare reimbursement claims, and (3) cross-claims by Schwartz against his codefendants. Schwartz appeals from a judgment of the United States District Court for the Eastern District of New York, Jack B. Weinstein, Chief Judge, insofar as it dismissed Schwartz's counterclaim and failed to order that the other defendants pay a total of 70% of the United States' judgment -- entered in the sum of $214,039.95, plus interest -- against Schwartz.*fn1 Defendant Donald Goldberg appeals from so much of the court's judgment as granted Schwartz's cross-claim against him in the sum of $273,449.98, plus interest. For the reasons below, we affirm the judgment.
A. The Claims of Woodcrest for Reimbursement from the Secretary
The controversy concerns the operations of Woodcrest, as a "provider" under Part A of the Medicare Program of the Social Security Act, 42 U.S.C. §§ 1395c to 1395i-2 (1976 & Supp. IV 1980), from August 30, 1968, through April 19, 1969, and Woodcrest's claims for reimbursement for services rendered to it during that period by the Orthopedic and Rehabilitation Institute ("ORI"). During that period, Woodcrest was a general partnership whose partners were Schwartz, Goldberg, Lawrence Peirez, and defendants Irwin M. Rosenthal and Jack E. Bronston. Under the partnership agreement as amended in November 1968, Goldberg was the managing partner of Woodcrest, having full charge of its operations and sole power to enter into contracts on its behalf.
Goldberg was also the owner of ORI, from which Woodcrest purchased services. Under Medicare regulations, since Goldberg owned ORI and an interest in Woodcrest, ORI was considered "related" to Woodcrest, see 42 C.F.R. § 405.427(b), set forth in note 3 infra, and Woodcrest therefore normally would not be entitled to reimbursement from the Secretary for more than the actual cost to ORI of providing the services to Woodcrest. 42 C.F.R. § 405.427.*fn2 In light of these regulations, the partners reached a special agreement with respect to services supplied to Woodcrest by ORI, as reflected in a memorandum dated November 29, 1968 (hereinafter "ORI Repayment Agreement"):
in the event that the United States of America or its appropriate governmental sub-division, or any appropriate insurance carrier or fiscal agent or agency, under and pursuant to the Medicare or similar successor program, determines at any time, up to and including the annual audit for any year, but not thereafter, that any charge or charges made by the Orthopedic and Rehabilitation Institute, during such year to the Woodcrest Nursing Home, for care rendered to patients of the nursing home are by virtue of incorrect or inappropriate rate, not reimbursable in part, then such amount or amounts so determined to be excessive or non-reimbursable, will be borne by the Orthopedic and Rehabilitation Institute and repaid to the General Partnership within thirty (30) days after such determination by such governmental or other Agency.
In accordance with the general statutory scheme governing Medicare reimbursement, see 42 U.S.C. § 1395h, Woodcrest designated a private insurance carrier, to wit, Travelers Insurance Company ("Travelers"), to serve as the fiscal intermediary through which Woodcrest was to receive payments from the Secretary for the "reasonable costs" incurred to provide services to Medicare beneficiaries. Woodcrest provided services, some of which it purchased from ORI, and Travelers made both interim payments to Woodcrest based on the estimated cost of services furnished, see 42 U.S.C. § 1395g; 42 C.F.R. § 405.454(e) (1981), and current financing payments, see id. § 405.454(g).
Eventually Woodcrest submitted to Travelers detailed claims of reimbursable costs for the period in question, which included $171,442 in payments it had made to ORI. Travelers engaged the accounting firm of Peat, Marwick and Mitchell ("Peat, Marwick") to audit Woodcrest's claims and advised Peat, Marwick that ORI was an organization "related" to Woodcrest and that ORI's costs would therefore have to be determined by auditing ORI's books and records.
ORI, however, refused to make its books and records available for audit. Accordingly, in light of the statutory provision that "no [reimbursement] payments shall be made to any provider unless it has furnished such information as the Secretary may request in order to determine the amounts due such provider," 42 U.S.C. § 1395 (g), Woodcrest's claims for reimbursement for its payments to ORI were disallowed. Initial notice of the denial was given in August 1971; the decision became final in 1973.
In October 1973, Schwartz and Goldberg (who by then were no longer partners, see infra) appealed Travelers' decision to an intermediary hearing panel, arguing that Woodcrest's ORI claims should have been granted pursuant to the statutory exception to the general rule limiting reimbursement to ORI's actual costs, 42 C.F.R. § 405.427, see note 2 supra. They contended that Woodcrest was entitled to receive the full amount of ORI's charges because "a substantial part of [ORI's] business activity of the type carried on with [Woodcrest] [was] transacted with others than [Woodcrest] and organizations related to [ORI] by common ownership or control. . . ." § 405.427(d). Travelers responded that ORI's records would have to be made available to substantiate these claims.
In the meantime, on April 19, 1969, Schwartz had purchased the partnership interests of the other Woodcrest partners, and in April 1971 Goldberg filed a demand for arbitration against Schwartz, seeking, inter alia, an accounting for Goldberg's share of Woodcrest's profits. Schwartz counterclaimed, seeking, inter alia, payment from Goldberg under the ORI Repayment Agreement. Eventually, the arbitrators awarded Goldberg $82,168 on his claim, dismissed Schwartz's counterclaim without prejudice, and directed Goldberg to cooperate in Woodcrest's quest for reimbursement from the Secretary:
nothing in this AWARD shall preclude Gerald Schwartz from making a claim on the memorandum dated November 29, 1968 amending the General Partnership Agreement for the operation of Woodcrest, but only upon the final determination of a court of competent jurisdiction that charges made by the Orthopedic and Rehabilation [ sic ] Institute ("ORI") and paid by Woodcrest to ORI should not be reimbursed by the appropriate agency by virtue of incorrect ...