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BINGHAMTON GEN. HOSP. v. SHALALA

June 22, 1994

BINGHAMTON GENERAL HOSPITAL, CORTLAND MEMORIAL HOSPITAL, HORTON MEMORIAL HOSPITAL, LONG ISLAND JEWISH MEDICAL CENTER, MERCY COMMUNITY HOSPITAL, NEW ROCHELLE HOSPITAL, PHELPS MEMORIAL HOSPITAL, ST. MARY'S HOSPITAL AT AMSTERDAM, THE BROOKDALE HOSPITAL MEDICAL CENTER, THE CATHOLIC MEDICAL CENTER OF BROOKLYN AND QUEENS, INC., THE UNIVERSITY HOSPITAL OF NEW YORK UNIVERSITY MEDICAL CENTER - TISCH HOSPITAL, UNITED HOSPITAL MEDICAL CENTER, VICTORY MEMORIAL HOSPITAL, WHITE PLAINS HOSPITAL CENTER, YONKERS GENERAL HOSPITAL, Plaintiffs,
v.
DONNA E. SHALALA, Secretary, United States Department of Health and Human Services, and EMPIRE BLUE CROSS BLUE SHIELD, Defendants.


Sand


The opinion of the court was delivered by: LEONARD B. SAND

SAND, J.

 This action presents us with an issue arising under the Medicare statute which has not previously been addressed by the courts of this circuit, and on which other circuits are split: whether the refusal of a "fiscal intermediary" to reopen a Medicare service provider's cost report is judicially or administratively reviewable. *fn1" We hold that it is not.

 The action is brought by fifteen New York hospitals (the "hospitals") that provide services under the Medicare program against the Secretary of Health and Human Services (the "Secretary") and Empire Blue Cross and Blue Shield ("Empire"). The hospitals seek additional reimbursement from Empire for services they provided under the Medicare program for the years 1980, 1981, and 1982. They rely on the fact that the courts have since overturned particular regulations on which they relied in preparing their cost reports for those years (the "cost reports") and have ordered that provider hospitals be compensated more generously. The Secretary does not contest plaintiffs' right to additional reimbursement under the substituted regulations, but argues instead that plaintiffs' attempt to reopen their cost reports is untimely and that this Court lacks jurisdiction to consider its merits.

 Defendants have moved to dismiss the action pursuant to Rules 12(b)(1) and 12(b)(6) or, in the alternative, for summary judgment pursuant to Rule 56(c) of the Federal Rules of Civil procedure. For the reasons set forth below, we grant defendants' motion dismissing this case as a matter of law.

 Before we turn to the facts underlying this dispute, we briefly review the relevant statutory and regulatory framework, as an understanding of that framework is essential to the discussion which follows.

 I. BACKGROUND

 A. Statutory and Regulatory Framework

 This action arises under Title XVIII of the Social security Act, 42 U.S.C. §§ 1395 to 1395ccc (1988) (the "Medicare statute"), which establishes the Medicare health insurance program for the elderly and disabled. Medicare is divided into two main parts: Part A, which provides insurance for inpatient institutional services, home health services, and post-hospital services, id. §§ 1395c to 1395i-4; and Part B, which covers physician, outpatient hospital, and various other health services, id. §§ 1395j to 1395w-4. Hospitals and skilled nursing facilities may participate in Part A of the Medicare program by entering into a "provider agreement" with the Secretary. Id. § 1395h. Under these agreements, participating hospitals ("providers"), such as plaintiffs, provide care to persons covered by Medicare and seek reimbursement from private insurance companies ("fiscal intermediaries"), in this case Empire; the insurance companies, acting as agents of the Secretary, are in turn reimbursed by the Health Care Financing Administration ("HCFA"), the agency entrusted by the Secretary with management of the Medicare program. Id.; 42 C.F.R. part 421 (1993).

 In order to receive reimbursement from the Medicare program, a provider must file an annual cost report with its fiscal intermediary, detailing the services rendered to Medicare patients during the year. 42 C.F.R. § 413.20. The intermediary analyzes the cost report and issues a "notice of program reimbursement" ("NPR"), which sets forth the total amount of reimbursement due the provider and lists the individual expenses allowed and disallowed. Id. § 405.1803.

 If a provider is dissatisfied with the NPR, it may request a hearing before the PRRB within 180 days of issuance of the NPR. 42 U.S.C. § 1395oo(a), (b). The PRRB may affirm, modify, or reverse the decision of the intermediary. Id. § 1395oo(d). The Secretary, either on her own motion or at the request of the provider, may then review the matter within sixty days. Id. § 1395oo(f)(1). If the provider remains dissatisfied, it may seek judicial review in the appropriate United States district court within 60 days of issuance of the final decision, whether that decision comes from the PRRB or the Secretary. Id.

 Generally, the administrative appeal and judicial review process established by § 1395oo ends further inquiry into a provider's Medicare reimbursement for a given year; if the provider does not appeal the final cost report determination in an NPR to the PRRB within 180 days (pursuant to subsections (a) or (b)), and appeal the subsequent PRRB ruling or modification by the secretary within 60 days (pursuant to subsection (f)), the cost report is closed and the amount of reimbursement is not subject to further review.

 B. Setting the Stage: Medicare Reimbursement of Malpractice Insurance

 Plaintiffs in this case seek a reopening of their 1980, 1981, and 1982 cost reports in order to increase the amount of reimbursement for their malpractice insurance expenses. The basis for their claim arises from a series of interrelated regulatory changes and court decisions, of which only a cursory summary is necessary.

 Prior to October 1, 1983 (the period relevant to this case), the Medicare program reimbursed Part A providers on the basis of the provider's "reasonable cost" of furnishing covered services to beneficiaries, or the provider's customary charge for a particular service, whichever was lower. See 42 U.S.C. § 1395f(b)(1). Before 1979, one particular methodology (the "pre-1979 utilization method") was employed to calculate hospitals' malpractice insurance reimbursements. In 1979, the Secretary promulgated a new rule (the "1979 malpractice rule") which changed the method of calculating reimbursement for malpractice insurance costs in a manner which significantly reduced hospitals' reimbursement. The 1979 rule, however, was invalidated by the courts. See, e.g., Tallahassee Mem. Regional Med. Ctr. v. Bowen, 815 F.2d 1435 (11th Cir. 1987) (invalidating 1979 malpractice rule), cert. denied, 485 U.S. 1020, 99 L. Ed. 2d 888, 108 S. Ct. 1573 (1988). In response to this judicial invalidation, as well as to new data, the Secretary published a new rule, effective May 1, 1986 (the "1986 malpractice rule"). This 1986 rule replaced the 1979 rule with a new methodology for calculating hospital malpractice insurance costs, one which significantly increased hospitals' reimbursement for their malpractice insurance costs, but not to the level of pre-1979 reimbursement.

 As first published, the 1986 malpractice rule applied retroactively to cost-reporting periods beginning July 1, 1979. See 51 Fed. Reg. 11142 (1986). The rule's retroactive effect, however, was overturned by the Supreme Court in 1988. Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 102 L. Ed. 2d 493, 109 S. Ct. 468 (1988). In response, the Secretary discontinued the retroactive application of the 1986 rule and determined that claims for cost-reporting periods predating the 1986 rule would be reimbursed under the earlier, pre-1979 reimbursement method. HCFA Ruling 89-1, Medicare & Medicaid Guide (CCH) P 6139 (Jan. 26, 1989) at 2061-16. The Secretary agreed to settle all pending unsettled claims challenging reimbursement under the 1979 and 1986 rules, using the pre-1979 reimbursement method. See HHS Settlement Offer, Medicare & Medicaid Guide (CCH) P 6139 (May 11, 1988) at 2061-5.

 C. Procedural History

 Plaintiffs, who had filed timely cost reports with Empire for 1980, 1981, and 1982 using the now-invalidated 1979 malpractice rule, had accordingly been undercompensated for their malpractice insurance costs and were consequently eligible to participate in the Secretary's 1988 settlement offer. None of the plaintiff hospitals, however, attempted to participate in the settlement for the cost reports at issue in this suit. See September 27, 1993 Stipulation of matters not in dispute ("Stipulation") P 4. It was not until August 5, 1991 that the hospitals first petitioned Empire to reopen their 1980, 1981, and 1982 cost reports and to increase their reimbursement for malpractice costs based upon the pre-1979 reimbursement method. Administrative Record ("A.R.") at 287-94. On September 9, 1991, Empire denied the hospitals' reopening request on the grounds that plaintiffs' petitions were untimely because they were filed more than three years after the NPRs became final. A.R. at 296. *fn2"

 Plaintiffs then filed an appeal with the PRRB within 180 days of receiving Empire's denial of their reopening request. A.R. at 315-22. In their petition to the Board, plaintiffs argued that Empire's denial of their request should be overturned because Empire, by relying on a now-invalidated method of calculating reimbursement, had engaged in "fraud or similar fault," thus waiving the three-year time limit for reopening. A.R. at 3-6, 317-19. Plaintiffs argued that the Board could review Empire's refusal to reopen the cost reports as a final intermediary determination subject to administrative review under 42 U.S.C. § 1395oo(b). A.R. at 4. The Board, however, did not reach the merits of plaintiffs' reopening claim but held instead that it lacked jurisdiction over the appeal. In a one-page letter ruling, the Board held that, pursuant to 42 C.F.R. § 405.1885(c), jurisdiction to consider reopening was vested exclusively with the last administrative body to issue a decision, in this case Empire. A.R. at 1. Plaintiffs then filed this suit within 60 days of receiving the Board's decision.

 II. DISCUSSION

 Plaintiffs ask us to enter judgment: (1) directing the Board to exercise its jurisdiction to review Empire's refusal to reopen the cost reports; (2) reversing Empire's refusal to reopen the cost reports; and (3) declaring that plaintiffs are entitled to the requested modification of their cost reports, which would increase plaintiffs' compensation from Medicare for the 1980, 1981, and 1982 years.

 As set out below, however, our jurisdiction under the Medicare statute is limited to addressing the first of these three claims, that is, to reviewing the PRRB's decision that it lacked jurisdiction to review Empire's reopening refusal. We have jurisdiction to review the PRRB decision under 42 U.S.C. 1395oo(f)(1). As set out in section C below, the courts have disagreed as to whether the Medicare statute confers jurisdiction on the PRRB to review intermediaries' refusals to reopen contested cost reports. Accordingly, we consider the regulations and other agency actions implementing the statutory scheme. We conclude that the regulations and the Medicare provider Reimbursement Manual clearly foreclose PRRB review of denials of reopening. As this is a reasonable interpretation of the Medicare statute, we will not overturn it. Accordingly, we conclude that the PRRB did not err in concluding that it lacked jurisdiction to review Empire's denial of plaintiffs' reopening request, and we grant summary judgment to defendants.

 A. Applicable Standards of Review

 Summary judgment is appropriate where there is "no genuine issue as to any material fact" and the moving party is entitled to "judgment as a matter of law." Fed. R. Civ. P. 56(c). In examining the record, the court must view the facts in the light most favorable to the non-moving party, and must resolve all ambiguities and draw all reasonable inferences against the moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986); Maresco v. Evans Chemetics, 964 F.2d 106, 110 (2d Cir. 1992). In this case, no material facts are in dispute and the issue is solely one of statutory construction, so the matter may properly be disposed of by summary judgment.

 "The starting point in interpreting a statute is its language, for 'if the intent of Congress is clear, that is the end of the matter.'" Good Samaritan Hosp. v. Shalala, 124 L. Ed. 2d 368, 113 S. Ct. 2151, 2157 (1993) (quoting Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984)); Bethesda Hosp. Ass'n v. Bowen, 485 U.S. 399, 403, 99 L. Ed. 2d 460, 108 S. Ct. 1255 (1988). If Congress has "directly spoken to the precise question at issue," the court need not defer to an agency interpretation but "must give effect to the unambiguously expressed intent of Congress." Chevron, 467 U.S. at 842-43.

 If, on the other hand, the language of the statute is silent or ambiguous with respect to the specific issue under consideration, we must proceed to the second step of Chevron and address the construction put on the statute by the agency entrusted with its administration. Id. at 843-45. Judicial review of Medicare reimbursement decisions is conducted in accordance with the Administrative Procedure Act ("APA"), Chapter 7 of U.S.C. Title 5. 42 U.S.C. § 1395oo(f)(1). Pursuant to the APA, a court reviewing agency action will hold unlawful and set aside agency action, findings, and ...


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