The opinion of the court was delivered by: WILLIAM C. CONNER
Plaintiffs Good Samaritan Hospital Regional Medical Center ("Good Samaritan"), Long Island College Hospital ("LICH"), and Northern Westchester Hospital Center ("Northern Westchester") bring this action against Donna E. Shalala, Secretary of the Department of Health and Human Services (the "Secretary"), in her official capacity, and Empire Blue Cross Blue Shield ("Empire"), for a finding that they are due additional funds under the Medicare Program for costs that they incurred in expanding, renovating, and converting their hospitals in the early 1980s. Plaintiffs seek to reverse a finding by the Program Reimbursement and Review Board (the "PRRB" or "the Board") that it was without jurisdiction to hear an appeal from Empire's decisions not to reopen plaintiffs' cost reports for the years in question, to order Empire to reopen the cost reports, and to order Empire to include reimbursement for the above expenditures incurred by the Hospitals in its Notice of Program Reimbursements for the years in question. The parties have cross-moved under Rule 56(c), Fed. R. Civ. P., for summary judgement. In addition, defendants have moved to dismiss all but plaintiffs' claims seeking to overturn the PRRB's decision that is was without jurisdiction under Rule 12(b)(1), Fed. R. Civ. P., for lack of subject matter jurisdiction. For the reasons stated below, we deny plaintiffs' motion and grant defendants' motions.
A. The Medicare Statutory Framework
This action arises under Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395ccc (the "Medicare statute"), which establishes Medicare health insurance for the elderly and disabled (the "Medicare Program" or the "Program"). A complex regulatory scheme governs health care reimbursement under the Program, involving hundreds of statutes and regulations, a rough description of which is necessary to highlight the issues in this case.
The Program is divided into two main parts: Part A, which establishes a reimbursement system for inpatient institutional services, post hospital extended care services, home health services, and hospice care, id. at §§ 1395c-1395i-4; and Part B, which establishes a reimbursement system for physicians', outpatient, and other related services. Id. at §§ 1395j-1395w-4. Historically, the Program provided reimbursement to hospitals operating under Part A for their "reasonable cost" of furnishing the covered services to Medicare beneficiaries, or the hospital's customary charge for a particular service, whichever was lower. See id. at § 1395f(b)(1).
Subsequent to October 1, 1983, however, Congress changed administration of the Program to the Prospective Payment System ("PPS"), which reimbursed health care providers for their treatment of beneficiaries on the basis of prospectively determined national and regional rates, rather than reasonable operating costs of each specific institution. To ease hospitals' adjustment to PPS, Congress designed a four-year transition period (the "Transition Period"), during which a hospital's reimbursement would be a function of both its particular past operating costs--the "hospital specific portion" ("HSP")--and its PPS payment amount. 42 U.S.C. § 1395ww(d). The HSP element of the formula was derived from an estimate of the hospital's Medicare Part A allowable inpatient operating costs for the twelve-month-or-longer cost-reporting period ending on or after September 30, 1982 and before September 30, 1983 (the "Base Year"). Id. at § 1395ww(b)(3)(A)(i); 42 C.F.R. § 412.71(a)(1) (1994). Over the Transition Period, commencing on January 1, 1984 and ending on February 21, 1988, the reimbursement amount was based increasingly on PPS, until, finally, the HSP component was completely phased out.
To receive reimbursement under the Program, a provider must file an annual cost report with its fiscal intermediary, an entity with which the Secretary contracts to provide various auditing and reimbursement functions in administering the Program, detailing the services rendered to Medicare beneficiaries during the year. 42 C.F.R. § 413.20 (1994). After analyzing the submitted report, the intermediary issues a "notice of program reimbursement" (the "NPR"), delineating the allowed and disallowed charges and setting the amount of Medicare payment due each hospital for that fiscal year. 42 C.F.R. § 405.1803 (1994).
There are two methods a provider may follow in seeking to alter its NPR once it is issued by its intermediary, both of which are of central importance to this case. First, if a provider is dissatisfied with a "final determination of the organization serving as its fiscal intermediary," it may file an appeal with the Provider Reimbursement Review Board (the "PRRB" or the "Board") within 180 days. 42 U.S.C. § 1395oo(a)(1). The Board, subject to potential review by the Secretary, may either affirm, modify, or reverse the decision of the intermediary. Id. at § 1395oo(d). Thereafter, the provider may seek judicial review of any such PRRB decision, or any affirmance, reversal or modification of such decision by the Secretary, by commencing a civil action within 60 days of the decision. Id. at § 1395oo(f)(1).
In addition to the above avenue, the Secretary has promulgated reopening regulations whereby a determination of an intermediary may be reconsidered by such intermediary on a motion by a provider affected by such determination made within three years of the date that it received notice of the determination. 42 C.F.R. § 405.1885(a) (1994). The regulation confines jurisdiction to consider a motion to reopen to the "administrative body that rendered the last determination or decision." Id. at § 405.1885(c). As explored more fully below, the Secretary has interpreted that jurisdictional restriction as preventing PRRB review of an intermediary's denial of a motion to reopen.
Plaintiffs, three hospitals in the New York City area (the "Hospitals"), are all "providers of services" under 42 U.S.C. § 1395x(u) who have entered into "provider agreements" with the Secretary pursuant to 42 U.S.C. § 1395cc, entitling them to receive payment under Part A of the Medicare Program for hospital services that they provide to eligible Medicare beneficiaries. From 1983 through 1985, the State of New York engaged in an experimental Medicare reimbursement program which exempted New York hospitals, including plaintiffs, from the statutory Medicare reimbursement scheme while the experiment was in effect. When the experimental program was terminated, however, plaintiffs entered PPS, two years into the Transition Period described above, and thereafter submitted their annual cost reports to Empire Blue Cross Blue Shield ("Empire"), their designated fiscal intermediary, for audit in accordance with the Medicare statute, regulations, and the Medicare Provider Reimbursement Manual (the "PRM").
Empire then issued to each of the Hospitals their respective, annual NPRs.
Prior to their entry into PPS, each of the Hospitals had received separate approval from the New York State Department of Health to undertake various construction, renovation, and conversion projects. These projects allegedly increased the annual operating costs of Good Samaritan, LICH, and Northern Westchester by $ 22,415,044, $ 31,310,010, and $ 10,782,000, respectively. However, because these projects were not completed until after September 30, 1983, the increased operating costs were not reflected in the HSP element of their PPS payments during the Transition Period, which is based on a twelve-month operating cost period ending prior to that date (the "Base Year"). Therefore, their respective NPRs during the Transition Period did not reflect these increased costs.
In light of this anomaly, although not appealing their NPRs to the PRRB directly, the Hospitals each timely moved before Empire to reopen its consideration of their cost reports for one or more of the 1986, 1987, and 1988 fiscal years under 42 C.F.R. § 405.1885.
Arguing that their increased costs constituted "extraordinary circumstances . . . [which] create a distortion in the increase in costs for a cost reporting period (including any distortion in the costs for the base period against which such increase is measured)" under 42 U.S.C. § 1395ww(b)(4)(A), they asserted that Empire was required by that statute to adjust their respective HSP figures accordingly (the "TEFRA Adjustment").
Empire denied each of plaintiffs' petitions for one or more of the following reasons: the TEFRA Adjustment does not apply to PPS hospitals, 42 C.F.R. § 412.71(d) mandates that the intermediary's estimates of base-year cost are final and may not be changed after October 1, 1983, except as provided in 42 C.F.R. § 412.72, and/or 42 C.F.R. § 412.71 mandates that the intermediary may not change the base-year to include costs incurred after September 30, 1983. Within 180 days of each adverse ruling, the Hospitals appealed their respective denials to the PRRB. In each case, the PRRB determined that, based on 42 C.F.R. § 405.1885(c), it did not have jurisdiction to review Empire's denials of the motions to reopen.
The parties have each cross-moved for summary judgment pursuant to Rule 56(c), Fed. R. Civ. P.
In addition, defendants have moved to dismiss the action in part under Rule 12(b)(1), Fed. R. Civ. P., for lack of subject matter jurisdiction. Defendants claim 1) that our jurisdiction is limited to review of the PRRB's determination that it did not have jurisdiction to review Empire's denial of plaintiffs' motions to reopen their cost reports, 2) that the PRRB's determinations were proper as a matter of law in light of 42 C.F.R. § 405.1885(c), and 3) that even if we consider the merits of Empire's denials of plaintiffs' petitions, they were proper as a matter of law because the TEFRA Adjustment provision is inapplicable to PPS hospitals.
Pursuant to their motion, plaintiffs claim 1) that Empire's determinations not to reopen their cost reports were "final determinations" under 42 U.S.C. § 1395oo(a) and thus properly appealable to the PRRB, notwithstanding regulations and PRM provisions to the contrary, and 2) that Empire should have reopened their cost reports and incorporated their TEFRA Adjustments.
Defendants apparently do not dispute our jurisdiction to review the PRRB's decisions disavowing its jurisdiction to review Empire's reopening denials. See Edgewater Hosp., Inc. v. Bowen, 857 F.2d 1123, 1130-31, modified, 866 F.2d 228 (7th Cir. 1989); Binghamton Gen. Hosp. v. Shalala, 856 F. Supp. 786, 793 (S.D.N.Y. 1994). Indeed, § 1395oo(f)(1) grants to providers the right:
to obtain judicial review of any final decision of the Board . . . by a civil action commenced within 60 days of the date on which notice of any final decision by the Board . . . is received. * * * Such action shall be brought in the district court of the United States for the judicial district in which the provider is located . . . .
Therefore, we will address defendants Rule 12(b)(1) motion only as it applies to plaintiffs' reopening and reimbursement claims below.
Summary judgment is appropriate only when there are no genuine issues of material fact for trial and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). Since the instant controversy hinges solely on issues of statutory construction, issues of law for the Court to decide, we agree with both parties that summary judgment is the appropriate avenue for disposing of this matter.
In the instant case, the PRRB construed 42 C.F.R. § 405.1885(c) as specifically restricting its jurisdiction to review a fiscal intermediary's denial of a provider's motion to reopen its cost report, notwithstanding the general appeal provisions of 42 U.S.C. § 1395oo(a). Our review of those determinations falls under the standards set forth in the Administrative Procedure Act, which provide in part that a party seeking to upset agency action must demonstrate that the action was arbitrary, capricious, an abuse of discretion, or otherwise contrary to law. 5 U.S.C. § 706(2)(A). Under this standard, we must accord an agency considerable deference in its interpretation of the statutes it is entrusted to administer. Good Samaritan Hosp. v. Shalala, 124 L. Ed. 2d 368, 113 S. Ct. 2151, 2159 (1993). This is particularly the case in the presence of a very complex and ...