St. Francis Medical Center v. Shalala , 32 F.3d 805 ( 1994 )

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
8-5-1994
St. Francis Medical Center v. Shalala, et al.
Precedential or Non-Precedential:
Docket 93-3405
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 93-3405
____________
ST. FRANCIS MEDICAL CENTER,
Appellant
v.
DONNA E. SHALALA, Secretary of the
Department of Health and Human Services,
BRUCE C. VLADECK, Administrator,
Health Care Financing Administration; and
JACK MARTIN, Chairman, Provider
Reimbursement Review Board
____________________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
____________________
(D.C. Civil No. 89-02452)
Argued: March 2, 1994
Before: SLOVITER, Chief Judge, ALITO, Circuit Judge,
and PARELL, District Judge*
(Opinion Filed: August 9, 1994)
STEPHEN P. NASH, ESQ.
MELINDA J. ROBERTS, ESQ. (ARGUED)
DAVID W. THOMAS, ESQ.
JACQUELINE O. SHOGAN, ESQ.
Nash and Company
700 Westinghouse Building
Pittsburgh, PA 15222
Attorneys for Appellant
* The Honorable Mary Little Parell, United States District Court
Judge for the District of New Jersey, sitting by designation.
FRANK W. HUNGER
Assistant Attorney General
Civil Division
THOMAS W. CORBETT, JR.
United States Attorney
PAUL J. BRYSH
Office of United States Attorney
633 United States Post Office
and Courthouse Building
Pittsburgh, PA 15219
BARBARA H. FISHER
Department of Health & Human Services
6325 Security Boulevard
500 East High Rise Building
Baltimore, MD 21207
GERARD KEATING (ARGUED)
Department of Health & Human Services
Health Care Financing Division
330 Independence Avenue, S.W.
Washington, D.C. 20201
Attorneys for Appellees
____________________
OPINION OF THE COURT
____________________
ALITO, Circuit Judge:
St. Francis Medical Center (SFMC) is a provider of
health care services covered under Part A of Title XVIII of the
Social Security Act, 42 U.S.C. § 1395 et. seq., which is commonly
known as the Medicare Act. SFMC appeals from a district court
order dismissing its amended complaint for lack of jurisdiction
under 28 U.S.C. § 1331. We affirm.
I.
A. Before 1982, Medicare providers were reimbursed for
the "reasonable cost" of covered services. See Sacred Heart
Medical Ctr. v. Sullivan, 958 F.2d 537, 540 (3d Cir. 1992).
"Under this regime, hospitals and other health care providers had
little incentive to curb operating costs and render services more
economically, for the federal government bore the financial
burden of increases." Id. (footnote omitted). "In 1982,
Congress determined that the Medicare Program should be modified
to provide hospitals with better incentives to render services
more economically. Accordingly, in the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA) Congress amended the [Social
Security Act] by imposing a ceiling on the rate of increase of
inpatient operating costs recoverable by a hospital." Id.
(footnote omitted).
"Under TEFRA, a hospital may receive no more than the
``target amount' of per patient costs." St. Francis
Medical Ctr. v. Sullivan, 962 F.2d 1110, 1111 (3d Cir.
1992) (St. Francis I). The statute provided:
"``target amount' means with respect to a hospital for a
particular 12-month cost reporting period -- (i) in the
case of the first reporting period for which this
subsection is in effect, the allowable operating costs
of inpatient hospital services . . . recognized . . .
for such hospital for the preceding 12-month cost
reporting period." [42 U.S.C. §] 1395ww(b)(3)(A). For
each reporting period subsequent to the initial period,
the target amount was increased by a specified
percentage. Section 1395ww(b)(3)(A). Under this
system, hospitals were obligated to absorb operating
costs in excess of their target amounts, but they
received bonuses if their operating costs were less
than their targeted amounts. Section 1395ww(b)(1)(A).
Sacred Heart Medical Ctr., 958 F.2d at 540.
TEFRA also directed the Secretary to provide for
exemptions from, and exceptions or adjustments to, the TEFRA
limits (see 42 U.S.C. § 1395ww(b)(3)(A)), and the Secretary has
done so. Before 1991, 42 C.F.R. § 413.40(g) (1990), which bore
the heading "Exceptions," permitted the Health Care Financing
Administration (HCFA)1 to "adjust a hospital's operating costs .
. . upward or downward" if the hospital could "show that it
incurred unusual costs (in either a cost reporting period subject
to the ceiling or the hospital's base period) due to
extraordinary circumstances beyond its control" (42 C.F.R. §
413.40(g)(2) (1990)) or if the hospital had experienced a change
in its "case mix" (42 C.F.R. § 413.40(g)(3) (1990)). In
addition, 42 C.F.R. § 413.40(h), which bore the heading
"Adjustments," provided in pertinent part:
1
. The Secretary has delegated considerable administrative
responsibility for the Medicare Program to the HCFA. See Sacred
Heart Medical Ctr., 958 F.2d at 540 n.4.
HCFA may adjust the amount of the operating costs
considered in establishing cost per case for one or
more cost reporting periods, including both periods
subject to the ceiling and the hospital's base period,
to take into account factors that could result in a
significant distortion in the operating costs of
inpatient hospital services.
42 C.F.R. § 413.40(h)(1) (1990).
In 1991, these provisions were combined to form what is
now 42 C.F.R. § 413.40(g) (1993). Under this provision, the HCFA
"may adjust the amount of the operating costs considered in
establishing the rate-of-increase ceiling for one or more cost
reporting periods, including both periods subject to the ceiling
and the hospital's base period, under the circumstances specified
below." Subsequent provisions state that such adjustments may be
granted for essentially the same reasons listed in the previous
version of the regulations. See 42 C.F.R. § 413.40(g)(2)-(3)
(1993).2
2
. These provisions state:
(2) Extraordinary circumstances. HCFA may make an
adjustment to take into account unusual costs (in
either a cost reporting period subject to the ceiling
or the hospital's base period) due to extraordinary
circumstances beyond the hospital's control. These
circumstances include, but are not limited to, strikes,
fire, earthquakes, floods, or similar unusual
occurrences with substantial cost effects.
(3) Comparability of cost reporting periods -- (i)
Adjustment for distortion. HCFA may make an adjustment
to take into account factors that would result in a
significant distortion in the operating costs of
inpatient hospital services between the base year and
the cost reporting period subject to the limits.
The Secretary now interprets 42 C.F.R. § 413.40(g)
(1993) to mean that a provider may obtain two different types of
"base period inpatient operating cost adjustments." Appellees'
Br. at 7. According to the Secretary, the first type is "cost
year-specific" and may raise a provider's target amount for the
purpose of recovering that year's costs but not for the purpose
of calculating bonus payments. Id. at 7-9. The second type of
adjustment, the Secretary explains, results in "a permanent
adjustment to the base period inpatient operating costs used to
calculate the TEFRA limit," and "any permanent increase in the
limit would come into play under the TEFRA bonus provision
beginning only with the fiscal year after the one for which any
permanent base period relief [is] granted." Id. at 8-9. SFMC
argues vigorously that the Secretary's recognition of this second
type of adjustment represents a recent change in position that
was taken for purposes of litigation.
In 1983, Congress largely replaced the TEFRA system
with a "prospective payment system" (PPS) (see Sacred Heart
Medical Ctr., 958 F.2d at 540), but certain types of hospitals
and hospital units were excluded from the PPS. See 42 U.S.C. §
1395ww(b), and (d)(1)(A)-(B); 42 C.F.R. §§ 412.20(b), 412.22(b).
Among the excluded units were distinct part rehabilitation units.
See 42 U.S.C. § 1395ww(d)(1)(B); 42 C.F.R. §§ 412.23, 412.30.
B. SFMC operates a general acute-care hospital that
includes a rehabilitation unit. For TEFRA purposes, the
hospital's base period ended on June 30, 1985. During this
period, SFMC's fiscal intermediary concluded that SFMC did not
have a distinct part rehabilitation unit under the applicable
regulations "since less than 75% of its patients required
intensive rehabilitation. The intermediary terminated the
provider as a distinct part rehabilitation unit and the Health
Care Financ[ing] Administration . . . upheld that decision. To
comply with the 75% rule, the Medical Center transferred some of
its ``non-qualifying' patients from the rehabilitation unit to its
acute care facility. This transfer was completed in the year
ending July 30, 1986 . . . ." St. Francis I, 962 F.2d at 1112.
Because this transfer was not completed until after the base
period ended, SFMC maintains,
certain "non-qualifying" patients were included on the
original 1985 cost report for the Medical Center's
rehabilitation unit, but then were transferred out of
that unit by 1986. The absence of these "non-
qualifying" patients from the group of patients treated
by the unit in 1986 meant that the Medical Center's
average patient costs were higher in 1986 than the
estimates of those costs derived from the 1985 base
year cost report. In addition, the base year cost
report did not include costs associated with a physical
expansion project completed in 1986.
Id. at 1113.
SFMC sought relief under 42 C.F.R. § 413.40(g) and (h)
for the cost reporting period ending June 30, 1986. Although the
intermediary recommended partial relief, the HCFA denied SFMC's
requests. The HCFA concluded that SFMC's transfer of
nonqualifying patients out of the rehabilitation unit after the
base period did not constitute "an extraordinary circumstance
beyond the hospital's control" but resulted from a "management
decision" to claim the transferred patients as rehabilitation
cases in the base year. App. at 24-25. The HCFA also concluded
that an adjustment was not warranted by the hospital's building
program. Id. at 24-25. The HCFA noted that expansion is usually
undertaken to accommodate "increased utilization," which in turn
tends to "offset any impact on a target rate." Id. at 24.
However, in SFMC's case, the HCFA observed, "while an expansion
program was being implemented, the size of the rehabilitation
unit was being decreased." Id.
SFMC appealed to the Provider Reimbursement Review
Board (PRRB), but the PRRB held that it lacked jurisdiction to
hear the appeal because, among other things, SFMC had not
satisfied the $10,000 amount-in-controversy requirement in 42
U.S.C. § 1395oo(f). The PRRB wrote:
Under Section 1878(a) Title XVIII, Social Security Act,
as amended, [42 U.S.C. § 1395oo(a)], and 42 C.F.R.
405.1835 and 1841, a provider has a right to a hearing
before the Board with respect to costs claimed on a
timely filed cost report if it is dissatisfied with the
final determination of the intermediary . . . , and the
amount in controversy is $10,000, or more, and the
request for hearing was filed within 180 days of the
date of the final determination . . . . [T]he amount
in controversy for the issues you wish to raise is less
than $10,000. Since the above statutory requirement is
a prerequisite to a provider's right to a hearing, the
Board finds that it does not have jurisdiction over
this appeal and hereby dismisses the appeal of the
subject year.
App. at 32.3
SFMC then filed this action in district court.
Asserting that the district court had jurisdiction under 42
U.S.C. § 1395oo(f), SFMC's complaint alleged that the PRRB had
"wrongfully declined jurisdiction" and that the fiscal
intermediary and the HCFA had erred in denying SFMC's requests
"to amend and/or reopen its 1985 cost report." App. at 62. The
complaint sought a declaration that the intermediary, the HCFA,
and the PRRB had acted improperly. Id. In addition, the
complaint requested that the court order that SFMC be given
permission to amend its 1985 cost report; that the intermediary,
the HCFA, and the PRRB "recalculate [SFMC's] base year cost per
discharge in accordance with its amended cost report"; and that
SFMC be awarded "the sums due it pursuant to the amended cost
3
. While the PRRB denied jurisdiction over SFMC's claims for
fiscal year 1985, it exercised jurisdiction over SFMC's claims
for fiscal year 1986. These claims were settled, and SFMC was
granted reimbursement for its full inpatient operating costs for
fiscal years 1986 through 1988. App. at 36, 46-50; Appellant's
Br. at 12. This reimbursement totalled $1,117,355. App. at 37-
38. With respect to bonus payments, the settlement stated:
The Provider agrees that no exception awarded under 42
C.F.R. 413.40(g) by virtue of this settlement or any
HCFA decision related to the capital expansion program
shall entitle the Provider to any TEFRA incentive
payments or other payments in excess of final audited
costs. The parties make no agreement with respect to
the appropriateness of any TEFRA incentive payments or
other payments in excess of final audited costs should
an adjustment be awarded under 42 C.F.R. 413.40(h).
Id. at 39-40. SFMC subsequently dismissed its 1986 PRRB appeal.
Id. at 259.
report, together with interest thereon" and attorney's fees. Id.
at 62-63.
The Secretary moved to dismiss the case for lack of
jurisdiction, contending that SFMC had not met the $10,000
amount-in-controversy requirement in 42 U.S.C. §1305oo(f). The
magistrate judge to whom the case had been referred rejected this
argument and therefore recommended that this motion be denied and
that the case be remanded to the PRRB. The magistrate judge did
not find that SFMC was seeking to recover $10,000 or more for the
cost reporting period at issue, i.e., the period ending on June
30, 1986. Instead, the magistrate judge concluded:
The PRRB attempts to isolate each year involved to
determine whether it meets the $10,000.00 requirement,
but the claim requires the board to look at the years
1985 through 1988 as a whole because they are
inextricably connected, since the base year is the
foundation for a continuing inaccuracy in plaintiff's
reimbursements from Medicare. Plaintiff easily meets
the $10,000.00 jurisdictional amount as defined in 42
C.F.R. Section 405.1839(a)(2) for the years l986, 1987
and 1988, for which the TEFRA rate of increase limits
are determined by the 1985 cost report. It is
unreasonable and inefficient to require plaintiff to
file annually for an exception to the TEFRA limits when
a recalculation of the base year cost report, if proven
to be inaccurate, would obviate the problem.
App. at 71-72. The district court accepted the magistrate
judge's recommendation.
On appeal, a divided panel of our court reversed and
held that SFMC had not satisfied the $10,000 amount-in-
controversy requirement. Noting that "[t]he ``amount in
controversy' is defined by [42 U.S.C. § 1395oo(a)(1)(A)(i)] as
``the amount of total program reimbursement due to the provider
for the items and services furnished to individuals for which
payment may be made . . . for the period covered by such
report,'" the panel held that a single provider may not
"aggregate claims over several cost reports in order to satisfy
the amount in controversy requirement of § 1395oo(a)." St.
Francis I, 962 F.2d at 1114, 1115 (emphasis supplied in St.
Francis I). However, in response to SFMC's argument that the
district court had jurisdiction under 28 U.S.C. § 1331, the panel
remanded the case to the district court so that SFMC could
petition for leave to amend its complaint to assert jurisdiction
under that provision. 962 F.2d at 1117. In doing so, however,
the panel made clear that it was not deciding whether SFMC's
claims could "properly be asserted under this jurisdictional
provision." Id. at 1117 n.10.
On remand, SFMC was granted leave to file an amended
two-count complaint that asserted jurisdiction under 28 U.S.C. §
1331. Count I of the amended complaint alleged:
The methodology, or lack of methodology, utilized by
HCFA to deny to St. Francis Medical Center a base year
adjustment (to achieve comparability between cost
reporting periods) has resulted in HCFA's imposition of
improper and unreasonable reimbursement ceilings (TEFRA
Ceilings) upon the Medical Center's rehabilitation
unit.
App. at 212. Count II alleged that SFMC's equal protection
rights had been violated because it had been treated differently
from providers "whose post-base year costs for post-base year
cost reporting periods . . . are undistorted." Id. at 213.
Counts I and II of the amended complaint sought essentially the
same relief as SFMC's prior complaint. Id. at 213-15.
The defendants moved to dismiss, and the magistrate
judge recommended that the motion be granted on the ground that
42 U.S.C. § 405(h) precluded the exercise of jurisdiction under
28 U.S.C. § 1331. The district court agreed and dismissed the
amended complaint. This appeal followed.
II.
Under the Medicare Act, 42 U.S.C. § 1395oo(f)(1), a
provider has "the right to obtain judicial review of any final
decision" of the PRRB by means of a civil action filed in
district court. In St. Francis I, however, our court held that
SFMC could not obtain judicial review under this provision
because it had not satisfied the $10,000 amount-in-controversy
requirement of 42 U.S.C. § 1395oo(a). SFMC thus turned to 28
U.S.C. § 1331 as an alternative avenue for obtaining review, but
SFMC's reliance on this provision raises other jurisdictional
problems.
The Medicare Act, 42 U.S.C. § 1395ii, incorporates 42
U.S.C. § 405(b), which provides in relevant part:
The findings and decision of the Secretary after a
hearing shall be binding upon all individuals who were
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. No action against the United States,
the Secretary, or any officer or employee thereof shall
be brought under section 1331 or 1346 of Title 28 to
recover on any claim arising under this subchapter.
42 U.S.C. § 405(h) (emphasis added). Therefore, if SFMC's
amended complaint seeks "to recover on [a] claim arising under
[the Medicare Act]," this provision deprives the district court
of jurisdiction under 28 U.S.C. § 1331.
As the District of Columbia Circuit has noted,
resolution of this jurisdictional issue requires us to consider
two lines of Supreme Court precedent: the "Salfi-Ringer line"
and the "Erika-Michigan Academy line." See National Kidney
Patients Ass'n v. Sullivan, 958 F.2d 1127, 1130 (D.C. Cir. 1992),
cert. denied, 113 S. Ct. 966 (1993). We will consider each of
these lines separately.
A. If the "Salfi-Ringer line" controls, the decision
of the district court dismissing SFMC's complaint was clearly
correct. In Weinberger v. Salfi, 422 U.S. 749 (1975), the Court
considered an action brought on behalf of a class of persons who
had been denied Social Security benefits pursuant to a provision
of the Social Security Act that permitted a widow or stepchild to
obtain benefits only if that claimant had become the wife or
stepchild of the deceased at least nine months before his death.
A three-judge court held that this statutory requirement was
unconstitutional, but the Supreme Court concluded that 42 U.S.C.
§ 405(h) deprived the lower court of jurisdiction to entertain
the suit under 28 U.S.C. § 1331. The Court rejected the
proposition that section 405(h) merely requires exhaustion of
administrative remedies (422 U.S. at 757), as well as the
argument that the plaintiffs' claims arose under the Constitution
rather than the Social Security Act. Id. at 760. The Court
wrote:
It would, of course, be fruitless to contend that
appellees' claim is one which does not arise under the
Constitution, since their constitutional arguments are
critical to their complaint. But it is just as
fruitless to argue that this action does not also arise
under the Social Security Act. For not only is it
Social Security benefits which appellees seek to
recover, but it is the Social Security Act which
provides both the standing and the substantive basis
for the presentation of their constitutional
contentions. Appellees sought, and the District Court
granted, a judgment directing the Secretary to pay
Social Security benefits. To contend that such an
action does not arise under the Act whose benefits are
sought is to ignore both the language and the substance
of the complaint and judgment. This being so, the
third sentence of § 405(h) precludes resort to federal-
question jurisdiction for the adjudication of
appellees' constitutional contentions.
Id. at 760-61. The Court thus held that individuals wishing to
challenge the duration-of-relationship requirement were required
to proceed under 42 U.S.C. § 405(g) rather than under 28 U.S.C. §
1331. See 422 U.S. at 763-67.
In Heckler v. Ringer, 466 U.S. 602 (1984), the
plaintiffs were individuals who wanted Medicare to pay Part A
benefits4 for a surgical procedure known as bilateral carotid
4
. As we recently explained:
Medicare coverage is primarily divided into two
parts. Part A covers all inpatient hospital expenses
through an insurance plan. See 42 U.S.C. §§ 1395c to
body resection (BCBR). The Secretary through the HCFA adopted a
policy that "no payment [was] to be made for Medicare claims
arising out of the BCBR surgical procedure when performed to
relieve respiratory distress." Id. at 607; see also id. at 608.
Asserting jurisdiction based in part on 28 U.S.C. § 1331, the
plaintiffs filed suit, contending that the Secretary's policy
violated "constitutional due process and numerous statutory
provisions." 466 U.S. at 610. The Supreme Court held, however,
that jurisdiction under 28 U.S.C. § 1331 was not available, and
the Court specifically rejected the distinction that the court of
appeals had drawn between substantive and procedural claims. 466
U.S. at 614-15. "[T]o be true to the language of the statute,"
(..continued)
1395i-4. All Medicare-eligible patients receive this
benefit. . . .
Part B covers certain physician services, hospital
outpatient services, and other health services not
covered under Part A. See 42 U.S.C. §§ 1395j to 1395w-
4(j). Part B coverage is not freely or automatically
available to all Medicare-eligible patients. To obtain
this coverage, Medicare-eligible patients must first
enroll in the Part B insurance program by paying
insurance premiums ("Part B insurance premiums"). See
§§ 1395o-1395s. Once this is done, the federal
government pays 80% of the "reasonable costs" of
outpatient hospital services and 80% of the "reasonable
charges" for physician services rendered to the
insured. §13051. The Part B patients themselves must
pay the remaining 20% of the charges for the reasonable
outpatient hospital services and physician services
(co-payments or coinsurance), as well as an annual
deductible. Id.; § 1395cc(a)(2)(A).
Pennsylvania Medical Soc'y v. Snider, No. 93-7775 (3d Cir. July
22, 1994), slip op. at 4.
the Court wrote, "the inquiry in determining whether § 405(h)
bars federal-question jurisdiction must be whether the claim
``arises under' the Act, not whether it lends itself to a
``substantive' rather than a ``procedural' label." 466 U.S. at
615.
Turning to the case at hand, the Court concluded that
the plaintiffs' "challenge to the Secretary's BCBR payment policy
``[arose] under' the Medicare Act." Id. at 615 (brackets added).
The Court found it inconsequential that the plaintiffs "sought
only declaratory and injunctive relief and not an actual award of
benefits as well" because "[f]ollowing the declaration which
respondents seek from the Secretary -- that BCBR surgery is a
covered service -- only essentially ministerial details will
remain before respondents would receive reimbursement." Id.
Instead of invoking 28 U.S.C. § 1331 or the mandamus statute, the
Court held, claimants wishing to challenge the Secretary's BCBR
policy were required to proceed under 42 U.S.C. § 405(g). 466
U.S. at 617.
If Salfi and Ringer are controlling in this case, there
can be little doubt that the district court lacked general
federal-question jurisdiction. The Medicare Act provides "both
the standing and substantive basis" for SFMC's claims. Salfi,
422 U.S. at 761. Moreover, SFMC "sought . . . a judgment
directing the Secretary to pay [Medicare] benefits." Id.
Accordingly, under these precedents, SFMC's claim "arises under"
the Medicare Act for purposes of section 405(h). See Ringer, 466
U.S. at 615; Salfi, 422 U.S. at 760-61; In re Univ. Medical Ctr.,
973 F.2d 1065, 1073 (3d Cir. 1992); Abington Memorial Hosp. v.
Heckler, 750 F.2d 242, 244 (3d Cir. 1984), cert. denied, 474 U.S.
863 (1985). Under these precedents, it makes no difference that
SFMC asserted constitutional and procedural claims. See Ringer,
466 U.S. at 615; Salfi, 422 U.S. at 761.
B. SFMC makes little attempt to distinguish Salfi or
Ringer. Instead, SFMC relies on the Supreme Court's later
decision in Bowen v. Michigan Academy of Family Physicians, 476
U.S. 667 (1986), which concerned a regulation governing payments
under Part B of the Medicare program. This regulation permitted
carriers to establish separate prevailing charges for specialists
and nonspecialists performing the same services. An association
of physicians and several individual doctors challenged the
regulation on constitutional and statutory grounds, but the
Secretary contended that "Congress ha[d] forbidden judicial
review of all questions affecting the amount of benefits payable
under Part B of the Medicare program." Id. at 669. In making
this argument, the Secretary relied on United States v. Erika,
Inc., 456 U.S. 201 (1982), in which the Court had held that the
Medicare Act precluded any judicial review of a carrier's
decision concerning the amount awarded on a Part B claim. The
Secretary also argued that 42 U.S.C. § 405(h) bolstered this
conclusion.
The Supreme Court, however, disagreed. Beginning with
"the strong presumption that Congress intends judicial review of
administrative action" (476 U.S. at 670), the Court held that
neither the Medicare Act nor 42 U.S.C. § 405(h) demonstrated with
the requisite clarity that Congress intended to preclude all
judicial review of "any action taken under Part B of the Medicare
program." 476 U.S. at 673. The Court held that the portion of
the Medicare Act governing review of Part B determinations, as
interpreted in Erika, "simply does not speak to challenges
mounted against the method by which such amounts are to be
determined rather than the determinations themselves." Id. at
675 (emphasis in original). The Court then concluded that,
whereas a carrier's decision concerning the amount of a Part B
claim was not subject to any form of judicial review, those Part
B matters that a carrier cannot decide -- "including challenges
to the validity of the Secretary's instructions and regulations"
-- are not insulated from review under the Medicare Act. Id. at
678.
As for 42 U.S.C. § 405(h), the Court wrote that it
would not "indulge the Government's assumption that Congress
contemplated review by carriers of ``trivial' monetary claims
. . . but intended no review at all of substantial statutory and
constitutional challenges to the Secretary's administration of
Part B of the Medicare program." 476 U.S. at 680 (footnote
omitted). The Court found insufficient evidence to show that
Congress meant to take this "extreme position." Id.
In subsequent cases involving Part B of the Medicare
program, we explained that "Erika and Michigan Academy define the
ends of a continuum." American Ambulance Serv. v. Sullivan, 911
F.2d 901, 905 (3d Cir. 1990); see also Medical Fund-Phila.
Geriatric Ctr. v. Heckler, 804 F.2d 33, 38 (3d Cir. 1986). We
elaborated:
At one end are disputes over amount computations at
issue in a particular case. At the other are disputes
arising from the Secretary's rules, regulations and
instructions which are applied by the Hearing Officer.
A Hearing Officer is not at liberty to disregard these
rules. . . . "[M]atters which Congress did not delegate
to private carriers, such as challenges to the validity
of the Secretary's instructions and regulations, are
cognizable in courts of law." Michigan Academy, 476
U.S. at 680, 106 S. Ct. at 2140-41 (emphasis in
original).
American Ambulance Serv., 911 F.2d at 905.
Contrary to SFMC's argument, we do not believe that
Michigan Academy supports its reliance on general federal-
question jurisdiction in this case. Michigan Academy concerned
the availability of general federal-question jurisdiction to
review the validity of a Part B regulation. Under Part B, a
carrier cannot review the legality of such a regulation (see
Michigan Academy, 476 U.S. at 675-76, 680) and, as Erika held, a
carrier's determination of the amount of a Part B payment is not
reviewable. Thus, if general federal-question jurisdiction had
not been available in Michigan Academy, the plaintiffs in that
case would have had no avenue for challenging the validity of the
regulation under which their payments were calculated.
By contrast, the Medicare Act provides avenues by which
a provider seeking Part A payments may contest both the amount of
its payments and the methods by which those payments are
calculated. If the provider seeks review of a reimbursement
determination and does not wish to challenge a provision of the
Act or regulations, it may, upon compliance with the
jurisdictional requirements imposed by statute, take an appeal to
the PRRB (see 42 U.S.C. § 1395oo(f)(1)). Alternatively, if the
provider wishes to challenge a provision of the Act or a
regulation, it may seek a determination by the PRRB that the
Board lacks the authority to decide the question (see 42 U.S.C. §
1395oo(f)(1)) and then obtain judicial review. See Good
Samaritan Hosp. v. Shalala, 113 S. Ct. 2151, 2156 (1993);
Bethesda Hosp. Ass'n v. Bowen, 485 U.S. 399, 401-02 (1988).
Since a provider seeking Part A payments has these
avenues of review available under the Medicare Act, the
presumption that Congress did not intend to foreclose judicial
review, which was central to the decision in Michigan Academy, is
inapplicable. And in the absence of that presumption, we read 42
U.S.C. § 405(h), as incorporated into the Medicare Act and as
interpreted in Salfi and Ringer, to mean that SFMC may not assert
its claim under 28 U.S.C. § 1331.
In Westchester Management Corp. v. United States HHS,
948 F.2d 279 (6th Cir. 1991), cert. denied, 112 S. Ct. 1936
(1992), the Sixth Circuit considered a case quite similar to the
one before us. Noting that 42 U.S.C. § 1395oo(f)(1) provided "an
avenue of judicial review for the type of challenge that [the
provider] assert[ed]," the court stated that "the Michigan
Academy exception applies only when there is no other avenue of
judicial review." 948 F.2d at 282. The court continued:
Congress has expressly provided for judicial review
of the type of claim that Westchester Management
asserts, when the claim exceeds the $10,000 amount-in-
controversy requirement. Congress created a special
procedure by which a provider that, unlike Westchester
Management, is entitled to a Board hearing may demand
that the Board determine whether it has authority to
pass on a relevant legal question, such as the validity
of an instruction of the Secretary. If it determines
that it lacks authority, the provider may proceed
directly to court for judicial review of its legal
challenge. See 42 U.S.C. § 1395oo(f)(1). If we were
to accept Westchester Management's construction of
Michigan Academy -- that there is always jurisdiction
under 28 U.S.C. §§ 1331 and 1346 for challenges to
instructions, rules, and regulations, but not for
amount determinations -- this special procedure,
created by 42 U.S.C. § 1395oo(f)(1), would become
superfluous.
The better construction requires that Westchester
Management pursue the exclusive jurisdictional grant
within the Medicare Act. Its claim that it has no
avenue of judicial review is meritless; 42 U.S.C. §
1395oo(f)(1) provides an avenue of judicial review for
the sort of challenge to the validity of the
Secretary's instructions that it raises. Westchester
Management is, however, denied access to that avenue
because it is unable to meet the amount-in-controversy
requirement. There is no contention that Congress
lacks the power to limit jurisdiction by prescribing
minimum amount-in-controversy requirements.
Id. at 282-83; see also Colonial Penn Ins. Co. v. Heckler, 721
F.2d 431, 436 (3d Cir. 1983); Frankford Hosp. v. Davis, 647 F.
Supp. 1443, 1446-47 (E.D. Pa. 1986); Mount Sinai Medical Ctr. v.
Sullivan, Medicare & Medicaid Guide (CCH) ¶ 39,103 (D.D.C. Nov.
30, 1990). We find this analysis persuasive.
We note, moreover, that administrative remedies are now
available for providers who believe that their base period
operating costs are too low. Beginning in 1990, a provider may
request a new base period. See 42 U.S.C. §§ 1395ww(b)(4)(A)-(B)
(Supp. 1993); 42 C.F.R. § 413.40(i). As previously noted (see
pages 4-5, supra), a provider may also request a permanent base-
period cost adjustment under 42 C.F.R. § 413.40(g). A denial of
either of these requests may be appealed to the PRRB and is
thereafter subject to judicial review under 42 U.S.C. §
1395oo(f)(1).
SFMC contends that these procedures are inadequate in
its case. SFMC correctly notes that the granting of a new base
period beginning in 1990 pursuant to 42 C.F.R. § 413.40(i) would
not permit it to recover the bonus payments that it believes it
should have received prior to that date. As for a permanent
base-period cost adjustment, SFMC argues that the Secretary has
only recently recognized the availability of such relief.
Indeed, SFMC charges that the Secretary previously took the
position that no such relief was available and that the
Secretary's current interpretation of the relevant regulations is
simply a "convenient litigating position." The Secretary
disputes these charges. But whether or not SFMC's charges are
justified, we do not think they have a bearing on the
availability of jurisdiction under 28 U.S.C. § 1331, for "Subject
matter jurisdiction can never be created by estoppel." Rubin v.
Buckman, 727 F.2d 71, 72 (3d Cir. 1984); see Insurance Corp. of
Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702
(1982).
SFMC also argues that, even now, while the Secretary
acknowledges that a permanent base-period adjustment would apply
in determining a provider's entitlement to TEFRA bonus payments
in future years, the Secretary takes the position that such an
adjustment would not apply in determining a provider's
entitlement to bonus payments in the year in which permanent
adjustment is granted. In other words, SFMC contends that the
administrative procedure may cause a provider to lose a year of
incentive payments.
This argument does not persuade us that such a provider
must be permitted to sue to recover these bonus payments under 28
U.S.C. § 1331. If such a provider has a substantive entitlement
to these bonus payments under the Medicare Act, it is by no means
clear to us that the provider could not obtain those payments in
an action under 42 U.S.C. § 1395oo(f)(1), irrespective of the
regulations or the Secretary's interpretation of them. On the
other hand, if such a provider has no such entitlement, then
obviously the Secretary's position causes the provider no harm.
But in any event, even if the Secretary's position may by some
means cause the provider to lose a year of bonus payments, that
possibility is insufficient to persuade us that jurisdiction
under 28 U.S.C. § 1331 must be recognized.
We have considered all of SFMC's remaining arguments,
and we find them to lack merit. Accordingly, we will affirm the
decision of the district court dismissing SFMC's complaint.