Daughters of Miriam Center for the Aged v. Mathews

SEITZ, Chief Judge,

dissenting.

According to my best reading, the majority holds that HEW impermissibly interpreted 20 C.F.R. § 405.415 (d)(3) as allowing the recapture of excess reimbursable depreciation paid before the effective date of that regulation in a case where the affected provider decreased his participation in the Medicare program by more than twenty-five percent after the adoption of that regulation. Because I believe that section 405.-415(d)(3), on its face, calls for recapture of depreciation paid prior to its effective date and that the twenty-five-percent rule is a reasonable way to define the term “decrease” in that regulation, I dissent.

I differ with the majority about the source of the retroactivity in this case; I believe that a chronology of important events will illuminate our disagreement. The Center began its participation in the Medicare program in 1967. At that time it elected to use accelerated depreciation. In 1970, HEW banned the use of accelerated depreciation for assets acquired after August 1,1970. In another regulation enacted at the same time, HEW announced that it would recapture any excess depreciation paid to providers who terminated or constructively terminated their participation in the program:

When a provider who has used an accelerated method of depreciation with respect to any of its assets terminates participation in the program, or where the health insurance proportion of its allowable costs decreases so that cumulatively substantially more depreciation was paid than would have been paid using the straight-line method of depreciation, the excess of reimbursable costs determined by using accelerated depreciation methods and paid under the program over the reimbursable cost which would have been determined and paid under the program using the straight-line method of depreciation will be recovered .

20 C.F.R. § 405.415 (d)(3) [presently codified at 42 C.F.R. § 405.415 (d)(3)(i) (1977)]. In 1972, HEW issued a revised “Provider Reimbursement Manual” containing two items relevant to this case. First, according to the Manual, section 405.415(d)(3) was to be applied retroactively.' Second, a decrease of twenty-five percent or more in a provider’s “ratio of health insurance days to total inpatient days” would be deemed substantial enough to trigger the recapture of any excess depreciation. In 1973, the Center’s participation fell below this twenty-five percent threshold. The Secretary subsequently attempted to recapture excess depreciation, as defined by section 405.-415(d)(3), for each year since 1967.

I agree, with the majority that the Secretary had statutory authority to adopt a regulation with retroactive effect. I cannot agree, however, that section 405.415(d)(3) required any subsequent administrative gloss to make its retroactive import clear; it had retroactive impact ab initio. Upon a provider’s termination, HEW is entitled to recover “the excess of reimbursable cost determined by using accelerated depreciation methods and paid under the program over the reimbursable cost which would have been determined and paid under the program by using the straight-line method . .” [emphasis added] As later noted in the Manual, this provision does not reach providers who terminated before its effective date. But any provider who terminates after the effective date clearly is *1265 liable for the difference between the costs he had claimed using accelerated depreciation and the costs that he would have claimed had he used the straight-line method. This calculation is, by necessity, retrospective. A provider who terminated the day after this regulation became effective would be liable for overpayments for all prior years. No other reading of section 405.415(d)(3) makes sense.

Identifying the source of retroactivity is imperative here. The majority strikes down retroactive recovery from the Center because the Manual was an interpretative measure not promulgated under the Administrative Procedure Act. Two illustrations, however, demonstrate that retroactivity predated the interpretative Manual. First, if a provider had constructively terminated its participation — however the majority wishes to define that event — after 1970 but prior to the adoption of the twenty-five-percent rule in 1972, the Secretary could have invoked the plain terms of section 405.415(d)(3) and could have recovered all overpayments, including those preceding 1970. _ Second, if the Manual created any offensive retroactivity, then the Secretary should not be entitled to recover any depreciation accruing before 1972. Nevertheless, the majority allows the Secretary’s recovery to date back to 1970, the effective date of section 405.415(d)(3), the true source of retroactivity in this case.

The majority, of course, is not “interpreting” section 405.415(d)(3) at all. Instead, it concludes that the twenty-five-percent rule is “fair” only when section 405.415(d)(3) is used to recover overpayments made after 1970. Presumably the majority would require a more significant decrease before allowing the Secretary to recover overpayments predating 1970. In rationalizing this unusual reading of the underlying regulation, the majority seems to invoke principles of estoppel. The Reimbursement Review Board did indeed assert that the government was partially responsible for the Center’s predicament. The Commissioner of Social Security, however, contradicted this assertion when he reviewed the Board’s decision; the district court affirmed the Commissioner’s decision. The majority fails to give any explanation for rejecting the Commissioner’s finding.

Turning to appellant’s constitutional arguments, I believe that the correct standard of constitutional review for any authorized enactment, legislative or administrative, prospective or retrospective, is that stated by the Supreme Court in Usery v. Turner Elkhorn Mining, 428 U.S. 1, 15 , 96 S.Ct. 2882, 2892 , 49 L.Ed.2d 752 (1976):

. [Legislative Acts adjusting the burdens and benefits of economic life come to the Court with a presumption of constitutionality, and . . . the burden is on one complaining of a due process violation to establish that the legislature has acted in an arbitrary and irrational way. .

See also, Springdale Convalescent Center v. Mathews, 545 F.2d 943 (5th Cir. 1977). Because the Center has not met its burden of demonstrating that this regulatory scheme is not rationally related to the valid legislative purpose of ensuring that the agency’s methods of cost reimbursement do not overcompensate providers for their services to Medicare patients, I would sustain retroactive application of this regulation. See Summit Nursing Home, Inc. v. United States, 572 F.2d 737 (Ct.Cl.1978). In the words of the Supreme Court, a court may not say as a matter of constitutional law that a regulatory scheme more attuned to the equities of an individual provider’s situation “would have been wiser or more practical under the circumstances . . . .”

Turner Elkhorn Mining, supra, 428 U.S. at 19 , 96 S.Ct. at 2894 .

I would affirm the judgment of the district court.