Petition — Hazelwood Chronic & Convalescent Hospital, Inc. v. Califano

Supreme Court brief1977

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What actually matters in this document.

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“DEC 22 lvit

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In the Supreme Cowt

of the United States

OCTOBER TERM, 1976

eo ie 76-8598

HAZELWOOD CHRONIC & CONVALESCENT

HOSPITAL, INC., dba KEARNEY STREET

CONVALESCENT CENTER,

Petitioner,

CASPER WEINBERGER, SECRETARY OF

HEALTH, EDUCATION AND WELFARE,

THE UNITED STATES OF AMERICA, and

BLUE CROSS OF OREGON, dba NORTHWEST

HOSPITAL SERVICE,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CiRCUIT

TOOZE KERR PETERSON MARSHALL

& SHENKER

ARDEN E. SHENKER

MICHAEL J. GENTRY

801 Standard Plaza

Portland, Oregon 97204

Counsel for Petitioners

| Sn At Tint a ee nme RE

STEVENS-NESS LAW PUB. CO., PORTLAND, ORE. 12-76

—

Table of Authorities SSeS are ke a

Petition for Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

Opinions Below .

Jurisdiction

Questions Presented _.

Constitutional Provision Involved

Statutory Provision Involved

Regulation Involved -

Statement of the Case ©

Reasons for Granting the Writ

Argument

I. Conflicts Among the Circuits

Il. — Federal chcmvananndles Scheme Unset-

t si

III. Ex Post Facto Impairment of Contract

Obligations Does Violence to the Due

Process Clause of the Fifth Amend-

ment - raha

Conclusion __.......

| EST

oo i i

—_

TABLE OF AUTHORITIES

Page

Cases

Adams Nursing Home v. Matthews (ist Cir.

OR I Ss cieiractnierlcnincepansceihetiilibicpemsiptettaitialeati 14

Chicora Medical Center v. Matthews (W.D. Pa.

No. 76-1556) ____. ROSE ts ae ae te

Columbia Heights Nursing Home & Hospital,

Inc. v. Weinberger, 380 F. Supp. 1066 (M.

8 RENE Saver er aoe 3, 16,

Coral Gables Convalescent Home, Inc. v. Rich-

ardson, 340 F. Supp. 646 (S.D. Fla. re

EGH-MHB "aoe V. Matthews hast D. Cal.

No. C-76-1026) _ .

Kingsbrook Jewish Medical Sates V. Richard-

son, 486 F.2d 663 (2d Cir. 1973)

BAECARES OOS Tose ee RE 3, 8, 11, 18, 15,

— Park Nursing Home Vv. peumameicand

. N.J. No. 74-1431)

Lynch v., United States, 292 U.S. 571 (1934) -

Miller Rutledge — v. United States im Cl.

No. 147-75)

Mt. Sinai Hospital “ Rue ‘Miami, hie V.

Weinber ud and Blue Cross o Florida, Ine.,

376 F.Supp. 1099 (S.D. Fla. 1974), 517

F.2d 329, 335 (5th Cir. 197 5), cert. den. 96

S. Ct. 1665 (April 19, 1976) _ _.8, 9, 11,

Parkview Nursing Home v. Matthews - D. Ind.

No. IP 75- 686-C) ze

Rio Hondo Memorial Hospital \ V. _ Weinberger,

(9th Cir. No. 75-3482) - cult

Rorick v. Board of Cumsabetmane, 57 F. od 1048

(5th Cir. 1932) - as ;

_ 15

. 15

_ 14

TABLE OF AUTHORITIES (Cont.)

iil

Page

Seese v. Bethlehem Steel ated 74 F. Supp.

412 (D. Md. 1947)

South Windsor Convalescent Home v. Matthews

(2d Cir. No. 75-6136)

Springdale Nursing Home v. Matthews (5th Cir.

No. 75-4199) |

The Summit Nursing Seen v. "United States

(Ct. Cl. No. 89-74)

United States v. Hudson, 299 U.S. 498 (1937)

United States v. National Living sinanedine Inc.

(S.D. Tex. No. 75-H-760) Ae

Urbana Americana V. ve States ~ CL -_,

148-75) - a

Vail v. Sane Building & Cectnitien Trades

Council, 115 P.2d 389 (Colo, 1941)

Whitecliff, Inc. v. United States, 536 F.2d 347

* Fo ae 3, 9,

Constitutional Provision

Fifth Amendment, United States Constitution

Statutory Provisions

28 U.S.C. § 1254 (1974) -:

28 U.S.C. § 1831 (1970) REA ees

,-- TT] § 13895f(b) (1970) ao

e uae : 1395x(v) (1) (A) (1974) _4, 9,

1395x(v)(1)(B) (1974)

_ 15

TABLE OF AUTHORITIES (Cont.)

rm &

= &

FFF Pa Fr Fy Fy Fa Fa a Fr Py

405.405(¢) (1976)

—

anaaaaaaaaa

405.420(f) (1976) _

405.425(¢c) (1976) .

405.430 (1976) .

405.451 (1976) —....

405.453(d) (1976)

405.454(a) (1976)

405.454 (f) (3) (1976) .

405.455(d) (2) (1976)

PO PO bd bo bo bo bo bo bo Po Fo

DO DO DO DO DO DO DS DO DO DO DO

ooooooooCocmmwrm hc oO

Miscellaneous

Reimbursement Guidelines for Medicare, Hear-

ings Before the Senate Committee on Fi-

405.482(b) (5) (1976)

405.415(d) (3) (1976)

405.429(b) (2) (1976).

405.452 (e) (1) (ii) (1976)

nance (89th Congress, Second Session) p.

119, May 25, 1966

Iu the Supreme Cowt

of the United States

OCTOBER TERM, 1976

No.

—_————_

HAZELWOOD CHRONIC & CONVALESCENT

HOSPITAL, INC., dba KEARNEY STREET

CONVALESCENT CENTER,

Petitioner,

Vv.

CASPER WEINBERGER, SECRETARY OF

HEALTH. EDUCATION AND WELFARE,

THE UNITED STATES OF AMERICA, and

BLUE CROSS OF OREGON, dba NORTHWEST

HOSPITAL SERVICE,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Petitioners pray that a Writ of Certiorari issue to

review the judgment of the United States Court of

Appeals for the Ninth Circuit.

OPINIONS BELOW

The United States Court of Appeals for the Ninth

Circuit, on September 23, 1976 (Appendix, p. A8), re-

versed the judgment of the United States District

Court for the District of Oregon and remanded for

entry of judgment in favor of the respondents. The

judgment of the United States District Court for the

District of Oregon was not published as a reported

opinion but is part of the record of this case in the

findings of fact and conclusions of law entered (Ap-

pendix, p. Al).

JURISDICTION

The judgment of the United States Court of Ap-

peals for the Ninth Circuit was enter2d on the 23rd

day of September, 1976. The jurisdiction of this Court

rests on 28 U.S.C. § 1254.

QUESTIONS PRESENTED

1. May the Secretary of Health, Education and

Welfare constitutionally and lawfully recapture re-

imbursements for Medicare program participation ex

post facto?

2. Was the retroactive application of the Medicare

regulation applied to the petitioner in this case so

unexpected, disruptive, harsh and oppressive that con-

stitutional limitations were exceeded?

3. May the Secretary promulgate a regulation

purportedly under the authority of a statutory grant

of rule-making power, without making the factual

findings required by the statute as a prerequisite to

rule-making?

4. Did the Congress countenance a procedure which

would permit the Secretary of Health, Education and

Welfare at any time to reopen final determinations of

Medicare payments to which the petitioner may have

been entitled years before the determinations reopened?

5. Is the Secretary of Health, Education and Wel-

fare, pursuant to his own regulations, limited to mak-

ing such “suitable retroactive corrective adjustments”

as are limited to the end of a fiscal year or account-

ing period”

6. Does not the decision of the Court of Appeals

for the Ninth Circuit, to which this Petition for Writ

of Certiorari is addressed, incorrectly state the con-

trolling Constitutional principle, in contrast to the

correct statement of those Constitutional principles by

the United States Court of Appeals for the Fifth

Circuit?'

7. Does the decision of the United States Court of

Appeals for the Ninth Circuit, to which this Petition

for a Writ of Certiorari is addressed, incorrectly state

the proper interpretations of the controlling statutes

and regulations, in conflict with the decisions of the

United States Courts of Appeals for the Second and

Fifth Circuits and the United States Court of Claims?

1 See Mt. Sinai Hospital of Greater Miami, Inc. Vv. Wein-

berger and Blue Cross of Florida, Inc., 376 F. Supp. 1099,

1127-1129 (S.D. Fla. 1974); 517 F.2d 329, 335 (5th Cir.

1975) ; see also Columbia Heights Nursing Home & Hospital,

Inc. V. Weinberger, 380 F. Supp. 1066, 1072 (M.D. La. 1974) ;

Coral Gables Convalescent Home, Inc. Vv. Richardson, 340 F.

Supp. 646 (S.D. Fla. 1972).

2 See Kingsbrook Jewish Medical Center Vv. Richardson,

486 F.2d 663 (2d Cir. 1973); Mt. Sinai Hospital of Greater

Miami, Inc. v. Weinberger & Blue Cross of Florida, Inc., foot-

note 1 supra; Whitecliff, Inc. v. United States, 536 I'.2d 347

(Ct. Cl. 1976).

CONSTITUTIONAL PROVISION INVOLVED

The Due Process Clause of the Fifth Amendment

provides:

No person shall be held to answer for a capital,

or otherwise infamous crime, unless on a present-

ment or indictment of a Grand Jury, except in

cases arising in the land or naval forces, or in the

Militia, when in actual service in time of War or

public danger; nor shall any person be subject for

the same offense to be twice put in jeopardy of

life or limb, nor shall be compelled in any crim-

inal case to be a witness against himself, nor be

deprived of life, liberty, or property, without due

process of law; nor shall private property be

taken for public use, without just compensation.

STATUTORY PROVISION INVOLVED

42 U.S.C. § 1895x(v)(1)(A), 42 U.S.C.A. pp.

493-4 (1974) (text reproduced in Appendix, p. A22).

REGULATION INVOLVED

20 C.F.R. 405.415(d) (3), 20 C.F.R. p. 459 (1976)

(text reproduced in Appendix, p. A24).

STATEMENT OF THE CASE

Petitioner was a qualified Medicare provider of

services, effective January 1, 1967. Medicare regula-

tions then were a part of the contract which the peti-

tioner entered into with the respondents. That con-

tract authorized petitioner to accelerate depreciation

of qualified assets, as an inducement to enter the

Medicare program and allowed withdrawal from the

program without qualification or penalty. Those ac-

celerated depreciation charges were an allowable cost

item, as an integral part of the plaintiff’s participa-

tion in the Medicare provisions. Petitioner’s acceler-

ated depreciation charges were regularly reported and

properly filed, in timely fashion, each year through

1971, when the petitioner voluntarily terminated its

participation as a Medicare provider.

On October 1, 1970, the Secretary adopted a reg-

ulation providing for retroactive recapture of accel-

erated depreciation used by a provider of services,

should that provider decide to leave the program.

On October 12, 1972, the Secretary applied the

provisions of the Medicare regulation in question®

and recomputed from an accelerated to a straightline

basis the depreciation charges reimbursed to the pe-

titioner from January 1, 1967, to December 1, 1971.

Thus, five years after the fact, the respondents’ agents

notified the petitioner that alleged ‘excess reimburse-

ments” would be recovered from the petitioner. Six

years after the fact, the Secretary began recovering

those “excess reimbursements.”

The statutory scheme requires the Secretary of

Health, Education and Welfare to promulgate such

Medicare regulations as will reimburse the provid-

ers of Medicare services for the actual costs of pro-

320 C.F.R. 405.415(d) (3).

viding Medicare services for a given fiscal period.

The accelerated method of computing depreciation pre-

sumes that the usefulness of capital assets is depleted

at a faster rate in earlier years than in later years.

The statutory standard is one of “actual cost.” In

1966, when the Secretary authorized the use of ac-

celerated depreciation, he necessarily found that this

depreciation method approximated actual capital as-

set depletion for any given fiscal period. In 1970,

however, the Secretary promulgated the challenged

depreciation recapture regulation without ever mak-

ing a finding that accelerated depreciation charges

yielded excessive reimbursements to Medicare provid-

ers for any given fiscal period.

The Medicare Act in addition required the Secre-

tary to pay, as closely as possible, the actual costs of

each provider’s Medicare operations. The record

makes no showing in this case that the petitioner’s

accelerated depreciation reimbursements were any-

thing other than petitioner’s actual rat» of loss of value

of capital assets.

Jurisdiction in the Court of the first instance was

based upon the existence of a federal question. See 28

U.S.C. § 1331.

The petitioner sought from the Court of first in-

stance a declaratory judgment that the Medicare reg-

ulation in question was unconstitutional and its appli-

cation to the petitioner was both unconstitutional and

beyond the statutory authority; the petitioner also

442 U.S.C. § 1395f(b) (1970).

sought a permanent injunction against the enforce-

ment of that regulation upon the petitioner and the

recovery of moneys withheld pursuant to that regula-

tion by the respondent. The U. S. District Court for the

District of Oregon held that the respondents’ recapture

of depreciation charges taken by the petitioner prior

to January 1, 1970, was both unconstitutional and un-

lawful, enjoined the application us the regulation as to

the petitioner for that period of time preceding January

1, 1970, and awarded a money judgment to the peti-

tioner for the sums already recovered by the respond-

ents prior to January 1, 1970.

REASONS FOR GRANTING THE WRIT

The decision of the Court of Appeals below is in

conflict with the decisions of other Courts of Appeals.

The decision of the Court of Appeals below incor-

rectly speaks to an important question of federal law

which has not been settled by this Court, in the inter-

pretation of the statutory operation of the Medicare

provisions.

Ill

The decision of the Court of Appeals below con-

flicts with the applicable decisions of this Court on

the constitutionality of retroactive administrative im-

pairment of contract rights, as well as on the Due

Process limitations on retroactive deprivation of prop-

erty.

ARGUMENT

Conflicts Among the Circuits

The decision of the United States Court of Appeals

for the Ninth Circuit below holds that in the applica-

tion of the Medicare laws the Secretary of Health,

Education and Welfare may skip beyond a provider’s

current fiscal period and recompute the provider’s

earned and received contract payments for its entire

period of Medicare participation. The United States

Court of Appeals for the Second Circuit, the United

States Court of Appeals for the Fifth Circuit and the

United States Court of Claims have held that such ac-

tion by the Secretary is not countenanced by law.

The Second Circuit, in Kingsbrook Jewish Medi-

cal Center v. Richardson, 486 F.2d 663, 670 (1973),

confronted a Secretary of Health, Education and Wel-

fare who was refusing to reopen earlier accounting

periods, lest retroactivity be applied without suitable

limitations. The Secretary then urged the Court of

Appeals to consider the hardships that would prevail

if all reimbursements remained forever subject to ad-

justment. The Court of Appeals agreed. That policy

consideration would dictate a regulation limiting the

extent of retroactivity of “corrective adjusting regu-

lations.”

The Fifth Circuit, in Mt. Sinai Hospital of Greater

Miami, Inc. v. Weinberger, 517 F.2d 329, 335 (1975) ;

Cert. Den. 96 S. Ct. 1665 (April 19, 1976) specific-

ally endorsed that portion of the decision of the U. S.

District Court for the Southern District of Florida

in the lower Court opinion, 376 F. Supp. 1099, 1129

(1974) as having correctly analyzed the Medicare

statutes here involved. That District Court opinion

concluded that the retroactive cost adjustment proced-

ures authorized by the statutes (see 42 U.S.C. § 13895

x(v)(1)(A)) were limited by their terms to the

current fiscal period. The Secretary in the adopted

regulations, 20 C.F-R. § 405.405(c), limited retro-

activity to the end of the accounting period. As the

Fifth Circuit Court of Appeals noted: “Congress

chose to pay providers only the ‘reasonable cost’ of

services, to be determined at the end of each fiscal

year.” (Emphasis supplied) 517 F.2d 329 at 335.

In the United States Court of Claims, the govern-

ment contended that the provisions for suitable retro-

active corrective adjustments in the Medicare laws

called only for annual adjustments at year end. White-

cliff, Inc. v. United States, 536 F.2d 347, 352 (1976).

The Court of Claims found that the Secretary is re-

quired to permit a provider of services to recover ac-

tual costs rather than accept inadequate reimburse-

ments. By a parity of reasoning, the Secretary can-

not recoup former reimbursements on the allegation

that they were excessive, without proof. In our case

the Secretary made no effort to establish such proof.

The Federal Statutory Scheme Unsettled

What is a “fiscal period” for Medicare providers

of service? The term, “fiscal period,” or ‘‘cost-report-

ing period,” or “accounting period,” as the concept is

variously designated, recurs throughout the Medicare

statutory and regulatory provisions.* The Court of

5 See, eg., 42 U.S.C. 1895x(v)(1)(B) “the rate of re-

turn recognized pursuant to the preceding sentence for de-

termining the reasonable cost of any services furnished in

any fiscal period .. .”; 20 C.F.R. 405.420(f) “the amounts

uncollectible for specific beneficiaries are to be charged off

as bad debt in the accounting period in which the accounts

are deemed to be worthless”; 20 C.F.R. 405.425(c) “when

they are received in the same accounting period in which the

purchases were made or the expenses were incurred .. .”;

20 C.F.R. 405.429(b) (2) “for purposs of computing the al-

lowable return the amount of equity capital is the average

investment during the reporting period”; 20 C.F.R. 405.430

“an inpatient routine nursing salary cost differential is al-

lowable as a reimbursable cost of a provider after June 30,

1967, and before that provider’s first cost-reporting period

which begins after June 1975”; 405.482(b) (5) “this de-

termination shall be made by dividing the total hours of serv-

ice furnished during the cost reporting period .. .”; 20

C.F.R. 405.451 “however, for cost reporting periods begin-

ning after December 31, 1973, payments to providers of serv-

ices are based on. . .”; 20 C.F.R. 405.452(e) (1) (ii) “the

cost of services to beneficiaries of the health insurance pro-

gram may, for cost reporting periods starting before Janu-

ary 1, 1972, be determined by either of the alternative meth-

ods that is selected by a provider”; 20 C.F.R. 405.453(d)

“after the close of the accounting period, one of the follow-

ing methods of cost finding is to be used to determine the

actual costs of services rendered during that period”; 20

C.F.R. 405.454(a) “a retroactive adjustment based on actual

costs will be made at the end of the reporting period’; 20

C.F.R. 405.454(f) (3) “to determine the retroactive adjust-

ment, the amount of the provider’s total allowable cost ap-

portioned to the program for the reporting year is com-

puted .. .”; 20 C.F.R. 405.455 (d) (2) “a new provider of serv-

ices A nw carry forward for five succeeding cost reporting

periods, .. .”

Appeals for the Ninth Circuit below found that a fis-

cal period is any span of time which the Secretary

wants the fiscal period to represent, when the Secre-

tary seeks to recover past reimbursements. The Court

of Appeals for the Fifth Circuit finds that a fiscal

period is that accounting or reporting period adopted

by the Secretary and the provider of services. The

Second Circuit agrees. What limitation is there on

the Secretary’s right or authority to make retroac-

tive adjustments? In years? In fiscal periods? On ac-

counting principles? On economic theories?

The statute by its own terms limits any retroac-

tive corrective regulation to a “fiscal period.” 42 U.S.C.

1395x(v) (1) (A). At the time the statute was enacted,

both Congress and the Department of Health, Educa-

tion and Welfare agreed that the statute would not

permit the Secretary to enact a corrective regulation

retroactive beyond the beginning of the provider’s cur-

rent fiscal period.” The Second and Fifth Circuits

6 Mt. Sinai Hospital of Greater Miami, Inc. v. Wein-

berger and Blue Cross of Florida, Inc., supra; Kingsbrook

Jewish Medical Center v. Richardson, supra, footnote 2.

7 Reimbursement Guidelines for Medicare, Hearings be-

fore the Senate Committee on Finance (89th Congress, Sec-

ond Session) May 25, 1966, p. 119:

“Senator ANDERSON: What does the law require?

“Mr. BALL [Commissioner of Social Security]: That

we pay cost.

Senator ANDERSON: If you find out you haven’t paid

cost—you have to pay it then. Why don’t you find out

about it? : me

Mr. BALL: I don’t think that the retroactive provision

[42 U.S.C. § 1395x(v)] contemplates going back over

the year and changing the principles. I think what is

contemplated is that you pay first on the basis of ad-

vances, that is estimates — not advances — an estimate

agreed. See footnote 2, supra. The Ninth Circuit disre-

gards the limitation recognized by the statutory lan-

guage, understood both by Congress and the adminis-

trative agency, and recognized by the Second and Fifth

Circuits.

When is a final “settlement” final, for the Medi-

care provisions? The dissenting opinion from the

Court of Appeals for the Ninth Circuit below opined

that a final settlement should be a final settlement, as

the regulations provided, at the end of an accounting

period. By implication, the majority in the United

States Court of Appeals for the Ninth Circuit below

would disagree. The Fifth Circuit would be in agree-

ment with the dissenting opinion below, in disagree-

ment with the majority opinion below.® Arguably the

Second Circuit does agree with the majority opinion

in the Court of Appeals for the Ninth Circuit below,

on the issue of when finality is finality. Arguably as

well the Court of Claims agrees with the majority in

the Ninth Circuit, disagrees with the dissent in the

pemeter ANDERSON: No, ‘advance’ is all right. I fol-

ow you.

Mr. BALL: We have changed that. That is not an ad-

vance. But you make an estimate at the beginning of

the year on the basis of these principles. Then at the

end of the year you settle up, on the basis of the princi-

ples put out.

It would hardly seem reasonable at the end of the year,

after hospitals had entered into an agreement with you

on the basis of certain principles, to shift all the princi-

ples for retroactive settlement in terms of how you com-

pute a cost. I don’t think that was contemplated at all.”

® Mt. Sinai Hospital of Greater Miami, Inc. Vv. Wein-

berger and Blue Cross of Florida, Inc., supra, footnote 2.

Ninth Circuit, in the case below, and disagrees with

the determination of the Fifth Circuit.°

The Ninth Circuit decision renders meaningless

two provisions in the enabling statute under which the

regulation purportedly was authorized:

First, in order to protect providers from the exact

type of arbitrary administrative action encoun-

tered by petitioner, Congress specified that retro-

active corrective regulations be promulgated only

after the Secretary makes findings that a particu-

lar cost accounting method has produced inaccu-

rate reimbursements. Indeed, the Secretary’s ac-

tions in Kingsbrook (footnote 2, swpra) in mak-

ing such findings and in then failing to promul-

gate a corrective regulation based on those find-

ings set the context of the Kingsbrook holding.

See p. 8, supra. In contrast, the Secretary has

made absolutely no showing that the prerequisite

findings were made to support the depreciation

recapture regulation before this Court now.

Secondly, Congress limited the Secretary’s retro-

active regulatory authority to instances in which

a method of computing costs created inaccurate

reimbursements. Thus, a valid regulation would

be triggered by, and world focus on, the method

of accounting used by . woviders, and would “cor-

rect” that method ivr all providers using the

method. The present regulation, by contrast, dic-

tates that the accelerated method of depreciating

®° See Whitecliff v. United States, supra, footnote 2.

assets is allowable for providers continuing in the

program (and the current regulations continue to

recognize that method of depreciation) while not

allowable for those who, however briefly, have

terminated program participation. The challenged

regulation focuses upon, and is triggered by, the

act of termination and not by an “inaccurate

method of computing costs.” Congress simply did

not authorize the Secretary to penalize a provid-

er’s choice to leave the program.

Congress clearly did not intend to perform useless acts

in placing these two restrictions into the statute, Yet

the Ninth Circuit edits those limits from the statute

by its decision.

Each of the issues here — the constitutionality

and statutory validity of the depreciation recapture

regulation, the necessity of the Secretary’s making re-

quired statutory findings — are important issues of

Federal law. Social concern for adequate medical care

for the aged is nationwide, current and of growing

intensity; the manner in which the Medicare Act is

administered ard applied to providers has a direct re-

lationship to the amount (and the quality) of medical

care provided. The precise issue of the validity of this

depreciation regulation currently poses perplexing and

unsettled questions for a substantial number of courts

nationwide,'° involving millions of dollars. Literally

10 Cases currently pending involving the validity of this

depreciation recapture regulation include: Adams Nursing

Home v. Matthews (1 Cir. No. 76-1212); Springdale Nurs-

ing Home V. Matthews (5 Cir. No. 75-4199) ; Rio Hondo Me-

dozens of providers similarly situated nationwide

either are “locked into” the Medicare system in fear

of having this regulation applied upon termination of

participation, or have terminated their participation

and await the threat of possible recapture of funds

received years ago and long since spent for medical

services.

Moreover, the issues in the instant case require a

determination of the extent to which an administra-

tive agency must make statutory-mandated findings

before taking regulatory action; that question per-

vades all Federal administrative action. Supreme

Court cognizance and disposition of the issue in the

present Medicare context will have effects reaching

through the administration and provision of medical

services to the administrative implementation of Con-

gressional mandates.

The inequity, and the statutory invalidity, of the

Secretary’s actions as sanctioned by the Ninth Cir-

cuit clearly appears by comparing the Secretary’s

position in Kingsbrook, supra, with the Secretary’s

morial Hospital v. Weinberger (9 Cir. No. 75-3482); South

Windsor Convalescent Home v. Matthews, (2 Cir. No. 75-

6136, dismissed July 27, 1976 with instructions to refile with

the Court of Claims) ; The Summit Nursing Home v. United

States (Ct. Cl. No. 89-74); EGH-MHB Enterprises v. Mat-

thews (N.D. Cal. No. C-76-1026) ; Parkview Nursing Home V.

Matthews (S.D. Ind. No. IP 75-686-C, notice of appeal filed

from judgment for provider rendered Oct. 5, 1976) ; Chicora

Medical Center Vv. Matthews (W.D. Pa. No. 76-1556) ; United

States v. National Living Centers, Inc. (S.D. Tex. No. 75-H-

760) ; Miller Rutledge Corp. v. United States (Ct. Cl. No. 147-

75) ; Urbana Americana Vv. United States (Ct. Cl. No. 148-75) ;

ia Park Nursing Home Vv. Weinberger (D. N.J. No. 74-

1431).

position concerning the present regulation. In Kings-

brook, the Secretary urged, and the Second Circuit

agreed, that limited retroactivity was mandated by

the statute; there the wovernment consistently had

underpaid providers. Yet when the Secretary suspects,

without findings or proof, that providers were being

overpaid by previously-approved depreciation methods,

the Secretary (with the blessings of the Ninth Circuit)

insists that full and complete recomputation is re-

quired, with unlimited backward reach. Statutory re-

regulation should not be permitted to vary with the Sec-

retary’s guess of underpayment or overpayment; the

Ninth Circuit opinion below places its imprimatur on

this Federal lack of evenhandedness.

Ex Post Facto Impairment of Contract Obligations Does

Violence to the Due Process Clause of

the Fifth Amendment

The Courts are well instructed to avoid finding

constitutional infirmities, if statutory corrections can

be supplied by judicial interpolation. Thus, in Colwm-

bia Heights Nursing Home & Hospital, Inc. v. Wein-

berger, 380 F. Supp. 1066 (M.D. La. 1974) the Court

made every effort to read fairly the Secretary’s regu-

lations for suitable retroactive corrective adjustments.

On a fair reading of those regulations the Court

would not justify the conclusion, urged by the Secre-

tary, that new and different basic accounting proce-

dures could be implemented on a retroactive basis, to

result in substantial increases or decreases in reim-

bursable costs to medical service providers, under the

Medicare laws. 380 F. Supp. at 1071. The Court’s

hackles bristled. Where there was no clear statutory

authority for the retroactive application of the new

accounting procedures adopted by the Secretary’s rep-

resentatives, allowing that kind of retroactive action

would be “grossly unfair, terribly unjust, and .. . de-

nied.” Jbid., p. 1072. That says in declarative terms

what ihe Constitution mandates.

A Medicare provider’s right to reimbursement for

costs incurred in providing Medicare services is in the

nature of an earned property right for which the Due

Process Clause provides protection, Coral Gables Con-

valescent Home, Inc. v. Richardson, 340 F. Supp. 646,

650 (S.D. Fla. 1972). Respondents do not deny that

petitioner rendered such services during the periods

at issue, nor does the Government deny that reim-

bursements for accelerated depreciation charges taken

during those periods were properly payable to peti-

tioner under the existing regulations.

Retroactive regulations are those which “take

away or impair a vested right acquired under exist-

ing laws or create a new obligation or impose a new

duty or attach a new disability in respect to transac-

tions or considerations already past.” Vail v. Denver

Building & Construction Trades Council, 115 P.2d

389, 393 (Colo. 1941). While not all retroactive en-

actments are void, those enactments violate the Due

Process Clause which impair rights “which can truly

be said to be vested rights of a nature constituting

property rights.” Seese v. Bethlehem Steel Company,

74 F. Supp. 412, 417 (D. Md. 1947).

In United States v. Hudson, 299 U.S. 498, 500

(1937), this Court recognized that Congress had the

authority to create a limited period of retroactivity for

income tax legislation consistent with the Due Process

Clause:

“As respects income tax statutes, it long has been

the practice of Congress to make them retroactive

for relatively short periods so as to include profits:

from transactions consummated while the statute

was in process of enactment, or within so much

of the calendar year as preceded the enactment;

and repeated decisions of this Court have recog-

nized this practice and sustained it as consistent

with the due process of law clause of the Con-

stitution.”

The “recent transactions” test has been consistently

applied, and constitutes a standard under which the

present Medicare regulation cannot be countenanced.

There was no way in which petitioner had any op-

portunity to avoid the retroactive effect of this regu-

lation, once the Secretary adopted it. Petitioner could

hope that the regulation would not be applied contrary

to statute or contrary to the Constitution, or contrary

to the terms of the regulation itself. Petitioner could

not have insisted on its termination from the Medi-

care program prior to the effective date of the regu-

lation in question.

Now it may be taken as settled law that regula-

tions whose retroactive effect is either harsh or op-

pressive necessarily violate due process, the sense of

what is fair, disturbing the conscience of the com-

monweal. Both the record in this case and the appli-

cable authorities support the conclusion that the depre-

ciation recavture regulation as applied to the peti-

tioner here transgresses Constitutional limitations.

In the simplest sense, Medicare laws provide com-

pensation for services rendered. See Coral Gables Con-

valescent Home, Ing. v. Richardson, supra. The measure

of that compensation is specified by regulation, rather

than by explicit contractual provisions for each Med-

icare servant. It is only as a result of the contractual re-

lationship between the petitioner and the respondent

that the regulatory power of the Secretary is visited

upon the petitioner. That is the reason for protecting

the petitioner’s rights against the United States, aris-

ing out of this contract, under the aegis of the Fifth

Amendment of the U. S. Constitution. There the Due

Process Clause prohibits the contracting party, the Sec-

retary, for the United States, from annulling contrac-

tual rights of the petitioner. See Lynch v. United States,

292 U.S. 571, 579 (1934). The petitioner’s contract

rights have been, to say the least, “impaired.” When

the value of the contract has been diminished by sub-

sequent legislation, then the question of impairment is

not one of degree, like a little bit of pregnancy. See

Rorick v. Board of Commissioners, 57 F.2d 1048, 1055

(5th Cir. 1932).

CONCLUSION

The petitioner entered the Medicare program

knowing that the Secretary had passed cost reimburse-

ment regulations, as required by statute, to square

with the actual costs incurred by a provider of med-

ical services. There was no way in which the petitioner

could have anticipated that the Secretary would at-

tempt to reach, by retroactive regulation, back, sev-

eral years, into old programs, carefully calculated,

tightly budgeted and strictly funded. The Secretary’s

incursion into such ex post facto rule-making stepped

beyond what the Constitution would permit.

The Ninth Circuit Court of Appeals in the decision

on this case below has taken its stand in contravention

of the positions announced by other Courts of Appeals

and the Court of Claims. That conflict among the Cir-

cuits should be resolved, in order to set at rest any

suspicion that the judgment below properly reflects

the statutory interpretation of the Medicare provisions

and their constitutionality as applied to such as the

petitioner here.

The petition for a Writ of Certiorari should be

granted.

Respectfully submitted,

TOOZE KERR PETERSON MARSHALL

& SHENKER

ARDEN E. SHENKER

MICHAEL J. GENTRY

Counsel for Petitioner

(December 17, 1976)

APPENDIX

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

HAZELWOOD CHRONIC & CONVALESCENT)

HOsPITAL, INC., dba KEARNEY STREET )

CONVALESCENT CENTER, ) CiviL No.

Plaintiff ) 73-210

vs.

CASPER WEINBERGER, SECRETARY OF )FINDINGS OF

HEALTH, EDUCATION AND WELFARE, ) Fact, CoNn-

THE UNITED STATES OF AMERICA; AND ) CLUSIONS

BLUE CROSS OF OREGON, dba NorTH- ) oF LAW

WEST HOSPITAL SERVICE, )

, Defendants. )

This matter having been submitted for determina-

tion on January 4, 1974, the plaintiff was represented

by Arden E. Shenker and Michael J. Gentry, the de-

fendants were represented by Vinita Jo Neal, the

Court, having examined the files and record, heard

oral argument. The Court makes the following find-

ings of fact and conclusions of law, and renders the

following order:

FINDINGS OF FACT

1. Plaintiff is an Oregon corporation with its prin-

cipal place of business in Oregon.

2. Defendant Northwest Hospital Service, dba

Blue Cross of Oregon (hereinafter “Blue Cross’) is

an Oregon ccrporation with its principal place cf

business in Oregon.

8. Defendant Casper Weinberger (hereinafter

“Secretary”) has his official residence in the District

of Columbia and is the Secretary of Health, Educa-

tion and Welfare of the United States of America. De-

fendant Secretary is sued solely in his official capac-

ity.

4. The amount in controversy exceeds $10,000 ex-

clusive of interest and costs.

5. Title XVII of the Social Security Act, 42 U.S.C.

§ 1395 et seq (hereinafter “Medicare Program”) pro-

vides a system for reimbursing qualified individuals

for part of the costs they incur for covered health

care. In some cases, the Medicare Program authorizes

payment to be made to providers of services on behalf

of such individuals.

6. The Medicare Program further authorizes de-

fendant Secretary to agree with private organizations

designated as “intermediaries” to compute and admin-

ister payments to providers of services.

7. As of January 1, 1967, the Secretary accepted

for filing plaintiff’s agreement under Section 1866 of

the Social Security Act (42 U.S.C. § 1895cec(a)) and

thus became qualified as a provider of services.

8. On December 1, 1971, plaintiff voluntarily

terminated its agreement to be a provider of services

in the Medicare Program.

9. As of July 1972, plaintiff again qualified and

became a provider with the predecessor-in-office of

defendant Secretary to provide Medicare services, and

presently continues te provide services,

10. Blue Cross Association (BCA) entered into an

agreement to act as an intermediary with the Social

Security Administration pursuant to the provisions

of Section 1816 of the Social Security Act to perform

for the Secretary designated functions in the adminis-

tration of regulation of the Medicare Program.

11. Blue Cross Association delegated its duties (un-

der Section 1816 and 1842 of the Social Security Act)

as a fiscal intermediary for Hazelwood to Blue Cross

of Oregon, one of its local plan organizations under

subcontract with Blue Cross Association. By reason

of such subcontract, Blue Cross of Oregon became the

fiscal intermediary for Hazelwood and through such

intermediary the Secretary made payments and con-

tinues to make payments under the Medicare Program

to Hazelwood.

12. As a participating provider of services under

the Medicare Program, Hazelwood is required to file

cost reports with the intermediary pursuant to 20

C.F.R. 405.406(b) so that the latter can determine

“reasonable cost” of furnishing services to Medicare

beneficiaries.

13. Reimbursement of providers under the Medi-

care Program is based on the concept of “reasonable

cost” as set forth in 42 U.S.C. § 1895(x) (v).

14. At all times between January 1, 1967 and De-

cember 1, 1971, accelerated depreciation charges taken

by plaintiff on its health care facilities were specific-

ally recognized in the Medicare regulations as items

of “reasonable cost.”

15. Plaintiff received reimbursement of its “rea-

sonable cost” for Medicare Program participation be-

tween January 1, 1967 and December 1, 1971, includ-

ing reimbursement for accelerated depreciation

charges.

16. Prior to August 1, 1970, the Medicare regula-

tions neither qualified a provider’s use of accelerated

depreciation nor provided for recapture of any por-

tion of accelerated depreciation charges taken by a

provider.

17. The Medicare regulations currently recognize

accelerated depreciation as a reimbursable item of

“reasonable cost” for providers whose current partic-

ipation began prior to August 1, 1970.

18. Section 1861(v) of the Social Security Act, 42

U.S.C. § 1395(x)(v), authorizes the Secretary to

promulgate regulations defining items of reimburs-

able reasonable cost and further provides that such

regulations shall:

“1) ... (B) provide for the making of suit-

able retrocative (sic) corrective adjustments

where, for a provider of services for any fiscal

period, the aggregate reimbursement produced by

the methods of determining costs he proves to be

either inadequate or excessive.”

19. The predecessor-in-office of defendant Secre-

tary promulgated an administrative regulation, effec-

tive August 1, 1970, published in 35 FR 2593 on

February 5, 1970, which in relevant part reads as fol-

lows:

“When a provider who has used an acceler-

ated method of depreciation with respect to any

of its assets terminates participation in the pro-

gram, ... the excess of reimbursable cost, de-

termined by using accelerated depreciation meth-

ods and paid under the program over the reim-

bursable cost which would have been determined

and paid under the program by using the straight-

line method of depreciation will be recovered as

an off-set to current reimbursement due or, if the

provider has terminated participation in the pro-

gram, as an overpayment.”

Blue Cross of Oregon, on October 12, 1972, in ap-

plying this regulation, retroactively offset deprecia-

tion expense computed on an accelerated method over

the reimbursable cost which would have been deter-

mined and paid under the program by using a

straight-line method of depreciation for the period

January 1, 1967, to December 1, 1971.

20. On January 17, 1973, defendant Blue Cross

told plaintiff that Blue Cross would apply the above

regulation to plaintiff, and that under the regulation

plaintiff’s excess reimbursable cost totaled $24,678.

By this same letter Blue Cross notified plaintiff of

available appeal procedures.

21. Blue Cross Association, under its contract

with the Secretary, is required to establish and main-

tain such procedure as the Secretary may approve for

considering and resolving any dispute arising between

a provider of services and the Blue Cross Plan serving

as intermediary. Blue Cross Association has estab-

lished a Provider Appeals Committee to receive and

hear appeals from providers dissatisfied with inter-

mediaries’ determinations.

22. On February 9, 1973, defendant Blue Cross

notified plaintiff that plaintiff’s current Medicare re-

imbursements would be reduced by $2,742 per month

for nine months beginning March 6, 1973 to recover

the above amount.

23. Plaintiff’s monthly reimbursements have been

reduced by $2,742 per month by defendant Blue Cross.

24, On or about June 5, 1973, plaintiff requested

a hearing on the decision of Blue Cross of Oregon re-

garding recoupment. This request is still pending.

25. All notices of Medicare Program reimburse-

ment for plaintiff’s program years 1967 and 1968

were received by the plaintiff prior to October 12,

1969.

CONCLUSIONS OF LAW

1. Medicare regulation 20 CFR 405.415(d) (3)

is unconstitutional under the due process clause of the

Fifth Amendment of the United States Constitution,

to the extent that the regulation authorizes recapture

of reimbursements for depreciation charges taken

prior to the beginning of the year in which such regu-

lation was promulgated.

2. Medicare regulation 20 CFR 405.415(d) (3),

as applied to plaintiff to recapture reimbursements

for depreciation charges taken by plaintiff prior to

January 1, 1970, is unconstitutional under the due

process clause of the Fifth Amendment of the United

States Constitution.

3. Defendants may not lawfully recapture reim-

bursements for depreciation charges taken by plain-

tiff from January 1, 1967 through December 31, 1969.

4. Medicare regulation 20 CFR 405.415(d) (3),

is constitutional as applied to recapture reimburse-

ments for depreciation charges taken by plaintiff sub-

sequent to December 31, 1969.

DATED this 1st day of February, 1974.

Gus J. Solomon

U. S. District Judge

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

HAZELWOOD CHRONIC & CONVALESCENT)

HospPITAL, INC., dba KEARNEY STREET )

CONVALESCENT CENTER, )

Plaintiff-Appellee, )

vs. by 74-2210

)

CASPAR [sic] WEINBERGER, SECRETARY

OF HEALTH, EDUCATION AND WELFARE

THE UNITED STATES OF AMERICA, AND

BLUE CROSS OF OREGON, dba NorRTH-

WEST HOSPITAL SERVICE,

Defendants-Appellants.

[September 23, 1976]

On Appeal from the United States District Court

for the District of Oregon

Before: WALLACE and KENNEDY, Circuit Judges,

and FERGUSON, * District Judge.

KENNEDY, Circuit Judge:

In this case we consider the effect of 42 U.S.C.

§ 405(h) in precluding district court jurisdiction to

review a decision of the Secretary of Health, Educa-

tion, and Welfare regarding payments to a hospital

under the Health Insurance for the Aged [Medicare]

Act. The district court held that the Secretary’s regu-

lation for recapture of accelerated depreciation

charges, 20 C.F.R. § 405.415(a) (3) (1975) [sic], was

unconstitutional as applied retroactively to the plain-

tiff. We hold that the district court had jurisdiction to

OPINION

* Honorable Warren J. Ferguson, United States District

Judge for the Central District of California, sitting by desig-

nation.

review the Secretary’s action, but reverse on the mer-

its.

I. FACTS

Under the Medicare Act, hospitals and similar in-

stitutions are reimbursed for providing services to

eligible patients. Such “providers of services” are

paid for their “reasonable costs,” as defined in the

statute and subject to regulations adopted by the

Secretary, 42 U.S.C. § 1895x(v) (1970), as amended

(Supp. IV, 1974).'

In 1967, Hazelwood Hospital began providing serv-

ices under the Medicare program. The regulations

then in effect allowed depreciation charges as an

item of reasonable cost and provided that such charges

could be computed by either a straight-line or an ac-

celerated method.

On February 8, 1970, the Secretary announced a

new regulation on depreciation. 35 Fed. Reg. 2593,

codified at 20 C.F.R. § 405.415(d)(3) (1975). Ef-

fective August 1970, new providers were no longer

allowed to claim accelerated depreciation. Old provid-

ers who remained in the Medicare program could con-

' The Medicare program is administered in part by private

companies which act as agents of the Secretary in auditing

cost data of hospitals and other institutions, so as to deter-

mine the amount they are paid for Medicare services. 42

U.S.C. § 1395h. In this case, the defendant Blue Cross of Ore-

gon acted as the Secretary’s fiscal agent. There is no ¢ »pute

that Blue Cross simply followed the Secretary's regulation;

thus the action is really one against the Secretary, named

also as a defendant. See 20 C.F.R. § 405.670 (1975); Peter-

son v. Weinberger, 508 F.2d 45, 51-52 (5th Cir.), cert. de-

nied, 423 U.S. 830 (1975).

Al0

tinue to use the accelerated depreciation method. Upon

a provider’s withdrawal from the program, however,

the Secretary could recapture prior payments to the

extent they were attributable to accelerated deprecia-

tion costs in excess of what would have been allowed

under the straight-line method.?

In December 1971 Hazelwood voluntarily with-

drew from the Medicare program. Its excess costs at-

tributable to accelerated depreciation were $18,054

from 1967 through 1970, and.$6,624 in 1970-71. Ha-

zelwood rejoined the Medicare program in July 1972,

and its subsequent reimbursements were reduced by

a total of $24,678, to recapture the excess deprecia-

tion.

Hazelwood brought its suit in the district court,

alleging federal question jurisdiction and claiming

that 20 C.F.R. § 405.415(d) (3) could not be applied

retroactively to recapture depreciation charges claimed

for the years preceding its promulgation. The district

court held that such application violated the due proc-

ess clause of the fifth amendment. It enjoined the

Secretary from applying the regulation to recapture

2 The regulation provides as follows:

When a provider who has used an accelerated method

of depreciation with respect to any of its assets terminates

participation in the program .. . the excess of reimburs-

able cost, determined by using accelerated depreciation

methods and paid under the program over the reimburs-

able cost which would have been determined and paid un-

der the program by using the straight-line method of de-

preciation will be recovered as an offset to current reim-

bursement due or, if the provider has terminated partici-

pation in the program, as an overpayment. 20 C.F.R. §

405.415 (d) (3) (1975).

All

depreciation costs claimed by Hazelwood prior to Jan-

uary 1, 1970, and awarded Hazelwood a judgment for

$18,054.

Il. JURISDICTION

A. The Medicare Statute and 28 U.S.C. § 1331

The Medicare Act authorizes an individual bene-

ficiary to obtain an administering hearing, and judi-

cial review of a final decision, regarding either his

eligibility or amount of benefits. 42 U.S.C. § 1395

ff(b) (1970), incorporating id. §§ 405(b), (g) as

amended (Supp. IV, 1974). At the time this action

arose, however, a provider of services (such as Hazel-

wood Hospital) was authorized to obtain review only

of eligibility determinations. Jd. § 1395 ff(c) (1970).

No provision was made for review of the level of pay-

ments allowed to an institution under the “reasonable

cost” standard.

The Medicare Act is not unusual in providing spe-

cifically for judicial review of some but not all of the

agency’s decisions. In such cases the specific review

provision is normally held to be the exclusive means

of obtaining judicial review of the decisions for which

it is available. The mere existence of such a mechan-

ism for some matters, however, does not itself pro-

2 The Social Security Act Amendments of 1972 changed

this pattern so that payments to providers are now review-

able a Provider Reimbursement Review Board, and uiti-

mately by the district courts. 42 U.S.C. § 1395 oo (Supp. IV,

1974), as further amended (U.S.C.A. Supp. Mar. 1976). This

was not effective for accounting y+ ending be-

fore June 30, 1973, and thus is unavailable for Hazelwood’s

challenge.

Al2

vide clear evidence of a congressional intent to pre-

clude judicial review of the matters not covered. Thus

such questions are normally subject to “non-statutory”

review by a court having jurisdiction of the matter

under one of the general provisions of title 28. See

Note, Jurisdiction to Review Federal Administrative

Action: District Court or Court of Appeals, 88 Harv.

L. Rev. 980, 981-84 (1975).

The claim presented in this case is clearly not one

for which the Medicare Act specifically authorizes

judicial review. However, the plaintiff alleged—and

the district court presumably found—federal question

jurisdiction, 28 U.S.C. § 1831. While such jurisdiction

would ordinarily be available for a question not re-

viewable under the special statutory procedure, the

Medicare Act has incorporated the following addi-

tion provision of the Social Security Act:

The findings and decisions of the Secretary

after a hearing shall be binding upon all individ-

uals who were parties to such hearing. No find-

ings 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

[28 U.S.C. § 1331, inter alia] to recover on any

claim arising under this subchapter.

42 U.S.C. § 405(h), incorporated under id. § 1395ii.

In Weinberger v. Salfi, 422 U.S. 749, 761 (1975), the

Court held that “the third sentence of § 405(h) pre-

cludes resort to federal question jurisdiction” for a

Al3

constitutional challenge to a denial of benefits under

the Social Security Act. We conclude that this same

language, incorporated into the Medicare Act, simi-

larly precludes federal question jurisdiction in the

instant case.

However, this conclusion does not end our inquiry.

It is appropriate to consider possible bases for juris-

diction, even though not pleaded by the plaintiff or

relied upon by the district court. Smith v. United

States, 502 F.2d 512, 519-20 (5th Cir. 1974); Zim-

merman v. United States, 422 F.2d 326, 330 (3d Cir.),

cert. denied, 399 U.S. 911 (1970); see Williams v.

United States, 405 F.2d 951 (9th Cir. 1969).

B. The Administrative Procedure Act

We have previously held that the judicial review

provisions of the APA, 5 U.S.C. §§ 701-06, confer

subject matter jurisdiction for district court review of

reasonable cost determinations by the Secretary un-

der the Medicare Act, 42 U.S.C. § 1395x(v). Roth-

man v. Hospital Service, 510 F.2d 956, 958-59 (9th

Cir. 1975).* Thus we are bound to find jurisdiction

« The question of whether the APA generally confers jur-

isdiction for federal court review of agency decisions has not

yet been answered by the Supreme Court and the circuits re-

main divided. This question normally arises where federal

question jurisdiction is unavailable because of the amount-in-

controversy requirement. One view is that the judicial review

provisions of the APA are remedial and, like the Declaratory

Judgment Act, apply only when the Court has otherwise ob-

tained jurisdiction. See, e.g., Zimmerman v. United States,

422 F.2d 326, 330-31 & n. 7 (3d Cir.), cert. denied, 399 U.S.

911 (1970); 13 C. Wright, A. Miller & E. Cooper, Federal

Practice and Procedure § 3568 at 465-67 (1975). However,

the increasingly prevalent view is that the APA embodies the

Al4

in the present case unless our holding in Rothman is

affected by the Supreme Court’s decision in Weinber-

ger Vv. Salfi, swpra.

The Salfi Court primarily construed the third sen-

tence of section 405(h), which mentions only certain

jurisdictional grants in title 28 and thus does not ex-

pressly include the APA, which is located in title 5.°

At least three circuits have thus treated Salfi as ir-

relevant to the question of APA jurisdiction, inter-

preting its holding as limited to the effect of section

405(h) in precluding federal question jurisdiction.

presumption that agency action is normally subject to judi-

cial review; thus it ar be regarded as a basis for jurisdic-

tion when other jurisdictional statutes are unavailable. See,

e.g., Pickus v. United States Board of Parole, 507 F.2d 1107,

1109-10 & n. 4 (D.C. Cir. 1975), and cases cited therein;

Byse & Fiocca, Section 1361 of the Mandamus and Venue Act

of 1962 and “Non-statutory” Judicial Review of Federal Ad-

ministrative Action, 81 Harv. L. Rev. 308, 326-31 (1967).

Our circuit has adopted the latter position. Wiren v. Eide,

No. 74-1169 (9th Cir. June 22, 1976) (slip opinion) ; Roth-

man v. Hospital Service, 510 F.2d 956, 958 (9th Cir. 1975) ;

Brandt v. Hickel, 427 F.2d 53, 55 (9th Cir. 1970) ; Washing-

ton v. Udall, 417 F.2d 1310, 1319-20 (9th Cir. 1969) (sem-

ble); Coleman v. United States, 363 F.2d 190, 193 (9th Cir.

1966), rev’d on other grounds, 390 U.S. 599 (1968).

5 At the time § 405(h) was originally enacted in 1935,

this sentence referred to all of the general grants of jurisdic-

tion then available to a district court. It has not been amend-

ed since, and thus does not include the more recent jurisdic-

tional provisions of the federal mandamus statute, 28 U.S.C.

1361, or the APA. One could suggest that § 405(h) should

ave the same effect now as when it was enacted and thus be

extended to preclude review under these newer jurisdictional

statutes. On the other hand, Congress has not amended § 405

(h) in th same manner as 38 U.S.C. § 211(a), which now

provides for certain decisions of the Veterans’ Administrator

that “no other official or any court of the United States shall

have power or jurisdiction to review any such decision by an

action in the nature of mandamus or otherwise” (italicized

language added in 1970).

Ald

Hunt v. Weinberger, 527 F.2d 544, 546-47 (6th Cir.

1975); Lejeune v. Mathews, 526 F.2d 950, 952-53 &

n.2 (5th Cir. 1976) ; Sanders v. Weinberger, 522 F.2d

1167, 1171 (7th Cir. 1975).

However, we do not think this a proper basis for

distinguishing the Court’s decision. The plaintiffs in

Salfi (unlike the instant plaintiff) expressly alleged

jurisdiction under the APA. Appendix at 7, Wein-

berger v. Salfi, supra; see Brief for Appellees at 42-

43. And, in ordering dismissal on the class of un-

named plaintiffs who had not complied with the juris-

dictional prerequisites of section 405(g), the Court

held that “[o]ther sources of jurisdiction [are] fore-

closed by § 405(h).” 422 U.S. at 764, Thus the Court

must have regarded APA jurisdiction as either pre-

cluded by section 405(h)° or unavailable for some

other reason.’

6 Although the third sentence of § 405(h) does not men-

tion the APA, the Salfi Court interpreted the first two sen-

tences of that section as “prevent[ing] review of decisions of

the Secretary save as provided in the Act.” 422 U.S. at 757-

58; see id. at 759 n. 6. This interpretation would seem to ap-

ply to the APA as much as to 28 U.S.C. § 1331. In Rothman

we acknowledged the second sentence of section 405(h) might

be read to prevent judicial review of questions not specific-

ally made reviewable under the Act. Instead, however, we

viewed this sentence as simply preventing a claimant from by-

passing the statutory procedures in those matters for which

they were available. 510 F.2d at 958-59. Our interpretation

of § 405(h) may be somewhat inconsistent with the above-

cited language in Saifi, but not with the Court’s holding. As

we discuss infra, review under the Social Security Act was

available to the plaintiffs dismissed in Salfi. 422 U.S. at 762-

7 Of course, it is not clear that the Court accepts the view

that the APA can provide jurisdiction. See note 4 supra. Al-

ternatively, the Court could view APA jurisdiction as avail-

able only in the “absence or inadequacy” of a special statu-

Al6

There is, however, a well supported and important

distinction between Salfi and the instant case. There

the Social Security Act authorized district court re-

view of all final decisions of the Secretary, under the

procedures specified in section 405(g). Thus judicial

review was potentially available to the class of un-

named plaintiffs, and the Court’s holding did not have

the effect of totally precluding judicial review of the

sort of claim they raised. Additionally, the Court qual-

ified its holding in a respect that is important in dis-

tinguishing this case. The Court noted that where a

constitutional claim is presented, statutes are not

likely to be interpreted to preclude judicial review al-

together. 422 U.S. at 762-63.

In contrast to the Social Security Act interpreted

in Salfi, the Medicare Act (prior to 1972) did not au-

thorize judicial review of provider payment claims.

Then, interpreting section 405(h) to preclude all re-

view outside of the Act, would foreclose any judicial

inquiry even in cases containing significant constitu-

tional questions, such as the hospital’s claim in this

case. Under these circumstances, we conclude that

Salfi does not control the present case and follow our

decision in Rothman. Thus we regard the district

court as having jurisdiction by virtue of the judicial

review provisions of the APA.

tory review procedure. 5 U.S.C. § 703; see id. § 704. Thus the

APA would not have been a potential basis for jurisdiction,

since § 405(g) was available to the unnamed plaintiffs in

Salfi. See 422 U.S. at 764.

Al7

Ill. STATUTORY AUTHORITY

The district court made no express ruling on the

plaintiff’s contention that the Secretary lacked statu-

tory authority to promulgate the regulation here in

question. We assume, however, that it would not have

reached the constitutional issues in this case if the

regulation could have been invalidated on a statutory

basis. See Ashwander v. TVA, 297 U.S. 288, 348

(1936) (Brandeis, J., concurring). We agree with

the implicit holding of the district court that the regu-

lation was a valid exercise of the authority delegated

the Secretary under the Act.

42 U.S.C. 1395hh authorizes the Secretary to prom-

ulgate necessary regulations, and id. § 1395x(v) (1)

(A) specifically authorizes regulations “establishing

the method or methods to be used and the items to be

included,” in calculating the reasonable cost of provid-

ing Medicare services. The way in which an institu-

tion computes depreciation as an element of its costs

clearly is an appropriate subject for regulations

adopted pursuant to this statutory authority.

The hospital here contends that the recapture of its

depreciation is not a “suitable retroactive corrective

adjustment” and thus prohibited by id. § 1395x(v)

(1) (A) (ii). This provision of the statute states that

regulations governing costs shall:

provide for the making of suitable retroactive

corrective adjustments where, for a provider of

services for any fiscal period, the aggregate re-

imbursement produced by the methods of de-

Al18

termining costs proves to be either inadequate or

excessive.

Hazelwood argues this limits the Secretary’s rulemak-

ing power to corrective adjustments that are retroac-

tive for one fiscal year, but no longer; therefore, it

argues, none of its pre-1970 depreciation is subject to

recapture. This is untenable.

First, this statute commands the Secretary to

make retroactive adjustments in certain cases, but it

does not declare that the Secretary is limited to that

power. Second, we do not accept an interpretation of

the statutory term “any fiscal period” as a limitation

on the time in which the Secretary may initiate an

adjustment. The term seems more logically to define

the time span over which an inadequate or excessive

reimbursement may be deemed to have occurred. Thus

we conclude that 20 C.F.R. § 405.415(d) (3), as ap-

plied to Hazelwood Hospital, was within the Secre-

tary’s statutory authority.

IV. CONSTITUTIONALITY

The district court held that it was a violation of

the due process clause for the Secretary to apply 20

C.F.R. § 405.415(d)(3) to recapture any deprecia-

tion charges allowed prior to the calendar year in

which the regulation was promulgated. We disagree.

The due process clause does not make unconstitu-

tional every law with retroactive effect. Almost all

new laws upset some expectations, and frequently

Al19

changes are made in the legal consequences of prior

conduct. Only when such retroactive effects are so

wholly unexpected and disruptive that harsh and op-

pressive consequences follow, is the constitutional lim-

itation exceeded. See, e.g., Welch v. Henry, 305 U.S.

134, 146-51 (1938).

The retroactive effects of the instant regulation

were limited and reasonable. Its operation was trig-

gered by a subsequent act: withdrawal from the Med-

icare program. If Hazelwood Hospital had remained

in the program there would have been no recapture of

the accelerated depreciation. Indeed, the regulation

was given further prospectivity by its grandfather

clause, allowing providers who had previously used

the accelerated depreciation method to continue doing

so, as long as they remained in the program. The regu-

lation, moreover, was not made effective until nearly

six months after promulgation. Hazelwood made no

attempt to leave the program during this time, when

it might have avoided the recapture provision.®

We view the regulation in this case as particularly

reasonable since it is part of the ongoing adjustment

necessary in a program of distributing federal subsi-

dies. Here the government is not directly regulating

a purely private activity. Hazelwood Hospital volun-

8 It is true that the Secretary could have required as much

as six months’ notice before releasing Hazelwood from the

program. 20 C.F.R. § 405.613 (1970). Thus Hazelwood might

not have been successful had it tried to avoid the recapture

regulation by withdrawing prior to the effective date. How-

ever, Hazelwood made no such attempt and has not shown

that =! would have been likely to fail in making such a with-

drawal.

A20

tarily entered, and indeed re-entered, this program

as a provider of services in return for reimbursement

from the government. Under the statute, it was en-

titled to be paid for its “reasonable costs,” an admit-

tedly imprecise concept, in an amount to be deter-

mined under regulations promulgated by the Secre-

tary. The regulation here in question was a valid ex-

ercise of the Secretary’s authority under the statute.

“Those who do business in the regulated field cannot

object if the legislative scheme is buttressed by subse-

quent amendments to achieve the legislative end.”

FHA v. The Darlington, Inc., 358 U.S. 84, 91 (1958).

Accordingly, we reverse the judgment of the dis-

trict court and remand for entry of judgment in favor

of the defendant Secretary.

FERGUSON, District Judge, concurring and dissent-

ing:

I concur in the result reached by the majority on

the jurisdictional issue, but must dissent from its de-

cision on the merits.

42 U.S.C. § 1395(g) requires the Secretary to

“periodically determine” the “amount which should

be paid” to a provider of services. Pursuant that re-

quirement, the Secretary issued a regulation provid-

ing that “final settlement” would be “at the end of

the accounting period.” 20 C.F.R. § 405.405(c) (em-

phasis added).

After an exhaustive analysis of the statutory

scheme emphasizing the above cited provisions, the

A21

court in Mount Sinai Hospital of Greater Miami, Inc.

v. Weinberger, 376 F. Supp. 1099, 1129 (S.D. Fla.

1974) concluded that the retroactive cost adjustment

procedure authorized by 42 U.S.C. § 1895 x (u) (1)

[sic] is “limited by its terms to ‘any fiscal period,’ ”

and that the Secretary in his regulations has limited

retroactivity to the “ ‘end of the accounting period.’ ”

Id. Although the fifth circuit did not accept other por-

tions of the district court’s opinion, it specifically ap-

proved its analysis regarding retroactive cost adjust-

ments: “‘The District Court’s opinion on [the procedure

with respect to cost determinations] correctly analyzes

the statutory scheme .. . Congress chose to pay provid-

ers only the ‘reasonable cost’ of services, to be deter-

mined at the end of each fiscal year.”’ Mount Sinai Hos-

pital of Greater Miami, Inc. v. Weinberger, 517 F.2d

329, 3385 (5th Cir., 1975), cert. denied, 44 U.S.L.W.

3589 (U.S. Apr. 19, 1976). But see Kingsbrook Jewish

Medical Center v. Richardson, 486 F.2d 663 (2d Cir.

1973).

Congress required the Secretary to determine the

amount which should be paid, and he did. Congress did

not countenance a procedure which would permit the

Secretary at any time to reopen final determination as

to cost. I would follow the analysis pursued in the fifth

circuit and affirm the district court’s decision.

A22

42 U.S.C. § 1395x(v)(1)(A), 42 U.SC.A. pp.

493-4 (1974) provides as follows:

“The reasonable cost of any services shall be

the cost actually incurred, excluding therefrom

any part of incurred cost found to be unnecessary

in the efficient delivery of needed health services,

and shall be determined in accordance with regu-

lations establishing the method or methods to be

used, and the items to be included, in determin-

ing such costs for various types or classes of in-

stitutions, agencies, and services; except that in

any case to which paragraph (2) or (3) applies,

the amount of the payment determined under such

paragraph with respect to the services involved

shall be considered the reasonable cost of such

services. In prescribing the regulations referred

to in the preceding sentence, the Secretary shall

consider, among other things, the principles gen-

erally applied by national organizations or estab-

lished prepayment organizations (which have de-

veloped such principles) in computing the amount

of payment, to be made by persons other than the

recipient of services, to providers of services on

account of services furnished to such recipients

by such providers. Such regulations may provide

for determination of the costs of services on a per

diem, per unit, per capita, or other basis, may

provide for using different methods in different

circumstances, may provide for the use of esti-

mates of costs of particular items or services, may

provide for the establishment of limits on the di-

rect or indirect overall incurred costs or incurred

costs of specific items or services or groups of

items or services to be recognized as reasonable

based on estimates of the costs necessary in the ef-

A23

ficient delivery of needed health services to indi-

viduals covered by the insurance programs estab-

lished under this subchapter, and may provide for

the use of charges or a percentage of charges

where this method reasonably reflects the costs.

Such regulations shall (i) take into account both

direct and indirect costs of providers of services

(excluding therefrom any such costs, including

standby costs, which are determined in accordance

with regulations to be unnecesasry in the efficient

delivery of services covered by the insurance pro-

grams established under this subchapter) in or-

der that, under the methods of determining costs,

the necessary costs of efficiently delivering cov-

ered services to individuals covered by the insur-

ance programs established by this subchapter will

not be borne by individuals not.so covered, and

the costs with respect to individuals not so cov-

ered will not be borne by such insurance pro-

grams, and (ii) provide for the making of suit-

able retroactive corrective adjustments where, for

a provider of services for any fiscal period, the

aggregate reimbursement produced by the meth-

ods of determining costs proves to be either inade-

quate or excessive.”

A24

20 C.F.R. § 405.415(d) (3), 20 C.F.R. p. 459 I hereby certify that service of the foregoing Peti-

(1976) provides as follows: tion for Certiorari was made on the parties hereto by

“When a provider who has used an acceler- placing three certified true copies of said Petition for

ated method of depreciation with respect to any Certiorari in the United States Post Office at Portland,

of its assets terminates participation in the pro-

gram, or where the health insurance proportion

of its allowable costs decreases so that cumula-

tively substantially more depreciation was paid

Oregon, mailed prepaid postage “Airmail Special De-

livery,” on December 17, 1976, addressed to each of

the following:

than would have been paid using the straight-line Solicitor General

method of depreciation, the excess of reimburs- Department of Justice

able cost, determined by using accelerated depre- Washington, D. C. 20530

ciation methods and paid under the program over David Matthews, Secretary :

the reimbursable cost which would have been de- ee - oy ei" and Welfare

termined and paid under the program by using ndependence Avenue, 0.2.

the straight-line method of depreciation will be Washington, D. C.“20003

recovered as an offset to current reimbursement | Robert E. Kopp ;

due or, if the provider has terminated participa- Attorney, Appellate Section :

tion in the program, as an overpayment. In this — mi f Justi

determination of excess payment, recognition will epartment Of Justice

Washington, D. C. 20530

be given to the effects the adjustment to straight-

line depreciation would have on the return on

equity capital and on the allowance in lieu of ARDEN E, SHENKER

specific recognition of other costs in the respec- TOOZE KERR PETERSON MARSHALL

tive years.” & SHENKER

801 Standard Plaza

Portland, Oregon 97204

Counsel for Petitioner

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.