Petitioners Brief — Your Home Visiting Nurse Services, Inc. v. Shalala

> FILED |

/ JUL 2.2 1998

No. 97-1489

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7 Tu

CLERK

SUPREME COURT, U.S.

In The

Supreme Court of the United States

October Term, 1997

+

YOUR HOME VISITING NURSE SERVICES, INC.,

Petitioner,

SECRETARY OF HHS,

Respondent.

+

On Writ Of Certiorari

To The United States Court Of Appeals

For The Sixth Circuit

«

PETITIONER’S BRIEF ON THE MERITS

°

Diana L. Gustin

Counsel of Record

11 Town Square

Post Office Box 1349

Norris, Tennessee 37828

(423) 494-3000

Counsel for Petitioner

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

i

QUESTIONS PRESENTED FOR REVIEW

Is regulation 42 C.F.R. § 405.1885(c) based on a per-

missible construction of the Medicare statute?

Is there jurisdiction for review of a refusal to reopen

a Medicare provider’s cost report under:

e Provider Reimbursement Review Board statute, 42

U.S.C. § 139500?

Federal Question Jurisdiction, 28 U.S.C. § 1331?

Mandamus Jurisdiction, 28 U.S.C. § 1361?

Administrative Procedure Act, 5 U.S.C. § 706?

ii

PARTIES TO THE PROCEEDINGS

The petitioner, plaintiff-appellant in the proceedings

below, is Your Home Visiting Nurse Services, Inc. and its

home health care agency providers licensed as numbers

44-7100, 44-7300, 44-7234, and 44-7304 (Tennessee corpo-

rations). There is no parent or non-wholly owned subsid-

iary company to be listed as required by United States

Supreme Court Rule 29.6.

Respondent is the Secretary of Health and Human

Services, represented by the Solicitor General as Counsel

of Record for the Department of Health and Human

Services.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR REVIEW ........... j

PARTIES TO THE PROCEEDINGS ................. i

TABLE OF AUTHORITIES ......................... v

NN NI gio i oe ie te 1

JURISDICTION ............ SS coeitertee May Us 1

STATUTORY PROVISIONS AND OTHER AUTHORI-

gaa GRR aaa aeeaene rari jel 1

STATEMENT OF THE CASE....................... 2

SUMMARY OF ARGUMENT....................... 3

pT APRS MSI Sak aces 6

I. IS 42 C.RR. § 405.1885(c) BASED ON A PER-

MISSIBLE CONSTRUCTION OF THE MEDI-

RP Mitr ana agrtal 6

Il. IS THERE JURISDICTION FOR REVIEW OF A

REFUSAL TO REOPEN A MEDICARE PRO-

VIDER’S COST REPORT UNDER THE PRO-

VIDER REIMBURSEMENT REVIEW BOARD

STATUTE, 42 U.S.C. § 139500 ............... 17

Ill. IS THERE JURISDICTION FOR REVIEW OF A

REFUSAL TO REOPEN A MEDICARE PRO-

VIDER’S COST REPORT UNDER THE FEDERAL

QUESTION STATUTE, 42 US.C. § 1331........ 18

iv

TABLE OF CONTENTS - Continued

Page

IV. IS THERE JURISDICTION FOR REVIEW OF A

REFUSAL TO REOPEN A MEDICARE PRO-

VIDER’S COST REPORT UNDER MAN-

DAMUS JURISDICTION, 42 U.S.C. § 1361... 24

V. IS THERE JURISDICTION FOR REVIEW OF A

REFUSAL TO REOPEN A MEDICARE PRO-

VIDER’S COST REPORT UNDER THE

ADMINISTRATIVE PROCEDURE ACT 5

See OU sickens ivinccvscycnkdedeedsenkea 29

CRT Ko cicnpusacavecstrwaresnenpeemkuaeenen 38

ee Pe EET ETT ee App. 1

Page

Cases:

Abbott Laboratories v. Gardner, 387 U.S. 136 (1967) .... 23

Ashland Regional Medical Center v. Shalala, 1998 WL

ESOT S GREP a. BOP wn i ccc cisicvccdeices 31, 33, 36

Belles v. Schweiker, 720 F.2d 509 (8th Cir. 1983)....... 25

Bowen v. Michigan Academy of Family Physicians,

CoP Dr Is dnc weccncodcuacts 4, 19, 20, 23, 39

Bowles v. Seminole Rock & Sand Co., 325 U.S. 410

Pte tard danse uasnsetcatdbenns tes deceocya 7

Chevron U.S.A. Inc. v. Natural Resources

Counsel, Inc., 467 U.S. 837 (1984)...... 6, 9, 10, 11, 18

DeVito v. Shultz, 300 F.Supp. 381 (D.D.C. 1969)...... 35

Dunlop v. Bachowski, 421 U.S. 560 (1975)............. 35

Ellis v. Blum, 643 F.2d 68 (2nd Cir. 1981)............ 25

Ganem v. Heckler, 746 F.2d 844 (DC Cir. 1984) ....... 25

Good Samaritan Hospital, et al. v. Shalala, 508 U.S.

Be NESS sine dublin c cetiadcdccweewenes. 30, 31

Heckler v. Campbell, 461 U.S. 458 (1983).............. 31

Heckler v. Ringer, 466 U.S. 602 (1984)............ passim

Hennepin County Medical Center v. Shalala, 81 F.3d

ee Ee SS wuwedi ses Ub iknbncued cecece cee 30

Interstate Commerce Commission v. Brotherhood of

Locomotive Engineers, 482 U.S. 270 (1987).......... 37

vi

TABLE OF AUTHORITIES - Continued

Page

Kerr v. United States District Court, 426 U.S. 394

CROOGD vie 6S ds ends oka sadivedsdiescwenvdauedeuenre 24

Kuehnor v. Schweiker, 717 F.2d 813 (3rd Cir. 1983),

vacated on other grounds, 469 U.S. 977 (1984)....... 25

Loma Linda Community Hospital v. Shalala, 907

PU TPP Me MOU ven ccncicntes écccncece 37

Lopez v. Heckler, 725 F.2d 1489 (9th Cir.), vacated on

other grounds, 469 U.S. 1082 (1984)................ 24

Mary Imogene Bassett Hospital v. Blue Cross and Blue

Shield Association/Empire Blue Cross and Blue

Shield, PRRB decision 98-D58, http://

www.hcfa.gov/regs/98d58.htm.................... 31

Medical Fund-Philadelphia Geriatric Center v. Heck-

ler, 804 F.2d 33 (3rd Cir. 1986).................. 4, 23

Memorial Hospital v. Sullivan, 779 F.Supp. 1406

Gas Ev bnbes cwicctapacts albenndddecssanciet 29

Morton v. Ruiz, 415 U.S. 199 (1974).................. 26

Regions Hospital v. Shalala, 118 S.Ct. 909 (1988) ...15, 33

Service v. Dulles, 354 U.S. 363 (1957) ................ 26

State of Oregon v. Bowen, 854 F.2d 346 (9th Cir.

<6 bdvcquéenaseuausendasvesecseudtwncdel 8, 11, 30

United States ex rel. Girard Trust Co. v. Helvering,

SOS Wee EP ID edn knits 6einctts Bie ohbandnskétes 24

United States v. Nixon, 418 U.S. 683 (1974)........... 26

United States v. Riverside Bayview Homes, Inc., 474

Ge Ge GEE ov ccbcnietwisecadysekbteoanedbseduice 7

vii

TABLE OF AUTHORITIES — Continued ‘

age

Your Home Visiting Nurse Services, Inc. v. Secreta

Health and Human Services, 132 F.3d 1135 (

SE MPETD. cbbebSobibes ends dtccei Sd cvede’ 1, 19, 20, 25

Weinberger v. Salfi, 422 U.S. 749, 760-61 (1975)... .20, 22

ES OF FUG spawancevestchoceseddcececbasesces’ 1, 29

Fes BP ED 6 0 es cd yiveisonesiovcesatvi 5, 30, 38

Se Ce EE ob even ecercdocdbssccociavbendsntes 1

SP ee Wh BE be ce curicevoctéiess 1, 4, 19, 23, 38, 39

Se Be Mo Rc ob'ias chicvcivesscecen 1, 5, 24, 29, 39

Se ee ID DNS voce dcbecceecdckestbersicse passim

Ser ME EE MARE 000 se Copsccdccsucdedesavanedeaceds 2

ch bc ab ov bededa voce sassenvs secesee 2

Se ED occ c6v cs kotaedsoedeseségeacessue 2

Ge WR, © TV EAD. ccc ccccccccccccccs passim

a oaddeec dented scddcosscccwss passim

Se EE c cbwdnccscccdsecesdnedes 2, 3, 6, 12

“2 U.S.C. § 139500(a)(1)(A)(i) .... 2... eee eee. 2, 7, 9, 11

veces cakeenbnecnencessestene 2, 36

kn od cnecetpevenceasensscassess 2

ee IID alin Gc dudadsc covccscccceccecetcess 2

IIE veo bacvacescsdnsvcccscctoceces 1,2

Se eee © Gv ccccncccccccccccscsces 1, 27, 28

viii

TABLE OF AUTHORITIES - Continued

Page

42 C.B.R. § 405.1885(c).. 16... eee eee cece ee evens passim

42 C.F.R. § 405.1885(d).........-..e cece eeeenes 1, 27, 36

42 C.B.R. § 413.24(f) 00... .cccccccccvcccecvcccnssaces 2

42 CBR. © GUBIGR 2. cc cccccccvccvccccccssescvces 29, 40

42 C.F.R. § 413.102(b)(2)(i) .... 66. eee eens passim

42 C.B.R. § 421.S(D) ... 2. ccc erevccvcecvcsseescccess 1,2

MISCELLANEOUS:

5 Davis, Administrative Law Treatise, (2d ed. 1984) .... 30

Webster’s Collegiate Dictionary (5th ed.)............. 9

a

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OPINIONS BELOW

The opinion of the court of appeals is reported at

Your Home Visiting Nurse Services, Inc. v. Secretary of Health

and Human Services, 132 F.3d 1135 (6th Cir. 1997). The

opinion of the district court is unreported. See Pet. App.

17-33. The decision of the Provider Reimbursement

Review Board is also unreported. See Pet. App. 34-35.

°

JURISDICTION

The court of appeals for the Sixth Circuit entered its

judgment on December 22, 1997. See Pet. App. 38-39. The

petition for a writ of certiorari was riled on March 11,

1998. The jurisdiction of this Court is invoked under 28

U.S.C. § 1254(1). The petition for a writ of certiorari was

granted on June 15, 1998 as to the first two questions

presented for review within the writ.

¢

STATUTORY PROVISIONS

AND OTHER AUTHORITIES INVOLVED

The statutory provisions and other authorities

involved include 5 U.S.C. § 706; 28 U.S.C. § 1254(1); 28

U.S.C. § 1331; 28 U.S.C. § 1361; 42 U.S.C. § 405(h); 42

U.S.C. § 1395x(v)(1)(A)(ii); 42 U.S.C. § 139500; 42 C.FR.

§ 405.1885 et seq.; 42 C.FR. § 421.5(b); and 42 C.FR.

§ 413.102(b)(2)(i).

STATEMENT OF THE CASE

The petitioner provides home health care services to

Medicare beneficiaries and is entitled to receive reason-

able reimbursement from the Medicare program for these

services under Title XVIII of the Social Security Act, 42

U.S.C. § 1395 et seq. Part A of the Medicare statute covers

basic institutional health costs, including covered home

health care. 42 U.S.C. § 1395x(m). The respondent is ulti-

mately responsible for administration of the Medicare

Program through the Health Care Financing Administra-

tion (HCFA) which contracts with insurance companies

such as Blue Cross & Blue Shield of Tennessee and Blue

Cross & Blue Shield of South Carolina to perform reim-

bursement and review functions in the role of fiscal inter-

mediary. See 42 C.F.R. § 421.5(b).

Providers, such as petitioner, submit cost reports to

their intermediary at the close of each fiscal year. 42

U.S.C. § 1395g; 42 C.F.R. § 405.1801(b); 42 C.ER.

§ 413.24(f). The intermediary then determines allowable

cost and issues a Notice of Program Reimbursement let-

ter. 42 C.FR. § 405.1803. This determination may be

reopened under certain circumstances. 42 C.F.R.

§ 405.1885.

Petitioner discovered new and material evidence con-

cerning its December 31, 1989 cost reports that prompted

its request for reopening of the cost reports. The request

was made within three years from the date of the Notice

of Program Reimbursement letters. The intermediary

refused to reopen the cost reports. Pet. App. 36-37. There-

after, the Provider Reimbursement Review Board (the

Board) refused to accept jurisdiction of petitioner’s

oe

request for review of the refusal to reopen the cost

reports. Pet. App. 34-35. Petitioner appealed the Board’s

decision to the district court where the case was dis-

missed and the Board’s decision was upheld. Pet. App.

16-33. The district court also refused to accept jurisdiction

to hear petitioner’s case on any of the alternative theories

offered. Id. The Sixth Circuit Court of Appeals affirmed

the district court decision. Pet. App. 1-15.

+

SUMMARY OF ARGUMENT

The Secretary interprets regulation 42 C.F.R.

§ 405.1885(c) in such a way that defines exclusive juris-

diction for reopening a report to mean that there is no

review of a refusal to reopen a final determination. The

petitioner asserts this is not a reasonable interpretation of

the Medicare statute and therefore is not a permissible

construction of 42 U.S.C. § 139500(a). Other sections of

the Medicare statute also support the position that review

for a refusal to reopen must be allowed. Any other read-

ing of the statute would render provisions regarding

retroactive corrective adjustments meaningless and there-

fore superfluous which would not be in accordance with

the statutory scheme taken as a whole. 42 U.S.C.

§ 1395x(v)(1)(A)(ii).

If there is no review of a refusal by an intermediary

to reopen a final determination, then complete power

rests with one party. Not only does this conflict with the

statutory mandate that regulations shall provide for the

making of suitable retroactive corrective adjustments, but

it also creates a de facto double standard. This contradic-

tion cannot be construed as a reasonable reading of the

Medicare statute.

The Medicare statute, 42 U.S.C. § 139500, allows pro-

viders to seek review of final determinations. This review

process must include those final determinations that are

refusals to reopen. The Secretary should not be permitted

to extinguish the right to the review procedure set forth

in the Medicare statute. If the Court agrees with this

contention as the correct reading of the law, then an

avenue of administrative review would be available

which might dispense with the need to resort to federal

question jurisdiction in order to obtain judicial review of

a refusal to reopen a final determination. If the Court is

not convinced that 42 U.S.C. § 139500 provides an avenue

for administrative appeal of refusals to reopen, then

reliance upon 28 U.S.C. § 1331 must again be proposed as

4 jurisdictional grant for this situation.

It would be implausible to think that Congress

intended there be no forum to adjudicate statutory and

constitutional challenges to regulations promulgated by

the Secretary. In Bowen v. Michigan Academy of Family

Physicians, 476 U.S. 667 (1986), this Court severely

restricted the decision of Heckler v. Ringer, 466 U.S. 602

(1984) when it upheld jurisdiction under 28 U.S.C. § 1331

to challenge the validity of a regulation authorizing pay-

ment. Therefore, to the extent that claims involve matters

outside the articulated statutory review process, jurisdic-

tion should be available under § 1331. Medical Fund-

Philadelphia Geriatric Center v. Heckler, 804 F.2d 33, 38-39

(3rd Cir. 1986).

If this Court finds federal question jurisdiction is

precluded by 42 U.S.C. § 405(h) of the Medicare statute,

then the petitioner would rely upon 28 U.S.C. § 1361 as

an alternative for jurisdiction, or in addition to 28 U.S.C.

§ 1331. This Court has not yet ruled upon the question of

whether the third sentence of 42 U.S.C. § 405(h) is a bar to

mandamus jurisdiction in Social Security cases. Many

Courts of Appeal that have considered the question have

ruled that mandamus remains available under the Social

Security Act. There ‘are two requirements that must be

met regarding mandamus jurisdiction. 28 U.S.C. § 1361.

The first pertains to exhaustion of all other avenues of

relief and second concerns the breach of a nondiscretion-

ary duty. Id. Petitioner asserts it met both requirements

and therefore mandamus is a valid basis for jurisdiction

in this matter.

Under the Administrative Procedure Act (APA) the

Secretary's decisions regarding provider's claims for

Medicare reimbursement shall be set aside where a deci-

sion is arbitrary, capricious, an abuse of discretion,

unsupported by substantial evidence, or contrary to law.

5 U.S.C. § 706(2)(A). If this Court does not establish a

provider’s right to obtain review of a refusal to reopen,

intermediaries may abuse their discretion and remain

unchallenged. The Secretary’s reading of 42 C.F.R.

§ 405.1885(c) precludes review of every decision which

refuses to reopen a cost report and therefore insulates

from review even the most abhorrent abuses of discre-

tion. There must be a forum with the authority both to

review such a decision and to set it aside if the decision is

arbitrary, capricious, an abuse of discretion, unsupported

by substantial evidence, or contrary to law.

¢

ARGUMENT

I. Is 42 C.RR. § 405.1885(c) based on a permissible

construction of the Medicare Act?

The regulation at issue in this case is 42 C.F.R.

§ 405.1885(c) which states that “[jJurisdiction for reopen-

ing a determination or decision rests exclusively with that

administrative body that rendered the last determination

or decision.” The Secretary interprets her regulation in

such a way that defines exclusive jurisdiction for reopen-

ing to mean that there is no review of the decision con-

cerning the reopening request. The petitioner asserts this

is not a reasonable interpretation of the Medicare statute

and therefore is not a permissible construction of 42

U.S.C. § 139500(a). This section of the statute allows a

provider to seek review of a final determination if:

e the provider is dissatisfied with a final determination

of the organization serving as its fiscal intermediary as

to the amount of total program reimbursement due the

provider;

e the amount in controversy is $10,000 or more; and,

e the provider files a request for a hearing before the

Provider Reimbursement Review Board within 180

days after notice of the intermediary’s final deter-

mination.

42 U.S.C. § 139500(a) (emphasis added).

The judiciary is the final authority on issues of statu-

tory construction. Administrative constructions which are

found to be contrary to clear congressional intent must be

rejected. Chevron U.S.A., Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837, 843 n.9 (1984). An agency’s

construction of a statute is only entitled to deference if it

ee ee

A I oe ~ .

is reasonable and not in conflict with the intent of Con-

gress. United States v. Riverside Bayview Homes, Inc., 474

U.S. 121, 131 (1985).

The respondent references Section 139500(a)(1)(A)(i)

of the statute in its brief and correctly notes that this

section authorizes the Board to review a fiscal intermedi-

ary’s “final determination . . . as to the amount of total

program reimbursement due to the provider . . . for the

period covered by the provider's cost report.” Resp’t br.

to Pet. Cert. 8 (emphasis added). The Respondent then

offers a conclusion which petitioner believes is unwar-

ranted:

“That language plainly refers to the fiscal inter-

mediary’s issuance of the NPR reflecting the

total reimbursement due the provider for that

fiscal year. It does not readily encompass, how-

ever, a denial by the intermediary of a request to

alter a prior determination as to whether partic-

ular cost items are reimbursable.”

Resp’t br. to Pet. Cert. 8 (emphasis added).

Petitioner disagrees. That language does not plainly

refer to the fiscal intermediary’s Notice of Program Reim-

bursement, it simply refers to a final determination. An

agency’s interpretation of a regulation is valid only if that

interpretation complies with the actual language of the

regulation. Bowles v. Seminole Rock & Sand Co., 325 U.S.

410, 414 (1945). The plain language of the Secretary’s own

regulation does not bar review because 42 C.F.R.

§ 405.1885(c) reads: “[jJurisdiction for reopening a deter-

mination or decision rests exclusively with that adminis-

trative body that rendered the last determination or

decision.” The language says nothing about reviewabil-

ity; it merely vests the discretion to decide whether or not

to reopen. State of Oregon v. Bowen, 854 F.2d 346, 349 (9th

Cir. 1988). Here, the Secretary's interpretation does not

comply with the actual language used in the regulation

nor does it comply with the language used in the statute

that permits review of a final determination.

The Secretary must agree that the refusal to reopen is

a final determination. In fact, in State of Oregon, 854 F.2d

at 346, the court noted such an admission: “[a]lthough the

NPR is often the final determination in question, the

fiscal intermediary’s refusal to reopen also qualifies as a

final determination, a fact the Secretary concedes in his

briefs.” Since the Secretary has recognized the refusal to

reopen is a final determination, this type of final deter-

mination can only be classified as an exception to the

statute which permits providers the opportunity to

request review of final determinations if the Secretary

interprets the language in the statute to mean something

other than what it states on its face. In order to block

review of this type of final determination, the Secretary

interprets the phrase “a final determination” to mean a

Notice of Program Reimbursement. This interpretation is

unnecessary and uncalled for because the phrase “a final

determination” is not ambiguous. The Secretary's inter-

pretation unfairly limits the right to request a review.

Petitioner asserts that the Secretary of Health and

Human Services’ interpretation of the regulation at issue

is contrary to the clear congressional intent. Congress

enacted provisions that assure an appeal process will be

available for review of final determinations regarding

a ee

Medicare reimbursement. The plain language of the stat-

ute simply states that a provider that is “dissatisfied with

a final determination” may seek review. 42 U.S.C.

§ 139500(a)(1)(A)(i). The Secretary's interpretation of the

phrase “a final determination” to mean the Notice of

Program Reimbursement is an obvious departure from

the plain language used in the statute. The word “inter-

pret” means to explain or tell the meaning of, to translate,

elucidate; to construe in light of individual belief, judg-

ment or interest. Webster's Collegiate Dictionary (5th ed.)

(emphasis added). It is in the Secretary’s interest to inter-

pret the phrase “a final determination” in a very limited

way in order to cut off the right to review. This is not in

keeping with the statutory provision that allows review

of a final determination when a provider is dissatisfied.

For this reason, the Secretary's interpretation should not

be allowed to stand.

In Chevron, two questions are raised which must be

answered when an agency’s construction of a statute it

administers is called into question. The first question is

whether Congress itself has addressed the matter:

When a court reviews an agency’s construction

of the statute which it administers, it is con-

fronted with two questions. First, always, is the

question whether Congress has directly spoken

to the precise question at issue. If the intent of

Congress is clear, that is the end of the matter;

for the court, as well as the agency must give

effect to the unambiguously expressed intent of

Congress.

Chevron, 467 U.S. 837, 842-843.

10

According to the dictates of Chevron, if the intent of

Congress is clear, that is the end of the matter. Here we

have simple language that the Secretary construes as

unclear in order to validate an interpretation that is

inconsistent with congressional intent. Therefore, the Sec-

retary’s construction of the Medicare statute (through her

reading of regulation 42 C.ER. § 405.1885(c) to prohibit

review of a final determination) is not entitled to defer-

ence. It fails the first test of Chevron because there is no

need for an interpretation of the unambiguous language.

If however, this Court concludes that interpretation

of the language at issue was appropriate, then the anal-

ysis under Chevron shifts to consider whether the

agency's construction of its statute is reasonable. The

review for reasonableness must examine whether the

agency properly exercised its discretion within the sphere

of its delegated authority. Chevron, 467 US. 837. Peti-

tioner asserts the Secretary’s interpretation is not entitled

to deference because it also fails the second test set out in

Chevron:

If, however, the court determines Congress has

not directly addressed the precise question at

issue, the court does not simply impose its own

construction on the statute, as would be neces-

sary in absence of an administrative interpreta-

tion. Rather, if the statute is silent or ambiguous

with respect to the specific issue, the question

for the court is whether the agency's answer is

based on a permissible construction of the stat-

ute.

Id. at 842-843.

eee — -

—_—— en

.

11

Petitioner asserts the Secretary's reading of the stat-

ute is not a permissible construction of the statute

because it is in conflict with the intent of Congress and

with the plain meaning of 42 U.S.C. § 139500(a)(1)(A)(i),

which allows review of a final determination. Petitioner

also contends that the Secretary's interpretation of the

Statute (which would allow her to cut off all judicial

review of refusals to reopen) is inconsistent with the

presumption of judicial review, as stated previously in

the Petition for Certiorari. Pet. Cert., 9-22 (adopted and

incorporated herein by reference).

As noted above, the first step in the Chevron analysis

is to determine whether Congress has expressed an intent

on the question at issue. Chevron, 467 U.S. at 842-843. The

second step is to determine whether or not the agency's

construction of the statute is reasonable. Id. Both steps

require an understanding of the statute and the congres-

sional intent regarding the question at issue. Congres-

sional intent can appear within specific language in the

statute, or it could be apparent in light of the statutory

scheme taken as a whole.

Petitioner asserts that other parts of the Medicare

statute also support its position that review for a refusal

to reopen must be allowed. Any other reading of the

statute would render provisions regarding retroactive

corrective adjustments meaningless and therefore super-

fluous which would not be in accordance with the statu-

tory scheme taken as a whole. In support of this

argument, petitioner would show the Secretary’s inter-

pretation of her regulation is in conflict with another

section of the Medicare statute. This was addressed by

the court in State of Oregon, 854 F.2d 346 where the

12

question of clear congressional intent regarding the avail-

ability of review when there is a refusal to reopen was

discussed at length. In that case, the court held the Secre-

tary’s claim of unreviewability cannot be supported by

the plain language of the Medicare statute, specifically

citing the section which, in effect, calls for the reopening

process:

the Secretary's claim of unreviewability cannot be

supported by the plain language of the section of

the Medicare Act authorizing reopening pro-

cedures. The statutory authorization of i

mandates that the regulation should “provide for

the making of suitable retroactive corrective adjust-

ments where, for a provider of services for any

fiscal period, the aggregate reimbursement pro-

duced by the methods of determining costs proves

to be either i te or excessive.” 42 U.S.C.

§ 1395x(v)(1)(A)(ii) (1982). Nothing in the plain

language of this mandate indicates unreviewability.

Id. at 349.

Petitioner adopts the position of the court in State of

Oregon regarding the frustration of congressional intent.

In that decision, the Ninth Circuit Court of Appeals cor-

rectly observed that tie Secretary’s regulation frustrated

two clear congressional purposes.

First, via section 139500(a) Cong ress intended to

give providers a specific mears by which to

appeal a fiscal intermediary’s cost determina-

tion . . . thus, the Secretary's regulation, at least

as the Secretary now wishes to interpret it,

partly eviscerates the congressional intent of

providing administrative review of a fiscal inter-

mediary’s cost determination because his policy

13

would allow questions of mistaken cost deter-

mination to go unreviewed. Second, because the

Secretary would shelter the reopening decision

from review, congress’ decision to provide a fair

method to make retroactive adjustments is

impermissibly negated.

Id. at 350. See also 42 U.S.C. § 1395x(v)(1)(A)(ii).

The Secretary's position of unreviewability is not reason-

able when read in conjunction with the portion of the statute

which requires retroactive corrective adjustments to assure

reasonable cost for Medicare services are paid. United States

Code Title 42 Section 1395x(v)(1)(A)(ii) requires the Secretary

to develop regulations to allow retroactive corrective adjust-

ments for payment of the reasonable cost of services:

Such regulations shall . . . provide for the mak-

ing of suitable retroactive corrective adjust-

ments where, for a provider of services for any

fiscal period, the aggregate reimbursement pro-

duced by methods of determining costs proves

to be either inadequate or excessive.

42 U.S.C. § 1395x(v)(1)(A)(ii).

Such regulations do not provide for the making of

suitable retroactive corrective adjustments where the Sec-

retary’s agents are allowed to refuse to make the correc-

tive adjustments and the Secretary prohibits review of the

refusal. If the Secretary’s position is accepted as reason-

able, then the statutory mandate for the Secretary to

develop regulations which shall provide for suitable retro-

active corrective adjustments is useless to providers who

seek a corrective adjustment because their reimbursement

was inadequate. This makes a provider's resort to 42

C.FR. § 1885(c), the regulation that allows a request for

14

reopening futile when, as in this case, a provider's

request is denied and there is no review of the denial

available. The right to request justice is meaningless without

the power to enforce fair consideration of the request for relief.

If there is no review of a refusal by an intermediary to

reopen a final determination, then complete power rests

with one party. Not only does this conflict with the statu-

tory mandate that regulations shall provide for the mak-

ing of suitable retroactive corrective adjustments, but it

also creates a de facto double standard because the Secre-

tary is more than willing to reopen a cost report to recoup

excessive amounts of reimbursement paid to a provider,

but is often quite reluctant to reopen a cost report when a

provider was underpaid. In this very case, for the cost

reporting period at issue, the intermediary reopened the

cost report for petitioner’s provider 44-7234 (Sneedville,

Tennessee office) to recover excessive compensation

which was inadvertently paid to a nurse whose license

had been revoked by the State of Tennessee. See Docket

entry no. 7 from the U.S. District Court record, pp. 14-15

and Exhibit B thereto. The intermediary nevertheless

steadfastly refused to reopen the very same cost report

for the same year, December 31, 1989, to allow additional

compensation to the petitioner's owners even though a

salary survey created by an intermediary recognized the

claimed salary was reasonable. This de facto double stan-

dard is in direct conflict with the statutory proclamation

that corrective adjustments be made for a provider when

the cost paid proves to be either inadequate or excessive.

42 U.S.C. § 1395x(v)(1)(A)(ii).

More evidence of the de facto double standard exists

in the case law on this subject. Many cases exist where

15

the Secretary seeks reopening io recover reimbursement

yet refuses to reopen to allow a provider additional reim-

bursement. Most convincing, perhaps, is the Secretary's

position as noted in the recent decision by this Court on

the subject of Medicare reimbursement of Graduate Med-

ical Education costs. The Secretary's concern for the accu-

racy of payment required reopening of base year cost

reports (even beyond the three year time period normally

allowed) in order to assure accurate payment. Regions

Hospital v. Shalala, 118 S.Ct. 909 (1998).

On February 24, 1998, this Court rendered a decision

regarding the Secretary's interpretation of the Graduate

Medical Education (GME) amendment and her regulation

permitting a reaudit of the base year even where the 1984

cost reports were beyond the three year time period. Id.

In that case, the Court examined the reaudit regulation

that permitted the Secretary to reopen a determination by

an ‘ntermediary, the Board, or the Secretary herself to

recoup excessive reimbursement for a given year. Id. The

GME amendment required the Secretary to determine a

hospital's cost for the reporting period that began in 1984.

Id. The Secretary interpreted this statute as allowing a

reaudit of the 1984 cost reporting periods. Id. The reaudit

rule was considered a reasonable interpretation of the

GME amendment primarily based upon the statute’s

instruction to determine for the 1984 year the “amount

recognized as reasonable.” Id. at 899. This Court empha-

sized that the reaudit rule brings the base-year calcula-

tion in line with “Congress’ pervasive instruction for

reasonable cost reimbursement”. Id. at 900. The rule was

recognized as a means to “enable the Secretary . . . to

carry out her responsibility to reimburse only reasonable

16

costs, and to prevent payment of uncovered, improperly

classified, or excessive costs.” Id.

It is the responsibility of the Secretary to pay the

reasonable cost, i.e., the correct amount of Medicare reim-

bursement. It is therefore inconsistent for the Secretary to

seek reopenings only when Medicare reimbursement is

being recouped and to acquiesce in her intermediary’s

refusal to reopen cost reports when additional Medicare

reimbursement is being sought.

In the present case, the respondent took the position

that reviewability of denials of requests to reopen pre-

sents an important and recurring issue in the administra-

tion of the already overburdened Medicare program.

Resp’t br. to Pet. Cert. 15. Petitioner would point out that

a review process will always create some additional

administrative work. Nevertheless, the importance of car-

rying out congressional intent that reasonable cost be

paid under the GME amendment created administrative

burdens on the Medicare Program by virtue of the reaudit

regulation itself. It is disingenuous of the Secretary to

have argued that her interpretation of the GME reaudit

regulation is reasonable when it adds administrative bur-

den to the program and now voice concern for the admin-

istrative burden which review of the refusal to reopen

might cause. If the Secretary is recouping Medicare reim-

bursement she is willing to burden the administrative

process, but when a provider requests additional Medi-

care reimbursement she streamlines the process with her

prohibition on administrative review.

It is readily apparent that the Secretary's decisions to

reopen cost reports to recoup Medicare reimbursement

17

will automatically allow a provider the right to an admin-

istrative review process because an Amended Notice of

Program Reimbursement will be issued once a cost report

is reopened to recover Medicare funds. On the other

hand, the intermediary’s decisions to refuse reopening

will not receive the administrative review process under

the Secretary’s reading of her regulation 42 C.F.R.

§ 405.1885(c). Providers’ reopening requests (which are

obviously made for the purpose of obtaining additional

reimbursement) do not receive the same level of adminis-

trative review. This leaves the reopening process incon-

sistent between the parties. The Secretary has the power

to make a reopening when she seeks to recoup Medicare

reimbursement and the power to refuse a reopening

request by a provider if additional reimbursement is

sought. This inconsistency is evidence of the double stan-

dard that exists. This contradiction cannot be construed

as a reasonable reading of the Medicare statute.

Il. Is there jurisdiction for review of a refusal to

reopen a Medicare provider’s cost report under the

Provider Reimbursement Review Board Statute, 42

U.S.C. § 139500?

Petitioner asserts, for all of the reasons stated in the

preceding section of this brief, that there is no need for

interpretation of the statutory section at issue because the

phrase “a final determination” is not ambiguous. In the

alternative, even if this Court finds it appropriate to

interpret the Medicare statute on this point, the Secre-

tary’s interpretation of her regulation is in direct conflict

with the language contained in the Medicare statute.

Therefore, the Secretary’s construction is not entitled to

18

deference. Instead, the plain meaning of the statute,

which allows the provider that is dissatisfied with a final

determination to request review of that final determina-

tion, should be accepted as controlling authority on this

question. United State Code Title 42, Section 139500

allows providers to seek review of final determinations.

This review process must include those final determina-

tions that are refusals to reopen. The Secretary should not

be permitted to extinguish the right to the review pro-

cedure set forth in the Medicare statute, “for the court, as

well as the agency must give effect to the unambiguously

expressed intent of Congress.” Chevron, 467 U.S. at

842-843.

Ill. Is there jurisdiction for review of a refusal to

reopen a Medicare provider’s cost report under the

Federal Question Statute, 42 U.S.C. § 1331?

Petitioner asserts that the Medicare statute, 42 U.S.C.

§ 139500, does provide an appeal process as stated in the

preceding sections of this brief. If the Court agrees with

this contention as the correct reading of the law, then an

‘avenue of administrative review would be available

which might dispense with the need to resort to federal

question jurisdiction in order to obtain judicial review a

refusal to reopen a final determination. However, even if

the petitioner is successful at this juncture and prevails

based upon its reading of 42 U.S.C. § 139500, the question

still remains as to the Sixth Circuit decision that peti-

tioner’s claims were not entitled to review at the U.S.

District Court level under federal question jurisdiction

because the Medicare statute precludes federal question

jurisdiction as a basis for review. Pet. App. 12. See also

—-— -

19

Your Home Visiting Nurse Services, Inc. v. Secretary of Health

and Human Services, 132 F.3d 1135, n.3 (6th Cir. 1997)

(where the court questioned the continuing validity of the

amount/methodology distinction referenced in Bowen v.

Michigan Academy of Family Physicians, 476 U.S. 667

(1986)). Petitioner adopts and incorporates by reference

its argument presented in the Petition for Certiorari,

pages 9-22, regarding the presumption to judicial review

under the federal question statute. If petitioner does not

convince the Court that 42 U.S.C. § 139500 provides an

avenue for administrative appeal of refusals to reopen,

then reliance upon 28 U.S.C. § 1331 must again be pro-

posed as a jurisdictional grant for this situation.

In Bowen v. Michigan Academy of Family Physicians, 476

U.S. 667, 678 (1986), this Court concluded it would be

implausible to think that Congress intended there be no

forum to adjudicate statutory and constitutional chal-

lenges to regulations promulgated by the Secretary.

Unfortunately, the Sixth Circuit would not accept peti-

tioner’s argument that collateral challenges, not requiring

consideration of the merits of a Medicare claim, are out-

side the scope of the statute. Your Home Visiting Nurse

Services v. Shalala, 132 F.3d 1135 (6th Cir. 1997); Pet. Cert.

11.

Your Home’s argument is foreclosed by Heckler

. v. Ringer, 466 U.S. 602 (1984). In Ringer, the

Secretary of Health and Human Services issued

an administrative ruling that Medicare did not

cover certain surgical procedure. Four individ-

ual claimants brought a suit challenging the rul-

ing, asserting federal question jurisdiction. The

Court held that § 405(h) barred the suit, finding

that “the inquiry in determining whether

20

§ 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.” Id. at 614-15. The

proper test is whether “ ‘both the standing and

the substantive basis for the presentation’ of the

claims” is the Medicare statute. Id. at 615 (quot-

ing Weinberger v. Salfi, 422 U.S. 749, 760-61

(1975)).

Your Home Visiting Nurse Services, 132 F.3d 1135; Pet. Cert.

App. 11-12.

The Sixth Circuit’s reliance upon Heckler v. Ringer, 466

U.S. 602 (1984) to the exclusion of the more recent deci-

sion Michigan Academy, 476 U.S. 667, sets the stage for the

denial of jurisdiction in U.S. District Courts when pro-

viders challenge the Secretary’s regulations or procedures

which contradict the Medicare statute or constitutional

provisions. Petitioner presented two collateral challenges

in the proceedings below: the validity of regulation 42

C.F.R. § 1885(c); and the intermediary’s failure to abide

by 42 C.F.R. § 413.102(b)(2)(i) which requires that owners’

compensation be such an amount as would ordinarily be

paid by comparable institutions. While it could be argued

that the lower courts agreement with the Provider Reim-

bursement Review Board’s refusal to grant jurisdiction to

hear this matter essentially addressed the first collateral

challenge, neither court addressed the allegation concern-

ing the intermediary’s violation of a federal regulation.

Petitioner specifically raised this issue. See Docket entry

no. 7, U.S. District Court record, plaintiff’s brief, 11-12:

The intermediary’s refusal to review evidence was

arbitrary and capricious in that BCBS/SC refused to

——————

21

review the evidence concerning the previous inter-

mediary’s failure to follow the Medicare guidelines

which require owners compensation to be

“ .., such an amount as would ordinarily be paid

for comparable services by comparable institu-

tions.” 42 CFR 413.102(b)(2)(i). The refusal to

reopen the 1989 cost report to correct this error is a

clear abuse of discretion. The owners’ compensation

being paid to YHVNS is not in accordance with law.

The regulation cited above legally requires pay-

ment to owners to be comparable to payment

made for comparable services by comparable insti-

tutions. Comparing a single home health agency's

Administrator’s salary to that of a chain operation

Administrator’s salary is not in accordance with

law.

Id. (emphasis in original).

Both courts concluded there was no basis for jurisdic-

tion to hear the matter. Since the violation of the Secre-

tary’s own regulation was a collateral challenge and

would not have addressed the merits of the underlying

claim (i.e., the precise amount of allowable owners’ com-

pensation), both courts erred in their refusal to grant

jurisdiction to hear that collateral challenge. Petitioner

believes this is an important point that should be

addressed by the Court in this case.

Also of great importance in this matter is petitioner's

contention that the lower courts misconstrued the con-

cepts set out in Heckler v. Ringer, 466 U.S. 602 where this

Court recognized that judicial review of a claim under the

Medicare statute is available only after the Secretary of

Health and Human Services renders a ‘final decision.’

“Pursuant to her rulemaking authority the Secretary has

22

provided that a ‘final decision’ is rendered on a Medicare

claim only after the claimant has pressed the claim

through all designated levels of administrative review.”

Id. at 602. Plaintiffs in that case were required to exhaust

their administrative remedies before pursuing an action

in federal court. In the present case, petitioner attempted

to follow the administrative appeal process by requesting

review of the denial of the reopening. If the Secretary's

reading of 42 C.F.R. § 405.1885(c) is accepted as reason-

able, there is no administrative process available to

exhaust when there is a denial of a reopening request.

That was not the situation in Heckler v. Ringer:

Although respondents would clearly prefer an

immediate appeal to the District Court rather

than the often lengthy administrative review

process, exhaustion of administrative remedies

is in no sense futile for these respondents, and

they, therefore, must adhere to the administra-

tive procedure which Congress has established

for adjudicating their Medicare claims.

Id. at 619.

The Court notes that in Weinberger v. Salfi, the pur-

pose of the exhaustion requirement is to prevent “prema-

ture interference with agency processes” and to give the

agency a chance “to compile a record which is adequate

for judicial review.” Heckler v. Ringer, 466 U.S. at 619 n. 12

(citing Weinberger v. Salfi, 422 U.S. 749, 765 (1975)). These

statements by the Court make it obvious that the concept

of exhaustion is meant to apply to those situations in

which there is an administrative review process to

exhaust.

C—O eo

23

In Michigan Academy, 476 U.S. 667, this Court severely

restricted the decision of Heckler v. Ringer when it upheld

jurisdiction under 28 U.S.C. § 1331 to challenge the val-

idity of a regulation authorizing payment. Therefore, to

the extent that claims involve matters outside the articu-

lated statutory review process, jurisdiction should be

available under § 1331. Medical Fund-Philadelphia Geriatric

Center v. Heckler, 804 F.2d 33, 38-39 (3rd Cir. 1986). There

is a strong presumption that Congress intends judicial

review of administrative action. Abbott Laboratories v.

Gardner, 387 U.S. 136, 140 (1967). That presumption is

even stronger for Medicare claims that lack an adminis-

trative forum “for it is implausible to think that Congress

provided no forum to adjudicate statutory and constitu-

tional challenges to the Secretary's policies although it

provided review by Medicare carriers of claims over

amounts Congress characterized as ‘trivial.’” Michigan

Academy, 476 U.S. at 677.

In the present case, the Secretary reads her regulation

to preclude administrative review and also relies upon

§ 405(h) to preclude judicial review under federal ques-

tion jurisdiction. This would allow a host of final deter-

minations to remain completely insulated from judicial

review, an extreme contradiction to the well-established

presumption of judicial review of agency action. There-

fore, § 405(h) should not be a bar to federal question

jurisdiction for collateral claims.

24

IV. Is there jurisdiction for review of a refusal to

reopen a Medicare provider's cost report under

Mandamus Jurisdiction, 42 U.S.C. § 1361?

Petitioner believes the Medicare statute provides an

administrative review process, but if the Court does not

accept this view, then the alternative of federal question

jurisdiction is offered as an appropriate jurisdictional

grant for judicial review of final agency action. If this

Court finds federal question jurisdiction is precluded by

§ 405(h) of the Medicare statute, then the petitioner

would rely upon 28 U.S.C. § 1361 for jurisdiction in this

matter. This Court has not yet ruled upon the question of

whether the third sentence of § 405(h) is a bar to man-

damus jurisdiction in Social Security cases:

Assuming without deciding that the third sen-

tence of § 405(h) does not foreclose mandamus

jurisdiction in all Social Security cases, . . . the

District Court did not err in dismissing respon-

dents’ complaint here because it is clear that no

writ of mandamus could properly issue in this

case. The common law writ of mandamus, as

codified in 28 U.S.C. § 1361, is intended to pro-

vide a remedy for a plaintiff only if he has

exhausted all other avenues of relief and only if

the defendant owes him a clear nondiscretion-

ary duty. See Kerr v. United States District Court,

426 U.S. 394, 402-403 (1976) (discussing 28

U.S.C. § 1651); United States ex rel. Girard Trust

Co. v. Helvering, 301 U.S. 540, 543-544 (1937).

Heckler v. Ringer, 466 U.S. at 616-617.

Many Courts of Appeals that have considered the

question have ruled that mandamus remains available

under the Social Security Act. Lopez v. Heckler, 725 F.2d

25

1489 at 1507-8 (9th Cir.), vacated on other grounds, 469

U.S. 1082 (1984); Ganem v. Heckler, 746 F.2d 844, 850 (DC

Cir. 1984); Belles v. Schweiker, 720 F.2d 509, 512-513 (8th

Cir. 1983); Kuehnor v. Schweiker, 717 F.2d 813, 819 (3rd Cir.

1983), vacated on other grounds, 469 U.S. 977 (1984); Ellis

v. Blum, 643 F.2d 68, 78 (2nd Cir. 1981). These cases find

mandamus jurisdiction appropriate for procedural chal-

lenges where the court will not need to address substan-

tive rights. In the present case, the petitioner challenged

the intermediary's failure to follow regulations regarding

the appropriate procedure to be used to determine the

reasonableness of owners’ compensation. 42 C.F.R.

§ 413.102(b)(2)(i).

There are two questions that must be answered

regarding mandamus jurisdiction. First, if the plaintiff

has exhausted all other avenues of relief, and second, if

there is a nondiscretionary duty involved. The Sixth Cir-

cuit spoke to the question of exhaustion in its decision on

the present case when it found that the district court's

holding with respect to exhaustion was incorrect. Your

Home Visiting Nurse Services, 132 F.3d 1135; Pet. App. 13.

The Sixth Circuit recognized that petitioner had

exhausted all available remedies with respect to its claim

that the intermediary, improperly denied its request to

reopen. Unfortunately for petitioner, the court went on to

hold that the duty to reopen was discretionary in nature

and therefore would not have triggered mandamus juris-

diction. Id.; see also Pet. App. 15. Petitioner disagrees with

two aspects of the ruling regarding mandamus.

Petitioner asserts that the Secretary owed it two non-

discretionary duties and therefore mandamus should pro-

vide a basis for jurisdiction to permit judicial

26

enforcement of those duties. First and foremost, is the

duty to determine reasonable cost in accordance with

regulations governing that cost, a mandatory duty which

was ignored by the intermediary. United State Code Title

42, Section 1395x(v)(1)(A) (emphasis added) states in per-

tinent part “[t}he reasonable cost of any services shall be

the costs actually incurred, excluding therefrom any part

of incurred cost found to be unnecessary in the efficient

delivery of needed health services, and shall be deter-

mined in accordance with regulations establishing the

method or methods to be used.” The Secretary’s agent,

the intermediary, violated the Secretary's own regulations

because it did not pay the owners of petitioner's home

health agency in accordance with regulation 42 C.F.R.

§ 413.102(b)(2)(i) which requires that owners compensa-

tion be “such an amount as would ordinarily be paid for

comparable services by comparable institutions.” The

agency must abide by its own regulations. United States v.

Nixon, 418 U.S. 683, 694-696 (1974); Service v. Dulles, 354

U.S. 363, 388 (1957); Morton v. Ruiz, 415 U.S. 199, 235

(1974). Because the Secretary is ultimately responsible for

the actions of its agent, the intermediary, the Secretary is

therefore responsible for the intermediary’s failure to per-

form this nondiscretionary duty. Once the failure to pay

the petitioner’s owners in accordance with the applicable

regulation was discovered, the request to reopen the cost

reports was made, the intermediary refused the request,

appeal to the Provider Reimbursement Review Board was

sought. The refusal of the Board to accept jurisdiction led

petitioner to resort to the judicial process where review

was requested under alternative theories, one of which

was mandamus. The Sixth Circuit found the decision

27

conceriog the refusal to reopen to be discretionary but

failed to address the underlying nondiscretionary duty

that is the heart of the matter. If the refusal to reopen is

considered discretionary, then the Secretary can violate

her regulations at any time, fail to perform nondiscretion-

ary duties, and then allow her intermediaries to exercise

their discretion NOT to reopen with impunity. This cre-

ates a situation where the Secretary's agents, the insur-

ance companies hired as fiscal intermediaries, can refuse

to perform nondiscretionary functions, can violate federal

regulations and yet, their refusal to abide by law will be

totally insulated from corrective action. No matter what

the nature of the duty is, or how blatant the refusal to

perform the duty might be, it would be unreviewable

under the Secretary’s reading of the reopening procedure

as a discretionary function.

Secondly, petitioner asserts that the Secretary is also

incorrect in her interpretation of the statute as permitting

her to characterize the reopening process as a discretion-

ary function. The Secretary’s reopening regulation con-

tains both discretionary and mandatory language

depending upon the circumstances. See 42 C.F.R.

§ 405.1885(a) (which states that a determination may be

reopened by the intermediary or panel of hearing offi-

cers, the Board, the Secretary, or on motion of the pro-

vider, compared with paragraph (b) which states that a

determination shall be reopened if HCFA notifies the

intermediary that such determination or decision is

inconsistent with the applicable law, regulations or gen-

eral instructions issued by HCFA); See also 42 C.F.R.

§ 405.1885(d) (which states that a decision shall be

reopened and revised at any time if it is established that

28

such determination or decision was procured by fraud or

similar fault of any party to the determination or deci-

sion. As shown by these excerpts, the provider is limited

in its right to receive a reopening). By use of the word

‘may’ (the discretionary language in 42 C.F.R.

§ 405.1885(a) which applies to the provider’s motion for

reopening) a discretionary situation is created in the Sec-

retary’s regulation. This discretionary situation was not

created by the statute.

The statute regarding the duty to make regulations

which allow for the corrective retroactive adjustments

was drafted with mandatory terms. See 42 U.S.C.

§ 1395x(v)(1)(A) (emphasis added) (where compulsory

language is used: “Such regulations shall . . . (ii) provide

for the making of suitable retroactive corrective adjust-

ments where, for a provider of services for any fiscal

period, the aggregate reimbursement produced by the

methods of determining costs proves to be either inade-

quate or excessive.”). Petitioner argues that the duty to

make corrective adjustments is not discretionary in the

Medicare statute and therefore the reopening regulation,

insofar as it purports to allow the Secretary's agents

discretion for making such corrective adjustments, is not

a permissible interpretation of the plain language in tl.>

Medicare statute. Since the corrective @ jjustment to bring

the petitioner's owners’ compensation in line with its

competitors is a mandatory duty in accordance with the

regulation at 42 C.F.R. § 413.102(b)(2)(i) and the Medicare

statute noted above requiring regulations for the correc-

tive adjustments is also mandatory in nature, the U.S.

District Court and the Sixth Circuit Court of Appeas

erred in failing to allow petitioner’s case to proceed with

29

judicial review. District courts shall have original jurisdic-

tion of any action in the nature of mandamus to compel

an officer or employee of the United States or any agency

thereof to perform a duty owed to the plaintiff. 28 U.S.C.

§ 1361. If a provider has new and material evidence or the

prior determination is found to be inconsistent with law

regulations or rulings, then there is a valid basis for

reopening and the court has federal question and man-

damus jurisdiction to review the refusal to reopen. Memo-

rial Hospital v. Sullivan, 779 F.Supp. 1410, 1412-13 (D.D.C.

1991).

Therefore, if this Court accepts petitioner’s view that

the duty to reopen to make corrective adjustments is not

discretionary, then the judiciary would be an appropriate

forum for review of a refusal to reopen. If the Court

accepts the Secretary’s view that reopening is a discre-

tionary determination, the petitioner would still rely

upon mandamus as available to a provider, such as peti-

tioner, where it can be shown that the intermediary failed

to per) rm a mandatory duty. In this case, the violation of

42 C.F.R. § 413.102 is, in and of itself, the failure to

perform a nondiscretionary duty. As a result, mandamus

was an appropriate basis for jurisdiction to address the

breach of a nondiscretionary duty.

V. Is there jurisdiction for review of a refusal to

reopen a Medicare provider’s cost report under the

Administrative Procedure Act 5 U.S.C. § 706?

Under the Administrative Procedure Act (APA) the

Secretary's decisions regarding provider’s claims for

Medicare reimbursement shall be set aside if the decision

30

is arbitrary, capricious, an abuse of discretion, unsup-

ported by substantial evidence or contrary to law. 5

U.S.C. § 706(2)(A); Hennepin County Medical Center v. Shal-

ala, 81 F.3d 743, 748 (8th Cir. 1996). In State of Oregon the

Ninth Circuit Court of Appeals aptly noted that the Sec-

retary’s promulgation of section 1885(c) fails to make a

distinction between the discretion to decide an issue and

the review of an administrative body’s exercise of its

discretion:

Thus, even though the Secretary has disqual-

ified the Board by virtue of section 1885(c) from

deciding whether or not the fiscal intermediary

should reopen, the Board has not been disqual-

ified from deciding whether the fiscal inter-

mediary abused its discretion by refusing to

reopen the determination. See 5 Davis, Adminis-

trative Law Treatise, (2d ed. 1984) § 28:10, at 311.

See also Dunlop v. Bachowski, 421 U.S. 560, 571-73

(1975) (allowed review for abuse of discretion,

even though courts could not decide the issue in

question).

State of Oregon, 854 F.2d at 350.

The question of whether there was an abuse of dis-

cretion should be addressed by the Board when a final

determination regarding refusal to reopen is appealed to

that forum. If the refusal to reopen was arbitrary and

capricious, it should be reversed. This Court has recog-

nized the weight to be given to the agency’s views will

depend upon the facts of individual cases. Good Samaritan

Hospital, et al. v. Shalala, 508 U.S. 402, 417 (1993). Where

the statute entrusts the Secretary with the responsibility

for implementing a provision by regulation, the court's

review is limited to determining whether the regulations

31

exceed the Secretary’s authority and whether they are

arbitrary and capricious. Heckler v. Campbell, 461 U.S. 458,

466 (1983). In Good Samaritan Hospital, the Secretary's

restrictive reading of the clause of the statute at issue was

considered plausible and the Court felt that it closely fit

the design of the statute as a whole and did not exceed

her statutory authority. Id. In the present case, it is diffi-

cult to imagine how the Secretary could support her

reading of the statute as fitting the design of the Admin-

istrative Procedure Act (APA) which allows for review of

final determinations while the Secretary would prohibit

such review.

It is worthwhile to note that the Board has found abuse

of discretion in a refusal to reopen as recently as June 2, 1998.

See Mary Imogene Bassett Hospital v. Blue Cross and Blue Shield

Association/Empire Blue Cross and Blue Shield, PRRB decision

98-D58, http:/ /www.hcfa.gov/regs/98d58.htm. In Mary

Imogene Bassett, the Board found the intermediary's refusal to

reopen was an abuse of discretion because the intermediary

had employed an unapproved method to calculate Medicare

reimbursement which was not in accordance with existing

laws and regulations and which constituted a clear and

obvious error. Id.

If this Court does not establish a provider’s right to

obtain review of a refusal to reopen, intermediaries may

abuse their discretion and remain unchallenged. The

magnitude of the loss of reimbursement which can result

from a refusal to reopen may be substantial as it was in

the case of Ashland Regional Medical Center v. Shalala, 1998

WL 156972 (E.D.Pa. 1998). The court in Ashland recog-

nized the intermediary’s refusal to reopen the cost

32

reports was “harsh” and would result in a loss to the

hospital of over five million dollars. Unfortunately, the

court held the intermediary’s refusal to reopen was

entirely within its discretion and found the Board’s deci-

sion that it lacked jurisdiction was supported by substan-

tial evidence. Id. at *6. In reaching this conclusion, the

court made some interesting observations. The case con-

cerned a hospital that had failed to file its cost report

correctly. Because the hospital had less than 100 beds

available, it would have qualified for an additional five

million dollars, if it had properly reported this informa-

tion to the intermediary. Id. at *3. The hospital requested

that its intermediary reopen the cost reports at issue. The

intermediary refused to reopen and the hospital appealed

the decision to the Board. The Board dismissed the hear-

ing request citing lack of jurisdiction. Appeal to the U.S.

District Court was made. When the U.S. District Court for

the Eastern District of Pennsylvania reviewed the case,

the court focused upon the fact that the hospital had

made the initial mistake:

Indeed, there are often times in life that we are

only given one bite at the apple and are forced

to live with our mistakes. While this may some-

times seem unfair, life is not always fair. Thus,

we refuse to hold that the agency’s interpreta-

tion is unreasonable simply because it is strict

and unforgiving. While requiring Ashland to

live with its mistakes is indeed harsh (in this

case a simple reporting error will cost the hospi-

tal over five million dollars), we cannot say that

it is unjust.

Id. at *7.

33

Compare the Secretary’s refusal to reopen to correct

this mistake which would have increased the provider’s

reimbursement by five million dollars to the Secretary’s

willingness to reopen and reaudit the base year cost

reports in Regions Hospital in order to reduce the allow-

able amount of reimbursement by five million dollars.

Regions Hospital, 118 S.Ct. at 909. If the court’s reasoning

in Ashland were applied in Regions Hospital, then the

intermediary’s mistake in the original NPR would have

gone uncorrected. The intermediary would have been

limited to one bite of the apple. This is another example

of the de facto double standard referenced earlier in this

brief. The Secretary is simply not being fair. Petitioner

does not believe Congress intended that Medicare pro-

viders to be treated unfairly in this harsh and inequitable

fashion.

The court in Ashland placed great emphasis upon the

fact that the mistake was made by the provider instead of

focusing more precisely upon the review of the Secre-

tary’s reopening regulation. The court’s discussion effec-

tively accepted the intermediary’s refusal to reopen the

cost report as reasonable because the provider’s mistake

caused the situation in the first place. In doing so, the

court virtually makes the decision about the reasonable-

ness of the intermediary’s refusal to reopen the cost

report while refusing to accept jurisdiction to decide that

issue. Ashland Regional Medical Center, 1998 WL 156972 *6.

In other words, the court looked at the facts and essen-

tially found the refusal to reopen justifiable as reasonable

_ where the provider made the mistake and later sought

correction of its own error. Further discussion by the

court about situations in which the refusal to reopen

34

might be an abuse of discretion leads petitioner to believe

that court might have ruled differently had petitioner’s

case been before it. The following excerpt is revealing on

this point:

Plaintiff also points out that Defendant's inter-

pretation conflicts with the regulatory provision

mandating reopenings based on fraud .. .

However the case before this court does not

involve fraud; it involves Plaintiff's own mis-

take. Thus while Plaintiff makes a strong argu-

ment that the Board’s refusal to assert

jurisdiction over an intermediary’s refusal to

reopen a case when that intermediary is

involved in fraud may be unreasonable, that is

not the case before the court today. We will

therefore refrain from deciding the hypothetical

case proposed by the Plaintiff until such a case

is actually before this court.

Id. at *7.

Petitioner must emphasize that it did not make a

mistake on the cost reports at issue in the present case. To

the contrary, it was the wrongful conduct of the inter-

mediary which was not discovered by petitioner until

long after the initial Notice of Program Reimbursement

letters had been issued which led to petitioner’s request

to reopen. If the intermediary had used the appropriate

salary survey for home health agency administrators for

chain operations which were in the same geographical

area as the petitioner’s home health agencies (as required

by 42 C.F.R. § 413.102(b)(2)(i)) no audit adjustment to

decrease the petitioner’s owners’ compensation would

have been made in the first place. It was the error of the

intermediary which caused the problem. The error was

35

brought to the attention of the intermediary when the

request for reopening was made and yet, the intermedi-

ary refused to correct its own mistake. No justification

has been offered for the refusal to correct this error.

“When action is taken by the Secretary it must be such as

to enable a reviewing court to decide with some measure

of confidence whether or not the discretion, which still

remains in the Secretary, has been exercised in a manner

that is neither arbitrary or capricious . . . It is necessary

for [him] to delineate and make explicit the basis upon

which discretionary action is taken.” Dunlop v. Bachowski,

421 U.S. 560, 573 (quoting DeVito v. Shultz, 300 F.Supp.

381, 383 (D.D.C. 1969)).

The petitioner requested reopening on the basis of

new evidence, information that was discovered revealed

that its owners were being paid less than other owners

within the same geographical area. (Joint App. __) The

intermediary's refusal to reopen did not address the fact

that petitioners owners compensation had not been con-

sidered in line with comparable agencies within the same

geographical area. Nor did the intermediary’s refusal to

reopen give substantive explanations to support the deci-

sion. Instead, three conclusions were stated: (1) The man-

ner in which the home office cost statement was filed was

not inconsistent with the law, regulations and rulings or

general instructions. (2) A clear and obvious error was

not made when these cost reports were filed. (3) And,

new and material evidence has not been presented to

establish the compensation claimed was inappropriate.

Pet. App. 36-37. As to the first conclusion, the intermedi-

ary is correct in stating that a reasonable amount of

owners compensation was claimed on the home office cost

36

report. The problem is, the amount claimed was not

allowed. As to the second conclusion, though it is true

that a clear and obvious error was not made when these

cost reports were filed, the intermediary made a clear and

obvious error when the owners’ compensation was

reduced based upon comparisons to individual home

health agencies instead of chain operations. Finally, the

third conclusion states that new and material evidence

was not presented to establish that the compensation

claimed was inappropriate. The petitioner offered new

and material evidence that the reduction to compensation

was inappropriate.

Rather than address the problem presented, the inter-

mediary ignored the basis for the request for reopening.

This conduct was in total disregard of the allegations

raised regarding the violation of a federal regulation

which requires that owners’ compensation be “such an

amount as would ordinarily be paid for comparable ser-

vices by comparable institutions.” This is a case where

the intermediary perpetuated its own mistake.

In Ashland, the court recognized that the Board's

refusal to assert jurisdiction over an intermediary's

refusal to reopen might be unreasonable in circumstances

where an intermediary is involved in fraud. (The regula-

tion contains the phrase ‘fraud or similar fault’. 42 C.F.R.

§ 405.1885(d). Unfortunately, the Board may not be able

to exercise jurisdiction even if fraud or similar faults were

alleged. The Board is required to “make ru’es and estab-

lish procedures, not inconsistent with the provisions of

this title or regulations of the Secretary.” 42 U.S.C.

§ 139500(e). Since the Board is required to act consistent

37

with the regulations, which are promulgated and inter-

preted by the Secretary and she reads 42 C.F.R.

§ 405.1885(c) to mean there is no review of a refusal to

reopen (except for providers located in the Ninth Circuit),

it remains uncertain whether the Board could accept

jurisdiction of a case even if the most blatant act of fraud

or similar fault were shown to exist. It is this tremendous

potential for extreme abuse of discretion which cannot be

corrected through the review process that makes the Sec-

retary’s position so incredibly unreasonable. There are

definitely times when the Secretary’s actions are consid-

ered arbitrary and capricious, an abuse of discretion and

not in accordance with law. See Loma Linda Community

Hospital v. Shalala, 907 F.Supp. 1399 (C.D.Cal. 1995). The

problem with the Secretary’s reading of 42 C.F.R.

§ 405.1885(c) is that it precludes review of every decision

which refuses to reopen a cost report and therefore insu-

lates from review even the most abhorrent abuse of dis-

cretion. This particular danger was addressed by this

Court. See Interstate Commerce Commission v. Brotherhood of

Locomotive Engineers, 482 U.S. 270 (1987). “If review of a

tenial to reopen for new evidence or change in circum-

stance is unavailable, the petitioner will have been

deprived of all opportunity for judicial consideration -

even on a ‘clearest abuse of discretion’ basis — of facts

which, through no fault of his own, the original proceed-

ing did not contain.” Id. at 270. As evidenced by the three

sentences which make up the refusal to reopen in this

case, there is a need for a well reasoned decision when

there is a refusal to reopen a final determination. Once

such a decision is rendered, there must be a forum with

the authority to review that decision and to set it aside if

38

the decision is arbitrary, capricious, an abuse of discre-

tion, unsupported by substantial evidence or contrary to

law. 5 U.S.C. § 706(2)(A). Therefore, jurisdiction under the

APA for review of the intermediary's refusal to reopen

should be available.

*

CONCLUSION

The Secretary’s reading of the Medicare statute as

evidenced by her interpretation of 42 C.F.R. § 405.1885(c)

is not a permissible construction of the statute because it

is in conflict with the intent of Congress and with the

plain meaning of 42 U.S.C. § 139500, which allows review

of a final determination. Therefore, petitioner requests a

ruling from this Court declaring 42 U.S.C. § 139500 is

appropriate authority for the review of a final determina-

tion, including a final determination which is a refusal to

reopen, and an Order remanding the case back to the

Provider Reimbursement Review Board for a determina-

tion as to the appropriateness of the intermediary's

refusal to reopen the cost reports at issue in this matter.

If the Court is not convinced that 42 U.S.C. § 139500

provides an avenue for administrative appeal of refusals

to reopen, then reliance upon 28 U.S.C. § 1331 must again

be proposed as an alternative for jurisdiction. Even if the

petitioner is successful at this juncture and wins the case

based upon its reading of 42 U.S.C. § 139500, the question

remains as to the Sixth Circuit decision that petitioner's

claims were not entitled to review at the U.S. District

Court level under federal question jurisdiction because

the Medicare statute, 42 U.S.C. § 405(h), precludes federal

39

question jurisdiction as a basis for review. Therefore, if

this Court accepts the Secretary's position that 42 U.S.C.

§ 139500 does not provide for administrative review of a

refusal to reopen, then petitioner seeks a ruling from this

Court stating that resort to 28 U.S.C. § 1331 is appropriate

for judicial review of a refusal to reopen and an Order

remanding the case back to U.S. District Court for the

Eastern District of Tennessee for review of the intermedi-

ary’s refusal to reopen the cost reports at issue in this

matter. In addition thereto, if this Court finds that 42

U.S.C. § 139500 does provide for administrative review of

a refusal to reopen, the petitioner nevertheless seeks a

ruling from this Court which recognizes that 28 U.S.C.

§ 1331 remains available for challenges to the extent that

claims involve matters outside the articulated statutory

review process and validates the continuing force of the

decision stated in Michigan Academy, 476 U.S. 667.

If this Court finds federal question jurisdiction is

precluded by 42 U.S.C. § 405(h) of the Medicare statute,

then the petitioner would rely upon 28 U.S.C. § 1361 for

jurisdiction in this matter. Petitioner therefore requests a

ruling by this Court that the third sentence of § 405(h) is

not a bar to mandamus jurisdiction in Social Security

cases, and an Order remanding the case back to the U.S.

District Court for the Eastern District of Tennessee for

judicial review of the intermediary’s refusal to reopen the

cost reports at issue in this matter, which petitioner

asserts is a nondiscretionary duty, and in addition

thereto, or in the alternative, for judicial review of the

intermediary's refusal to pay petitioner's owners’ com-

pensation in accordance with regulation 42 C.F.R.

40

§ 413.102, which petitioner also asserts is a nondiscretion-

ary duty.

Finally, petitioner seeks a ruling from this Court

which states that the Administrative Procedure Act

requires that decisions regarding provider’s claims for

Medicare reimbursement shall be set aside if the decision

is arbitrary, capricious, an abuse of discretion, unsup-

ported by substantial evidence or contrary to law, 5

U.S.C. § 706(2)(A), which includes decisions regarding

refusals to reopen and therefore, the APA is an appropri-

ate basis for review of the intermediary's refusal to

reopen, and an Order remanding the case back to the U.S.

District Court for the Eastern District of Tennessee for

judicial review of the intermediary’s refusal to reopen the

cost reports at issue in this matter.

Respectfully submitted,

Diana L. Gustin

Counsel of Record

11 Town Square

Post Office Box 1349

Norris, Tennessee 37828

(423) 494-3000

Counsel for Petitioner

App. 1

APPENDIX A

42 C.F.R. § 413.102: Compensation of Owners

(a) Principles. A reasonable allowance of compensation

for services of owners is an allowable cost, provided the

necessary services are actually performed in a necessary

function.

(b) Definitions. (1) Compensation. Compensation means

the total benefit received by the owner for the services he

renders to the institution. It includes:

(i) Salary amounts paid for managerial, administrative,

professional, and other services.

(ii) Amounts paid by the institution for the personal

benefit of the proprietor.

(iii) The cost of assets and services which the proprietor

receives from the institution.

(iv) Deferred compensation.

(2) Reasonableness. Reasonableness requires that com-

pensation allowance:

(i) Be such an amount as would ordinarily be paid for

comparable services by comparable institutions.

(ii) Depends upon the facts and circumstances of each

case.

(3) Necessary. Necessary requires that the function:

(i) Be such that had the owner not rendered the services,

the institution would have had to employ another person

to perform the services.

App. 2

(ii) Be pertinent to the operation and sound conduct of

the institution.

(c) Application. (1) Owners of provider organizations

often render services as managers, administrators, or in

other capacities. In such cases, it is equitable that reason-

able compensation for the services rendered be an allow-

able cost. To do otherwise would disadvantage such

owners in comparison with corporate providers or pro-

viders employing persons to perform similar services.

(2) Ordinarily, compensation paid to proprietors is a

distribution of profits. However, where a proprietor ren-

ders necessary services for the institution, the institution

is in effect employing his services, and a reasonable com-

pensation for these services is an allowable cost. In corpo-

rate providers, the salaries of owners who are also

employees are subject to the same requirements of rea-

sonableness. Where the services are rendered on less than

a full-time basis, the allowable compensation should

reflect an amount proportionate to a full-time basis. Rea-

sonableness of compensation may be determined by ref-

erence to, or in comparable services and responsibilities

in comparable institutions; or it may be determined by

other appropriate means.