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

~ Supreme Court, U.S.

\&) , a oe

OCT 20 1998

No. 97-1489

eK

In The

Supreme Court of the United States

October Term, 1998

S

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 REPLY BRIEF

¢

Diana L. Gustin

Counsel of Record

11 Town Square

Post Office Box 1349

Norris, Tennessee 37828

(423) 494-3000

Counsel for Petitioner

TABLE OF CONTENTS

Page

Cede Ge FOC OE is nbdevevccascescudestes ii

PUTER, Ab 000 nétbekes cvhossivbebachascehesenan 1

I. Defining the phrase “final determination” in

Oe Reece. Oh. OR bn oes bad ne edoenasAbeeees 1

Il. Refusal to Reopen is not always a refusal to

revisit a previous determination............. 3

Ill. The reopening process is not purely a creature

of the Secretary’s regulations................ 4

(a) The statute requires reopening.......... 6

(b) Book balancing beyond year end ....... 8

SV. Deep RURSROOe Gh FORE os icine esas ncccccendcc 11

V. The reopening regulations do permit

unchecked and arbitrary action by intermedi-

COM os Se cccceperdstieerectscovivecaceseeese 12

VI. Federal Court jurisdiction under 28 U.S.C.

DOE aves acechspebheevoatdensdateesnesveoks 15

VII. Federal Court jurisdiction under 28 U.S.C.

ko Ppryere rrr er er Pre riety ory T Tero 17

VII. Federal Court jurisdiction under the Adminis-

trative Procedure Act...............seeeeeees 17

CRUR MOS cocccsoniscepbedevesioavecdaccasa seas 20

TABLE OF AUTHORITIES

Page

Cases:

Bethesda Hosp. Ass'n v. Bowen, 485 U.S. 399 (1988) ..... 1

Bowen v. Michigan Academy of Family Physicians,

anus Ub esis Viv iecdecwecves 15, 16

Califano v. Sanders, 430 U.S. 99 (1997) 16, 17, 18, 19, 20

DeVito v. Shultz, 300 F. Supp. 381 (D.D.C. 1969) ...... 4

Dunlop v. Bachowski, 421 U.S. 560 (1975). ... 0.0.0.0... 4

Good Samaritan Hospital v. Shalala, 508 U.S. 402

DCR AEEERS Ah eN ONS deD oes See es ens 5, 6, 8, 9, 17

Interstate Commerce Comm'n v. Brotherhood of Loco-

motive Eng'rs, 482 U.S. 270 (1987)... .. 6... ..005. 4, 12

Regions Hosp. v. Shalala, 118 S.Ct. 909 (1998). ........ 10

Oregon v. Bowen, 854 F.2d 346 (9th Cir. 1988)...... 3, 20

STATUTES AND REGULATIONS:

Se navacecceus 17

ee 15, 17, 19

RS a ar a 17

nn cb veceans 6

42 U.S.C. § 1395x(v)(1)(A)(ii). 6... cea 5, 6, 7, 20

CSS ETO Ae 20

a nndade 2, 3, 15, 20

SE SE Ee Oe 4

i 7

ee

SEE

iii

TABLE OF AUTHORITIES - Continued

Page

42 C.B.R. § GOB. IBGE)... cc cscccccccccvcccsesvesvces 16

42 C.F.R. § 413.102(b)(2)(i) «eee 16, 17

MISCELLANEOUS:

Brief for the Respondent, St. Paul-Ramsey Medical

Center, Inc. v. Shalaia, 1997 WL 567286 (No.

CD diccctcecetas shied Cusvseeuredvawneves teas 10

ee

1

PETITIONER’S REPLY TO RESPONDENT'S

BRIEF ON THE MERITS

This brief is submitted in accordance with United

States Supreme Court Rule 24.4 which allows petitioner

to reply and does not require a summary of the argument

if the brief is appropriately divided by topical headings.

I. Defining the phrase “final determination” in 42

U.S.C. § 139500.

The respondent asserts that § 139500(a) is most natu-

rally read to confer a right to review of a Notice of

Amount of Program Reimbursement (NPR) but not an

intermediary's “mere” refusal to revisit that determina-

tion, and seeks support for this conclusion in § 139500(a)

which confers a right to a “hearing” by the Board, includ-

ing the right to present evidence and cross-examine wit-

nesses. Resp’t Br. 15. Petitioner disagrees with this

reading since it limits the plain language of the statute.

See Pet’r Br. 7-10. The language simply refers to a final

determination, not to the Notice of Amount of Program

Reimbursement as the fina! determination. In Bethesda

Hosp. Ass'n v. Bowen, 485 U.S. 399 (1988) the Court

refused to accept the Secretary's “strained interpretation”

of the word “dissatisfied” as it appears in § 139500(a). Id.

at 404. Similarly, the Court should refuse to accept the

Secretary's restrictive reading of the phrase “final deter-

mination” and instead accept the plain meaning of the

statute on this matter which would encompass the NPR

as well as a final determination not to reopen a Medicare

cost report as the decision which activates the right to

review contemplated by § 139500(a). Petitioner qualified

for a hearing under the statute:

a. The amount in controversy is greater than

$10,000;

b. The petitioner filed its request for a hearing

within 180 days of the intermediary’s refusal

to reopen;

2

c. The petitioner is dissatisfied with a final

determination of the intermediary as to the

amount of total reimbursement due the pro-

vider.

Here petitioner sought relief by resort to the administra-

tive appeal process contemplated by Congress when it

enacted § 139500(a). Social Security Amendments of 1972,

H.R. Rep. No. 92-231 (1972), reprinted in 1972

U.S.C.C.A.N. 4989,5094. The Court in Bethesda Hospital

Association recognized that petitioners who resort to the

statutorily prescribed appeal procedure “stand on differ-

ent ground than do providers who bypass a clearly pre-

scribed exhaustion requirement.” Id. at 404-405. Petitioner

respects the process outlined in the statute and seeks

review within that system.

Section 139500 is a broad jurisdictional statute.

Respondent acknowledges that pursuant to the statute, it

may “amplify” the Board’s jurisdiction (Resp. Br. at 19

n.7). However, it lacks the authority to narrow the stat-

utorily mandated jurisdiction of the Board to preclude it

from reviewing a decision that meets the enumerated

criteria under § 139500(a). The final determination is

reviewable under the statute and therefore within Board

jurisdiction for review. It is disingenuous for respondent

to argue that, on the one hand, a denial of a request for

reopening is not a “final determination . . . as to the

amount of total reimbursement due the provider”, while

on the other hand, acknowledging that “reopening often

results in additional program reimbursement to the pro-

vider.” (Resp. Br. at 32) Petitioner maintains either action

is a determination as to the amount of total program

reimbursement due the provider. As such, the adminis-

trative review process is applicable.

t characterizes a refusal to reopen as a

decision not to alter the provider's total program reim-

bursement which the Secretary reasonably determined

did not need to be reviewed.

Resp’t Br. 32. The statute does not require an alter-

ation in reimbursement as the mechanism which sets the

3

revic’ process in motion. It simply states that a provider

dissatisfied with a final determination as to the amount of

total reimbursement due the provider for the period cov-

ered by such report may obtain a hearing. 42 U.S.C.

§ 139500(a). Petitioner met the statutory requirement.

The review process is crucial to providers who seek

additional reimbursement. The intermediary's refusal to

reopen a cost report cannot be dismissed as a “mere”

refusal to revisit the previous determination. Indeed, the

Secretary's contention that reopening regulations were

promulgated to meet her “practical need to reopen

. when there is reason to believe that intermediaries

made payments that are not reimbursable under the Act,”

not only evidences her one-sided view of the reopening

process, but is an acknowledgement that intermediaries

do make mistakes. (Resp. Br. at 34). See also Oregon v.

Bowen, 854 F.2d 346, 350 (9th Cir. 1988). With only 37

intermediaries to review the cost reports of 38,000 pro-

viders, it is conceivable, if not probable, that an inter-

mediary may err in denying reopening to a provider that

presents new and material evidence or finds a clear and

obvious error. PRM § 2931.2. Without a review process,

there is no remedy for the wrong.

II. Refusal to Reopen is not always a refusal to revisit

a previous determination.

Petitioner also notes that characterizing the refusal to

reopen a cost report as a refusal to revisit the previous

determination does not properly describe circumstances

where new and material evidence is the basis for the

request. If new and material evidence is at issue, then the

intermediary would be reviewing it for the first time — a

circumstance that cannot be considered a refusal to revisit

a previous determination.

Respondent asserts petitioner did not claim entitle-

ment to the sort of evidentiary hearing specified by

4

§ 139500(c). Resp’t Br. 15. In fact, petitioner would cer-

tainly need an evidentiary hearing of that nature to pre-

sent facts concerning the refusal to reopen in order to

demonstrate an abuse of discretion. The Provider Reim-

bursement Review Board (PRRB) offers this type of hear-

ing under § 139500(c) for providers located in the Ninth

Circuit and has often found abuse of discretion in denials

of reopening requests. See Pet’r Br. 31. Indeed, this Court

envisioned some type of judicial review process available

to determine whether such refusal was arbitrary, capri-

cious, or an abuse of discretion. Interstate Commerce

Comm'n v. Brotherhood of Locomotive Eng'rs, 482 U.S. 270,

271 (1987). Without the benefit of a hearing outlined by

§ 139500(c), a petitioner might have difficulty establish-

ing its case of abuse of discretion. The only evidence in

this case concerning the refusal to reopen is a two-page

letter which offers conclusions rather than explanations.

See J.A. 28-29. Petitioner again asserts that when an action

is taken by the Secretary, that action must be taken in

such a manner as to enable a reviewing court to deter-

mine whether or not the Secretary’s discretion was exer-

cised properly. Dunlop v. Bachowski, 421 U.S. 560, 573

(quoting DeVito v. Shultz, 300 F. Supp. 381, 383 (D.D.C.

1969)). Without the evidentiary hearing specified in

§ 139500(c), the reviewing court or the Board would have

little evidence available for a decision. Since the review

system for Medicare reimbursement issues contains an

administrative process whereby a record will be devel-

oped which can later be judicially reviewed, it maxc:

sense for a case involving a refusal :~ reopen to proceed

through the PRRB process before judicial review, includ-

ing the evidentiary hearing noted at § 139500(c).

III. The reopening process is not purely a creature of

the Secretary’s regulations.

Petitioner continues to rely upon the reasoning c: che

Ninth Circuit in the Oregon v. Bowen case which preserves

the presumption of judicial review and which found

5

support for Board jurisdiction in the plain meaning

of § 139500, the congressional intent and in

§ 1395x(v)(1)(A)(ii), the statutory provision which

requires retroactive corrective adjustments to assure that

reimbursment is neither inadequate nor excessive. Later

decisions in the Ninth Circuit have questioned reliance

upon § 1395x(v)(1)(A)(ii) as statutory authority for the

reopening process due to the Court's ruling in Good

Samaritan Hosp. v. Shalala, 508 U.S. 402 (1993). Resp. Br.

21, footnote 8. Petitioner believes the Ninth Circuit's con-

cern in this regard is unfounded. The question presented

in Good Samaritan was whether the Secretary must afford

the six petitioning hospitals an opportunity to establish

that they are entitled to reimbursement for costs in excess

of such limits. The Court held that clause (ii) did not

require such an opportunity. Petitioner agrees with that

assessment but does not believe it stands for the proposi-

tion that § 1395x(v)(1)(A)(ii) cannot be considered the

statutory basis for the reopening process. The Court's

conclusion was based upon its refusal to accept the asser-

tion that “reasonable” cost could be defined outside of

the Medicare statute, which would allow for more Medi-

car reimbursement than the methods employed by the

Secre.ary to define reasonable reimbursement. Petitioners

in Good Samaritan were asking that all their costs be

considered reasonable, even those which exceeded the

cost limit established by the Secretary.

The Secretary's “book-balancing” argument was

plausible in the circumstances of Good Samaritan where

the competing interpretations were driven by the ques-

tion of whether or not retroactive adjustment would be

made to give providers all of their costs, even if their

costs exceeded the limits. A different circumstance is pre-

sented in this case where the petitioner asserts that clause

(ii) is statutory authority for the reopening process where

retroactive corrective adjustment must be made to prop-

erly pay allowable reasonable costs within the applicable

cost limits.

6

(a) The statute requires the reopening process.

Petitioner previously stated its position that the man-

datory language noted in § 1395x(v)(1)(A)(ii) requires

retroactive corrective adjustments to assure that reason-

able costs for Medicare services are paid. Pet’r Br. 13-14.

This position is supported by the discuss:on on pages

413-414 of the Good Samaritan decision where the Court

notes the agency viewed clause (ii) as a directive for

retroactive adjustment of payments for allowable costs, as

determined by the established methods. See Good Samar-

itan, 508 U.S. at 413-414. After the 1972 cost limit amend-

ments were added “the agency appears to have ascribed

the same role to clause (ii), namely, to retroactively cor-

rect the differences between interim payments and reason-

able costs — only as a result of the amendments the

adjustments would now be based on the new definition of

reasonable costs which includes the cost limits.” Good

Samaritan, 508 U.S. at 416. Since petitioner sought only to

obtain its reasonable costs under the definitions devel-

oped by the Secretary, the Court’s holding in Good Samar-

itan supports reliance upon clause (ii) as the statutory

mandate for the reopening regulation. Clause (ii) requires

the Secretary to promulgate regulations which allow a

provider to request reopening for corrections to reason-

able reimbursement which are authorized by the Secre-

tary’s own regulations concerning that reimbursement.

While Petitioner accepts the majority decision of Good

Samaritan, the dissenting opinion also addressees points

about the statute which should be considered in the pre-

sent case. The dissenting opinion recognized the manda-

tory nature of the fourth sentence of § 1395x(v)(1)(A) and

stated that clause (ii) requires the regulations to provide

for suitable corrective adjustments where the method of

determining costs produces a reimbursement that

“proves to be either inadequate or excessive.” Good

Samaritan, 508 U.S. at 426.

7

Although petitioner agrees with the dissenting opin-

ion where it finds that the Secretary is required to pro-

mulgate such regulations, it respectfully submits that the

majority opinion of the Court was correct in not allowing

payment in excess of the methods the Secretary estab-

lished. Nevertheless, petitioner believes the dissenting

opinion correctly recognized that clause (ii) should be

considered statutory authority which unambiguously

requires the promulgation of regulations allowing pro-

viders (and the Secretary) to seek adjustments if reason-

able costs were not paid, or if excessive costs were paid.

Indeed, this is the essence of petitioner’s reliance upon

clause (ii) as the statutory basis of the right to seek

retroactive corrective adjustments through the reopening

process when the Secretary failed to pay reasonable cost

of owners compensation as defined by the Secretary’s

own regulations for owners compensation. See Pet’r Br.

13-15.

In further support for petitioners position that

§ 1395x(v)(1)(A)(ii) is statutory authority for the reopen-

ing regulations is the citation to that statutory section as

the source of authority for the regulations contained at

Subpart R - Provider Reimbursement Determinations and

Appeals. (42 C.F.R. § 405.1801 et seq. citing Soc. Sec. Act

§§ 205, 1102, 1814(b), 1815(a), 1833, 1861(v) (which is 42

U.S.C. § 1395x(v)), and 1871, 1872, 1878 and 1886.) The

only regulations which concern retroactive corrective

audit adjustments (the subject matter of clause (ii)) are

the regulations which require reopening. Since the Secre-

tary actually cited the statutory authority for her reopen-

ing regulation, it cannot be said that the reopening

process is purely a creature of regulation. It is required by

the Act itself and cannot be ignored.

The emphasis on statutory authority is being made to

answer one of the questions at hand. Petitioner asserts

that the statute requires the retroactive adjustments it

sought. A review process is necessary to prevent the

intermediary from ignoring the requirement. When there

8

is no review process, the Secretary is free to disregard the

law without consequence.

(b) Book balancing beyond year end.

The respondent asserts that clause (ii) is statutory

authority only for year end book-balancing, i.e., recon-

ciliation of the actual “reasonable” costs under the regu-

lations with the interim payments. The evidence in this

case and many others demonstrates that the Secretary

herself treats the reopening process as part of the book-

balancing required by the statute. In Good Samaritan the

Secretary asserts that the interim payments are based on

the methods chosen by the Secretary to determine reason-

able costs, but they are only anticipatory estimates

. . made before all relevant data are available. Good Samar-

itan, 508 U.S. at 411 (emphasis added). Respondent con-

cedes that when data becomes available which indicates

that a provider was overpaid, the intermediary reopens

the cost report to recover the excess amount of reimburse-

ment. This happened to this petitioner for the same cost

report at issue herein. The 1989 Sneedville cost report

was reopened because petitioner discovered and reported

to the intermediary that a nurse employee did not have a

valid license. See Pet'r Br. 14. The Secretary reopened the

cost report to recover the money paid to the nurse

because Medicare requires that nurses have valid licenses

as a condition of payment. Nevertheless, when data

became available to petitioner which showed its owners

had been underpaid, the intermediary refused to reopen

the same cost report. Petitioner asserts these two events

are both properly characterized as book-balancing to rec-

oncile actual costs to allowable costs.

The limited definition of the book-balancing as a year

end function only for comparing the interim payments to

the final amount allowable on the NPR at year end does

not address circumstances in which new data about rea-

sonable costs becomes available after the NPR is issued.

Petitioner urges the Court to adopt its view of clause (ii)

9

as statutory authority which requires the Secretary to

promulgate regulations to address retroactive corrective

adjustments at year end or later. This approach would

retain the book-balancing concept of clause (ii) without

limiting its application to a year end timetable. In Good

Samaritan neither the Court nor the agency limited the

correction to a specific time frame whereas the Respon-

dent now asserts that clause (ii) was construed by this

Court to narrowly refer only to year end book-balancing

of monthly estimated payments as compared to the final

amounts determined by the intermediary in the NPR.

Resp’t Br. 20-21. The statutory language does not support

this very narrow interpretation nor did the Court endorse

that precise definition of book-balancing. Petitioner reads

clause (ii) as statutory authority for the reopening process

which should occur when retroactive corrective adjust-

ments are needed. These adjustments might be apparent

at year end, but events might also occur at a later date,

after year end NPR’s are issued, which would also call for

the retroactive adjustment to cost. Defining the time

frame for the book-balancing as being cut off at the year

end (NPR stage) for the Secretary (as well as the pro-

vider) would severely restrict the intermediary's ability

to make corrective adjustment when mistakes are discov-

ered after the NPR is issued. As it stands now, only the

provider is restricted to the year end timetable since the

Secretary can and will reopen beyond year end to recover

reimbursement. Instead of accepting this inequity, peti-

tioner asks this Court to rule that the three year time

period within which cost report requests for reopening

must be made, should be read in tandem with the time

period for book-balancing under clause (ii). This would

allow the intermediary three years to correct errors and

to make retroactive corrective adjustments. This is the

more plausible reading of the statute.

Additional support for the three year period being

the appropriate time frame within which to make book-

balancing corrective retroactive adjustments can be found

in the brief submitted by the Secretary of Health and

10

Human Services in Regions Hosp. v. Shalala, 118 S.Ct. 909

(1998), where she argued that the reaudit rule for GME

was appropriate because it does not permit the Secretary

to reopen administratively settled cost reports to recoup

overpayment to providers during those “closed periods.”

Brief for the Respondent at *15, St. Paul-Ramsey Medical

Center, Inc. v. Shalala, 1997 WL 567286 (No. 96-1375)

(reported as Regions Hosp. v. Shalala, 118 S.Ct. 909 (1998));

(See id. at 12-13, n.5 where the Secretary describes the

time frame for reopening for purposes of altering the

total amount of reimbursement as expired as of three

years and one day after the initial NPR, in essence defin-

ing a closed period as one which is beyond the three year

period). The brief went on to state that although the 1984

cost report had paid excessive reimbursement for GME

costs, no recoupment action was taken against it because

the “cost report had been finally determined.” Id. at 13.

This brief demonstrates that in Regions Hosp., the Secre-

tary placed emphasis upon the three year time period for

reopening. The cost report is described as closed,

“finally” determined and no longer subject to administra-

tive review or reopening if the three-year time period had

elapsed.

Now the Secretary wants to limit the time period for

change to 180 days, where she previously argued the

three-year time frame as the applicable statute of limita-

tions for change. The Secretary should not have the

advantage in both circumstances. The Secretary would

limit the provider to the 180-day statute of limitations for

requesting changes by way of appeal of the NPR and yet

allow herself three years to go back to the providers and

recover funds.

Respondent defends this approach (Br. 33) by citing

the Secretary’s responsibility to the public fisc, and yet

Congress saw fit to place the providers and the Secretary

on an even playing field when it drafted the language of

clause (ii) which states that the Secretary shall promul-

gate regulations which provide for the making of suitable

retroactive corrective adjustments where the aggregate

11

reimbursement produced by the methods of determining

costs proves to be either inadequate or excessive. The

statute contains a mandate for the Secretary to promul-

gate regulations for this process. Therefore, the Secretary

is incorrect in her assertion that she may choose to elimi-

nate the reopening process altogether. Resp’t Br. 36, n.14.

IV. The Interest in Finality

Respondent argues that it would be inconsistent with

concepts of administrative finality to require the Secre-

tary to confer a right of review by the Board with respect

to all refusals by intermediaries to reopen reimbursement

determinations. Petitioner asserts that it is the Secretary’s

position which defeats the goal of finality. If the Court

adopts the Secretary’s position as correct, the logical

response from providers would be to file more PRRB

appeals in order to preserve their right to retroactive

corrective adjustments in the event of discovery of new

and material evidence or a clear and obvious error after

the 180th day. In other words, the 180 days for appeal to

the Board would be the only guarantee of an appellate

process available for providers under the Secretary’s

reading of the Act. Any wrongful conduct discovered on

the 181st day could be insulated from judicial review. In

this sense, the Secretary’s interpretation of the Act would

actually defeat finality because it would encourage pro-

viders to file more PRRB appeals within this limited 180

day period as a precautionary measure. This interpreta-

tion of the Act creates the potential of the Board appeal,

filed within 180 days of the NPR, being the providers’

one and only chance for obtaining corrective retroactive

adjustments. As the Secretary’s own Ruling No. 97-2

reveals, she will not reopen settled cost reports to make

corrections if providers do not have pending appeals,

even when courts have determined her regulations for

payment unlawful. See Amici Br. App. 1-3. This approach

leaves the provider that did not file an appeal underpaid

even if the cost report is still subject to reopening within

12

the three-year period if there is a refusal to reopen the

cost report.

Under petitioner’s view, it would be more appropri-

ate to allow providers a meaningful right to request

reopening within the three-year time period if the appro-

priate circumstances justify such a request. Petitioner's

view of the statute, which allows review of the refusal of

the request, would not impair finality since the requests

for reopening would occur only when the providers dis-

covered new and material evidence or a clear and

obvious error and would remain limited within the three

year time period for revision. Contrast the Secretary's

system which would actually encourage increased litiga-

tion through numerous appeals. This would leave fewer

cost reports finalized. The Secretary’s approach defeats

the congressional goal of finality. This Court stated that

“only when a petition to reopen and reconsider an agency

order alleges new evidence or changed circumstances is

the agency’s refusal to reopen subject to judicial review,

and then, only as to whether such refusal was arbitrary,

capricious or an abuse of discretion.” Interstate Commerce

Comm'n, 482 U.S. at 271. Often facts and circumstances

which warrant review come to light after the initial 180

day period for appeal of an NPR expires. A review of the

reopening process will assure that providers receive

proper consideration when these situations occur.

V. The reopening regulations do permit unchecked

and arbitrary action by intermediaries

The respondent asserts that the Secretary has set

forth detailed criteria to guide an intermediary’s exercise

of discretion in considering a reopening request. Based

upon the existence of this criteria, the respondent

believes the reopening regulations do not permit

unchecked or arbitrary action. Resp’t Br. 27. The fact that

criteria are set forth does not guarantee that the inter-

mediaries will abide by it. In this case, no government

official has reviewed the intermediary decision to assure

13

it is consistent with the criteria noted by respondent.

There is no evidence in the record that anyone, other than

the individual who signed the letter denying the request

for reopening, ever considered petitioner's grounds for

making the request. There was no substantive explana-

tion concerning the refusal to reopen. There was no

description of the process which was used to make the

decision to deny the request. As Amici pointed out, the

individual employee of the insurance company (inter-

mediary) could have flipped a coin to make the decision.

There is in fact, evidence in this case that the inter-

mediary knew the determination was incorrect but still

refused to reopen and make the appropriate adjustments.

Petitioner met the criteria for a reopening when it submit-

ted new and material evidence concerning the discovery

of the intermediary's failure to use the salary survey

(developed by the previous intermediary) to determine

the petitioner’s owners compensation. It demonstrated a

clear and obvious error had been made when petitioner's

owners were paid less than their peers. Payment was

therefore not in accordance with the law. The record

shows the intermediary steadfastly refused to settle the

issue in the one and only cost reporting period (1989)

which was not pending on appeal to the Board. The

respondent tells this Court there are mechanisms to pro-

tect the provider from an abuse of discretion and yet in

this very case we have documents which demonstrate the

refusal to reopen cost reports for 1989 to correct the same

error which was corrected in six other cost reporting

periods. (The 1988 cost reports had no adjustments to

owners’ compensation, nor did the later closed reports

for 1995 and 1996).

Petitioner invites this Court's attention to evidence of

an abuse of discretion in the form of the administrative

resolution (settlement) of all petitioner’s pending PRRB

cases on the subject of owners’ compensation. On April 3,

1997, petitioner filed a Motion to Request Addition of

Documents as an Exhibit in the case. The Sixth Circuit

referenced this material in the footnote 1, page 4 of its

14

decision where the court described the document as two

letters purporting to resolve the outstanding cases

between the intermediary and petitioner through an

administrative resolution. See Pet. App. The Sixth Circuit

refused to addirss the documents because they were not

considered by the District Court. Petitioner could not

have offered the documents for consideration at the Dis-

trict Court because the administrative resolution did not

occur until October 4, 1996, almost seven months after the

District Court ruling on March 22, 1996. The Sixth Circuit

said consideration of the documents would not have

altered their ruling and the court would not accept the

documents noting that they did not address the 1989 year.

(The 1989 year was not addressed because the intermedi-

ary settled every year except 1989.)

This evidence was offered to demonstrate abuse of

discretion when the intermediary refused to reopen the

1989 cost report. Petitioner references this evidence as

rebuttal to respondent's assertion that the reopening pro-

cess does not permit unchecked or arbitrary action by

intermediaries. The respondent tells this Court that

HCFA regularly imparts guidance to intermediary’s as

needed to promote consistent application of and adher-

ence to the reopening standards set forth in the Secre-

tary’s regulations and PRM. Resp’t Br. 27. Apparently, the

consistent application of the reopening standard does not

equate to consistent application of the owners compensa-

tion guidelines which were applied to settle six PRRB

cases for this petitioner.

Respondent adds a footnote to say that HCFA does

not maintain statistics but estimates that 30%-40% of pro-

viders’ requests to reopen are granted. Resp’t Br. 27.

Petitioner does not believe the estimate is even remotely

accurate, but even if it were, that still means 60%-70% of

providers’ requests to reopen are denied and unreview-

able according to the Secretary. There is absolutely no

factual basis offered for the self-serving claim that

30%-40% of providers’ requests are granted. Whereas the

facts of this case offer an actual example of a refusal to

ES ee

15

reopen in the face of clear and convincing evidence that

the reopening should have been granted. Simple math

with inflation factors could have been used to calculate

the appropriate amount of owners compensation for 1989,

the one and only year the intermediary refused to correct.

And yet, the intermediary continued to refuse to reopen

the cost report to make the corrective retroactive adjust-

ment, all of which demonstrates the respondent is wrong

when it asserts the reopening regulations do not permit

unchecked or arbitrary action by the intermediary. This is

one of many cases which demonstrates arbitrary and

capricious action on the part of the intermediary.

VI. Federal Court jurisdiction under 28 U.S.C. § 1331.

Petitioner maintains that federal question jurisdiction

is available for cases which do -not seek to shortcut the

administrative review process, but simply fall outside of

the administrative review process. In support of this posi-

tion petitioner continues to rely upon the Court's ruling

in Bowen v. Michigan Academy of Family Physicians, 476

U.S. 667 (1986), where the Court focused upon the impor-

tance of judicial review of the regulation in question.

Petitioner believes 42 U.S.C. § 139500(a) does allow a

review process, but in the event the Court accepts the

Secretary's view on this issue, petitioner again would

assert reliance upon federal question jurisdiction to

resolve this matter. Respondent’s discussion of the

changes in jurisdiction which occurred when the amount

in controversy was extinguished for federal question

jurisdiction do not address the fact that Congress made

the change in order to open the door to litigation in

federal court that might otherwise be denied.

“An anomaly in Federal jurisdiction prevents an

otherwise competent United States district court

from hearing certain cases seeking ‘non-statu-

tory’ review of Federal administrative action,

absent the jurisdictional amount in controversy

required by 28 U.S.C. section 1331, the general

16

‘Federal question’ provision. These cases ‘arise

under’ the Federal Constitution or Federal stat-

utes, and the committee believes they are appro-

priate matters for the exercise of Federal judicial

power regardless of the monetary amount

involved.” Califano v. Sanders, 430 U.S. 99, at

99, footnote 7(1967), quoting the Senate Judicial

Committee S. Rep. No. 94-996, p. 12 (1976)

(emphasis supplied); see H.R. Rep. No. 94-1656,

p. 13 (1976).

Although the petitioner is aware of the preclusionary

language retained in 405(h) which respondent would

apply to defeat federal question jurisdiction in this case,

it is unreasonable to apply both the preclusionary lan-

guage in conjunction with the concepts of exhaustion to

prohibit all judicial review to situations where new and

material evidence or a clear and obvious error arise after

the 180 day period for the appeal from the initial Notice

of Program Reimbursement. If the Secretary’s reading of

the Act requires elimination of judicial review through

the prescribed administrative route, then it is reasonable

for providers to resort to the judiciary via the federal

question statute for jurisdiction to resolve this matter.

Petitioner maintains the Court's ruling in Bowen v. Michi-

gan Academy of Family Physicians, 476 U.S. 667 (1986) is

applicable to this controversy if an appeal is not allowed

under 42 U.S.C. § 139500. The petitioner presented two

collateral challenges in this matter: the validity of the

Secretary's reopening regulation 42 C.F.R. § 405.1885(c)

and the intermediary's failure to abide by 42 C.FR.

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

tion be such an amount as would ordinarily be paid by

comparable institutions. Refusal to reopen the cost report

to correct the error could also be defined or characterized

as an abuse of discretion which is collateral to the under-

lying claim for additional owner’s compensation. The

failure to abide by the regulations governing owners

compensation is also collateral to the underlying claim

for owners compensation. When claims involve matters

17

outside the articulated statutory review process, juris-

diciton should be available under § 1331. The presump-

tion of judicial review in every possible context cannot be

dissolved by the Secretary's interpretation of the Act

alone.

VII. Federal Court jurisdiction under 28 U.S.C. § 1361

Respondent asserts that petitioner raises “for the first

time” the Secretary's nondiscretionary duty to pay rea-

sonable costs. Resp’t Br. 44. This is not true. Petitioner

directs respondent's attention to the Complaint filed in

District Court and to petitioner’s Reply Brief to the Peti-

tion for Writ. See J.A. 58, 94; 60 414; Pet’r Reply Br. 1-2.

Petitioner continues to rely upon its arguments as previ-

ously submitted on this issue. The Secretary owes a clear

non-discretionary duty to pay .in accordance with the

criteria established by regulation 42 C.F.R. 413.102(b)(2)(i)

to determine the amount of owners compensation.

VIII. Federal Court Jurisdiction under the Administra-

tive Procedure Act

Respondent contends that this Court held in Califano

v. Sanders, 430 U.S. 99 (1977), that Section 10 of the APA,

does not vest federal courts with subject matter jurisdic-

tion to review agency action, including decisions denying

reopening requests. Resp’t Br. 45. The question of the

application of the APA to this controversy is being sub-

mitted with that decision in mind. However, the APA was

addressed in Good Samaritan where the Court concluded

the petitioner's challenge was in effect, in all but name, a

challenge to the validity of methods and to their ade-

quacy as gauges of reasonable cost and went on to recog-

nize that “The Secretary has construed the statute to

allow such attacks, not via clause (ii), but rather . . . by

way of the arbitrary and capricious provision of the

Administrative Procedure Act, 5 U.S.C. 706.” Good Samar-

itan, 508 U.S. at 420. The Court noted that petitioners had

invoked to APA at the Court of Appeals, where their

18

claim was rejected, but did not renew the APA claims in

this Court. Id. at n. 16. This brings us to the question at

hard where petitioner seeks a corrective retroactive

adjustment because it was not paid in accordance with

the Secretary's regulations and further alleges the refusal

to reopen to make the corrective retroactive adjustment

was an abuse of discretion, arbitrary and capricious. Peti-

tioner herein did renew its claims-under the APA as an

alternative basis for jurisdiction and would urge this

Court to reconsider its position in this regard as stated in

Califane v. Sanders, 430 U.S. 99 (1977).

Petitioner's case is also distinguishable from Sanders

because that case involved a previously adjudicated claim

which had already been reviewed through the adminis-

trative process. In Sanders, the claimant received the ben-

efit of the administrative review as the claim passed

through several steps of the appeal process. As a result,

an Administrative Law Judge found the claimant inelig-

ible for benefits and the Appeals Council sustained that

decision. Sanders p.102. Not until seven years later did

the respondent file a second claim, which was treated as a

request for reopening because no new evidence or

changed circumstances were alleged. Id. at 103. In the

present case, the petitioner did not receive the benefit of

any review process even though new and material evi-

dence was offered to support the request to reopen its

cost reports. Here we have the complete lack of any type

of review process for the refusal to reopen the cost report

even though new and material evidence discovered after

the 180 day period for requesting administrative review

in the first instance had elapsed.

Another distinguishing fact is the subject matter of

the issue itself. Sanders concerned disability eligibility, a

decision which is based upon an individual’s medical

condition. This is different from the calculation and re-

calculation which often occurs with Medicare reimburse-

ment. The portions of the Medicare statute which must be

construed in this case concern the right to retroactive

corrective adjustments of Medicare reimbursement after

19

the 180-day period for appeal has elapsed. In Sanders,

there was no retroactive corrective adjustment provision

of law at issue.

Respondent asserts that this Court will not overrule

precedent construing a federal statute unless intervening

law has undercut the “conceptual underpinnings” of the

decision. Resp’t Br. 46. Although Sanders spoke to judicial

review of a refusal to reopen, the conceptual underpin-

nings were developed in the context of a disability claim-

ant’s case, not the Medicare provider's cost reporting

process. This Court has not yet been presented with the

question of a Medicare provider's right to review when

an intermediary refuses to reopen a cost report. Stare

decisis is the policy of courts to stand by precedent and

not to disturb a settled point. Petitioner asserts this is a

case of first impression for the Court and while Sanders

may provide guidance on the matter, its holding does not

settle the precise issue at hand.

Whether the APA can be used as an independent

grant of jurisdiction in this circumstance must be exam-

ined in light of the Court’s holding in Sanders, as well as

the Court's later decisions regarding judicial review of

administrative action. In Sanders the Court concluded the

APA did not afford an implied grant of subject matter

jurisdiction permitting judicial review of agency action.

The conclusion was based in part upon the 1976 Congres-

sional action in re-defining § 1331 by deleting the mone-

tary amount requirement. As mentioned earlier in this

brief, the legislative history shows that Congress deleted

the jurisdictional amount in order to open the door for

cases seeking review of federal administrative action.

(Sanders at 107 footnote 7) Since it is clear that Congress

sought to fill a gap by eliminating the jurisdictional

amount requirement in § 1331, it does not follow that the

APA should remain unavailable if § 1331 does not fill the

gap. The legislative action reveals congressional concern

for judicial review. Petitioner seeks judicial review, first

and foremost by resorting to the administrative appeal

20

process set out in 42 U.S.C. § 139500. But in the alterna-

tive, federal question jurisdiction should be available and

if it is not, then the APA should be considered as a grant

of subject matter jurisdiction for the review of the final

administrative action which petitioner believes is an

abuse of discretion.

In Sanders, this Court respectfully acquiesced to the

Congressional policy choice, which the Court read as

designed to forestall repetitive or belated litigation of

stale eligibility claims. Sanders at 108. The Medicare Act

shows Congress policy choice of correcting mistakes by

requiring retroactive corrective adjustments. 42 U.S.C.

1395x(v)(1)(A)(ii). While petitioner believes Congress also

envisioned an appeal process via § 139500(a), if this

Court disagrees, then petitioner would request recon-

sideration of the APA as an independent jurisdictional

grant to allow Medicare providers access to federal court

for the review of violations of federal law which would

otherwise remain completely insulated from judicial

review.

CONCLUSION

Petitioner urges the Court to adopt the position

stated by the Ninth Circuit in Oregon v. Bowen, and to

reject the Secretary’s interpretation of § 139500 as incon-

sistent with the plain meaning of the statute, congres-

sional intent, and the presumption of judicial review. In

the alternative, the Court should find jurisdiciton in fed-

eral district court to review a denial of the request for

reopening under federal question jurisdiction, the Court’s

mandamus powers, or the Administrative Procedure Act.

Respectfully submitted,

Diana L. Gustin

Counsel of Record

11 Town Square

Post Office Box 1349

Norris, Tennessee 37828

(423) 494-3000

Counsel for Petitioner