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TEMPLE UNIV. v. ASSOCIATED HOSP. SERV. OF PHILADEL

June 28, 1973

TEMPLE UNIVERSITY--Of the COMMONWEALTH SYSTEM OF HIGHER EDUCATION
v.
The ASSOCIATED HOSPITAL SERVICE OF PHILADELPHIA, Trading as Blue Cross of Greater Philadelphia, et al.


VanArtsdalen, District Judge.


The opinion of the court was delivered by: VANARTSDALEN

VanARTSDALEN, District Judge.

 Plaintiff, Temple University (Temple) through the Temple University Hospital is a provider of "medi-care" services pursuant to 42 U.S.C. §§ 1395 and 1395x(u). As such, Temple is entitled to certain reimbursements from the government through the Deprtment of Health, Education and Welfare (HEW), including a portion of its general operating costs based upon a complicated formula calculated in part on the ratio of "medi-care" patients to total patients served during an accounting period. In determining the operating costs for purposes of reimbursement, "restricted" gifts received by a hospital during an accounting period are deducted from total operating costs, whereas "unrestricted" gifts are not deducted. This is in accordance with HEW Regulation, 20 C.F.R. 405.423. The validity of this regulation is not presently in dispute. The effect of a "restricted" gift is to reduce the amount of reimbursement to a hospital.

 During the years 1967, 1968 and 1969, Temple transferred on its books approximately $600,000 annually from its Medical School to its Hospital, which transfers it contends were unrestricted and thus not deductible. In 1966, Temple selected the defendant, Blue Cross Association, as its intermediary pursuant to 42 U.S.C. § 1395h and 20 C.F.R. 405.651. The Blue Cross Association (BCA) in turn appointed the defendant, The Associated Hospital Service of Philadelphia, trading as Blue Cross of Greater Philadelphia (Phila. Blue Cross), as its agent to perform the intermediary services within the geographical area wherein Temple is located. The defendants contend that by proper procedures the transfers of funds have been finally determined to be "restricted," which determination cannot be challenged in this court.

 All parties have moved for summary judgment. Plaintiff seeks to invalidate the determination that the transfers were restricted. Plaintiff asserts that the review procedures for determining provider-intermediary disputes are inherently biased and represent an unconstitutional delegation of a quasi-judicial function to a private organization, thereby violating procedural due process. Plaintiff further contends that this court should review and hold a de novo hearing to redetermine the issues on the merits. Defendants contend that although this court may determine the "constitutional" issues, it lacks jurisdiction to decide the merits of the issues, and that the procedures utilized were entirely valid, final and not subject to review.

 BCA entered into an agreement with the government to perform services as a fiscal intermediary, *fn2" and was selected by Temple in 1966 as its fiscal intermediary. BCA delegated its duties to Phila. Blue Cross, *fn3" and Temple dealt with Phila. Blue Cross.

 The Health Insurance for the Aged Act, commonly referred to as the Medicare Act, 42 U.S.C. § 1395 et seq., at the time of the dispute contained no express provisions for appeal or review of disputes between the intermediary and the provider as to the amounts or methods of calculating reimbursements. Two years after Temple selected BCA as its intermediary, BCA established the "Blue Cross Association Medicare Provider Appeals Committee" (Appeals Committee) to review intermediary-provider disputes. The Appeals Committee was to be composed of five members. Three members were to be from the BCA (at least one of such three members had to be a BCA Vice-President). Two members were to be from a national hospital association approved by the provider, but individually selected by the BCA President who made all the appointments to the Appeals Committee.

 Phila. Blue Cross determined that the annual transfers of $600,000 in 1967, 1968 and 1969 were restricted gifts and should offset reimbursable Medicare expenses thus substantially reducing the money which would be reimbursed to Temple. On November 30, 1970, Temple appealed the decision to the Appeals Committee claiming that the transfers were unrestricted contributions to the hospital and should not be deducted from Medicare expenses under HEW regulations. A hearing was held on March 31, 1971 attended by representatives and attorneys from Temple and Phila. Blue Cross. Witnesses were called and were subject to direct and cross-examinations. On August 2, 1971, the Appeals Committee notified Temple that Phila. Bule Cross's decision had been upheld.

 Temple posits its case upon three fundamental arguments. It first asserts that the inherent composition of the Appeals Committee is biased and unfair and, therefore, violates due process as a matter of law. Bias and prejudice are allegedly present because: (1) BCA, a national membership organization consisting of an association of approximately eighty Blue Cross Plans (includng Phila. Blue Cross), receives 56 percent of its total income from monthly dues and marketing service charges from the individual association plans; (2) BCA has been receiving increasing amounts of income from Phila. Blue Cross which rose from $18,578.48 in 1966 to $212,311.36 in 1971; (3) the Appeals Committee is composed of a majority of BCA members; (4) the requirement of a BCA Vice-President on the Committee infuses "command influence" into the Appeals Committee and discourages independent actions by the other BCA members. In short, Temple contends that the agential and economic relationship between BCA and Phila. Blue Cross vitiates a fair and impartial review by the Appeals Committee.

 Secondly, Temple directs a two-pronged attack on the authority of the BCA to review provider-fiscal intermediary disputes. It contends that there is no statutory provision in the Medicare Act or Social Security Act authorizing the Secretary of Health, Education, and Welfare to delegate this review power. Even if such authority exists, Temple contends that such review power is quasi-judicial and cannot validly be granted to a private organization.

 Finally, Temple argues that the court should assume jurisdiction on the merits and conduct a de novo hearing and review of record and decide the merits of the case.

 Plaintiff's contention that the Appeals Committee is inherently biased presents a substantial constitutional question in light of the decisions in Gibson v. Berryhill, 411 U.S. 564, 93 S. Ct. 1689, 36 L. Ed. 2d 488 (1973), and Ward v. Village of Monroeville, 409 U.S. 57, 93 S. Ct. 80, 34 L. Ed. 2d 267 (1972). Although at least one district court has heretofore decided that the delegation of quasi-judicial power by the Secretary of HEW to a private organization is valid, *fn4" this also presents a substantial question. Before deciding these issues, however, it is appropriate to determine the right and scope of review by this court, if any, of the decision of the Appeals Committee.

 Defendants concede that the district court has the right to determine any issues involving constitutional questions including lack of due process in the review procedures, but they insist there is no right to review the merits of the controversy concerning whether the transfers were "restricted" or "unrestricted gifts."

 The only express provisions for judicial review of determinations by the Secretary of HEW under the Medicare Act are contained in Section 1869, 42 U.S.C. § 1395ff. This section permits judicial review in accordance with procedures set forth under Section 205(g) of the Social Security Act, 42 U.S.C. § 405(g), in three types of situations. The first concerns individual claimants to benefits of $1,000 or more under Parts A or B of the Medicare Act. *fn5" The second involves the right to judicial review of a determination that an institution is not a provider; i.e., not eligible to receive payments as a provider of services. The final express right of judicial review concerns disputes over termination of an institution's status as a provider. *fn6" The procedures for agency hearing and judicial review are the same as under the Social Security Act; 42 U.S.C. § 405(g) provides, inter alia :

 Section 205(h) of the Social Security Act, 42 U.S.C. § 405(h) *fn7" provides:

 
The findings and decisions of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, ...

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