is Margaret M. Heckler, Secretary of Health and Human Services (H.H.S.).
Plaintiff hospitals in this appeal challenge the constitutionality of Section 106 of the Tax Equity and Fiscal Responsibility Act (TEFRA), 42 U.S.C. § 1395x(v)(1)(M), which denies hospitals reimbursement from the Medicare program for the costs incurred in providing free care to indigents under the Hill-Burton Act, 42 U.S.C. § 291, et seq. Plaintiffs also challenge the interpretation of TEFRA made by the P.R.R.B. in that they urge Section 106, even if adjudged to be constitutional, does not preclude their claims. Plaintiffs seek reimbursement for the costs they incurred in providing free medical care to indigents and seek an injunction against enforcement of Section 106 of TEFRA.
Plaintiffs and defendants have filed cross-motions for summary judgment.
After considering the motions, and briefs, and after hearing oral argument, I have determined that Section 106 of TEFRA does not violate the constitution and that the plaintiffs' interpretation of Section 106 is incorrect. There are no disputed factual issues in this matter. Therefore, defendants' motion for summary judgment will be granted and plaintiffs' motion for summary judgment will be denied.
The Medicare Act (42 U.S.C. § 1395, et seq.) was enacted in 1965 and transferred to public expense the cost of providing health care to the aged. Under this act, hospitals enter into an agreement with H.H.S. to provide Medicare services to eligible individuals. The hospitals are entitled to reimbursement under Medicare for the "reasonable cost" of providing health care services to Medicare beneficiaries.
The Hill-Burton Act (42 U.S.C. § 291, et seq.) was originally enacted in 1946 to remedy the shortage and inadequacy of hospital facilities in the United States. Hospitals were required to make two assurances pursuant to 42 U.S.C. § 291c(e) in order to receive funds for construction and modernization of their facilities. The first was that health care institutions make available a reasonable amount of free services to indigents. The second assurance was that the hospitals would provide a community service open to all community residents.
In 1979, the Secretary promulgated Hill-Burton regulations (42 C.F.R. Sections 124.501, et seq.) which established that hospitals must provide services to the indigent population at a level not less than 3 percent of "operating costs" or 10 percent of federal assistance received. The regulations further require that all Hill-Burton assisted facilities must participate in the Medicare program. 42 C.F.R. § 124.603(c)(1)(ii). In the first appellate case dealing with this issue, Presbyterian Hospital of Dallas v. Harris, 638 F.2d 1381 (5th Cir.), cert. den., 454 U.S. 940, 70 L. Ed. 2d 248, 102 S. Ct. 476 (1981), the court held that Hill-Burton contracted costs for indigent care are indirect costs to the hospitals and therefore reimbursable by Medicare.
As a result of this decision, the Secretary sought clarifying legislation from Congress which would exclude reimbursement of Hill-Burton indigent care costs under Medicare. Congress responded and passed Section 106(a) of TEFRA. Section 106 amended the Medicare Act by excluding such Hill-Burton costs from allowable costs under the Medicare program.
Section 106(b) provides that no Hill-Burton indigent care costs shall be reimbursable but that this exclusion "shall not apply to costs which have been allowed prior to the date of enactment of this Act pursuant to the final court order affirmed by a United States Court of Appeals." P.L. No. 97-248, § 106(b), 42 U.S.C.A. § 1395x (p. 426, 1983 Supp.). This language according to H.H.S. means that the reimbursement allowed in the Presbyterian Hospital case is to be honored, but that no further reimbursement of Hill-Burton indigent care costs by the Medicare program is permissible.
II. Procedural History
Fiscal intermediaries serve under contract as agents of the Secretary of H.H.S. and determine each hospital's Medicare reimbursement for each fiscal year. If a hospital is dissatisfied with the decision of an intermediary, it may seek review by appealing to the P.R.R.B., an administrative arm of H.H.S.
On August 4, 1981, plaintiff hospitals filed a request to the P.R.R.B. for a hearing to challenge initial disallowance of Hill-Burton costs. The P.R.R.B. held a hearing on May 25, 1982, and filed a decision on October 15, 1982, which held that plaintiff hospitals are not entitled to Medicare reimbursement for Hill-Burton contractual costs. The P.R.R.B.'s decision relied on Section 106 of TEFRA and its legislative history to support denial of plaintiff hospitals' claim for reimbursement:
The provision is intended to clarify that Hill-Burton free care costs have never been, and are not, allowable for medicare reimbursement purposes.
 U.S. Code Cong. & Ad. News 1211. Plaintiff hospitals filed suit on November 12, 1982, in this court to obtain judicial review of the P.R.R.B.'s decision. I have jurisdiction over this matter pursuant to 42 U.S.C. § 1395oo.
This suit is one of a series of suits brought by hospitals throughout the country challenging the denial of reimbursement for Hill-Burton free care costs. Final decisions have been reached by a number of courts of appeal as well as by numerous district courts.
A. The Bases of Plaintiffs' Claims
Plaintiff Hospitals contend that Section 106 of TEFRA is unlawful, arbitrary, capricious and unconstitutional because they are illegally being denied reimbursement for the reasonable costs of providing services to Medicare beneficiaries. In the first count, plaintiffs charge that by excluding the contractual costs of Hill-Burton indigent care from Medicare allowable costs, Section 106 results in the federal government's paying to them a rate for the care of Medicare beneficiaries which is so low that it constitutes a taking of property without just compensation.
In counts two and three, plaintiffs allege that the defendant's act of administering Section 106 alters and impairs the Medicare and Hill-Burton contracts of plaintiff hospitals and undermines their ability to fulfill their obligations under the contracts. Plaintiffs assert an estoppel theory and claim that the hospitals accepted Hill-Burton aid because they relied on the contractual understanding that providing indigent care was a prerequisite to their obtaining federal Hill-Burton assistance. Plaintiffs argue that the denial of reimbursement for Hill-Burton costs constitutes a breach of the Medicare and Hill-Burton contracts and results in the deprivation of plaintiffs' property without just compensation in violation of the Fifth Amendment. Plaintiffs also argue that the application of Section 106 to hospitals that have pre-existing Hill-Burton and Medicare contracts constitutes a retroactive legislative enactment that is fundamentally unfair and a denial of due process in violation of the Fifth Amendment.
Plaintiffs aver in their fourth count that Medicare's refusal to pay its fair share of Hill-Burton costs results in a shifting of costs to non-Medicare patients in violation of the Medicare Act's prohibition against cross-subsidization of Medicare patients, 42 U.S.C. § 1395x(v)(1)(A) and 42 C.F.R. § 405.451. In addition, plaintiffs maintain that Medicare's refusal to pay is in "irreconcilable conflict with other express, underlying, fundamental precepts of the Medicare Act and is unconstitutional as a violation of due process under the Fifth Amendment of the Constitution."
The fifth count asserted by plaintiffs is that Congress' attempt to require federal courts to decide pending actions in which it is a party constitutes an unconstitutional interference with the role of the judiciary in violation of Article III of the Constitution which vests "the judicial power of the United States" in the federal courts.
Plaintiffs' sixth count is that Section 106(b) which denies Medicare reimbursement for Hill-Burton costs, except for past reimbursement to one hospital, constitutes unlawful special or selective legislation in violation of the due process and equal protection clauses of the Fifth Amendment.
The final count raised by plaintiffs is that the P.R.R.B.'s application of Section 106 of TEFRA constitutes action that is arbitrary, capricious, and does not comport with proper statutory interpretation.
B. The P.R.R.B. Has Properly Interpreted Section 106
Plaintiffs raise the statutory interpretation issue of whether Section 106 excludes Hill-Burton indigent care costs from Medicare reimbursement. This is a threshold issue which I must meet before addressing the constitutional issues. Plaintiffs argue that the Congressional intent behind Section 106 is not clear because Congress lacked consensus on whether or not Hill-Burton costs are to be considered reimbursable indirect costs under the Medicare scheme. The statutory interpretation issue has repeatedly been decided against the plaintiffs. Following TEFRA's passage, a number of appellate courts have decided this issue against the plaintiffs.
The enactment of Section 106 of TEFRA and its legislative history reveal that Congress intended simply to "clarify that Hill-Burton free care costs have never been, and are not, allowable for Medicare reimbursement purposes."  U.S. Code Cong. & Ad. News 1211.
I agree with the reasoning set forth in St. Mary of Nazareth v. Schweiker, 698 F.2d 1337 (7th Cir. 1983) which held:
. . . section 106 is clear in that it is nothing more than the reaffirmation of longstanding policy that it was never the intent of Congress to allow Medicare payments to be used to reimburse hospitals for the percentage of free care they provide indigents in repayment of their obligations under the Hill-Burton Act. 698 F.2d at 1344.
Section 291c(e)(2) of the Hill-Burton Act authorizes regulations requiring the applicant hospital to assure that "there will be made available . . . a reasonable volume of services to persons unable to pay therefore . . ." The same section allows "an exception . . . if such a requirement is not feasible from a financial viewpoint."
These provisions read together suggest that Congress understood it was imposing a substantial financial obligation directly on hospitals, and thus allowed for relief from that obligation upon a showing of a lack of financial feasibility. Nothing in the Hill-Burton Act evidences a Congressional intent that the federal government is to become the financial underwriter of the hospitals' free care obligation.
In St. Mary of Nazareth, the court held that "the Hill-Burton Act and the Medicare Act embody separate and distinct federal programs and the legislative history of each revealed that Congress never intended to allow the use of Medicare funds to reimburse hospitals for the Medicare percentage of the free care rendered to indigents under the Hill-Burton Act." (698 F.2d at 1344).
The court held further that:
To reach any other conclusion would put the government in the anomalous position of acting as a permanent life support system for health care facilities who provide services for the indigent without requiring that the hospitals fulfill the contractual obligations they incurred when accepting Hill-Burton funds. This type of financial reimbursement advocated by the hospitals is totally inconsistent with the principles of the Hill-Burton Act. (Id.)