The opinion of the court was delivered by: CAHN
This is an appeal from an administrative determination made by The Health and Human Services Provider Reimbursement Review Board (P.R.R.B.) that 12 Pennsylvania hospitals are not entitled to reimbursement under the Medicare program for the costs of free care they provided to indigents as required by the Hill-Burton Act, 42 U.S.C. § 291, et seq. Plaintiffs are 12 non-profit Pennsylvania hospitals, which have received federal construction subsidies under the Hill-Burton Act in exchange for their agreement to provide free care to indigents. 42 U.S.C.A. § 291c(e). The defendant 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 was originally enacted in 1946 to remedy the shortage and inadequacy of hospital facilities in the United States.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.
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 ...