UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
December 13, 1984
ABINGTON MEMORIAL HOSPITAL, BRANDYWINE HOSPITAL, BRYN MAWR HOSPITAL, BRYN MAWR REHABILITATION HOSPITAL, COLUMBIA HOSPITAL, EPHRATA COMMUNITY HOSPITAL, GERMANTOWN HOSPITAL AND MEDICAL CENTER, GRADUATE HOSPITAL, HOLY REDEEMER HOSPITAL, HOSPITAL OF PHILADELPHIA COLLEGE OF OSTEOPATHIC MEDICINE, INSTITUTE OF THE PENNSYLVANIA HOSPITAL, JEANES HOSPITAL, LANCASTER GENERAL HOSPITAL, LANCASTER OSTEOPATHIC HOSPITAL, LANKENAU HOSPITAL, MEMORIAL HOSPITAL-ROXBOROUGH, PAOLI MEMORIAL HOSPITAL, PENNSYLVANIA HOSPITAL, (THE CONTRIBUTORS TO THE PENNSYLVANIA HOSPITAL, DEPARTMENT FOR SICK AND INJURED), PHOENIXVILLE HOSPITAL, PRESBYTERIAN-UNIVERSITY OF PENNSYLVANIA MEDICAL CENTER, RIDDLE MEMORIAL HOSPITAL, SACRED HEART HOSPITAL, INC.-NORRISTOWN, SACRED HEART GENERAL HOSPITAL-CHESTER, ST. JOSEPH HOSPITAL-LANCASTER, SUBURBAN GENERAL HOSPITAL-NORRISTOWN, THOMAS JEFFERSON UNIVERSITY HOSPITAL, WILLS EYE HOSPITAL, FRIEDMAN HOSPITAL OF THE HOME FOR THE JEWISH AGED, MONTGOMERY HOSPITAL, COMMUNITY GENERAL HOSPITAL-READING, GOOD SAMARITAN HOSPITAL-POTTSVILLE, POTTSVILLE HOSPITAL AND WARNE CLINIC, READING HOSPITAL AND MEDICAL CENTER, ALLENTOWN HOSPITAL ASSOCIATION, ALLENTOWN OSTEOPATHIC HOSPITAL, EASTON HOSPITAL, QUAKERTOWN HOSPITAL ASSOCIATION, SACRED HEART HOSPITAL-ALLENTOWN, MOUNT TREXLER SKILLED NURSING FACILITY OF SACRED HEART HOSPITAL-ALLENTOWN, ALBERT EINSTEIN MEDICAL CENTER, CENTER CITY HOSPITAL, CHESTNUT HILL HOSPITAL, CROZER-CHESTER MEDICAL CENTER, FRANKFORD HOSPITAL, GRAND VIEW HOSPITAL HAVERFORD COMMUNITY HOSPITAL, JAMES C. GIUFFRE MEDICAL CENTER, JOHN F. KENNEDY MEMORIAL HOSPITAL, KENSINGTON HOSPITAL, LAWNDALE COMMUNITY HOSPITAL (MEDIQ, INC.), LOWER BUCKS HOSPITAL, MERCY CATHOLIC MEDICAL CENTER, METHODIST HOSPITAL-PHILADELPHIA, NAZARETH HOSPITAL, NORTH PENN HOSPITAL, NORTHWESTERN INSTITUTE OF PSYCHIATRY, POTTSTOWN MEMORIAL MEDICAL CENTER, ROLLING HILL HOSPITAL AND DIAGNOSTIC CENTER (UNITED HOSPITALS, INC.), ST. CHRISTOPHER'S HOSPITAL FOR CHILDREN, ST. JOSEPH'S HOSPITAL-PHILADELPHIA, ST. MARY HOSPITAL-LANGHORNE, ST. MARY HOSPITAL-PHILADELPHIA, SOUTHERN CHESTER COUNTY MEDICAL CENTER, TAYLOR HOSPITAL, WARMINSTER GENERAL HOSPITAL (UNITED HOSPITALS, INC.)
HECKLER, MARGARET M., SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES AND DAVIS, CAROLYNE K., ADMINISTRATOR HEALTH CARE FINANCING ADMINISTRATION; MEMORIAL OSTEOPATHIC HOSPITAL, PHILHAVEN HOSPITAL, ANNIE M. WARNER HOSPITAL, BERWICK HOSPITAL CORP., BLOOMSBURG HOSPITAL, CENTRE COMMUNITY HOSPITAL, COMMUNITY GENERAL OSTEOPATHIC HOSPITAL, FULTON COUNTY MEDICAL CENTER, GEISINGER MEDICAL CENTER, GOOD SAMARITAN HOSPITAL OF LEBANON, HANOVER GENERAL HOSPITAL, HANOVER GENERAL HOSPITAL-HILLVIEW HOUSE, HARRISBURG HOSPITAL, LEWISTOWN HOSPITAL, REHABILITATION HOSPITAL FOR SPECIAL SERVICES, SUNBURY COMMUNITY HOSPITAL, SUNBURY SKILLED NURSING CARE UNIT, WAYNESBORO HOSPITAL, YORK HOSPITAL, BARNES-KASSON COUNTY HOSPITAL, BARNES-KASSON SKILLED NURSING FACILITY, BARNES-KASSON HOME HEALTH AGENCY, BUCKTAIL MEDICAL CENTER, CARBONDALE GENERAL HOSPITAL, COMMUNITY MEDICAL CENTER, DIVINE PROVIDENCE HOSPITAL-WILLIAMSPORT, DIVINE PROVIDENCE HOSPITAL SKILLED NURSING FACILITY-WILLIAMSPORT, GNADEN HEUTTEN MEMORIAL HOSPITAL, GNADEN HEUTTEN NURSING AND CONVALESCENT CENTER, LOCK HAVEN HOSPITAL, MEMORIAL HOSPITAL, INC.-TOWANDA, MEMORIAL HOSPITAL, INC. SKILLED NURSING FACILITY-TOWANDA, MERCY HOSPITAL-SCRANTON, MID-VALLEY HOSPITAL, MONTROSE GENERAL HOSPITAL, INC., MOSES TAYLOR HOSPITAL, MOSES TAYLOR SKILLED NURSING FACILITY, PITTSTON HOSPITAL (NPW MEDICAL CENTER OF NE PA, INC.), POCONO HOSPITAL, THE ROBERT PARKER HOSPITAL, ST. JOSEPH HOSPITAL-HAZLETON, SOLDIERS AND SAILORS MEMORIAL HOSPITAL, TROY COMMUNITY HOSPITAL, INC., TYLER MEMORIAL HOSPITAL, WAYNE COUNTY MEMORIAL HOSPITAL ASSOCIATION, WAYNE COUNTY MEMORIAL SKILLED NURSING FACILITY, WAYNE COUNTY MEMORIAL HOSPITAL HOME HEALTH AGENCY, WILLIAMSPORT HOSPITAL, WYOMING VALLEY HOSPITAL (NPW MEDICAL CENTER OF NE PA, INC.), ST. JOSEPH'S HOSPITAL-CARBONDALE, CHARLES COLE MEMORIAL HOSPITAL, CHARLES COLE MEMORIAL HOSPITAL SKILLED NURSING FACILITY, J.C. BLAIR MEMORIAL HOSPITAL V. HECKLER, MARGARET M., SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES AND DAVIS, CAROLYNE K., ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION; ALLEGHENY GENERAL HOSPITAL, ALLEGHENY VALLEY HOSPITAL, ALIQUIPPA HOSPITAL, ALTOONA HOSPITAL, ANDREW KAUL MEMORIAL HOSPITAL, ANDREW KAUL MEMORIAL HOSPITAL SKILLED NURSING FACILITY, ARMSTRONG COUNTY MEMORIAL HOSPITAL, BRADDOCK GENERAL HOSPITAL, BRADFORD HOSPITAL, BROOKVILLE HOSPITAL, BROWNSVILLE GENERAL HOSPITAL, BUTLER COUNTY MEMORIAL HOSPITAL, CENTRAL MEDICAL HEALTH CENTER AND HOSPITAL, CLARION OSTEOPATHIC HOSPITAL, CLEARFIELD HOSPITAL, CLEARFIELD HOME HEALTH AGENCY, CONEMAUGH VALLEY MEMORIAL HOSPITAL, COMMUNITY MENTAL HEALTH CENTER OF BEAVER COUNTY, CORRY MEMORIAL HOSPITAL ASSOCIATION, DIVINE PROVIDENCE-PITTSBURGH, DOCTORS OSTEOPATHIC HOSPITAL, DUBOIS HOSPITAL, ELK COUNTY GENERAL HOSPITAL, ELLWOOD CITY HOSPITAL, ELLWOOD CITY HOSPITAL SKILLED NURSING FACILITY, EYE AND EAR HOSPITAL OF PITTSBURGH, GREENE COUNTY MEMORIAL HOSPITAL, GREENVILLE HOSPITAL, HAMOT MEDICAL CENTER, HENRY CLAY FRICK COMMUNITY HOSPITAL, INDIANA HOSPITAL, JAMESON MEMORIAL HOSPITAL, KEANNETTE DISTRICT MEMORIAL HOSPITAL, LATROBE AREA HOSPITAL, LEE HOSPITAL, MAGEE-WOMENS HOSPITAL, MCKEESPORT HOSPITAL, MEADVILLE CITY HOSPITAL, MEMORIAL HOSPITAL OF BEDFORD COUNTY, MERCY HOSPITAL OF JOHNSTOWN, MERCY HOSPITAL-PITTSBURGH, MEYERSDALE COMMUNITY HOSPITAL, MINERS HOSPITAL OF NORTHERN CAMBRIA, MONONGAHELA VALLEY HOSPITAL, INC., MONTEFIORE HOSPITAL ASSN. OF WESTERN PENNSYLVANIA, NASON HOSPITAL ASSOCIATION, NORTH HILLS PASSAVANT HOSPITAL, OHIO VALLEY GENERAL HOSPITAL, OIL CITY HOSPITAL, OIL CITY HOSPITAL SKILLED NURSING FACILITY, PODIATRY HOSPITAL OF PITTSBURGH, PORT ALLEGANY COMMUNITY HOSPITAL, PRESBYTERIAN-UNIVERSITY HOSPITAL, PUNXSUTAWNEY AREA HOSPITAL, SEWICKLEY VALLEY HOSPITAL, SHADYSIDE HOSPITAL, SHARON GENERAL HOSPITAL, SHENANGO VALLEY OSTEOPATHIC HOSPITAL, SOMERSET COMMUNITY HOSPITAL, SOUTH HILLS HEALTH SYSTEM HOME HEALTH AGENCY, SOUTH SIDE HOSPITAL OF PITTSBURGH, SPENCER HOSPITAL, ST. CLAIR MEMORIAL HOSPITAL, ST. FRANCIS HOSPITAL-NEW CASTLE, ST. FRANCIS GENERAL HOSPITAL-PITTSBURGH, ST. FRANCIS GENERAL HOSPITAL SKILLED NURSING FACILITY, ST. FRANCIS GENERAL HOSPITAL HOME HEALTH AGENCY, ST. JOHN'S GENERAL HOSPITAL, ST. MARGARET MEMORIAL HOSPITAL-PITTSBURGH, ST. VINCENT HEALTH CENTER, SUBURBAN GENERAL HOSPITAL-PITTSBURGH, TYRONE HOSPITAL, UNION CITY MEMORIAL HOSPITAL, UNIONTOWN HOSPITAL, WARREN GENERAL HOSPITAL, WASHINGTON HOSPITAL, WEST ALLEGHENY HOSPITAL, WESTMORELAND HOSPITAL ASSOC., WEST PENN HOSPITAL, WESTERN PSYCHIATRIC INSTITUTE AND CLINIC, WINDBER HOSPITAL AND WHEELING CLINIC V. HECKLER, MARGARET M., SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES AND DAVIS, CAROLYNE K., ADMINISTRATOR HEALTH CARE FINANCING ADMINISTRATION, MARGARET M. HECKLER, ET AL., APPELLANTS
Appeal From the United States District Court For the Eastern District of Pennsylvania
Before: HUNTER, WEIS, Circuit Judges, and COHEN,*fn* District Judge.
Opinion OF THE COURT
HUNTER, Circuit Judge:
1. This appeal arises from an order invalidating a regulation promulgated under Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. (1982) ("the Medicare Act"). The regulation in question governs the reimbursement of malpractice insurance premiums associated with the care of Medicare patients to health-care providers. 42 C.F.R. § 405.452(a)(1)(ii) (1983) ("the Malpractice Rule"). Subject matter jurisdiction in this court is based on 42 U.S.C. § 1395oo(f)(1) (1982), and our review is governed by the principles of the Administrative Procedure Act, 5 U.S.C. § 706 (1982). For the reasons stated below, we affirm, and adopt the reasoning and opinion of the district court. 576 F. Supp. 1081 (E.D. Pa. 1983).*fn1
2. When promulgated in 1979, the Malpractice Rule completely altered the method by which health-care providers were reimbursed for malpractice insurance premiums associated with the care of Medicare patients. Prior to 1979, malpractice insurance costs were lumped together with all general and administrative costs, and the amount of reimbursement for general and administrative costs was calculated by multiplying the total costs by the percentage utilization rate of Medicare patients. App. at 76-77. Thus, if Medicare patients utilized fifty percent of a health-care provider's beds, the federal government would reimburse the health-care provider for fifty percent of its total general and administrative costs, including malpractice insurance costs.
3. Under the new Malpractice Rule, reimbursement for malpractice insurance costs is not tied to utilization rates, nor are such costs included in the category of general and administrative costs. Rather, reimbursement of malpractice insurance costs is based on the health-care provider's past claims history with Medicare patients, or, if no history exists, on the national ratio of malpractice awards paid to Medicare beneficiaries to malpractice awards paid to all patients. 42 C.F.R. § 405.452(a)(1)(ii) (1983).
4. The district court below found this new regulation to be invalid on three grounds: (1) because the Malpractice Rule was promulgated in violation of the notice and comment procedures of 5 U.S.C. § 553 (1982); (2) because the rule is arbitrary, capricious, and an abuse of the Secretary of Health and Human Services discretion, and is thus substantively invalid under 5 U.S.C. § 706(2)(A) (1982); and (3) because the rule is in conflict with section 1395(x)(v)(1)(a) of the Medicare Act. We find the reasoning and holding of the district court to be persuasive, and thus adopt the opinion below. We will, however, address the arguments of the parties and amici as to the appropriate remedy in this case.
5. The district court's order provides that "plaintiffs' appeals are remanded to the Provider Reimbursement Review Board for such further proceedings as may be required by and appropriate under 42 U.S.C. § 1395oo." App. at 32. The Secretary contends that the appropriate remedy is to remand to her for further rule-making procedures, because any other remedy would unlawfully deprive the Secretary of her exclusive authority to choose reimbursement methods. Appellants' Reply Brief at 20-21 n.13. We find the Secretary's arguments unpersuasive.
6. First, and contrary to the Secretary's contention, the district court did not find that the prior method of reimbursement was invalid.*fn2 Thus, until rendered invalid by a court decision or replaced by a valid new regulation, the prior method of reimbursement remains operative. See, e.g., Action on Smoking and Health v. CAB, 230 U.S. App. D.C. 1, 713 F.2d 795, 797 (D.C. Cir. 1983) (recognizing that vacating or rescinding invalidly promulgated regulations has the effect of reinstating prior regulations). Indeed, because the Malpractice Rule was promulgated as an exception to the general rule of utilization-approach reimbursement, invalidating the exception leaves only the general rule. This result is also consistent with our statutory authority under the Administrative Procedure Act, which envisions the vacation of unlawfully promulgated regulations. 5 U.S.C. § 706(2) (1982). ("The reviewing court shall . . . hold unlawful and set aside agency action. . . .") (emphasis added). Our decision today, therefore, has the effect of reinstituting the utilization approach to malpractice insurance cost reimbursement unless and until the Secretary promulgates a valid alternative regulation. See, e.g., Northwest Hospital, Inc. v. Hospital Service Corp., 687 F.2d 985 (7th Cir. 1982) (allowing hospital reimbursement under general rule after invalidating exception).*fn3
7. The specific relief in this case, however, is limited to the individual claims of appellees for reimbursement that were considered by the Provider Reimbursement Review Board. Section 405(h) of the Social Security Act, 42 U.S.C. § 405(h) (1982), as incorporated into the Medicare Act by 42 U.S.C. § 1395ii (1982), removes from the federal courts any jurisdiction over claims arising under the Medicare Act for reimbursement, except to the extent allowed in 42 U.S.C. § 1395oo(f) (1982). See, e.g, National Association of Home Health Agencies v. Schweiker, 223 U.S. App. D.C. 209, 690 F.2d 932, 936-38 (D.C. Cir. 1982), cert. denied, 459 U.S. 1205, 75 L. Ed. 2d 438, 103 S. Ct. 1193 (1983); Hadley Memorial Hospital, Inc. v. Schweiker, 689 F.2d 905 (10th Cir. 1982). Section 1395oo of the Act establishes the Provider Reimbursement Review Board as the forum of first resort, and requires exhaustion of one's remedies there before court review is appropriate. 42 U.S.C. § 1395oo (1982). In this case, those exhaustion requirements were met only for the fiscal year ending June 30, 1980. App. at 9. Thus, the specific relief of our decision is limited to remanding to the Provider Reimbursement Review Board, with the instruction that appellees be awarded reimbursement in accordance with our decision, for malpractice insurance costs incurred during the fiscal year ending June 30, 1980. The judgment of the district court will be affirmed.