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MCKEESPORT HOSP. v. HECKLER

August 21, 1986

MCKEESPORT HOSPITAL
v.
MARGARET M. HECKLER, Secretary of Health and Human Services, and CAROLYNE K. DAVIS, PH.D., Administrator, Health Care Financing Administration, Department of Health & Human Services; GREENE COUNTY MEMORIAL HOSPITAL v. MARGARET M. HECKLER, Secretary of Health and Human Services



The opinion of the court was delivered by: WEBER

 Plaintiff hospitals originally brought these actions seeking relief from the Secretary's refusal to reimburse them for certain expenses under the Medicare program. In June 1985 we granted judgment in favor of the hospital on the issue of reimbursement of expenses of labor/delivery patients, but did not enter an amount. *fn1" We also remanded the cases to the Provider Reimbursement Review Board for further findings. Plaintiffs now have moved for the court to alter or amend our order of remand. The intervening disposition of other suits in various circuits persuades us to grant plaintiffs' motion.

 As described in our June 1985 opinion, our decision on the substance of these complex regulatory cases followed circuit and district court opinions on the identical issues. In particular, the Court of Appeals for the District of Columbia Circuit handed down an opinion in 1983 that is the leading authority on the subject, and which has been expressly adopted by other circuits. St. Mary of Nazareth Hospital Center v. Schweiker, 231 U.S. App. D.C. 47, 718 F.2d 459 (D.C. Cir. 1983), ("St. Mary I"); see, e.g., Mt. Zion Hospital and Medical Center v. Heckler, 758 F.2d 1346 (9th Cir. 1985); Beth Israel Hospital v. Heckler, 734 F.2d 90 (1st Cir. 1984). After ruling on the substantive issues in St. Mary I, the D.C. Circuit rendered a second opinion on the question presently before this court: What is the proper scope of remand in these cases? St. Mary I provided for a limited remand as set forth in the D.C. Circuit's order, adopted by this court:

 
We remand the case to the District Court with instructions to remand to the PRRB for the limited purpose of taking evidence on the issue of whether the use of other ancillary services by Medicare beneficiaries at the census-taking hour suffices to compensate for the dilution of Medicare reimbursement caused by including labor/delivery area patients in the calculation of average general routine costs per diem. Absent substantial evidence to support such a contention, the Secretary is directed to exclude labor/delivery room patients, who have not previously that day received routine services, from the inpatient count used to derive the average cost per diem for general routine services.

 718 F.2d at 474.

 When the district court applied the order as written -- that only evidence of the use of ancillary services by Medicare patients at the census hour could be presented, and if none existed, there would be no further remand, 587 F. Supp. 937 (D.C. D.C. 1984) -- the Secretary appealed again. The D.C. Circuit affirmed the district court and fully explained the reasons for a limited remand in St. Mary of Nazareth Hospital Center v. Heckler, 245 U.S. App. D.C. 287, 760 F.2d 1311 (D.C. Cir. 1985) ("St. Mary II").

 SCOPE OF REMAND

 While the other circuits that have considered the substantive question have recognized St. Mary I as being authoritative, they are split on the question of scope of remand. The Court of Appeals for the Ninth Circuit, without the benefit of St. Mary II, followed St. Mary I and interpreted the remand order narrowly. International Philanthropic Hospital Foundation v. Heckler, 724 F.2d 1368 (9th Cir. 1984) (per curiam) and Mount Zion Hospital and Medical Center v. Heckler, 758 F.2d 1346 (9th Cir. 1985) (per curiam). A narrow interpretation means that remand to the PRRB will be ordered only when the Secretary can provide evidence that costs for other Medicare patients in ancillary areas of the hospital offset the dilution of Medicare reimbursement caused by including labor/delivery patients in the formula for calculating average general routine costs per diem. This offset would give the Secretary a rational basis for including labor/delivery patients -- who typically are not Medicare beneficiaries and who often do not generate routine costs -- in the Medicare reimbursement formula for costs associated with routine care. In these cases the Secretary admitted having no such evidence. Instead, she wished to introduce evidence that dilution of Medicare reimbursement for routine costs was offset by some other imbalance in the reimbursement scheme -- specifically, that routine costs for labor/delivery patients were higher once these patients began receiving routine care. The circuit courts for the District of Columbia and the Ninth Circuit disallowed remand for evidence-taking in any broader fashion than the order as originally written in St. Mary I would allow.

 The Court of Appeals for the Seventh Circuit occupies the position at the other end of the scale regarding scope of remand.

 
It is true that the remand in St. Mary of Nazareth was limited to the taking of evidence on the specific question whether the number of Medicare patients found in other ancillary areas at the census hour is sufficient to offset the dilution of Medicare reimbursement created by her labor/delivery policy. It is also true that the identical remand was issued by the Court of Appeals for the Ninth Circuit in International Philanthropic Hospital Foundation v. Heckler, 724 F.2d 1368 (9th Cir. 1984) (per curiam). The Secretary has conceded that she cannot prove the affirmative answer to that question. But we see no reason why her opportunity to prove an offset should be so restricted. The Court of Appeals for the First Circuit issued a broader remand, allowing the Secretary to show that the dilution of the hospital's Medicare reimbursement is offset by other factors in the Medicare system. Beth Israel Hospital v. Heckler, 734 F.2d 90, 92 (1st Cir. 1984). We agree with this approach and follow it here.

 Central DuPage Hospital v. Heckler, 761 F.2d 354, 359 (7th Cir. 1985) (footnote omitted).

 The Seventh Circuit panel in Central Dupage later took the opportunity to further explain its position in light of St. Mary II when the hospitals there petitioned the court for rehearing. In an unpublished order which we will make part of the record, the court acknowledged the limited scope of the D.C. Circuit's remand and confirmed its own broad remand. In distinguishing the two cases, the Seventh Circuit concluded that in St. Mary I and II the Secretary waived the opportunity to present evidence of higher routine costs generated by labor/delivery patients because she did not raise the point in her pleadings. Since the decision in St. Mary I and II depended in part on a waiver that was not present in Central DuPage, the Seventh Circuit chose not to follow the limited remand of the St. Mary cases.

 The Court of Appeals for the Fifth Circuit affirmed a District Court's exclusion of labor/delivery patients from the computation of the average cost of routine services in the Medicare reimbursement formula, following St. Mary I and International Philanthropic Hospital, supra. The court acknowledged that hospital practices vary, however, and would permit the Secretary

 
to produce evidence showing that the artificially low reimbursement alleged to result from including labor and delivery room patients in the census is offset by other accounting factors, including those recognized in St. Mary of Nazareth ...

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