Northwest Hospital, Inc. v. United States

4 Cl. Ct. 109, 1983 U.S. Claims LEXIS 1529, 3 Soc. Serv. Rev. 892
CourtUnited States Court of Claims
DecidedDecember 23, 1983
DocketNo. 73-78
StatusPublished
Cited by1 cases

This text of 4 Cl. Ct. 109 (Northwest Hospital, Inc. v. United States) is published on Counsel Stack Legal Research, covering United States Court of Claims primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Northwest Hospital, Inc. v. United States, 4 Cl. Ct. 109, 1983 U.S. Claims LEXIS 1529, 3 Soc. Serv. Rev. 892 (cc 1983).

Opinion

OPINION

NETTESHEIM, Judge.

This case is before the court on cross-motions for summary judgment. Defendant requested that a scheduled argument be cancelled and the case be submitted on the briefs, and plaintiff agreed.

Plaintiff seeks that portion of its administrator’s salary for the years 1967 through 1971 and of bonuses paid to its medical director and attorney for the year 1967 properly allocable to the Medicare program.1 Plaintiff avers that these amounts are $80,106 and $7,590, respectively.

FACTS

Under the Medicare Act, 42 U.S.C. § 1395f(b) (1976 & Supp. V 1981) (“the Act”), providers of medical services to beneficiaries under the Act are reimbursed through so-called “fiscal intermediaries” for the “reasonable cost” of providing such services. The fiscal intermediaries are private entities such as Blue Cross organizations to which the Secretary of Health and Human Services, formerly the Department of Health, Education and Welfare (the “Secretary”), is authorized to delegate by contract his authority to determine the amount of reimbursement due providers. See Pacific Coast Medical Enterprises, Inc. v. United States, 3 Cl.Ct. 140, 142 (1983) (NETTESHEIM, J.).

Plaintiff’s fiscal intermediary, Hospital Service Corporation, awarded plaintiff approximately half the full reimbursement sought for the $100,000 salary of the hospital administrator for each of the years 1967-71 and approximately half the $15,000 compensation paid to plaintiff’s medical director and attorney in 1967. On appeal to and after a hearing before the Blue Cross Association’s Medicare Provider Appeals Committee (the “BCA”), see 42 C.F.R. § 405.1811 (1974), plaintiff showed that its administrator performed duties normally handled by several officers, that normal fringe benefits were not included in this compensation, and that plaintiff’s overall administrative costs were significantly lower than those of other providers. Impressed, the BCA granted the full reimbursement. The Secretary thereafter directed the BCA to reopen this decision and [111]*111grant only the reimbursement originally allowed. See 42 C.F.R. § 405.1885(b) (1974). The BCA asked for reconsideration of the directive, which was denied, and then conducted further hearings. Although again agreeing with plaintiff's arguments, the BCA took the position that the Secretary’s directive compelled disallowance of the reimbursements and reinstated the determination of the Hospital Service Corporation.

The BCA also disallowed the reimbursement for the compensation to plaintiff’s medical director and attorney in that they were distributions of earnings or returns on investments and because plaintiff had failed to document that the payments were for necessary services. After being provided with additional information concerning the attorney’s bonus, the BCA affirmed its decision because the duties giving rise to the bonus related to plaintiff’s reorganization. No further information concerning the bonus of the then-deceased medical director was submitted, so the BCA’s earlier decision stood.

DISCUSSION

In Whitecliff v. United States, 210 Ct.Cl. 53, 536 F.2d 347 (1976) (per curiam), cert. denied, 430 U.S. 969, 97 S.Ct. 1652, 52 L.Ed.2d 361 (1977), which involved a determination of allowable reimbursement under Part A of the Act, this court’s predecessor noted that although no consensus had emerged on whether the merits of reasonable cost determinations were reviewable, courts had sustained judicial review “at least for compliance with the Constitution and the governing statute" and that “[w]e accepted this scope of review in our order in Goldstein v. United States, 201 Ct.Cl. 888, cert. denied, 414 U.S. 974 [94 S.Ct. 287, 38 L.Ed.2d 217] (1973).” 210 Ct.Cl. at 56, 536 F.2d at 349-50. The court in Goldstein, which involved a determination under Part B of the Act, held that it was precluded by 42 U.S.C. 405(h),2 § 1395ff,3 from reviewing the reimbursable cost determination involved there except for statutory compliance. 201 Ct.Cl. at 889.

Although the holding in Goldstein evidently turned on the more restrictive provisions for review of Part B determinations contained in 42 U.S.C. § 1395ff, see Erika, Inc. v. United States, 225 Ct.Cl. 252, 256-62, 634 F.2d 580, 584-88 (1980) (en banc), rev’d on other grounds, 456 U.S. 201, 206-10, 102 S.Ct. 1650, 1653-55, 72 L.Ed.2d 12 (1982), review for consistency with the Constitution, statutes, and regulations became “our traditional narrow scope of review in Part A cases,” as well. Spokane Valley General Hospital, Inc. v. United States, 231 Ct.Cl. -, 688 F.2d 771, 776 (1982); see Chelsea Community Hospital v. United States, 2 Ct.Cl. 175, 179 (1983) (NETTESHEIM, J.).

The Administrator’s Compensation

In limiting the administrator’s salary, the intermediary applied the guidelines contained in 42 C.F.R. § 405.426(b)(2) (1974), for determining the reasonableness of a hospital owner’s compensation. This involved a survey of salaries of administrators at comparable institutions in the area. The BCA initially reinstated full reimbursement of the administrator’s salary on the grounds 1) that 42 C.F.R. § 405.426(b)(2) was inapplicable because the administrator was no longer the hospital’s owner; 2) that 42 U.S.C. § 1395 (1970), prohibited the exercise of any supervision or control over the compensation of any officer of a hospital, thereby requiring the BCA (in its judgment) to apply the test of reasonableness to [112]*112plaintiff’s costs of administration as a whole, rather than to the salary of any individual officer; and 3) that plaintiff’s overall administrative costs were lower than those at comparable institutions because the administrator performed the functions of several officers, running “a tight ship which is basically a one-man operation.” The second ground constitutes the substance of plaintiff’s position in the instant litigation.

The Secretary, through the Bureau of Health Insurance (the “BHI”), exercised his power under 42 C.F.R. § 405.1885(b), to direct a revision of the BCA’s decision.

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4 Cl. Ct. 109, 1983 U.S. Claims LEXIS 1529, 3 Soc. Serv. Rev. 892, Counsel Stack Legal Research, https://law.counselstack.com/opinion/northwest-hospital-inc-v-united-states-cc-1983.