Opinion
No. 89-CV-716.
December 12, 1989
AKIN GUMP STRAUSS HAUER FELD, DAVID B. PALMER, ESQ., Washington, D.C., BOND SCHOENECK KING, DONALD S. DiBENEDETTO, ESQ., Syracuse, NY, Attorneys for Plaintiff.
FREDERICK J. SCULLIN, JR., UNITED STATES ATTORNEY, BERNARD J. MALONE, JR., ASSISTANT U.S. ATTORNEY, Albany, NY, Attorney for Defendants.
MEMORANDUM-DECISION AND ORDER
Before the court are both parties motion for summary judgment.
Background
This matter involves a challenge by plaintiff A.O. Fox Memorial Hospital ("Fox") of a Medicare regulation issued by the defendant Secretary of Health and Human Services ("Secretary"), Louis W. Sullivan. The regulation at issue is one which lists criteria for classifying certain hospitals, typically in rural communities, as "sole community hospitals" ("SCHs").
Louis B. Hays, acting administrator of the Health Care Financing Administration, is the other defendant in this lawsuit.
Since 1972, Congress has mandated special payment considerations under the Medicare program for hospitals known as SCHs. The purpose of this legislation is to ensure the availability of quality health care in rural communities by way of favorable payment formulas for SCHs.
As a sole community hospital, the SCH receives a blended re-payment from the federal government for services the hospital provides for its Medicare patients. The SCH reimbursement is a combination of 75% of the hospital's actual costs, and 25% of the "federal regional rate", which is an amount the federal government has determined hospitals in a given region should be reimbursed for services rendered.
In 1983, Congress revised various parts of the Medicare program, including how hospitals which provided care to Medicare patients were to be reimbursed. It kept the favorable payment schedules for SCHs in effect with this new legislation. In the new amendment to the section pertaining to SCHs, the statute defined a SCH hospital as:
a hospital that, by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other hospitals (as determined by the Secretary), is the sole source of inpatient hospital services reasonably available to individuals in a geographical area who are entitled to benefits . . ."42 U.S.C. § 1395ww(d) (5) (C) (ii).
"Secretary" means the Secretary of Health and Human Services. See 42 U.S.C. § 1301 (6). One of the Secretary's functions is "to prescribe such regulations as may be necessary to carry out the administration" of the Medicare program. 42 U.S.C. § 1395hh.
In accordance with this amendment, the Secretary issued a new regulation concerning SCHs which delineated criteria that a hospital must meet in order to be classified as a sole community hospital. The provisions, in pertinent part, state:
(a) Criteria for classification as a sole community hospital. HCFA classifies a hospital as a sole community hospital if it is located in a rural area (as defined in Sect. 412.62(f)), and meets one of the following conditions:
(1) The hospital is located more than 50 miles from other like hospitals.
(2) The hospital is located between 25 and 50 miles from other like hospitals and meets one of the following criteria:
(i) No more than 25 percent of the residents or, if data on general resident utilization are not available, no more than 25 percent of the Medicare beneficiaries in the hospital's service area are admitted to other like hospitals for care;
(ii) The hospital has fewer than 50 beds and the intermediary certifies that the hospital would have met the criteria in paragraph (a)(2)(i) of this section were it not for the fact that some beneficiaries or residents were forced to seek care outside the service area due to the unavailability of necessary specialty services at the community hospital; or
(iii) Because of local topography or periods of prolonged severe weather conditions, the other like hospitals are inaccessible for at least one month out of each year.
(3) The hospital is located between 15 and 25 miles from other like hospitals but because of local topography or periods of prolonged severe weather conditions, the other like hospitals are inaccessible for at least one month out of each year.
The plaintiff applied to the Health Care Financing Administration ("HCFA") in 1986 for SCH status, and on October 9, 1986, such application was denied because Fox was less than twenty-five miles from the nearest like hospital, and was not isolated, due to local topography or severe weather conditions, for at least one month out of each year.
Fox is located 22.1 miles from the O'Conner Hospital in Delhi, 23.7 miles from the Mary Imogene Bassett Hospital in Cooperstown, and 24.7 miles from The Hospital in Sidney.
After exhausting its administrative remedies, the plaintiff commenced the instant action. Fox claims that it was wrongly denied SCH status because of 42 C.F.R § 412.9(a), which delineates the criteria a hospital must meet in order to be classified as a SCH. It argues that this regulation directly conflicts with the intent of Congress when it enacted the 1983 amendment to 42 U.S.C. § 1395ww(d) (5) (c) (ii). The defendant contends that the provisions of the Secretary's "SCH regulation" are consistent with Congressional intent and therefore must be upheld.
See Plaintiff's Original Memorandum in support of its motion for summary judgment, "Plaintiff's Original Memorandum", docket no. 5, at 4.
See Defendant's Original Memorandum in opposition to plaintiff's motion, "Defendant's Original Memorandum", docket no. 7, at p. 11.
On February 6, 1989, Judge Cholakis of this court was confronted with a similar challenge to 42 C.F.R. § 412.92 (a)(3) in The Mary Imogene Bassett Hospital v. Bowen, 88-CV-874, (N.D.N.Y. Feb. 7, 1989). Judge Cholakis' order stated, in part:
(4) 42 C.F.R. § 412.92 (a)(3), as written, establishes conditions which are too rigid to fully meet Congressional intent as expressed in the enabling statute at 42 U.S.C. § 1395ww(d) (5) (C) (ii).
The court declared and adjudged 42 C.F.R. § 412.92 (a)(3) invalid, and remanded the plaintiff's application to the HCFA for reconsideration, "taking into account all of the appropriate factors consistent with Congressional intent." Id. The government did not appeal this decision.
On September 1, 1989, the Secretary promulgated a new regulation to be codified as C.F.R. § 412.92 (a) (3). This new provision states:
(a) Criteria for classification as a sole community hospital. . . .
* * *
(3) The hospital is located between 15 and 25 miles from other like hospitals but because of local topography or periods of prolonged severe weather conditions, the like hospitals are inaccessible for at least 30 days in each 2 out of 3 years.
54 Fed. Reg. 36494 (1989).
In support of its motion for summary judgment, the plaintiff states that "Fox Hospital believes that it qualifies under the revised standard and should be given an opportunity to present evidence in that regard to the Secretary", and seeks a remand of its 1986 application to the Secretary.
Plaintiff's Second Memorandum in support of its motion for summary judgment, "Plaintiff's Second Memorandum", docket no. 10, p. 37.
The defendant concedes that "Fox can, of course, at any time submit a new application and receive consideration under the new regulations," however it argues that "[t]here is no basis for this Court to order the Secretary to apply the new regulation to Fox's 1986 application" (emphasis in original).
Defendant's Second Memorandum in support of its summary judgment, "Defendant's Second Memorandum"; docket no. 11, p. 31.
Id.
Fox asks this court to find 42 C.F.R. § 412.92(a) (3) invalid, "because it is more restrictive than Congress intended and because it is arbitrary and capricious." Additionally, it seeks a remand of its application for SCH status to the Secretary for reconsideration, taking into account both market share factors and the revised weather standard.
In ruling on the parties' motions for summary judgment, it is important to take note that when the Secretary denied plaintiff's application on October 9, 1986, 42 C.F.R. § 412.92 (a), including subsection (a) (3), had not yet been declared invalid by Judge Cholakis.
The judge invalidated 42 U.S.C. § 412.92(a)(3) on February 6, 1989.
Thus, this court must determine whether this regulation was invalid in 1986 as applied to Fox, keeping in mind that Judge Cholakis' subsequent invalidation of the regulation is persuasive, but not binding on this court.
Discussion
There are really no disputed issues of fact in this case. Fox is a "provider" hospital and could rightfully apply for SCH status. The only issue before this court is whether Fox's application was denied under an improper regulation issued by the Secretary.
A "provider" hospital is a hospital that provides services to Medicare patients.
(1) Judge Cholakis' Previous Order.
While Judge Cholakis' decision in Mary Imogene Bassett Hospital is, of course, persuasive authority for finding 42 C.F.R. § 412.92(a) invalid as applied to Fox's 1986 application, his decision is not binding on this court.
In Crounse v. Stimpson Computing Scale Co., 675 F. Supp. 62 (N.D.N.Y. 1987) (McCurn, J.), it was noted that "this court is not bound by Judge Munson's decision and has an independent duty to determine the current relevant New York law." Id. at 64,citing E.E.O.C. v. Pan American, 576 F. Supp. 1530, 1535 (S.D.N.Y. 1984). See also Colby v. J.C. Penny Co., Inc. 811 F.2d 1119 (7th Cir. 1987) ("[d]istrict judges in this circuit must not treat decisions by other district judges, in this anda fortiori in other circuits, as controlling, unless the doctrine of res judicata or collateral estoppel applies." Id. at 1124 (emphasis in original).
The doctrines of res judicata and collateral estoppel do not apply to the instant case. Since Fox was not a party to the Mary Imogene Bassett Hospital case, the doctrine of res judicata is inapplicable. Nor is the doctrine of collateral estoppel.
The failure of the government to appeal Judge Cholakis' ruling in Mary Imogene Bassett Hospital does not preclude it from re-litigating the issue of the validity of 42 C.F.R. § 412.92(a) in the instant proceeding. See United States v. Mendoza, 464 U.S. 154, 162, 104 S.Ct. 568, 573 (1984), wherein the Supreme Court ruled that the doctrine of non-mutual offensive collateral estoppel does not preclude the government from re-litigating certain issues merely because it did not appeal earlier, adverse, rulings concerning the same issue.
Since neither res judicata nor collateral estoppel serve as a bar to the instant action, this court must now exercise its "independent duty" in determining whether 42 C.F.R. § 412.92 (a) was invalid as applied to Fox's application in 1986, with the knowledge that Judge Cholakis subsequently found 42 C.F.R. § 412.92 (a) (3) invalid.
(2) 42 U.S.C. § 412.92 (a)(3) was not invalid as applied to plaintiff in 1986.
The plaintiff, in its complaint, asks this court to, inter alia, declare 42 C.F.R. § 412(a) invalid as applied to Fox's application. In both memoranda of law in support of its motion for summary judgment, the plaintiff requests that this court find that the standards used for determining SCH status under 42 C.F.R. § 412.92(a) invalid and the result of an arbitrary and capricious regulation issued by the Secretary. Additionally, the plaintiff seeks an order from this court directing the Secretary to redecide Fox's 1986 SCH application.
See Fox's prayer for relief in it's complaint, sect. (a). The complaint also requests, inter alia, that this court rule that Fox should be accorded SCH status effective January 1, 1986 (sect. (c) in prayer for relief), and that the defendants be enjoined from enforcing 42 C.F.R. § 412.92(a) (sect. (e) in prayer for relief.).
(a) Congressional intent and 42 C.F.R. § 412.92(a).
The plaintiff argues at some length that the regulation at issue conflicts with Congressional intent concerning which hospitals should be given SCH status.
As part of this argument, it claims to have supplied this court with "the missing legislative history" concerning the regulation at issue. Fox contends that a report of the United States General Accounting Office, sent to Senator Max Baucus of the Health Subcommittee of the Senate Finance Committee ("GAO Report"), demonstrates that "Section 412.92(a)(3) flies in the face of Congressional intent."
Plaintiff's Second Memorandum, p. 6.
Id., p. 14.
However, this same report advocates nationwide uniformity in the area of establishing criteria for evaluating applications by hospitals for SCH status, and concludes by recommending that the Secretary direct the Administrator of HCFA to, inter alia, define key terms and provide intermediary and HCFA regional office staff with a method of evaluating key factors used to determine if a hospital is entitled to an SCH exemption. A reading of the regulation issued by the Secretary demonstrates that each of the criteria mentioned in the GAO Report are included in the regulation promulgated by the Secretary.
Moreover, an inquiry into the legislative history of a statute is sometimes unwarranted. In I.N.S. v. Cardoza Fonseca, 480 U.S. 421, 107 S.Ct. 1207 (1987), Justice Scalia, in concurring with the holding of the Court, stated:
Judges interpret laws rather than reconstruct legislator's intentions. Where the language of those laws is clear, we are not free to replace it with unenacted legislative intent.Id. at ___, 107 S.Ct. at 1224.
In the instant case, the statute upon which 42 C.F.R. § 412. 92(a) is based is unambiguous. It states, in pertinent part:
For purposes of this subparagraph, the term sole community hospital means a hospital that, by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other hospitals ( as determined by the Secretary ), is the sole source of inpatient hospital services reasonably available to individuals in a geographical area who are entitled to benefits . . ." (emphasis added).42 U.S.C. § 1395ww(d) (5) (C) (ii).
It clearly directs the Secretary to consider a hospital's isolated location, weather conditions, travel conditions, or the absence of other hospitals, when issuing a regulation concerning the classification of a hospital as a SCH.
Thus, this court need not "reconstruct legislator's intentions" by looking towards the statute's legislative history. Rather, it court must determine whether the Secretary followed the clear directive set forth by Congress when he issued the regulation at issue, keeping in mind that "[if an] agency regulation is not in conflict with the plain language of the statute, a reviewing court must give deference to the agency's interpretation of the statute. K Mart Corp. v. Cartier Inc., 486 U.S. 281, ___, 108 S.Ct. 1811, 1817 (1988) (citation omitted).
(b) The standard of review.
Pursuant to 5 U.S.C. § 706, this court may:
(2) hold unlawful and set aside agency action, findings and conclusions found to be — (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. . . .
Thus, this court must decide whether the regulation at issue was arbitrary, capricious, or an abuse of discretion, and therefore invalid, as applied to Fox's 1986 SCH application.
In Clarke v. Securities Industry Association, 479 U.S. 388, 107 S.Ct. 750 (1987), the Supreme Court stated:
"It is settled that courts should give great weight to any reasonable construction of a regulatory statute adopted by the agency charged with the enforcement of that statute."Id. at ___, 107 S.Ct. at 759, quoting Investment Company Institute v. Camp, 401 U.S. 617, 626-27, 91 S.Ct. 1091, 1097 (1971).
Similarly, in Chevron, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 837 (1984), the Supreme Court noted that:
We have long recognized that considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer.Id. at 844, 104 S.Ct. 2782.
Finally, in Weeks v. Quinlan, the Second Circuit noted that:
It is a well-established principal of administrative law that due weight or deference should be accorded to an agency's interpretation of a statute that it is charged to administer. Regardless of the specific language used by the courts in giving weight or deference to the agency's interpretation of its statutory language, it is clear that the agency's interpretation should be followed "unless there are compelling indications that it is wrong."Weeks v. Quinlan, 838 F.2d 41, 43 (2d Cir. 1988) (citations omitted).
Citations omitted. In Weeks, the court upheld a district court ruling that found that the U.S. Parole commission could properly deny defendant Weeks credit for time served in a state prison after his parole from federal custody to a state detainer, pursuant to 28 C.F.R. § 2.32(a)(1).
The Secretary, in 42 C.F.R. § 412.92(a) issued a regulation which takes into account (i) the distance between hospitals, (ii) weather conditions in the locality, and (iii) the accessibility of other hospitals in the area due to topographical or other reasons.
42 C.F.R. § 412.92 (a)(1), (2), and (3).
Id.
Thus, this regulation addresses each and every factor the enabling statute deemed relevant in determining whether a hospital should be afforded sole community hospital status. Any additional factors, or definitions of the listed factors, are to be "determined by the Secretary."
(3) The subsequent amendment to the regulation.
As stated supra, on September 1, 1989, the Secretary promulgated a new regulation, 54 Fed. Reg. 36494 (1989), to be codified as C.F.R. § 412.92(a) (3). The HCFA, in commenting on this amendment to the regulation, stated that:
Generally, a hospital's application will be considered using the criteria in effect at the time it submits its application to its intermediary. However, we agree with the commentor that if revisions to the regulations become effective prior to the HCFA regional office's issuing a final decision on the application, and if the hospital believes the revised criteria are more favorable to it or simplify its documentation requirements, the hospital may request that a determination be based on the later and more favorable criteria. (emphasis added).
54 Fed. Reg. 36483 (September 1, 1989).
Fox states that it "believes that it qualifies under the revised standard and should be given an opportunity to present evidence in that regard to the Secretary." While Fox may eventually qualify for SCH status under this revised standard, this is not reason for this court to direct the Secretary to apply a 1989 regulation retroactively to a 1986 application, upon which the HCFA had already issued a final decision denying Fox SCH status.
Plaintiff's Second Memorandum, p. 37.
The rationale behind not applying amended regulations to final decisions of the HCFA is clear. To order that an application be re-examined by the Secretary in light of regulations effective three years later would remove any possibility of finality from any decision of the Secretary.
While the plaintiff is entitled to re-apply for SCH status under the new regulation, it is not entitled to the benefits of a regulation adopted three years after Fox's application was denied by the Secretary.
Conclusion
This court finds that 42 C.F.R. § 412.92(a) was not arbitrary, capricious, an abuse of discretion, or otherwise invalid as applied to Fox's application for SCH status in 1986. The regulation as it existed then addressed every factor the enabling statute deemed relevant in determining whether a hospital should be afforded sole community hospital status. The subsequent amendment to the regulation on September 1, 1989 is inapplicable to Fox's application, which was denied by the Secretary on October 9, 1986. Accordingly, this court grants defendant's cross-motion for summary judgment.
IT IS SO ORDERED.