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December 22, 1993

DONNA SHALALA, Secretary of the Department of Health and Human Services, Defendant.


The opinion of the court was delivered by: LYNCH

I. Introduction

 This action arises under Title XVIII of the Social Security Act, as amended 42 U.S.C. § 1395 et seq. ("Medicare statute"). Plaintiff, French Hospital Medical Center, seeks judicial review of a final administrative decision rendered by the Acting Deputy Administrator of the Health Care Financing Administration ("HCFA") on behalf of the Secretary of Health and Human Services. The decision at issue affirmed the denial of jurisdiction by the Medicare Provider Reimbursement Review Board ("PRRB" or "Board") of plaintiff's appeal from a reopening of its notice of program reimbursement for the fiscal year ending December 31, 1982. The parties have cross-motions for summary judgment before the Court.

 II. Background

 A. Framework of Medicare Reimbursement

 Under the Medicare program, in order to be reimbursed for medical services provided to eligible Medicare patients, providers such as French Hospital are required to file an annual cost report that sets forth their costs for the fiscal year in question. See 42 C.F.R. §§ 413.20(b), 413.24(f). Once the provider submits a cost report, the intermediary-- typically a health insurance company-- audits the report and notifies the provider of its total program reimbursement through a Notice of Amount of Medicare Program Reimbursement ("NPR"). See 42 C.F.R. § 405.1803.

 During the periods at issue in this case, Medicare paid the lower of a provider's "customary charges" or the "reasonable cost" of providing services to Medicare beneficiaries. 42 U.S.C. §§ 1395f(b)(1), 1395x(v)(1)(A). The hospital cost limits included a wage index component and the covered days of care adjustment factor. 46 Fed. Reg. 33,637, 33,638-40 (June 30, 1981). *fn1" Reasonable costs are determined based upon approved cost finding methodologies. See 42 C.F.R. § 413.24.

 If the provider is dissatisfied with the amount of program reimbursement, it has several options. First, under the circumstances set forth in 42 C.F.R. § 413.30(f), a provider may request an exception from the imposition of routine cost limits ("RCL") within 180 days of the issuance of the NPR. 42 C.F.R. 413.30(c),(f). The intermediary then makes a recommendation to HCFA as to whether to grant the request for an exception. 42 C.F.R. § 413.30(c). The intermediary then notifies the provider of HCFA's decision. Id.2 HCFA's decision is then subject to administrative and judicial review under subpart R of part 405 of the Medicare regulations (42 C.F.R. § 405.1801 et seq.). Id.

 Second, if the provider is dissatisfied with it's final determination of the total program reimbursement or the disposition of its request for an adjustment or exception to the RCL, the provider may appeal the intermediary's determination to the Board. See 42 U.S.C. § 1395oo(a); 42 C.F.R. §§ 405.1835, 413.30(c). The jurisdictional prerequisites for a hearing before the PRRB are: (1) dissatisfaction with a final determination as to the amount of total Medicare program reimbursement; (2) an amount in controversy of at least $ 10,000; and (3) the filing of a request for a hearing within 180 days of the fiscal intermediary's final determination. 42 U.S.C. § 1395oo(a)(1)(3). *fn3"

 The decision of the PRRB becomes final unless the Secretary, through review by the Administrator or the Deputy Administrator of HCFA, reverses, affirms, or modifies the PRRB's decision. 42 U.S.C. § 1395oo (f)(1); 42 C.F.R. § 405.1871(b). A provider has the right to judicial review of any final decision of the PRRB, or any reversal, affirmance, or modification by the Secretary. 42 U.S.C. § 1395oo(f); 42 C.F.R. § 405.1877.

 Lastly, the provider has the option of requesting expedited judicial review ("EJR") of any issue of law the Board determines it does not have the authority to decide. See 42 U.S.C. § 1878(f)(1); 42 C.F.R. § 405.1842. If the Board determines that it is without authority to decide an issue, that decision is not reviewable by the HCFA administrator. 42 C.F.R. § 405.1875(a).

 B. Reopening of the NPR

 Under the regulations, a provider's cost report may be reopened by the intermediary, on its own initiative or at the request of the provider to revise any matter in issue, provided the request of the provider occurs within three years of the date of the NPR. 42 C.F.R. § 405.1885. Where a revision is made in a provider's cost report to the amount of Medicare reimbursement, such revision is considered a separate and distinct intermediary determination which may be appealed by the provider to the PRRB, provided that the jurisdictional requirements mentioned above are met. 42 C.F.R. § 405.1889. *fn4"

 C. Procedural History of this Case

 In the case before the Court, Blue Cross Blue Shield ("the Intermediary") issued the original NPR for fiscal year ending ("FYE") December 31, 1982, on May 15, 1984 ("original NPR"). Administrative Record 43-46 ("A.R."). The original NPR reflected the application of the routine cost limits to the Hospital's Medicare Reimbursement. Complaint P 15. The Hospital did not appeal the original NPR. Id.

 The Intermediary informed the Hospital on March 31, 1989, that it was revising the Hospital's cost report for FYE 1982 in order to treat malpractice insurance costs as an administrative and general expense. Comp. P 16; A.R. 270. This reopening was undertaken pursuant the HCFA Ruling 89-1 which required recalculation of malpractice reimbursements. Comp. P 16; A.R. 270.

 The Intermediary then issued a revised NPR ("first revised NPR") on November 9, 1990, in which it increased the total Medicare reimbursement to the Hospital by $ 24,644. A.R. 275. In calculating the Hospital's additional malpractice insurance reimbursement, the Intermediary applied the routine cost limits to the provider's additional reimbursement, which reduced the Hospital's reimbursed malpractice costs (and total costs) by $ 29,526. See Comp. P 17; Plaintiff's Memo. of P & A in Support of Motion for Summary Judgment, p. 9 (correcting amount in complaint).

 By letter dated December 5, 1990, the Hospital requested a hearing before the PRRB, seeking an exception to and challenging the RCL on three bases: (1) the RCL database did not include malpractice costs; (2) the wage index used by HCFA was incorrect; and (3) the RCL incorporated an incorrect adjustment for covered days of care for California hospitals. A.R. 268. By letter dated December 20, 1990, the Hospital requested the Intermediary grant an exception to the cost limits due to the three RCL issues. A.R. 213.

 In response to the December 20, 1990, letter, the Intermediary, by letter dated January 10, 1991, denied the Hospital's request for an exception based on the alleged incorrect wage index and covered days of care factor. A.R. 209-10. The Intermediary stated:

It should be noted that the circumstances that impacted French Hospital's routine costs thereby causing costs to exceed the routine cost limit were present in the cost reporting period ending December 31, 1982 and are not a result of the reopening.
Therefore, your request for an exception to the routine cost limit was received beyond the 180 day time frame and must be denied.
The Malpractice reopenings that occurred as a result of the HCFA Ruling 89-1 ruling [sic] have been granted special consideration. Accordingly, we have been instructed by HCFA to make payments to those providers for the additional amount due them as a result of the Malpractice reopening without regard to its impact on the routine cost limit. (A.R. 209)

 By letter dated January 24, 1991, the PRRB concluded that the Hospital had not sought and obtained an exception to the RCL from the Intermediary and so dismissed the Hospital's appeal. See A.R. 208. However, upon being advised by letter dated February 8, 1991, that the Intermediary had partially denied the exception, the PRRB reinstated the appeal and granted the request for a hearing in a letter dated February 20, 1991. A.R. 207. The PRRB also requested submission of a list of issues for appeal. Id.

 On February 28, 1991, the Intermediary issued a second revised NPR which stated that the result of excluding malpractice costs from the routine cost limits was to increase the Hospital's reimbursement by $ 39,823. A.R. 156. *fn5" The Hospital then submitted a joint list of issues to the PRRB on April 8, 1991. A.R. 195. Rather than framing the issue as an appeal of the denial of its request for an exception, the Hospital listed the issue in dispute as whether the Intermediary's computation of the RCL was correct due to three factors-- the incorporation of the 1979 Malpractice Rule, the wage index, and the covered days of care adjustment. A.R. 195.

 In a letter dated July 26, 1991, the Hospital requested expedited judicial review ("EJR") of the routine cost limit issue. The request for EJR was based on the dispute concerning the validity of the wage index and the covered days of care adjustment. No mention was made of the inclusion of malpractice costs in the RCL or the exception request to the RCL. A.R. 182-184.

 The Board, in response to the Hospital's request for EJR, requested additional information from the Hospital in a letter dated August 7, 1991. The Board asked the Hospital to address whether the Board had jurisdiction over the appeal of the wage index and covered days of care issues. A.R. 180. The Board also requested clarification of whether the Hospital was appealing the denial of the RCL exception request. *fn6"

  The Hospital responded in a letter dated August 28, 1991, which enclosed its jurisdictional brief. A.R. 103. *fn7" On September 24, 1991, the Board again requested by letter that the Hospital clarify whether it was appealing the wage index, covered days of care, and inclusion of inaccurate malpractice costs, or whether in addition it was appealing the denial of the exception request. A.R. 102. *fn8"

 On October 3, 1991, the Hospital again responded, stating

With respect to the Routine Cost Limit (RCL) issue, we are appealing merely the incorporation of an incorrect wage index and an inadequate adjustment for "covered days of care" in the computation of the RCL. As indicated in our jurisdictional brief of August 28, 1991, the inclusion of inaccurate malpractice insurance costs has been resolved based on HCFAR 89-1. The Intermediary issued a Revised Notice of Program ...

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