1994 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-5-1994

St. Francis Medical Center v. Shalala, et al.

Precedential or Non-Precedential:

Docket 93-3405

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Recommended Citation

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UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

____________ 

No. 93-3405 

____________ 

ST. FRANCIS MEDICAL CENTER, 

Appellant 

v. 

DONNA E. SHALALA, Secretary of the 

Department of Health and Human Services, 

BRUCE C. VLADECK, Administrator, 

Health Care Financing Administration; and 

JACK MARTIN, Chairman, Provider 

Reimbursement Review Board 

____________________ 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF PENNSYLVANIA 

____________________ 

(D.C. Civil No. 89-02452) 

Argued: March 2, 1994 

Before: SLOVITER, Chief Judge, ALITO, Circuit Judge, 

and PARELL, District Judge* 

(Opinion Filed: August 9, 1994) 

 STEPHEN P. NASH, ESQ. 

 MELINDA J. ROBERTS, ESQ. (ARGUED) 

 DAVID W. THOMAS, ESQ. 

 JACQUELINE O. SHOGAN, ESQ. 

 Nash and Company 

 700 Westinghouse Building 

 Pittsburgh, PA 15222 

 Attorneys for Appellant

 

* The Honorable Mary Little Parell, United States District Court 

Judge for the District of New Jersey, sitting by designation. 
 FRANK W. HUNGER 

 Assistant Attorney General 

 Civil Division 

 THOMAS W. CORBETT, JR. 

 United States Attorney 

 PAUL J. BRYSH 

 Office of United States Attorney 

 633 United States Post Office 

 and Courthouse Building 

 Pittsburgh, PA 15219 

 BARBARA H. FISHER 

 Department of Health & Human Services 

 6325 Security Boulevard 

 500 East High Rise Building 

 Baltimore, MD 21207 

 GERARD KEATING (ARGUED) 

 Department of Health & Human Services 

 Health Care Financing Division 

 330 Independence Avenue, S.W. 

 Washington, D.C. 20201 

 Attorneys for Appellees

 ____________________ 

 OPINION OF THE COURT 

 ____________________ 

ALITO, Circuit Judge: 

 St. Francis Medical Center (SFMC) is a provider of 

health care services covered under Part A of Title XVIII of the 

Social Security Act, 42 U.S.C. § 1395 et. seq., which is commonly 

known as the Medicare Act. SFMC appeals from a district court 

order dismissing its amended complaint for lack of jurisdiction 

under 28 U.S.C. § 1331. We affirm. 

 I. 
 A. Before 1982, Medicare providers were reimbursed for 

the "reasonable cost" of covered services. See Sacred Heart 

Medical Ctr. v. Sullivan, 958 F.2d 537, 540 (3d Cir. 1992). 

"Under this regime, hospitals and other health care providers had 

little incentive to curb operating costs and render services more 

economically, for the federal government bore the financial 

burden of increases." Id. (footnote omitted). "In 1982, 

Congress determined that the Medicare Program should be modified 

to provide hospitals with better incentives to render services 

more economically. Accordingly, in the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA) Congress amended the [Social 

Security Act] by imposing a ceiling on the rate of increase of 

inpatient operating costs recoverable by a hospital." Id. 

(footnote omitted). 

 "Under TEFRA, a hospital may receive no more than the 

`target amount' of per patient costs." St. Francis 

Medical Ctr. v. Sullivan, 962 F.2d 1110, 1111 (3d Cir. 

1992) (St. Francis I). The statute provided: 

"`target amount' means with respect to a hospital for a 

particular 12-month cost reporting period -- (i) in the 

case of the first reporting period for which this 

subsection is in effect, the allowable operating costs 

of inpatient hospital services . . . recognized . . . 

for such hospital for the preceding 12-month cost 

reporting period." [42 U.S.C. §] 1395ww(b)(3)(A). For 
each reporting period subsequent to the initial period, 

the target amount was increased by a specified 

percentage. Section 1395ww(b)(3)(A). Under this 

system, hospitals were obligated to absorb operating 

costs in excess of their target amounts, but they 

received bonuses if their operating costs were less 

than their targeted amounts. Section 1395ww(b)(1)(A). 

Sacred Heart Medical Ctr., 958 F.2d at 540. 

 TEFRA also directed the Secretary to provide for 

exemptions from, and exceptions or adjustments to, the TEFRA 

limits (see 42 U.S.C. § 1395ww(b)(3)(A)), and the Secretary has 

done so. Before 1991, 42 C.F.R. § 413.40(g) (1990), which bore 

the heading "Exceptions," permitted the Health Care Financing 

Administration (HCFA)1 to "adjust a hospital's operating costs . 

. . upward or downward" if the hospital could "show that it 

incurred unusual costs (in either a cost reporting period subject 

to the ceiling or the hospital's base period) due to 

extraordinary circumstances beyond its control" (42 C.F.R. § 

413.40(g)(2) (1990)) or if the hospital had experienced a change 

in its "case mix" (42 C.F.R. § 413.40(g)(3) (1990)). In 

addition, 42 C.F.R. § 413.40(h), which bore the heading 

"Adjustments," provided in pertinent part: 

 

1. The Secretary has delegated considerable administrative 

responsibility for the Medicare Program to the HCFA. See Sacred 

Heart Medical Ctr., 958 F.2d at 540 n.4. 
 HCFA may adjust the amount of the operating costs 

considered in establishing cost per case for one or 

more cost reporting periods, including both periods 

subject to the ceiling and the hospital's base period, 

to take into account factors that could result in a 

significant distortion in the operating costs of 

inpatient hospital services. 

42 C.F.R. § 413.40(h)(1) (1990). 

 In 1991, these provisions were combined to form what is 

now 42 C.F.R. § 413.40(g) (1993). Under this provision, the HCFA 

"may adjust the amount of the operating costs considered in 

establishing the rate-of-increase ceiling for one or more cost 

reporting periods, including both periods subject to the ceiling 

and the hospital's base period, under the circumstances specified 

below." Subsequent provisions state that such adjustments may be 

granted for essentially the same reasons listed in the previous 

version of the regulations. See 42 C.F.R. § 413.40(g)(2)-(3) 

(1993).2 

 

2. These provisions state: 

 (2) Extraordinary circumstances. HCFA may make an 

adjustment to take into account unusual costs (in 

either a cost reporting period subject to the ceiling 

or the hospital's base period) due to extraordinary 

circumstances beyond the hospital's control. These 

circumstances include, but are not limited to, strikes, 

fire, earthquakes, floods, or similar unusual 

occurrences with substantial cost effects. 

 (3) Comparability of cost reporting periods -- (i) 

Adjustment for distortion. HCFA may make an adjustment 

to take into account factors that would result in a 

significant distortion in the operating costs of 

inpatient hospital services between the base year and 

the cost reporting period subject to the limits. 
 The Secretary now interprets 42 C.F.R. § 413.40(g) 

(1993) to mean that a provider may obtain two different types of 

"base period inpatient operating cost adjustments." Appellees' 

Br. at 7. According to the Secretary, the first type is "cost 

year-specific" and may raise a provider's target amount for the 

purpose of recovering that year's costs but not for the purpose 

of calculating bonus payments. Id. at 7-9. The second type of 

adjustment, the Secretary explains, results in "a permanent 

adjustment to the base period inpatient operating costs used to 

calculate the TEFRA limit," and "any permanent increase in the 

limit would come into play under the TEFRA bonus provision 

beginning only with the fiscal year after the one for which any 

permanent base period relief [is] granted." Id. at 8-9. SFMC 

argues vigorously that the Secretary's recognition of this second 

type of adjustment represents a recent change in position that 

was taken for purposes of litigation. 

 In 1983, Congress largely replaced the TEFRA system 

with a "prospective payment system" (PPS) (see Sacred Heart 

Medical Ctr., 958 F.2d at 540), but certain types of hospitals 

and hospital units were excluded from the PPS. See 42 U.S.C. § 

1395ww(b), and (d)(1)(A)-(B); 42 C.F.R. §§ 412.20(b), 412.22(b). 

Among the excluded units were distinct part rehabilitation units. 

See 42 U.S.C. § 1395ww(d)(1)(B); 42 C.F.R. §§ 412.23, 412.30. 

 B. SFMC operates a general acute-care hospital that 

includes a rehabilitation unit. For TEFRA purposes, the 
hospital's base period ended on June 30, 1985. During this 

period, SFMC's fiscal intermediary concluded that SFMC did not 

have a distinct part rehabilitation unit under the applicable 

regulations "since less than 75% of its patients required 

intensive rehabilitation. The intermediary terminated the 

provider as a distinct part rehabilitation unit and the Health 

Care Financ[ing] Administration . . . upheld that decision. To 

comply with the 75% rule, the Medical Center transferred some of 

its `non-qualifying' patients from the rehabilitation unit to its 

acute care facility. This transfer was completed in the year 

ending July 30, 1986 . . . ." St. Francis I, 962 F.2d at 1112. 

Because this transfer was not completed until after the base 

period ended, SFMC maintains, 

 certain "non-qualifying" patients were included on the 

original 1985 cost report for the Medical Center's 

rehabilitation unit, but then were transferred out of 

that unit by 1986. The absence of these "nonqualifying" patients from the group of patients treated 

by the unit in 1986 meant that the Medical Center's 

average patient costs were higher in 1986 than the 

estimates of those costs derived from the 1985 base 

year cost report. In addition, the base year cost 

report did not include costs associated with a physical 

expansion project completed in 1986. 

Id. at 1113. 

 SFMC sought relief under 42 C.F.R. § 413.40(g) and (h) 

for the cost reporting period ending June 30, 1986. Although the 

intermediary recommended partial relief, the HCFA denied SFMC's 

requests. The HCFA concluded that SFMC's transfer of 

nonqualifying patients out of the rehabilitation unit after the 
base period did not constitute "an extraordinary circumstance 

beyond the hospital's control" but resulted from a "management 

decision" to claim the transferred patients as rehabilitation 

cases in the base year. App. at 24-25. The HCFA also concluded 

that an adjustment was not warranted by the hospital's building 

program. Id. at 24-25. The HCFA noted that expansion is usually 

undertaken to accommodate "increased utilization," which in turn 

tends to "offset any impact on a target rate." Id. at 24. 

However, in SFMC's case, the HCFA observed, "while an expansion 

program was being implemented, the size of the rehabilitation 

unit was being decreased." Id. 

 SFMC appealed to the Provider Reimbursement Review 

Board (PRRB), but the PRRB held that it lacked jurisdiction to 

hear the appeal because, among other things, SFMC had not 

satisfied the $10,000 amount-in-controversy requirement in 42 

U.S.C. § 1395oo(f). The PRRB wrote: 

 Under Section 1878(a) Title XVIII, Social Security Act, 

as amended, [42 U.S.C. § 1395oo(a)], and 42 C.F.R. 

405.1835 and 1841, a provider has a right to a hearing 

before the Board with respect to costs claimed on a 

timely filed cost report if it is dissatisfied with the 

final determination of the intermediary . . . , and the 

amount in controversy is $10,000, or more, and the 

request for hearing was filed within 180 days of the 

date of the final determination . . . . [T]he amount 

in controversy for the issues you wish to raise is less 

than $10,000. Since the above statutory requirement is 

a prerequisite to a provider's right to a hearing, the 

Board finds that it does not have jurisdiction over 

this appeal and hereby dismisses the appeal of the 

subject year. 
App. at 32.3

 SFMC then filed this action in district court. 

Asserting that the district court had jurisdiction under 42 

U.S.C. § 1395oo(f), SFMC's complaint alleged that the PRRB had 

"wrongfully declined jurisdiction" and that the fiscal 

intermediary and the HCFA had erred in denying SFMC's requests 

"to amend and/or reopen its 1985 cost report." App. at 62. The 

complaint sought a declaration that the intermediary, the HCFA, 

and the PRRB had acted improperly. Id. In addition, the 

complaint requested that the court order that SFMC be given 

permission to amend its 1985 cost report; that the intermediary, 

the HCFA, and the PRRB "recalculate [SFMC's] base year cost per 

discharge in accordance with its amended cost report"; and that 

SFMC be awarded "the sums due it pursuant to the amended cost 

 

3. While the PRRB denied jurisdiction over SFMC's claims for 

fiscal year 1985, it exercised jurisdiction over SFMC's claims 

for fiscal year 1986. These claims were settled, and SFMC was 

granted reimbursement for its full inpatient operating costs for 

fiscal years 1986 through 1988. App. at 36, 46-50; Appellant's 

Br. at 12. This reimbursement totalled $1,117,355. App. at 37- 

38. With respect to bonus payments, the settlement stated: 

 The Provider agrees that no exception awarded under 42 

C.F.R. 413.40(g) by virtue of this settlement or any 

HCFA decision related to the capital expansion program 

shall entitle the Provider to any TEFRA incentive 

payments or other payments in excess of final audited 

costs. The parties make no agreement with respect to 

the appropriateness of any TEFRA incentive payments or 

other payments in excess of final audited costs should 

an adjustment be awarded under 42 C.F.R. 413.40(h). 

Id. at 39-40. SFMC subsequently dismissed its 1986 PRRB appeal. 

Id. at 259. 
report, together with interest thereon" and attorney's fees. Id. 

at 62-63. 

 The Secretary moved to dismiss the case for lack of 

jurisdiction, contending that SFMC had not met the $10,000 

amount-in-controversy requirement in 42 U.S.C. §1305oo(f). The 

magistrate judge to whom the case had been referred rejected this 

argument and therefore recommended that this motion be denied and 

that the case be remanded to the PRRB. The magistrate judge did 

not find that SFMC was seeking to recover $10,000 or more for the 

cost reporting period at issue, i.e., the period ending on June 

30, 1986. Instead, the magistrate judge concluded: 

 The PRRB attempts to isolate each year involved to 

determine whether it meets the $10,000.00 requirement, 

but the claim requires the board to look at the years 

1985 through 1988 as a whole because they are 

inextricably connected, since the base year is the 

foundation for a continuing inaccuracy in plaintiff's 

reimbursements from Medicare. Plaintiff easily meets 

the $10,000.00 jurisdictional amount as defined in 42 

C.F.R. Section 405.1839(a)(2) for the years l986, 1987 

and 1988, for which the TEFRA rate of increase limits 

are determined by the 1985 cost report. It is 

unreasonable and inefficient to require plaintiff to 

file annually for an exception to the TEFRA limits when 

a recalculation of the base year cost report, if proven 

to be inaccurate, would obviate the problem. 

App. at 71-72. The district court accepted the magistrate 

judge's recommendation. 

 On appeal, a divided panel of our court reversed and 

held that SFMC had not satisfied the $10,000 amount-incontroversy requirement. Noting that "[t]he `amount in 

controversy' is defined by [42 U.S.C. § 1395oo(a)(1)(A)(i)] as 
`the amount of total program reimbursement due to the provider 

for the items and services furnished to individuals for which 

payment may be made . . . for the period covered by such 

report,'" the panel held that a single provider may not 

"aggregate claims over several cost reports in order to satisfy 

the amount in controversy requirement of § 1395oo(a)." St. 

Francis I, 962 F.2d at 1114, 1115 (emphasis supplied in St. 

Francis I). However, in response to SFMC's argument that the 

district court had jurisdiction under 28 U.S.C. § 1331, the panel 

remanded the case to the district court so that SFMC could 

petition for leave to amend its complaint to assert jurisdiction 

under that provision. 962 F.2d at 1117. In doing so, however, 

the panel made clear that it was not deciding whether SFMC's 

claims could "properly be asserted under this jurisdictional 

provision." Id. at 1117 n.10. 

 On remand, SFMC was granted leave to file an amended 

two-count complaint that asserted jurisdiction under 28 U.S.C. § 

1331. Count I of the amended complaint alleged: 

 The methodology, or lack of methodology, utilized by 

HCFA to deny to St. Francis Medical Center a base year 

adjustment (to achieve comparability between cost 

reporting periods) has resulted in HCFA's imposition of 

improper and unreasonable reimbursement ceilings (TEFRA 

Ceilings) upon the Medical Center's rehabilitation 

unit. 

App. at 212. Count II alleged that SFMC's equal protection 

rights had been violated because it had been treated differently 

from providers "whose post-base year costs for post-base year 
cost reporting periods . . . are undistorted." Id. at 213. 

Counts I and II of the amended complaint sought essentially the 

same relief as SFMC's prior complaint. Id. at 213-15. 

 The defendants moved to dismiss, and the magistrate 

judge recommended that the motion be granted on the ground that 

42 U.S.C. § 405(h) precluded the exercise of jurisdiction under 

28 U.S.C. § 1331. The district court agreed and dismissed the 

amended complaint. This appeal followed. 

II. 

 Under the Medicare Act, 42 U.S.C. § 1395oo(f)(1), a 

provider has "the right to obtain judicial review of any final 

decision" of the PRRB by means of a civil action filed in 

district court. In St. Francis I, however, our court held that 

SFMC could not obtain judicial review under this provision 

because it had not satisfied the $10,000 amount-in-controversy 

requirement of 42 U.S.C. § 1395oo(a). SFMC thus turned to 28 

U.S.C. § 1331 as an alternative avenue for obtaining review, but 

SFMC's reliance on this provision raises other jurisdictional 

problems. 

 The Medicare Act, 42 U.S.C. § 1395ii, incorporates 42 

U.S.C. § 405(b), which provides in relevant part: 

 The findings and decision of the Secretary after a 

hearing shall be binding upon all individuals who were 

parties to such hearing. No findings of fact or 

decision of the Secretary shall be reviewed by any 

person, tribunal, or governmental agency except as 

herein provided. No action against the United States, 

the Secretary, or any officer or employee thereof shall 
be brought under section 1331 or 1346 of Title 28 to 

recover on any claim arising under this subchapter. 

42 U.S.C. § 405(h) (emphasis added). Therefore, if SFMC's 

amended complaint seeks "to recover on [a] claim arising under 

[the Medicare Act]," this provision deprives the district court 

of jurisdiction under 28 U.S.C. § 1331. 

 As the District of Columbia Circuit has noted, 

resolution of this jurisdictional issue requires us to consider 

two lines of Supreme Court precedent: the "Salfi-Ringer line" 

and the "Erika-Michigan Academy line." See National Kidney 

Patients Ass'n v. Sullivan, 958 F.2d 1127, 1130 (D.C. Cir. 1992), 

cert. denied, 113 S. Ct. 966 (1993). We will consider each of 

these lines separately. 

 A. If the "Salfi-Ringer line" controls, the decision 

of the district court dismissing SFMC's complaint was clearly 

correct. In Weinberger v. Salfi, 422 U.S. 749 (1975), the Court 

considered an action brought on behalf of a class of persons who 

had been denied Social Security benefits pursuant to a provision 

of the Social Security Act that permitted a widow or stepchild to 

obtain benefits only if that claimant had become the wife or 

stepchild of the deceased at least nine months before his death. 

A three-judge court held that this statutory requirement was 

unconstitutional, but the Supreme Court concluded that 42 U.S.C. 

§ 405(h) deprived the lower court of jurisdiction to entertain 

the suit under 28 U.S.C. § 1331. The Court rejected the 

proposition that section 405(h) merely requires exhaustion of 
administrative remedies (422 U.S. at 757), as well as the 

argument that the plaintiffs' claims arose under the Constitution 

rather than the Social Security Act. Id. at 760. The Court 

wrote: 

 It would, of course, be fruitless to contend that 

appellees' claim is one which does not arise under the 

Constitution, since their constitutional arguments are 

critical to their complaint. But it is just as 

fruitless to argue that this action does not also arise 

under the Social Security Act. For not only is it 

Social Security benefits which appellees seek to 

recover, but it is the Social Security Act which 

provides both the standing and the substantive basis 

for the presentation of their constitutional 

contentions. Appellees sought, and the District Court 

granted, a judgment directing the Secretary to pay 

Social Security benefits. To contend that such an 

action does not arise under the Act whose benefits are 

sought is to ignore both the language and the substance 

of the complaint and judgment. This being so, the 

third sentence of § 405(h) precludes resort to federalquestion jurisdiction for the adjudication of 

appellees' constitutional contentions. 

Id. at 760-61. The Court thus held that individuals wishing to 

challenge the duration-of-relationship requirement were required 

to proceed under 42 U.S.C. § 405(g) rather than under 28 U.S.C. § 

1331. See 422 U.S. at 763-67. 

 In Heckler v. Ringer, 466 U.S. 602 (1984), the 

plaintiffs were individuals who wanted Medicare to pay Part A 

benefits4 for a surgical procedure known as bilateral carotid 

 

4. As we recently explained: 

 

 Medicare coverage is primarily divided into two 

parts. Part A covers all inpatient hospital expenses 

through an insurance plan. See 42 U.S.C. §§ 1395c to 
body resection (BCBR). The Secretary through the HCFA adopted a 

policy that "no payment [was] to be made for Medicare claims 

arising out of the BCBR surgical procedure when performed to 

relieve respiratory distress." Id. at 607; see also id. at 608. 

Asserting jurisdiction based in part on 28 U.S.C. § 1331, the 

plaintiffs filed suit, contending that the Secretary's policy 

violated "constitutional due process and numerous statutory 

provisions." 466 U.S. at 610. The Supreme Court held, however, 

that jurisdiction under 28 U.S.C. § 1331 was not available, and 

the Court specifically rejected the distinction that the court of 

appeals had drawn between substantive and procedural claims. 466 

U.S. at 614-15. "[T]o be true to the language of the statute," 

(..continued) 

1395i-4. All Medicare-eligible patients receive this 

benefit. . . . 

 Part B covers certain physician services, hospital 

outpatient services, and other health services not 

covered under Part A. See 42 U.S.C. §§ 1395j to 1395w4(j). Part B coverage is not freely or automatically 

available to all Medicare-eligible patients. To obtain 

this coverage, Medicare-eligible patients must first 

enroll in the Part B insurance program by paying 

insurance premiums ("Part B insurance premiums"). See

§§ 1395o-1395s. Once this is done, the federal 

government pays 80% of the "reasonable costs" of 

outpatient hospital services and 80% of the "reasonable 

charges" for physician services rendered to the 

insured. §13051. The Part B patients themselves must 

pay the remaining 20% of the charges for the reasonable 

outpatient hospital services and physician services 

(co-payments or coinsurance), as well as an annual 

deductible. Id.; § 1395cc(a)(2)(A). 

Pennsylvania Medical Soc'y v. Snider, No. 93-7775 (3d Cir. July 

22, 1994), slip op. at 4. 
the Court wrote, "the inquiry in determining whether § 405(h) 

bars federal-question jurisdiction must be whether the claim 

`arises under' the Act, not whether it lends itself to a 

`substantive' rather than a `procedural' label." 466 U.S. at 

615. 

 Turning to the case at hand, the Court concluded that 

the plaintiffs' "challenge to the Secretary's BCBR payment policy 

`[arose] under' the Medicare Act." Id. at 615 (brackets added). 

The Court found it inconsequential that the plaintiffs "sought 

only declaratory and injunctive relief and not an actual award of 

benefits as well" because "[f]ollowing the declaration which 

respondents seek from the Secretary -- that BCBR surgery is a 

covered service -- only essentially ministerial details will 

remain before respondents would receive reimbursement." Id. 

Instead of invoking 28 U.S.C. § 1331 or the mandamus statute, the 

Court held, claimants wishing to challenge the Secretary's BCBR 

policy were required to proceed under 42 U.S.C. § 405(g). 466 

U.S. at 617. 

 If Salfi and Ringer are controlling in this case, there 

can be little doubt that the district court lacked general 

federal-question jurisdiction. The Medicare Act provides "both 

the standing and substantive basis" for SFMC's claims. Salfi, 

422 U.S. at 761. Moreover, SFMC "sought . . . a judgment 

directing the Secretary to pay [Medicare] benefits." Id. 
Accordingly, under these precedents, SFMC's claim "arises under" 

the Medicare Act for purposes of section 405(h). See Ringer, 466 

U.S. at 615; Salfi, 422 U.S. at 760-61; In re Univ. Medical Ctr., 

973 F.2d 1065, 1073 (3d Cir. 1992); Abington Memorial Hosp. v. 

Heckler, 750 F.2d 242, 244 (3d Cir. 1984), cert. denied, 474 U.S. 

863 (1985). Under these precedents, it makes no difference that 

SFMC asserted constitutional and procedural claims. See Ringer, 

466 U.S. at 615; Salfi, 422 U.S. at 761. 

 B. SFMC makes little attempt to distinguish Salfi or 

Ringer. Instead, SFMC relies on the Supreme Court's later 

decision in Bowen v. Michigan Academy of Family Physicians, 476 

U.S. 667 (1986), which concerned a regulation governing payments 

under Part B of the Medicare program. This regulation permitted 

carriers to establish separate prevailing charges for specialists 

and nonspecialists performing the same services. An association 

of physicians and several individual doctors challenged the 

regulation on constitutional and statutory grounds, but the 

Secretary contended that "Congress ha[d] forbidden judicial 

review of all questions affecting the amount of benefits payable 

under Part B of the Medicare program." Id. at 669. In making 

this argument, the Secretary relied on United States v. Erika, 

Inc., 456 U.S. 201 (1982), in which the Court had held that the 

Medicare Act precluded any judicial review of a carrier's 

decision concerning the amount awarded on a Part B claim. The 
Secretary also argued that 42 U.S.C. § 405(h) bolstered this 

conclusion. 

 The Supreme Court, however, disagreed. Beginning with 

"the strong presumption that Congress intends judicial review of 

administrative action" (476 U.S. at 670), the Court held that 

neither the Medicare Act nor 42 U.S.C. § 405(h) demonstrated with 

the requisite clarity that Congress intended to preclude all 

judicial review of "any action taken under Part B of the Medicare 

program." 476 U.S. at 673. The Court held that the portion of 

the Medicare Act governing review of Part B determinations, as 

interpreted in Erika, "simply does not speak to challenges 

mounted against the method by which such amounts are to be 

determined rather than the determinations themselves." Id. at 

675 (emphasis in original). The Court then concluded that, 

whereas a carrier's decision concerning the amount of a Part B 

claim was not subject to any form of judicial review, those Part 

B matters that a carrier cannot decide -- "including challenges 

to the validity of the Secretary's instructions and regulations" 

-- are not insulated from review under the Medicare Act. Id. at 

678. 

 As for 42 U.S.C. § 405(h), the Court wrote that it 

would not "indulge the Government's assumption that Congress 

contemplated review by carriers of `trivial' monetary claims 

. . . but intended no review at all of substantial statutory and 

constitutional challenges to the Secretary's administration of 
Part B of the Medicare program." 476 U.S. at 680 (footnote 

omitted). The Court found insufficient evidence to show that 

Congress meant to take this "extreme position." Id. 

 In subsequent cases involving Part B of the Medicare 

program, we explained that "Erika and Michigan Academy define the 

ends of a continuum." American Ambulance Serv. v. Sullivan, 911 

F.2d 901, 905 (3d Cir. 1990); see also Medical Fund-Phila. 

Geriatric Ctr. v. Heckler, 804 F.2d 33, 38 (3d Cir. 1986). We 

elaborated: 

 At one end are disputes over amount computations at 

issue in a particular case. At the other are disputes 

arising from the Secretary's rules, regulations and 

instructions which are applied by the Hearing Officer. 

A Hearing Officer is not at liberty to disregard these 

rules. . . . "[M]atters which Congress did not delegate 

to private carriers, such as challenges to the validity 

of the Secretary's instructions and regulations, are 

cognizable in courts of law." Michigan Academy, 476 

U.S. at 680, 106 S. Ct. at 2140-41 (emphasis in 

original). 

American Ambulance Serv., 911 F.2d at 905. 

 Contrary to SFMC's argument, we do not believe that 

Michigan Academy supports its reliance on general federalquestion jurisdiction in this case. Michigan Academy concerned 

the availability of general federal-question jurisdiction to 

review the validity of a Part B regulation. Under Part B, a 

carrier cannot review the legality of such a regulation (see

Michigan Academy, 476 U.S. at 675-76, 680) and, as Erika held, a 

carrier's determination of the amount of a Part B payment is not 

reviewable. Thus, if general federal-question jurisdiction had 
not been available in Michigan Academy, the plaintiffs in that 

case would have had no avenue for challenging the validity of the 

regulation under which their payments were calculated. 

 By contrast, the Medicare Act provides avenues by which 

a provider seeking Part A payments may contest both the amount of 

its payments and the methods by which those payments are 

calculated. If the provider seeks review of a reimbursement 

determination and does not wish to challenge a provision of the 

Act or regulations, it may, upon compliance with the 

jurisdictional requirements imposed by statute, take an appeal to 

the PRRB (see 42 U.S.C. § 1395oo(f)(1)). Alternatively, if the 

provider wishes to challenge a provision of the Act or a 

regulation, it may seek a determination by the PRRB that the 

Board lacks the authority to decide the question (see 42 U.S.C. § 

1395oo(f)(1)) and then obtain judicial review. See Good 

Samaritan Hosp. v. Shalala, 113 S. Ct. 2151, 2156 (1993); 

Bethesda Hosp. Ass'n v. Bowen, 485 U.S. 399, 401-02 (1988). 

 Since a provider seeking Part A payments has these 

avenues of review available under the Medicare Act, the 

presumption that Congress did not intend to foreclose judicial 

review, which was central to the decision in Michigan Academy, is 

inapplicable. And in the absence of that presumption, we read 42 

U.S.C. § 405(h), as incorporated into the Medicare Act and as 

interpreted in Salfi and Ringer, to mean that SFMC may not assert 

its claim under 28 U.S.C. § 1331. 
 In Westchester Management Corp. v. United States HHS, 

948 F.2d 279 (6th Cir. 1991), cert. denied, 112 S. Ct. 1936 

(1992), the Sixth Circuit considered a case quite similar to the 

one before us. Noting that 42 U.S.C. § 1395oo(f)(1) provided "an 

avenue of judicial review for the type of challenge that [the 

provider] assert[ed]," the court stated that "the Michigan 

Academy exception applies only when there is no other avenue of 

judicial review." 948 F.2d at 282. The court continued: 

 Congress has expressly provided for judicial review 

of the type of claim that Westchester Management 

asserts, when the claim exceeds the $10,000 amount-incontroversy requirement. Congress created a special 

procedure by which a provider that, unlike Westchester 

Management, is entitled to a Board hearing may demand 

that the Board determine whether it has authority to 

pass on a relevant legal question, such as the validity 

of an instruction of the Secretary. If it determines 

that it lacks authority, the provider may proceed 

directly to court for judicial review of its legal 

challenge. See 42 U.S.C. § 1395oo(f)(1). If we were 

to accept Westchester Management's construction of 

Michigan Academy -- that there is always jurisdiction 

under 28 U.S.C. §§ 1331 and 1346 for challenges to 

instructions, rules, and regulations, but not for 

amount determinations -- this special procedure, 

created by 42 U.S.C. § 1395oo(f)(1), would become 

superfluous. 

 The better construction requires that Westchester 

Management pursue the exclusive jurisdictional grant 

within the Medicare Act. Its claim that it has no 

avenue of judicial review is meritless; 42 U.S.C. § 

1395oo(f)(1) provides an avenue of judicial review for 

the sort of challenge to the validity of the 

Secretary's instructions that it raises. Westchester 

Management is, however, denied access to that avenue 

because it is unable to meet the amount-in-controversy 

requirement. There is no contention that Congress 

lacks the power to limit jurisdiction by prescribing 

minimum amount-in-controversy requirements. 
Id. at 282-83; see also Colonial Penn Ins. Co. v. Heckler, 721 

F.2d 431, 436 (3d Cir. 1983); Frankford Hosp. v. Davis, 647 F. 

Supp. 1443, 1446-47 (E.D. Pa. 1986); Mount Sinai Medical Ctr. v. 

Sullivan, Medicare & Medicaid Guide (CCH) ¶ 39,103 (D.D.C. Nov. 

30, 1990). We find this analysis persuasive. 

 We note, moreover, that administrative remedies are now 

available for providers who believe that their base period 

operating costs are too low. Beginning in 1990, a provider may 

request a new base period. See 42 U.S.C. §§ 1395ww(b)(4)(A)-(B) 

(Supp. 1993); 42 C.F.R. § 413.40(i). As previously noted (see 

pages 4-5, supra), a provider may also request a permanent baseperiod cost adjustment under 42 C.F.R. § 413.40(g). A denial of 

either of these requests may be appealed to the PRRB and is 

thereafter subject to judicial review under 42 U.S.C. § 

1395oo(f)(1). 

 SFMC contends that these procedures are inadequate in 

its case. SFMC correctly notes that the granting of a new base 

period beginning in 1990 pursuant to 42 C.F.R. § 413.40(i) would 

not permit it to recover the bonus payments that it believes it 

should have received prior to that date. As for a permanent 

base-period cost adjustment, SFMC argues that the Secretary has 

only recently recognized the availability of such relief. 

Indeed, SFMC charges that the Secretary previously took the 

position that no such relief was available and that the 

Secretary's current interpretation of the relevant regulations is 
simply a "convenient litigating position." The Secretary 

disputes these charges. But whether or not SFMC's charges are 

justified, we do not think they have a bearing on the 

availability of jurisdiction under 28 U.S.C. § 1331, for "Subject 

matter jurisdiction can never be created by estoppel." Rubin v. 

Buckman, 727 F.2d 71, 72 (3d Cir. 1984); see Insurance Corp. of 

Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 

(1982). 

 SFMC also argues that, even now, while the Secretary 

acknowledges that a permanent base-period adjustment would apply 

in determining a provider's entitlement to TEFRA bonus payments 

in future years, the Secretary takes the position that such an 

adjustment would not apply in determining a provider's 

entitlement to bonus payments in the year in which permanent 

adjustment is granted. In other words, SFMC contends that the 

administrative procedure may cause a provider to lose a year of 

incentive payments. 

 This argument does not persuade us that such a provider 

must be permitted to sue to recover these bonus payments under 28 

U.S.C. § 1331. If such a provider has a substantive entitlement 

to these bonus payments under the Medicare Act, it is by no means 

clear to us that the provider could not obtain those payments in 

an action under 42 U.S.C. § 1395oo(f)(1), irrespective of the 

regulations or the Secretary's interpretation of them. On the 

other hand, if such a provider has no such entitlement, then 
obviously the Secretary's position causes the provider no harm. 

But in any event, even if the Secretary's position may by some 

means cause the provider to lose a year of bonus payments, that 

possibility is insufficient to persuade us that jurisdiction 

under 28 U.S.C. § 1331 must be recognized. 

 We have considered all of SFMC's remaining arguments, 

and we find them to lack merit. Accordingly, we will affirm the 

decision of the district court dismissing SFMC's complaint.