Opinion ID: 486487
Heading Depth: 2
Heading Rank: 2

Heading: Medical Malpractice Insurance Under Medicare

Text: 17 Since its inception, the Medicare program reimbursed hospitals and other providers according to the amount the facilities were used by Medicare patients. Under the accounting procedures used, costs are grouped into cost categories. Medical malpractice insurance, along with other administrative and insurance expenses, was grouped under the General and Administrative cost category. These G & A costs were allocated to a cost center within the hospital, such as the emergency room. Medicare reimbursed the hospital for a portion of each cost center's G & A costs, based on the Medicare patient utilization rate for that center. Ultimately, in very simple terms, a hospital in which 40% of the patients were Medicare beneficiaries was reimbursed for 40% of its malpractice insurance premiums. 18 In 1979, in response to the increased cost of malpractice insurance, the Secretary promulgated a new regulation which removed malpractice insurance from the G & A cost reimbursement scheme. 44 Fed.Reg. 31641-42, codified at 42 C.F.R. Sec. 405.452(b)(1)(ii), recodified to 42 C.F.R. Sec. 405.452(a)(1)(ii). Under the 1979 scheme, if a hospital had actually paid any malpractice claims over the preceding five years, it would be reimbursed for insurance premiums by the percentage of those claims that were paid to Medicare patients. If a hospital had not paid any malpractice claims in the preceding five years, the hospital would be reimbursed for insurance premiums based on an average national figure set at 5.1%. Thus, a hospital with 40% Medicare patients might be reimbursed for only 5.1% of its malpractice costs. 6 19 Soon after the promulgation of the 1979 regulation, hospital associations around the country, representing over 6,000 hospitals (including those in the case now before this court), joined in a direct challenge to the new regulations, arguing that, among other problems, the regulations were not issued in conformity with the requirements of the Administrative Procedure Act (APA), 5 U.S.C. Sec. 500 (1982). The Secretary raised jurisdictional objections, and the Tenth Circuit dismissed the suit based on 42 U.S.C. Sec. 405(h), which bars general federal question jurisdiction in actions against the Secretary to recover on any claim arising under the Social Security Act. Hadley Memorial Hospital v. Schweiker, 689 F.2d 905 (10th Cir.1982). The Tenth Circuit held that the hospitals, to challenge the regulation, would have to go through the administrative appeals process set out in the Medicare statutes, and, after final decision by the PRRB, the hospitals could bring suit in the district courts in which they were located. Id. at 910. 20 After the Hadley decision, hospitals all across the country exhausted their administrative appeals, and brought suits challenging the 1979 regulation; numerous lawsuits, many involving groups of hospitals, were filed and began filtering their way through the federal courts. Over the past few years, at least eight circuit courts and many district courts have invalidated the 1979 regulation, while no court in the country has upheld the rule. 7 21 A number of cases, including the three consolidated into this appeal, were filed in this circuit challenging the 1979 rule. In June of 1985, the circuit addressed and resolved the question in the first case that reached it, Lloyd Noland Hospital and Clinic v. Heckler, 762 F.2d 1561 (11th Cir.1985). In Lloyd Noland, the court invalidated the rule as in violation of the Administrative Procedures Act (APA), 5 U.S.C. Sec. 500. The court found that the Secretary had promulgated the rule with insufficient response to comments and criticisms, see id. Sec. 553(c), and the Secretary had arbitrarily and capriciously relied on faulty data, see id. Sec. 706(2)(A). In considering the proper remedy, this court wrote: 22 The Secretary has asked that we direct the district court to remand to her for further rulemaking should we invalidate this rule. We decline. 23 Both district courts invalidated the malpractice rule. The effect was to reinstate the prior method of reimbursement.... The only proper result is to pay the hospital according to existing regulations. 24 The hospitals seek reimbursement for the fiscal year 1979-80. Four years is long enough for them to wait. 25 762 F.2d at 1569 (citations omitted). This court remanded to the PRRB for payment of the hospitals' insurance costs under the pre-1979 reimbursement rule. The Secretary petitioned for reconsideration and rehearing en banc; that petition was denied on January 15, 1986. The plaintiff hospitals in Lloyd Noland have received payment under the pre-1979 rules. 8