The opinion of the court was delivered by: LACEY
Before the court are the parties' cross-motions for summary judgment.
Plaintiff is a 223-bed, short-term, acute care hospital located in Passaic, New Jersey. It participates in the federally funded health insurance program commonly known as "Medicare," which was established in 1965 by the enactment of Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq.2 The purpose of the program is to ensure that adequate medical care is available to the aged and disabled throughout the country. S.Rep. No. 404, 89th Cong., 1st Sess., reprinted in 1965 U.S.Code Cong. & Ad.News 1943, 1964. To participate in the program, a health service provider must file an agreement with the Secretary, 42 U.S.C. § 1395cc; plaintiff has filed such an agreement. As a qualified provider of medical services, plaintiff is entitled to recover its "reasonable costs" of providing treatment to Medicare beneficiaries. 42 U.S.C. § 1395f(b)(1). The Social Security Act defines "reasonable cost" as "the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services . . .," and authorizes the Secretary to promulgate regulations defining reasonable cost with greater specificity. 42 U.S.C. § 1395x(v)(1)(A). Generally, a provider obtains reimbursement by submitting reports to a private health insurance organization which acts as a "fiscal intermediary," determining the amount of reimbursable "reasonable cost" and reimbursing the provider for those amounts. 42 U.S.C. § 1395h. In this case, Blue Cross of New Jersey (Blue Cross) acted as the fiscal intermediary between plaintiff and the Secretary.
This care arises, in part, from the intersection of the Medicare program with another federal program designed to make health care more widely available, the Hill-Burton program. Title VI of the Public Health Service Act, also known as the Hill-Burton Act, was passed in 1946 to provide federal funds for the construction and modernization of hospitals. Its purpose is to ensure adequate hospital service for all. 42 U.S.C. § 291(a). As a condition of receiving Hill-Burton funds, a hospital must agree to provide "a reasonable volume of services to persons unable to pay therefor." 42 U.S.C. § 291c(e)(2). Until 1972, the Secretary did not specify the amount of services that would be considered reasonable. In 1972, the Secretary specified that free care in the amount of 10% of the federal aid given, or 3% of the hospital's operating costs, per fiscal year, would be considered reasonable; as an alternative, the institution could provide free care to all indigents who requested it. 42 C.F.R. § 53.111(d).
In 1970, plaintiff received a Hill-Burton construction grant in the amount of $808,445. In return, plaintiff agreed to provide $808,445 worth of free medical care to indigents over the next twenty years.
This case concerns free care provided in the years 1977, 1978, and 1979. In 1977 plaintiff provided free care, pursuant to its Hill-Burton agreement, in the amount of $33,955; in 1978 and 1979 the amounts were $34,763 and $35,578, respectively. In each of those years plaintiff sought Medicare reimbursement for a proportionate share of the costs of rendering free care under its Hill-Burton agreement, and in each year the fiscal intermediary, Blue Cross, disallowed those costs. In each of those years plaintiff also provided charity care which was unconnected with its Hill-Burton obligation; the cost of this care amounted to $40,050 in 1977, $74,147 in 1978, and $69,641 in 1979. Plaintiff sought reimbursement for these costs as well; Blue Cross denied reimbursement for all of them.
Plaintiff appealed the intermediary's decision to the Provider Reimbursement Review Board (PRRB), pursuant to 42 U.S.C. § 1395oo (a). A hearing was held on January 21, 1981. On December 4, 1981, the PRRB ruled that the plaintiff was entitled to reimbursement for the cost of rendering free care pursuant to its Hill-Burton agreement in 1977, 1978, and 1979, but was not entitled to reimbursement for the cost of rendering other free care during those years.
The Deputy Administrator of the Department of Health and Human Services' Health Care Financing Administration, on his own motion, then reviewed the PRRB's decision, pursuant to 42 U.S.C. § 1395oo. On February 1, 1982, the Deputy Administrator reversed the PRRB's decision on the Hill-Burton issue; he held that plaintiff was not entitled to Medicare reimbursement for costs of providing free medical care pursuant to a Hill-Burton agreement. He affirmed the PRRB's denial of reimbursement for costs of providing other free medical care.
The Deputy Administrator's discussion of the Hill-Burton issue is detailed and complete. He noted that the Hill-Burton Act, the Social Security Act, and the regulations promulgated pursuant to those Acts all forbid the reimbursement which plaintiff sought. He reasoned that the plaintiff promised to render free care in consideration for the Hill-Burton grant; that the plaintiff thus has a contractual obligation to furnish such care; and that allowing Medicare reimbursement for Hill-Burton free care costs would "render the Hill-Burton agreement meaningless and would compensate the [plaintiff] again for those costs which the government has already paid." Plaintiff's Brief, Exhibit J at 3. In addition, he noted that 42 C.F.R. § 53.111(f)(2), issued under the Hill-Burton Act, specifically prohibits a health care facility from including in its computation of uncompensated services any amount which it is entitled to receive under any other governmental program, including Medicare. Turning to the Social Security Act, the Deputy Administrator pointed out that the plaintiff sought reimbursement for services rendered to individuals not otherwise covered by Medicare, in contravention of the clearly established statutory and regulatory objective that "the necessary costs of efficiently delivering covered services to individuals covered by the [Medicare program] will not be borne by individuals not so covered." 42 U.S.C. § 1395x(v)(1)(A); see also 42 C.F.R. §§ 405.402(a), 405.451(b)(1). He also noted that 42 U.S.C.§ 1395f and 42 C.F.R. § 405.311(b) prohibit Medicare payment for any service which a provider is obliged by law of, or contract with, the United States to render at public expense, and reasoned that services rendered under a Hill-Burton agreement are rendered pursuant to both law and contract. In addition, the Deputy Administrator cited 42 U.S.C. § 1395y(a)(2), which provides that, "notwithstanding any other provisions of [the Medicare Act]," no reimbursement will be made for services rendered to individuals who have no legal obligation to pay for them. The Secretary's regulations restate this prohibition: 42 C.F.R. §§ 405.402(c)(7) and 405.420 explicitly provide that charity allowances are not reimbursable. Finally, the Deputy Administrator found that Hill-Burton free care did not qualify as an allowable interest expense under 42 C.F.R. § 405.419. The Deputy Administrator did not discuss the issue of reimbursement for free care not rendered in connection with a Hill-Burton agreement, but simply affirmed the PRRB's conclusion on that issue.
The parties have filed cross-motions for summary judgment. As no material issues of fact exist, summary judgment is appropriate. For the reasons stated below, the defendant's motion must be granted and the plaintiff's motion denied.
II. REIMBURSEMENT FOR FREE CARE RENDERED PURSUANT TO HILL-BURTON AGREEMENT
Plaintiff argues that Hill-Burton uncompensated care is reimbursable as an indirect cost of delivering services to Medicare beneficiaries. It relies on 42 U.S.C. § 1395f(b)(1), which states that a provider shall be paid the "reasonable cost" of providing services to Medicare beneficiaries or the customary charge, whichever is less; on 42 U.S.C. § 1395x(v)(1)(A), which defines "reasonable cost" as "the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services" and instructs the Secretary to promulgate regulations to ensure that "the necessary costs of efficiently delivering covered services to individuals covered by [Medicare] will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by [Medicare]"; and on 42 C.F.R. § 405.451(b)(2), which describes allowable costs as those "which are appropriate and helpful in developing and maintaining the operation of patient care facilities and activities." Plaintiff states that it used its Hill-Burton grant to make capital improvements which benefit all patients, both Medicare and non-Medicare. In effect, it asserts that it "purchased" those improvements by providing free care. It argues that a proportionate share of the cost of the improvements (i.e., a proportionate share of the cost of Hill-Burton free care) should be borne by Medicare patients; otherwise, plaintiff asserts, non-Medicare patients will bear the entire cost of the capital improvements, and thus will bear part of the cost of delivering medical services to Medicare patients, in contravention of 42 U.S.C. § 1395x(v)(1)(A). Plaintiff characterizes the cost of Hill-Burton free care as an indirect cost of maintaining the hospital; it argues that, since other indirect costs such as depreciation and interest are reimbursable under Medicare, see 42 U.S.C. § 1395x(v)(1)(A); 42 C.F.R. §§ 405.417-405.419, the cost of Hill-Burton free care should be ...