Heckler v. Community Health Services

467 U.S. 51 (1984)

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Nature of the Case

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Facts

Under an incorrect interpretation of rather complex federal regulations, during 1975, 1976, and 1977 Community (P) received and expended $71,480 in federal funds to provide health care services to Medicare beneficiaries to which it was not entitled. Under Medicare providers of health care services are reimbursed for the reasonable cost of services rendered to Medicare beneficiaries as determined by D. P is a nonprofit corporation. In 1966 it entered into a contract with D to provide home health care services to individuals eligible for benefits under Part A of the Medicare program. P received reimbursement through a fiscal intermediary, the Travelers Insurance Cos. (Travelers). P employed CETA program workers which authorized the use of federal funds to provide training and job opportunities for economically disadvantaged persons. To prevent what would be in effect double reimbursement of providers' costs, one of the regulations concerning reasonable costs reimbursable under the Medicare program indicates that grants received by a provider in order to pay specific operating costs must be subtracted from the reasonable costs for which the provider may receive reimbursement. P contacted Travelers to ask whether the salaries of its CETA-funded employees who provided services to patients eligible for Medicare benefits were reimbursable as reasonable costs under Medicare. Travelers' Medicare manager orally advised respondent that the CETA funds were 'seed money' within the meaning of 612.2 of the Provider Reimbursement Manual, which is defined as 'grants designated for the development of new health care agencies or for expansion of services of established agencies,' and therefore, even though the CETA employees' salaries constituted specific operating costs paid by a federal grant, they were reimbursable under the Medicare program. With these additional funds, P expanded its annual number of home health care visits from approximately 4,000 in 1974 to over 81,000 in the next three years. Its annual budget increased during that period from about $200,000 to about $900,000. It is undisputed that correct administrative practice required Travelers to refer respondent's inquiry to D for a definitive answer. Travelers did not do this until August 7, 1977, when Travelers was then formally advised that the CETA funds were not 'seed money' and therefore had to be subtracted from P's Medicare reimbursement. P had been overpaid $71,480, and a formal demand for reimbursement was made. P filed a complaint in district court which upheld D’s determination and that D could not be estopped because of the agent’s representations. The Court of Appeals reversed, reaching only the estoppel question. It held that the Government may be estopped by the 'affirmative misconduct' of its agents and that Travelers' erroneous advice coupled with its failure to refer the question to the Secretary constituted such misconduct. It rejected as 'clearly erroneous' the District Court's finding that it was unreasonable for respondent to rely on Travelers' advice, concluding instead that respondent acted reasonably because the relevant regulation had no clear meaning and respondent had no source other than Travelers to which it could turn for advice. D appealed.