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Kennedy v. Medicap Pharmacies, Inc. - 267 F.3d 493 (6th Cir. 2001)


Retroactivity is not favored in the law. Thus, congressional enactments and administrative rules will not be construed to have retroactive effect unless their language requires this result. By the same principle, a statutory grant of legislative rulemaking authority will not, as a general matter, be understood to encompass the power to promulgate retroactive rules unless that power is conveyed by Congress in express terms.


Under the Medicare program, the Government reimbursed health care providers for expenses incurred in providing medical services to Medicare beneficiaries. The Medicare Act authorized the Secretary of Health and Human Services (Secretary) to promulgate cost-reimbursement regulations and also provides that such regulations shall provide for the making of suitable retroactive corrective adjustments where, for a provider of services for any fiscal period, the aggregate reimbursement produced by the methods of determining costs proves to be either inadequate or excessive. In 1981, the Secretary issued a cost-limit schedule that changed the method for calculating the "wage index," a factor used to reflect the salary levels for hospital employees in different parts of the country. Under the prior rule, the wage index for a given geographic area was calculated by using the average salary levels for all hospitals in the area. However, the 1981 rule excluded from that computation wages paid by Federal Government hospitals. In a suit brought by various hospitals in the District of Columbia, the Federal District Court invalidated the 1981 rule and the Secretary settled the hospitals' cost reimbursement reports by applying the pre-1981 wage-index method. Nevertheless, the Secretary in 1984 reissued the 1981 rule and proceeded to recoup the sums previously paid to the hospitals, including respondent Georgetown University Hospital, as a result of the District Court's ruling. After exhausting administrative remedies, Georgetown University Hospital brought suit in Federal District Court, claiming that the retroactive schedule was invalid under the Medicare Act. The court granted summary judgment for Georgetown University Hospital, and the Court of Appeals affirmed.


 Was it proper to invalidate retroactive cost-limit rules?




The Court affirmed the decision invalidating the promulgation of retroactive cost-limit rules, as there was no express statutory authorization of retroactive rule-making. The Court found that the structure and language of 42 U.S.C.S. § 1395x(v)(1)(A)(ii) required the conclusion that the retroactivity provision applied only to case by case adjudication, not to rule-making.

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