In this complex case, the plaintiff hospitals challenged the application of a 1979 regulation, promulgated by the defendant Secretary of Health and Human Services, regarding reimbursement under Medicare of medical malpractice insurance costs. The district courts below invalidated the 1979 rule, and awarded reimbursement under the pre-1979 regulation. During the briefing in the Secretary's appeal to this court, the Secretary promulgated a new regulation to replace the invalid 1979 rule. The Secretary now argues that this case is moot because the 1979 rule is no longer in effect. The Secretary also argues that five hospitals that "self-disallowed" certain costs should be denied relief. For reasons set out in this opinion, we affirm the rulings of the district courts below and order the Secretary to pay all of the hospitals under the pre-1979 regulations.

To understand the issues presented in this case, it is necessary to review in some detail the underlying facts of the case and the progress of the litigation, both in the district courts below and in this court.

In 1965, Congress enacted the Medicare program, Title XVIII of the Social Security Act, 42 U.S.C. Sec. 1395 et seq. (1982), to provide a comprehensive system of health care for the elderly and infirm.1 Under Part A of the program,2 Medicare provides payments to qualified hospitals to reimburse them for medical care provided to Medicare beneficiaries. A hospital may participate in the Medicare program as a "provider of services" by entering into a "provider agreement" with the Secretary of Health and Human Services (the "Secretary"). Id. Sec. 1395x(e), (u). The provider (i.e., the hospital) is entitled to payment of the lesser of the "reasonable cost" or the "customary charges" of hospital services provided to Medicare beneficiaries. Id. Sec. 1395f(b)(1).3 A provider receives its Medicare reimbursements directly from the Secretary or, more commonly, through a "fiscal intermediary" appointed by the provider. The fiscal intermediary, usually a private insurance company, acts as an agent of the Secretary for the purpose of reviewing the provider's claim for reimbursement. Id. Sec. 1395h.

The process by which the final amount of reimbursement is determined is quite complex. The payment process begins when the provider files, at the end of each "cost year," a cost report with its fiscal intermediary. 42 C.F.R. Sec. 405.406(b) (1985). This report sets forth the costs of all services provided to Medicare patients during the year. The fiscal intermediary analyzes and audits the cost report, and issues a Notice of Program Reimbursement ("NPR"), which sets forth the amount of reimbursement to which the intermediary believes the provider is entitled. This NPR reflects any costs claimed by the provider but disallowed by the intermediary. Id. Sec. 405.1803. If the provider is dissatisfied with the fiscal intermediary's determination (and if certain jurisdictional requirements are met), it may appeal the determination to the Provider Reimbursement Review Board (the "PRRB"). 42 U.S.C. Sec. 1395oo(a). The PRRB has the power to affirm, reverse, or modify a determination made by a fiscal intermediary. Id. Sec. 1395oo(d). Within 60 days after a final decision of the PRRB, the Secretary may review, on his own motion or at the request of the provider, the decision of the PRRB. Id. Sec. 1395oo(f)(1). A provider dissatisfied with a final decision of the PRRB or Secretary may seek review of the decision in the federal district court in which the provider is located, or in the District Court for the District of Columbia. Id. The district court's review is made in accordance with the Administrative Procedure Act, and is based on the administrative record. 5 U.S.C. Sec. 706 (1982).

The exact language of certain subsections of 42 U.S.C. Sec. 1395oo, which establishes and controls the PRRB, is highly relevant to portions of this appeal. In order to appeal to the PRRB, a provider must meet certain deadlines and minimum amount-in-controversy requirements:

Any provider of services which has filed a required cost report within the time specified in regulations may obtain a hearing with respect to such cost report by [the PRRB] ... if--

(1) such provider--

(A)(i) is dissatisfied with a final determination of the organization serving as its fiscal intermediary ... as to the amount of total program reimbursement due the provider for the items and services furnished to individuals for which payment may be made under this subchapter for the period covered by such report, ...

....

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

(3) such provider files a request for a hearing within 180 days after notice of the intermediary's [or Secretary's] final determination....

Id. Sec. 1395oo(a).4 On appeal, the provider can present evidence and witnesses at a hearing before the PRRB.

A decision by the [PRRB] shall be based upon the record made at such hearing, which shall include the evidence considered by the intermediary and such other evidence as may be obtained or received by the [PRRB] and shall be supported by substantial evidence when the record is viewed as a whole. The [PRRB] shall have the power to affirm, modify, or reverse a final determination of the fiscal intermediary with respect to a cost report and to make any other revisions on matters covered by such cost report (including revisions adverse to the provider of services) even though such matters were not considered by the intermediary in making such final determination.

Id. Sec. 1395oo(d). After decision by the PRRB, there are two bases for appeal to a district court:

Providers shall have the right to obtain judicial review of any final decision of the [PRRB], or of any reversal, affirmance, or modification by the Secretary, by a civil action commenced within 60 days of the date on which notice of any final decision by the [PRRB] or of any reversal, affirmance, or modification by the Secretary is received. Providers shall also have the right to obtain judicial review of any action of the fiscal intermediary which involves a question of law or regulations relevant to the matters in controversy whenever the [PRRB] determines (on its own motion or at the request of a provider of services as described in the following sentence) that it is without authority to decide the question, by a civil action commenced within sixty days of the date on which notification of such determination is received.

B. Medical Malpractice Insurance Under Medicare

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.

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

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.

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

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:

The Secretary has asked that we direct the district court to remand to her for further rulemaking should we invalidate this rule. We decline.

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.

The hospitals seek reimbursement for the fiscal year 1979-80. Four years is long enough for them to wait.

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

All thirty-five hospitals involved in this consolidated appeal filed, at the appropriate time, cost reports with their fiscal intermediaries, claiming reimbursement for the cost of services provided to Medicare beneficiaries. Thirty of the hospitals claimed in their cost reports reimbursement for malpractice insurance costs using the pre-1979 rule. These hospitals, in simple terms, ignored the 1979 rule and filled out cost reports as if it did not exist. For these thirty hospitals, their fiscal intermediaries "disallowed" reimbursement under the pre-1979 rule. The fiscal intermediaries issued Notices of Program Reimbursement ("NPRs") reflecting the adjusted total reimbursements. The thirty hospitals each appealed to the PRRB; these appeals were consolidated into the Florida Hospital Association Group Appeal before the PRRB. At the request of the hospitals, the PRRB certified for expedited judicial review the question of the validity of the 1979 rule.

Five other hospitals, however, followed a different path.9 Instead of ignoring the 1979 rule and claiming reimbursement under the pre-1979 rule, those five hospitals filled out their cost reports using the then current 1979 reimbursement rule; these hospitals, unlike the thirty other hospitals, followed the 1979 rule as promulgated and "self -disallowed" the medical malpractice costs.10 Because they did not file under the pre-1979 rule (in other words, because they filed a "correct" report under the then current regulations), their fiscal intermediaries did not need to adjust their cost reports downward to bring them into conformity with the 1979 rule. Thus, the NPRs for these five hospitals did not reflect any adjustments or denials of claims. After receiving their NPRs, these five hospitals timely appealed to the PRRB, challenging the 1979 rule; their appeals were consolidated into the Florida Group Appeal. When the PRRB certified the question of the validity of the rule for judicial review, however, the PRRB declined to accept jurisdiction over the appeals of the five hospitals that applied the 1979 rule, because the pre-1979 rule claims "were not claimed on the hospitals' cost reports ... nor had the NPR included any denials or adjustments of costs related to these issues." Appellant's Brief at 10. Notwithstanding the fact that the cost reports did include all of the information needed to make the pre-1979 calculations, the PRRB stated that "a provider must have made an overt disclosure (notice) of its posture on a particular issue which ordinarily would be evidenced by claiming reimbursement for the particular item on the cost report." Id. Thus, for the self-disallowing hospitals, the PRRB refused jurisdiction; because of this, the Secretary argues, the federal courts have no jurisdiction over the claims of the five self-disallowing hospitals.

Because of the venue and timing requirements in the Medicare statute, 42 U.S.C. Sec. 1395oo(f)(1), the thirty-five hospitals could not bring one consolidated case into a single district court. Three suits were filed, Tallahassee Memorial Regional Medical Center v. Heckler in the Northern District of Florida, and Baptist Hospital of Miami v. Heckler and Parkway Medical Center v. Heckler in the Southern District of Florida. The latter two cases were consolidated at the district court level. In both litigations, initiated well before this circuit's decision in Lloyd Noland, the Secretary defended the 1979 rule as valid, and also argued that the district courts did not have jurisdiction over the claims of the five self-disallowing hospitals.11

In the Baptist Hospital case, on September 24, 1984, the district court denied the Secretary's motion to dismiss the self-disallowing hospitals and granted the plaintiffs' motions for summary judgment. In holding that the district court did have jurisdiction over the claims of the self-disallowing hospitals, the district court ruled that the claimed malpractice insurance costs were "contained" in the cost reports, and thus the PRRB (and therefore the district court) had jurisdiction. In granting the plaintiffs' motions for summary judgment, the court ruled that the Secretary's basis and purpose statement was inadequate under the Administrative Procedures Act, that the 1979 rule was arbitrary and capricious, and that the rule violates the Medicare statute itself. The district court remanded the matter to the Secretary "for further consideration in accordance with [the court's] opinion."

This court issued its Lloyd Noland decision on June 12, 1985. On June 20, 1985, in the Tallahassee Memorial case, the district court rejected the Secretary's motion to dismiss the claims of the self-disallowing hospitals, relying on the district court opinion in Baptist Hospital. The court also struck down the 1979 rule, relying on the binding authority of the Lloyd Noland case. In a final judgment entered on August 29, 1985, the court remanded the case to the PRRB "for payment of the plaintiff hospitals' malpractice insurance costs pursuant to the [pre-1979 rule] without reference to the [1979 rule]."

Following the district court's decision in Baptist Hospital case (finalized 11 months before Tallahassee Memorial ), the Secretary appealed to this court.12 Prior to the setting of the briefing schedule, this court issued its opinion in the Lloyd Noland case. The Secretary timely filed for reconsideration and rehearing in the Lloyd Noland case. The Secretary then filed in the Baptist Hospital case a motion to hold the appeal in abeyance pending resolution of the Lloyd Noland petition for reconsideration. In the Baptist Hospital motion, the Secretary wrote that the appeal "presents the identical issue already decided by the Court in the Lloyd Noland case." Appellant's Motion to Hold This Appeal in Abeyance Pending Decision in Another Case at 1. Arguing that judicial economy would be best served, the Secretary summarized the issues in Baptist Hospital:

While [this case] involves a jurisdiction issue not present in Lloyd Noland, that issue--which concerns the right to obtain review of the validity of the regulation without raising the issue in cost reports filed with the intermediary--goes only to two hospitals. Thus, whatever the outcome of Lloyd Noland, it will be dispositive as to all but two hospitals in the instant appeal, and even the jurisdictional issue will be mooted as to the two hospitals if the Court disposes of the case on rehearing in the Secretary's favor.

Id. at 2. The motion was granted on August 14, 1985.

In the petition for rehearing in the Lloyd Noland case, the Secretary informed this court that, five days after the issuance of the Lloyd Noland opinion, the Secretary published a notice of proposed rulemaking, proposing a new malpractice insurance regulation that would be retroactive to the date of promulgation of the invalidated 1979 rule. See Appellant's Petition for Panel Rehearing, Lloyd Noland. The Secretary argued that the new rule, when finalized, would moot the claims of the plaintiffs in Lloyd Noland. The Secretary asked the Lloyd Noland panel to vacate its order requiring payment under the pre-1979 rule, and to remand the case to the Secretary for further proceedings. Id. at 4. The court rejected the request for a remand and denied the Secretary's petition for rehearing on January 15, 1986. The Secretary did not petition the Supreme Court for a writ of certiorari.

By the time the Lloyd Noland rehearing petition was denied (thereby ending the period that Baptist Hospital was held in abeyance), the Secretary's appeal of the district court's decision in the Tallahassee Memorial case had reached this court. The plaintiffs/appellees in both cases filed motions for summary action in favor of most of the hospitals, based on the Lloyd Noland opinion; the motions argued that, except for the self-disallowing hospitals, Lloyd Noland completely controlled the disposition of the cases. Without directly stating any opposition to summary action for the non -self-disallowing hospitals, the Secretary responded to the motions by stating that summary action was inappropriate for the self-disallowing hospitals, a point the appellees had conceded in their motions. A panel of this court denied the motions for summary action.

At that same time, the Secretary moved to consolidate the appeals in the two cases, Baptist Hospital and Tallahassee Memorial Regional Medical Center. The Secretary argued that the two cases "involve virtually identical challenges to the same Medicare reimbursement regulation and in both cases the district courts ruled against the Secretary on a jurisdictional issue pertinent only to some of the plaintiffs in each case. Consolidation of the cases will therefore serve the goal of judicial economy." Motion of Appellant for Consolidation of Cases and for New Briefing Schedule at 1-2. That motion was granted on March 4, 1986.

On March 20, 1986, the Secretary filed his initial brief as appellant. The only "Issue Presented" was "[w]hether the two District Courts erred when they held that the Provider Reimbursement Review Board must accept jurisdiction over costs that a Medicare provider failed to claim or otherwise disclose on its cost report." Appellant's Brief at 2. In the Statement of the Case, the brief included a footnote:

This Court held the malpractice rule invalid in Lloyd Noland Hospital and Clinic v. Heckler, 762 F.2d 1561 (11th Cir.1985), reh. denied, No. 84-7444 (January 15, 1986). On June 17, 1985 (50 Fed.Reg. 25178), the Secretary published a Notice of Proposed Rulemaking to replace the malpractice rule with a new regulation effective for cost reporting periods beginning on or after July 1, 1979. This Court denied the Secretary's petition for rehearing in which the government contended that the appropriate remedy in Lloyd Noland was a remand to the agency for application of the new rule promulgated pursuant to the NPRM. While defendant continues to believe that the Court should refrain from ordering payment under the pre-1979 regulations, he acknowledges that Lloyd Noland is controlling as to the validity of the current malpractice rule, in that the new malpractice rule has not yet been published as a final regulation. (See Response of Appellant to Appellees' Motion For Summary Action). Defendant incorporates by reference all his arguments in Lloyd Noland in these appeals, and he will notify the Court as soon as a new rule is issued.

Id. at 4 n. 1. The hospitals filed their Brief for Appellees on May 1, 1986; that brief responded only to the single "Issue Presented" in the Secretary's initial brief.

Then, in his reply brief filed May 19th, the Secretary informed this court that he had, on April 1, 1986, promulgated a new malpractice insurance reimbursement rule retroactive to 1979. 51 Fed.Reg. 11142 (Apr. 1, 1986).13 The new rule applies only to those hospitals that still have "open" cost reports, i.e., generally those hospitals that have appealed the 1979 rule to the PRRB and to the courts and that have not received a "final" judgment from the PRRB or courts. Id. at 11149. In other words, the new rule applies to hospitals that are still in litigation over the 1979 rule. All hospitals (such as those in Lloyd Noland ) that have received final court judgments are not covered by the new rule.

The Secretary, in the reply brief, argues that the new rule makes this entire case moot, and therefore deprives this court of jurisdiction. Bound in with the reply brief was the Secretary's "Suggestion of Mootness and Motion to Vacate the Two District Court Judgments from which these Consolidated Appeals were Taken and to Remand these Cases to the District Courts with Instructions to Dismiss."14

The Secretary's reply brief prompted a flurry of filings and motions in this court,15 starting with the appellee hospitals' motion to strike the Secretary's reply brief.16 Most of the motions were carried with the case for resolution by the oral argument panel.17 Argument in the case was finally heard on October 8, 1986.

Although raised at the end of the briefing in this case, the mootness and jurisdictional questions are nevertheless the threshold issues that we must confront. Prior to that discussion, however, it is necessary to recognize what may be obvious, that the district courts were correct in finding that the 1979 rule was promulgated in violation of the Administrative Procedures Act. The 1986 regulation and the Secretary's arguments notwithstanding, the Lloyd Noland case is binding precedent on that question. 762 F.2d at 1567-68.18

Because we find that the 1986 regulation does not moot this case and that the hospitals must be paid under the pre-1979 rules, we must then turn in Part III below to the question of the self-disallowing hospitals. Our analysis of the governing statutory language leads us to conclude that the PRRB should have taken jurisdiction over the claims of the five self-disallowing hospitals, and that they therefore should be paid using the pre-1979 methodology required for the rest of the hospitals.

II. THE EFFECT OF THE NEW 1986 REGULATION ON THIS LITIGATION

We first turn to the Secretary's claim of mootness in light of the new regulation promulgated during the pendency of this appeal. As indicated above, the mootness inquiry is a threshold issue that applies to all thirty-five hospitals here as appellees. The 1986 regulation also raises thorny questions about the appropriate remedy (if the case is not moot). The district courts awarded payment to the hospitals using the pre-1979 rules, but the Secretary now argues that the hospitals should be paid using the 1986 rule.

The new rule was promulgated on April 1, 1986, with an effective date of May 1, 1986. 51 Fed.Reg. 11142 (Apr. 1, 1986). On May 19, 1986, the Secretary raised in his reply brief the question of mootness, arguing that the litigation was only a challenge to the 1979 rule, which is no longer the controlling regulation. The Secretary stated that the new regulation will "substantially benefit most Medicare providers." Appellant's Reply Brief at 4. This is true, however, only relative to the 1979 regulation; it is incorrect in relation to the pre-1979 rules.

According to the Secretary, the new 1986 rule is a combination of the 1979 rule (invalidated in Lloyd Noland ) and the pre-1979 rule. See Appellant's Reply to Appellees' Opposition to Appellant's Motion to Vacate at 25; 51 Fed.Reg. at 11186; see also supra note 13 (explaining, in simple terms, mechanics of new rule). Under the new rule, a hospital with a 25% Medicare Patient utilization rate would receive reimbursement for 8.97% of its medical malpractice costs. This compares to 25% under the pre-1979 rule and, probably, 5.1% under the 1979 rule. Similarly, a hospital with a 50% Medicare utilization rate would receive 22.11% of its malpractice costs, instead of 50% (pre-1979) or probably 5.1% (1979). See generally 51 Fed.Reg. at 11189-90 (table of reimbursement percentages under new 1986 rule). We conclude that most, if not all, of the appellee hospitals would receive substantially less under the 1986 rule than under the pre-1979 regulation.19

The new regulation, promulgated in the wake of the consistent rejection of the 1979 rule by courts around the country, seems to be specifically aimed at short-circuiting on-going litigation challenging the Medicare reimbursement. By its own terms, the new regulation is retroactive to the 1979 cost years, but only for those hospitals that still have "open" cost reports, i.e., hospitals that appealed their cost reports to the PRRB (and then to the courts) but have yet to receive a "final determination."20 Because the "reasonable cost" reimbursement scheme has been largely replaced, see supra note 3, the 1986 regulation has only limited prospective effect; only a small percentage of future Medicare reimbursement will be covered by the new rule. See 51 Fed.Reg. at 11186-87. For the affected cost reports, according to the Secretary, the fiscal intermediaries will "automatically calculate" reimbursement using the new rule, with no additional information being gathered from the hospitals. 51 Fed.Reg. at 11149.21

The 1986 rule presents some new and difficult questions for this court in this case. For the reasons stated below, we hold that this case is not moot. Because of this holding, we must then decide what the appropriate remedy should be. Without attempting to decide the validity of the 1986 regulation, we hold that it should not be applied to the claims of the litigants in this case, and they should be reimbursed under the pre-1979 regulations.22

This court is among the first to consider fully the mootness implications and retroactive effect of the 1986 regulation. In this case, we join the Sixth Circuit in rejecting the Secretary's mootness suggestion and in denying retroactive effect to the 1986 rule. See Mason General Hospital v. Secretary of the Department of Health and Human Services, 809 F.2d 1220 (6th Cir.1987).23 The only other courts to have addressed the questions have responded differently as to the impact of the 1986 rule.24 None of those courts, however, discussed their analysis in full.

The case or controversy requirement of the Constitution requires that moot cases be dismissed; in a moot case, there is no longer the vitality and interest among the parties that our adversary system of justice requires. As the Supreme Court has made clear, the "burden of demonstrating mootness 'is a heavy one.' " County of Los Angeles v. Davis, 440 U.S. 625, 631, 99 S. Ct. 1379, 1383, 59 L. Ed. 2d 642 (1979) (quoting United States v. W.T. Grant Co., 345 U.S. 629, 633, 73 S. Ct. 894, 897, 97 L. Ed. 1303 (1953)). In County of Los Angeles v. Davis, the Supreme Court articulated a two part test for mootness:

"Simply stated, a case is moot when the issues presented are no longer 'live' or the parties lack a legally cognizable interest in the outcome." We recognize that, as a general rule, "voluntary cessation of allegedly illegal conduct does not deprive the tribunal of power to hear and determine the case, i.e., does not make the case moot." But jurisdiction, properly acquired, may abate if the case becomes moot because

(1) it can be said with assurance that "there is no reasonable expectation .." that the alleged violation will recur, and

(2) interim relief or events have completely and irrevocably eradicated the effects of the alleged violation.

When both conditions are satisfied it may be said that the case is moot because neither party has a legally cognizable interest in the final determination of the underlying questions of fact and law.

440 U.S. at 631, 99 S. Ct. at 1383 (citations omitted).

Beyond this mootness test, there are also at least three exceptions to the mootness doctrine. "The first exception concerns a situation where the issues are capable of repetition, yet evading review." B & B Chemical Co. v. United States Environmental Protection Agency, 806 F.2d 987, 990 (11th Cir.1986).25 With this test and exception to it in mind, we must consider the effect of the 1986 regulation on this litigation.26

The Secretary argues that the hospitals were only challenging the 1979 rule, and now that the 1979 rule is no longer the current, controlling rule, the hospitals no longer have any claims in this litigation.27 The hospitals, however, have from the outset sought a judgment not only invalidating the 1979 rule but also requiring payment under the pre-1979 rules.28 In his initial brief, the Secretary did not question the hospitals' interest in reimbursement under the pre-1979 rule. The 1986 rule does not eliminate the hospitals' continuing interest in pre-1979 reimbursement. And finally, it is undisputed that for the vast majority of hospitals in this case, the 1986 rule would not "completely and irrevocably eradicate" the reduction in reimbursement effected by the 1979 rule.29

A review of cases dealing with mootness supports a rejection of the Secretary's mootness arguments. The 1986 rule does in fact provide to most hospitals a higher reimbursement than permitted under the 1979 rule, but it is nevertheless lower than under the pre-1979 rule. A number of Supreme Court and appellate cases reveal how sensitive is the requirement that the intervening event provide complete relief to the plaintiffs in a litigation. In two election cases decided on the same day, for example, the Court found one case moot and rejected mootness in another. In Hall v. Beals, 396 U.S. 45, 90 S. Ct. 200, 24 L. Ed. 2d 214 (1969), the Court dismissed as moot a case challenging a six-month residency requirement for voting. Prior to decision by the Court, the state legislature changed the requirement to two months; because all of the plaintiffs, at the time of the start of the litigation, would have been able to vote under the new rule, the case was moot.30 On the other hand, in Brockington v. Rhodes, 396 U.S. 41, 90 S. Ct. 206, 24 L. Ed. 2d 209 (1969), the Court found that an intervening reduction of a signature requirement (to get on a ballot) from 7% to 4% of registered voters did not moot the case where the plaintiff would not have met the new requirement either.

This case is unlike that in Richardson v. Wright, 405 U.S. 208, 92 S. Ct. 788, 31 L. Ed. 2d 151 (1972), where the Court remanded the case to the Secretary of Health, Education and Welfare. The plaintiffs in that case had had their disability benefits suspended without notice or opportunity to present evidence to defend the benefits. Prior to oral argument, the Secretary adopted a new regulation which provided all of the requested pre-suspension process except an opportunity for an oral presentation. While not finding the case to be moot, the Court withheld judicial action pending application of the new regulation. The Court reasoned that the additional process for the individual plaintiffs may provide the claimants with all of the process to which they were entitled, and so the Court could avoid the question of the oral presentation. In Richardson, it was possible that on remand the new procedures would fully satisfy the plaintiff's substantive claims. In this case now before this court, however, there is no mystery about what would happen on a remand to the Secretary--the Secretary has made it quite clear that the 1986 rule would be applied and that the hospitals would receive less than under the pre-1979 rule. Because we cannot hope to avoid the difficult legal issues presented in this case, as the Supreme Court did in Richardson, the Richardson case does not suggest to us a finding of mootness.31

In a case analogous to this one, the Sixth Circuit rejected a suggestion of mootness in, coincidentally, a Medicare case where the Secretary of Health, Education and Welfare argued that intervening amendments to the Social Security Act fully satisfied the plaintiffs' concerns. See Himmler v. Califano, 611 F.2d 137, 149 (6th Cir.1979). Because the Sixth Circuit found that the amendments only ameliorated but did not eliminate the plaintiffs' concerns, the court rejected the suggestion of mootness. Similarly, the former Fifth Circuit rejected a suggestion of mootness after the Environmental Protection Agency (the defendant-respondent in the case) withdrew its required approval of a state air quality plan. See Natural Resources Defense Council v. Environmental Protection Agency, 489 F.2d 390 (5th Cir.1974), rev'd in part on unrelated grounds sub nom. Train v. Natural Resources Defense Council, 421 U.S. 60, 95 S. Ct. 1470, 43 L. Ed. 2d 731 (1975) (not addressing mootness question on appeal and thus implicitly accepting Fifth Circuit's rejection of mootness challenge to jurisdiction). Although the challenged air quality plan was no longer current, "the EPA's position [was] still considerably at odds with the position taken by the [plaintiffs]." Id. at 405. In that case, the facts revealed that the EPA was likely to approve a plan very similar to the challenged plan. Therefore, the Fifth Circuit refused to find the case moot. In this case, the Secretary has already adopted a rule similar to the invalidated 1979 rule.

The 1986 rule does not afford the complete relief anticipated by the Supreme Court in County of Los Angeles v. Davis in its two prong test for mootness. The parties still have an interest in this litigation sufficient to satisfy the constitutional requirement of a vital case or controversy. In light of these two factors, we hold that the claims of the hospitals have not been mooted by the promulgation by the Secretary of the 1986 regulation.

In addition to a finding that the 1986 regulation does not eliminate the hospitals' interest in reimbursement under the pre-1979 rules, the second prong of the County of Los Angeles mootness test also suggests a rejection of the mootness argument. In this case, it cannot be said with "assurance that 'there is no reasonable expectation ..' that the alleged violation will recur." 440 U.S. at 631, 99 S. Ct. at 1383. This rule, in conjunction with the exception to the mootness doctrine for cases capable of evading review, supports a finding that this case is not moot.

The facts of this case are unlike most instances where the "evasion" exception is appropriate; usually the exception applies to cases with very short duration. Nevertheless, if this case is dismissed as moot, we would be creating a class of cases capable of evading judicial review by the very fact that, after years of litigation challenging an administrative regulation, an agency would be able to moot a given lawsuit by promulgating a new regulation. If we were to find this case moot, the hospitals would have to restart on a long and expensive litigation, only to be confronted again with the possibility that the Secretary could moot that litigation. The Secretary has in fact even acknowledged that such a scenario is conceivable; the Secretary suggested that this possibility should not be a cause for concern. See 51 Fed.Reg. at 11186.

Without at all wishing to suggest any improper motive on the part of the Secretary in this case, and realizing that the Secretary is concerned about the liquidity of the trust fund crucial to the entire Medicare program, it is still a concern that a finding of mootness could permit, in some future case, an abuse of the interaction between administrative agencies and the courts. "Where a court is asked to adjudicate the legality of an agency order, it is not compelled to dismiss the case as moot whenever the order expires or is withdrawn." Nader v. Volpe, 475 F.2d 916, 917 (D.C.Cir.1973). In a review of agency action, a sufficiently live controversy may remain in a case even after a regulation or order initially giving rise to the case is no longer in effect. See Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S. Ct. 279, 283, 55 L. Ed. 310 (1911); Environmental Defense Fund, Inc. v. Gorsuch, 713 F.2d 802, 810-11 (D.C.Cir.1983); Big Rivers Electric Corp. v. EPA, 523 F.2d 16, 19 (6th Cir.1975), cert. denied, 425 U.S. 934, 96 S. Ct. 1663, 48 L. Ed. 2d 175 (1976).

This case presents two additional concerns that militate against a finding of mootness. First, we would be creating a situation in which an agency, if it were inclined, could avoid review of an agency action and potentially abuse the review process. The ability to moot a case by replacing a challenged regulation with a similar rule after years of litigation could be abused. Second, the ability of an agency to moot a case at will could lead to an enormous waste of judicial resources.32 Both of these concerns, about judicial resources and abusive rulemaking, are present in the case now before the court, and lead to the conclusion that the case is not moot.33

Our rejection of the Secretary's mootness arguments are further supported by equitable concerns arising from the court's and appellees' reliance on the Secretary's statements early in the litigation in this court. Nine months before the new 1986 rule became final (but well after the Secretary had begun work on it), the Secretary requested that we hold the Baptist Hospital appeal (prior to its consolidation with the Tallahassee Memorial case) in abeyance pending the disposition of a petition for rehearing in the Lloyd Noland case:

Appellants suggest that judicial economy would best be served by holding the briefing in this appeal in abeyance pending final disposition in Lloyd Noland. While one of the instant cases involves a jurisdictional issue not present in Lloyd Noland, that issue--[the self-disallowance question]--goes only to two hospitals. Thus, whatever the outcome of Lloyd Noland, it will be dispositive as to all but two hospitals in the instant appeal, and even the [self-disallowance] issue will be mooted as to the two hospitals if the Court disposes of the case on rehearing in the Secretary's favor. Accordingly, it seems wasteful to spend time and money at this point in briefing the instant appeal. If the Lloyd Noland outcome should leave any outstanding issues for decision, the briefing in this appeal could then be so limited.

Appellant's Motion to Hold This Appeal in Abeyance Pending Decision in Another Case at 2, Baptist Hospital (Aug. 14, 1985). But for the court's granting of this motion, the case of many of the appellees here would have been briefed and argued (and probably decided) before the new rule became final. A party cannot request a delay in this court and then later attempt to use that delay to tactical advantage. Had the Secretary suggested, in his motion to hold the litigation in abeyance, that the rights of the opposing parties might be compromised by a delay, this court might have hesitated to grant the delay.34

Having held that the 1986 regulation does not moot the case and require a dismissal, we are still confronted with the question of whether the hospitals should be reimbursed under the 1986 rule or the pre-1979 rule. As noted above, it would not be inconsistent to reject the suggestion of mootness but still hold that the 1986 regulation should apply. For the reasons discussed below, however, we hold that the hospitals should receive reimbursement under the pre-1979 regulations.35 In doing so, we join the only other court in the country to address fully the issue of the retroactivity of the 1986 rule. See Mason General Hospital v. Secretary of the Department of Health and Human Services, 809 F.2d 1220, 1231 (6th Cir.1987).

At the outset, we note that the Secretary claims to have broad authority to make retroactive regulations under 42 U.S.C. Sec. 1395x(v)(1)(A) (1982).36 While it is clear that the Secretary has the power to make corrective adjustments in the reimbursement of individual hospitals and groups of hospitals, we join the Sixth Circuit in finding that the Secretary's power under Sec. 1395x(v)(1)(A) to make retroactive rules is limited. See Mason General, 809 F.2d at 1225-27.37 If the power the Secretary seeks is not limited, then he would have the almost unreviewable ability to change retroactively any of the rules within which the hospitals operate; he would be able to reduce the amount of reimbursement the hospitals are due long after the hospitals actually receive and spend the money.38 We cannot accept such a broad power, and we therefore will review the Secretary's action in this case using the standard judicial tests of retroactive administrative actions.

Because the 1986 rule is retroactive on its face, there is no need to remand the case to the agency for a determination of whether the rule was intended to be retroactive.39 In analyzing this retroactivity, we are guided by the Supreme Court's statement that the effects of "retroactivity must be balanced against the mischief of producing a result which is contrary to a statutory design or to legal and equitable principles." SEC v. Chenery Corp., 332 U.S. 194, 203, 67 S. Ct. 1575, 1581, 91 L. Ed. 1995 (1947).40

In making the balance suggested by SEC v. Chenery, we must consider the interests of the parties in reimbursement under the 1986 rule versus the pre-1979 rule. On the one hand, the Secretary is in good faith arguing to conserve the resources of the trust fund from which Medicare is funded. On the other hand is the hospitals' interest in receiving reimbursement under the pre-1979 rule (in most cases substantially more than afforded by the 1986 rule), and in bringing this litigation to a close.

The Secretary asserts that the hospitals do not have an interest in avoiding the 1986 rule because it explicitly will not afford lower reimbursement than the 1979 rule. In responding to the asserted interest of the hospitals, however, the Secretary mischaracterizes the comparison: "[T]he new rule should be compared to the 1979 malpractice rule because the 1979 rule--was in effect during the retroactive period. [The new rule] will replace the 1979 rule--not the [pre-1979 rule], which was eliminated for purposes of malpractice insurance cost apportionment in 1979." 51 Fed.Reg. at 11185. "Retroactive application of this final rule will produce no 'ill effects' because ... hospitals can only benefit under this rule as compared to the 1979 malpractice rule." Id. at 11184. Yet in this circuit, the Lloyd Noland opinion voided the 1979 rule, and ordered that those plaintiffs be paid under the pre-1979 rule. 762 F.2d at 1569. The 1979 rule, invalidated by courts across the country and validated by none, has ceased to carry any authoritative weight. The Secretary now suggests that the void rule be used as a baseline to evaluate the hospitals' interest in reimbursement. Such an approach must be rejected; it would permit the Secretary to benefit from the 1979 rulemaking, even though the hospitals successfully attacked the 1979 rule.41 Thus, the interest of the hospitals is in the difference between the 1986 reimbursement and the pre-1979 reimbursement (which is what the Lloyd Noland hospitals received).42

In assessing the Secretary's concern about the well-being of the Medicare trust fund, we note that the Secretary has largely limited the retroactive effect of the 1986 rule to hospitals still in litigation. In response to a suggestion that the 1986 rule should apply to all Medicare providers, instead of only those on appeal, the Secretary made clear that the asserted benefits of the new 1986 rule did not outweigh his own concern for administrative finality:

In implementing this final rule, ... the general importance of ensuring the finality of decisions on reimbursement issues outweighs whatever benefits might be received by providers whose malpractice insurance costs are outside the reopening period.... Regardless of whether our finality and reopening rules benefit or disadvantage providers in a specific case, their overall role of providing certainty in the administrative process is important enough to warrant their consistent application.

51 Fed.Reg. at 11187. Although the Secretary asserts that the pre-1979 reimbursement rule gives hospitals too much, his own concern for administrative finality outweighs his concern about any possible excessive reimbursement. Yet in this case, the hospitals also have a legitimate concern in finalizing this litigation and receiving their reimbursement. The amounts in question are over $100,000 per cost year for some hospitals. The interest that is due to the hospitals since the beginning of this litigation has greatly increased the amount owed to the hospitals. As this court stated in Lloyd Noland, "[f]our years is long enough for [the hospitals] to wait" for their reimbursement. 762 F.2d at 1569. The litigation has already lasted at least five years. If the 1986 rule were given retroactive effect for these appellee hospitals, the hospitals have indicated that they would go through the pointless administrative review process just to return to court to challenge the 1986 rule. The new litigation would likely run three or more years beyond that point. Just as the 1986 rule bowed to the Secretary's concern about administrative finality, so it should bow to the hospitals' need to receive their reimbursement and their interest in bringing this litigation to a close. Balancing the interests of the hospitals and the Secretary, we decline to require that the 1986 rule be followed for these hospitals, and hold that the hospitals should be paid using the pre-1979 rule.

Our decision to require reimbursement under the pre-1979 rule is supported by concerns similar to those expressed in Section II(A)(3) above. While not intending to question the Secretary's good intentions, we cannot condone a regulation aimed specifically at on-going litigations, where the regulation has the effect of preventing the courts from awarding the full relief sought by the parties and already obtained by other hospitals in similar litigation such as Lloyd Noland. To permit such a regulation could effectively insulate the Secretary from review by giving him the power to short circuit a case after years of litigation and require the plaintiff parties to start the entire administrative and judicial review process all over again. As discussed above, the Secretary has acknowledged the possibility that, after a future challenge to the 1986 regulation had partially progressed through the courts, he could promulgate yet another regulation to defuse the challenge to the 1986 rule.43 Such a power could be used to abuse seriously the litigation process.

Our concerns find support in the case law. In a case involving the retroactivity of a Department of Housing and Urban Development ("HUD") circular issued after an eviction proceeding had been initiated, the Supreme Court ruled that the new circular should be applied to the ongoing proceeding. The Court noted, however, that a "far different case would be presented if HUD were a party to the suit arguing that it could repudiate its obligations under the [relevant] contract because the Housing Authority had failed to apply the circular." Thorpe v. Housing Authority of Durham, 393 U.S. 268, 279 n. 33, 89 S. Ct. 518, 525 n. 33, 21 L. Ed. 2d 474 (1969). See also International Ladies' Garment Workers' Union v. Donovan, 733 F.2d 920 (D.C.Cir.1984) (rejecting Labor Secretary's attempt to avoid judgment of court by promulgation of new "emergency" regulation). While in this case the Secretary has good faith concerns about administrative finality, the fact that this 1986 rule is retroactive only to hospitals whose claims are still being reviewed makes the 1986 rule too similar to a possible abusive regulation. This court cannot condone such potential abuse.

Finally, we note the narrowness of our holdings on the mootness and retroactivity questions. We limit our holdings to control only the cases of hospitals that already are in the middle of litigation that began as a challenge to the 1979 rule. We do not express an opinion about the possible cases of hospitals whose claims are still being reviewed by the PRRB and have never reached the federal courts. See 51 Fed.Reg. at 11194. We express no opinion about the effect of the 1986 regulation on calculations under the new "Prospective Payment System" that has largely replaced the reimbursement system. See 51 Fed.Reg. at 11188. Further, we have not addressed any possible constitutional arguments concerning the due process and equal protection rights of the hospitals that might be affected by the 1986 rule versus those paid under the 1979 rule. See Mason General Hospital v. Secretary of the Dept. of Health and Human Services, 809 F.2d 1220, 1231 (6th Cir.1987). Lastly, to make clear, we do not express any opinion as to the prospective validity of the 1986 rule itself. See id. That issue will surely arise in litigation soon, but the validity of the rule is not appropriately before this court in this case--just as the 1986 rule cannot appropriately prevent this court from considering awarding relief in this case.

Having decided that the 1986 rule is not properly retroactive in this case, we are left with the question of the five self-disallowing hospitals--the hospitals that followed the 1979 regulation in their cost reports (thereby "disallowing" the desired pre-1979 reimbursement themselves) but later timely appealed to the PRRB for reimbursement under the pre-1979 rule. The Secretary argues that these hospitals "failed to include [the malpractice insurance] claims on their cost reports or otherwise raise an issue with respect to such claims with the intermediary." Appellant's Brief at 14. According to the Secretary, because the hospitals did not force their intermediaries to disallow any claimed reimbursement, the hospitals cannot appeal to the PRRB. The Secretary focuses on 42 U.S.C. Sec. 1395oo(d), which defines the decision-making power of the PRRB. The Secretary argues that the PRRB "properly declined [to take jurisdiction and] to consider the hospitals' claims since the hospitals had failed to satisfy the statutory prerequisites for a hearing on these claims." Id. If the PRRB did not have jurisdiction, the Secretary argues, then neither the district courts nor this court can take jurisdiction over the claims.

In the Baptist Hospital case, the district court rejected these arguments, writing that the self-disallowing hospitals

filed cost reports as required by the Medicare statute regulation, and malpractice insurance costs here at issue were matters "covered by such cost reports" within the meaning of the Medicare statute. Because hospital administrators for these hospitals were reluctant to file claims specifically designating cost amounts alleged to be violative of the statute because counsel believed that to do so might subject them to criminal charges for fraud, does not diminish or in any way dilute the fact that [the self-disallowing hospitals] in fact did file their "cost reports" as required and within those reports was contained the basis for contest and reimbursement for inaccurately or improvidently determined allowances.

Order Denying Motion to Dismiss at 5-6, Baptist Hospital. Judge Stafford, in the Tallahassee Memorial case, cited the Baptist Hospital district court decision.

At the outset we note that this circuit has recently decided a closely related case, North Broward Hospital District v. Bowen, 808 F.2d 1405 (11th Cir.1987), which involves the appeals of self-disallowing hospitals to the PRRB. The North Broward case held that the PRRB properly rejected the appeal of a hospital district that failed to include certain allowable costs in its cost report. As will be discussed below, however, North Broward does not control this case because this case involves a different jurisdictional grant of judicial review, one added by Congress after the cost year involved in the North Broward case. Unlike in this case, the hospitals in North Broward were not challenging the validity of a Medicare regulation, but were merely attempting to raise with the PRRB claims that they inexplicably failed to raise with their intermediaries. See id. at 1407 n. 2. While the North Broward case is in line with the leading case in this area, Athens Community Hospital v. Schweiker, 743 F.2d 1 (D.C.Cir.1984) (Athens II ), neither opinion requires a finding that the PRRB correctly rejected the appeals of the five hospitals involved here.

Before attempting to resolve this issue, we must first consider the appropriate scope of this court's review of the Secretary's determination of the jurisdiction of the PRRB. Typically, the "standard of review is narrow and this court will not substitute its judgment for that of the agency." Lloyd Noland, 762 F.2d at 1565; accord Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 91 S. Ct. 814, 823, 28 L. Ed. 2d 136 (1971). The "interpretation of an agency charged with the administration of a statute is entitled to substantial deference." Blum v. Bacon, 457 U.S. 132, 141, 102 S. Ct. 2355, 2361, 72 L. Ed. 2d 728 (1982). "Where ... the agency is interpreting its own structure in a technical and complex area, its interpretation should be sustained if it is reasonable and permissible construction of the statute." Southern Motor Carriers Rate Conference v. United States, 773 F.2d 1561, 1567 (11th Cir.1985). "Absent a clear error of judgment, the agency's construction should be upheld." North Broward, 808 F.2d at 1408.

In this case, however, we are not reviewing the Secretary's interpretation in a "technical and complex" area. The question of the self-disallowing hospitals revolves around the admittedly difficult interpretation of a few simple phrases. More importantly, the statute to be interpreted is a jurisdictional statute--a type of statute with which courts are quite familiar. See St. Luke's Hospital v. Secretary of Health and Human Services, 810 F.2d 325 (1st Cir.1987) (refusing to defer to Secretary on interpretation of 42 U.S.C. Sec. 1395oo); Celanese Chemical Company v. United States, 632 F.2d 568, 572 (5th Cir. Unit A 1980) (refusing to defer to agency on jurisdictional question), cert. dismissed, 453 U.S. 950, 102 S. Ct. 27, 69 L. Ed. 2d 1033 (1981). While being deferential, we must carefully consider any agency action that potentially has the effect of barring access to the federal courts. This is especially true in light of the clear expression by Congress of its concern for efficient access to judicial review, as discussed below.44

In attempting to resolve the question of the self-disallowing hospitals, we must closely scrutinize 42 U.S.C. Sec. 1395oo, the section that establishes and controls the PRRB, and that permits appeals of certain claims to the federal courts. For this case, three subsections of Sec. 1395oo are relevant: Subsection (a) sets out prerequisites for appeal to the PRRB, subsection (d) defines the decisional power of the PRRB, and subsection (f) describes the conditions under which a Medicare provider can obtain judicial review of reimbursement claims.45

In this case, both the district courts and the parties have focused on the interpretation of subsection (d), which outlines the basis and extent of decisions of the PRRB. Similarly, most of the cases cited by the parties base their decisions on analyses of subsection (d). See, e.g., Athens Community Hospital v. Schweiker ("Athens II"), 743 F.2d 1, 4-9 (D.C.Cir.1984).46 After a review of the legislative history of all of Sec. 1395oo, however, we find that because of the specific circumstances of this case subsection (f) is more relevant to the question of self-disallowing hospitals in this case. Recognizing the novelty of this approach, we think that a review of the history of the PRRB itself will reveal the importance and meaning of subsection (f). The legislative history of that subsection, considered and amended by Congress more than any other part of Sec. 1395oo, indicates the concern of Congress in quick and efficient judicial review of issues like those presented in this litigation.

In 1972, Congress identified as a problem in the Medicare statutes the lack of any "specific provision for an appeal by a provider of services of a fiscal intermediary's final reasonable cost determination." H.R.Rep. No. 231, 92d Cong., 2d Sess., reprinted in 1972 U.S.Code Cong. & Admin.News 4989, 5095. Congress therefore established the Provider Reimbursement Review Board (the "PRRB") and set out "a specific procedure for settling disputed final determinations applying to the amount of program reimbursement." Id. The PRRB was aimed at "assist[ing] providers and intermediaries to reach reasonable and mutually satisfactory settlements of disputed reimbursement items." Id. Congress added that the new procedure "would not apply to questions of coverage or disputes involving individual beneficiary claims." Id.

The resulting provision in the Social Security Amendments of 1972, Pub.L. No. 92-603, Sec. 243, 86 Stat. 1329, 1420 (1972), created what is now 42 U.S.C. Sec. 1395oo. As originally enacted in 1972, the provisions of Sec. 1395oo have gone substantially unchanged, with the exception of subsection (f), controlling judicial review of PRRB actions. The original subsection (f) permitted only limited judicial review, confined to cases where the Secretary, on his or her own motion, reversed or modified a PRRB decision:

(f) A decision of the [PRRB] shall be final unless the Secretary, on his own motion, and within 60 days after the provider of services is notified of the [PRRB's] decision, reverses or modifies (adversely to such provider) the [PRRB's] decision. In any case where such a reversal or modification occurs the provider of services may obtain a review of such decision by a civil action commenced within 60 days of the date he is notified of the Secretary's reversal or modification. Such action shall be brought in the district court of the United States for the judicial district in which the provider is located or in the District Court for the District of Columbia and shall be tried pursuant to the applicable provisions under chapter 7 of title 5, United States Code, notwithstanding any other provisions in section 205.

86 Stat. at 1422.

Two years later, Congress amended subsection (f) and expanded the scope of the providers' right to appeal to the federal courts. The amended section, renumbered as (f)(1),48 permits appeal of any decision of the PRRB, whether or not the Secretary modifies the decision. The amendment, which left the third sentence of the original section intact, replaced the first two sentences with language that has not since been amended:

(f)(1) A decision of the [PRRB] shall be final unless the Secretary, on his own motion, and within 60 days after the provider of services is notified of the [PRRB's] decision, reverses, affirms, or modifies the [PRRB's] decision. Providers shall have the right to obtain judicial review of any final decision of the [PRRB], or of any reversal, affirmance, or modification by the Secretary, by a civil action commenced within 60 days of the date on which notice of any final decision by the [PRRB] or of any reversal, affirmance, or modification by the Secretary is received.

Act of Oct. 26, 1974, Pub.L. No. 93-484, 88 Stat. 1459.

In 1980, Congress continued its trend toward broad judicial review, and added an entirely new authorization of review. Between the second and third sentences in subsection (f)(1), as amended in 1974, Congress inserted a method to bypass parts of the administrative process when challenging a Medicare regulation:

Providers shall also have the right to obtain judicial review of any action of the fiscal intermediary which involves a question of law or regulations relevant to the matters in controversy whenever the [PRRB] determines (on its own motion or at the request of a provider of services as described in the following sentence) that it is without authority to decide the question, by a civil action commenced within sixty days of the date on which such determination is rendered. If a provider of services may obtain a hearing under subsection (a) and has filed a request for such a hearing, such provider may file a request for a determination by the [PRRB] of its authority to decide the question of law or regulations relevant to the matters in controversy (accompanied by such documents and materials as the [PRRB] shall require for purposes of rendering such determination).... [T]he determination shall be considered a final decision and not subject to review by the Secretary.

Omnibus Reconciliation Act of 1980, Pub.L. No. 96-499, Sec. 955, 94 Stat. 2599, 2647-48. As originally introduced, the new authorization of judicial review was included as a new subsection of Sec. 1395oo(f), H.R. 7972, 96th Cong., 2d Sess. Sec. 4 (1980); the enacted version was instead inserted within the existing Sec. 1395oo(f)(1). Both the introduced and enacted versions contained the explicit reference to Sec. 1395oo(a) as a prerequisite to judicial review of legal questions; neither version mentioned other subsections within Sec. 1395oo.

The intent of the amendment was to end pointless administrative litigation:

Under present law, a provider's dissatisfaction with a particular determination made by its fiscal intermediary on the basis of a regulation issued by the Secretary must first be brought to the [PRRB], even though the [PRRB] may not have the authority to reverse or overrule the regulation. (The [PRRB] has no authority, for example, to rule on the legality of the Secretary's regulations but it must, nonetheless, conduct a full review of the challenge.) The effect of this process has been to delay the resolution of controversies for extended periods of time and to require providers to pursue a time-consuming and irrelevant administrative review merely to have the right to bring suit in a U.S. District Court. Title VIII addresses this problem by giving medicare providers the right to obtain immediate judicial review in instances where the [PRRB] determines that it lacks jurisdiction to grant the relief sought.

H.R.Rep. No. 1167, 96th Cong., 2d Sess. 394, reprinted in 1980 U.S.Code Cong. & Admin.News 5526, 5757. Congressman Cecil Heftel, a proponent of the legislation, explained the amendment more forcefully:

Unfortunately, the sound intentions of Congress [in creating the PRRB] never have been effectuated, due primarily to fundamental weaknesses that were built into the statute.

Specifically, under current law providers may not seek judicial review of regulations or policies of [the Department of Health and Human Services ("DHHS") ] until after the provider has gone through a long, tortuous process of preparing and filing cost reports; awaiting a decision by the fiscal intermediary; and appealing that decision to the PRRB, which must declare what everybody already knows--that the PRRB has no authority under law to decide issues regarding the validity of DHHS policies and regulations. Medicare (and thus all taxpayers) must pay a significant portion of the huge costs of conducting this needless, always fruitless litigation exercise. Our bill would change this situation by allowing the provider to obtain immediate judicial review in such cases--namely, those in which the PRRB has no authority to decide the case.

126 Cong.Rec. 22218 (1980). With the exception of modifications to clarify the time for appeal and to facilitate group appeals, Sec. 1395oo(f) has remained unchanged since the 1980 amendments.49

As the legislative history reveals, 42 U.S.C. Sec. 1395oo(f) contains two separate and distinct grants of judicial review to Medicare providers. See Appendix I of this opinion. The first grant of review, contained in the first two sentences in the subsection, has its roots in the original establishment of the PRRB in the 1972 Medicare amendments. Originally limited to review of reversals by the Secretary of PRRB decisions, the grant of review was expanded in 1974 to include all decisions of the PRRB. By its terms, and in light of the legislative history, this grant of review refers to "decisions of the [PRRB]" and is affected by subsection (d), which defines the scope of the decision-making power of the PRRB. This grant of judicial review shall be designated in this opinion as the "1972 grant."

The second grant of judicial review, contained in the third through sixth sentences of subsection (f), was added by the 1980 amendments. The grant of review does not involve decisions of the PRRB, but rather permits review when the PRRB "determines" that it does not have the authority to make a decision about an issue. This second grant of review, designated the "1980 grant," explicitly incorporates the jurisdictional requirements of subsection (a), but makes no reference to subsection (d) or any other subsection. Furthermore, subsection (d) itself requires that decisions of the PRRB be based on a hearing before the PRRB; the 1980 grant of judicial review in subsection (f), however, directly dispenses with the hearing. In light of the language and legislative history of subsection (f), we hold that the 1980 grant of judicial review in that subsection does not concern decisions of the PRRB, and thus the provisions of subsection (d) concerning decisions of the PRRB are irrelevant to the 1980 grant of judicial review. To obtain judicial review under the 1980 grant of review, providers need only fulfill the requirements of subsection (a)--the only subsection incorporated into the language of the grant of review. Thus, in cases where the PRRB does not have the authority to decide a question of law or regulation, a provider can obtain judicial review by fulfilling the requirements of subsection (a) and petitioning for a determination under subsection (f) that the PRRB lacks the needed authority.

None of the cases cited by the Secretary undermine our conclusions. On the other hand, the cases cited by the hospitals that have found jurisdiction in similar cases do not utilize the same analysis as we have in this case. This is because most of the cases did not deal with challenges to regulations under the 1980 grant of judicial review, and none of the cases reviewed the full legislative history of 42 U.S.C. Sec. 1395oo.

a. Cases Rejecting PRRB (and thus Judicial) Review

The leading set of cases in this area is Athens Community Hospital v. Schweiker (Athens I), 686 F.2d 989 (D.C.Cir.1982), modified on rehearing Athens Community Hospital v. Schweiker (Athens II), 743 F.2d 1 (D.C.Cir.1984). In those opinions, the District of Columbia Circuit ruled that the PRRB was correct in refusing to exercise jurisdiction in a case where the providers failed to include certain taxes and stock option costs in their cost reports but four years later attempted to reopen the reports and claim reimbursement for them. The D.C.Circuit reasoned that, because the language of 42 U.S.C. Sec. 1395oo(d) suggests that the PRRB only has the power to review claims that were raised in the cost reports, the PRRB could not consider the hospitals claims (and thus the federal courts could not entertain the suits in question).

Athens I and II, however, are not directly instructive on the issue confronting this court. The Athens case was based on the 1972 grant of judicial review, not the 1980 grant that is at issue here.50 In fact, the Athens cases involved cost years prior to 1980, and thus the second grant of judicial review, added to 42 U.S.C. Sec. 1395oo(f) in 1980, was not at all before the D.C.Circuit in those opinions. The focus of the Athens court was on subsection (d), which is relevant to the 1972 grant of judicial review, but not to the 1980 grant. See, e.g., Athens II, 743 F.2d at 9. The Athens cases simply do not consider the factual situation presented here, where self-disallowing hospitals challenged a regulation. Similarly, this court's opinion in North Broward involved an appeal under the 1972 grant of review, and the cost year challenged was 1977, before the creation by Congress in 1980 of the second grant of judicial review.51

A number of other cases that plausibly support the Secretary's position also focus only on the 1972 grant of judicial review. In facts very similar to those in the Athens case, the Sixth Circuit upheld the PRRB's refusal to take jurisdiction. See Saline Community Hospital Association v. Secretary of Health and Human Services, 744 F.2d 517 (6th Cir.1984) (hospital failed to include claim for return on net-invested-equity capital in 1979 cost report). Three other cases involved a challenge to a provision in the Provider Reimbursement Manual, which is not a regulation promulgated by the Secretary. In those cases, the PRRB took jurisdiction over similar claims of other hospitals, and thus apparently had the authority to decide the issue (unlike with a challenge to a regulation). See Community Hospital of Roanoke v. Health and Human Services, 770 F.2d 1257 (4th Cir.1985);52 St. Mary of Nazareth Hospital Center v. Schweiker, 741 F.2d 1447 (D.C.Cir.1984); University of Michigan Hospitals v. Heckler, 609 F. Supp. 756 (E.D.Mich.1985).

Only two opinions, recently issued by the Sixth Circuit, are directly analogous to this case. See Baptist Hospital East v. Secretary of Health and Human Services, 802 F.2d 860 (6th Cir.1986). That case involved a challenge by a self-disallowing hospital to a regulation regarding free health care to non-Medicare patients. The Baptist Hospital East court essentially required the hospitals to meet the terms of 42 U.S.C. Sec. 1395oo(d), even though a regulation was being challenged under the 1980 grant of review under Sec. 1395oo(f). See Bethesda Hospital v. Secretary of Health and Human Services, 810 F.2d 558, 562 (6th Cir.1987) (bound by but suggesting disagreement with Baptist Hospital East ). Baptist Hospital East, which conflicts with our holding in this case, relies heavily on Athens II and Saline, neither of which involved the 1980 grant of judicial review. Because the Baptist Hospital East opinion did not address the differences between the two grants of review, and did not analyze the legislative history of the relevant provisions, we decline to follow its reasoning.53

b. Cases Finding PRRB (and thus Judicial) Review

At least two circuit courts, and a number of district courts, have rejected the holdings of the cases discussed above. The courts have not, however, utilized the same analysis as we have here. Again, this is because most (but not all) were faced with appeals arising out of the 1972 grant of judicial review. Most of these courts based their holdings on a broad interpretation of Sec. 1395oo(d), finding that the PRRB was not limited in its review to items raised in the cost reports. Those cases that involve the 1972 grant of review have been rejected by this court in North Broward.

In St. Mary of Nazareth Hospital Center v. Department of Health and Human Services, 698 F.2d 1337 (7th Cir.), cert. denied, 464 U.S. 830, 104 S. Ct. 107, 78 L. Ed. 2d 110 (1983), the Seventh Circuit confronted the same jurisdictional issues as did the D.C.Circuit in Athens II, but reached the opposite result. On the issue of self-disallowance, the Seventh Circuit explicitly held that the PRRB could consider matters not raised to the intermediary. The St. Mary of Nazareth Hospital Center opinion involved the 1972, not 1980, grant of judicial review. Similarly, the First Circuit recently rejected the reasoning of the Athens II case, in a case involving the 1972 grant of review. See St. Luke's Hospital v. Secretary of Health and Human Services, 810 F.2d 325 (1st Cir.1987); see also Adams House Health Care v. Heckler, 604 F. Supp. 110 (N.D.Calif.1984); Our Lady of Lourdes Memorial Hospital v. Schweiker, 1982 Medicare & Medicaid Guide (CCH) p 32,154, at 10,561 (N.D.N.Y. July 26, 1982); Memorial Hospital v. Schweiker, 1981 Medicare & Medicaid Guide (CCH) p 31,603, at 9917 (M.D.Fla. Oct. 20, 1981).

Other than the Sixth Circuit cases discussed above, we have located one case addressing the self-disallowance question in the context of the 1980 grant of judicial review; the case involved the same malpractice insurance regulation at issue here, and is nearly identical to this case. See Alexandria Hospital v. Heckler, 660 F. Supp. 23 No. (E.D.Va. 1985), on remand from Bedford County Memorial Hospital v. Health and Human Services, 769 F.2d 1017 (4th Cir.1985), aff'g Alexandria Hospital v. Heckler, 586 F. Supp. 581 (E.D.Va.1984). The court ruled in favor of the hospitals and found federal jurisdiction, although not on the same grounds as we find jurisdiction. Like the courts considering appeals arising under the first grant of judicial review, Alexandria Hospital focused on 42 U.S.C. Sec. 1395oo(d), without considering the legislative history of Sec. 1395oo.

The clear language of the statute and the legislative history of the PRRB lead us to conclude that a self-disallowing provider need fulfill only 42 U.S.C. Sec. 1395oo(a) in order to be able to appeal to the federal courts under the 1980 grant of judicial review in Sec. 1395oo(f). By the terms of subsection (f), a self-disallowing hospital that meets the conditions of subsection (a) can request the PRRB to determine whether it has the authority over a challenge to a regulation. If the PRRB does not have the authority to grant relief to the provider, the provider can appeal to the federal courts.54

This conclusion is supported by considering the alternative. Were we to hold that the PRRB (and therefore the federal courts) could not hear the self-disallowing hospitals' challenge to the 1979 rule, we would be ordering the Secretary to reimburse those hospitals under a rule that this court has declared null and void in the Lloyd Noland case. The Lloyd Noland court ruled that the 1979 rule was arbitrary and capricious under the Administrative Procedures Act. Although Lloyd Noland did not reach the question, every circuit court to consider the underlying legal validity of the 1979 rule has found that the rule violates the Medicare Act, 42 U.S.C. Sec. 1395x(v)(1)(A), and thus is illegal as well as being arbitrary and capricious. See Cumberland Medical Center v. Secretary of Health and Human Services, 781 F.2d 536, 538 (6th Cir.1986); Bedford County Memorial Hospital v. Health and Human Services, 769 F.2d 1017, 1023 (4th Cir.1985); Menorah Medical Center v. Heckler, 768 F.2d 292, 296 (8th Cir.1985); St. James Hospital v. Heckler, 760 F.2d 1460, 1470-72 (7th Cir.), cert. denied, --- U.S. ----, 106 S. Ct. 229, 88 L. Ed. 2d 228 (1985); Abington Memorial Hospital v. Heckler, 750 F.2d 242, 243 (3d Cir.1984), cert. denied, --- U.S. ----, 106 S. Ct. 180, 88 L. Ed. 2d 149 (1985). This unanimous rejection of the 1979 rule strongly countenances against using the void rule to calculate the reimbursement of the five self-disallowing hospitals.

In this case, because there is no dispute that the five self-disallowing hospitals met the requirements of Sec. 1395oo(a) (or Sec. 1395oo(b) dealing with group appeals), we hold that the PRRB should have included those hospitals in its determination that it lacks the authority to decide the challenge to the medical malpractice insurance rule. Therefore these five hospitals are appropriately before the federal courts. We thus affirm the district courts' denials of the Secretary's motions to dismiss the claims of the self-disallowing hospitals.

For the reasons stated in this opinion, we affirm the district courts below and remand these cases for entry of judgments using the pre-1979 rule and including appropriate interest as permitted by statute.

AFFIRMED and REMANDED.

Section 1395oo(f)(1) of 42 U.S.C. is reproduced below, with the amendments indicated. Underlining shows the effect (although not the exact changes) of the 1974 amendments, which allowed appeals of PRRB decisions as well as those of the Secretary. Act of Oct. 26, 1974, Pub.L. No. 93-484, 88 Stat. 1459. Boldface shows the provisions added in 1980 creating a second grant of judicial review to challenge regulations. Omnibus Reconciliation Act of 1980, Pub.L. No. 96-499, section 955, 94 Stat. 1569, 2647-48. Italics shows the 1983 amendments involving group appeals. Social Security Amendments of 1983, Pub.L. No. 98-21, section 602, 97 Stat. 65, 163. ALL CAPITALS shows the 1984 amendments, which clarified the requirements of group appeals and the time to appeal under the 1980 grant of judicial review. Deficit Reduction Act of 1984, Pub.L. No. 98-369, section 2351, 98 Stat. 494, 1098:

(f) Finality of decision; judicial review; determinations of Board authority; jurisdiction; venue; interest on amount in controversy

(1) A decision of the Board shall be final unless the Secretary, on his own motion, and within 60 days after the provider of services is notified of the Board's decision, reverses, affirms, or modifies the Board's decision. Providers shall have the right to obtain judicial review of any final decision of the Board, or of any reversal, affirmance, or modification by the Secretary, by a civil action commenced within 60 days of the date on which notice of any final decision by the Board or of any reversal, affirmance, or modification by the Secretary is received. Providers shall also have the right to obtain judicial review of any action of the fiscal intermediary which involves a question of law or regulations relevant to the matters in controversy whenever the Board determines (on its own motion or at the request of a provider of services as described in the following sentence) that it is without authority to decide the question, by a civil action commenced within sixty days of the date on which NOTIFICATION OF SUCH DETERMINATION IS RECEIVED. If a provider of services may obtain a hearing under subsection (a) of this section and has filed a request for such a hearing, such provider may file a request for a determination by the Board of its authority to decide the question of law or regulations relevant to the matters in controversy (accompanied by such documents and materials as the Board shall require for purposes of rendering such determination). The Board shall render such determination in writing within thirty days after the Board receives the request and such accompanying documents and materials, and the determination shall be considered a final decision and not subject to review by the Secretary. If the Board fails to render such determination within such period, the provider may bring a civil action (within sixty days of the end of such period) with respect to the matter in controversy contained in such request for a hearing. Such action shall be brought in the district court of the United States for the judicial district in which the provider is located (or, in an action brought jointly by several providers, the judicial district in which the greatest number of such providers are located) or in the District Court for the District of Columbia and shall be tried pursuant to the applicable provisions under chapter 7 of Title 5, notwithstanding any other provisions in section 405 of this title. Any appeal to the Board or action for judicial review by providers which are under common ownership or control OR WHICH HAVE OBTAINED A HEARING UNDER SUBSECTION (B) OF THIS SECTION must be brought by such providers as a group with respect to any matter involving an issue common to such providers.

EDMONDSON, Circuit Judge, concurring in part and dissenting in part:

I concur in the judgment of the court except with respect to the "self-disallowing" hospitals which, I believe, are unentitled to judicial review.

Congress has painstakingly amended 42 U.S.C. 1395oo(f) through the years. Although the overall effect of these amendments has been to liberalize judicial review of administrative decisions regarding Medicare provider reimbursement, this court is not free to disregard the express limitations which Congress has placed on such review.

Subsection (f) of section 1395oo permits a Medicare provider to obtain expedited judicial review of a challenge to a regulation. It provides in pertinent part that: "Providers shall ... have the right to obtain judicial review of any action of the fiscal intermediary which involves a question of law or regulations relevant to the matters in controversy...." (emphasis added). Under the plain language of subsection (f), expedited judicial review is limited to review of an "action" by the fiscal intermediary.1

The five "self-disallowing" hospitals in this case never requested their fiscal intermediary for reimbursement under the pre-1979 malpractice rule. Instead, they requested the lesser reimbursement available under the 1979 rule. Accordingly, pre-1979 rule reimbursement was never in controversy; and the fiscal intermediary took no action with respect to the "self-disallowing" hospitals' claims (now advanced to this court) for excess reimbursement available under the pre-1979 rule.2 In the absence of such action by the fiscal intermediary, federal courts lack jurisdiction to review the self-disallowing hospitals' claims.