MARGARET M. HECKLER, SECRETARY OF HEALTH AND HUMAN SERVICES, PETITIONER V. COMMUNITY HEALTH SERVICES OF CRAWFORD COUNTY, INC., ET AL. No. 83-56 In the Supreme Court of the United States October Term, 1983 The Solicitor General, on behalf of the Secretary of Health and Human Services, petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Third Circuit in this case. Petition for a Writ of Certiorari to the United States Court of Appeals for the Third Circuit PARTIES TO THE PROCEEDINGS In addition to the parties named in the caption, Ada Werner, Frank E. Werner, and Shirley Sorger were appellants and the Travelers Insurance Companies was an appellee in the court of appeals. TABLE OF CONTENTS Opinions below Jurisdiction Statute & regulations involved Statement Reasons for granting the petition Conclusion Appendix A Appendix B Appendix C Appendix D Appendix E OPINIONS BELOW The opinion of the court of appeals (App. A, infra, 1a-33a) is reported at 698 F.2d 615. The opinions of the district court (App. C, infra, 36a-48a) and the Provider Reimbursement Review Board (App. D, infra, 49a-54a) are not reported. JURISDICTION The judgment of the court of appeals (App. E, infra, 55a-56a) was entered on January 19, 1983. A petition for rehearing was denied on February 14, 1983 (App. B, infra, 34a-35a). On May 6, 1983, Justice Brennan extended the time for filing a petition for a writ of certiorari to and including July 14, 1983. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTE AND REGULATIONS INVOLVED Section 1815(a) of the Social Security Act, 42 U.S.C. 1395g(a), provides: The Secretary shall periodically determine the amount which should be paid under this part to each provider of services with respect to the services furnished by it, and the provider of services shall be paid, at such time or times as the Secretary believes appropriate (but not less often than monthly) and prior to audit or settlement by the General Accounting Office, from the Federal Hospital Insurance Trust Fund, the amounts so determined, with necessary adjustments on account of previously made overpayments or underpayments; except that no such payments shall be made to any provider unless it has furnished such information as the Secretary may request in order to determine the amounts due such provider under this part for the period with respect to which the amounts are being paid or any prior period. Section 1861(v)(1)(A) of the Social Security Act, 42 U.S.C. 1395x(v)(1)(A), provides in part that the Secretary's regulations governing the determination of the reasonable cost of services 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. 42 C.F.R. 405.423 provides in part: (a) Principle. Unrestricted grants, gifts, and income from endowments should not be deducted from operating costs in computing reimbursable costs. Grants, gifts, or endowment income designated by a donor for paying specific operating costs should be deducted from the particular operating cost or group of costs. * * * * * (c) Application. * * * * * (2) Donor-restricted funds which are designated for paying certain hospital operating expenses should apply and serve to reduce these costs or group of costs and benefit all patients who use services covered by the donation. If such costs are not reduced, the provider would secure reimbursement for the same expense twice; it would be reimbursed through the donor-restricted contributions as well as from patients and third-party payers including the title XVIII health insurance program. * * * * * 42 C.F.R. 405.1885 provides in part: (a) A determination of an intermediary, a decision by a hearing officer or panel of hearing officers, a decision by the Board, or a decision of the Secretary may be reopened with respect to findings on matters at issue in such determination or decision, by such intermediary officers or panel of hearing officers, Board, or Secretary, as the case may be, either on motion of such intermediary officer or panel of hearing officers, Board, or Secretary, or on the motion of the provider affected by such determination or decision to revise any matter in issue at any such proceedings. Any such request to reopen must be made within 3 years of the date of the notice of the intermediary or Board hearing decision, or where there has been no such decision, any such request to reopen must be made within 3 years of date of notice of the intermediary determination. No such determination or decision may be reopened after such 3-year period except as provided in paragraphs (d) and (e) of this section. (b) A determination or a hearing decision rendered by the intermediary shall be reopened and revised by the intermediary, if, within the aforementioned 3-year period, the Health Care Financing Administration notifies the intermediary that such determination or decision is inconsistent with the applicable law, regulations, or general instructions issued by the Health Care Financing Administration in accordance with the Secretary's agreement with the intermediary. QUESTION PRESENTED Whether the Secretary of Health and Human Services may be estopped from recovering excess payments made to a provider of health care services under the Medicare program on the ground that a fiscal intermediary previously had advised the provider that the payments were allowable. STATEMENT 1. This case raises the question whether the Secretary of Health and Human Services may be estopped from recovering excess payments made to a provider of health care services under the Medicare program on the ground that a fiscal intermediary had previously advised the provider that the payments were allowable. Title XVIII of the Social Security Act, 42 U.S.C. (& Supp. V) 1395 et seq., establishes Medicare, a two-part program of federal assistance for the medical care of the aged and disabled. Part A of the program provides "hospital insurance" benefits (inpatient hospital care and post-hospital extended or home health care) and is financed by Social Security payroll contributions. 42 U.S.C. (& Supp. V) 1395c-1395i-2. Part B of the program provides "medical insurance" benefits for physician services and outpatient services and supplies and is financed by the premium payments of enrollees together with contributions from funds appropriated by Congress. 42 U.S.C. (& Supp. V) 1395j-1395w. Both parts of the program are administered by the Health Care Financing Administration ("HCFA"), a part of the Department of Health and Human Services ("HHS"). This case involves payments made under Part A of the program. Health care providers of Part A services are generally hospitals, skilled nursing facilities, and home health agencies. Instead of reimbursing Part A Medicare beneficiaries directly, the Secretary of Health and Human Services pays the provider for the health care services it has rendered to beneficiaries. The Medicare statute provides for reimbursement only for the "reasonable costs of any services," which is defined as "the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services." 42 U.S.C. 1395x(v)(1)(A). See also 42 U.S.C. (Supp V) 1395f(b). Congress has given the Secretary express statutory authority to establish the methods for determining "reasonable costs" for services. See 42 U.S.C. 1395x(v)(1)(A). /1/ The Secretary has exercised this authority by promulgating regulations, 42 C.F.R. 405 et seq., and a series of Health Insurance Manuals. A provider receives interim payments at least monthly for its estimated reasonable costs incurred in furnishing services to Medicare beneficiaries. 42 U.S.C. (& Supp. V) 1395f, 1395g. A provider's annual cost report is audited later to determine the actual costs incurred. See 42 C.F.R. 405.454, 405.1803. Congress was aware that under this type of reimbursement system it was likely that health care providers would receive overpayments or underpayments at various times. Therefore, it instructed the Secretary to "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." 42 U.S.C. 1395x(v)(1)(A)(ii). The Secretary responded to this congressional directive by promulgating 42 C.F.R. 405.1885, which provides for the reopening, within a three-year period, of any reimbursement determination made by an intermediary, a hearing officer, the Provider Reimbursement Review Board, ("PRRB"), or the Secretary herself. The statute also provides that interim payments to providers shall include "necessary adjustments on account of previously made overpayments or underpayments." 42 U.S.C. 1395g(a). See also 42 C.F.R. 405.454(f), 405.1803(b). In addition, determinations of a fiscal intermediary respecting the total amount of reimbursement payable to a provider for a given cost year are subject to administrative and judicial review. 42 U.S.C. (& Supp. V) 1395oo; 42 C.F.R. 405.1801 et seq. At the provider's option, a nongovernmental organization (frequently a private insurance company) may act as "fiscal intermediary." 42 U.S.C. (& Supp. V) 1395h. The intermediary is nominated by the provider, but it enters into agreements with the Secretary and acts on behalf of the Secretary in certain respects. See 42 C.F.R. 421.5(b). The intermediary audits the provider's cost reports and makes payments to the provider for the reasonable cost of services supplied to Medicare beneficiaries. Under the statute the intermediary may also "serve as a center for, and communicate to providers, any information or instructions furnished to it by the Secretary, and serve as a channel of communication from providers to the Secretary." 42 U.S.C. (Supp. V) 1395h(a)(2)(A). 2. Respondent Community Health Services of Crawford County, Inc. ("CHS"), is a provider of health care services and has participated in the Medicare program since 1966. CHS chose to have its Medicare payments made through a fiscal intermediary, Travelers Insurance Companies ("Travelers"). In 1975 CHS began to receive grant funds under the Comprehensive Employment and Training Act of 1973 ("CETA"), 29 U.S.C. (& Supp. V) 801 et seq., a federal program designed to provide job training and employment opportunities. CHS employed CETA workers, whose salaries and fringe benefits were required to be paid with the federal CETA funds CHS received. CHS included in its Medicare cost reports for 1975, 1976 and 1977 the amount of salaries and fringe benefits paid to CETA workers, but did not offset against these costs the federal CETA funds it had received to cover them. App. A, infra, 3a-5a. Accordingly, when it received Medicare reimbursement on the basis of its cost reports, CHS in effect received a second, duplicate payment for the expenses of the CETA workers. One of the Secretary's regulations relating to determination of reasonable costs, 42 C.F.R. 405.423(a), provides that grants received by a provider for the purpose of paying specific operating costs "should be deducted from the particular operating cost or group of costs" in computing reimbursable costs. That regulation is in furtherance of the principle that a provider may not be reimbursed twice for the same expense. /2/ Section 612 of the Medicare Provider Reimbursement Manual carves out a limited exception to this offset rule; when an earmarked grant constitutes "seed money," the funds need not be offset against the costs for which they are designated. Seed money grants are defined as "(g)rants designated for the development of new health care agencies or for expansion of services of established agencies * * * ." Medicare Provider Reimbursement Manual, HIM-15, Pt. I, Section 612.2, reproduced in 1 Medicare & Medicaid Guide (CCH) Paragraph 5461 (Aug. 1968). CHS filed its cost reports after consulting with Travelers, its fiscal intermediary. In response to CHS's inquiries, Travelers' Medicare Manager, Michael Reeves, orally advised CHS on several occasions from 1975 to August 1977 that CETA funds constitute "seed money" and therefore need not be deducted from reimbursable costs. Neither Reeves nor CHS consulted HCFA about the matter during this period. App. A, infra, 5a. In August 1977 Travelers inquired of HCFA in writing whether CETA funds constitute seed money and thus are exempt from the general principle of offset. HCFA advised Travelers in writing that CETA funds do not constitute seed money and must be offset against the costs of CETA employees. Reeves informed CHS of HCFA's advice by letter (October 7, 1977) and in person (November 9, 1977). Id. at 6a. Nevertheless, CHS did not offset the CETA funds in its cost reports for the year 1977, which it submitted in February 1978. Travelers adjusted the 1977 cost report to reflect the receipt of CETA funds. App. D, infra. 50a. In June 1978 Travelers sent CHS written notice that its failure to offset CETA funds had resulted in overpayments for 1975, 1976 and 1977 amounting to $71,480 (C.A. App. 25a-28a). The notice informed CHS of the possibility of establishing an extended repayment schedule if CHS could provide adequate documentation supporting its financial condition and a proposed schedule of payments (C.A. App. 25a, 33a). Following receipt of this notice. CHS and three individual recipients of home health care services provided by CHS (respondents Ada Werner, Frank E. Werner, and Shirley Sorger) filed a civil action in the United States District Court for the Western District of Pennsylvania, seeking to enjoin the Secretary from recouping the overpayments. On August 10, 1978, the district court granted a temporary restraining order requiring the Secretary to refrain from recoupment of the overpayments. App. A, infra, 7a. CHS then pursued its administrative remedies before the PRRB. /3/ On March 12, 1980, following an evidentiary hearing, the PRRB ruled that CETA grants do not constitute seed money and must be offset against costs, as required by 42 C.F.R. 405.523 (App. D, infra, 49a-54a). While acknowledging CHS's claim that its failure to offset CETA funds was due to the advice it received from the intermediary, the PRRB declined to conclude that the failure to offset was justified. It pointed out that "advice by the Intermediary cannot be a substitute for the opinion of the Secretary" (id. at 54a). /4/ CHS sought review of the PRRB decision in district court, contending, inter alia, that CETA funds constitute seed money, that the Secretary was estopped from recouping the overpayments, that the Secretary should have waived recovery, and that Travelers was independently liable for the overpayments. The district court consolidated CHS's appeal from the PRRB decision with the suit it had filed in 1978. The court rejected each of CHS's contentions and granted the Secretary's motion for summary judgment (App. C, infra, 36a-48a). The court found that the language of 42 C.F.R. 405.423(a) supports the Secretary's ruling that CETA grants are not seed money. It concluded that CETA funds plainly are not "designated for the development of new health care agencies" and that "no tortured construction" could bring CETA grants within the seed money exception (App. C, infra, 40a). The district court also rejected CHS's estoppel argument. The court suggested that estoppel may lie against the government "in certain limited circumstances" (App. C, infra, 41a). However, it ruled that the existence of the Secretary's regulation permitting the reopening of reimbursement determinations within a three-year period and the obvious fact that CHS was being reimbursed twice for the same expense defeated its estoppel contention. The court stated (id. at 42a): The Medicare regulations allow the intermediary to reopen the cost reports up to three years after they have been approved. Thus, CHS relied at its own risk in accepting the intermediary's advice since plaintiff was on notice that all such reports were subject to review. Moreover, the fact that CHS was being reimbursed twice for the same expense should have been a red flag that its windfall was not supportable under the Act. Finally, the district court rejected CHS's claims that a provision of the Medicare statute entitled it to waiver of the overpayments and that Travelers was independently liable for the failure to render accurate advice concerning the treatment of CETA funds. The court held that mistakes of judgment to not constitute activity outside the intermediary's scope of authority when such mistakes in the treatment of cost items were anticipated by the reopening provision of 42 C.F.R. 405.1885. The court found "no evidence of willful or wanton misconduct" by Reeves (App. C, infra, 46a). 3. A divided panel of the court of appeals reversed (App. A, infra, 1a-33a). While it recognized the traditional reluctance of courts to apply estoppel against the government, the court of appeals nonetheless held that the Secretary should be estopped from recovering the overpayments from CHS. The court of appeals viewed this Court's decisions as supporting the principle that "estoppel may be properly applied against the government under certain circumstances" and as giving "tacit recognition" to the use of estoppel against the government upon a finding of "affirmative misconduct" (App. A, infra, 10a). The court concluded that the behavior of the intermediary in this case constituted "affirmative misconduct" (id. at 3a, 15a). It reasoned that the Medicare statute and Travelers' agreement with the Secretary created a "legally binding procedure," under which Travelers was obliged to communicate CHS's inquiry regarding CETA funds to HCFA in a timely manner (id. at 15a-16a), and that Travelers had "knowingly violated statutory and procedural guidelines" in failing to follow that procedure (id. at 15a). The court concluded that if Travelers had initially consulted HCFA, "CHS would not have been misled" (id. at 15a-16a). The court of appeals distinguished this Court's estoppel decisions on a variety of grounds (App. A, infra, 16a-21a). It distinguished FCIC v. Merrill, 332 U.S. 380 (1947), on the ground that there was "no source to which CHS could have gone to ascertain whether the government agent's advice was wrong" (App. A, infra, 17a). Despite the existence of 42 C.F.R. 405.423, the Secretary's regulation requiring the offset of earmarked grants against costs, the court concluded that there was not applicable regulation in force at the time CHS consulted the intermediary (App. A, infra, 17a). The court did not find relevant either the requirement of 42 U.S.C. (& Supp. V) 1395g that there be retroactive adjustments to account for overpayments or underpayments to providers, 42 C.F.R. 405.1885, the Secretary's regulation authorizing reopening of intermediary reimbursement determinations within three years. Instead, it emphasized "the injustice to CHS and the people it serves if it is required to refund the alleged overpayments" (App. A, infra, 21a), remarking that the excess Medicare funds had been used "to meet serious human needs" (ibid.). Judge Meanor dissented (App. A, infra, 23a-33a). In his view, the government cannot be estopped when the result would be to "render to the opponent a benefit to which he was never substantively entitled" (id. at 24a). Judge Meanor found this Court's decision in FCIC v. Merrill, supra, to be controlling (App. A, infra, 26a). He concluded that estopping the government in a case like this one "amounts to no more than a court authorized raid on the public treasury" (id. at 32a). REASONS FOR GRANTING THE PETITION Despite this Court's recent decisions repeating the longstanding principle that estoppel against the government is rarely, if ever, appropriate, the lower courts continue to disregard that principle. Thus, once again, we seek review of a decision that raises important questions concerning whether and in what circumstances the government may be equitably estopped from enforcing statutory restrictions on payments from the federal treasury. The court of appeals has held that, because a fiscal intermediary erroneously advised a health care provider that certain costs were reimbursable under the Medicare Act, the Secretary is barred from recovering overpayments made to the provider. The court below reached this result despite the fact that under the statute and regulations the provider was not entitled to receive the funds and despite the fact that Congress has expressly directed the Secretary to recover such overpayments. The court of appeals' decision cannot be reconciled with the unbroken line of this Court's cases establishing that the government may not be estopped, at least in the absence of serious affirmative misconduct. See, e.g., INS v. Miranda, No. 82-29 (Nov. 8, 1982); Schweiker v. Hansen, 450 U.S. 785 (1981); INS v. Hibi, 414 U.S. 5, 8 (1973); Montana v. Kennedy, 366 U.S. 308, 314-315 (1961); FCIC v. Merrill, 332 U.S. 380 (1947). In particular, the decision conflicts with this Court's repeated instruction to the lower courts "'to observe the conditions defined by Congress for charging the public treasury.'" Schweiker v. Hansen, supra, 450 U.S. at 788, quoting FCIC v. Merrill, supra, 332 U.S. at 385. The lower courts continue to disregard that instruction and to express confusion over the proper application of this Court's estoppel rulings. /5/ For that reason, and because the decision of the court of appeals threatens the sound administration of the Medicare program, as well as a wide range of other federal programs, by preventing recovery of substantial sums of money owed to the government, review by this Court is warranted. 1. a. Since the earliest days of the Nation, this Court has repeatedly and consistently held that the government may not be equitably estopped from enforcing the laws, even though private parties may, as a result, suffer hardship in particular cases. See, e.g., Lee v. Munroe & Thornton, 11 U.S. (7 Cranch) 366, 369-370 (1813); Hart v. United States, 95 U.S. 316, 318-319 (1877); Pine River Logging Co. v. United States, 186 U.S. 279, 291 (1902); Utah Power & Light Co. v. United States, 243 U.S. 389, 408-409 (1917); Sutton v. United States, 256 U.S. 575, 579 (1921); Utah v. United States, 284 U.S. 534, 545-546 (1932); Wilber National Bank v. United States, 294 U.S. 120, 123-124 (1935); United States v. Stewart, 311 U.S. 60, 70 (1940); FCIC v. Merrill, supra, 332 U.S. at 384; Automobile Club v. Commissioner, 353 U.S. 180, 183 (1957); Montana v. Kennedy, supra, 366 U.S. at 314-315; INS v. Hibi, 414 U.S. 5, 8 (1973); Schweiker v. Hansen, supra; INS v. Miranda, supra. Indeed, we know of no decision of this Court holding that estoppel lies against the government in any circumstance. /6/ This rule is founded on the doctrines of sovereign immunity and separation of powers. See, e.g., United States v. Testan, 424 U.S. 392, 399 (1976); Dixon v. United States, 381 U.S. 68, 73 (1965); Snyder v. Buck, 340 U.S. 15, 19 (1950); United States v. San Francisco, 310 U.S. 16, 29-32 (1940). The actions of government employees cannot alter the terms and conditions established by Congress for the payment of money from the federal treasury. By the same token, if the judiciary were free to impose otherwise unauthorized liability on the government based simply on its notions of equity, the sovereign would be virtually powerless to control and protect the public fisc. Despite this Court's repeated directives to the lower courts to observe the conditions Congress has set for charging the public treasury, the court of appeals held that the Secretary may not recover overpayments that respondent CHS was never entitled to receive under the Medicare statute. Congress has provided expressly that reimbursement of Medicare providers must be limited to the "reasonable cost" of the services they provide, as that term is defined by the Secretary through promulgation of regulations. 42 U.S.C. 1395x(v)(1)(A). As part of her regulations defining "reasonable cost," the Secretary has required that grants earmarked for specific operating costs be offset against those costs for purposes of Medicare provider claims, 42 C.F.R. 405.423(a), in order to avoid double reimbursement for the same expenses. /7/ Moreover, Congress has anticipated reimbursement errors and has directed the Secretary to make necessary adjustments in reimbursement "on account of previously made overpayments or underpayments," 42 U.S.C. 1395g(a), and to "provide for the making of suitable retroactive corrective adjustments" in the case of underpayment or overpayment to a provider. 42 U.S.C. 1395x(v)(1)(A). Here, CHS submitted cost reports in which it claimed reimbursement for salaries and fringe benefits of CETA employees, but failed to offset the federal CETA funds it had received to cover those very expenses. Because CETA funds are not within the seed money exception to the Secretary's offset rule (see note 7, supra), CHS's cost reports were overstated. The reimbursement based on those cost reports thus included funds to which CHS was not entitled under the Medicare statute -- funds to cover costs that in fact already had been reimbursed by grants CHS received under a different federal program. The Secretary, pursuant to Congress's mandate and applicable regulations, reopened CHS's cost reports, adjusted them to account for the failure to offset, and attempted to recover the overpayments previously made to CHS. The court of appeals's decision to estop the Secretary from recovering the overpayments frustrates both the substantive limitations Congress placed on entitlement to Medicare reimbursement and the scheme it established for recovery of overpayments from providers. b. The court of appeals concluded that the Secretary should be estopped from recovering overpayments from CHS because Travelers, the fiscal intermediary, advised CHS on several occasions that it was not necessary to offset CETA funds. But this Court's decision plainly establish that neither the intermediary's conduct nor CHS's reliance on the intermediary's advice warrants estoppel. It is quite clear that the conduct at issue here does not justify estopping the government from enforcing the Medicare statute. The court of appeals characterized Travelers as having engaged in "affirmative misconduct" because it advised CHS that the amounts claimed were allowable and because it failed to consult HCFA about the proper treatment of CETA funds. Even if there is an exception to the general rule against estopping the government in cases of serious affirmative misconduct, Traveler's conduct does not meet that test. The district court found (App. C, infra, 46a) that the actions of the intermediary did not amount to "willful or wanton misconduct," but at most constituted a mistake in judgment. Indeed, the conduct in this case is essentially indistinguishable from conduct involved in prior decisions of this Court. For example, in Schweiker v. Hansen, supra, a Social Security claims representative incorrectly advised the claimant that she did not qualify for insurance benefits under 42 U.S.C. (Supp. V) 402(g), and failed to advise her to file a written application for benefits, contrary to instructions in the Social Security Claims Manual. In FCIC v. Merrill, supra, a government agent incorrectly informed a wheat farmer that his crop would be insured, although applicable regulations clearly provided that the crop was not insurable. In both of these cases the Court concluded that the government employee's erroneous advice and failure to take steps to discover the correct information fell "far short of conduct which would raise a serious question whether (the government) is estopped from insisting on compliance with (a) valid regulation." Schweiker v. Hansen, supra, 450 U.S. at 790. /8/ Thus, the absence of any affirmative misconduct in this case alone is sufficient to require reversal of the decision below. Estoppel is also improper for the independent reason that there is a complete absence of any reasonable reliance by CHS on the advice rendered by the intermediary. The Medicare program rests on a system of interim payments and subsequent adjustments for overpayments or underpayments. CHS was on notice that the statute and regulations provide for retroactive adjustments to account for overpayments or underpayments; in fact, 42 C.F.R. 405.1885 expressly provides that any intermediary determination may be reopened at any time within three years of the determination if it is found to be inconsistent with the statute, regulations, or HCFA general instructions. The court of appeals virtually ignored these important provisions. But as the district court noted (App. C, infra, 42a), the provisions meant that CHS "relied at its own risk in accepting the intermediary's advice." In view of the provisions for reopening of intermediary determinations and retroactive adjustments, it is difficult to understand how any Medicare provider could contend that it reasonably relied on an intermediary's advice as a conclusive construction of the Act. Moreover, the advice CHS received was oral, not written, and was given informally by an individual who clearly was not in a position to make definitive interpretations of the statute and the Secretary's regulations. See Schweiker v. Hansen, supra, 450 U.S. at 788-789 & n.4. On their face, the regulations require offset of earmarked grants, with no mention of an exception for CETA grants. /9/ CHS presumably was aware of these regulations; thus, its reliance on the contrary advice of the intermediary cannot be viewed as reasonable. In addition, as the district court found (App. C, infra, 42a), the fact that CHS was receiving double reimbursement for the expenses of hiring CETA employees should have been a "red flag" to CHS. /10/ Absent reasonable reliance, equitable estoppel is inappropriate in any case; a fortiori, the government may not be estopped in a case like this one, in which the provider's reliance on the intermediary's advice plainly was unreasonable. The court of appeals disregarded this point, focusing instead on what it characterized as the "manifest injustice" to CHS and its clients (App. A, infra, 21a). Even if this characterization were correct, it would make no difference to the outcome of this case. This Court has held repeatedly that even substantial detrimental reliance on a government official's misinformation does not give rise to an estoppel. See, e.g., Montana v. Kennedy, supra, 366 U.S. at 314-315 (detrimental reliance on misinformation resulting in loss of citizenship); Dixon v. United States, supra, 381 U.S. at 73 (detrimental reliance on erroneous tax ruling); FCIC v. Merrill, supra (government not estopped from denying insurance benefits although entire wheat crop was destroyed); United States v. San Francisco, supra, 310 U.S. at 32 (detrimental reliance on erroneous administrative rulings resulting in loss of land). In any event, the statutorily mandated recovery of overpayments from CHS does not amount to "manifest injustice." CHS never had any substantive entitlement to the funds at issue. In fact, it was reimbursed twice for the same expense, from two different sources of federal funds. Thus, it received a windfall, which it now seeks to retain. It is hardly unjust to require CHS to return the payments to which it was never entitled in the first place. CHS became a Medicare provider voluntarily and presumably was aware of the risks and responsibilities it was assuming, as well as the benefits involved. As noted above, the statute and regulations make clear that retroactive adjustments will be made when overpayments occur. CHS, which had been a Medicare provider for almost a decade was familiar with the system of interim payments and subsequent adjustments. /11/ The court of appeals found it significant that CHS had incurred obligations based on the advice it received and that repayment might require a cut in services to CHS's clients (App. A, infra, 2a, 19a). CHS asserted below that it had used the extra funds to render services to the public. But it would be entirely inappropriate to preclude the Secretary from carrying out Congress's directive to recover overpayments simply because the recipients of funds had spent them. See Bell v. New Jersey, No. 81-2125 (May 31, 1983), slip op. 14 n.15 ("we would find it difficult to believe that Congress meant to permit States to obtain good title to funds otherwise owing to the Federal Government by the simple expedient of spending them"). Of course, no one required or "induced" CHS to expend the excess funds it received; ultimately, it was CHS's choice to take the risk of doing so, in the knowledge that the statute requires that retroactive adjustments be made in the case of overpayments. /12/ In sum, nothing about this case supports the court of appeals' departure from the principles firmly established in the prior decisions of this Court. The decision below contravenes the mandate of Congress that Medicare reimbursement be confined to the reasonable cost of providing services, as determined by the Secretary, and that the Secretary take action to recover overpayments made to providers. The court of appeals simply disregarded this Court's clear directive in Schweiker v. Hansen, supra, 450 U.S. at 790, that "a court is (not) authorized to overlook * * * any * * * valid requirement for the receipt of (government) benefits." 2. The estoppel issue presented by this case is important. Reopening of provider cost reports and retroactive adjustments for overpayments occur with some frequency in the Medicare program. HHS recovers millions of dollars in overpayments from providers each year as a result of reopenings. Virtually all of this recovery involves initial intermediary determinations later found to be erroneous, like the determination in this case. Thus, there are substantial sums at stake in the Medicare program alone. In addition, there are many other federal programs that involve federal funding in the form of grants, benefits, loans, or guarantees; under these programs it is often the case that funds are paid out prior to any detailed agency audit of claims or expenditures. A system of interim or advance payments and subsequent recovery of erroneous overpayments is essential to the efficient operation of such programs, including many of the massive social welfare programs created by the Social Security Act. It would lead to intolerable burdens and would require the expenditure of substantial sums of public monies contrary to the dictates of Congress if recipients could retain federal funds to which they were not statutorily entitled whenever they could show that they had claimed the funds following receipt of incorrect advice from a government agent. As Judge Meanor observed (App. A, infra, 32a), applying estoppel in such circumstances "amounts to no more than a court authorized raid on the public treasury." As we noted above (see pages 11-12, note 5, supra, the decision below is not the only recent case in which the lower courts appear to have disregarded the principles set out in this Court's decisions. The willingness of the lower courts to permit estoppel against the government and to order or approve the payment of funds contrary to Congress's directives is a matter of serious concern. The court of appeals' erroneous application of estoppel against the government thus warrants review by this Court. Respectfully submitted. REX E. LEE Solicitor General J. PAUL MCGRATH Assistant Attorney General CONCLUSION The petition for a writ of certiorari should be granted. KENNETH S. GELLER Deputy Solicitor General CAROLYN F. CORWIN Assistant to the Solicitor General WILLIAM KANTER RICHARD A. OLDERMAN Attorneys JULY 1983 /1/ In addition, Congress has delegated to the Secretary general authority to prescribe regulations necessary to carry out the administration of the Medicare program under Section 1871 of the Social Security Act, 42 U.S.C. 1395hh. /2/ See 42 C.F.R. 405.423(c)(2) (i)f such costs are not reduced, the provider would secure reimbursement for the same expense twice; it would be reimbursed through the donor-restricted contributions as well as from patients and third-party payers including (Medicare)"). /3/ Pursuant to a stipulation between the parties, the Secretary has refrained from recouping the overpayments during the pendency of the administrative proceeding and judicial review and has refunded the amounts previously recouped (C.A. App. 107a-108a). /4/ However, the PRRB reversed the proposed adjustments to the 1975 and 1976 cost reports, because the provider had not been given proper notice of reopening (App. A, infra, 8a; App. D, infra, 53a-54a). The notice for the year 1976 was reissued in compliance with the applicable regulations, but the notice for the year 1975 could not be reissued, since the three-year reopening period provided by the regulations had passed. Accordingly, the total amount of adjustment was reduced to $63,839, representing the overpayments for 1976 and 1977. App. A, infra, 8a. The PRRB decision was the final decision of the Secretary in this case. /5/ See, e.g., Home Savings & Loan Ass'n v. Nimmo, 695 F.2d 1251 (10th Cir. 1982); Portmann v. United States, 674 F.2d 1155 (7th Cir. 1982); Meister Bros. v. Macy, 674 F.2d 1174 (7th Cir. 1982); McDonald v. Schweiker, 537 F. Supp. 47 (N.D. Ind. 1981); Armstrong v. United States, 516 F. Supp. 1252 (D. Colo. 1981). Despite this Court's firm stand against estoppel of the government, the court of appeals here characterized the issue as "far from settled" (App. A, infra, 9a). See also Schweiker v. Hansen, supra, 450 U.S. at 792 (Marshall, J., dissenting). /6/ In several cases the Court has declined to determine whether the government would be estopped in a case involving serious affirmative misconduct. See, e.g., INS v. Miranda, supra, slip op. 3; Schweiker v. Hansen, supra, 450 U.S. at 788. However, the Court has never identified a case in which the facts established such misconduct. /7/ The Secretary has created a limited exception to this offset rule in the case of "seed money" grants, which are grants made for the purpose of establishing or expanding health care agencies. The Medicare Provider Reimbursement Manual, HIM-15, Pt. I, Section 612.2, reproduced in 1 Medicare & Medicaid Guide (CCH) Paragraph 5461 (Aug. 1968), provides: Grants designated for the development of new health care agencies or for expansion of services of established agencies are generally referred to as "seed money" grants. "Seed money" grants are not deducted from costs in computing allowable costs. These grants are usually made to cover specific operating costs or groups of costs for services for a stated period of time. During this time, the provider will develop sufficient patient caseloads to enable continued self-sustaining operation from funds received from Medicare reimbursement as well as from funds received from other patients or other third-party payers. As the Manual indicates, "seed money" grants generally are one-time grants. Examples include grants under the Health Underserved Rural Areas program, 42 U.S.C. (& Supp. V) 1310, and grants under the Rural Health Initiative Program, 42 U.S.C. (& Supp. V) 201 et seq. Part A Intermediary Letter, No. 79-47, reproduced in (1979-2 Transfer Binder) Medicare & Medicaid Guide (CCH) Paragraph 30,110 (Dec. 1979). The court of appeals placed considerable weight on its conclusion that the intermediary failed to carry out what the court referred to as a "legally binding procedure" -- consultation with HCFA on matters not settled by statute or regulation (App. A, infra, 15a-16a). The Medicare statute, 42 U.S.C. (Supp. V) 1395h(a), states that agreements between the Secretary and intermediaries may provide that the intermediary will serve as a channel of communication between providers and the Secretary. However, there is no indication that Congress intended to impose a duty that would be enforceable by providers in individual instances or that could operate to estop the Secretary from recovering overpayments made to providers. /9/ CHS argued below that CETA funds should be considered to be seed money, because the contract under which it received the CETA funds stated that they would be used to supplement, rather than supplant, the level of funds otherwise available. See App. D, infra, 51a. However, the statutory condition referred to, Section 703(11) of CETA, makes clear that the reference is to supplementation of non-federal sources of funds. See 29 U.S.C. 983(11) (formally Title VI, Section 603(11), of Pub. L. No. 93-203, 87 Stat. 878). Moreover, the definition of seed money found in the Medicare Provider Reimbursement Manual (see note 7, supra) refers only to grants designated for the development or expansion of health care agencies. CETA funds are not directed to health care agencies, but are intended to increase employment opportunities generally. See 29 U.S.C. (Supp. V) 801. /10/ The mere fact that CHS claims to have consulted Travelers on a number of occasions about the treatment of CETA funds suggests that it had continuing doubts about the advice it was receiving. /11/ The court of appeals was plainly wrong in suggesting (App. A, infra, 5a, 13a, 18a-19a) that CHS had no choice but to seek and follow the advice of the intermediary, or that CHS was "induced" to claim the excess funds. CHS was not obliged to accept unquestioningly the intermediary's advice or to act on it, especially when the advice on its face appeared to conflict with written regulations and guidelines. In such a situation, in which it is clear that erroneous advice will lead to overpayments and that the statute and regulations provide for recovery of such overpayments, the provider must exercise independent judgment. Moreover, the court of appeals erred in its assumption (id. at 5a, 18a-19a) that CHS could not have communicated with HCFA on this matter; we are aware of no written or unwritten policy that prohibits a provider from submitting nonroutine inquiries to HCFA, and such inquiries are not uncommon. /12/ CHS claimed below that it was unable to repay the funds it had improperly received and that it would have to reduce services to clients if it were required to repay. These arguments, however, relate to the propriety of the Secretary's recoupment methods rather than the validity of the recoupment order. See Bell v. New Jersey, supra, slip op. 5 n.4. Moreover, the court of appeals ignored the fact that there are ways to avoid the dire consequences predicted by CHS. When Travelers notified CHS that it was required to repay the excess funds, it advised CHS of the option of an extended repayment schedule (C.A. App. 25a-26a). CHS apparently did not pursue this possibility, which could have largely alleviated its financial concerns. See also the Federal Claims Collection Act of 1966, 31 U.S.C. 951 et seq. (authorizing compromise of a claim or termination of collection action under certain conditions, including inability to pay). Appendix Omitted