author: SPIEGEL, District Judge:

text:
    BETHESDA HOSPITAL, et al., Plaintiffs, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
    No. C-1-83-622.
    United States District Court, S.D. Ohio, W.D.
    April 30, 1985.

      Barbara Scott Bison, Robert S. Bromberg, Cincinnati, Ohio, Leonard C. Homer & Carel T. Hedlund (co-counsel), Margaret M. Manning, Baltimore, Md., for plaintiffs.
    Donetta D. Wiethe, Asst. U.S. Atty., Cincinnati, Ohio, for defendant.
   MEMORANDUM OPINION

SPIEGEL, District Judge:

INTRODUCTION

In this action, plaintiffs challenge the validity of an administrative regulation governing reimbursement of malpractice insurance costs associated with the care of Medicare patients. The following issues are raised: 1) Whether the Provider Reimbursement Review Board (PRRB) erred in concluding that it lacked jurisdiction over the claims of plaintiffs who self-disallowed malpractice insurance costs? 2) Is the challenged regulation invalid under the Administrative Procedure Act (APA) because of deficiencies in either the Notice of Proposed Rule Making or the Basis and Purpose statement accompanying the regulation in final form? 3) Is the challenged regulation violative of the APA as arbitrary and capricious, an abuse of discretion or otherwise not in accordance with law? 4) Is the challenged regulation invalid because it is inconsistent with the Medicare Act?

Having reviewed the administrative record and the filings by counsel, and having heard the able arguments of counsel, we reach the following conclusions: 1) The PRRB erred in concluding that it lacked jurisdiction over the claims of the health care providers who “self-disallowed” the malpractice insurance costs; 2) the challenged regulation is violative of the APA in two respects: a) the regulation in final form was not accompanied by an adequate statement of basis and purpose; and b) the issuance of the regulation, based upon the data on which the Secretary relied, was arbitrary and capricious. We do not rule on the issue of whether the challenged regulation is invalid because of alleged inconsistency with the Medicare Act.

I. Factual Background

This case involves a challenge to the new method for reimbursement to health-care providers of malpractice insurance costs associated with the treatment of Medicare patients. The new Malpractice Rule was promulgated by the Department of Health and Human Services in 1979, and is codified at 42 C.F.R. § 405.452(b)(1)(ii) (1984).

The new Malpractice Rule is a marked departure from the previous method of calculating malpractice insurance costs associated with care of Medicare patients. The old approach lumped malpractice insurance costs into the category of General and Administrative costs (G & A costs). G & A costs include a variety of indirect costs associated with patient care. The old regulations provided for application of the provider’s overall Medicare utilization ratio to allocate the G & A costs between Medicare and non-Medicare patients. The utilization ratio is the ratio of Medicare patients to the total patient population of the provider hospital.

The challenged regulation, specifically excepts malpractice insurance costs from the category of G & A costs, and thus, abandons the previous approach entirely. Malpractice insurance costs now constitute a separate category of health care costs. The extent to which Health and Human Services will reimburse the provider for malpractice insurance costs is “based on the dollar ratio of the provider’s Medicare paid malpractice losses to its total paid malpractice losses for the current costs reporting period and the preceding 4-year period.” 42 C.F.R. § 405.452(b)(l)(ii). If a provider has paid no malpractice claims within the applicable five-year period, it is reimbursed at the “national average” ratio of 5.1 per cent. This formula does not consider the Medicare utilization ratio of the provider.

Plaintiffs are providers of hospital services in the State of Ohio who mount this group challenge to the new Malpractice Rule. Of this group, all but two providers have undisputedly perfected their claim to judicial review in this Court. However, the Secretary seeks dismissal of the claims of Bethesda and Deaconess Hospitals, alleging, that this Court lacks jurisdiction over their claims {see docs. 37, 43). This jurisdictional issue is best addressed at the outset.

Plaintiffs Bethesda and Deaconess differ from other plaintiffs in that they did not file a claim with the fiscal intermediary for reimbursement of malpractice insurance costs allowable under the old rule but now excludable under the new rule. Instead, Bethesda and Deaconess filed their cost reports with the fiscal intermediary in compliance with the new Malpractice Rule, and hence “self-disallowed” reimbursement for the additional portion of malpractice insurance costs allowable under the old rule. Consequently, the PRRB concluded that, under the statutory administrative review scheme, 42 U.S.C. § 1395oo(a)-(f), it lacked jurisdiction over their appeal from the final determination of the fiscal intermediary because Bethesda and Deaconess made no claim for reimbursement to the intermediary (doc. 43, attachment A).

II. Jurisdictional Issues — “Self-disal-Iowed Costs”

The relevant portions of the administrative review scheme are as follows:

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 a Provider Reimbursement Review Board (hereinafter referred to as the “Board”) which shall be established by the Secretary in accordance with subsection (h) of this section and (except as provided in subsection (g)(2) of this section) any hospital which receives payments in amounts computed under subsection (b) or (d) of section 1395ww of this title and which has submitted such reports within such time as the Secretary may require in order to make payment under such section may obtain a hearing with respect to such payment by the Board, if—
(1) such provider—
(A)(i) is dissatisfied with a final determination of the organization serving as its fiscal intermediary pursuant to section 1395h of this title 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 final determination under paragraph (l)(A)(i), or with respect to appeals under paragraph (l)(A)(ii), 180 days after notice of the Secretary’s final determination, or with respect to appeals pursuant to paragraph (1)(B) or (C), within 180 days after notice of such determination would have been received if such determination had been made on a timely basis.

42 U.S.C. § 1395oo(a)(l)-(3).

A decision by the Board 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 Board, and shall be supported by substantial evidence when the record is viewed as a whole. The Board 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.

42 U.S.C. § 1395oo(d).

The precise issue before us is whether the malpractice insurance costs disclosed on the cost reports by Bethesda and Deaconess but not claimed by those providers as reimbursable costs are “matters covered by such cost reports” over which the PRRB has jurisdiction to review within the meaning of § 1395oo(d).

As evident from the quoted provisions of the statute, section 1395oo contemplates that the PRRB may conduct an administrative review of the intermediary’s final decision. Perhaps less obvious but nevertheless evident is the legislative intent that the PRRB review need not be limited to costs claimed by the provider to the intermediary in the cost report. Consequently, we conclude that the PRRB erred in concluding that it lacked jurisdiction over the claims of Bethesda and Deaconess Hospitals.

The administrative review scheme contemplated by the statute is as follows: A cost report is submitted first to the fiscal intermediary. The fiscal intermediary determines reimbursement based upon the cost report. If the provider is dissatisfied with the final determination of the fiscal intermediary, and the amount in controversy is greater than or equal to $10,000.00, and the provider files a request for a hearing within 180 days, then the matter is properly subject to PRRB review. PRRB may then pass upon the final determination of the fiscal intermediary with respect to the cost report and make revisions on matters covered by the cost report.

A long established rule of statutory construction is that the words in the statute are to be given their ordinary and intended meaning. See, e.g., Old Colony Ry. Co. v. Comm. of Internal Revenue, 284 U.S. 552, 560, 52 S.Ct. 211, 213, 76 L.Ed. 484 (1932) and cases cited therein. Applying this principle to section 1395oo(d), a requirement of an overt claim for reimbursement to the fiscal intermediary as a condition precedent to PRRB review is implicit at best, and in apparent contradiction to the broad grant of authority to the PRRB to revise “matters covered by [the] cost report even though such matters were not considered by the intermediary in making such final determination.” 42 U.S.C. § 1395oo(d). However, where case authority exists, we hesitate to base our decision exclusively upon the language of the statute.

Section 1395oo has engendered considerable litigation; however, in the interests of brevity and clarity of thought, we limit our discussion of the statute to the decisions of . the Sixth, Seventh, and D.C. Circuit Courts of Appeal.

At issue in St. Mary of Nazareth Hospital Center v. Department of Health and Human Services, 698 F.2d 1337 (7th Cir. 1983), cert, denied, — U.S. —, 104 S.Ct. 107, 78 L.Ed.2d 110 (1983) (hereinafter St. Mary) was whether personal telephones were “personal comfort items,” and hence, whether costs associated with such phones were therefore not subject to reimbursement. St. Mary included the incidental issue of the PRRB’s jurisdiction over claims of one provider who had “self-disallowed” the telephone costs. In a decision based largely upon the language of the statute the Seventh Circuit interpreted section 1395oo(d) as a broad grant of jurisdiction to the PRRB to “consider matters outside cost reports.” 698 F.2d at 1337. Thus the Seventh Circuit concluded that the PRRB had jurisdiction over the self-disallowed costs and proceeded to the merits of the claim.

The Sixth Circuit has arguably taken a more restrictive view of the jurisdictional grant of authority to the PRRB contained in section 1395oo, at least where the costs claimed in the PRRB appeal were not included in the cost report in any fashion. In Saline Community Hospital Association v. Secretary of Health and Human Services, 744 F.2d 517 (6th Cir.1984), health care providers sought to amend their 1979 cost reports to add claims for return on net-invested-equity capital — costs which had never been included on the 1979 cost reports in any fashion. The PRRB denied jurisdiction. Judicial review at the district court level proceeded over two motions to dismiss, and the Secretary ultimately prevailed on the merits. On appeal, the Sixth Circuit held that the costs in issue were improperly tendered as amendments since the providers had never included them in the cost reports, and therefore, the PRRB was correct in denying jurisdiction. Id. at 520. The Court also held that the only issue properly before the district court was whether the PRRB erred in concluding that it lacked jurisdiction, and that the trial court should not have reached the merits of the providers’ claims. Id. at 521.

While instructive, Saline is not entirely on point. It is not a self-disallowance case. Therefore, it does not address the issue of the PRRB’s jurisdiction over costs disclosed on the cost report but not actually claimed before the fiscal intermediary as reimbursable costs.

- We also have the benefit of two D.C. Circuit Court of Appeals decisions. Athens Community Hospital, Inc. v. Schweiker, 743 F.2d 1 (D.C.Cir.1984) (Athens II) modifying Athens Community Hospital, Inc. v. Schweiker, 686 F.2d 989 (D.C.Cir.1983) (Athens II). At issue in Athens I and II were a provider’s claims for income tax costs and stock option costs associated with providing health care. Interpreting the stock option costs as matters not covered by the cost reports, and the income tax expenses as self-disallowed costs at best, the Court concluded that the PRRB was correct in concluding it had no jurisdiction because the intermediary was never given the opportunity to rule on the costs in issue. Id. at 10. In so holding, the Court through Judge Bork developed a useful, analytical construct for determining the breadth of the jurisdictional grant contained in section 1395oo(d).

Judge Bork views section 1395oo as containing two separate jurisdictional grants to the PRRB. First, it gives the PRRB the “power to affirm, modify or reverse final determinations of the fiscal intermediary with respect to the cost report.” 42 U.S.C. § 1395oo(d). Second, PRRB is given the power “to make 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. Satisfaction of either provision vests jurisdiction in the PRRB. 743 F.2d at 4.

The D.C. Circuit acknowledged the difficulty in reconciling these two jurisdictional grants and recognized that these grants permit of a variety of different readings. The Court thereafter suggested that these readings fall into three general categories. The first category contemplates that the PRRB has jurisdiction only over those costs specifically claimed for reimbursement in the cost report presented to the fiscal intermediary. The second category considers the PRRB’s jurisdiction to extend to those items disclosed to the fiscal intermediary in or with the cost report. The third category views the PRRB’s jurisdiction as covering matters not disclosed to the intermediary through the cost report, but asserted for the first time to the PRRB on appeal from the fiscal intermediary’s final determination. Id. at 4-5.

It is readily apparent that the first and third categories do not admit to considerations of degree. The first category permits the PRRB to review only those items specifically claimed before the fiscal intermediary. The third category permits any costs to be claimed as reimbursable before the PRRB. One category is precisely limited, the other category is all inclusive. Neither requires further interpretation. In contrast, the middle category, focusing as it does on “disclosure,” admits to a large degree of interpretation. Indeed, as the D.C. Circuit recognized, a disclosure rule might include a reasonableness standard which would include as adequately disclosed anything the fiscal intermediary rea sonably should have known. 743 F.2d at 4-5.

Following this discussion, the D.C. Circuit suggested that

“the only ... way of reading the statute that does give effect to both clauses of section 1395oo(d) ... is to interpret the statute as allowing the PRRB to revise the aspects of the reimbursement calculation not actually contested by the provider, and possibly not considered by the intermediary (because not claimed for reimbursement by the provider), when such revision is necessary to accommodate other PRRB revisions of matters that were claimed by the provider, decided adversely by the intermediary, and then contested by the provider to the PRRB. The provider, however, is allowed to appeal only such adverse decisions of the intermediary.

Id. at 9.

In effect, the D.C. Circuit has implemented a nexus requirement, limiting the PRRB’s jurisdiction over those matters not specifically addressed by the fiscal intermediary to claims which are “necessary to accommodate” revisions of any claims specifically asserted before the fiscal intermediary. However, the D.C. Circuit did not endeavor to further define the nexus requirement.

We respectfully decline to adopt the D.C. Circuit’s nexus test. There is no such nexus requirement in the language of the statute. Indeed, the parenthetical in the statute providing for “revisions adverse to the provider of the services” seems to be inconsistent with the nexus requirement. 42 U.S.C. § 1395oo(d). For if such a requirement existed, this paranthetical would necessarily be too broad. Under the nexus rule, the PRRB could make revisions adverse to the provider of the services only where such revisions were necessary to accomodate items specifically claimed before the fiscal intermediary. This reasoning is contrary to the language of the parenthetical, and could produce the anamolous result of the fiscal intermediary making an error in favor of the provider and an unrelated error in favor of the Secretary. On appeal of the adverse determination, the nexus rule would vest the PRRB with jurisdiction only over the error adverse to the provider, and the PRRB would have no power to correct the error made in favor of the provider, even though all facts and figures necessary to make such correction were included on the original cost report. We do not think that this result nor the reasoning which leads to this result reflects the intention of Congress in enacting this administrative review scheme.

Our conclusion is based in part on H.Rep. No. 92-231, reprinted in 1972 U.S.Code Cong. & Admin.News. 92nd Cong., 2d Sess., 4989, 5094-5095. In this report, Congress envisioned the review process as follows:

[A]ll decisions by the board [PRRB] would have to based upon the record made at such hearing [before the board], which may include any evidence submitted by the Department. Such evidence would include the evidence or record considered by the intermediary. Based upon examination of all the evidence, the Provider Reimbursement Review Board may find in whole or in part for the provider or the Government {including a finding based upon the evidence before it that the provider owes sums in addition to the amount raised in the appeal), (emphasis added)

It is clear from this parenthetical that Congress intended the PRRB to have the final say on reimbursable costs which were included in the evidence presented to the intermediary even if such costs were not specifically claimed as reimbursable and hence, not considered by the intermediary.

An examination of the role of the fiscal intermediary in the reimbursement process indicates that Congress naturally might have vested the PRRB with broad powers of review over intermediary determinations. Fiscal intermediaries were first designated in the Social Security Amendments of 1965, P.L. 89-97; 79 Stat. 286 reprinted in 1965 U.S.Code Cong. & Admin.News, 89th Cong. 1st Sess., 305. The legislative history of those amendments indicates that the fiscal intermediary was to perform a “major administrative role,” as a private entity under contract with the administrative agency, in the administration of the Medicare program. The specific powers and responsibilities of the fiscal intermediary contemplated by Congress were to determine the amount of payments due providers upon presentation of the providers’ claims and to make such payments; to serve as a conduit of information between the providers and the agency; and to provide consultative services; to assist providers to establish and maintain necessary records; and to assist providers in meeting the qualifications requirement for participation in the Medicare program. Intermediaries could also be employed to audit provider records and to perform related functions. S.Rep. 404 reprinted in [1965] U.S.Code Cong. & Admin.News, 89th Cong. 1st Sess. pp. 1943, 1949, 1992-95. Although the 1972 amendments set up the administrative review scheme now under consideration (see p. 1367 supra), the 1972 amendments contained no indication of any major change in the function of fiscal intermediary. Thus the function of fiscal intermediary is and always has been that of an administrator, informational conduit, and auditor.

We acknowledge that some interpretation of agency regulations is implicit in the job of fiscal intermediary. But aside from such implicit interpretative power, the legislative history indicates no vesting of deliberative authority in the fiscal intermediary. Thus it is only natural that Congress would not envision the unchallenged determinations of the fiscal intermediary to be beyond review by the agency absent some connection with a challenged claim.

The absence of any large measure of deliberative authority in the fiscal intermediary’s function undercuts the Secretary’s argument in another respect. By arguing that the PRRB has no jurisdiction over claims which were not presented to the fiscal intermediary, the Secretary advances what is in essence an exhaustion of administrative remedies argument. On the facts of this case, requiring providers to submit the claims involved to the fiscal intermediary is particularly inappropriate. First, the malpractice rule requires no interpretation. Both the old and new rules are mathematically precise and submit easily to mechanical application. Second, the fiscal intermediary is not authorized to grant the relief sought. Plaintiffs here are not challenging the application of rule to particular facts. Rather, they challenge validity of the rule itself because of alleged illegality in its inception and its asserted inconsistency with the Medicare Act. We think it is clearly beyond the role of the fiscal intermediary, as a private agency operating under contract with the Department of Health and Human Services, to review the legality of a regulation entrusted to it for application. Therefore, as “the exhaustion doctrine contemplates an efficacious remedy,” Humana of South Carolina, Inc. v. Califano, 590 F.2d 1070, 1081 (D.C.Cir.1981), (quoting Wallace v. Lynn, 507 F.2d 1186, 1190 (D.C.Cir.1974)), and the fiscal intermediary can provide no meaningful remedy on these facts, we will not infer an exhaustion of remedies requirement where none is explicitly stated by the statute or indicated appropriate by the legislative history.

Based upon the foregoing analysis, we conclude that the grant of authority to the PRRB to review determinations made by the fiscal intermediary contained in section 1395oo(d) is more appropriately limited to those items disclosed in the cost report such that all figures necessary to any calculations are contained in the cost report. Therefore, we conclude that the PRRB erred in, concluding that it had no jurisdiction to review Bethesda and Deaconess Hospitals’ claims for reimbursement of self-disallowed costs. However, that is the extent of our review. We do not proceed to the merits of plaintiffs’ claims as regard Bethesda and Deaconess because of the clear instruction of Saline, 744 F.2d 517 at 521.

III. The Validity of Malpractice Insurance Rule

(A) Additional Factual Background Necessary to a Decision on the Merits

The Notice of Proposed Rule Making (NPRM) was published on March 15, 1979, 44 Fed.Reg. 15,744. The NPRM indicated that a forty-five day period for public comment would be observed as a passage of the rule was being expedited for implementation in fiscal year 1979. See “Action Memorandum” Administrative Record Volume 1, Tab 28. This forty-five day comment period represented a departure from Executive Order 12044 which established a sixty day comment period for proposed regulations. 43 Fed.Reg. 12,661 (March 24, 1978).

The rule proposed in the NPRM was justified by an allusion to “a study conducted by an HEW consultant” which indicated that closed malpractice claims involving Medicare patients were generally lower than such claims involving non-Medicare patients. 44 Fed.Reg. 15,745. The NPRM contained no other justification for the agency’s conclusion that Medicare was bearing a disproportionate share of malpractice insurance costs. The study mentioned was neither identified nor offered for public perusal. On May 1, 1979, the agency issued a notice reopening the comment period for an additional fifteen days, thereby bringing the notice in compliance with Executive Order 12044 supra. 44 Fed.Reg. 25,476.

On June 1, 1979, HEW published the final form of the regulation. 44 Fed.Reg. 31,641-42, codified at 42 C.F.R. § 405.-452(b)(l)(ii). The preamble to the final rule acknowledged that “all comments received were against proposal and recommended that [HEW] withdraw it entirely.” 44 Fed. Reg. 31,641. There were approximately six hundred comments from interested parties in opposition to the regulation. Administrative Record Vols. 5-8.

The final form of the malpractice rule was published against the recommendation of the Deputy General Counsel for Regulation Review, Administrative Record Vol. 2, Tab 49, who noted that the preamble was inadequate and poorly written and cautioned that as all comments opposed the proposed regulation, there was a need for careful explanation of the rejection of such comments. Id. However, other than acknowledging that all comments received were against the proposed regulation, the agency did not address such comments in significant detail when promulgating the rule in final form. 44 Fed.Reg. 31,641-42.

The study alluded to in the NPRM was identified in the final rule as the Medical Malpractice Closed Claim Study, 1976 performed by Westat, Inc. (hereinafter Westat study). The Westat study consisted of an analysis of malpractice claims closed by nine companies during a four month period in 1976. Administrative Record Vol. 3 at 1-2, 1-3 & 2-1. The authors of the study noted that it was not the purpose of the study to make national yearly estimates. Administrative Record Vol. 3 at 2-5. The study was a census and not a representative sample. Id. at 2-9. Specifically, the authors warned that “conclusions must be drawn very cautiously because of the possibility of biased data.” Id. at 2-3. Also, the authors acknowledged the limitation of the study due to the exclusion of self-insurers. Id.

Other weaknesses in the study were documented in the author’s summary. Administrative Record Vol. 4, Tab 37. Because of the sample design, the authors concluded that it was “virtually impossible to generalize beyond the sample to annual totals or to national totals ...” and that there was “no assurance that the sample was in any way representative of hospitals, of physicians, of injuries of geographic regions, of claimants.” Id. While the plaintiffs’ criticisms of the statistical validity of Westat study go far beyond those listed above, we do not address them as those heretofore discussed are sufficient for our decision.

(B) Procedural Challenges

Plaintiffs challenge the malpractice rule both procedurally and substantively. The procedural challenges are based upon the Administrative Procedure Act, Title 5 U.S.C. §§ 551 et seq., §§ 701 et seq. The standard for judicial review of the validity of an administrative regulation is whether the Secretary complied with the necessary procedural requirements in promulgating the rule, whether the Secretary acted within the scope of her statutory power, and whether the choice was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416-17, 91 S.Ct. 814, 823-24, 28 L.Ed.2d 136 (1971). However, the “court is not empowered to substitute its judgment for that of the agency.” Id. at 416, 91 S.Ct. at 823. Nevertheless, judicial deference to the agency’s judgment in implementing congressionally enacted statutory policies “cannot be allowed to slip into judicial inertia.” Bureau of Alcohol, Tobacco and Firearms v. Federal Labor Relations Authority, 464 U.S. 89, 104 S.Ct. 439, 444, 78 L.Ed.2d 195 (1983), (quoting American Ship Building Co. v. N.L.R.B., 380 U.S. 300, 318, 85 S.Ct. 955, 967, 13 L.Ed.2d 855 (1965)), and Courts “are not obliged to stand aside and rubber stamp their affirmance of administrative decisions that they deem inconsistent with a statutory mandate or that frustrate the congressional policy underlying a statute.” NLRB v. Brown, 380 U.S. 278, 291, 85 S.Ct. 980, 988, 13 L.Ed.2d 839 (1965). Finally, “if Congress established a presumption from which judicial review should start, that presumption ... [is] against changes in current policy that are not justified by the rule making record.” Motor Vehicle Manufacturer’s Ass’n of the United States, Inc. v. State Farm Automobile Insurance Company, 463 U.S. 29, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983) (emphasis in original). Such is the standard as set forth by Judge Will in St. James Hospital v. Heckler, 579 F.Supp. 757, 763 (N.D.Ill.1984) with which we concur.

1. Adequacy of the NPRM

We first address the adequacy of the NPRM. The APA requires public notice of an agency’s intention to issue a regulation. A notice must be “sufficient to fairly apprise interested parties of all significant subjects and issues involved.” American Iron and Steel Institute v. EPA, 568 F.2d 284, 291 (3d Cir.1977), (citing S.Rep. No. 752, 79th Cong., 1st Sess. at 16 (1945)). Notice provisions are intended to provide the opportunity for public participation in the rule making process, Buckeye Power, Inc. v. EPA, 481 F.2d 162, 170 (6th Cir.1973), cert, denied, sub nom. Tennessee Valley Authority v. EPA, 425 U.S. 934, 96 S.Ct. 1663, 48 L.Ed.2d 175 (1976), and to inspire agency self-education prior to actual rule making. American Iron, 568 F.2d at 291. Notice is also valuable because it develops the record of agency decision-making and hence facilitates judicial review. Home Box Office, Inc. v. FCC, 567 F.2d 9, 35 (D.C.Cir.1977), cert, denied, 434 U.S. 829, 98 S.Ct. Ill, 54 L.Ed.2d 89 (1977). Notice is most valuable when it discloses the data upon which the agency proposes the rule. Connecticut Light and Power Company v. Nuclear Regulatory Commission, 673 F.2d 525, 530-31 (D.C.Cir.), cert, denied, 459 U.S. 835, 103 S.Ct. 79, 74 L.Ed.2d 76 (1982). Cf. United States Lines v. Federal Maritime Commission, 584 F.2d 519 (D.C.Cir.1978).

From examination of the NPRM at issue here, the agency is in technical noncompliance because of the failure to identify the data upon which it relied — (i.e., the Westat study or any other data for that matter). However, the rule making record indicates that the Westat study reached health care professionals in sufficient number in time to permit development of the rule making record. The Westat study is discussed in detail in the rule making record, and therefore, we will not declare the rule invalid because of this technical non-compliance.

2. Adequacy of the basis and purpose statement

We turn next to the adequacy of the basis and purpose statement which accompanied the rule in its final form. A basis and purpose statement is required by 5 U.S.C. § 553(c). Sierra Club v. Gorsuch, 715 F.2d 653, 658 n. 31 (D.C.Cir.1983). Section 553(c) provides in pertinent part: The basis and purpose statement need not be an exhaustive discussion of comments to the agency. Automotive Parts and Accessories Ass’n v. Boyd, 407 F.2d 330, 338 (D.C.Cir.1968). However, the agency must “respond in a reasoned manner to the comments received, to explain how the agency resolved any significant problems raised by the comments, and to show how that resolution lead the agency to the ultimate action.” Action on Smoking and Health v. C.A.B., 699 F.2d 1209, 1216 (D.C.Cir.1983) (quoting Rodway v. U.S. Department of Agriculture, 514 F.2d 809, 817 (D.C.Cir. 1975)). Ultimately, “the detail required in a statement of the basis and purpose depends upon the subject of regulation and the nature of the comments received.” Action on Smoking and Health, 699 F.2d at 1216.

After notice required by this section, the agency shall give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments with or without opportunity for oral presentation. After consideration of the relevant matter presented, the agency shall incorporate in the rules adopted a concise general statement of their basis and purpose.

In the instant case, the subject of regulation is a rule by which health care providers are reimbursed for malpractice insurance costs. This regulation has considerable economic impact and represents a significant change from previous agency policy. While we do not question the Secretary’s authority to depart radically from existing policy, we note that there is a presumption against such changes, unless they are supported by the rule making record. Motor Vehicle Manufacturers, 103 S.Ct. at 2866. This presumption requires the Secretary or Agency to respond in significant detail to serious comments opposing the proposed regulations. Here, we do not view the agency’s response as sufficient. On this point we agree with Judge Fullam of the Eastern District of Pennsylvania who stated:

It would have been a miracle of bureaucratic succinctness had the Secretary managed to reply adequately in two scant columns of Federal Register prose to the six hundred plus comments that occupy five thick volumes of the administrative record. Unfortunately no such miracle has been witnesses by this court.

Abington Memorial Hospital v. Heckler, 576 F.Supp. 1081, 1085-86 (E.D.P.A.1983) affd 750 F.2d 242 (3d Cir.1984).

More disturbing than the brevity of the basis and purpose statement is the content. As Judge Fullam noted, the American Hospital Association and the Hospital Corporation of America, among other commenters, questioned the statistical validity of the Westat study which was the only objective data upon which the regulation was based. See Administrative Record Vol. 5, (no tab) p. 9; and Vol. 6 (no tab) p. 5. The preamble to the final rule neither acknowledges nor responds to these criticisms. See 576 F.Supp. 1086. Again, as noted by Judge Fullam, the comments included contentions that malpractice insurance costs were not necessarily reflected by claims payments, however, these comments were not addressed by the agency in promulgating the final rule either. Id.

In sum, we conclude that the agency has neither responded in a reasoned manner to comments received nor explained how it resolved significant problems raised by these comments. Rather, we are left with the impression that the agency evaded the most significant problems raised by the comments, i.e., the statistical challenges to the Westat study and the use of the Westat. study for purposes other than those for which it was intended. The conclusion is inescapable that the agency violated the APA in failing to include an adequate basis and purpose statement with the regulation in its final form.

3. Abuse of Discretion

Plaintiffs also challenge the new malpractice rule under 5 U.S.C. § 706(2)(A). That statute provides that a reviewing court may set aside agency action when found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Id. In short, plaintiffs contend that the Secretary’s action in promulgating the new malpractice rule was arbitrary and capricious. The standard of review under section 706(2)(A) has recently been stated as “whether the decision was based upon a consideration of the relevant factors and whether there had been a clear error of judgment.” Motor Vehicle Manufacturers Ass’n, 463 U.S. 29, 103 S.Ct. 2856, 2865, 2867, 77 L.Ed.2d 443 (1983). The reviewing court should not second guess the agency on technical matters but should “set aside administrative rules for which the record ... demonstrates a lack of rational basis.” PPG Industries v. Costle, 630 F.2d 462, 465 (6th Cir.1980). Reliance on flawed data, is properly considered a clear error in judgment at least where the flaws are known to the agency prior to promulgation of the final rule. Almay, Inc. v. Califano, 569 F.2d 674 (D.C.Cir.1977).

In this case we think it is clear that the Secretary relied on flawed data in promulgating the new malpractice rule. The authors of the Westat report stated that “conclusions must be drawn very cautiously because of the possibility of biased data.” Administrative Record Vol. 3 at 2-2. Also, in a memorandum to the HEW project officer in charge of the medical malpractice study, the Westat senior analyst stated that it is “virtually impossible to generalize beyond the sample ... to annual totals or to national totals____” Beyond that there was no assurance that the sample was in any way representative of [hospitals], of ¡physicians, of injuries, of geographic regions, of claimants. Administrative Record Vol. 4, Tab 37. Given these comments by the authors and the fact that the Secretary then used the Westat study as a basis for implementing the regulation, and, extrapolated from the study the “national average” of 5.1%, it is abundantly clear that the agency proceeded to use the Westat study in the very manner the authors cautioned against. Under such circumstances we have no hesitation in holding the implementation of the new Medicare malpractice reimbursement rule a clear error of judgment.

(C) Substantive Challenge

We do not decide whether the new malpractice rule is in violation of the substantive provisions of the Medicare Act as plaintiffs contend. As the procedural issues are dispositive, it is unnecessary for us to reach this issue. Furthermore, we do not presume to determine any inconsistency based on what we view as the significantly flawed factual basis upon which the agency premised the challenged rule.

IV. Conclusion

We recognize that deferential consideration should be given regulations promulgated by the Secretary, and that courts should be cautious to overturn such regulations. NLRB v. Bell Aerospace Co. Division of Textron, Inc., 416 U.S. 267, 274-75, 94 S.Ct. 1757, 1761-62, 40 L.Ed.2d 134 (1974). Having exercised that caution, we must nevertheless invalidate the regulation challenged in this action. We note that in holding the regulation invalid we are in accordance with the considerable weight of authority.

In accordance with the foregoing, plaintiffs’ motion for summary judgment is hereby granted and defendant’s motion for summary judgment is hereby denied. The parties will brief the issues of the appropriateness of relief according to the normal briefing schedule set out by the local rules of this Court. Plaintiffs’ brief is due within thirty days of the date of this Order.

SO ORDERED.

      . The fiscal intermediary is a private entity which, under contract with the Department of Health and Human Services, performs a major administrative role in the operation of the Medicare program. See discussion pp. 1367-1368 infra.

      . The new Medicare Malpractice Reimbursement Rule has been invalidated in at least eighteen cases. Arkansas Methodist Hospital v. Heckler, 597 F.Supp. 238 (E.D.Ark.1984); East Jefferson General Hospital v. Heckler, Slip Op. 83-4107-C (E.D.La. Oct. 19, 1984); St. Anthony Regional Hospital v. Heckler, No. C84-37, 613 F.Supp. 23 (N.D.Iowa Oct. 12, 1984); Parkway Medical Center v. Heckler, Slip. Op. 83-1700 (S.D. Fla. Sept. 24, 1984); Mercy Medical Center v. Heckler, No. 3-82 Civ. 1724 (D.Minn. Aug. 17, 1984); Menorah Medical Center v. Heckler, No. 83-0822-CV-W-4 (W.D.Mo. July 26, 1984); Metropolitan Hospital, Inc. v. Heckler, Slip Op. C-83-502-A (N.D.Ga. June 25, 1984); DeSoto General Hospital v. Heckler, Civil Action 83-1050-B (M.D. La. June 20, 1984); Alexandria Hospital v. Heckler, 586 F.Supp. 581 (E.D.Va.1984); St. Joseph's Hospital, Tucson v. Heckler, Slip Op. 82-781 (D.Ariz. April 24, 1984); Lloyd Noland Hospital and Clinic v. Heckler, Slip Op. CV-83-PT-0868-S (N.D.Ala. April 5,1984); Bedford County Memorial Hospital v. Heckler, 583 F.Supp. 367 (W.D.Va. 1984); Humana of Illinois, Inc., 584 F.Supp. 618 (C.D.Ill.1984), aff'd, 760 F.2d 1460 (7th Cir.1985); Albany General Hospital v. Heckler, 584 F.Supp. 614 (D.C.Or.1984), appeal docketed, No. 84-3865 (9th Cir. June 6, 1984); St. James Hospital v. Heckler, 579 F.Supp. 757 (N.D.Ill.1984); Chelsea Community Hospital v. Heckler, Slip Op. 83 CV-6126-AA (E.D.Mich. Dec. 20, 1983); Mt. Carmel Mercy Hospital v. Heckler, 581 F.Supp. 1311 (E.D. Mich. 1983); Abington Memorial Hospital v. Heckler, 576 F.Supp. 1081 (E.D.Pa.1983) aff'd 750 F.2d 252 (3d Cir. 1984).
      To our knowledge, the malpractice rule has been upheld in four cases. Humana of Aurora, Inc. v. Heckler, No. 83-7-70 (D.Colo. Sept. 19, 1983), rev’d and remd’d, 753 F.2d 1579 (10th Cir.1985); Walter O. Boswell Memorial Hospital v. Heckler, 573 F.Supp. 884 (D.D.C.1983) rev’d and remd'd, 749 F.2d 788 (D.C.Cir.1984); Cumberland Medical Center v. Heckler, 578 F.Supp. 39 (M.D.Tenn.1983) appeal docketed, No. 83-5549 (6th Cir. Aug. 9, 1983); Athens Community Hospital v. Heckler, 565 F.Supp. 695 (C.D.Tenn. 1983), appeal docketed, No. 83-5546 (6th Cir. Aug. 5, 1983). As reflected by the subsequent history above, two of these four cases have been reversed and remanded.


source: Caselaw Access Project

author: LONGOBARDI, District Judge.

license: Public Domain

text:
    CLARK OIL CO., INC., on Behalf of itself and all others similarly situated, Plaintiff, v. TEXACO INC., Defendant and Counterclaim Plaintiff, v. CLARK OIL CO., INC. and Department of Energy, Counterclaim Defendants.
    Civ. A. No. 83-869 LON.
    United States District Court, D. Delaware.
    May 9, 1985.

      John James Conly, Wilmington, Del., for Clark Oil Co., Inc.; Gregg R. Potvin, of Southmayd, Powell, Taylor & Bower, Washington, D.C., of counsel.
    Richard D. Allen, and William O. LaMotte, III, of Morris, Nichols, Arsht & Tunnel, Wilmington, Del., for Texaco Inc.; Joseph P. Foley, and David A. Luttinger, of Texaco Inc¡, New York City, of counsel.
    Sue L. Robinson, Asst. U.S. Atty., Wilmington, Del., for Dept, of Energy; Marcia K. Sowles, Larry P. Ellsworth, Maureen Katz, and David A. Engels, Dept, of Energy, Washington, D.C., of counsel.
   OPINION

LONGOBARDI, District Judge.

This is an action for damages filed by Clark Oil Co., Inc. (“Clark”), on its own behalf and as the representative of a class of Texaco distributors, against Defendant Texaco, Inc. (“Texaco”) under section 210 of the Economic Stabilization Act, 12 U.S.C. § 1904. Clark, a distributor of Texaco products, alleges that Texaco violated the Department of Energy’s (“DOE”) crude oil price regulations thereby overcharging it and the other class members during the period between September 1,1973, and January 18, 1981. Texaco has joined DOE as a third-party Defendant by filing what is captioned a counterclaim against both DOE and Clark challenging DOE’s interpretation of the regulatory definition of “property.” Presently pending before the Court is DOE’s request that this Court stay the case pending the completion of DOE’s ongoing administrative enforcement proceeding against Texaco or, in the alternative, dismiss Texaco’s counterclaim since DOE is not a necessary party in the private action and Texaco’s claim is not ripe for judicial review.

REGULATORY BACKGROUND

The questions at issue in Texaco’s counterclaim have been the subject of a long line of judicial and administrative proceedings. The dispute arises out of DOE regulations first promulgated in 1973 which subject domestic crude oil production to a two-tier system of federal price controls. 38 Fed.Reg. 22,536 (Aug. 22, 1973); 10 C.F.R. 212. At that time, the objective of the pricing system was to stimulate domestic crude oil production while controlling inflation by maintaining price controls on oil presently being produced. 41 Fed.Reg. 36,172, 36,173 (Aug. 16, 1976). To achieve this objective, the regulations set up two categories of domestically produced crude oil; “old oil” which was subject to a price ceiling; and “new oil” which could be sold at a higher free market price. In order to determine the amount of oil subject to the ceiling price, producers were required to measure current monthly production and sale of crude oil from a “property” against the amount of crude oil produced and sold from that same “property” in the same month of 1972. Because of the necessity of determining whether oil should be classified as old or new oil in order to determine whether it was subject to the price ceiling, the “property” concept became “the most fundamental aspect of the two-tier pricing system. 41 Fed.Reg. 4931, 4938. Unfortunately, the definition of “property” promulgated by the agency in 1973 provided little guidance as to how it should be applied. The definition merely stated that “ ‘[p]roperty’ is the right which arises from a lease or from a fee interest to produce domestic crude oil.” 38 Fed.Reg. 22,536, 22,538; 10 C.F.R. 212.72.

The first interpretation of the property definition was set forth two years later in Ruling 1975-15 and stated the following:

... the existence of two or more separate and distinct reservoirs will not in itself create two or more separate “properties”____ [W]here a producer holds a single right to produce crude oil from two or more reservoirs, together the two or more reservoirs constitute a single property; where there are separate and distinct rights to produce crude oil from each reservoir, each reservoir accordingly represents a different property.

40 Fed.Reg. 40,832, 40,833 (Sept. 4, 1975).

Ruling 1975-15 did not resolve the issue of when, if ever, oil production from a “single right to produce” could legitimately be broken into separate properties, although DOE attempted to resolve that issue on several other occasions. See, 41 Fed.Reg. 1564 (Jan. 8, 1976); 41 Fed.Reg. 4931 (Feb. 3, 1976); 41 Fed.Reg. 16,179 (Apr. 16, 1976). Thus, the “right to produce” definition remained substantially unchanged until August of 1976 when DOE issued amendments to the original definition. The amendments were entitled “Clarifications to Mandatory Petroleum Price Regulations Applicable to Domestic Crude Oil” and addressed application of the “property” definition both prospectively and retroactively. For prospective purposes, DOE adopted an amended definition of “property” which became effective on September 1, 1976. The new definition provided:

“Property” means the right to produce domestic crude oil, which arises from a lease or from a fee interest. A producer may treat as a separate property each separate and distinct producing reservoir subject to the same right to produce crude oil, provided that such reservoir is recognized by the appropriate governmental regulatory authority as a producing formation that is separate and distinct from, and not in communication with, any other producing formation.

41 Fed.Reg, 36,172, 36,184 (Aug. 26, 1976); 10 C.F.R. 212.72. In the preamble to the new regulation, DOE discussed the advantages of the new approach by noting that it combined the incentive to develop new resources inherent in a reservoir by reservoir approach with administrative ease since DOE could defer to the appropriate state agency to make the reservoir by reservoir determination. Id. at 36,179.

The preamble also set forth a number of retroactive clarifications to the property definition. The discussion made it clear that, in most situations, separate “property” designations would not be accepted as a basis for calculating quantities of old and new oil produced prior to September 1 unless such designations were pursuant to a separate right to produce. “Although the evidence is not unambiguous, FEA has concluded that CLC by its definition of the term ‘property’ intended to refer to the premises described in the oil and gas lease pursuant to which crude oil was being produced.” 41 Fed.Reg. at 36,174. The agency concluded that it would have been “expansive” and “unwarranted” to give the old property interpretation such a broad meaning as to permit treatment of separate reservoirs as separate properties. It found that such a broad retroactive interpretation would be unfair to producers who had “adhered closely to the regulations.” Id. at 36,177.

Nonetheless, the agency also noted that circumstances “may have made it inequitable or impracticable to apply the literal meaning of [the right to produce definition] in certain circumstances.” Id. at 36,174. Thus, in a few circumstances, a single lease or fee interest might create more than one right to produce or premises subject to a single right to produce could be treated as multiple properties. The agency found that a single instrument could create more than one right to produce “where the rights or duties created under a single instrument are significantly different ... [and] a producer has in good faith relied upon such differences____” 41 Fed.Reg. 36,172, 36,176. In addition, premises subject to a single right to produce could be treated as separate properties in four situations: (1) where a fee or lease interest conveyed a single right to produce for non-contiguous tracts that were developed, produced and historically accounted for as separate entities; (2) on a very large tract where “separate geological formations” were developed, produced and accounted for separately; (3) if less than an entire premises had been unitized with premises subject to another right to produce the non-unitized portion could be accounted for as a separate property; and finally (4) portions of a premises subject to a single right to produce could be treated as separate properties “where the production from identifiable portions of the premises is required to be measured and accounted for separately for purposes of determining severance tax liability or for purposes of accounting to royalty owners.” 41 Fed.Reg. at 36,176-77.

These clarifications contained in the August 20 preamble were reissued as Ruling 1977-1 on January 19, 1977. 42 Fed.Reg. 3628. Six days later, DOE issued Ruling 1977-2 which reaffirmed the policy adopted in 1977-1 and attempted to resolve issues left open by the August 20, 1976 release. 42 Fed.Reg. 4409 (Jan. 25, 1977).

Ruling 1977-1 reprinted the August 20 Notice almost verbatim. 42 Fed.Reg. 3628, 3629, note 1. DOE stated that the “purpose of this Ruling is simply to set forth in the format of a Ruling the FEA interpretations, which were initially set forth in the August 20 notice ... to eliminate possible questions concerning the legal significance of the August 20 clarification.” Id. Likewise, Ruling 1977-2 was issued to further clarify some of the substantive issues addressed in the August 20 notice. The first clarification addressed the issue of whether retroactive determinations of property status made in accordance with the clarifications set forth in Ruling 1977-1 could be used after September 1, 1976. 42 Fed.Reg. 4409, 4410. The FEA concluded that producers that had previously made property designations consistent with the clarification contained in the August 20 notice and Ruling 1977-1 could continue to use those designations after September 1, 1976. However, DOE would not allow such treatment to be adopted for the first time pursuant to FEA’s issuance of the August 20 notice. Id.

The 1977-2 clarifications exemplified the strict application DOE had chosen to give its retroactive property clarification. For example, DOE clarified its position on segregation of a premises subject to a single right to produce according to severance tax or royalty owner accountability. The agency stated that the mere existence of separate royalty owners and a requirement to account to them separately for their proportional interests did not justify treating the premises as a separate property. Id. at 4410. The ruling also reiterated the conclusion of Ruling 1977-1 which stated that producers were never justified in treating premises as separate properties simply because of the existence of separate reservoirs. The clarification centered on the “very large tract” exception to the right to produce definition first set forth in the August 20 notice. At that time, DOE had stated: “separate geological formations subject to the same right to produce which have been developed and produced separately, and which have historically and consistently been accounted for separately may continue to be so regarded.” 41 Fed. Reg. 36,172, 36,177. Ruling 1977-1 deleted that reference to “geological formations” out of concern that the provision might have been construed as permitting those producers operating on very large tracts with more than one reservoir to treat each reservoir as a separate geological formation and thus as separate properties. 42 Fed.Reg. 3628, 3629 n. 2. Ruling 1977-2 further clarified this definition by stating that a “geological formation” was not an individual reservoir but comprised several reservoirs generally having common characteristics. 42 Fed.Reg. 4409, 4411 (Jun. 25, 1977).

Ruling 1977-2 also attempted to clarify the prospective definition of property as set forth in the August 20 notice particularly in respect to what constitutes the “recognition” by the appropriate governmental authority which will allow a property subject to a single right to produce to be accounted for separately. 42 Fed.Reg. 4409, 4411. The agency acknowledged that the matter may often be left for resolution on a case by case basis and set forth the general guidelines to be used in making such determination. The most important requirement was that a state regulatory body must have made a factual determination that the “reservoir is separate and distinct from, and not in communication with, any other reservoir subject to the same right to produce.” Id. at 4411.

ADMINISTRATIVE PROCEEDINGS

In 1975, DOE began a preliminary investigation of Texaco’s compliance with the crude oil pricing regulations. At the conclusion of that preliminary audit, the agency advised Texaco that it had reason to believe Texaco had violated the regulations in a number of ways, one of which was through the use of improper property determinations. Over a year later, on August 1, 1977, DOE initiated a formal audit of Texaco’s compliance with the oil pricing regulations. On December 12, 1977, DOE issued a “Fact Statement” which asserted that Texaco’s property determinations were in violation of the definition of property in 10 C.F.R. Section 212 and Rulings 1975-15, 1977-1 and 1977-2. The Office of Special Counsel (“OSC”) began an enforcement proceeding by issuing a Notice of Probable Violation (“NOPV”) to Texaco. The NOPV identified the instances where OSC had tentatively concluded that Texaco had violated the price controls. On May 1, 1979, the administrative proceedings advanced to the next stage when OSC issued a Proposed Remedial Order (“PRO”) to Texaco. The PRO alleged that Texaco had violated the pricing regulations from September, 1973, through March, 1979, and that the overcharges resulting from Texaco’s pricing violations were over $748,000,000 plus interest and involved over 1,500 “properties.”

Pursuant to the regulatory procedure, Texaco filed the required Notice of Objection within fifteen days after publication of the notice of the PRO. 10 C.F.R. 205.-193(a). In addition, Texaco requested a three hundred sixty-five day extension to file its statement of objections to the PRO. DOE granted a modified extension and, on August 10, 1979, Texaco filed a “Preliminary Statement of Legal Objections” alleging that the DOE rulings and the pricing regulations were procedurally and substantively invalid and that even if the rulings were valid, Texaco’s property determinations were proper.

The next step in the regulatory process was an evidentiary hearing before the Office of Hearings and Appeals (“OHA”) which is ongoing at this time. Both legal and factual issues have been briefed and argued at this hearing which has lasted almost five years. Briefing on the factual objections alone contained over 8,000 pages of text excluding exhibits. Upon conclusion of the hearing, the OHA may issue a final Remedial Order. The Remedial Order may adopt the findings contained in the PRO or any modification thereof. 10 C.F.R. 205.199(B). The filing of a Remedial Order, however, does not represent the end of the administrative proceedings. The Remedial Order may then be appealed to the Federal Energy Regulatory Commission (“FERC”). The Commission may stay the effect of the Remedial Order, unless the public interest requires otherwise, and afford the parties “an opportunity for a hearing, including, at a minimum, the submission of briefs, oral or documentary evidence, and oral arguments.” 42 U.S.C. § 7193(c). Considering the length of time which has already expired in this case, the appeal proceeding could take a substantial amount of time.

PRIOR JUDICIAL PROCEEDINGS

The controversy in this case has not been confined to the administrative area. In July of 1979, shortly after the PRO was issued, Texaco filed suit in this court. In that suit, as in the instant case, Texaco challenged DOE’s interpretation of the definition of property. This court dismissed the suit on ripeness grounds finding that Texaco’s claim could not be ripe until DOE determined or Texaco conceded that its actions were in violation of the challenged regulations. Texaco, Inc. v. Department of Energy, 490 F.Supp. 874, 887 (D.Del. 1980). The suit was also dismissed on ripeness grounds as to Louisiana and the Louisiana Land and Exploration Company (“LL & E”) which had been granted leave to intervene in Texaco’s action. Id. at 889.

Louisiana then refiled in the United States District Court for the Western District of Louisiana seeking a finding on substantially the same issue, i.e., whether reservoir-wide producing units established by the state were separate “properties” for the purposes of the oil pricing regulations. The court then granted Texaco and LL & E leave to intervene and ultimately granted plaintiffs’ motion for partial summary judgment. State of La. v. Department of Energy, 519 F.Supp. 351 (W.D.La.1981). DOE appealed and the Temporary Emergency Court of Appeals reversed. Department of Energy v. State of Louisiana, 690 F.2d 180 (TECA 1982). The appeals court found ripeness not to be a barrier in that case because Louisiana was suffering an immediate and direct hardship as a result of the property controversy. The court then went on to defer to the agency’s interpretation of the meaning of its own ruling, finding that Rulings 1977-1 and 1977-2 were reasonable insofar as they refused to sanction the treatment of reservoir-wide LOC production units as separate properties prior to September of 1976. On April 4, 1983, the Supreme Court denied Texaco’s petition for writ of certiorari. 103 S.Ct. 1522 (1983).

The TECA decision in Department of Energy v. Louisiana precludes Texaco from asserting on a pre-1976 basis that its treatment of LOC units as separate properties was proper under the regulations. However, the validity of the regulations and Texaco’s treatment of separate reservoirs and severance tax or royalty owner entities as separate properties has yet to be litigated. Until that determination is made, Texaco’s overall liability remains in question. Thus, the administrative enforcement proceeding has continued and Texaco has filed a counterclaim for declaratory judgment in this court on the remaining legal issues. From the face of the counterclaim, this Court finds that the exact relief sought by Texaco is difficult to determine. Even at argument, the Court found it necessary to request some definition of the relief requested. However, after a reading of the briefs and hearing counsel for Texaco’s further statements at oral argument, it appears that Texaco seeks an affirmative statement of the proper legal standards to be used in determining the validity of Texaco’s property designations between 1973 and 1981. After consideration of the briefs and oral argument, the Court finds that DOE’s motion to stay shall be granted on the ground of primary jurisdiction.

RIPENESS

DOE asserts that this court’s decision in Texaco, Inc. v. Department of Energy, 490 F.Supp. 874, dismissing Texaco’s challenge to DOE’s pricing regulations on ripeness grounds is dispositive of Texaco’s counterclaim in the present action. As it argued in Texaco, DOE maintains that this action cannot be ripe until the agency determines or Texaco concedes that it has violated the challenged regulations. Texaco argues that although it has not yet conceded that it has violated the regulations, the circumstances in this case differ substantially from those in Texaco, Inc. v. Department of Energy. In the prior case, Texaco as plaintiff presented the contested issues of regulatory construction. In the present case, the issues of regulatory construction arise as the natural consequence of a private action for damages brought by Clark Oil against Texaco as Defendant.

In addressing the contentions of the parties, it is necessary to keep the basic rationale of the “ripeness doctrine” in mind. In the context of pre-enforcement review of agency action, the major purpose of the doctrine is to prevent the courts “from entangling themselves in abstract disagreements over administrative policies, and also to protect the agencies from judicial interference until an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties.” Abbott Laboratories v. Gardner, 387 U.S. 136, 148, 87 S.Ct. 1507, 1515, 18 L.Ed.2d 681 (1967). The Abbott Laboratories trilogy set forth four considerations in determining whether a controversy is ripe for pre-enforcement judicial relief: (1) whether the issues presented are purely legal; (2) whether the issues are based on final agency action; (3) whether the controversy has a direct and immediate impact on the plaintiffs’ business; and (4) whether the litigation is calculated to expedite final resolution rather than delay or impede effective agency enforcement. Phillips Petroleum Co. v. Federal Energy, 435 F.Supp. 1239, 1245 (D.Del.1977).

These questions were addressed by Judge Stapleton in Texaco, Inc. v. Department of Energy, 490 F.Supp. at 887. After answering the first two questions in the affirmative, he went on to discuss the requirement of direct and immediate hardship. Noting that an action is unsuited for judicial review where “hardship feared is minimal, remote in time, speculative, or contingent on the occurrence of some other event”, he found that “in light of Texaco’s failure to concede that it violates Rulings 1975-15, 1977-1, and 1977-2 and the fact that the DOE has yet to determine that Texaco has violated those regulations, they cannot be said to have a current adverse effect upon Texaco____” 490 F.Supp. at 889.

Nothing has changed since Judge Staple-ton’s opinion of 1980. Texaco has still not conceded that it has violated any agency regulations nor have any violations been found by the agency. Nothing has changed except the fact that Clark Oil has brought a private action against Texaco thereby giving Texaco another opportunity to litigate the issues of regulatory construction raised in its 1980 lawsuit against DOE. Texaco contends that the issues raised by its counterclaim are now ripe because they are raised in the context of Clark Oil’s action and must be resolved in order to determine whether Texaco is liable to Clark Oil. The Court finds this argument persuasive and agrees that were the Clark Oil ease to go forward at this time, the issues raised by Texaco’s counterclaim would be decided. Thus,, the real question facing the Court is whether to proceed with the entire Clark Oil case, including the issues raised in Texaco’s counterclaim, or stay the entire action on the grounds of primary jurisdiction pending the outcome of the agency proceeding.

PRIMARY JURISDICTION

DOE argues that this Court should stay proceedings in the Clark Oil action because of the doctrine of primary jurisdiction. The doctrine of primary jurisdiction has been referred to as “a principle, now firmly established, that in cases raising issues of fact not within the conventional experience of judges or cases requiring the exercise of administrative discretion, agencies created by Congress for regulating the subject matter should not be passed over____” Far East Conf. v. United States, 342 U.S. 570, 574, 72 S.Ct. 492, 494, 96 L.Ed. 576 (1952). When primary jurisdiction is applied, the court stays its proceedings in a case until the agency adjudication is complete. The purpose of the doctrine is not to divide power between a court and an agency but to determine which tribunal is best able to make an initial finding. “The reason for the doctrine is not a belief that an agency’s expertise makes it superior to a court; rather, the reason is that a court confronted with problem’s within an agency’s area of specilization should have the advantage of whatever contributions the agency can make to the solutions.” Quigley v. Exxon Company U.S.A., 376 F.Supp. 342, 355 (M.D.Pa. 1974). In addition to the added benefits of an agency’s expertise in a particular area, the primary jurisdiction doctrine ensures uniformity in the law. If courts act without any consideration of what a specialized agency has to offer “parties who are subject to the agency's continuous regulation may become the victims of uncoordinated and conflicting requirements.” 3 Davis, Administrative Law Treatise at 5, § 19.01 (1958).

The primary jurisdiction doctrine was originally developed in actions arising under the Interstate Commerce Act, see, Texas & Pac. Ry. v. Abilene Cotton Oil Co., 204 U.S. 426, 27 S.Ct. 350, 51 L.Ed. 553 (1907), but is now applied in any situation where the matter brought before the federal court is within the special competence of an agency. Terrell Oil Corp. v. Atlantic Richfield Co., 468 F.Supp. 860, 864 (E.D. Tenn.1977). Application of the doctrine is particularly appropriate where complex policy considerations are at issue. For example, in deciding whether AT & T had to provide inter-connection service to a competitor, the Third Circuit chose to defer to the expertise of the FCC.

For a court to resolve this issue results in a judicial determination of the scope of permissible competition between the specialized carriers, such as MCI and the existing carriers, such as AT & T. Such a determination, involving, as it must, the comparative evaluation of complex technical, economic, and policy factors, as well as consideration of the public interest, should be made, in the first instance, by the administrative agency which has been entrusted with the primary responsibility for making such a determination and which has the expertise necessary for the development of sound regulatory policy.

MCI Communications v. American Telephone & Telegraph Co., 496 F.2d 214, 222 (3d Cir.1974).

As the MCI opinion suggests, primary jurisdiction is not always applied whenever an agency and a court have concurrent jurisdiction. Indeed, primary jurisdiction should only be utilized if an agency’s special technical or policy expertise would be advantageous in reaching a final decision. For example, in Nader v. Allegheny Airlines, 426 U.S. 290, 96 S.Ct. 1978, 48 L.Ed.2d 643 (1976), the doctrine was found inapplicable in spite of the concurrent jurisdiction of the court and the Civil Aeronautics Board since the question at issue was a common law claim which did not bring into play any technical question of fact uniquely within the agency’s expertise. Id. at 306-07, 96 S.Ct. at 1988.

Although no fixed formula exists for applying primary jurisdiction, United States v. Western Pac. R. Co., 352 U.S. 59, 64, 77 S.Ct. 161, 165, 1 L.Ed.2d 126 (1956), the Temporary Emergency Court of Appeals has set forth four factors to be considered: (1) whether the question at issue is within the conventional experience of judges; (2) whether the question at issue lies peculiarly within the agency’s discretion or requires the exercise of agency expertise; (3) whether a danger of inconsistent rulings exists; and (4) whether a prior application was made to the agency. Oasis Petroleum Corp. v. U.S. Depart. of Energy, 718 F.2d 1558, 1564 (TECA 1983).

Texaco maintains that these criteria are not met in the present case. It argues that its counterclaim places narrow legal issues before the Court in that it merely seeks a determination as to the construction and validity of the August 20 pronouncement and its subsequent clarifications. Texaco argues that such a narrow legal question is within the conventional experience of judges and requires little agency expertise. It is true that a court need not always defer to the agency for its initial decision when the question at issue is purely legal. Mobil Oil Corp. v. Department of Energy, 520 F.Supp. 420, 448 (N.D.N.Y.1981), rev’d on other grounds, 659 F.2d 150, cert, denied, 454 U.S. 1110, 102 S.Ct. 687, 70 L.Ed.2d 651 (1981). However, even if the Court were to accept Texaco’s argument that the issues raised in the counterclaim are simple legal issues, the counterclaim cannot be examined out of the context of the entire Clark Oil case. DOE has moved for a stay of the entire case, not simply for a stay of action on the counterclaim. Texaco itself states that the issues in Texaco’s counterclaim “are part and parcel of Clark Oil’s damage action.” Thus, the real question before the Court is whether primary jurisdiction should prevent the court from beginning any proceedings in the Clark Oil case at this time.

When all the aspects of Clark Oil’s case against Texaco are considered, it becomes apparent that this case is an optional case for primary jurisdiction to be applied. There are two steps that must be taken before this Court could come to a final decision in this case. The first step is a legal determination as to the meaning and legal significance of the August 20 notice and the subsequent agency rulings which would involve not only an examination of the procedures used in adopting the pronouncements but also a finding as to the substantive meaning of any pronouncement found to be valid. In the present case, such a determination involves much more than a simple finding as to the meaning of words used in their ordinary sense. As the long history leading up to this lawsuit suggests, years of policy considerations have gone into the formulation of this regulation. The agency is more familiar with the shifting policy and technical considerations behind the implementation of these regulations than is this Court. In light of the long and involved history of the “property” definition at DOE, the only prudent path to follow is to allow those responsible for the creation of that history to make an initial determination as to its meaning.

Even if this Court chose to make a determination as to the legal issues presented in the case, the remaining factual determinations are even more complex. An evaluation of Texaco’s compliance with the pricing regulations requires the application of the regulations to more than 1,500 “properties.” The fact that the Evidentiary Appendix submitted by Texaco in the agency proceeding is approximately 160,000 pages in length gives some idea of the mass of evidence involved in this case. Again, it is only prudent, when such complex factual issues are involved, to allow the agency to make the initial determination.

Not only is the agency more experienced in making the particular findings necessary in this case, it has already taken substantial steps in that direction. For this Court to begin such proceedings now, after five years of litigation at DOE, would not be the most efficient use of judicial resources.

As the Supreme Court noted in Far East Conf. v. United States, “[ujniformity and consistency in the regulation of business entrusted to a particular agency are secured, and the limited functions of review by the judiciary are more rationally exercised, by preliminary resort ... to agencies that are better equipped than courts by specialization, by insight gained through experience, and by more flexible procedure.” 342 U.S. at 574-75. In this situation involving both a complex set of regulations and a vast amount of evidentiary data, it is best to defer to the agency for an initial determination. Such deference is not an abdication of this Court’s responsibility but a prudent gesture to allow the Court the benefit of the agency expertise.

For the foregoing reasons, DOE’s motion to stay on the grounds of primary jurisdiction is granted. DOE’s motion to dismiss is denied at the present time; however, such motion may be renewed at the close of the agency proceeding.

APPENDIX A

      . The regulations were first issued and administered by the Cost of Living Council ("CLC”) in 1973. By September, 1975, the Federal Energy Administration ("FEA") had taken over the administration of the pricing system. Today, the regulations are administered by the Department of Energy ("DOE”). To avoid needless confusion, this opinion will refer to the responsible agency as DOE.

      . The regulations were issued pursuant to authority conferred by the Economic Stabilization Act of 1970, 12 U.S.C. § 1904, the Trans-Alaska Pipeline Authorization Act, Pub.L. 93-153, 87 Stat. 576 (1973); the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. §§ 751, et seq.; the Energy Policy and Conservation Act, 42 U.S.C. §§ 6201, et seq.; and the Department of Energy Organization Act, 42 U.S.C. §§ 7101, et seq. (1977).

      . For a diagram illustrating how the property concept affects oil pricing procedures, see Appendix A.

      . It is not uncommon in the oil industry for less than an entire premises subject to one right to produce to be aggregated, i.e., unitized, with all or portions of premises subject to another right to produce.

      . It is these two clarifications concerning severance tax or royalty owner accountability and separate reservoirs which Texaco contests. By summarizing the agency's actions, the Court in no way takes a position on Texaco’s arguments.

      . The 1977-2 ruling went on to detail what makes a reservoir separate and distinct from another. 42 Fed.Reg. 4412. That discussion is not relevant here.

      . OSC is an office of the Economic Regulatory Administration within DOE and was responsible for enforcement of the Mandatory Petroleum Price and Allocation Regulation, 10 C.F.R. Parts 210, 211 and 212 with respect to the nation’s thirty-four major oil refining companies.

      . A NOPV may be issued if the ERA has reason to believe that a regulatory violation has occurred, is continuing or is about to occur. 10 C.F.R. 205.191(a).

      . A Proposed Remedial Order sets forth the relevant facts and law and is issued if the ERA finds, after the 30 day or other period authorized for reply to the NOPV, that a violation has occurred, is continuing or is about to occur. 10 C.F.R. 205.192(a), (c).

      . The regulations require that a person who has filed a Notice of Objection shall file a Statement of Objections to a Proposed Remedial Order within 40 days after service of the Notice of Objection. An extension of time may be granted for good cause. The Statement of Objections should set forth the issues of fact or law which the person intends to contest. 10 C.F.R. 205.-196(a), (b).

      . The OHA is an adjudicatory body within the DOE which is separate from the agency’s enforcement branch.

      . The hearing was expected to conclude in May, 1985, although the Court has no information as to whether or not it has concluded at this time.

      . Louisiana's interest lay in the fact that it received a severance tax based on the price at which oil and gas produced in the state is first sold or transferred. Louisiana also receives a royalty on lands that it leases based on that same price. The changed interpretation of the definition of property caused many producers to refund overcharges to dealers resulting from their earlier treatment of multiple state defined units as multiple properties. Louisiana then received claims for refunds of corresponding amounts of royalties and severance tax payments. Immediate resolution of the property concept provided Louisiana with a necessary finding to adequately defend its position. 690 F.2d at 187.

      . The LOC is the agency primarily responsible for the regulation of the production of oil and gas within the State of Louisiana. A LOC unit is the name given the reservoir-wide producing units established and recognized by Louisiana for regulatory purposes.

      . In its brief, Texaco argues that it merely seeks an answer to two basic administrative law questions, the first of which is "whether the August 20 notice document constituted a legislative rule and, if so, whether the subsequent DOE pronouncements modifying that rule are invalid because of the failure to follow the administrative procedures necessary to modify a legislative rule.” Secondly, Texaco seeks a determination as to whether or not “Rulings 1977-1 and 1977-2 and clarification 78-5 are valid ... or invalid attempts to legislate____” Texaco’s Answering Brief, p. 26. However, a close examination of Texaco’s counterclaim reveals that such a finding is not as simple as Texaco suggests.

        In asking this Court to determine the legal significance of agency pronouncements, Texaco also requests an interpretation of the August 20 pronouncement in that Texaco seeks a finding as to the meaning of the ‘‘very large tract" and the "severance tax or royalty owner accountability" retroactive exceptions to the “right to produce” definition of property.

      . Abbott Laboratories is the first in a trilogy of cases where the Supreme Court addressed the ripeness doctrine in the context of pre-enforcement review of agency action. See also, Toilet Goods Association v. Gardner, 387 U.S. 158, 87 S.Ct. 1520, 18 L.Ed.2d 697 (1967) and Gardner v. Toilet Goods Association, 387 U.S. 167, 87 S.Ct. 1530, 18 L.Ed.2d 704 (1967).

      . The doctrine is particularly applicable in actions such as this arising under the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. §§ 751, et seq. See, e.g., Tresler Oil Co. v. Champlin Petroleum Co., 530 F.Supp. 696 (S.D. Ohio 1982); Terrell Oil Corp. v. Atlantic Richfield Co., 468 F.Supp. 860 (E.D.Tenn.1977).

      . See note 14, supra, for a discussion of the requested relief.

      . Texaco argues that this court should consider the length of the administrative proceeding and the fact that, after the OHA proceeding is completed, there is a possibility that the action may be appealed to FERC. Although the lengthiness of an administrative proceeding is one consideration in determining whether primary jurisdiction should apply, Rohr Industries v. Wash. Metro. Area Transit Auth., 720 F.2d 1319 (D.C.Cir. 1983), it is not conclusive. In the present case, the length of the agency proceeding may not be so much a symbol of the inefficiency of the agency but of the complexity of the factual and legal issues.