273 F.3d 805 (8th Cir. 2001), 00-3139, Minnesota Senior Fed'n v United States

Docket Nº:00-3139
Citation:273 F.3d 805
Party Name:MINNESOTA SENIOR FEDERATION, METROPOLITAN REGION; MARY SARNO, PLAINTIFFS-APPELLANTS, v. UNITED STATES OF AMERICA; TOMMY G. THOMPSON[*], SECRETARY OF HEALTH AND HUMAN SERVICES, DEFENDANTS-APPELLEES.
Case Date:December 13, 2001
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
 
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Page 805

273 F.3d 805 (8th Cir. 2001)

MINNESOTA SENIOR FEDERATION, METROPOLITAN REGION; MARY SARNO, PLAINTIFFS-APPELLANTS,

v.

UNITED STATES OF AMERICA; TOMMY G. THOMPSON[*], SECRETARY OF HEALTH AND HUMAN SERVICES, DEFENDANTS-APPELLEES.

No. 00-3139

United States Court of Appeals, Eighth Circuit

December 13, 2001

Submitted: May 17, 2001

Appeal from the United States District Court for the District of Minnesota.

Page 806

Before Loken, Ross, and Fagg, Circuit Judges.

Loken, Circuit Judge.

The "Medicare+Choice" program was enacted as part of the Balanced Budget Act of 1997 and is now codified at 42 U.S.C. §§ 1395w-21 to w-28. The program includes reimbursement provisions that encourage managed health care organizations to be cost-effective and to pass cost savings on to their members in the form of additional benefits or reduced charges. As under prior law, cost effectiveness

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is measured by a formula based primarily on "fee-for-service" health care costs in each local community, an approach that results in substantial geographic variations. Though Congress intended to reduce these disparities, the Medicare+Choice formula still produces wide variations in the payments Medicare provides to managed health care providers. Because "excess" payments may be passed on to Medicare beneficiaries, the end result is that Medicare benefits are more generous in some communities than in others.

In this case, the Minnesota Senior Federation and Mary Sarno, a Florida resident who would like to live with her daughter in Minnesota, seek a declaratory judgment that the Medicare+Choice formula violates their constitutional rights to travel and to equal protection of the law. The district court1 granted defendants' motion to dismiss for failure to state a claim upon which relief may be granted. Minnesota v. United States, 102 F.Supp.2d 1115 (D. Minn. 2000).2 The Federation and Sarno appeal. Reviewing the dismissal de novo, and taking all facts alleged in the complaint as true, see Knapp v. Hanson, 183 F.3d 786, 788 (8th Cir. 1999) (standard of review), we affirm.

I. Background

Medicare was established in 1965 and presently serves some thirty-nine million elderly and disabled Americans. Uniform benefits were initially provided under Medicare Part A and Medicare Part B, and these programs continue today. See 42 U.S.C. §§ 1395c-1395i-5; 1395j-1395w-4. For beneficiaries who enroll in Parts A and B and elect to obtain benefits on a "fee-for-service" basis, Medicare payments are made for each service rendered. Amounts Medicare pays to providers vary in part because of geographic differences in the fees charged for providing those services.

In 1972, Congress enacted Medicare Part C, a program that permits managed health care organizations to enter into "risk contracts" under which the organization provides a full range of Medicare services and receives a single monthly capitation payment for each enrollee. See 42 U.S.C. § 1395mm; 42 C.F.R. § 417.594. Capitation payments are determined by a formula that is based upon the projected cost of treating beneficiaries under the traditional fee-for-service system. Thus, the formula incorporates wide geographic variations in health care costs. But under Medicare Part C, the variations can result in different benefits to Medicare beneficiaries because, when a managed care organization receives more in capitation payments from Medicare than it costs to provide Medicare services to its enrollees (an "excess" that is determined by a complex formula), it may pass this cost saving on to enrollees in the form of reduced premiums, reduced co-payments, or additional health care benefits. See 42 U.S.C. § 1395mm(g)(2); 42 C.F.R. § 417.592.

Medicare+Choice, which is the new Medicare Part C, was enacted in 1997 to "allow beneficiaries to have access to a wide array of private health plan choices in addition to traditional fee-for-service Medicare.... [and] enable the Medicare program to utilize innovations that have helped the private market contain costs

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and expand heath care delivery options." H.R. Conf. Rep. No. 105-217, at 585 (1997), reprinted in 1997 U.S.C.C.A.N. 176, 205-06. Medicare+Choice includes a modified capitation payment formula intended to reduce the prior geographic payment variations. But the government concedes that substantial discrepancies remain. For example, Mary Sarno is a Medicare Part C enrollee who lives in Broward County, Florida. In 1999, the managed care reimbursement rate for Broward County, Florida, was $676.64. Sarno's daughter lives in Minnesota. In 1999, the managed care reimbursement rate for Dakota County, Minnesota, was $394.92. The generous reimbursement rate in Broward County enabled Sarno's plan to offer unlimited prescription drugs, no co-payments for physician visits and various services, and no annual premium. By contrast, Medicare Part C enrollees in Dakota County paid an annual premium of $1,137, were charged higher co-payments, and received virtually no prescription drug coverage. Such disparities are the basis for appellants' claims that the Medicare+Choice formula violates their travel and equal protection rights.

II. Discussion

The Federation and Sarno attack the discriminatory impact of the Medicare+Choice formula because it results, for example, in Medicare beneficiaries in southern Florida receiving more benefits at less cost than their similarly situated counterparts in Minnesota. Appellants mount two constitutional challenges to this federal statutory regime. First, they argue that because the formula implicates the constitutional right to travel, it is subject to strict scrutiny and fails that standard of review because it is not narrowly tailored to meet a compelling government interest. Second, they argue in the alternative that the formula does not withstand even deferential rational basis review and therefore violates their right to equal protection guaranteed by the Due Process Clause of the Fifth Amendment.

A. Equal Protection. We agree with the district court that appellants' alternative equal protection argument is without merit. When a federal economic or social welfare program is challenged on equal protection grounds, and no suspect class or fundamental constitutional right is implicated, the proper standard of judicial...

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