National Kidney Patients Ass'n v. Sullivan
| Decision Date | 01 June 1992 |
| Docket Number | No. 91-5073,91-5073 |
| Citation | 958 F.2d 1127 |
| Parties | , 60 USLW 2593, 23 Fed.R.Serv.3d 1072, 36 Soc.Sec.Rep.Ser. 685, Medicare & Medicaid Guide P 40,057 NATIONAL KIDNEY PATIENTS ASSOCIATION, et al. v. Louis W. SULLIVAN, M.D., Secretary, Department of Health and Human Services, et al., Appellants. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
On Appeal from the United States District Court for the District of Columbia Circuit (Civil Action No. 88-03251).
Robert M. Loeb, Atty., Dept. of Justice, with whom Stuart M. Gerson, Asst. Atty. Gen., Jay B. Stephens, U.S. Atty., and Anthony J. Steinmeyer, Atty., Washington, D.C., were on the brief, for appellants.
Nathan Lewin, Washington, D.C., for appellees.
Before: RUTH BADER GINSBURG, WILLIAMS and SENTELLE, Circuit Judges.
Opinion for the Court filed by Circuit Judge STEPHEN F. WILLIAMS.
For slightly over 13 months the Department of Health and Human Services made payments to Home Intensive Care, Inc. ("HIC") under a preliminary injunction issued by the district court. As a result of congressional action, that injunction has been modified and the modified injunction has been vacated as moot. While it was in effect, however, HHS paid HIC millions of dollars--HHS says $15 million--more than it otherwise would have. Here it asks that we reverse the district court's decision preventing it from recouping those sums, and instead allow it both to recover on a $750,000 injunction bond and to apply its usual administrative recoupment processes to the transactions with HIC. We agree, and reverse the order of the district court.
Part B of Medicare provides supplementary medical insurance for the aged and disabled, generally covering 80% of the "reasonable charge" for physicians' services, durable medical equipment, out-patient hospital services, lab services, and so on. HHS enters into contracts with private insurance carriers--in this case with Blue Cross and Blue Shield of Florida ("Blue Cross")--who handle the routine administration of part B. Carriers like Blue Cross establish "reasonable" charges that providers can recover under Medicare.
In 1972 Congress extended part B coverage to individuals who have permanent kidney failure (regardless of age), and who therefore require transplantation or dialysis. 42 U.S.C. § 1395rr. In doing so, it established two alternative methods of payment, commonly known as "Method I" and "Method II". Method I provides for reimbursement by HHS to a certified facility for dialysis treatment administered by the facility. 42 U.S.C. §§ 1395ff(b)(1)(A), 1395rr(b)(7). Method II--now obsolete--provided for reimbursement by HHS to or on behalf of individuals for the costs of home dialysis supplies and equipment supplied by an entity other than a certified facility. 42 U.S.C. § 1395rr(b)(1)(B). Although both methods encompassed home dialysis, Method II enabled patients who self-dialysized at home to contract directly for equipment and supplies rather than receiving them from a certified facility. Method II coverage was limited to a "reasonable charge". 42 U.S.C. § 1395u(b)(3).
"Reasonable charge" determinations for some time proceeded largely under two criteria--the supplier's customary charges and rates prevailing in the locality. See 42 CFR § 405.502(a)(1) & (2). In February 1986 HHS proposed to amplify § 405.502 with a new subsection, (g), to catch instances where those criteria would result in "unreasonably excessive charges." See Notice of Proposed Rule, Medicare Program; Reasonable Charge Limitations, 51 Fed.Reg. 5726, 5728 (1986). Before HHS made the regulation final, Congress adopted a similar provision, 42 U.S.C. § 1395u(b)(8), requiring HHS to describe by regulation instances where standard criteria would lead to a charge that was so "grossly excessive" (or "grossly deficient") as not to be "inherently reasonable". Pub.L. No. 99-272 § 9304(a), now codified at 42 U.S.C. § 1395u(b)(8)(A). The new statutory subsection also required HHS to state the factors to be considered in establishing "reasonable" charges. Id.
After the statutory amendment, HHS adopted its proposed 42 CFR § 405.502(g), setting forth a non-exhaustive list of factors that might trigger scrutiny for inherent unreasonableness, and stating criteria for setting reasonable charges when the existing charge was found grossly excessive. As adopted, subsection (g) not only authorized the Health Care Financing Administration ("HCFA") to use these factors to establish reasonable charge limits, but gave similar authority at the local level to carriers such as Blue Cross. Final Rule, Medicare Program; Reasonable Charge Limitations, 51 Fed.Reg. 28710 (1986). In its district court suit, HIC claimed that the extension of authority to carriers was unlawful for want of notice and comment on that issue.
In February 1988 HCFA issued a letter to carriers, Transmittal Letter 1237 ("TL 1237"), on the subject of home dialysis. It advised them to consider the application of the inherent unreasonableness criteria to Method II reimbursement for home dialysis. It asserted that "[v]arious data" suggested that Method II providers were paid primarily by Medicare, that they did not engage in price competition, that their charges often greatly exceeded their costs, and that in significant respects they provided fewer items than were provided for less money under Method I. See Joint Appendix ("J.A.") 51-52. Although TL 1237 did not bar Method II charges in excess of Method I levels, it certainly suggested that any such excesses were quite likely to be "inherently unreasonable".
In July 1988 Blue Cross started to exercise its authority under § 405.502(g), issuing a notice that proposed to reduce the maximum monthly allowance for home dialysis supplies and equipment under Method II from $3,100 to $1,625 (the Method I reasonable amount), and calling for more data. In October 1988, after surveying the data, Blue Cross adopted the proposed ceiling, effective January 1, 1989.
Soon after Blue Cross's announcement, plaintiffs--HIC (which supplies dialysis under Method II to about 1000 Florida patients), a renal dialysis patients' group, and 10 individual renal dialysis patients receiving equipment from HIC--proceeded directly to district court, seeking a preliminary injunction barring HHS, HCFA, and Blue Cross from implementing the new rate reduction. Plaintiffs (usually referred to here simply as HIC) complained that (1) HHS's grant of "inherent unreasonableness" authority to carriers as well as to HCFA should have been preceded by notice and comment; (2) TL 1237 was a substantive rule requiring notice and comment; and (3) any capping of the Method II reimbursement at Method I levels was arbitrary and capricious. In December 1988 the district court issued the requested injunction. Though initially setting no injunction bond at all, the court in February 1989 required a nominal one--$1,000.
The federal defendants promptly appealed on a number of grounds, including the size of the bond. In December 1989 we remanded the record to the district court, instructing it to set "an appropriate bond" and stating that Medicare had already paid over $18 million to vendors under the injunction, an amount for which the $1000 bond was "clearly inadequate to ensure repayment". National Kidney Patients Ass'n v. Sullivan, Order, No. 89-5039 (D.C.Cir., Dec. 8, 1989).
Shortly after our ruling, Congress commanded what the district court had enjoined. Section 6203(b)(1) of the 1989 Omnibus Budget Reconciliation Act amended 42 U.S.C. § 1395rr(b)(7) to cap Method II payments at the Method I level, effective February 1, 1990. On that date the district court modified its injunction to allow reduction of payments, and on the next day it ordered HIC to post a $750,000 bond. J.A. 90-92. HHS and Blue Cross again appealed, arguing that the injunction had been improvidently granted. This court held that the appeal had been mooted, and vacated the injunction. National Kidney Patients Ass'n v. Sullivan, 902 F.2d 51, 55 (D.C.Cir.1990). As to the defendants' claims for recoupment of amounts paid out under the injunction, the court said that those claims were not properly presented on appeal, but must first be determined by the district court. Id. at 54.
On remand, the district court held that HHS could recover neither the $750,000 covered by bond nor any other payments under the injunction. National Kidney Patients Ass'n v. Bowen, 754 F.Supp. 900 (D.D.C.1991). The court stated that its initial ruling granting the injunction was correct as to both jurisdiction and the merits, and that in any case it would be inequitable to permit HHS to recover from HIC.
The defendants appeal, arguing that the district court had no jurisdiction, that it was wrong on the merits, and that HHS should be entitled to recovery of the amounts paid under the injunction. The recovery would come in the form of payment on the bond and through application of HHS's standard administrative process for recoupment of excess amounts paid to a Medicare provider.
Plaintiffs argue that even if the district court were altogether in error as to jurisdiction or the merits, "equitable considerations" would require us to uphold its denial of relief on the bond and in restitution. Appellees' Brief at 17. But for obvious reasons the law draws a vital distinction in this context between a valid and an invalid decree. See, e.g., Coyne-Delany Co. v. Capital Dev. Bd., 717 F.2d 385 (7th Cir.1983). Accordingly, we must consider whether the district court had jurisdiction. As we conclude that it did not, we need not--indeed, cannot--address the merits of HIC's claim.
Resolution of the jurisdictional issue requires a choice between two lines of precedent. On one side is a line...
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