American Academy of Ophthalmology, Inc. v. Sullivan

• Decision Date: 24 August 1993
• Docket Number: No. 92-3706,92-3706
• Citation: 998 F.2d 377
• Parties: , Medicare & Medicaid Guide P 41,526 AMERICAN ACADEMY OF OPHTHALMOLOGY, INC.; the Cleveland Ophthalmological Society, Plaintiffs-Appellants, Academy of Medicine of Cleveland, Plaintiff-Intervenor-Appellant, v. Louis SULLIVAN, M.D., Secretary, United States Department of Health and Human Services; and Gail R. Wilensky, Ph.D., Administrator, Health Care Financing Administration, United States Department of Health and Human Services, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 377

998 F.2d 377

41 Soc.Sec.Rep.Ser. 503, Medicare & Medicaid Guide

P 41,526

AMERICAN ACADEMY OF OPHTHALMOLOGY, INC.; the Cleveland

Ophthalmological Society, Plaintiffs-Appellants, Academy of Medicine of Cleveland, Plaintiff-Intervenor-Appellant, v. Louis SULLIVAN, M.D., Secretary, United States Department of

Health and Human Services; and Gail R. Wilensky, Ph.D.,

Administrator, Health Care Financing Administration, United

States Department of Health and Human Services, Defendants-Appellees.

No. 92-3706.

United States Court of Appeals, Sixth Circuit.

Argued May 3, 1993.

Decided July 9, 1993.

Rehearing and Suggestion for Rehearing En Banc Denied Aug. 24, 1993.

Walter J. Rekstis, III, Lisa R. Battaglia, Squire, Sanders & Dempsey, Cleveland, OH, James H. Curtin (briefed), James B. Lynch (argued & briefed), Dorsey & Whitney, Minneapolis, MN, for plaintiffs-appellants.

Michael Anne Johnson, Asst. U.S. Atty., Cleveland, OH, Robert M. Loeb (argued & briefed), Barbara C. Biddle, U.S. Dept. of Justice, Appellate Staff, Civil Div., Washington, DC, Elaine Romberg, U.S. Dept. of Justice, Civil Div. Federal Programs Branch, Washington, DC, for defendants-appellees.

Before: KENNEDY and SILER, Circuit Judges, and CONTIE, Senior Circuit Judge.

CONTIE, Senior Circuit Judge.

The American Academy of Ophthalmology, Inc., The Cleveland Ophthalmological Society, and (intervenor) Academy of Medicine of Cleveland initiated this action seeking to enjoin the Department of Health and Human Services from conducting the "Medicare Cataract Surgery Alternate Payment Demonstration," a demonstration project designed to test an alternative method of paying for outpatient cataract surgery and related treatments. The plaintiffs-appellants contend that the demonstration project exceeds the Secretary's statutory authority and violates their constitutional rights to equal protection. Upon cross-motions for summary judgment, the district court rejected the plaintiffs-appellants' arguments and granted summary judgment to the government. We affirm the district court's Opinion and Order for the following reasons.

I.

In 1965, Congress enacted the "Federal Health Insurance for the Aged and Disabled" program, more commonly known as the Medicare Act. The Medicare program consists of two parts. Part A covers services furnished by hospitals and other institutional providers. 42 U.S.C. §§ 1395c-1395i-4. Part B provides supplemental medical insurance benefits for certain medical and health care services, including physician services. 42 U.S.C. §§ 1395j-1395w-4. Part B is administered through contracts with certain insurance companies who serve as local carriers. Part B covers eligible persons who voluntarily enroll and agree to pay monthly premiums. 42 U.S.C. § 1395j. These premiums, together with federal government contributions, provide the fund for the payment of benefits. The Medicare Act is administered at the direction of the Secretary of Health and Human Services ("HHS"). The component of HHS that is primarily responsible for administering the Medicare program is the Health Care Financing Administration ("HCFA").

Prior to 1992, reimbursement for physician services to Medicare beneficiaries under Part B was based entirely on the "reasonable charge" for such services. 42 U.S.C. § 1395u. The reasonable charge was defined as the lowest of the actual charge, the physician's customary charge for the service, or the prevailing charge for the service in the community, subject to limitations on annual increases determined by the Medicare economic index. 42 U.S.C. § 1395u(b)(3). Beginning in 1992, however, HHS and HCFA started to phase in a new system for payment of physician services based on a resource-based relative value scale, or fee schedule, instead of the "reasonable charge" method in use prior to 1992. 42 U.S.C. § 1395w-4. The fee schedule is based on the government's evaluation of the resources a physician devotes to a particular service or procedure.

Physicians have two options for receiving payment for the services they provide to Medicare beneficiaries. A physician may accept the beneficiary's assignment of Medicare benefits, in which case the physician agrees to accept the established Medicare fee schedule amount as full payment for all covered services provided to Medicare beneficiaries. Medicare, through the local carrier, directly pays the physician 80% of the fee schedule amount. The beneficiary is required to pay the remaining 20% (the coinsurance amount). Beneficiaries must also pay an annual deductible of $100.

Alternatively, a physician may decline to accept assignment. In such cases, Medicare pays 80% of the fee schedule amount, and the beneficiary pays the coinsurance amount plus any difference between the physician's charge and the fee schedule amount.

Physicians have two options when dealing with the Medicare program. A physician may become a "participating physician," in which case the physician agrees to accept assignment of Medicare benefits for all Part B services that the physician provides. 42 U.S.C. § 1395u(h). Alternatively, a physician may decline to become a "participating physician," in which case the physician may accept or decline the assignment of Medicare benefits on a case-by-case basis.

A cataract is a condition of the eye in which the eye's natural crystalline lens becomes clouded and impairs vision. In cataract surgery, the ophthalmologist removes the opacified portion of the lens and replaces it with a clear plastic intraocular lens ("IOL"). The care required for patients who undergo cataract surgery with IOL implantation varies. Many patients are able to undergo the surgery on an outpatient basis. Other patients, however, are at higher risk for complications and must undergo cataract surgery on an inpatient basis, or may require additional preoperative or postoperative care. Cataract surgeries are performed on Medicare beneficiaries more often than any other outpatient procedure, and a majority of the patients who undergo cataract surgery are Medicare beneficiaries. The HCFA estimated that in 1991 approximately one million cataract procedures were performed on Medicare beneficiaries at a cost of more than three billion dollars.

Under the Part B insurance payment scheme, HCFA pays for each item and service provided to a patient in connection with outpatient cataract surgery on a separate fee basis. In a typical cataract surgery episode, HCFA may separately pay for: a preoperative examination to determine the presence of the cataract; a comprehensive physical; presurgical diagnostic tests; a preoperative surgical evaluation; surgery (including separate payments for the services of the ophthalmologist and the anesthetist); pathology of the removed lens; the surgery center fee; final refraction of the patient's post-surgical vision; and, a long-term follow-up examination.

The Medicare Act ("Act") authorizes the Secretary of HHS to "develop and engage in experiments and demonstration projects," 42 U.S.C. § 1395b-1(a)(1),

to determine whether, and if so which, changes in methods of payment or reimbursement ..., including a change to methods based on negotiated rates, would have the effect of increasing the efficiency and economy of health services ... without adversely affecting the quality of such services.

42 U.S.C. § 1395b-1(a)(1)(A). Moreover, when conducting an experiment or demonstration project, the Secretary:

may waive compliance with the requirements of [the Medicare Act] ... insofar as such requirements relate to reimbursement or payment on the basis of reasonable cost, or (in the case of physicians) on the basis of reasonable charge, or to reimbursement or payment only for such services or items as may be specified in the experiment; and costs incurred in such experiment or demonstration project in excess of the costs which would otherwise be reimbursed or paid [under the Medicare Act] may be reimbursed or paid to the extent that such waiver applies to them (with such excess being borne by the Secretary).

42 U.S.C. § 1395b-1(b).

Recognizing the inefficiency of the current cataract surgery payment system, HCFA awarded a contract to a private consulting firm in 1989 to assist in the design and evaluation of a demonstration project to test the feasibility and effectiveness of an alternative pricing arrangement for cataract surgeries. In September 1990, HCFA proposed a demonstration project, the "Medicare Cataract Surgery Alternate Payment Demonstration," to examine the feasibility of paying for cataract surgeries and all related tests, services and examinations with one single negotiated fee.

On March 19, 1991, HHS and the HCFA announced that Cleveland, Ohio was chosen as one of three sites for the Cataract Demonstration. Participation in the demonstration is purely voluntary for both providers and beneficiaries. Ophthalmologists and facilities interested in becoming demonstration providers were required to submit a letter of interest and a completed pre-application form. Invitations to submit Final Applications for participation in the Cataract Demonstration were extended only to those providers who submitted the pre-application and letter of interest. Providers not participating in the demonstration will continue to operate under the ordinary Part B payment scheme, and beneficiaries will remain free to select the health care provider of their choice. Though the appellees anticipated that the three-year demonstration would begin January 1, 1992, the demonstration project has not yet begun.

Under the proposed demonstration project, HCFA would waive the present payment methodology applicable to the various services included in a typical cataract surgery episode for those participating in the project. HCFA and the participating facility would negotiate for a single "bundled" fee that would cover pre-operative tests and evaluations, surgery services (including the surgeon's and...