Abbey v. Sullivan

• Decision Date: 07 February 1992
• Docket Number: No. 91 Civ. 4909 (RLC).,91 Civ. 4909 (RLC).
• Citation: 788 F. Supp. 165
• Parties: Richard ABBEY, et al., Plaintiffs, v. Louis W. SULLIVAN, as Secretary of the Department of Health and Human Services, William Toby, Harvey W. Friedman, William C. Woodson, and Rela Heimberg, Defendants.
• Court: U.S. District Court — Southern District of New York

788 F. Supp. 165

Richard ABBEY, et al., Plaintiffs, v. Louis W. SULLIVAN, as Secretary of the Department of Health and Human Services, William Toby, Harvey W. Friedman, William C. Woodson, and Rela Heimberg, Defendants.

No. 91 Civ. 4909 (RLC).

United States District Court, S.D. New York.

February 7, 1992.

Brown & Seymour, New York City (Whitney North Seymour, Jr., New York City, of counsel) for plaintiffs.

Otto G. Obermaier, U.S. Atty., S.D.N.Y., New York City (Gideon A. Schor, New York City, of counsel) for defendants.

OPINION

ROBERT L. CARTER, District Judge.

This case presents a controversy over the power of a federal court to review a dispute arising under the Medicare Act, 42 U.S.C. § 1395 et seq. (the "Act" or the "Medicare Act"). Plaintiffs are claimants for medical benefits under the Medicare Act. Defendants are the Secretary of the Department of Health and Human Services ("HHS"); the administrator for region II of the Health Care Financing Administration ("HCFA") of HHS; an officer of Empire Blue Cross and Blue Shield, the insurance carrier that administers the Medicare Part B program in the New York area; and the two Medicare hearing officers who reviewed the plaintiffs' claims.

Some background about the Medicare Act and its claims review process is necessary to an understanding of this case. The Medicare Act is composed of two parts, Part A, 42 U.S.C. §§ 1395c-1395i, and Part B, 42 U.S.C. §§ 1395j-1395w. Part A provides insurance coverage for hospital care and related post-hospital services, and is funded out of Social Security taxes. Part B is a voluntary program of medical insurance for persons who are over 65 or disabled. Individuals pay monthly premiums for insurance that covers portions of certain medical services which are excluded from the Part A program. HHS contracts with private insurance carriers to administer the Part B program. The carrier reviews claims for reimbursement according to procedures established by the Medicare Act and notifies claimants of its initial decision. If a claimant is dissatisfied with the carrier's determination, she can request initial review by the carrier within six months. 42 C.F.R. § 405.807 (1990). The carrier then re-reviews the claim and issues a notice of decision on review to the claimant. 42 C.F.R. § 405.811 (1990).

If the claimant is still not satisfied with the carrier's disposition of the claim, she can request a "fair hearing." 42 U.S.C. § 1395u(b)(3)(C); 42 C.F.R. § 405.820 (1990). The "fair hearing" is conducted by a hearing officer, employed by the carrier, who is bound to evaluate the claim in accordance with the terms of the Medicare Act, HHS regulations, and policy statements issued by HCFA. 42 C.F.R. § 405.860 (1990). The primary procedural guide for hearing officers is HCFA's Medicare Carrier's Manual ("MCM"), particularly sections 12013-12022.

The Medicare Carrier's Manual instructs the hearing officer to conduct the required "fair hearing" in one of three ways: in person, over the telephone, or "on the record." A decision on the record ("OTR") is based solely on documentary evidence. The MCM also includes the following provision, interpretation of which is disputed in this case:

Regardless of the type of hearing requested (telephone, in-person, or a decision based on the record), the HO hearing officer prepares and sends to the claimant a decision based on the facts in the record (OTR), unless one of the following apply sic:

— The OTR would significantly delay the hearing;

— The issue is medical necessity;

— Oral testimony and cross-examination is sic necessary to clarify the facts; or

— You the carrier cannot provide a different HO for the requested hearing.

If the claimant requested an in-person hearing or telephone hearing, the HO includes as the first paragraph in the OTR decision a statement that he has scheduled the requested type of hearing within the 120 day time limit provided by law, but, meanwhile, has rendered this decision based on the evidence in the file.

* * * * * *

An OTR decision may be contraindicated even though requested by a party to the hearing. If the HO decides that an inperson or telephone hearing would help him reach an equitable decision, he notifies all parties of the time and date and explains why oral testimony is needed. If the needed parties do not attend, the HO renders an OTR decision.

Medicare Carrier's Manual 12021.

After the "fair hearing" decision, the amount remaining in controversy determines what further review is available to the claimant. If the disputed amount is less than $500, no further review is provided. If the amount in controversy is $500 to $999, the claimant is entitled to review by an Administrative Law Judge ("ALJ"). Isaacs v. Bowen, 865 F.2d 468, 472-75 (2d Cir.1989). If the amount in controversy is $1,000 or more, the claimant is entitled to judicial review in federal district court. Id.; 42 U.S.C. § 1395ff(b)(2)(B).

The complaint in this action charges the carrier's hearing officers with failing to follow applicable HHS rules and regulations. Specifically, plaintiffs in groups A and C¹ assert that they requested an inperson hearing, along with a written decision on the record before the in-person hearing. The hearing officers involved agreed to conduct an in-person hearing but refused to provide the pre-hearing OTR decision. Plaintiffs claim that such a pre-hearing OTR is required by the MCM provisions cited above, that the insurance carrier is bound to follow the rules and regulations set forth in the MCM, and that its failure to follow those rules constitutes a violation of due process of law. Group B plaintiffs complain that the hearing officers denied them the opportunity at the "fair hearing" to develop evidence they required as part of their challenge to the rates set by the carrier, and that this denial also violated governing rules and regulations. Plaintiffs seek injunctive, declaratory, and mandamus relief.

Defendants have moved to dismiss the action under Rules 12(b)(1) and 12(b)(6), F.R.Civ.P., for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. Plaintiffs allege that jurisdiction exists over the subject matter of this action under the general "federal question" statute, 28 U.S.C. § 1331; under the Medicare Act itself, 42 U.S.C. § 1395ff; and under the federal mandamus statute, 28 U.S.C. § 1361. Defendants argue that none of these three sources of jurisdiction is appropriate in this instance.

I. Jurisdiction under 28 U.S.C. § 1331

Defendants argue that plaintiffs' claim, arising as it does under the Medicare Act, is governed by the terms of that Act and does not support jurisdiction under the general federal question statute, 28 U.S.C. § 1331. Defendants note that section 1395ff of the Medicare Act incorporates the jurisdictional provisions of 42 U.S.C. § 405(g). Section 405(g) is a more limited jurisdictional statute than section 1331 because it requires a claimant to exhaust all administrative remedies before granting jurisdiction in the federal courts. Defendants cite Weinberger v. Salfi, 422 U.S. 749, 756-62, 95 S.Ct. 2457, 2462-65, 45 L.Ed.2d 522 (1975) and Heckler v. Ringer, 466 U.S. 602, 614-16, 104 S.Ct. 2013, 2021-22, 80 L.Ed.2d 622 (1984) in support of their argument. Indeed, Ringer states that "§ 405(g), to the exclusion of 28 U.S.C. § 1331, is the sole avenue for judicial review for all `claims arising under' the Medicare Act." 466 U.S. at 615, 104 S.Ct. at 2021. Since plaintiffs' claims do "arise under the Medicare Act," there would be no jurisdiction over those claims under section 1331 if this were the rule.

However, in Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 106 S.Ct. 2133, 90 L.Ed.2d 623 (1986), the Supreme Court expanded on its earlier holding in Ringer.² The Court noted that the jurisdictional limitations of section 405 were not independently applicable to suits under the Medicare Act, but were instead applicable only through their incorporation into that Act through 42 U.S.C. § 1395ff. The Court then explained that

the legislative history of both the statute establishing the Medicare program and the 1972 amendments thereto provides specific evidence of Congress' intent to foreclose federal judicial review only of "amount determinations" — i.e., those "quite minor matters," remitted finally and exclusively to adjudication by private insurance carriers in a "fair hearing." By the same token, matters which Congress did not delegate to private carriers, such as challenges to the validity of the Secretary's instructions and regulations, are cognizable in courts of law.

476 U.S. at 680, 106 S.Ct. at 2141 (internal citations omitted) (emphasis in original). Thus the Court recognized certain situations where the jurisdictional limitations of section 405 do not apply to claims that arise under the Medicare Act, narrowing the reach of its earlier pronouncement in Ringer.

However, Michigan Academy has left some unanswered questions about the scope of section 1331 jurisdiction over claims arising under the Medicare Act. After Michigan Academy it is clear that there is jurisdiction in the federal courts to hear statutory and constitutional challenges to the validity of rules and regulations promulgated under the Medicare Act, regardless of whether there has been a final decision of the Secretary. See Kuritzky v. Blue Shield of Western New York, Inc., 850 F.2d 126, 128 (2d Cir.1988), cert. denied, 488 U.S. 1006, 109 S.Ct. 787, 102 L.Ed.2d 778 (1989); McCuin v. Secretary of Health & Human Services, 817 F.2d 161, 164-66 (1st Cir.1987); Medical Fund-Philadelphia Geriatric Center v. Heckler, 804 F.2d 33, 38-39 (3d Cir.1986). It is also clear that there is no federal jurisdiction, absent full exhaustion of administrative remedies and a final decision of the Secretary, when the plaintiff merely challenges the amount of benefits awarded by the Secretary. Id. However,...