Abbey v. Sullivan

Decision Date28 September 1992
Docket NumberNo. 1638,D,1638
Citation978 F.2d 37
Parties, Medicare & Medicaid Guide P 40,821 Richard ABBEY; Charles Brewer; Frank Cirillo; Thomas Dowd; Charles W. Goble; Milton Kramer; Stanley Kuberski; Nicholas Macaluso; Helen Murch; Abraham Pilicer; Albert F. Salamone; Harold Rogers; Ernest Viani, Plaintiffs-Appellants, v. Louis W. SULLIVAN, M.D., as Secretary of the Department of Health and Human Services; William Toby; Harvey W. Friedman; William C. Woodson; Rela Heimberg, Defendants-Appellees. ocket 92-6055.
CourtU.S. Court of Appeals — Second Circuit

Whitney North Seymour, Jr., New York City (Craig A. Landy, Peter James Clines, Brown & Seymour, of counsel), for plaintiffs-appellants.

Gideon A. Schor, Asst. U.S. Atty., New York City (Otto G. Obermaier, U.S. Atty., Gabriel W. Gorenstein, Asst. U.S. Atty., of counsel), for defendants-appellees.

Before: OAKES, Chief Judge, * NEWMAN and McLAUGHLIN, Circuit Judges.

McLAUGHLIN, Circuit Judge:

Plaintiffs are participants in the Medicare Part B program, 42 U.S.C. §§ 1395j-1395w-4. They presented claims for medical benefits to Empire Blue Cross and Blue Shield ("Empire") and Blue Shield of Western New York ("BSWNY"); these are private insurance carriers with whom the government has contracted to administer the Part B claims process. Each plaintiff requested a "fair hearing" to review the award of benefits, and Hearing Officers ("HOs") were assigned to conduct the hearings. Although such "hearings" are generally conducted solely on documentary evidence (called "OTRs" because they are based "on the record"), the HOs here declined several plaintiffs' requests for OTR decisions and, instead, directed the plaintiffs to appear for "in-person" hearings where live testimony is taken. The HOs also rejected plaintiffs' requests for orders directing BSWNY to produce documents concerning the calculation of reimbursement rates for certain anesthesia services. Believing that they had a right to OTRs and to discovery prior to their hearings, plaintiffs flatly refused to participate in the in-person hearings. In the face of their intransigence, the HOs either dismissed plaintiffs' claims as abandoned, or, alternatively, ruled on the claims despite plaintiffs' refusal to participate in the hearings.

Plaintiffs then sued in the District Court for the Southern District of New York (Robert L. Carter, District Judge ) for declaratory, injunctive, and mandamus relief, alleging that the defendants, by failing to order discovery and to provide OTRs, violated both Medicare regulations and the plaintiffs' procedural due process rights. The district court, in a decision reported at 788 F.Supp. 165, dismissed the complaint for lack of subject matter jurisdiction, holding (1) that it lacked federal question jurisdiction; (2) that it lacked jurisdiction under the Medicare Act because plaintiffs failed to exhaust their administrative remedies; and (3) that mandamus was inappropriate. We now affirm.


The Medicare program consists of two parts: Part A, 42 U.S.C. §§ 1395c-1395i-4, and Part B, 42 U.S.C. §§ 1395j-1395w-4. Part A, which covers hospital, as distinct from doctors', bills, provides major medical insurance coverage for hospital care and related post-hospital services, and it is funded by Social Security taxes. Part B

                addresses doctors' bills and it establishes a voluntary, federally subsidized program of supplementary medical insurance for the aged and disabled, generally reimbursing participants (or their assignee health-care providers) 80% of the reasonable cost of certain doctors' services, x-rays, lab tests, and other medical services.   See generally Isaacs v. Bowen, 865 F.2d 468, 470 (2d Cir.1989) (discussing Medicare Part B reimbursement procedure).   The Secretary of Health and Human Services ("HHS") contracts with private insurance carriers (in this case Empire and BSWNY) who administer the Part B claims process.   This lawsuit concerns Part B claims only
Part B Claims Process

Participants in the Part B program present claims for medical benefits to the private carriers, who assign an employee to review them and determine benefit awards according to procedures established under the Medicare Act. The carrier then notifies the insured (or his assignee) of the result. If the claimant is dissatisfied with his award of benefits, he may request a "review determination"--a de novo evaluation of his claim by a different employee of the carrier. See 42 C.F.R. §§ 405.807, 405.810 (1991).

If the claimant is still dissatisfied with his benefits, and if the disputed amount of his claim exceeds $100, he may seek further review by requesting a "fair hearing" administered by a carrier-designated HO. See 42 U.S.C. § 1395u(b)(3)(C) (1988); 42 C.F.R. § 405.820 (1991). HOs are, in theory at least, independent of the carriers that appoint them, although HOs serve only at the grace of these carriers. See generally H.R.Rep. No. 727, 99th Cong., 2d Sess. 95 (1986), reprinted in 1986 U.S.C.C.A.N. 3607, 3685. A fair hearing may be conducted telephonically, in person, or on the record ("OTR"). See Health Care Finance Administration Medicare Carrier's Manual ("MCM") § 12013.1.

Regardless of the claimant's desires, i.e. even if a claimant requests a telephonic or in-person hearing, the MCM requires the HO to furnish the claimant with an OTR before conducting a hearing, unless: "[t]he OTR would significantly delay the hearing; [t]he issue is medical necessity; [o]ral testimony and cross-examination is necessary to clarify the facts; or [the carrier] cannot provide a different HO for the requested hearing." Id. § 12021. 1 This procedure was adopted because OTRs often provide claimants with the relief they seek and thereby obviate the need for--and the attendant delay and expense of--a telephonic or in-person hearing. See Human Resources Division, United States General Accounting Office, Part B Changes Appear to be Fulfilling Their Purpose 3 (No. 90-57 July 16, 1990). Indeed, most claimants will gladly forego telephonic or in-person hearings if their OTRs grant them substantially all the benefits they have requested. The fair hearing process concludes with the HO's written decision, see 42 C.F.R. § 405.834, which is "final and binding upon all parties to the hearing...." Id. § 405.835.

Prior to 1987, the fair hearing was the last stop for Part B claimants disappointed with their benefits; further administrative or judicial review was foreclosed by statute. See United States v. Erika, Inc., 456 U.S. 201, 206-207, 102 S.Ct. 1650, 1653, 72 L.Ed.2d 12 (1982) (construing 42 U.S.C. § 1395ff (amended effective Jan. 1, 1987)). As discussed more fully below, however, Congress has since liberalized the Medicare Act so that Part B claimants claiming additional benefits over $500 are now entitled to further administrative review, with judicial review then available to claimants demanding over $1,000 of additional benefits. See Omnibus Budget Reconciliation Act of 1986, Pub.L. No. 99-509, § 9341, 100 Stat. 1874, 2037-38 (1986) ("1986 Amendments") (codified at 42 U.S.C. § 1395ff).

Plaintiffs' Claims

Each of the plaintiffs is, or represents, a participant in the Medicare Part B program. Each filed a claim for medical benefits with Empire or BSWNY, and then requested a fair hearing. Yvonne S. Archer, Executive Director of the New York Federation of Anesthesiologists, represented the plaintiffs (pro bono ) throughout the fair hearing process.

The parties have split the plaintiffs into three groups: Group A (Brewer, Kramer, Kuberski, Murch, and Pilicer) and Group C (Dowd, Goble, Macaluso, Salamone, and Viani) demanded OTRs prior to in-person hearings before HOs-defendants Heimberg and Woodson, respectively. The Group B plaintiffs (Abbey, Rogers, and Cirillo), who were also assigned to HOs Heimberg and Woodson, received OTRs, but requested document production (relating to the calculation of reimbursement rates for anesthesia services) prior to their in-person hearings.

HOs Heimberg and Woodson denied the A and C plaintiffs' requests for OTRs prior to their in-person hearings. 2 In response to these adverse (and allegedly unlawful) rulings, Archer did not appear at the A and C plaintiffs' in-person hearings. Accordingly, the HOs dismissed their claims for abandonment, pursuant to 42 C.F.R. § 405.832(b).

Heimberg and Woodson also rejected the Group B plaintiffs' requests for discovery before their in-person hearings. Although Archer attended the hearings of Group B plaintiffs Abbey and Rogers, she refused to participate after HO Heimberg denied her renewed request for discovery. HO Heimberg, nevertheless, ruled on Abbey's and Rogers's claims, awarding them at least some of the benefits to which they claimed entitlement.

HO Woodson granted Archer's request to adjourn Cirillo's hearing while awaiting document discovery from BSWNY. As the complaint describes it, however, Cirillo's case then tumbled into a bureaucratic abyss for nine months, with nary an act taken to resolve the claim--until this action was brought in July 1991.

Plaintiffs alleged in their complaint that the defendants violated both Medicare regulations and the plaintiffs' procedural due process rights. The gravamen of the complaint is that the plaintiffs were entitled to receive OTRs and discovery prior to their in-person hearings.

The defendants moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(1) for lack of jurisdiction, and Judge Carter granted the motion, holding (1) that there was no federal question jurisdiction; (2) that there was no jurisdiction under the Medicare Act because plaintiffs failed to exhaust their administrative remedies; and (3) that mandamus was inappropriate.

Federal Question Jurisdiction

The parties disagree on whether the district court had federal question jurisdiction over plaintiffs' complaint. Resolution of this issue requires us to...

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