AM. ASS'N OF COUNCILS OF MEDICAL STAFFS OF PRIVATE HOSPITALS, INC. v. Mathews, Civ. A. No. 75-3061.

Citation421 F. Supp. 848
Decision Date12 October 1976
Docket NumberCiv. A. No. 75-3061.
PartiesThe AMERICAN ASSOCIATION OF COUNCILS OF MEDICAL STAFFS OF PRIVATE HOSPITALS, INC. v. David MATHEWS.
CourtU.S. District Court — Eastern District of Louisiana

COPYRIGHT MATERIAL OMITTED

Roy F. Guste, William J. Guste, III, Charles D. Patten, III, Guste, Barnett & Shushan, New Orleans, La., for plaintiff.

Ford Dieth, Asst. U.S. Atty., New Orleans, La., for defendant.

HEEBE, Chief Judge:

Plaintiff brings this action against the Secretary of Health, Education, and Welfare (Secretary) for declaratory and injunctive relief from certain provisions of an instructional manual published by the Social Security Administration, Department of Health, Education, and Welfare (HEW). The challenged provisions relate to utilization review requirements medical facilities must satisfy in order to participate in the federal medicare program established by subchapter XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. Plaintiff alleges that the manual provisions at issue exceed the statutory authority granted to the Secretary by the Social Security Act, were promulgated in violation of the Administrative Procedure Act, and are unconstitutional. Defendant denies plaintiff's allegations and contends that we lack jurisdiction over the subject matter and that plaintiff lacks standing. The case is now before the Court on cross motions for summary judgment. We hold that plaintiff has standing to bring this action and that we have jurisdiction to hear it under Section 10 of the Administrative Procedure Act, 5 U.S.C. § 701 et seq. We further hold that on the merits summary judgment must issue in favor of defendant.

BACKGROUND

In 1965 Congress enacted Title XVIII of the Social Security Act, commonly known as the Medicare program. 42 U.S.C. § 1395 et seq. This legislation establishes a federal reimbursement scheme for funding beneficiaries' covered health costs. Payment on behalf of these beneficiaries can only be made to "providers of services" defined in 42 U.S.C. § 1395x(u) as hospitals, skilled nursing facilities, and home health agencies. 42 U.S.C. § 1395f(a). In order to meet the definition of a hospital or skilled nursing facility within the term "provider of services", an institution must, inter alia, have in effect a utilization review1 plan which meets the requirements of 42 U.S.C. § 1395x(k). Once an institution has met the definition of a provider of services it is qualified to participate in the Medicare program and is eligible to receive Medicare payments if it files an agreement with the Secretary as specified in 42 U.S.C. § 1395cc(a)(1). This agreement may be terminated by the Secretary when such an institution ceases to maintain a sufficient utilization review plan. 42 U.S.C. § 1395cc(b)(2).

Utilization review is conducted by committees the composition of which is prescribed by § 1395x(k). According to that section review apparently may be conducted by either a staff committee of the institution or by a group outside the institution.2 The language of Section 1395x(k) is tracked by 20 C.F.R. § 405.1035(e),3 promulgated by the Secretary pursuant to his authority to make and publish such rules and regulations as may be necessary to the efficient administration of the functions with which he is charged. 42 U.S.C. § 1395hh.

Plaintiff does not challenge the above statute and regulation which, plaintiff maintains, make staff and non-staff review committees equally available to hospitals. Instead, plaintiff's challenge is directed to the utilization review provisions of the State Operations Manual, also known as Health Insurance Manual 7 (HIM7).4 HIM7 indicates a preference between the available options for composition of utilization review committees, to wit, review must be conducted by a staff (in-house) committee where a facility has a sufficient number (two or more) of physicians on the house staff to serve on a utilization review committee. The utilization review function may be carried out by a non-staff committee only where the establishment of a staff committee is not feasible. Plaintiff deems this preference for staff review undesirable and invalid.

JURISDICTION

Plaintiff alleges jurisdiction under 28 U.S.C. § 1331 (general federal question jurisdiction) and Section 10 of the Administrative Procedure Act, 5 U.S.C. § 701 et seq. The Secretary contends that 42 U.S.C. § 405(h) precludes jurisdiction under both § 1331 and the Administrative Procedure Act.

With regard to plaintiff's allegations of jurisdiction under § 1331 we are bound to follow Gallo v. Mathews, 534 F.2d 1137 (5th Cir. 1976). Gallo explicitly held that the Supreme Court's interpretation of § 405(h)5 in Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975), precludes § 1331 jurisdiction in cases asserting any claim arising under the Medicare Act even if that Act provides plaintiff with no route for judicial review of his claim.6 Accordingly, we find that plaintiff lacks jurisdiction under § 1331.

We agree with plaintiff, however, that jurisdiction exists under the Administrative Procedure Act. In substance, that act provides courts with jurisdiction over a) agency action, b) which is final, c) which injures a person, and d) for which there is otherwise no adequate judicial remedy.7 An "agency action" includes any "rule," defined as an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy. 5 U.S.C. §§ 551(4), 551(13). HIM7 clearly constitutes agency action within the meaning of the Administrative Procedure Act.

Neither is there any doubt that the promulgation, publication, and enforcement of HIM7 constitutes "final" agency action. National Automatic Laundry and Cleaning Council v. Schultz, 143 U.S.App.D.C. 274, 443 F.2d 689 (1971). See Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967). The process of rule-making is complete; the provisions of the manual are definitive.

Plaintiff has alleged the requisite injury as is demonstrated in our discussion on STANDING, infra.

Finally, we conclude that plaintiff possesses no other adequate judicial remedy despite the Secretary's assertion that § 1395ff(c)8 of the Medicare Act prescribes procedures for a hearing and for judicial review of plaintiff's claim. The pertinent part of section 1395ff(c) applies only to an institution or an agency dissatisfied with any determination by the Secretary that it is not a provider of services. Assuming the validity of the Secretary's argument that this motion concerns a determination of the status of certain hospitals as providers of services within § 1395ff(c), we nevertheless decide that plaintiff's claim is outside the purview of that section. The right to hearing and judicial review granted by § 1395ff(c) is limited to institutions or agencies, and is not available to plaintiff organization.

Defendant next contends that 42 U.S.C. § 405(h)9 limits jurisdiction over Medicare claims to the jurisdictional grants contained in the Medicare Act and, thus, precludes jurisdiction under the Administrative Procedure Act.10 This argument has been considered and rejected by the Fifth Circuit. The effect of § 405(h) on jurisdiction over Medicare claims under the Administrative Procedure Act has been settled in the Fifth Circuit since Ortego v. Weinberger, 516 F.2d 1005 (5th Cir. 1975). The Ortego court adopted relevant Second Circuit jurisprudence which concluded:

Where an act provides procedures for judicial review, a court cannot review an agency decision by any other means; where the act does not provide such procedures, however, "nonstatutory" (Administrative Procedure Act) review is still available.

516 F.2d at 1009, citing Aquavella v. Richardson, 437 F.2d 397 (2d Cir. 1971).

As noted by Ortego, a presumption of reviewability exists under the Administrative Procedure Act. A statute must demonstrate clear and convincing evidence of an intent to preclude judicial review before courts will cut off an aggrieved party's right to be heard. Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1976). Here, § 405(h) does not preclude such review because by its terms it applies only to determinations made after a hearing. As we have already noted, the Medicare Act provides no procedure for affording plaintiff a hearing on its claim.

The Secretary finally argues that Weinberger v. Salfi, supra, nullifies the Ortego view of § 405(h). We are not persuaded by this argument. Salfi was considered by Ortego, 516 F.2d at 1011 n. 4 and we are bound by the Fifth Circuit's interpretation of that case. Moreover, Lejeune v. Mathews, 526 F.2d 950 (5th Cir. 1976) also considered Salfi and found that decision to be inapposite to cases, such as this, where the Medicare Act provides plaintiff with no route for judicial review. See also Dr. John T. MacDonald Foundation v. Mathews, supra.

STANDING

Standing under the Administrative Procedure Act is conferred upon those who can show that the challenged action has caused them injury in fact, and that the alleged injury was to an interest arguably within the zone of interests to be protected or regulated by the statute that the agencies are claimed to have violated. Sierra Club v. Morton, 405 U.S. 727, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972); United States v. SCRAP, 412 U.S. 669, 93 S.Ct. 2405, 37 L.Ed.2d 254 (1973). An organization whose members are injured may represent those members in a proceeding for judicial review. 405 U.S. at 727, 92 S.Ct. 1361.

We find the complaint sufficient to establish the standing of plaintiff. American Medical Association v. Weinberger, 395 F.Supp. 515 (N.D.Ill.1975). The physician members of the American Association of Medical Councils allege that the utilization provisions of HIM7 unlawfully interfere with the doctor-patient relationship and the right of a physician to practice medicine according to his best...

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