American Ass'n of Councils of Medical Staffs of Private Hospitals, Inc. v. Califano, 76-4156

Decision Date07 July 1978
Docket NumberNo. 76-4156,76-4156
PartiesThe AMERICAN ASSOCIATION OF COUNCILS OF MEDICAL STAFFS OF PRIVATE HOSPITALS, INC., Plaintiff-Appellant, v. Joseph A. CALIFANO, Jr., Secretary of U. S. Department of Health, Education and Welfare, Defendant-Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Roy F. Guste, William J. Guste, III, John C. Saunders, Jr., New Orleans, La., for plaintiff-appellant.

Ford J. Dieth, Asst. U. S. Atty., New Orleans, La., James C. Pyles, Atty., Dept. of H. E. W., Baltimore, Md., Gerald J. Gallinghouse, U. S. Atty., New Orleans, La., for defendant-appellee.

Henry B. Alsobrook, New Orleans, La., for amicus curiae La. State Med. Society.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before WISDOM, GEWIN and AINSWORTH, Circuit Judges.

WISDOM, Circuit Judge:

The American Association of Councils of Medical Staffs of Private Hospitals (CMS) filed suit on behalf of its physician members challenging certain federal regulations. These regulations, promulgated under the Medicare Act, 42 U.S.C. § 1395 et seq., control the manner in which participating hospitals review their physicians' efforts. The district court held that it had jurisdiction, and found against the plaintiff-appellant on the merits. We find there is no subject matter jurisdiction, and vacate the judgment below without prejudice to CMS to file other appropriate proceedings.

I.

Title XVIII of the Social Security Act establishes the Medicare program. Part A of that program provides hospital insurance for the aged and certain disabled individuals of any age. The government undertakes to reimburse authorized "providers of services" for a covered beneficiary's health costs. These providers include hospitals, skilled nursing facilities, and home health agencies, but not individual physicians. 42 U.S.C. § 1395x(u).

Congress feared that the existence of a federal blank check would lead providers to use their resources inefficiently. To avoid that, the Act requires that each hospital or skilled nursing facility must have in effect a "utilization review plan" to qualify as a provider. 42 U.S.C. § 1395x(e)(6), (j)(8). A "sufficient" plan reviews the admissions to a facility, the duration of stays, and the professional services, including drugs, furnished the patients to determine both the medical necessity for the actions and their effects on the efficiency of the facility. The statute specifies the composition of the reviewing group.

"(k) A utilization review plan . . . shall be considered sufficient . . . if it provides (2) for such review to be made by either (A) a staff committee of the institution composed of two or more physicians, with or without participation of other professional personnel, or (B) a group outside the institution which is similarly composed and (i) which is established by the local medical society and some or all of the hospitals and skilled nursing facilities in the locality, or (ii) if (and for as long as) there has not been such a group which serves such institution, which is established in such other manner as may be approved by the Secretary . . . ."

42 U.S.C. § 1395x(k). If the institution is very small or lacks an organized medical staff, the review must be accomplished by the outside group or other method allowed in subsection (B). 42 U.S.C. § 1395x(k).

The Secretary of Health, Education, and Welfare has the authority to promulgate necessary regulations for the Medicare Act. 42 U.S.C. § 1395hh. The Secretary is given the power to authorize state health agencies to determine whether a facility may participate in Medicare as a provider. 42 U.S.C. § 1395aa(a). Under his general authority to promulgate regulations, the Secretary defined the composition of the review body in the alternative ways used by the statute. 20 C.F.R. § 405.1035(e)(1). In order to guide state agencies in their eligibility determinations, the Department's Bureau of Health Insurance produced the "State Operations Manual", known as HIM-7. Unlike the statute, and unlike the regulation, the section defining utilization review plans in HIM-7 specifies a preferred alternative.

"2510(a) In-House Committees Typically and preferably when a hospital has a sufficiently large staff the utilization review committee is, as in the words of the law, comprised of, 'a staff committee of the institution composed of two or more physicians with or without the participation of other professional personnel'."

HIM-7 acknowledged that the law provides an alternative, but authorizes that alternative only in limited situations.

"The law provides for alternate types of UR committees, where a facility does not have a sufficient number (two or more) of physicians on the house staff to serve on a UR committee."

HIM-7, § 2515(a). Section 2515(b) establishes a preference for smaller facilities to use outside committees sponsored by medical societies, rather than some "other manner as may be approved by the Secretary". Furthermore, that section advises state agencies to inform the facilities that any other plan is acceptable only until one of the preferred methods can be devised.

That mandate of the Secretary sparked this law suit. The composition of the utilization review committee must be approved, or the facility will not be an authorized "provider". Without authorization, the government will not reimburse it for any services provided to patients otherwise eligible for Medicare. Provider status is essential to most American private hospitals. CMS, representing doctors at private institutions, disapproves of the preferred method of review. It believes that in-house review committees waste physician time and lead to conflicts, ethical and personal, within the staff.

On October 1, 1975, CMS filed suit for declaratory and injunctive relief in the Eastern District of New Orleans. CMS pressed three arguments. It urged that the Secretary had no power to establish mandatory preferences among the methods allowed by the statute. It maintained that HIM-7 was promulgated in violation of the rule-making requirements of the Administrative Procedure Act. It argued that the requirement violated the doctors' due process rights, protected by the fifth amendment. The Secretary moved to dismiss; CMS moved for summary judgment. After a hearing on the motions, the district court granted summary judgment for the Secretary in November 1976. The trial court found that it had jurisdiction under § 10 of the Administrative Procedure Act. The court held that the regulation was not inconsistent with the statute; that it was an interpretive rule, outside the restrictions of the A.P.A.; and held that no constitutional violation existed. This appeal followed.

II.

We cannot reach the merits on this appeal: the dispositive question is whether subject matter jurisdiction existed. The district court followed this and some other Courts of Appeals by holding that jurisdiction existed under § 10 of the A.P.A., 5 U.S.C. § 701-06. See Ortego v. Weinberger, 5 Cir. 1975, 516 F.2d 1005; Dr. John T. MacDonald Foundation, Inc. v. Califano, 5 Cir. 1976, 534 F.2d 633, modified on rehearing, 1977, 554 F.2d 714, rev'd en banc, 1978, 571 F.2d 328; Bradley v. Weinberger, 1 Cir. 1973, 483 F.2d 410; Deering Milliken, Inc. v. Johnston, 4 Cir. 1961, 295 F.2d 856; Sanders v. Weinberger, 7 Cir. 1975, 522 F.2d 1167, rev'd sub nom., Califano v. Sanders, 1977, 430 U.S. 99, 97 S.Ct. 980, 51 L.Ed.2d 192; Brandt v. Hickel, 9 Cir. 1970, 427 F.2d 53; Brennan v. Udall, 10 Cir. 1967, 379 F.2d 803; Pickus v. United States Board of Parole, 1974, 165 U.S.App.D.C. 284, 507 F.2d 1107. The Supreme Court has now spoken to the contrary: "(T)he APA does not afford an implied grant of subject-matter jurisdiction permitting federal judicial review of agency action". Califano v. Sanders, 1977, 430 U.S. 99, 107, 97 S.Ct. 980, 985, 51 L.Ed.2d 192.

The district court held that general federal question jurisdiction was precluded by 42 U.S.C. § 1395ii. To find jurisdiction, we would have to reverse that holding.

The Medicare Act does not have its own section precluding judicial review. Instead, § 1395ii incorporates 42 U.S.C. § 405(h), which precludes review of decisions under Title II of the Social Security Act. That section reads:

"The findings and decisions of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Secretary, or any officer or employee thereof shall be brought under section 41 of Title 28 to recover on any claim arising under this subchapter."

(emphasis added) 42 U.S.C. § 405(h). Title II provides administrative and judicial review of the matters covered by § 405(h) through § 405(g). The Medicare Act incorporated § 405(h), precluding review, totally; it incorporated § 405(g), providing review, only in part.

"Any institution or agency dissatisfied with any determination by the Secretary that it is not a provider of services, or with any determination described in section 1395cc(b)(2) of this title (concerning termination by the Secretary of certain agreements), shall be entitled to a hearing thereon by the Secretary (after reasonable notice and opportunity for hearing) to the same extent as is provided in section 405(b) of this title, and to judicial review of the Secretary's final decision after such hearing as is provided in section 405(g) of this title."

42 U.S.C. § 1395ff(c). See also 42 U.S.C.A. § 1395oo (f) (West Supp.1977) (added in 1974).

The question of review of decisions apparently precluded by § 1395ii has been considered by several courts. The cases, however, have always been slightly different from this case. They have involved actions by providers complaining of reimbursement decisions and procedures. The Court...

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