Blue Cross and Blue Shield Ass'n v. Sullivan

• Decision Date: 07 April 1992
• Docket Number: 90-1356 (RCL).,Civ. A. No. 90-1528 (RCL)
• Citation: 794 F. Supp. 1166
• Parties: BLUE CROSS AND BLUE SHIELD ASSOCIATION, Plaintiff, v. Louis W. SULLIVAN, et al., Defendants. HEALTH INSURANCE ASSOCIATION OF AMERICA, INC., Plaintiff, v. Louis W. SULLIVAN, et al., Defendants.
• Court: U.S. District Court — District of Columbia

794 F. Supp. 1166

BLUE CROSS AND BLUE SHIELD ASSOCIATION, Plaintiff, v. Louis W. SULLIVAN, et al., Defendants.

HEALTH INSURANCE ASSOCIATION OF AMERICA, INC., Plaintiff, v. Louis W. SULLIVAN, et al., Defendants.

Civ. A. Nos. 90-1528 (RCL), 90-1356 (RCL).

United States District Court, District of Columbia.

April 7, 1992.

John B. Rhinelander, R. Kenley Webster, Robert J. Cynkar and Janice M. Zeigler, Shaw, Pittman, Potts & Trowbridge, Washington, D.C., for Blue Cross/Blue Shield.

Vaughan Finn, Stuart M. Gerson, Dept. of Justice, Civ. Div., Environmental Enforcement Section, Washington, D.C., for Louis Sullivan in No. 90-1528.

Sheila M. Lieber, Dept. of Justice, Civ. Div., Washington, D.C., for Gail R. Wilensky in No. 90-1528.

Walter A. Smith, William A. Bradford, Jr., William P. Flanagan, Hogan & Harston, Washington, D.C., for Health Ins/Assoc.

Vaughan Finn, Stewart M. Gerson, Dept. of Justice, Civ. Div., Office of Information and Privacy, Washington, D.C., for Louis W. Sullivan and Gail R. Wilensky in No. 90-1356.

MEMORANDUM OPINION

LAMBERTH, District Judge.

This matter comes before the court upon the parties' cross-motions for summary judgment. Plaintiff in Civil Action No. 90-1528, Blue Cross and Blue Shield Association ("BCBS"), a not-for-profit organization, is the owner and licensor of Blue Cross and Blue Shield service marks. Among other things, BCBS provides support services for seventy-four autonomous not-for-profit health insurance companies or member plans which are located throughout the United States.¹ Member plans issue health insurance policies to individuals as well as groups. BCBS asserts that various regulations that were promulgated under the Medicare statute are arbitrary and capricious, an abuse of discretion or are otherwise not in accordance with law in violation of the Administrative Procedure Act, 5 U.S.C. § 706(2) (1988) ("APA").

Plaintiff in Civil Action No. 90-1356, Health Insurance Association of America, Inc. ("HIAA"), represents approximately three-hundred and twenty commercial health insurance companies that enter into various types of contractual agreements with employers and other entities which sponsor employer group health plans ("EGHP's"). HIAA challenges many of the same regulations as BCBS. Accordingly, on September 21, 1990, the court granted defendants' oral motion to consolidate HIAA's case with Civil Action No. 90-1528. Defendants in these cases are Dr. Louis Sullivan, the Secretary of the United States Department of Health and Human Services ("HHS"), and Gail R. Wilensky, the Administrator of the Health Care Financing Administration ("HFCA").

Also involved in these cases are amici Casmira Gayton, Jeanette and Clarence Howlett, who support plaintiffs' motions for summary judgment on the ground that 42 C.F.R. § 411.24(i) is arbitrary and capricious.

I. FACTS

Medicare, which is authorized by Title XVIII of the Social Security Act, is an extensive federally funded program that provides health insurance for the aged and the disabled. 42 U.S.C. § 1395 et seq. (1988). Medicare is divided into two parts: Part A, which provides insurance for inpatient institutional services, home-health services and other post-hospital services, id. at §§ 1395c through 1395i-3, and Part B, which covers physician, outpatient hospital and various other health services. Id. at §§ 1395j through 1395w-2. Both Part A and Part B contain deductible and coinsurance provisions. See id. at §§ 1395e and 1395b-1. As a result, Medicare does not pay the entire cost of health care that is provided to beneficiaries.

The Medicare program is administered by HCFA. HCFA is responsible for developing policies and regulations to ensure compliance with the Medicare statute. HCFA does not, however, process and pay Medicare claims, but rather contracts with private insurance companies to do so. See id. at §§ 1395h, 1395u.

From its inception until 1980, Medicare was the primary source of payment for the medical expenses for nearly all of its beneficiaries.² Accordingly, under most circumstances Medicare was the "primary" payer of health care benefits and EGHP's³ were "secondary" payers, liable only for the costs that remained after Medicare made its payments. Accordingly, most insurance companies' contracts with employers and EGHP's only covered "secondary" costs.

In 1981, Congress enacted the Medicare Secondary Payer Statute ("MSP statute") in an effort to reduce federal spending and to protect the financial well being of the Medicare program.⁴See 42 U.S.C. § 1395y (1988). The MSP statutory scheme applies to Medicare beneficiaries who have alternative sources of payment for health care services, such as insurance or an EGHP, and requires those alternate sources to pay health care costs "primary" to Medicare. The intent of this statute was to cut the costs of the Medicare program by requiring that Medicare pay "secondary" to alternate sources.⁵

Three provisions of the MSP statute are relevant to this case. The first expressly mandates that Medicare pay secondary to alternate sources. It states that a Medicare payment "may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that — (1) payment has been made, or can reasonably be expected to be made, with respect to the item or service" that is provided by an EGHP to cover one or more of the three categories of MSP beneficiaries.⁶ 42 U.S.C. § 1395y(b)(2)(A)(i) (Supp.1990) (emphasis added).

The second relevant provision applies when Medicare mistakenly makes the primary payment. This provision allows the government to recover any payments that should have been made by the alternate source. This section, entitled "Conditional Payment," states that:

any payment under this subchapter with respect to any item or service to which subparagraph (A) applies shall be conditioned on reimbursement to the appropriate Trust Fund Established by this subchapter when notice or other information is received that payment for such item has been or could be made under such subparagraph.

Id. at § 1395y(b)(2)(B).

The third salient provision provides the mechanism by which the government can recover conditional Medicare payments. This section provides that:

in order to recover payment under this subchapter for such an item or service, the United States may bring an action against any entity which is required or responsible under this subsection to pay with respect to such item or service (or any portion thereof) under a primary plan ... or against any entity (including any physician or provider) that has received payment from that entity with respect to the item or service, and may join or intervene in any action related to the events that gave rise to the need for the item or service.

Id. at § 1395y(b)(2)(B)(ii). Thus, upon making a conditional payment, the government may "bring an action against any entity which is required or responsible to pay" to recover its expenditure. Id.

From 1983 until 1989, the regulations that were promulgated by HCFA to enforce the MSP statute were rather consistent in their scope and effect. These rules and regulation stated that upon making a conditional payment the government may bring an action against the employer or EGHP.⁷ These rules and regulations also required the beneficiary to cooperate in any action brought by HCFA against the employer or the plan.⁸

In 1989, HCFA promulgated new regulations to implement the MSP statute, five of which are at issue in these cases. See 54 Fed.Reg. 41,716-41, 747 (Oct. 11, 1989) (later codified at 42 C.F.R. §§ 405, 411, 412 and 489). The 1989 regulations reflected the government's concern that the MSP statute had fallen far short of the government's expectations in terms of reducing the cost of the Medicare program. See GAO Report of November 29, 1988, tab 3 to defendants' motion for summary judgment. Government studies estimated that the federal government suffered losses between $400 million and $1 billion per year prior to 1989 due to the Medicare program. See Investigation by the Office of the Inspector General ("OIG"), tab 1 to defendants' motion for summary judgment.

The OIG's study attributed this massive financial loss to a variety of factors, including the fact that "Medicare contractors do not aggressively pursue MSP claims and there are few incentives for Medicare contractors to pay claims," as well as the fact that "some insurance companies have avoided compliance with MSP requirements and continued their previous practice of paying benefits secondary to Medicare, long after the effective date of the MSP statutes." Id. at 2. The report concluded that "the most direct solution may be to require either insurance companies or employers, depending on which maintains the beneficiary files, to report to the government those employees who have health coverage who fall into MSP categories." Id. at 3. Consequently, the 1989 regulations at issue here expanded HCFA's ability to recover conditional payments by permitting HCFA to bring direct actions against third party payers, i.e. insurance companies, as well as employers and EGHP's.

II. ANALYSIS

A. Standard of Review

The language of Rule 56(c) of the Federal Rules of Civil Procedure indicates that summary judgment is appropriate when examination of the record as a whole reveals "no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." In examining the record, the court must view all inferences in the light most favorable to the nonmoving party. Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

The scope of a court's review of an agency's exercise of its rulemaking authority is limited. United Mineworkers of America, International Union v. Dole, 870 F.2d 662, 666 (D.C.Cir.1989). Pursuant to Chevron, the court must first consider whether Congress manifested an ...