Blue Cross Ass'n v. Harris, 80-1044

• Citation: 664 F.2d 806
• Decision Date: 20 November 1981
• Docket Number: No. 80-1044,80-1044
• Parties: BLUE CROSS ASSOCIATION, et al., Plaintiffs-Appellees, v. Patricia R. HARRIS, et al., Defendants-Appellants, and WYOMING HOSPITAL ASSOCIATION, et al., Plaintiffs-Appellees, v. Patricia R. HARRIS, et al., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 806

664 F.2d 806

BLUE CROSS ASSOCIATION, et al., Plaintiffs-Appellees, v. Patricia R. HARRIS, et al., Defendants-Appellants, and WYOMING HOSPITAL ASSOCIATION, et al., Plaintiffs-Appellees, v. Patricia R. HARRIS, et al., Defendants-Appellants.

No. 80-1044.

United States Court of Appeals Tenth Circuit.

Argued March 18, 1981.

Decided Nov. 20, 1981.

Lloyd M. Weinerman, Dept. of Health and Human Services, Baltimore, Md. (Alice Daniel, Asst. Atty. Gen., Civ. Div., Washington, D. C., and Charles E. Graves, U. S. Atty., Cheyenne, Wyo., with him on the brief), for defendants-appellants.

James C. Munson of Kirkland & Ellis, Chicago, Ill. (James D. Adducci and Kathleen

Kelly Spear of Kirkland & Ellis, Chicago, Ill., and Byron Hirst and Thomas A. Nicholas of Hirst & Applegate, Cheyenne, Wyo., with him on the brief), for plaintiffs-appellees, Blue Cross Association, et al.

Wayne J. Fowler of Saunders, Snyder, Ross & Dickson, P. C., Denver, Colo. (William J. Kirven III, of Saunders, Snyder, Ross & Dickson, P. C., Denver, Colo., B. D. Trierweiler, Franklin D. Bayless, and James H. Barrett of Trierweiler, Bayless, Barrett & McCartney, Cheyenne, Wyo., Merlin O. Baker and Kent H. Murdock of Ray, Quinney & Nebeker, Salt Lake City, Utah; and Richard L. Epstein and Jay H. Hedgepeth, Chicago, Ill., with him on the brief), for plaintiffs-appellees Wyoming Hospital Association, et al.

Before SETH, Chief Judge, and HOLLOWAY and SEYMOUR, Circuit Judges.

SEYMOUR, Circuit Judge.

In these consolidated cases, Blue Cross and various hospital associations (plaintiffs) sought a preliminary injunction barring the Secretary of Health, Education and Welfare, now Health and Human Services (HHS), and the administrator of the Health Care Financing Administration (defendants) from seeking competitive bids for administering the Medicare program on an experimental basis in Wyoming, Colorado and Utah. The trial court enjoined defendants from proceeding with the experiment until they had complied with certain conditions that the court found mandated by the relevant statutes. Defendants appeal and we reverse.

The Medicare Act, 42 U.S.C. § 1395 et seq. (the Act), is a comprehensive program of health insurance for the aged and disabled. Part A, section 1395c through section 1395i-2, provides hospital benefits covering inpatient services and posthospital care in skilled nursing facilities. Payments are made from the Government to providers of these services primarily through entities known as "intermediaries," which are nominated by the providers with whom they deal, see § 1395h, and whose function is to administer the program on the local level.

Plaintiffs Blue Cross and its state affiliates ¹ were nominated by another plaintiff, American Hospital Association, on behalf of its member organizations to serve as Part A intermediaries for providers of Part A services in Colorado, Utah, and Wyoming. Blue Cross has served in this capacity since the inception of the Medicare program.

Part B of the Medicare Act, section 1395j through section 1395w, is a voluntary supplemental insurance program covering the services of doctors and other health care professionals. It is financed both through premiums paid by enrollees and federal funds. Part B is administered at the local level by "carriers," see § 1395u, which are defined generally by statute as private health insurance companies, see § 1395u(f)(1). Currently the Part B carriers in the three states are Blue Cross and Blue Shield of Colorado, Blue Shield of Utah, and the Equitable Life Insurance Society in Wyoming.

Under Part A and Part B of Medicare, both intermediaries and carriers are paid by the Government on the basis of the reasonable costs they incur in administering the program. 42 U.S.C. §§ 1395h(c), 1395u(c).

Section 1395b-1 of the Act authorizes the Secretary "to develop and engage in experiments and demonstration projects" for several purposes, one of which is to determine whether fixed price or performance incentive contracts would promote more efficient administration of the programs than payment on the basis of cost. Pursuant to this statute, the Secretary issued a Request for Proposal (RFP), seeking competitive offers to administer Parts A and B jointly in the three states at a firm fixed price rather than at administrative costs. The request for potential experimental contractors was not restricted to nominated intermediaries and statutorily defined carriers.

The trial court concluded that the proposed project violates specific provisions of the Medicare Act. It found the RFP to be illegal because it contravenes the right of Part A providers to nominate their intermediaries pursuant to section 1395h. Based on the same reasoning, the court also held that the RFP violates section 1395u, which requires that Part B contractors be carriers as defined by that statute. It further concluded that the Secretary violated section 1395b-1(b) because she failed to obtain from competent specialists their advice and recommendations on the proposed experiment prior to issuing the RFP. The court enjoined defendants from executing an agreement pursuant to the RFP until the Secretary obtains the requisite advice from specialists, and makes a good faith attempt to negotiate with all nominated intermediaries and statutory carriers in the three states.

I.

On appeal, defendants contend that the unambiguous language of the experimental statute does not require the Secretary to comply with the nominated intermediary and statutory carrier provisions in conducting an experiment. Alternatively, defendants contend that even if reasonable minds could differ as to the plain meaning of the statute, the trial court failed to accord the required deference to the Secretary's interpretation. They point out that the case of Blue Cross Association v. Califano, 473 F.Supp. 1047 (W.D.Mo.1979), which the trial judge relied on exclusively in reaching his decision, has been subsequently reversed on appeal in Blue Cross Association v. Harris, 622 F.2d 972 (8th Cir. 1980). The only other circuit which has considered the issue has also upheld the Secretary's interpretation of her authority under the experimental statute. See Health Care Service Corp. v. Califano, 601 F.2d 934 (7th Cir. 1979), aff'g 466 F.Supp. 1190 (N.D.Ill.1979).

Where statutory construction is involved, the language of the statute itself is controlling when it is sufficiently clear in context. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 201, 96 S.Ct. 1375, 1384, 47 L.Ed.2d 668 (1976). The experimental Medicare statute provides in pertinent part:

"(a)(1) The Secretary of Health, Education, and Welfare is authorized, either directly or through grants to public or nonprofit private agencies, institutions, and organizations or contracts with public or private agencies, institutions, and organizations, to develop and engage in experiments and demonstration projects for the following purposes:

"...

"(F) to determine whether, and if so which type of fixed price or performance incentive contract would have the effect of inducing to the greatest degree effective, efficient, and economical performance of agencies and organizations making payment under agreements or contracts with the Secretary for health care and services under health programs established by this chapter ...."

42 U.S.C. § 1395b-1 (emphasis added). On its face, the statute does not require the Secretary to restrict experimental contracts to nominated intermediaries or statutory carriers. Rather, the Secretary's authority to contract with "public or private agencies, institutions, and organizations," id., is unlimited. Both circuits which have considered the issue have held that the language of the statute clearly and unambiguously vests the Secretary with the authority she seeks to exercise in conducting this experiment. See Blue Cross Association, 622 F.2d at 976; Health Care Service Corp., 601 F.2d at 935.

Plaintiffs attempt to avoid application of the plain meaning of the statute by arguing that such a construction would misconstrue its purpose. We disagree. The statute authorizes experiments for the purpose, inter alia, of determining whether, and which types of, fixed price contracts would induce the greatest degree of efficient administration of the Medicare program. 42 U.S.C. § 1395b-1(a)(1)(F). This purpose is not frustrated by giving effect to the statutory language that authorizes the Secretary to enter into experimental contracts with entities other than nominated intermediaries and statutory carriers.

Nor are we convinced by plaintiffs' argument that the experimental statute is limited implicitly by those provisions of the Medicare Act which apply to the usual administration of the program. Even assuming that the experimental statute, when read in the context of the entire Medicare Act, is ambiguous as to whether such limitations apply, we must afford "great deference to the interpretation given the statute by the officers or agency charged with its administration." Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965). The Secretary has consistently maintained that her authority under the experimental statute is not subject to other provisions in the Medicare Act. She contends that the construction urged by plaintiffs would totally frustrate and undermine the statute's experimental objectives. On an issue of statutory interpretation such as this one, which calls for agency expertise, the Secretary's construction is to be sustained if it is reasonable. This is so even if the Secretary's interpretation is not the only reasonable one, or the one which this court would have reached de novo. Id.

Accordingly, we hold that defendants need not comply with provisions of the Medicare Act pertaining to intermediaries and carriers when conducting an experiment pursuant to 42 U.S.C. § 1395b-1. ²

II.

The trial court concluded that the Secretary had not complied...