Cervoni v. Secretary of Health, Ed. and Welfare, 77-1345

• Citation: 581 F.2d 1010
• Decision Date: 27 June 1978
• Docket Number: No. 77-1345,77-1345
• Parties: Dr. Walter A. CERVONI, Plaintiff, Appellant, v. SECRETARY OF HEALTH, EDUCATION AND WELFARE, Defendants, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 1010

581 F.2d 1010

Dr. Walter A. CERVONI, Plaintiff, Appellant, v. SECRETARY OF HEALTH, EDUCATION AND WELFARE, Defendants, Appellees.

No. 77-1345.

United States Court of Appeals,

First Circuit.

Argued Feb. 13, 1978.

Decided June 27, 1978.

Juan F. Esteves, San Juan, P. R., with whom Pieras & Esteves, San Juan, P. R., was on brief, for plaintiff-appellant.

William Kanter, Atty., App. Section, Civ. Div., Dept. of Justice, Washington, D. C., with whom Barbara Allen Babcock, Asst. Atty. Gen., Washington D. C., Julio Morales Sanchez, U. S. Atty., San Juan, P. R., and Mary Gallagher, Atty., App. Section, Civ. Div., Dept. of Justice, Washington, D. C., were on brief, for appellee.

Before COFFIN, Chief Judge, MOORE ^* and CAMPBELL, Circuit Judges.

MOORE, Circuit Judge:

Walter A. Cervoni, M.D., brought this action seeking judicial review of an administrative determination by the Secretary of Health, Education and Welfare (the "Secretary") of his claim that his services, as a hospital-based physician and as director of two clinical pathology laboratories, be reimbursed under Part B of the Medicare Act, 42 U.S.C. §§ 1395j-1395w, for physicians' services, rather than under Part A of the Medicare Act, 42 U.S.C. §§ 1395c-1395i, for hospital services. The district court ruled that it possessed no subject matter jurisdiction based on any of the statutory grounds alleged, and, after a hearing on the question of the existence of a substantial constitutional question, determined that no constitutional issue was presented since appellant had not been deprived of any property interest. From this determination of lack of jurisdiction, Dr. Cervoni appeals.

I. BACKGROUND OF MEDICARE

In order to understand this case, some insight into, and understanding of, the intricate provisions of the statute is necessary. Congress enacted Federal Health Insurance for the Aged, popularly known as "Medicare", as part of the Social Security Act of 1965. ¹ The Medicare program consists of two basic, substantively distinct parts Part A providing insurance for hospital and hospital-related services, 42 U.S.C. §§ 1395c-1395i, and Part B, providing supplementary medical services, primarily in the form of physicians' services, 42 U.S.C. §§ 1395j-1395w. ²

Under Part A, insured persons aged 65 or over receive "basic protection against the costs of hospital and related post hospital services . . .". § 1395c. The beneficiaries of the services do not pay hospitals directly. Instead, fees for hospital services are paid directly by the government, from the Federal Hospital Insurance Trust Fund, § 1395i, which is financed by wage taxes on employers and self-employers. The hospital and other "providers" ³ are reimbursed by the Secretary through "fiscal intermediaries". These intermediaries are private non-government entities, such as health and accident insurance companies (including "Blue Cross" organizations) nominated by a provider or group of providers. § 1395h. The fiscal intermediaries perform various functions as agents for HEW, such as hospital audits, information dissemination, and final disbursement.

The rate of reimbursement to providers is the lesser of "(A) the reasonable cost of such services or (B) the customary charges with respect to such services . . . ." § 1395f(b)(1). Services that are reimbursed include inpatient hospital services, which are bed and board, nursing services, use of hospital facilities, and "such other diagnostic or therapeutic items or services, furnished by the hospital or by others . . . ." § 1395x(b). See 20 C.F.R. 405.116(a). These services do not include "medical or surgical services provided by a physician, resident, or intern . . . ." § 1395x(b)(4).

Under Part B, §§ 1395j-1395w, persons aged 65 or older, § 1395O, are eligible to enroll in the program to obtain benefits, § 1395p, by agreeing to pay monthly premiums which are established by the Secretary. §§ 1395r(b) and (c). These premiums, and contributions from the federal government, are deposited into the Federal Supplementary Medical Insurance Trust Fund, which is distinct from the fund established for Part A. § 1395t. Money from this fund is used to pay the benefits provided by Part B, §§ 1395L (a) and 1395t(g). The rate of reimbursement is 80% Of the reasonable charge, § 1395L (a)(1), except for services of radiologists and pathologists to inpatients, for which there is 100% reimbursement, § 1395L (a)(1)(B). An individual covered under Part B can either pay for the services received and request reimbursement, § 1395u(b)(3) (B)(i) or can assign the right to reimbursement to the person providing the services, who can collect as assignee of the beneficiary. § 1395u(b)(3)(B) (ii). The services covered include "medical and other health services", including physicians', diagnostic, home health, and outpatient physical therapy services. §§ 1395k and 1395x(s).

Part B is administered through intermediaries called "carriers", whose role is comparable to that of the "intermediaries" under Part A. § 1395u.

II. FACTS

Benefit payments for physicians' services to individual patients generally are furnished under the voluntary supplementary medical insurance of Part B § 1395k(a)(2)(B)(i). Payments for services provided by hospitals are furnished under Part A. § 1395d. Appellant Dr. Cervoni is a physician and a pathologist. Dr. Cervoni was under contract with two small private hospitals, Doctor's Hospital, in Santurce, Puerto Rico, and Auxilio Mutuo Hospital ("Mutuo") in Rio Piedras, Puerto Rico. Dr. Cervoni contends that, contrary to the opinion of the Secretary, Dr. Cervoni's professional services should be reimbursed under Part B of Medicare, not under Part A. The appellant asserts that the actions of the Secretary created "a Suspension of payments under Part B and A disentitlement of plaintiff's rights under the Act." (emphasis in original). Appellant's Br. at 3. Jurisdiction was asserted under 28 U.S.C. § 1331(a); under the Medicare provisions of the Social Security Act, 42 U.S.C. § 1395 Et seq.; under the Fifth and Fourteenth Amendments; under the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701-06; under 42 U.S.C. § 1983; and under 28 U.S.C. § 1361.

Dr. Cervoni's contract with Doctor's Hospital, included in the complaint, provided that appellant would "carry out the duties of director of the Clinical Laboratory Department of The Hospital", App. 19, and would "receive as compensation for his professional services 30 per cent of the net profits produced by the laboratory." App. 22. This contract (entered in 1961) and the contract with Mutuo pre-dated the hospitals' becoming, in 1966, participating providers under Medicare.

Until 1972, Dr. Cervoni was permitted to bill his services under Part B. On September 15, 1972, the Secretary sent a letter to Seguros de Servicio de Salud ("SSS"), the Part B carrier. App. 56. The letter advised SSS that the Secretary had asked the Part A intermediary, then Medicare Part A of Puerto Rico, to develop, pursuant to 20 C.F.R. 405.487(b), the proper allocation of Dr. Cervoni's services into Part A and Part B services. The Secretary indicated that "(i)nformation available makes us strongly believe that an overpayment will be incurred to this doctor" and asked SSS "to stop all payments effective upon receipt of this letter to (Dr. Cervoni) until we inform you that this matter has been finally resolved." App. 56. On September 19, 1972 the Secretary notified Dr. Cervoni that payments to him under Part B had been stopped. ⁴

After a lethargic period of investigation, the hospital intermediary, then Cooperativa de Seguros de Vida de Puerto Rico ("Cooperativa"), notified Dr. Cervoni on June 18, 1974:

(C)linical laboratory services are considered hospital services for medicare reimbursement purposes. Since no direct physician services to a patient are involved, there is no professional component to reimburse. This means that you can no longer receive reimbursement through the Part B carrier. App. 65.

Cooperativa suggested that "(i)f you consider that you will not be receiving reimbursement for services rendered to medicare patients you should discuss with the provider a new agreement to include in your compensation the services rendered to medicare patients." App. 65. In this way Dr. Cervoni would receive compensation directly through the provider hospitals.

With regard to Mutuo, Dr. Cervoni was allowed to keep any Part B payments made to him through June 30, 1973. Since July 1, 1973, Dr. Cervoni has received a salary through this hospital, and Mutuo has received payments through Part A. With regard to Doctor's Hospital, Dr. Cervoni received Part B payments through September 15, 1972. Since that time he has been reimbursed by the hospital at an annual rate of $20,237, which is included in the hospital cost reports and reimbursed by the intermediary.

Dr. Cervoni's controversy with HEW arose from the difficulty of determining reimbursement for services performed by hospital-based physicians, a problem addressed by the Medicare regulations in 20 C.F.R. 405.480-405.488. ⁵ The problem is not uncommon because many hospitals employ pathologists and other physicians:

The functions of these physicians vary widely. In some cases they devote full time to education or administration. Conversely, some are exclusively concerned with patient care. Any one of these physicians may be engaged in a variety of activities including teaching, research, administration, supervision of professional or technical personnel, service on hospital committees, and other hospital-wide activities, as well as direct personal health services to individual patients. . . . 20 C.F.R. 405.480(e).

These physicians generally are compensated by the hospital through some combination of either salary or a percent of gross or net income received from patients for the particular services. 20 C.F.R. 405.480(f). Regardless of the remuneration arrangement between the...