Cosgrove v. Bowen, 85 Civ. 4472 (GLG).

• Decision Date: 01 June 1987
• Docket Number: No. 85 Civ. 4472 (GLG).,85 Civ. 4472 (GLG).
• Citation: 668 F. Supp. 163
• Parties: Mary COSGROVE, et al., Plaintiff(s), v. Otis R. BOWEN, Secretary of Health and Human Services, et ano, Defendant(s).
• Court: U.S. District Court — Southern District of New York

668 F. Supp. 163

Mary COSGROVE, et al., Plaintiff(s), v. Otis R. BOWEN, Secretary of Health and Human Services, et ano, Defendant(s).

No. 85 Civ. 4472 (GLG).

United States District Court, S.D. New York.

June 1, 1987.

GOETTEL, District Judge.

The defendants move to reargue this Court's opinion dated December 22, 1986, reported at 649 F.Supp. 1433 (the "Opinion"). The defendants also move to dismiss the claims of plaintiff Nancy Lella, because her alleged injury occurred on March 24, 1984, a date outside the relevant time period established in the Opinion. Since the plaintiffs consent to the severance and dismissal of plaintiff Lella, we need not further consider that portion of the defendants' motion. The plaintiffs oppose reargument, and move for entry of final judgment and for class certification.

At issue in this case is the validity of a regulation promulgated by the Secretary of Health and Human Services ("Secretary") that affects the calculation of benefits paid to participants in Medicare Part B, a voluntary, federally subsidized insurance program. As promulgated, 42 C.F.R. § 405.551(e), provides that doctors converting from hospital-based compensation to direct "fee-for-service" billing must accumulate three months of direct billing to establish their individual "customary charges." Until then, their former hospital-based compensation is used to calculate their "customary charges." As noted in the Opinion, this results in some unfairness and inequity, since doctors who embark on a brand new practice are not similarly required to accumulate three months of billing to establish customary charges.¹ However, because of the great deference accorded to the Secretary's rules, we held that section 405.551(e) was not, on its face, arbitrary and capricious. See Opinion at 1437-38. Thereafter, the Deficit Reduction Act ("DRA") froze "customary" and "prevailing" charges as they existed on July 1, 1983. The result of this for former hospital-based physicians who had not accumulated three months of direct billing during calendar year 1982, was to bind them to their former hospital-based "customary charges" for years, rather than months. At this point, we ruled, it became arbitrary and capricious, and an abuse of the Secretary's discretion, to continue applying section 405.551(e) in conjunction with the DRA.² The Opinion concluded that this ruling was tantamount to a grant of partial summary judgment to the plaintiffs. The defendants seek to reargue this for several reasons.

Defendants' Motion for Reargument

The defendants assert that this case was not ripe for summary judgment. To the extent that the defendants claim that they never received and, therefore, failed to respond to plaintiffs' 3(g) statement, we reject their argument. The plaintiffs' 3(g) statement was stamped "copy received" by the United States Attorney's office on November 7, 1985. That it may not have reached the proper assistant is not a problem for this Court to remedy. In any event, our ruling was not based on the defendants' failure to respond to the plaintiffs' 3(g) statement.

The defendants further contend that summary judgment was premature because they were not given an adequate opportunity to probe the nature and validity of the plaintiffs' claims. We did not rule on the validity of the plaintiffs' individual claims. Our decision was essentially a matter of statutory interpretation, which effectively granted summary judgment to plaintiffs on their claim for recalculation of benefits for the relevant period. We see no reason to change that finding. However, recalculation does not necessarily mean reimbursement. The defendants have raised a substantial issue as to whether the named plaintiffs, or other potential plaintiffs, have actually been injured by the application of section 405.551(e) in conjunction with the DRA.³ This has greater relevance to plaintiffs' motion for class certification and entry of final judgment, discussed below, than to defendants' motion to reargue.

Finally, the defendants contend that, because we found regulation 42 C.F.R. § 405.551(e) valid, we cannot penalize the Secretary for applying it in conjunction with the nondiscretionary DRA. We reject this argument as merely restating the defendants' initial position. Pursuant to rule 3(j) of the Local Civil Rules of the Southern and Eastern Districts of New York, a party seeking reargument must set forth matters or controlling decisions overlooked by the Court. The defendants fail to state any authority overlooked by this Court. However, this argument has alerted us to a matter in the Opinion that should be corrected. In ruling that the Secretary should not have applied regulation 405.551(e) in conjunction with the DRA, we ordered recalculation of customary charges for the plaintiffs' Medicare claims, giving effect to 42 C.F.R. § 405.551(e), without regard to the DRA. See Opinion at 1439 n. 13. This was incorrect. The regulation, not the DRA, must yield.

The defendants argue that they may no more disregard section 405.551(e) than they can the DRA because, by statute, the Secretary "shall" require any Medicare carrier to "take into consideration the customary charges for similar services generally made by the physician or other person furnishing such services, as well as the prevailing charges in the locality for similar services." 42 U.S.C. § 1395u(b)(3)(F). The defendants contend that they would be violating this directive if they ceased applying section 405.551(e), as frozen in place by the DRA. This is nonsense. The DRA did not freeze regulations, it froze customary and prevailing charges. Had regulation 405.551(e) not existed when the DRA became effective, customary charges for former hospital-based physicians would have been frozen at the amount calculated for such charges pursuant to other statutory and regulatory provisions. By invalidating section 405.551(e) as applied in conjunction with the DRA, we are merely asking the Secretary to determine what these physicians' customary charges would have been as of July 1, 1984, had they been established under other methods of calculation and frozen in accordance with the DRA.

The plaintiffs propose two ways to handle this recalculation. First, they suggest calculating customary charges in the same manner used for new physicians who have not yet accumulated three months of billing data. See supra note 1. This procedure has recently been adopted by the Secretary with respect to services furnished on or after January 1, 1987, by doctors who switched from hospital-based compensation to direct billing. See 52 Fed. Reg. 6148 (March 2, 1987).⁴ Alternatively, since these physicians' customary charges would in all likelihood be as high or higher than the maximum allowable prevailing charge ("MAPC") for a particular service, and since Medicare carriers are authorized to use the lowest of the three possible charge bases (i.e., actual, customary, or prevailing charge), carriers could be instructed to assume that the MAPC would be the lowest of these three and use it as the basis for calculating benefits to Medicare participants affected by certain physicians' change in billing procedure.⁵

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