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

• Decision Date: 06 February 1991
• Docket Number: No. 85 Civ. 4472 (GLG).,85 Civ. 4472 (GLG).
• Citation: 783 F. Supp. 769
• Parties: Mary COSGROVE, et al., Plaintiffs, v. Louis W. SULLIVAN, in his capacity as Secretary of the Department of Health and Human Services, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

783 F. Supp. 769

Mary COSGROVE, et al., Plaintiffs, v. Louis W. SULLIVAN, in his capacity as Secretary of the Department of Health and Human Services, et al., Defendants.

No. 85 Civ. 4472 (GLG).

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

February 6, 1991.

Brown & Seymour (Whitney North Seymour, Jr., Craig A. Landy, of counsel), New York City, for plaintiffs.

Otto G. Obermaier, U.S. Atty., S.D.N.Y., by Lorraine S. Novinski, Sp. Asst. U.S. Atty., New York City, for defendants.

OPINION

GOETTEL, District Judge.

In 1986, plaintiffs Mary Cosgrove, et al. commenced a nationwide class action against defendants Otis Bowen, the Secretary of the Department of Health and Human Services ("HHS") to challenge an administrative regulation used to determine reimbursement levels for certain physician services under Part B of the Medicare program. Plaintiffs are now applying for an order compelling Louis W. Sullivan, the current Secretary of the Department of Health and Human Services, to pay interest on underpayments to the plaintiff class arising from the court's final judgment of November 16, 1988 ordering recalculation of the customary charges for the Part B services they received.

I. FACTUAL BACKGROUND

The named plaintiffs in this class action are individuals enrolled in Part B of Medicare, a federally subsidized voluntary health insurance program for persons age 65 and older or who are disabled. The defendants are Louis W. Sullivan, the current Secretary of the Department of Health and Human Services¹ (the "Secretary") and the Administrator of the Health Care Finance Agency, the division that administers the Medicare program.²

This case has lingered before this court for many years. Since we have no desire to reiterate its intricate history, reference should be made to this court's earlier decision for a more complete explanation of the factual background. See Cosgrove v. Sullivan, 649 F.Supp. 1433 (S.D.N.Y.1986). However, almost three years have passed since the court last spoke in this case on the merits. Therefore, we shall briefly outline what has passed before so that what is before us today will be understandable.

Each of the plaintiffs was reimbursed by an insurance carrier designated to process their Part B claims for charges they had submitted in connection with surgery they each underwent between 1984 and 1986. Part B of the Medicare program supplements Part A's coverage of institutional health costs by insuring against a portion of other medical expenses. Eligible individuals who choose to enroll in the Part B program pay monthly premiums. See 42 U.S.C. § 1395j et seq. (1988).

Generally, reimbursement levels for Medicare Part B claims are based upon the "reasonable charges" for particular medical services. 42 U.S.C. § 1395u(b). In this case, reimbursements were determined by calculating the "customary charges" under 42 C.F.R. § 405.551(e) in conjunction with provisions of the Deficit Reduction Act of 1984 ("DEFRA"). The combined effect of these provisions was to freeze reimbursement rates for services performed by certain physicians who had switched to direct fee-for-service billing on or after November 1, 1982. As a result, the reimbursements received by plaintiffs fell far below the actual charges billed directly to them by their physicians.

Plaintiffs, who include both direct Medicare beneficiaries and physicians holding assigned claims, filed a class action against the Secretary challenging the continued application of 42 C.F.R. § 405.551(e) as arbitrary and capricious. This court agreed and ordered defendants to recalculate the reasonable charges for services rendered by the fee-for-service physicians. See Cosgrove v. Bowen, 649 F.Supp. at 1439. On November 16, 1988, the court entered a final judgment certifying the class and ordering defendants to require all Medicare carriers under their jurisdiction, after recalculating the customary charges, to pay to the plaintiff class 80% of any resulting increase in the reasonable charges that were due to the plaintiff class.³ To ensure compliance, the court also ordered the defendants to report to the court their progress in the recalculations at least once every six months.

On appeal, the Second Circuit affirmed the district court's decision. Specifically, the circuit court agreed that it was arbitrary and capricious for the Secretary to continue to base Medicare patient reimbursements for physicians' services on physicians' hospital salaries years after the physicians had switched to fee-for-service billing. Cosgrove v. Bowen, 898 F.2d 332 (2nd Cir.1990).

This court, responding to substantial delays by defendants in completing the recalculation ordered in the 1988 Final Judgment, appointed a special master on August 20, 1991 to monitor the defendants' compliance. To date, defendants have only liquidated a portion of the plaintiffs' claims. The court-appointed special master, in his first report dated January 29, 1992, stated that as of December 31, 1991, more than three years after the court's Final Judgment, defendants have recalculated and paid approximately $45 million to eligible physicians and beneficiaries. First Report of Special Master, 85 Civ. 4772 (GLG) (S.D.N.Y. Jan. 29, 1992), at 1-2. Of the twenty Tier II carriers who already possess the information necessary to complete all recalculations and payments required by the Final Judgment, seventeen have completed their payments. Id. at 8 n. 5. Progress by other carriers, including those classified in Tier IV and V who currently lack all of the data necessary for recalculations of plaintiffs' proper reimbursements, has been less forthcoming to date.

Plaintiffs now seek an order compelling defendants to pay to the plaintiff class interest on underpayments that has been accruing since November 16, 1988, the entry date of this court's final judgment.

II. DISCUSSION

The Medicare Act was amended by the Tax Equity and Fiscal Responsibility Act of 1982 (Pub.L. 97-248) ("TEFRA") to provide for the payment or charging of interest on underpayments and overpayments to Medicare physicians and providers. In cases involving Medicare Part B reimbursements, Congress provided:

Whenever a final determination is made that the amount of payment made under this part either to a provider of services or to another person pursuant to an assignment under section 1395u(b)(3)(B)(ii) of this title was in excess of or less than the amount of payment that is due, and payment of such excess or deficit is not made (or effected by offset) within 30 days of the date of the determination, interest shall accrue on the balance of such excess or deficit not paid or offset (to the extent that the balance is owed by or owing to the provider) at a rate determined in accordance with the regulations of the Secretary of the Treasury applicable to charges for late payments.

42 U.S.C. § 1395l(j) (1988). Plaintiffs maintain that the court's 1988 final judgment represented a "final determination" under 42 U.S.C. § 1395l(j) that the reimbursements received by the plaintiff class were deficient. Since more than 30 days have passed since the judgment was entered without repayment of these deficiencies, plaintiffs contend that the defendants should be directed to pay interest on the underpayments which the class is entitled to receive.

In response, defendants argue that the court's conclusion that a recalculation should be completed does not amount to a final determination that an underpayment has occurred. The Secretary, noting the implementing regulations for 42 U.S.C. § 1395l(j), argues that interest begins accruing once an intermediary or a carrier determines that an underpayment exists. Indeed, defendants contend that without access to information available to the Medicare carriers the court could not have determined whether or not claims had been underpaid or by what amounts.

Defendants also argue that, under 42 U.S.C. § 1395l(j), interest is only payable to providers of services and those payable pursuant to an assignment of benefits. In their view, nothing in the statute authorizes those plaintiffs who are Medicare beneficiaries with unassigned claims to receive interest payments on deficient Part B reimbursements.

Finally, defendants maintain that no final determination could have been rendered by the court because statutory provisions deny the court subject matter jurisdiction over the Part B underpayment claims which form the basis of the interest claims in this case.

Defendants' arguments concerning the issue of subject matter jurisdiction are premised upon section 1395ff of Title 42 which governs the ability of individuals to challenge Medicare benefits determinations made by the Secretary. The Historical and Statutory Notes which follow the statute state that "the amendments made by subsection (a) which provided for appeals of Part B claims shall apply to items and services furnished on or after January 1, 1987."

Defendants argue that the effective date of the 1986 amendments allowing individuals to appeal Part B benefits determinations precludes judicial review of claims for services arising before January 1, 1987. Since all the services at issue in this case were furnished between 1984 and 1986, defendants claim that the court lacks jurisdiction to review these benefits determinations and award interest. Defendants contend that the court possessed jurisdiction only because plaintiffs challenged the Secretary's methodology for calculating the Part B reimbursements. Without jurisdiction to review the underlying Part B claims themselves, the court's earlier judgment could not have determined that the reimbursements were deficient.

This argument, however, misses the jurisdictional point. As the court noted in its earlier opinion, the jurisdictional issues of the original challenge of 42 C.F.R. § 405.551(e) were settled by the Supreme Court. This action began when plaintiffs challenged the method by which they...