Erika, Inc. v. United States

Citation634 F.2d 580
Decision Date22 October 1980
Docket NumberNo. 374-77.,374-77.
PartiesERIKA, INC. v. The UNITED STATES.
CourtCourt of Federal Claims

COPYRIGHT MATERIAL OMITTED

Stephen H. Oleskey, Boston, Mass., attorney of record, for plaintiff. Timothy H. Gailey and Hale & Dorr, Boston, Mass., of counsel.

Dwight D. Meier, Washington, D.C., with whom was Asst. Atty. Gen. Alice Daniel, Washington, D.C., for defendant. Margaret Porter, Dept. of Health and Human Services, Washington, D.C., of counsel.

Before FRIEDMAN, Chief Judge, and DAVIS, NICHOLS, KASHIWA, KUNZIG, BENNETT, and SMITH, Judges, en banc.

ON CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT

FRIEDMAN, Chief Judge:

This case, before us on cross-motions for partial summary judgment,1 presents two questions under part B of the Medicare program (Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. (1976)): (1) are any determinations relating to benefits under part B judicially reviewable, and (2) if the determinations here involved are reviewable, were the bases upon which they were made invalid because they are inconsistent with the statutory provisions governing those determinations? We answer both questions affirmatively. Accordingly, we grant the plaintiff's and deny the defendant's motions for partial summary judgment.

I.

A. The Medicare Program, which pays portions of certain medical expenses primarily for persons more than 65 years old, is divided into two parts. Part A is a hospital insurance program which covers all qualifying persons, and part B is a voluntary supplemental insurance program. Coverage under both parts of the program was extended on July 1, 1973, to any person, regardless of age, who requires kidney maintenance dialysis, and is otherwise covered by the Act. 42 U.S.C. § 426(e).

Part A of Medicare, id. §§ 1395c to 1395i-2, pays the costs of inpatient hospital services and extended care services. Id. §§ 1395c, 1395d. Patients receive the services without charge. Costs are paid out of the Federal Hospital Insurance Trust Fund, which is supported primarily by Social Security taxes. Id. § 1395i. Generally a hospital agrees to become a "provider of services" under the program and is reimbursed for its "reasonable costs" through a fiscal intermediary designated by the Secretary of Health, Education, and Welfare. Id. §§ 1395f, 1395h.2 If a provider is dissatisfied with the amount its intermediary awards, and if the amount in controversy is $10,000 or more, it may seek a hearing before the Provider Reimbursement Review Board. Id. § 1395oo (a). That Board's decision may be appealed to the Secretary. Id. § 1394oo (f).

Part B of Medicare, id. §§ 1395j-1395w, pays for the "reasonable charges" of physicians and various health services such as x-rays and laboratory tests. Id. §§ 1395l, 1395x(s). Individual participants pay premiums for coverage, which go into the Federal Supplementary Medical Insurance Trust Fund. Id. § 1395t. Part B benefits are administered by insurance carriers,3 pursuant to contracts entered into with the Secretary. Id. § 1395u. The carriers set reasonable charges for 80 percent of which an individual, or a provider as assignee, may be reimbursed pursuant to guidelines set out in the Medicare statute and regulations. Id. The statute provides for "a fair hearing by the carrier" if a dispute arises over payment and the amount in controversy is $100 or more. Id. § 1395u(b)(3)(C). There is no provision for review of the carrier's decision by the Secretary or any governmental administrative agency.

B. Plaintiff (Erika) is a major distributor of equipment and supplies used in kidney dialysis. It sells to hospitals, health care facilities, and patients items it produces and items manufactured by others. The Prudential Insurance Company of America (Prudential) was designated as plaintiff's carrier, and therefore was authorized to "make determinations of the rates and amounts of payments required ... to be made to providers of services ... on a reasonable charge basis" (id. § 1395u(a)(1)(A)). Under the statute Prudential was to determine "reasonable charges" that were to be no greater than:

the prevailing charge level that, on the basis of statistical data and methodology acceptable to the Secretary, would cover 75 percent of the customary charges made for similar services in the same locality during the last preceding calendar year elapsing prior to the start of the fiscal year in which the bill is submitted or the request for payment is made.

Id. § 1395u(b)(3).4

Because Erika's sales represented almost all the sales of the relevant materials in the locality where its business was based, Prudential used Erika's charges to set the reasonable charges for dialysis equipment and supplies. It treated Erika's charges as both the customary charges for a seller and the prevailing charges for the locality. Erika's prices were listed in the company's annual catalogues, effective July 1 of each year. The company also issued from time to time catalogue supplements that reflected changes in price. Beginning with the July 1974 issue, plaintiff sent to Prudential its yearly catalogue and supplements.

Prudential determined Erika's "reasonable charges" for its fiscal years (which began on July 1)-and hence the basis for its reimbursement-by reference to Erika's charges set forth in its annual catalogue effective July 1 of the preceding year. The reasonable charges for the fiscal year beginning July 1, 1975, therefore, were those listed in the July 1974 catalogue, and the reasonable charges for the year beginning July 1, 1976, were those listed in the July 1975 catalogue. Prudential did not change those "reasonable charges" to reflect Erika's price increases shown in the company's catalogue supplements. Prudential reimbursed Erika for 80 percent of the reasonable charges it thus determined. Id. § 1395l (a)(1).

In this suit Erika challenges Prudential's refusal to increase Erika's "reasonable charges" to reflect its price increases made during the intervals between the effective dates of its annual catalogues. Count II of the complaint concerns charges for heparin, an anticlotting drug used in dialysis, from July 1974 through May 1976. The heparin Erika sold was manufactured by other firms. Plaintiff states that a shortage of meat from which the drug is produced caused a severe shortage of heparin beginning in 1974, that manufacturers of the drug raised their prices to Erika, and that Erika increased its prices for heparin five times during this period to reflect its increased costs in obtaining the drug. Although Erika sent Prudential its supplements showing the increased prices, Prudential reimbursed Erika on the basis of the July 1, 1974 prices until May 26, 1976. It then approved Erika's charges for heparin reflected in Erika's March 1, 1976 supplement as the reasonable charges for future sales.

Prudential, however, refused to increase its prior reimbursements to reflect Erika's four earlier price increases, on the ground it had no authority to make such retroactive adjustments. After a hearing, the hearing officer (a Prudential employee) upheld the determination.

Count III seeks reimbursement to reflect the difference between the higher prices Erika actually charged for other equipment and supplies sold to Medicare beneficiaries (based upon the increases set forth in the supplemental catalogues) and the July 1 prices upon which Prudential based its payments. Despite periodic requests from Erika, Prudential refused to make any changes in Erika's "reasonable charges" to reflect those interim price changes. After a hearing, the hearing officer denied Erika any additional payments.

II.

The plaintiff invokes our jurisdiction under the Tucker Act, 28 U.S.C. § 1491, which gives us jurisdiction over "any claim against the United States founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department."5 The plaintiff contends that the refusal of Prudential to determine its "reasonable costs" under part B of Medicare to reflect the interim increases in Erika's charges above those contained in its annual catalogues violated the fifth amendment to the Constitution and the provisions of the Social Security Act and the implementing regulations governing the determination of "reasonable costs." On its face, the petition states a claim within our jurisdiction under the Tucker Act.

The defendant contends, however, that under 40 U.S.C. § 1395ff Congress made benefit determinations under part B of Medicare not judicially reviewable. That section provides:

(a) Entitlement to and amount of benefits
The determination of whether an individual is entitled to benefits under part A or part B, and the determination of the amount of benefits under part A, shall be made by the Secretary in accordance with regulations prescribed by him.
(b) Appeal by individuals
(1) Any individual dissatisfied with any determination under subsection (a) of this section as to —
(A) whether he meets the conditions of section 426 or section 426a of this title, or
(B) whether he is eligible to enroll and has enrolled pursuant to the provisions of part B of this subchapter, or section 1395i-2 of this title, or section 1819, or
(C) the amount of benefits under part A (including a determination where such amount is determined to be zero)
shall be entitled to a hearing thereon by the Secretary to the same extent as is provided in section 405(b) of this title and to judicial review of the Secretary's final decision after such hearing as is provided in section 405(g) of this title.
(2) Notwithstanding the provisions of subparagraph (C) of paragraph (1) of this subsection, a hearing shall not be available to an individual by reason of such subparagraph (C) if the amount in controversy is less than $100; nor shall judicial review be available to an individual by reason of such subparagraph (C) if the amount in controversy is less than $1,000. (c) Appeal by institutions
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