Furlong v. Shalala

• Citation: 156 F.3d 384
• Decision Date: 23 September 1998
• Docket Number: Docket No. 97-6220
• Parties: Monica FURLONG, Lawrence Schwartz, Robert Sloan and Kenneth Y. Sunew, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. Donna E. SHALALA, in her capacity as Secretary of the Department of Health & Human Services; Bruce C. Vladeck, in his capacity as Administrator of the Health Care Financing Administration, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 384

156 F.3d 384

58 Soc.Sec.Rep.Ser. 364

Monica FURLONG, Lawrence Schwartz, Robert Sloan and Kenneth

Y. Sunew, individually and on behalf of all others

similarly situated, Plaintiffs-Appellants, v. Donna E. SHALALA, in her capacity as Secretary of the

Department of Health & Human Services; Bruce C. Vladeck, in

his capacity as Administrator of the Health Care Financing

Administration, Defendants-Appellees.

Docket No. 97-6220.

United States Court of Appeals, Second Circuit.

Argued March 16, 1998.

Decided Sept. 23, 1998.

Peter J. Clines, New York City (Whitney North Seymour, Jr., Craig A. Landy, Landy & Seymour, New York City), for Plaintiffs-Appellants.

Neil M. Corwin, Assistant United States Attorney, New York City (Mary Jo White, United States Attorney, Steven M. Haber, Assistant United States Attorney, Southern District of New York, New York City), for Defendants-Appellees.

Before: CARDAMONE, JACOBS, Circuit Judges, and SWEET, ^* District Judge

CARDAMONE, Circuit Judge:

Plaintiffs are four anesthesiologists who work in New York City hospitals. Two of them appeal from an order of the United States District Court for the Southern District of New York, entered before Judge Loretta J. Preska on July 8, 1997, which granted summary judgment in favor of defendants, dismissing their causes of action. Defendants are Donna E. Shalala, Secretary of the Department of Health and Human Services (Secretary) and Bruce C. Vladeck, Administrator of the Health Care Financing Administration (Health Financing Agency).

Plaintiffs' suit in part concerns the validity of a particular Department of Health and Human Services (Department) regulation that distinguishes between "assignee" and "non-assigned" physicians with respect to the right to appeal adverse payment determinations. Plaintiffs allege in their complaint that the regulation promulgated by the Secretary is arbitrary and capricious and deprives them of the equal protection of the law. The other part of plaintiffs' suit involves the application of a rule, the result of which is to reduce the amount they can charge for a certain type of procedure. Without any mechanism for appeal, the reduction, they assert deprived them of a property interest without due process of law.

BACKGROUND

To plunge immediately without any explanation into the complexities of social security law is like jumping into a murky muddle of a regulatory no-man's land. So before proceeding further, it is helpful to set out the pertinent statutory and regulatory framework upon which this case will be decided.

A. Statutory and Regulatory Background

1. Part B of Medicare

Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq. (Medicare statute or Act), establishes the Medicare program providing medical insurance for persons age 65 or older and those under age 65 who are disabled. The Medicare program consists of two parts: Part A and Part B. Part A, funded by Social Security taxes, provides major medical insurance coverage for the costs of hospital care, related post-hospital services, home health services, and hospice care. See generally 42 U.S.C. §§ 1395c-1395i-4. Part B, at issue in this appeal, is a federally subsidized, voluntary health insurance program. It provides supplemental insurance coverage for medical and other services excluded from Part A. See id. §§ 1395j-1395w-4. Eligible persons who elect to enroll in the Part B program pay monthly premiums. These premiums, combined with contributions from the federal government, are deposited into the Federal Supplementary Medical Insurance Trust Fund (Trust Fund) to finance Part B coverage. See id. § 1395j (1994); see generally id. § 1395t (1994).

Although the defendant Secretary is ultimately responsible for administering the Part B program, § 1395u of the Medicare statute authorizes her to contract with private insurance carriers to manage Part B claims and the disbursement process on a day-to-day basis. Thus, after Part B patients receive medical care, their treating physicians submit insurance claims on their behalf to these carriers for processing and payment. The carriers then evaluate the claims to determine whether and to what extent they are reimbursable. See id. § 1395u(a)(1)(A) (1994). For services rendered before January 1, 1992, the carriers' calculation of the Medicare-approved charge for a reimbursable claim had to be "reasonable," based on the prevailing charge for comparable services in the particular community. See id.; see generally 42 C.F.R. § 405.501 et seq. (1997). The Department subsequently promulgated a statutory fee schedule of Medicare-approved charges to replace this discretionary standard and ensure nationally uniform relative values for all physicians' services rendered on or after January 1, 1992. ¹ See generally 42 U.S.C. § 1395w-4(a)(1) (1994); 42 C.F.R. §§ 414.1 et seq. (1997). Once a carrier determines the Medicare-approved charge, it pays 80 percent of that charge out of the Trust Fund. See 42 U.S.C. § 1395l(a)(1) (1994), as amended by, Act of Aug. 5, 1997, 42 U.S.C.A. § 1395l(a)(1) (West Supp.1998); id. § 1395u(a)(1)(B) (1994).

2. Reimbursement to Physicians

Reimbursement to physicians for their charges incurred under Part B occurs in one of two ways. First, the treating physician may elect to accept assignment of his patient's right to reimbursement and become an "assignee-physician." Physicians also have the option of becoming "participating physicians," that is, physicians who agree to accept an assignment for all Part B services they provide throughout the year. See id. § 1395u(b)(3)(B)(ii) & (h)(1) (1994). Under this scenario, the assignee-physician must agree to accept the Medicare-approved charge in full satisfaction of his services. See id. § 1395u(b)(3)(B)(ii). The carrier pays 80 percent of that charge directly from the Trust Fund to the assignee-physician; the remaining 20 percent of the approved charge is the patient's responsibility. See id. § 1395l(a)(1) (West Supp.1998).

Alternatively, the treating physician may decline assignment and become a "non-assigned physician." In this second scenario, the non-assigned physician bills the patient--who is the responsible party--directly for the Medicare-approved charge, and the carrier reimburses the patient for 80 percent of the Medicare-approved charge from the Trust Fund. See id. §§ 1395l(a)(1) &

1395u(b)(3)(B)(i) (1994). The non-assigned physician may tack an additional amount, to be determined by the physician, on top of the Medicare-approved charge. This additional amount, however, is capped by a "limiting charge," above which a non-assigned physician may not bill without being subject to sanctions. See id. § 1395w-4(g) (1994). The limiting charge is determined as a fixed percentage of the Medicare-approved charge. For example, the limiting charge for services rendered after December 31, 1992 is 115 percent of the applicable Medicare-approved charge. See id. § 1395w-4(g)(2)(C). In this manner, even though non-assigned physicians may bill their patients for more than the Medicare-approved charge, that charge nevertheless directly dictates what amount may be billed.

3. Review Process on Reimbursement Claims

A physician's decision to decline assignment dramatically affects his ability to appeal a carrier's determination of the Medicare-approved amount of the doctor's charges. As a preliminary matter, the Medicare statute itself affords a Part B enrollee access to administrative and judicial review of the carrier's decision, depending on the amount in controversy. See Abbey v. Sullivan, 978 F.2d 37, 40 (2d Cir.1992). This procedural protection occurs at four different adjudicatory levels. Following the carrier's initial de novo determination, § 1395u(b)(3)(C) of the Act entitles the patient to a "fair hearing," if the amount in controversy is at least $100, to be conducted by a carrier-designated hearing officer. See generally 42 C.F.R. § 405.807-405.815. If that hearing results in a decision adverse to the patient, and the amount in controversy equals or exceeds $500, the patient may request an evidentiary hearing and de novo review of the carrier's decision by an Administrative Law Judge (ALJ). See 42 U.S.C. § 1395ff(b)(1)(C) (incorporating procedures for administrative review set forth at 42 U.S.C. § 405(b) & (b)(2)(B) (1994)). If that too is unsuccessful, the patient may appeal the ALJ's decision to an appeals council. See id. Upon issuance of the appeals council's ruling, which is the final administrative decision, a dissatisfied patient may within 60 days seek judicial review of the Secretary's determination in the district court, but only if the amount in controversy equals or exceeds $1,000. See id. (incorporating procedures for judicial review set forth at 42 U.S.C. § 405(g)).

In implementing the Medicare statute, the Health Financing Agency on behalf of the Department adopted a regulation extending the same appeals rights that patients have to assignee-physicians, that is, those physicians that furnish services to Part B patients and accept assignment from the patients. See 42 C.F.R. § 405.801(b)(1) (1997). But the regulation did not extend the right to appeal a carrier's initial Medicare-approved charge determination to non-assigned physicians.

4. Modification of Medicare-Approved Charges

The statutory fee schedule establishing fees for particular services is subject to payment modifications made by the Department. The Health Financing Agency, the Agency within the Department that administers Medicare, issues a Medicare Carrier Manual (Medicare Manual) that contains policies, procedures and instructions to govern carriers in their administration of the Medicare program, including rules governing payment for various procedures. Carriers must comply with these policy statements when they decide claims. See 42 U.S.C. § 1395u(b)(5) (1994); 42 C.F.R. § 405.502(d).

In particular, Medicare Manual § 4149 modifies...