Garelick v. Sullivan

• Decision Date: 05 March 1993
• Docket Number: No. 215,D,215
• Citation: 987 F.2d 913
• Parties: , Medicare & Medicaid Guide P 41,116, Medicare & Medicaid Guide P 41,300 Bertha GARELICK; Yolanda Restaino; Elena Savino; David Atkinson; Bruce Konrad; Peter T. Pickering, Plaintiffs-Appellants, v. Louis W. SULLIVAN, M.D., Secretary of the U.S. Department of Health and Human Services; William Toby, Administrator, Health Care Financing Administration, Region II, Defendants-Appellees. ocket 92-6100.
• Court: U.S. Court of Appeals — Second Circuit

Page 913

987 F.2d 913

40 Soc.Sec.Rep.Ser. 327, Medicare & Medicaid Guide

P 41,116,

Medicare & Medicaid Guide P 41,300

Bertha GARELICK; Yolanda Restaino; Elena Savino; David

Atkinson; Bruce Konrad; Peter T. Pickering, Plaintiffs-Appellants, v. Louis W. SULLIVAN, M.D., Secretary of the U.S. Department of

Health and Human Services; William Toby,

Administrator, Health Care Financing

Administration, Region II,

Defendants-Appellees.

No. 215, Docket 92-6100.

United States Court of Appeals, Second Circuit.

Argued Oct. 8, 1992.

Decided March 5, 1993.

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

Linda A. Riffkin, Sp. Asst. U.S. Atty. (Otto G. Obermaier, U.S. Atty., S.D.N.Y. and Paul K. Milmed, Asst. U.S. Atty., of counsel), for defendants-appellees.

Before: VAN GRAAFEILAND, PRATT and WALKER, Circuit Judges.

WALKER, Circuit Judge:

The central questions presented by this appeal are whether a federal statutory scheme designed to control Medicare costs has caused a taking of property from plaintiff anesthesiologists requiring compensation under the Fifth Amendment and whether plaintiff limited-income Medicare beneficiaries have standing to assert a constitutional challenge to the statutory scheme based upon increased physician medical charges allegedly caused by the cost control measures.

BACKGROUND

Medicare is the federal medical insurance program for disabled persons and those 65 and older. See 42 U.S.C. § 1395, et seq. The Medicare program is composed of two parts, A and B. Part A provides insurance for the cost of hospitalization and related services, and is funded out of Social Security taxes. See id. at §§ 1395c-1395i-4. Part B, the exclusive focus of this appeal, is a voluntary program that provides Medicare beneficiaries with supplemental benefits. See id. at §§ 1395j-1395w-4. Part B beneficiaries pay monthly premiums that, along with federal government contributions, are remitted to the Federal Supplementary Medical Insurance Trust Fund. See id. at § 1395t. The Department of Health and Human Services has responsibility for administering the program, and contracts with private insurance carriers who evaluate and pay Part B claims out of the Trust Fund. See id. at § 1395u.

If the carrier finds that a claim is reimbursable, Medicare pays 80% of the Medicare-defined allowed or "reasonable" charge for the claim. See id. at § 1395l (a)(1); see also 42 C.F.R. § 405.501, et seq. The beneficiary is responsible for a "copayment" of the remaining 20% of the allowed charge.

Part B provides physicians with two payment options. They can choose to "accept assignment," which means that they bill Medicare directly for their services and accept the allowed charge as full payment, receiving 80% from Medicare and 20% from In recent years, Congress has enacted a series of statutes designed to discourage and limit balance billing and encourage physicians to accept assignment. The Deficit Reduction Act of 1984 ("DEFRA") created the "Participating Physicians Program," requiring physicians to decide on an annual basis whether to enter into "participation agreements." During the term of a participation agreement, a participating physician agrees to accept assignment for all items and services she provides under Part B and is precluded from balance billing. See id. at § 1395u(h)(1). Under DEFRA, a non-participating physician retained the option of accepting or refusing assignment in individual cases. However, DEFRA provided incentives for physicians to enter into participation agreements. For example, the statute temporarily froze the fees non-participating physicians could charge Medicare patients. See id. at § 1395u(j)(1)(A); Pennsylvania Medical Soc'y v. Marconis, 942 F.2d 842, 844 (3d Cir.1991).

                the beneficiary.   See 42 U.S.C. § 1395u(b)(3)(B)(ii).   Alternatively, a physician may choose to bill the patient directly for 100% of their charge, with Medicare reimbursing the patient for 80% of the Medicare reasonable charge.   See id. at §§ 1395l (a)(1), 1395u(b)(3)(B)(i).   A physician who does not accept assignment may charge her patient in excess of the Medicare allowed charge, a practice called "balance billing."
                

The Omnibus Budget Reconciliation Act of 1986 ("OBRA-86") lifted the DEFRA freeze on non-participating physician fees, substituting a system of "maximum allowable actual charges" ("MAACs") for services. See 42 U.S.C. § 1395u(j)(1)(B)(i). MAACs were initially based upon physicians' actual charges for the quarter beginning on April 1, 1984. See id. at § 1395u(j)(1)(C)(iv). Under OBRA-86, non-participating physicians were not permitted to charge Part B beneficiaries in excess of MAAC rates, unless their annual average fees fell below levels set forth in the statute. See Omnibus Budget Reconciliation Act of 1986, Pub.L. No. 99-509, 100 Stat. 1874, 2018-22 (1986); H.R.Conf.Rep. No. 1012, 99th Cong., 2d Sess. 330-31, reprinted in 1986 U.S.C.C.A.N. 3868, 3975-76.

The Omnibus Budget Reconciliation Act of 1989 ("OBRA-89"), included provisions designed to further "protect [Medicare] beneficiaries against excessive balance billing" by non-participating physicians. H.R.Rep. No. 247, 101st Cong., 1st Sess. 348, reprinted in 1989 U.S.C.C.A.N. 1906, 2074. OBRA-89 replaced the MAAC formula with a concept called the "limiting charge," which limits non-participating physicians' charges to set percentages of the Medicare-defined allowed charge for services. See 42 U.S.C. § 1395w-4(g)(2). The limiting charge is now 115% of the allowed charges for services. See id. at § 1395w-4(g)(2)(C).

It is OBRA-89's limiting charge scheme that plaintiff New York hospital-based anesthesiologists and limited-income Part B beneficiaries challenge. The anesthesiologists assert that the limiting charge regime gives rise to a taking of property without just compensation in violation of the Fifth Amendment. They also purport to assert a substantive due process claim, but in their briefs to this court fail to distinguish this claim from their takings claim, and thus it will not be independently considered. The beneficiaries challenge the scheme as violative of the equal protection and substantive due process components of the Fifth Amendment. Plaintiffs seek, inter alia, declaratory and injunctive relief.

The district court granted defendants' summary judgment motion and dismissed the entire complaint. The court found the anesthesiologists' claims invalid as a matter of law. See Garelick v. Sullivan, 784 F.Supp. 108, 112-14 (S.D.N.Y.1992), reconsideration granted in part, No. 91 Civ. 4524, 1992 WL 71946 (Mar. 24, 1992 S.D.N.Y.). The court also found that the beneficiaries lacked standing to challenge the statutory scheme. See id. at 111-12. We agree with both decisions.

DISCUSSION

I. The Anesthesiologists' Claims

Government has broad power to regulate the use of property; but this power A property owner must be legally compelled to engage in price-regulated activity for regulations to give rise to a taking. See Bowles v. Willingham, 321 U.S. 503, 517-18, 64 S.Ct. 641, 648-49, 88 L.Ed. 892 (1944); Whitney v. Heckler, 780 F.2d 963, 972 (11th Cir.), cert. denied, 479 U.S. 813, 107 S.Ct. 65, 93 L.Ed.2d 23 (1986); Minnesota Ass'n of Health Care Facilities v. Minnesota Dep't of Pub. Welfare, 742 F.2d 442, 446 (8th Cir.1984), cert. denied, 469 U.S. 1215, 105 S.Ct. 1191, 84 L.Ed.2d 337 (1985). For example, public utilities are under a state statutory duty to serve the public, and must furnish "service on demand to all applicants" at government-determined rates. W. Pond, The Law Governing the Fixing of Public Utility Rates: A Response to Recent Judicial and Academic Misconceptions, 41 Admin.L.Rev. 1, 5 (1989) (hereinafter "Pond"); see also Duquesne Light Co. v. Barasch, 488 U.S. 299, 307, 109 S.Ct. 609, 615, 102 L.Ed.2d 646 (1989). Because utilities generally are compelled to employ their property to provide services to the public, the Fifth Amendment requires regulators to provide utilities with reasonable compensation for their services. See Minnesota Ass'n, 742 F.2d at 446; see also Pond, supra, at 5.

                is constrained by constitutional limits.  Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 413-15, 43 S.Ct. 158, 159-60, 67 L.Ed. 322 (1922).   It is well established that the Takings Clause of the Fifth Amendment applies to so-called "regulatory takings."   The anesthesiologists contend that the OBRA-89 limiting charge scheme is a regulatory taking of their property interests in their licenses and practices as physicians.   Their primary argument is that they have been compelled to provide services to Medicare Part B patients, and thus to submit to price regulations imposed by the statutory scheme.   They also argue that the governmental purpose behind the limiting charge provisions--allegedly to ameliorate the burden of increasing medical costs upon elderly and disabled Medicare beneficiaries by decreasing compensation to physicians--renders the scheme a taking.   In light of prevailing Supreme Court case law, we reject both theories
                

By contrast, where a service provider voluntarily participates in a price-regulated program or activity, there is no legal compulsion to provide service and thus there can be no taking. See Bowles, 321 U.S. at 517-18, 64 S.Ct. at 648-49; Burditt v. United States Dep't of Health and Human Servs., 934 F.2d 1362, 1376 (5th Cir.1991); Whitney, 780 F.2d at 972; Minnesota Ass'n, 742 F.2d at 446; Texaco Puerto Rico, Inc. v. Ocasio Rodriguez, 749 F.Supp. 348, 359 (D.P.R.1990); Anco, Inc. v. State Health and Human Servs. Fin. Comm., 300 S.C. 432, 441-42, 388 S.E.2d 780, 786 (1989). Thus, in Bowles v. Willingham, the Supreme Court sustained a rent regulation ordinance because the statute did not require that plaintiff landlords remain in the business of renting apartments. The landlords were free to keep their buildings vacant and/or to...