NEW YORK ST. SOC. OF ORTHOPAEDIC SURGEONS v. Gould

• Decision Date: 03 June 1992
• Docket Number: No. CV-91-1133.,CV-91-1133.
• Citation: 796 F. Supp. 67
• Parties: NEW YORK STATE SOCIETY OF ORTHOPAEDIC SURGEONS, INC. et ano., Plaintiffs, v. Jane GOULD, etc., et alia, Defendants.
• Court: U.S. District Court — Eastern District of New York

796 F. Supp. 67

NEW YORK STATE SOCIETY OF ORTHOPAEDIC SURGEONS, INC. et ano., Plaintiffs, v. Jane GOULD, etc., et alia, Defendants.

No. CV-91-1133.

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

June 3, 1992.

Martin Schaum, Schaum & Wiener, Garden City, N.Y., for plaintiffs.

Brian T. McGovern and Robert Abrams, Atty. Gen. State of N.Y., New York City, for defendants.

MEMORANDUM AND ORDER

SIFTON, District Judge.

Plaintiffs move and defendants cross-move for summary judgment with respect to the constitutionality of New York Public Health Law § 19. For the reasons discussed below, plaintiffs' motion is denied, and defendants' cross-motion is granted.

Plaintiff the New York State Society of Orthopaedic Surgeons, Inc. ("NYSSOS") is a non-profit corporation, pursuing the common interests of its membership. Plaintiff Green is a licensed physician and past president of NYSSOS. Defendants are state officials who have responsibility for enforcing the challenged statute.

Plaintiffs contend that New York Public Health Law § 19 runs afoul of three provisions of the United States Constitution: the due process clause, the supremacy clause, and the equal protection clause. Defendants argue that section 19 is a constitutionally acceptable exercise of the state's police powers. Judge Haight has recently rejected nearly identical due process and supremacy clause challenges to section 19. See Medical Soc. of State of New York v. Cuomo, 777 F.Supp. 1157 (S.D.N.Y.1991). That case is currently on appeal.

Section 19 limits the amount that licensed physicians can charge patients who benefit from Medicare, 42 U.S.C. § 1395 et seq. Specifically, the section limits physicians to 115% of the "reasonable charge" for a procedure as determined by the Secretary of Health and Human Services. Pub. Health Law § 19(1)(a). Beginning in 1993, that amount could fall to 105%. Id. § 19(1)(b).

A physician's disregard of the statute, in theory at least, may result in punishment. First offenders are liable for a fine of not more than $1,000 and not less "than the greater of three times the amount collected, or, if not collected, three times the amount charged, in excess of the limitations" set forth above. Id. at § 19(4). Second offenders are liable for fines up to $5,000. Id. All offenders must refund to the Medicare beneficiary the amount of the overcharge. Id.

Background to this controversy includes the Medicare Act (the "Act") itself. The Act provides supplemental medical insurance to the aged and certain disabled individuals. Part B of the Act, 42 U.S.C. §§ 1395j-1395w-4, establishes a "voluntary individual insurance plan"; participants pay premiums that the federal government matches. See Turecamo v. Commissioner of Internal Revenue, 554 F.2d 564, 571-72 (2d Cir.1977). This case concerns Part B payments under the Medicare statute.

Part B obligates the federal government in most circumstances to pay 80% of a "reasonable charge" for a service. 42 U.S.C. § 1395u(b)(3)(B). The beneficiary owes the remainder.

Public Health Law section 19 essentially attempts to reduce the size of this remainder.

The size of the remainder varies depending on how a physician bills. The Act permits physicians (and others) to bill for their services in one of two ways: accepting "assignment" or on the basis of an "itemized bill" (which in the vernacular is called "balance billing"). 42 U.S.C. § 1395u(b)(3)(B)(i) & (ii). A physician who accepts assignment agrees to consider the reasonable charge full compensation for services provided. 42 U.S.C. § 1395u(b)(3)(B)(ii)(I). In contrast, physicians who balance bill can charge in excess of that amount.

The different methods of billing create different liabilities for the beneficiary. When a physician bills on assignment, she or he submits the bill directly to Medicare (or an insurance carrier operating under contract with Medicare), which pays the doctor directly. When the physician balance bills, however, the Medicare beneficiary is billed; the beneficiary then seeks reimbursement from Medicare. More significantly, as Medicare typically picks up only 80% of the reasonable charge, the beneficiary is ultimately responsible for the rest. While in all instances the beneficiary must pay the additional 20%, where a physician balance bills, the beneficiary must also pay the amount by which the bill exceeds the reasonable charge.

In part to protect Medicare beneficiaries, Congress has, by various methods, attempted to discourage balance billing. One such method, like section 19, limits the size of a balance bill to a certain percentage above a "recognized payment amount," 42 U.S.C. § 1395w-4(g). As of January 1, 1992, the recognized payment amount is determined by the same "fee schedule" used to establish a reasonable charge. 42 U.S.C. § 1395w-4(g)(2)(D). Another method provides certain benefits to physicians who agree each year to take all Medicare cases on assignment, called "participating physicians." 42 U.S.C. § 1395u(h).

Against this statutory background both sides move for summary judgment. Summary judgment must be granted if there is no genuine issue as to any material fact and if the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The showing needed on summary judgment reflects the burden of proof in the underlying action. The court must consider "the actual quantum and quality of proof" demanded by the underlying cause of action and which party must present such proof, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986), which in this case is the plaintiff. The Court may rely on affidavits made on personal knowledge, which are sufficient to establish the existence of facts attested to if opposing affidavits are not offered. Fed.R.Civ.P. 56(e).

Plaintiffs first contend that section 19 is unconstitutionally vague. In particular, plaintiffs cite Lanzetta v. New Jersey, 306 U.S. 451, 453, 59 S.Ct. 618, 619, 83 L.Ed. 888 (quoting Connally v. General Constr. Co., 269 U.S. 385, 391, 46 S.Ct. 126, 127-28, 70 L.Ed. 322 (1926)):

"The terms of a penal statute creating a new offense must be sufficiently explicit to inform those who are subject to it what conduct on their part will render them liable to its penalties, is a well-recognized requirement, consonant alike with ordinary notions of fair play and the settled rules of law. And a statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application, violates the first essential of due process of law."

The statute invalidated in Lanzetta criminalized membership in a "gang," defined only as "two or more persons."

While section 19 would undoubtedly pass muster under the Lanzetta standard, it enjoys even more deferential review. The fact that the statute at issue in the instant action imposes civil penalties demands that the court treat it with "greater tolerance" than it would a criminal statute such as that presented in Lanzetta. Village of Hoffman Estates v. The Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498-99, 102 S.Ct. 1186, 1193-94, 71 L.Ed.2d 362 (1982). And as this action challenges the statute on its face rather than as applied, the plaintiffs must demonstrate that the law "is impermissibly vague in all of its applications." Id. at 497, 102 S.Ct. at 1192-93. "In reviewing a business regulation for facial vagueness, ... the principal inquiry is whether the law affords fair warning of what is proscribed." Id. at 503, 102 S.Ct. at 1195-96.

Section 19 provides fair warning. It clearly states the maximum that a physician may charge: 115% "of the reasonable charge for that service as determined by the United States secretary for health and human services." Pub. Health Law § 19(1)(a).

Plaintiffs contend that determining the reasonable charge involves complex mathematics, which presumably they are unable to perform. However, while perhaps tedious, the calculations are hardly difficult. After January 1, 1992, payment based on a "reasonable charge" consists of the lesser of the actual charge for the service, or the amount determined under a fee schedule. 42 U.S.C. § 1395w-4(a)(1). The fee schedules must be based on the "relative value of the service," a "conversion factor," and a "geographic adjustment factor." 42 U.S.C. § 1395w-4(b)(1). The individual physician need not engage in these calculations, however. Rather the fee schedules are established by the Secretary of Health and Human Services. Id. While the Secretary of HHS thus might have his work cut out for him in establishing the fee schedules, the New York physician's task is far less complex: he or she must simply multiply the schedule amount, as set forth by the Secretary, by 115% to ascertain the maximum allowable charge under section 19.

Nor need physicians worry that the Secretary will keep the fee schedules hidden. The Medicare Act obligates insurance carriers under contract with Medicare to disseminate this information. See 42 U.S.C. § 1395u(b)(3)(G). Moreover, under the Act, the Secretary of Health and Human Services must send to "each physician furnishing physicians' services under this part ... information on fee schedule amounts that apply for the year ... for participating and non-participating physicians, and the maximum amount that may be charged consistent with subsection (g)(2) of this section." 42 U.S.C. § 1395w-4(h). Physicians simply do not, as plaintiffs intimate, operate in the dark.

Although plaintiffs do not raise the issue directly, I note that a physicians' task will not grow more complex in the future. On January 1, 1993 section 19 further limits physician's charges to either 110% or 105% of the reasonable charge, depending on the rate of increase of the statewide percentage of medicare claims billed at or below the reasonable charge. Pub. Health Law § 19(1)(b). Again, no individual physician...