Northeast Emergency Medical Associates v. Califano

• Decision Date: 11 May 1979
• Docket Number: Civ. A. No. 79-581.
• Citation: 470 F. Supp. 1111
• Parties: NORTHEAST EMERGENCY MEDICAL ASSOCIATES, P. C., Neema Emergency Medical, P. C., EPM Medical Associates, P. C., Northeast Emergency Medical Associates, P. C., t/a Physicians Emer. Assoc., Northeast Emergency Medical Associates, P. C., t/a Mercy Emergency Phys., Herbert T. Caskey, M. D., Joseph F. Nowoslawski, M. D. v. Joseph A. CALIFANO, Stanley Katz, Department of Health, Education and Welfare, Stanford Ross.
• Court: U.S. District Court — Eastern District of Pennsylvania

470 F. Supp. 1111

NORTHEAST EMERGENCY MEDICAL ASSOCIATES, P. C., Neema Emergency Medical, P. C., EPM Medical Associates, P. C., Northeast Emergency Medical Associates, P. C., t/a Physicians Emer. Assoc., Northeast Emergency Medical Associates, P. C., t/a Mercy Emergency Phys., Herbert T. Caskey, M. D., Joseph F. Nowoslawski, M. D. v. Joseph A. CALIFANO, Stanley Katz, Department of Health, Education and Welfare, Stanford Ross.

Civ. A. No. 79-581.

United States District Court, E. D. Pennsylvania.

May 11, 1979.

COPYRIGHT MATERIAL OMITTED

Tod I. Mammuth, Philadelphia, Pa., for plaintiffs.

William J. McGettigan, Asst. U. S. Atty., Philadelphia, Pa., for defendant H.E.W.

MEMORANDUM

LUONGO, District Judge.

This civil action stems from a dispute over the proper interpretation of section 1842(b)(5) of the Social Security Act, 42 U.S.C. § 1395u(b)(5) (1976), as amended by Medicare-Medicaid Anti-Fraud and Abuse Amendments, Pub.L.No. 95-142, § 2(a)(1), 91 Stat. 1175 (1977). The corporate plaintiffs, under contracts with several Pennsylvania hospitals, have furnished physicians' services and other services in the emergency rooms of those hospitals since 1976. A Medicare patient treated in one of these emergency rooms typically assigns his right to receive Part B Medicare benefits for the emergency-room services to the particular corporate plaintiff involved, as payment for those services, and the benefits are then paid directly to that corporation by Pennsylvania Blue Shield, a local Medicare insurance carrier. See generally 42 U.S.C.A. § 1395u (West 1974 & Supp.1978). Late in 1978, however, Pennsylvania Blue Shield determined, after some prodding by the Medicare Bureau,¹ that section 1842(b)(5) of the Social Security Act prohibits assignments of this type, and that payments would thereafter be made to the individual attending physician(s), rather than to plaintiff corporations. Plaintiffs filed this action, seeking a declaration that defendants — the Director of Technical Policy within the Medicare Bureau, the Secretary of HEW, and the Department of HEW — have misinterpreted the law, and that section 1842(b)(5) does not bar the assignment of benefits to the corporate plaintiffs. In addition, plaintiffs urge that they were denied procedural due process when defendants informally adopted their unfavorable interpretation of that provision without affording plaintiffs a prior hearing. Defendants now seek either (1) dismissal of the complaint for lack of subject-matter jurisdiction, or (2) summary judgment in their favor, and plaintiffs in turn seek summary judgment in their favor. For the reasons hereafter stated, I conclude that subject-matter jurisdiction is lacking with respect to plaintiffs' statutory claim, and that defendants are entitled to summary judgment on the merits of plaintiffs' constitutional claim.

The facts here are undisputed. In 1978, the regional office of the Medicare Bureau undertook a review of "reassignment accounts" established by Medicare insurance carriers in Region III. This review disclosed that Pennsylvania Blue Shield had established — and paid reassigned benefits into — six such accounts. Although each account bore a different corporate or fictitious name, each represented emergency-room services rendered by physicians under contract to Northeast Emergency Medical Associates, P. C. (NEMA), the first-named corporate plaintiff in this action. The Medicare Bureau then sought further information about NEMA from Pennsylvania Blue Shield, so that it could determine whether section 1842(b)(5) prohibited the assignment of benefits under these circumstances.

In August of 1978, the director of the Bureau's Division of Program Operations wrote to a Mr. Tolin of Pennsylvania Blue Shield. Attachment A to Defendants' Motion (Document No. 6). His letter stated in part:

"Based on the information submitted, we do not believe that there was sufficient evidence to justify approval of some of the NEMA accounts. We realize that you are currently implementing new procedures for approving reassignment accounts and are currently updating all previously approved accounts. Nevertheless, we request that you immediately contact NEMA and review the validity of the accounts. We would also like you to verify whether or not the payments made by NEMA to the physicians are reported to the Internal Revenue Service on Form W-2.

In the event you find that NEMA is receiving payments for services rendered by physicians not in its employ, you should stop making payments to NEMA for services rendered by non-employee physicians. NEMA may continue to receive payments for those physicians documented to be in its employ. Finally, we would like you to complete action on this matter as soon as possible and report your findings to us."

Pennsylvania Blue Shield apparently cooperated fully with this request of the Medicare Bureau. According to the affidavit submitted by the Bureau's regional director:

"After examination of the contracts between the hospitals and NEMA, extensive correspondence with NEMA, and meetings between the carrier's employees and NEMA officers and its attorney, it was established that no employer-employee relationship existed between NEMA and the physicians who provided the medical services for which assignment had been made. The conclusion was based on the admission by NEMA that the physicians it supplies to hospitals are `independent contractors' under subcontract, and on various indicia that support that admission, e. g., physician payments reported to the Internal Revenue Service on Form 1099 rather than on Form W-2." Hartman Aff. ¶ 3.

On November 20, 1978, Pennsylvania Blue Shield sent a series of letters to plaintiff Caskey. Each letter dealt with one of the NEMA reassignment accounts, and each stated that the account "will be dissolved effective immediately and will be removed from our files as an eligible provider thirty (30) days from the date of this letter (December 19, 1978)." Exhibits A-E to Complaint (Document No. 1). Each letter also stated that all future claims for Medicare benefits would "be processed and paid under the name and number of the individual doctor performing the services." Id. By way of explanation, Pennsylvania Blue Shield stated that, under the Social Security Act, benefits could be assigned to a group or corporate entity only where that entity either employed the physicians who actually performed the services or satisfied one of two other exceptions that are not material here. As the earlier correspondence quoted above confirms, Pennsylvania Blue Shield and the Medicare Bureau found that the absence of an employer-employee relationship between NEMA and the emergency-room physicians invalidated the several reassignment accounts that involved NEMA.

On January 2, 1979, plaintiffs' counsel wrote to defendant Katz, the Director of Technical Policy for the Medicare Bureau. Exhibit F to Complaint (Document No. 1). In that letter, counsel emphasized that the restrictions of section 1842(b)(5) applied only where payments were assigned to someone other than the patient who received the service or "the physician or other person who provided the service." Counsel argued that NEMA was a "person" who "provided" emergency-room services within the meaning of that provision, so that benefits could be assigned to NEMA without regard to whether an employer-employee relationship existed between NEMA and the physicians who actually performed the emergency-room services. Finally, counsel asked that "the Department" reconsider its determination with respect to NEMA, and added: "In the event the Department's decision is not changed, NEMA wishes to exercise its right under the Social Security Act to a hearing by the Secretary of HEW and specifically requests that such a hearing be scheduled in this matter as soon as possible."

On February 2, 1979, defendant Katz replied to counsel's letter as follows:

"This is in reply to your letter of January 2, 1979, asking that we rescind the decision made by the Medicare carrier, Pennsylvania Blue Shield, to deny Medicare Part B benefits to NEMA. NEMA has been receiving such payments for the physician services that it makes available to hospital emergency rooms through subcontracts with independent physicians.

The basis for the carrier's decision denying payment to NEMA is section 1842(b)(5) of the Social Security Act, which provides that assigned Medicare Part B benefits may not be paid to anyone other than the physician or other person who provided the service, subject to certain exceptions which permit payment to the physician's or other person's employer or to the facility in which the physician or other person furnished the services.

You argue that NEMA, as a professional corporation, is a person within the meaning of section 1842(b)(5) and that it provides physician services in hospital emergency rooms through independent subcontractor physicians.

We agree that NEMA is a person but do not agree that it provides physician services (and especially not the services of independent subcontractor physicians). Under the legislative scheme reflected in the Medicare law, only physicians provide physician services. That is why special provision was necessary for payment to employers of physicians and to medical facilities for physician services. (Corporations provide only nonphysician services.)

When the prohibition against reassignment . . . was enacted in 1972, the use of the professional corporation organizational structure had only recently become widespread. There is no evidence that Congress considered the professional corporation to be a provider of physician services.

. . . Since NEMA cannot be viewed as providing physician services and is not the employer of the physicians or the facility in which the physicians provide the services, the carrier's decision to deny payment on the claim is correct under the law.

Neither section 1869 of the Social

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