Rehabilitation Ass'n of Virginia, Inc. v. Kozlowski

• Decision Date: 05 December 1994
• Docket Number: Nos. 93-2572,94-1134,s. 93-2572
• Citation: 42 F.3d 1444
• Parties: , Medicare & Medicaid Guide P 42,942 REHABILITATION ASSOCIATION OF VIRGINIA, INCORPORATED, Plaintiff-Appellee, v. Bruce U. KOZLOWSKI, Director of Virginia Department of Medical Assistance Services, Defendant-Appellant, and Donna E. Shalala, Secretary of Health and Human Services, Defendant. REHABILITATION ASSOCIATION OF VIRGINIA, INCORPORATED, Plaintiff-Appellee, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant-Appellant, and Bruce U. Kozlowski, Director of Virginia Department of Medical Assistance Services, Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1444

42 F.3d 1444

46 Soc.Sec.Rep.Ser. 267, Medicare & Medicaid Guide

P 42,942

REHABILITATION ASSOCIATION OF VIRGINIA, INCORPORATED, Plaintiff-Appellee, v. Bruce U. KOZLOWSKI, Director of Virginia Department of

Medical Assistance Services, Defendant-Appellant,

and

Donna E. Shalala, Secretary of Health and Human Services, Defendant.

REHABILITATION ASSOCIATION OF VIRGINIA, INCORPORATED, Plaintiff-Appellee, v. Donna E. SHALALA, Secretary of Health and Human Services,

Defendant-Appellant,

and

Bruce U. Kozlowski, Director of Virginia Department of

Medical Assistance Services, Defendant.

Nos. 93-2572, 94-1134.

United States Court of Appeals, Fourth Circuit.

Argued June 8, 1994.

Decided Dec. 5, 1994.

ARGUED: Richard Alan Olderman, Civ. Div., U.S. Dept. of Justice, Washington, DC, for appellant Secretary; William Henry Hurd, Deputy Atty. Gen., Office of the Atty. Gen., Richmond, VA, for appellant Kozlowski. Peter F. Nadel, Rosenman & Colin, New York City, for appellee. ON BRIEF: Frank W. Hunger, Asst. Atty. Gen., Helen F. Fahey, U.S. Atty., Barbara C. Biddle, Civ. Div., U.S. Dept. of Justice, Washington, DC, for appellant Secretary; James S. Gilmore, III, Atty. Gen. of VA, Pamela M. Reed, Asst. Atty. Gen., Office of the Atty. Gen., Richmond, VA, for appellant Kozlowski. Joseph V. Willey, Rosenman & Colin, New York City, David G. Shuford, Mays & Valentine, Richmond, VA, for appellee.

Before ERVIN, Chief Judge, and NIEMEYER and WILLIAMS, Circuit Judges.

Affirmed by published opinion. Chief Judge ERVIN wrote the opinion, in which Judge WILLIAMS joined. Judge NIEMEYER wrote a concurring and dissenting opinion.

OPINION

ERVIN, Chief Judge:

Rehabilitation Association of Virginia, Inc. (the Association) brought this suit against Bruce Kozlowski, director of Virginia's Department of Medical Assistance Services (Virginia), and Donna Shalala, Secretary of the United States Department of Health and Human Services (DHHS or the Secretary) challenging the legality of certain aspects of Virginia's Medicaid plan and seeking prospective injunctive relief. On cross-motions for summary judgment, the district court entered judgment in favor of the Association, and Virginia and DHHS now appeal. 838 F.Supp. 243. For the reasons set forth below, we affirm.

I.

Briefly stated, Medicare, Title XVIII of the Social Security Act, 42 U.S.C. Secs. 1395-1395ccc, is a federally-run program, enacted in 1965, to provide financing for medical procedures for certain disabled individuals and people 65 years of age. 42 U.S.C. Secs. 426(a), 1395c. Medicare has two parts, Part A and Part B. Part A, 42 U.S.C. Secs. 1395c to 1395i-4, provides reimbursement for inpatient hospital care and related post-hospital, home health and hospice care. 42 U.S.C. Sec. 1395d. Enrollment in Part A is essentially automatic. Part A includes limited cost-sharing provisions in the form of annual deductibles for inpatient hospital service and payments by enrolled individuals of an amount of "coinsurance" that depends on the length of hospital stay. 42 U.S.C. Sec. 1395e. In addition, some individuals who do not directly meet the basic criteria for enrollment may enroll and are required to pay premiums. 42 U.S.C. Secs. 1395i-2, 1395i-2a.

Medicare Part B, 42 U.S.C. Secs. 1395j to 1395w-4, is a supplemental voluntary insurance program. Under Part B, individuals entitled to Part A benefits and certain others, see 42 U.S.C. Sec. 1395o, may purchase supplementary insurance for hospital out-patient services, physician services, and other medical services not covered under Part A. 42 U.S.C. Sec. 1395k. Part B also includes a series of cost-sharing provisions. Enrollees must pay a monthly premium and an annual deductible, currently $100. 42 U.S.C. Secs. 1395l (b), 1395r. (There is an exemption from the application of the annual deductible for certain services, see 42 U.S.C. Sec. 1395l (b)). As to payments of charges after the deductible is exhausted (or where it does not apply), the federal government will pay 80% of the "reasonable charge" for the services. 42 U.S.C. Sec. 1395l (a). The amount that constitutes a reasonable charge is set annually by the Secretary. 42 U.S.C. Sec. 1395w-4. The service provider can charge the beneficiary for the remaining 20% of the reasonable charge. Id. This charge is usually referred to as a copayment or coinsurance. If the physician is a participating physician he "takes assignment" in Medicare parlance, and cannot charge an amount greater than the reasonable charge. If the physician does not take assignment, the physician's fee may exceed the "reasonable charge" for the service provided, and the doctor may bill the patient for not only the difference between the reasonable charge and the federal payment, but also the difference between the actual charge and the reasonable charge as well. This is commonly referred to as "balance billing."

Also enacted in 1965, Medicaid, Title XIX of the Social Security Act, 42 U.S.C. Secs. 1396-1396v, established a federal-state cooperative cost-sharing program to provide necessary medical assistance to families and individuals with insufficient income and resources. While a state's participation in Medicaid is not mandatory, once a state does enter into an agreement with the United States it receives federal funds for its Medicaid program. Participating states are required to comply with the Medicaid Act and its implementing regulations issued by the DHHS. 42 U.S.C. Secs. 1396a, 1396c.

Under Medicaid, each state develops a schedule or methodology that establishes the fee that the state will pay a service provider for every item or service covered under the state's Medicaid plan. Where Medicare and Medicaid cover the same services, the state Medicaid fee amount is almost always less than the reasonable charge for services that the federal government sets for Medicare reimbursement; it is also generally even less than the 80% of the reasonable charge figure that the government pays under Medicare's Part B insurance plan. Service providers who participate in the Medicaid program are required to accept payment of the state-denoted Medicaid fee as payment in full for their services, i.e., they are required to take assignment, and may not attempt to recover any additional amounts elsewhere. Medicaid is essentially a payer of last resort, and one of the requirements of a state Medicaid plan is that it attempt to identify and collect other insurance or source of health care funding available to a Medicaid participant (i.e., a form of subrogation). 42 U.S.C. Sec. 1396a(a)(25).

The Medicaid and Medicare statutes intersect for coverage of the population of the disabled or people 65 or over (eligible for Medicare) who are also poor (eligible for Medicaid). These people are called dual eligibles or crossovers. In addition, there is another group of whom we must take notice, called the "qualified medicare beneficiaries" or QMBs. As originally defined, QMBs included persons eligible for Medicare and who met certain statutory requirements of poverty, but who did not meet a state's eligibility requirement for Medicaid; they are referred to as "pure QMBs." Subsequently, the definition of QMB was changed so that ineligibility for Medicaid was removed; as such, the current definition of QMBs embraces two subsets of individuals: Medicare eligibles who are also eligible for Medicaid benefits (i.e., dual eligibles), and Medicare eligibles who are not eligible for Medicaid benefits but who meet certain criteria of poverty (i.e., pure QMBs). ¹ For the sake of clarity, we use the term QMBs to refer to both subgroups, and refer to one or the other subgroup only by its identified name.

While QMBs are, by definition, eligible for Medicare Part A enrollment and Part B insurance coverage, because they are impoverished there exists the very real danger that they will be unable to afford to buy themselves the Part B supplementary health coverage or pay Part A or Part B's deductibles or coinsurance amounts. Thus, the people for whom the safety net is most needed are also those who, left to their own, could not place themselves within its embrace. Since the outset, at least as to dual eligibles, the Medicare and Medicaid statutes have addressed this problem. The response was to create a "buy-in" program, under which states participating under Medicaid use Medicaid funds (i.e., state funds for which federal matching funds under Medicaid are available) to pay the premiums to enroll the QMB ² in the Medicare Part B insurance program (or the premium to enroll in Part A coverage for those people for whom the statute so required), and pay the deductibles and coinsurance payments that beneficiaries subsequently incurred under Part A or Part B. For dual eligibles, the state gets a real deal, because, given that Medicaid is treated as a payor of last resort, by enrolling dual eligibles for Part B coverage, the primary financial payment for services received comes from the federal government for any services that are covered under both Medicare and Medicaid. In other words, states use their Medicaid dollars, some of which are themselves federal in origin, to buy their QMBs into the federal program, thus shifting the primary payment for costs from the state Medicaid program to the federal Medicare program.

Thus, for a QMB, the state buys the individual into Medicare Part B insurance by paying the premiums for Part B insurance as well as the annual deductible. When the beneficiary incurs costs for services covered by Medicare ("Medicare services") above the deductible, the federal government pays 80% of the reasonable costs of the Medicare services received. The central question in this lawsuit involves the remaining 20%, i.e., the copayment representing the difference between the federal government's payment and the total amount of the "reasonable charge" that usually would be paid by the beneficiary but for the fact that the beneficiary is...