Whitney v. Heckler

• Decision Date: 04 February 1985
• Docket Number: Civ. A. No. C84-1926.
• Citation: 603 F. Supp. 821
• Parties: Douglass G. WHITNEY, M.D., et al., Plaintiffs, v. Margaret HECKLER, Secretary of the Department of Health and Human Services, Defendant.
• Court: U.S. District Court — Northern District of Georgia

603 F. Supp. 821

Douglass G. WHITNEY, M.D., et al., Plaintiffs, v. Margaret HECKLER, Secretary of the Department of Health and Human Services, Defendant.

Civ. A. No. C84-1926.

United States District Court, N.D. Georgia, Atlanta Division.

February 4, 1985.

Kent Masterson Brown, Greenebaum, Young, Trei, Lexington, Ky., Henry Angel, Savell, Williams, Cox & Angel, Atlanta, Ga., for plaintiffs.

Dina Lassow, Dept. of Justice, Civil Div., Washington, D.C., Larry Thompson, U.S. Atty., Atlanta, Ga., for defendant.

ORDER

ROBERT H. HALL, District Judge.

This case came to be heard on the merits on November 2, 1984. The parties have stipulated to the relevant facts. The court hereby makes this order, incorporating the agreed-upon facts and setting out the court's conclusions of law.

I. FACTUAL BACKGROUND

1. The three plaintiffs in this case, Douglass G. Whitney, M.D., W.D. Jordan, M.D., and Fred Shessel, M.D., are duly licensed and practicing private physicians in the Atlanta, Georgia area, who challenge the constitutionality of certain provisions of the Deficit Reduction Act of 1984, P.L. 98-369, which affect the Medicare Program.

2. The Medicare Program was enacted in 1965 as Subchapter XVIII of the Social Security Act. This program is divided into two parts. Part A provides reimbursement for covered hospital and related post-hospital services. 42 U.S.C. §§ 1395c; 1395d. Persons who are eligible for Medicare may elect to enroll in Part B, which establishes a program of supplementary medical insurance providing reimbursement for covered physicians' and other related medical services. 42 U.S.C. §§ 1395k, 1395l, 1395x(s). This case involves Part B exclusively.

3. Under Part B, Medicare enrollees obtain benefits in return for the payment of monthly premiums, the amount of which is determined by the Secretary of Health and Human Services (the "Secretary"). 42 U.S.C. § 1395r(b)-(c). These premiums and contributions from the Federal Government make up the Federal Supplementary Medical Insurance Trust Fund, out of which payment is made for the benefits provided under Part B. 42 U.S.C. § 1395t.

4. Medicare Part B payments are made on a "reasonable charge" basis. This "reasonable charge" is computed according to a formula set out by statute. Under 42 U.S.C. § 1395u(b)(3), a physician's (1) actual billed charge for each service is compared with (2) what he or she customarily charges for that service — the "customary" charge — and with (3) the charge made for similar services by most physicians in the billing physician's locality — the "prevailing" charge. (The "prevailing" charge is the "level that, on the basis of statistical data ..., would cover 75 percent of the customary charges made for similar services in the same locality...." 42 U.S.C. § 1395u(b)(3).) The Medicare program then recognizes the lowest of these three as the "reasonable charge."

5. Prior to the enactment of the Deficit Reduction Act, payment for physicians' services was made in one of two ways. The beneficiary could pay the physician directly and then request reimbursement of the "reasonable charge" from Medicare. 42 U.S.C. § 1395u(b)(3)(B)(i). Alternatively, the beneficiary could, if the physician were willing, assign to the physician the beneficiary's right to reimbursement. 42 U.S.C. § 1395u(b)(3)(B)(ii). The physician could then collect payment from Medicare as assignee of the beneficiary. As assignment did not affect the amount that Medicare paid for the physician's services, but did preclude the physician from charging the beneficiary more than the 20 percent coinsurance on Medicare payments.

6. Prior to the enactment of the Deficit Reduction Act, Medicare's "customary" and "prevailing" charge data were updated on July 1 of each year based on the prior year's data. Physicians were permitted to accept or not accept assignment on a claim-by-claim basis, and if a physician chose not to accept assignment, Medicare placed no limitation on the amount that he or she could charge a Medicare beneficiary. Patients of physicians not accepting assignment received Medicare reimbursement only to the extent of the physician's "reasonable charge." The beneficiary was responsible for the difference between the physician's actual charge and 80 percent of Medicare's "reasonable charge."

7. Section 2306 of the Deficit Reduction Act, which was signed by President Reagan on July 18, 1984, makes several changes that affect physician reimbursement. First, § 2306(a) modifies 42 U.S.C. § 1395u(b) by adding a new subsection (4). The new provision freezes both Medicare's "prevailing" and "customary" charge levels for "the 15-month period beginning July 1, 1984" at levels no higher than the levels that were set for "the 12-month period beginning July 1, 1983."

8. Second, § 2306(c) of the Deficit Reduction Act amends 42 U.S.C. § 1395u by adding a new subsection (h). Subsection (h) requires physicians to decide before October 1 of each year whether they will be "participating" or "non-participating physicians." A "participating physician" enters into an agreement with the Secretary to accept payment on an assignment basis for all items or services furnished to Medicare beneficiaries during the 12-month period beginning October 1. A "participating physician" may not charge any Medicare patient on any basis other than on an assignment basis during the 12-month period covered by the agreement. "Non-participating physicians," those who do not enter into an agreement with the Secretary to accept payment on an assignment basis for all items or services furnished to Medicare beneficiaries, may continue to accept assignment on a claim-by-claim basis.

9. Third, § 2306(c) of the Deficit Reduction Act adds a new subsection (j) to 42 U.S.C. § 1395u which freezes the actual amount "non-participating physicians" may charge Medicare patients for the fifteen month period which began on July 1, 1984. Subsection (j) requires the Secretary to monitor each "non-participating physician's" actual charges to beneficiaries for services rendered during that period. If a "non-participating physician" "knowingly and willfully bills ... beneficiaries ... for actual charges in excess of such physician's actual charges for the calendar quarter beginning on April 1, 1984," the physician may be sanctioned by the Secretary. The Secretary may bar said physician from participation in the Medicare program for up to five years, or may impose a civil penalty of up to $2,000 per violation. 42 U.S.C. § 1395u(j)(1) and (2).

10. Finally, § 2306 of the Deficit Reduction Act directs that the Secretary publish a directory of "participating physicians" to be made available to Medicare beneficiaries; maintain toll-free telephone numbers at which beneficiaries may obtain the names, addresses, telephone numbers and specialties of "participating physicians"; publish a list containing the name, address, specialty and percent of claims submitted with respect to each physician paid on an assignment basis; and provide for the electronic receipt by carriers of claims from "participating physicians," thereby enabling those physicians to have their claims processed more quickly. 42 U.S.C. §§ 1395u(h)(2)-(3) and 1395u(i). Congress also created a new subsection (4)(D) to 42 U.S.C. § 1395u(b), which specifies that in determining the customary charges of "non-participating physicians" for the 12-month periods beginning October 1, 1985 and October 1, 1986, the Secretary shall not "recognize increases in actual charges for services furnished" during the 15-month freeze period. The Secretary shall, on the other hand, recognize increases in the actual charges of "participating physicians" during that period. Although their reimbursement is limited by the customary and prevailing charge freeze while the freeze is in effect, "participating physicians'" increased actual charges during the freeze will form the data base for computing their "customary" charge levels once the freeze is lifted.

11. In their Verified Complaint for Injunctive Relief and Declaration of Rights, as amended, plaintiffs allege, inter alia, that they did not elect to become "participating physicians" under the Deficit Reduction Act prior to October 1, 1984; that they plan to raise their fees to their patients enrolled under Medicare Part B within the 15-month period beginning July 1, 1984; that 50 to 60 percent of their patients are Medicare Part B enrollees; that 85 percent of these patients have supplemental health insurance; and that the Deficit Reduction Act of 1984 as applied to them violates the Fifth Amendment to and Article I, Section 9 of the United States Constitution.

12. The defendant, the Secretary of the Department of Health and Human Services, maintains that § 2306 of the Deficit Reduction Act is a constitutional exercise of Congress' authority which comports fully with the due process guaranteed by the Fifth Amendment and does not violate Article I, Section 9 of the Constitution. She has filed a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the plaintiffs' complaint for failure to state a claim upon which relief can be granted.¹

13. This Court, after considering the plaintiffs' pleadings and hearing argument from both sides, denied plaintiffs' motion for a temporary restraining order on September 26, 1984. By Stipulation and Order dated October 15, 1984, the parties agreed to present this case on the merits, without presenting live testimony, as to whether the questioned portions of the Deficit Reduction Act of 1984 are unconstitutional and should be permanently enjoined. On November 2, 1984, this court heard oral arguments on the merits by counsel for each party.

II. CONCLUSIONS OF LAW

1. In 1984, Congress was faced with skyrocketing costs in the Medicare Program, which, along with numerous other factors, were contributing to the rapidly increasing federal deficit. Accordingly, along with many other...