George H. Isaacs, a class representative, appeals from an April 29, 1988 judgment of the United States District Court for the Southern District of New York (Knapp, J.) granting defendant-appellee Bowen's motion to reargue, vacating an injunction and dismissing plaintiff-appellant Isaacs' amended complaint which claimed violation of the Medicare Act Part B program and of the due process secured by the Fifth Amendment to the Federal Constitution.
Feinberg, Chief Judge, Cardamone and Pratt, Circuit Judges.
CARDAMONE, Circuit Judge:
This is an appeal from a judgment entered on April 29, 1988 in the United States District Court for the Southern District of New York (Knapp, J.), that granted the motion of the Secretary of Health and Human Services, defendant-appellee Otis R. Bowen, to reargue, vacated a previously issued injunction, and dismissed class action plaintiffs-appellants, George H. Isaacs' amended complaint. See Isaacs v. Bowen, 683 F. Supp. 930 (S.D.N.Y. 1988). The district court reversed itself prompted by a belief that Congress had altered its view concerning one part of the Medicare Act. We agree that, though an unbending legislative constancy is not presumed, more is required than a mere belief that it is in the nature of all things to change for us to conclude that Congress has changed its mind. Whether an administrative interpretation of the Medicare Act has been adopted by Congress -- the principal issue before us -- requires careful legal analysis of Congress' actions.
Appellants bring suit under the Part B claims reimbursement program of the Medicare Act, 42 U.S.C. §§ 1395j-1395w (1983 & Supp. III 1985). They contend that recent regulations promulgated by the Secretary exceed his statutory authority, and that the new regulations deny them their due process rights because Part B beneficiaries must in some cases undergo the expense and delay of an administrative "fair hearing" prior to obtaining statutory review by an Administrative Law Judge (ALJ). Appellants also claim that a proposal by the Health Care Financing Administration (Financing Administration) to substitute an "in-house" Medicare ALJ unit in place of existing Social Security ALJs violates the language and intent of the 1986 amendments to the Medicare Act. See Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-509, § 9341, 100 Stat. 2037 (1986) (1986 Amendments), amending Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. (1982) (the Medicare Act).
The district court initially determined that the 1986 Amendments to the Part B reimbursement process evinced Congress' intent to eliminate fair hearings prior to ALJ review in actions involving more than $500. It then ruled that a prerequisite fair hearing (before ALJ review could be had), required by the Medicare Carrier Manual (Medicare Manual) § 12015B, violated those amendments. Thus, it granted plaintiffs' motion for summary judgment, enjoined implementation of § 12015B, and dismissed plaintiffs' other two claims. See 683 F. Supp. at 933-34.
The Secretary moved for reargument on the basis of certain actions by Congress. While the questions originally presented to the district court were sub judice, see 683 F. Supp. at 934-95, Congress passed the Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203, 101 Stat. 1330 (1987) (1987 Amendments). That Act reworded the statute eliminating the "not more than $500" language and substituting in its place the phrase "less than $500." Congress also authorized the General Accounting Office (GAO) to conduct a cost-effectiveness study of the existing claims-reimbursement procedures, including the § 12015B requirement that claims of more than $500 receive a "fair hearing" prior to ALJ review. These two actions by Congress, together with its hearings on Part B and other Medicare issues, led the district court to vacate its prior disposition of the case and to dismiss plaintiffs' entire complaint. See 683 F. Supp. at 935. This appeal followed. We affirm.
A. Medicare Part B Reimbursement Procedure
We begin by examining the statutory framework of the Medicare Part B reimbursement procedures. The Medicare Act is composed of two separate benefits programs. The primary benefits component -- with which this case is only tangentially concerned -- is Part A. See 42 U.S.C. §§ 1395c-1395i. Funded by Social Security taxes, Part A provides major medical coverage for hospital care and related post-hospitalization services. Part B, the subject of this appeal, is a federally subsidized voluntary health insurance program designed to supplement Part A coverage for persons 65 years of age or older, and for disabled persons. See 42 U.S.C. §§ 1395j-l395w. Part B insures against some medical expenses not included in Part A's coverage. Eligible participants in the Part B program pay periodic premiums which, together with contributions from the federal government, are deposited in the Federal Supplementary Insurance Trust Fund that finances the Part B program. See 42 U.S.C. §§ 1395l, 1395r, 1395t, 1395w.
The Secretary administers Parts A and B of the Medicare programs. Under Part B he is authorized to assign to private insurance carriers the task of paying Part B claims from the Trust Fund. See 42 U.S.C. § 1395u (a) (authority is given "to provide for administration of benefits . . . with maximum efficiency and convenience for individuals entitled to benefits . . . ."). After receiving medical care or services, Part B enrollees make a claim against their private carriers. Under standards set forth in the Medicare Act and regulations promulgated by the Financing Administration (the agency within the Department of Health and Human Services that administers Medicare), the carriers review these claims to determine whether the services were "medically necessary," "reasonable," and otherwise payable under Part B. See 42 U.S.C. § 1395u(b)(3); 42 C.F.R. § 405.501 et seq. (1988); 42 C.F.R. § 421.200 et seq. If the claim and claimant meet the applicable criteria, the carrier pays the claim with funds drawn from the Trust Fund. If a claim is denied or not reimbursed in full, a review process comes into play.
A dissatisfied claimant seeking review of the carrier's initial determination may "submit written evidence and contentions" in support of his or her claim. See 42 C.F.R. § 405.809. The carrier must then conduct an internal paper review of its own determination. See 42 C.F.R. § 405.810. If the claimant remains unsatisfied and the amount in controversy exceeds $100, he or she may seek further review. If the amount in controversy is "at least $100, but less than $500," review is limited to a "fair hearing" conducted by a hearing officer designated by the carrier. See 42 U.S.C. § 1395u(b)(3)(C) (1987 Amendments) (emphasis added). It is the ambiguous nature of the review permitted for Part B claims of $500 or more that is the crux of this litigation.
B. Statutory and Regulatory Changes in 1986 and 1987
Prior to 1986 the Medicare Act required that claims contracts with private carriers provide for a fair hearing by the carrier "in any case where the amount in controversy is $100 or more." A fair hearing was the only review available to Part B claimants -- regardless of the amount of the claim -- and the determination of the fair hearing officer was final and unreviewable. See Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 678, 90 L. Ed. 2d 623, 106 S. Ct. 2133 (1986) (Congress did not preclude challenges to the validity of regulations promulgated by Secretary); United States v. Erika, Inc., 456 U.S. 201, 206-08, 72 L. Ed. 2d 12, 102 S. Ct. 1650 (1982) (noting that review of a fair hearing officer's determination as to entitlement or eligibility was not foreclosed). In contrast, Part A claims of $100 or more received direct ALJ review, and for claims of $1000 or more judicial review of an adverse ALJ decision, See 42 U.S.C. § 1395ff(b)(2)(A).
Responding to dissatisfaction with the scheme of review under Part B and its asymmetry with Part A, Congress held hearings on the Medicare appeals process. Criticism by various groups was leveled at the perceived shortcomings of the Part B hearing scheme -- particularly at the in-house relationship between fair hearing officers and the carriers that employed them -- and the absence of review beyond the fair hearing stage. See Medicare Appeals Provisions: Hearing on S. 1158 Before the Subcomm. on Health of the Senate Comm. on Fin., 99th Cong., 1st Sess. 188-94 (1985) (statement of John H. Pickering on behalf of American Bar Association); id. at 229-33 (statement of Arlene Lapp, Medicare Part B participant); id. at 385-91 (statement of National Association of Medical Equipment Suppliers). These problems and Congress' solutions were noted in a House Report accompanying the final bill:
Numerous concerns have been expressed by beneficiaries about the fairness and adequacy of this Part B appeals process. Some have expressed the concern that the hearing officers are not properly qualified or are not objective, because many of them are former employees of the carrier or because their continued service as hearing officers may depend on the carriers' being satisfied with the decisions they render. Other concerns deal with the way hearings are conducted, including the beneficiaries' inability to produce evidence or to challenge the hearing officers' decision rules or his reliance on unidentified experts and consultants.
The Committee bill would attempt to resolve these concerns by establishing an appeals procedure under Part B that is modeled after that available under Part A. Review by an ALJ would be available if the amount in controversy were $500 or more and judicial review ...