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April 11, 1978

Eugene I. SCHUPAK, M.D., d/b/a Queens Artificial Kidney Center, Plaintiff,
Joseph A. CALIFANO, Jr., as Secretary of Health, Education and Welfare, Defendant

Mishler, Chief Judge.

The opinion of the court was delivered by: MISHLER

Memorandum of Decision and Order

MISHLER, Chief Judge.

 Plaintiff is the sole proprietor of Queens Artificial Kidney Center ("Queens"), a medical facility which provides maintenance dialysis to outpatients who suffer from chronic renal disease. This service is reimbursable under Part B of the Health Insurance for the Aged Act, commonly known as the Medicare program. 42 U.S.C. §§ 1395 et seq. Plaintiff seeks a preliminary injunction enjoining the Secretary of Health, Education and Welfare (the "Secretary") from (i) considering cost information in determining plaintiff's rate of reimbursement; (ii) requiring the submission of data relating to plaintiff's costs of supplying renal dialysis services and (iii) suspending plaintiff's reimbursement for its failure to submit requested cost information. The Secretary moves for an order dismissing the complaint on the grounds that this court lacks subject matter jurisdiction and that the action is barred by res judicata. Fed.R. Civ.P. 12(b)(1), (6). In the alternative, the Secretary seeks an order pursuant to 28 U.S.C. § 1404(a) transferring the action to the United States District Court for the District of Columbia, the forum of previous litigation between the parties herein.


 As enacted, the Medicare program has two parts, the hospital insurance, or Part A program, and the supplementary medical insurance, or Part B program.

 Every individual who has attained age 65 and who satisfies the other conditions enumerated in 42 U.S.C. § 426 is entitled to hospital insurance benefits under Part A. Benefits include coverage for inpatient hospital services, post-hospital extended care services, and post-hospital home health services. 42 U.S.C. § 1395d. Part A is financed by social security taxes which are appropriated to, and administered by, a trust fund entitled Federal Hospital Insurance Trust Fund. 42 U.S.C. § 1395i.

 The Part B scheme is a voluntary insurance program that is offered to those individuals who qualify for benefits under Part A. The benefits afforded those who elect to enroll in Part B are generally unrelated to inpatient hospital treatment; coverage is furnished for physicians' services, durable medical equipment, outpatient hospital services, laboratory services, and home health care for homebound patients. 42 U.S.C. § 1395k. Maintenance dialysis services supplied on an outpatient basis by freestanding facilities such as Queens are covered under this program. The funding of Part B is derived from premium payments made by its enrollees and contributions from the federal government; these sources comprise the Federal Supplementary Medical Trust Fund from which providers of services like Queens are reimbursed. 42 U.S.C. § 1395t.

 Payment to those who treat or otherwise provide services to Part B beneficiaries is made at the rate of "80% of the reasonable charges for the services." *fn1" 42 U.S.C. § 1395l (a)(1). No specific definition of "reasonable charge" is set forth in the Medicare statutes; the sole guidance provided by Congress are those factors delineated in section 1395u. This section authorizes the Secretary to enter into contracts with private insurance carriers under which the latter, inter alia, determine whether a charge for a particular service is reasonable and actually disburse the funds to the provider of services. In establishing the reasonable charge for services, the insurance carrier shall take into consideration the ". . . . customary charges for similar services generally made by the physician or other person furnishing such services, as well as the prevailing charges in the locality for similar services." 42 U.S.C. § 1395u(b)(3). The Secretary has promulgated regulations defining customary charge (20 C.F.R. § 405.503) and prevailing charge (20 C.F.R. § 405.504). *fn2"

 The ESRD Program

 Prior to the 1972 amendments to the Social Security Act, the cost of medical services furnished those afflicted with endstage renal disease was reimbursable under the Medicare program only if that individual was 65 and otherwise eligible for Medicare benefits. On October 30, 1972, amendments to the Social Security Act were enacted; among the included provisions was the ESRD program, now codified at 42 U.S.C. §§ 426(e) - (g), which provides that any individual who has not attained age 65 but is fully or currently insured as statutorily defined and who is medically determined to have chronic renal disease requiring hemodialysis or renal transplantation is "deemed to be disabled for purposes of coverage under Parts A and B of Medicare . . . ." "Thus, for the first time a federal program was given responsibility for financing the care and treatment of virtually all persons with a particular diagnosis, i.e., end-stage renal disease, and for the reimbursement of virtually all costs of two particular types of treatment, renal dialysis and kidney transplantation." (Defendant's Memorandum in Support of Motion to Dismiss at 10). The amendment authorized the Secretary to ". . . . limit reimbursement under Medicare for kidney transplant and dialysis to kidney disease centers which meet such requirements as he may by regulation prescribe." 42 U.S.C. § 426(g). Beyond the above statutes, no other legislative guidance was provided the Secretary with respect to the implementation of the ESRD program.

 The ESRD program was signed into law on October 30, 1972, and to take effect on July 1, 1973, just eight months after its passage. Prior to the amendment, it was estimated that less than 500 medicare beneficiaries were receiving maintenance dialysis; under the amendment, it was estimated that the number of potential beneficiaries would skyrocket to 12,000. Thus, with a bare eight months to implement and administer a program of vast magnitude, the Social Security Administration began to gather information for the purpose of, inter alia, formulating criteria to be used in determining "reasonable charges" for services rendered by free-standing dialysis centers such as Queens. It was soon learned that the standards formerly employed under the Part B program to measure the reasonableness of charges were no longer viable. Reliable data relating to charges and costs of dialysis services were scarce, and the evidence that was available disclosed wide variations in the amounts paid for such services and in the amounts charged to state medicaid programs and private insurance carriers. Moreover, a non-Medicare competitive market as a criteria for measuring reasonable charge -- akin to the prevailing rate standard outlined in 42 U.S.C. § 1395u(b)(3) and 20 C.F.R. § 405.504 -- would not be applicable after the effective date of the ESRD program since the renal dialysis market would be substantially preempted by Medicare. In order to begin operations by July 1, 1973, the Secretary promulgated interim regulations, *fn3" including 20 C.F.R. § 405.502(e), which established the criteria for determining reasonable charges. This rule provided in pertinent part:

With respect to reimbursement for services in connection with renal dialysis and kidney transplantation, . . . . reasonable charges may be defined in terms related to charges or costs prior to July 1, 1973, the costs and profits that are reasonable when the treatments are provided in an effective and economical manner, and/or charges made for other services, taking into account comparable physicians' time and skill requirements.

 The specific formula implementing the above criteria -- pending the receipt and analysis of reliable cost or charge data -- was described in Intermediary Letter 73-25/73-22 ("I.L.-25"). I.L. 25 instructed the insurance carriers that the rate of reimbursement to free-standing dialysis facilities like Queens was to be derived from the weighted average of reimbursements received by that facility during the preceding twelve month period. This amount was denominated "estimated customary charge." If a facility deemed its estimated customary charge to be inadequate, it could submit cost data to the carrier or the Medicare bureau and request an equity adjustment. *fn4" Plaintiff's estimated customary charge (and thus rate of reimbursement) was computed at $99.09 per dialysis treatment; in April, 1975, the rate was increased to $107.46, retroactive to July 1, 1973. *fn5"

 Since the inception of the ESRD program in July, 1973, the Medicare bureau, through its insurance carriers, has made repeated requests for cost information so that longterm reimbursement policy and regulations can be devised. Six intermediary letters, beginning with I.L. 73-53, issued in December, 1973, and ending with I.L. 78-9, issued in March, 1978, have been sent to plaintiff and other free-standing renal dialysis facilities requesting cost information. The last of these letters -- I.L. 78-9 -- states that if completed cost questionnaires are not received by April 30, 1978, the carrier ". . . . must suspend all medical payments for bills received after April 30, 1978, regardless of when the services were ...

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