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Kraemer v. Heckler

June 12, 1984


Appeal from order of the United States District Court for the Western District of New York, John T. Curtin, Chief Judge, denying claims that various procedures involving termination of Medicare Part A coverage violate due process.

Feinberg, Chief Judge, Oakes, Circuit Judge, and Pollack, District Judge.*fn*

Author: Oakes

OAKES, Circuit Judge

This class action challenges on procedural due process grounds the federal policies and procedures relative to the termination of Medicare coverage (hospital and skilled nursing care) of Medicare Part A beneficiaries. There are four claims raised:

1. That a determination by a medical provider's utilization review committee (URC) that an admission or continued stay is not medically necessary effectively constitutes a termination of Medicare coverage which, because it is made without prior notice to the beneficiary and without according the beneficiary a pretermination opportunity to influence that determination, violates due process;

2. That such termination operates to deny the beneficiary a right to a hearing as required by statute;

3. That the fiscal intermediary's delay of some three weeks in issuing a so-called "initial determination" from which administrative appeal can be taken, when combined with the delay in providing beneficiaries' notice of appeal rights following URC terminations, operates to deny procedural due process;

4. That the three week period between an effective termination of coverage as a result of the decision by the medical provider's URC, and the "initial determination" by a fiscal intermediary from which an appeal can be taken, operates to deny statutory rights under 5 U.S.C. § 555(b) (1982).

The United States District Court for the Western District of New York, John T. Curtin, Chief Judge, denied each of the claims, and granted defendant's motion for summary judgment. We reverse because we find that the appellants have stated colorable claims on the merits, involving disputed matters of fact.

Structure of the Medicare Program

Title XVIII of the Social Security Act, popularly known as Medicare, 42 U.S.C. §§ 1395-1395xx (1976 & Supp. IV), provides federal reimbursement for medical care for the aged and disabled. Medicare Part A, the only part of the statute involved in this case, is funded by social security taxes and provides for hospital and skilled nursing facility (SNF) insurance benefits. Generally, entitlement to Medicare coverage occurs upon eligibility for social security retirement benefits or disability benefits. In any case, coverage is not related to financial need.

Under Part A, "providers" ( e.g., hospitals, SNFs, home health agencies), 42 U.S.C. § 1395x(u), are paid directly for the "reasonable cost[s]" of covered services rendered to beneficiaries, 42 U.S.C. § 1395f(b), with beneficiaries paying only certain deductible charges and coinsurance amounts. 42 U.S.C. § 1395e. Participating providers execute an agreement with the Secretary of Health and Human Services, under which they agree not to charge beneficiaries for items or services for which Medicare pays. 42 U.S.C. § 1395cc(a)1(A). Reimbursement to providers may be made by the Secretary, but is more commonly made by private profit-seeking organizations such as, in the instant case, Blue Cross of Western New York, Inc. Pursuant to contract, these organizations, sometimes called "fiscal intermediaries," act as the Secretary's agents. 42 U.S.C. § 1395h. Claims are submitted to the fiscal intermediary by or on behalf of the patient/beneficiary receiving the services. Fiscal intermediaries are fully reimbursed for all administrative costs in connection with their Medicare functions. 42 U.S.C. § 1395h(c).

Determination of the amount of benefits payable under Part A is made by the Secretary in accordance with regulations she prescribes. 42 U.S.C. § 1395ff. The initial decision on coverage under Part A is made by the Secretary's fiscal intermediary and a notice of this "initial determination" is sent to the beneficiary. 42 C.F.R. § 405.702 (1983). In the event of an adverse initial determination, the beneficiary has a right to reconsideration, 42 C.F.R. § 405.710-.716, and, if at least $100 is involved, the beneficiary may also obtain a hearing before an administrative law judge. 42 U.S.C. § 1395ff(b); 42 C.F.R. § 405.720. If $1,000 or more is involved, the beneficiary is also entitled to judicial review. 42 U.S.C. § 1395ff(b); 42 C.F.R. § 405.730.

Scope of Part A Coverage

Part A provides basic protection against the costs of hospital and related post-hospital services for beneficiaries by providing for government payment for certain defined basic services. Covered services include three basic categories of medical service set forth in 42 U.S.C. § 1395d(a): (1) inpatient hospital services as defined in 42 U.S.C. § 1395x(b); (2) post-hospital extended care services as defined in 42 U.S.C. § 1395x(h),(i); and (3) home health care services which are not at issue in this action. Extended care coverage includes "services furnished to an inpatient" of an SNF, such as nursing care and other enumerated medical and non-medical services necessary to the health of the patients and generally provided by SNFs. 42 U.S.C. § 1395x(h).

Utilization Review Procedures

Participating providers are required by statute to establish utilization review plans providing for periodic review of the "medical necessity of the services . . . [to promote] the most efficient use of available health facilities and services. . . ." 42 U.S.C. § 1395x(k)( l), 42 C.F.R. § 405.1035, .1137. A provider's URC must consist of two or more physicians, with or without participation of other professional personnel from either inside or outside the facility. 42 U.S.C. § 1395x(k)(2)-(4). The decision that it is not necessary that a patient remain at a facility is to be made by two or more physicians unless the patient's attending physician does not object to termination of the stay, in which case one physician on the URC may make the determination. 42 C.F.R. § 405.1035(e)(4), .1137(e)(1). An attending physician may not be a member of a URC reviewing her or his patient's case. 42 C.F.R. § 405.1035(e)(3), .1137(b)(3).

The individual's attending physician is notified and given an opportunity to present her or his views before the URC makes a final determination. There is no requirement, however, that either the patient beneficiaries or their family members or designees receive prior notice of any impending deliberations or decisions. Thus, patient beneficiaries have no statutory opportunity to participate in the URC proceedings except through their attending physicians. If the URC's final determination is that further stay is unnecessary, written notice is given to the facility, the attending physician, and the individual within two working days of the decision. 42 U.S.C. § 1395x(k)(4); 42 C.F.R. § 405.1035(g)(2), .1137(e)(2). The URC decision does not constitute a discharge order and does not preclude the beneficiary from remaining in the facility or seeking alternative payment. It does, however, operate effectively to terminate Medicare coverage, because 42 U.S.C. § 1395f(a)(7) prohibits Medicare coverage beyond 72 hours from the date the provider receives notice of an adverse URC decision. See also 42 C.F.R. § 405.162, .166; Hultzman v. Weinberger, 495 F.2d 1276, 1280 (3d Cir. 1974). The apparent purpose of the three-day period is to facilitate discharge planning. See 42 C.F.R. § 405.1035(i)(2), .1137(h)(4).

Role of the Fiscal Intermediary

The Secretary administers Medicare Part A through fiscal intermediaries. 42 U.S.C. § 1395H; 42 C.F.R. § 421.1-.128. Manuals issued by the Secretary's Health Care Financing Administration (HCFA) contain detailed instructions for fiscal intermediaries to follow. Following the receipt of medical services by a patient/beneficiary, a claim for Medicare payment is submitted by the provider to the fiscal intermediary. The fiscal intermediary makes what the Secretary characterizes as the "initial determination" either to pay, pay in part or deny payment. 42 C.F.R. § 405.704.Despite the fact that URC terminations result in the termination of Medicare Part A benefits as a result of the statute, 42 U.S.C. § 1395f(a)(7), 42 C.F.R. § 405.162, .166, a termination decision by a URC is nevertheless not referred to as a "determination by the Secretary within the meaning . . . of the Act." 42 C.F.R. § 405.706. In its Health Insurance Manual 13, section 3420-2A, however, the HCFA directs the intermediary to accept an adverse URC decision unless there is a clear deficiency in the committee's decision or the committee fails to follow the procedures prescribed in the law and regulations.

When there is a denial of coverage, there may be no recovery or recoupment from an individual who is "without fault" in accepting benefits later denied.42 U.S.C. § 1395gg. Providers may also obtain a waiver of liability for coverage of individual claims where they neither knew nor had reason to know that services rendered constituted noncovered care. 42 U.S.C. § 1395pp(a). The waiver of liability provision, as it is commonly called, was passed by Congress in 1972; before then ultimate liability for medical services inevitably rested with the beneficiary. A beneficiary is not entitled to a waiver of liability, however, if he or she has received notice of an adverse URC determination. The practical ...

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