interest can accrue, defendants misconstrue the statute.
Section 1395l(j) plainly does not require a final
determination to include such detailed information. The
statute only requires that, whenever a final determination is
made that an underpayment has taken place, interest shall
accrue if the underpayment is not liquidated within 30 days.
The statute does not state that the number of claimants must
be specified or that the amount of each claim must first be
calculated. The recalculation ordered by the court was
intended to settle these issues. The 30-day clock for interest
accrual was designed to insure that these details were settled
expeditiously. To further speed their resolution, the court
order provided specific guidance to the Secretary concerning
who was eligible for the recalculation, the formula for
recalculation, and the percentage of the underpayments to be
paid to the plaintiffs.
Defendants stress that the court's final judgment could not
be considered a final determination of an underpayment because
the recalculation order was phrased in the conditional. The
final judgment ordered the Secretary to pay 80% of "any
resulting increase in such reasonable charges found by the
carriers to be due to the appropriate claimants." Final
Judgment, No. 85 Civ. 4472 GLG (S.D.N.Y. Nov. 16, 1988)
(emphasis added), at 2. Defendants argue that this language
demonstrates that the court had not in fact made a final
determination that any underpayments existed but merely ordered
defendants to pay 80% of the underpayments, if any, that were
discovered through the recalculation.
Defendants, however, mistakenly view the meaning of the
court's order. After the court held that the combined effect
of § 42 C.F.R. § 405.551(e) and DEFRA underreimbursed the
plaintiff class, the major issue remaining was the actual
amounts that were owed to each individual member of the class.
In ordering the recalculation, the court simply specified the
formula to be used for paying the amounts due to the
plaintiffs. Consequently, instead of revisiting the holding of
its 1986 decision that underpayments had taken place, the court
addressed the actual amounts that would be paid to each
plaintiff upon recalculation.
Defendants, however, rely upon Community Hospital of Santa
Rosa v. Sullivan, No. C-90-0972-RFP (N.D.Cal. Apr. 15, 1991),
1991 WL 191250, and National Medical Enterprises, Inc. v.
Bowen, No. CV 89-5165 WDK (Sx) (C.D.Cal. July 5, 1990), 1990 WL
169276, for the proposition that a final determination only
occurs once a provider has received notification of the actual
amount of the underpayment. Defendants' Memorandum of Law in
Opposition to Plaintiff's Request for Interest at 9-10. We
agree with defendants that, although these cases concern Part A
interest claims, they are relevant to this Part B interest
claim since the language of 42 U.S.C. § 1395g(d) addressing
interest on Part A claims is nearly identical to the provisions
of 42 U.S.C. § 1395l(j).*fn6
In Santa Rosa, the court clearly held that no final
determination could have been reached concerning the amounts
due to the plaintiff under Part A for fiscal year 1985 until
after the United States Court of Appeals for the District of
Columbia had handed down its decision in Georgetown University
v. Bowen, 862 F.2d 323
(D.C. Cir. 1988). See Community Hospital of Santa Rosa v.
Sullivan, No. C-90-0972-RFP (N.D.Cal. Apr. 15, 1991), at 11-12,
1991 WL 191250. Since the Georgetown decision impacted the
finality of the determination by invalidating a determinative
factor in the underlying regulation, the earlier district court
decision could not have been a final determination.*fn7
When this court certified the plaintiff class and ordered
the Secretary to recalculate reasonable charges that it had
determined were "exceedingly low," there was no decision
pending before the Court of Appeals that would have directly
impacted the finality of its Final Judgment. Indeed, the
Second Circuit affirmed this court's initial decision to
strike down the continued application of 42 C.F.R. § 405.551(e)
and DEFRA and order a recalculation of the physicians'
reasonable charges. Cosgrove v. Bowen, 898 F.2d at 334.
The court's decision in National Medical Enterprises, Inc. v.
Bowen, No. CV 89-5165 WDK (Sx) (C.D.Cal. July 5, 1990), 1990 WL
169276, although addressing the issue of what constitutes a
final determination, also not dispositive in the present case.
In National Medical, the court relied upon its deference to the
Secretary's regulations in the face of the statute's ambiguity
to deny the plaintiff's claim for interest. See id. at 12. In
cases in which a Notice of Program Reimbursement ("NPR") is
issued, the regulations clarified the statute's ambiguity by
stating that a final determination for purposes of interest
accrual is marked by the date of the NPR's issuance. The court
held that the Secretary's clear definition was reasonable and
did not conflict with Congress' intent expressed in the
In the present case, 42 C.F.R. § 405.376(c)(1)(C) defines a
final determination in cases in which no NPR is issued — i.e.
primarily Part B claims — as "a written determination of an
underpayment." The Secretary's regulation is nearly as
ambiguous with respect to underpayments as the statute it
purports to clarify. Moreover, the Secretary's explanatory
comments in the regulation's preamble excluding judicial
determinations are contrary to Congress' intent. As we noted in
our discussion of jurisdiction, Congress signaled its intent
that interest claims should be subject to judicial review.
More importantly, to accept defendants' position would
emasculate the animating intent of 42 U.S.C. § 1395l(j). The
statute was created to spur the government and Medicare
claimants to quickly liquidate amounts owed due to
underpayments or overpayments. As defendants point out, the
Secretary also intended the regulations implementing 42 U.S.C. § 1395l(j)
to encourage parties to promptly repay the excess
amounts they improperly received. See 47 Fed.Reg. 54814,
December 6, 1982. Accepting the Secretary's position would
allow defendants to pile delay upon delay in recalculating the
customary charges. Defendants could effectively thwart the
basic purpose in authorizing interest accrual, namely using
monetary incentives to spur speedy correction of underpayments
Notably, the court in National Medical specifically rejected
the Secretary's contention that 42 U.S.C. § 1395g(d) required a
final determination of the amount of the underpayment owed for
Part A services before interest could accrue. The statute
"merely requires a determination that there was a
miscalculation; it does not require a recalculation as part of
the final decision." National Medical, supra, at 12. As
defendants stress, although 42 U.S.C. § 1395g(d) covers Part A
claims, the language is virtually identical to 42 U.S.C. § 1395l(j)
and the court's reasoning is equally applicable.
Significantly, the court also rejected the Secretary's claim
that it lacked jurisdiction to hear the plaintiff's claim for
interest. See id. at 8-9.
Five years have passed since the court invalidated the
combined application of
42 C.F.R. § 405.551(e) and DEFRA; a full three years have passed
since the court issued its final judgment. The plaintiff class
consists of Medicare Part B beneficiaries many of whom are
elderly citizens who can ill afford to wait indefinitely for
the Secretary to complete the recalculations. This is precisely
the sort of agency procrastination that the interest provisions
are designed to discourage.*fn8
Awarding the plaintiffs interest on their Part B
underpayments works no injustice against the defendants.
Plaintiffs were compelled to force the Secretary into federal
court in order to receive payments that were arbitrarily
withheld from them. Awarding them interest penalizes the
Secretary for delays and provides them with the time value of
money they lost while waiting for the defendants to
recalculate customary charges and reimburse them the amounts
they should have received but for the combined application of
42 C.F.R. § 405.551(e) and DEFRA. Even if recalculating the
customary charges for the class by definition requires more
than 30 days due to the sheer size of the class, the statute
still serves to encourage the defendants to complete this task
expeditiously so as to minimize the interest accrual.
Consequently, we find that our 1988 final judgment, viewed
in conjunction with the 1986 decision it implemented, was
clearly a written final determination that underpayments to
the plaintiffs had taken place. Yet, in order for the
plaintiffs to be entitled to collect interest on the
unliquidated underpayments, it must be determined whether
Medicare beneficiaries with unassigned claims are eligible to
recover the interest under the statute.
Defendants argue that 42 U.S.C. § 1395l(j) expressly
precludes those plaintiffs who are beneficiaries holding
unassigned Part B claims from recovering any interest on
unliquidated underpayments. The statute authorizes interest to
accrue beginning 30 days after a final determination that
underpayments were made to providers of services or to other
persons pursuant to an assignment of the beneficiaries' rights
to reimbursements. Defendants conclude that since some of the
plaintiffs are neither providers nor assignees and waivers of
sovereign immunity must be interpreted narrowly, those
plaintiffs are not entitled to recover interest under 42 U.S.C. § 1395l(j).
Plaintiffs admit that the language of 42 U.S.C. § 1395l(j)
contains no explicit recognition of the rights of direct
Medicare beneficiaries with Part B claims to receive interest.
They argue, however, that no rational basis exists to
distinguish between physicians who were underpaid and
beneficiaries who were billed directly and were subsequently
underreimbursed. Plaintiffs also argue that payment
arrangements between physicians and patients should not form
the basis for denying plaintiffs the ability to recover
interest. These plaintiffs contend that their rights to collect
interest are derivative from the provider's express right to
recover interest under 42 U.S.C. § 1395l(j).
Lastly, plaintiffs argue that even if the court determines
that those plaintiffs who are Medicare beneficiaries with
unassigned claims have no entitlement to interest under
42 U.S.C. § 1395l(j)'s terms, interest is nonetheless due to all
physicians who submitted assigned claims and were underpaid.
Section 1395l(j) expressly states that interest accrues on
final determinations made concerning "the amount of payment
made under this part either to a provider of services and to
another person pursuant to an assignment under section
1395u(b)(3)(B)(ii)." 42 U.S.C. § 1395l(j). The court recognizes
that this interest provision, being a waiver of sovereign
by the federal government, must be construed narrowly.
Plaintiffs admit that certain members of the class are
neither providers of services nor holders of assigned claims.
Therefore, those plaintiffs who are beneficiaries with
unassigned claims fall outside the confines of the statute.
Plaintiffs, however, contend that the statute's distinction
between providers and assignees who are eligible to recover
interest and beneficiaries who were billed and reimbursed
directly for Part B claims by their health care providers yet
are not eligible to recover interest would violate the equal
protection guarantees of the United States Constitution. While
the plaintiffs raised the issue only in passing and the
defendants ignore it altogether, the court will not treat the
equal protection issue in such a cursory manner.
When challenging economic or social welfare legislation such
as the Social Security Act on equal protection grounds, the
scope of judicial review is extremely narrow. A court
"properly exercises only a limited review power over Congress,
the appropriate representative body through which the public
makes democratic choices among alternative solutions to social
and economic problems." Schweiker v. Wilson, 450 U.S. 221, 230,
101 S.Ct. 1074, 1080, 67 L.Ed.2d 186 (1981).
Since the distinction between beneficiaries and providers
does not involve fundamental personal rights or inherently
suspect classifications such as race or religion, the statute
is presumed constitutional and a court must "require only that
the classification challenged be rationally related to a
legitimate [governmental] interest." City of New Orleans v.
Dukes, 427 U.S. 297, 303, 96 S.Ct. 2513, 2516, 49 L.Ed.2d 511
(1976). In applying this standard of review, the court notes
"[a]s long as the classificatory scheme chosen by
Congress rationally advances a reasonable and
identifiable government objective, we must
disregard the existence of other methods of
allocation that we, as individuals, perhaps would
Schweiker v. Wilson, 450 U.S. at 235, 101 S.Ct. at 1083.
While the legislative history of 42 U.S.C. § 1395l(j) is
limited at best, the intent behind the interest accrual
provision may be gleaned from congressional explanations of the
interest provision ultimately incorporated into Pub.L. 97-248.
Before § 117 of TEFRA was enacted, providers and suppliers of
services who received overpayments from the Medicare program
were charged no interest on reimbursements during the period
for which the reimbursements were made nor were they paid any
interest on underpayments.
Congress believed that the absence of interest charges
encouraged providers and suppliers of services to place of low
priority on the repayment of their debts. See STAFF OF HOUSE
COMM. ON WAYS AND MEANS, 97th CONG., 2D SESS., EXPLANATION OF
H.R. 6878 (Comm. Print 1982) [hereinafter STAFF EXPLANATION OF
H.R. 6878], at 38-39.*fn9
Clearly Congress regarded the over-payment of providers and
their subsequent delays in repaying their debts as a primary
budgetary concern. In its report accompanying H.R. 6878, the
staff of the House Way and Means Committee estimated that
requiring interest to be paid on over-payments to providers
would produce a budget savings of 20 to 25 million dollars
over a five-year period. See STAFF EXPLANATION OF H.R. 6878, at
88. Hence, it chose to enact an interest accrual statute to
encourage through monetary penalties
the speedy repayment of amounts received by providers as
While the court may be equally troubled by delays on the
part of the federal government in repaying deficiencies
associated with underpayments to individual Medicare
beneficiaries, it may not simply superimpose these concerns
upon the legislature's judgment by amending its statutes.
Congress' concern, as expressed by the Chairman of the House
Ways and Means Committee when H.R. 4961, the bill that
included the interest accrual provision, was sent to
conference, was to conform to "the overwhelming desire of
Members on both sides of the aisle to make reductions in as
compassionate a way as possible with the least impact on
beneficiaries particularly in the medicare program." STAFF
EXPLANATION OF H.R. 6878, at 1.
In excluding beneficiaries from 42 U.S.C. § 1395l(j),
Congress chose a tradeoff. While beneficiaries are not entitled
to recover interest on underpayments, they are concurrently
exempted from owing any interest on overpayments they receive.
To reduce the budget deficit while avoiding the creation of any
added burdens on Medicare beneficiaries who might lack the
steady stream of income from which to easily repay any
overpayments and interest owed, Congress targeted Medicare
providers and suppliers. The court is not prepared to tamper
with these legitimate congressional policy choices for
Medicare. Therefore, the court finds that beneficiaries holding
unassigned Part B claims are not entitled to collect interest
under 42 U.S.C. § 1395l(j).
For the reasons stated above, the court concludes that the
1988 final judgment, viewed in conjunction with the court's
decision in Cosgrove v. Bowen, 649 F. Supp. 1433 (1986),
represented a final determination that underpayments had
occurred. The plaintiffs' order to compel the payment of
interest is granted only to the extent that interest, accruing
since the date of the court's final judgment, shall be paid to
all providers and persons holding assigned claims under
42 U.S.C. § 1395u(b)(3)(B)(ii) on behalf of plaintiffs and were
underreimbursed due to the combined impact of
42 C.F.R. § 405.551(e) and DEFRA. The court also reemphasizes that the
Secretary must complete the recalculations ordered three years
ago without any further delay.