with the beneficiary paying the remainder.
Two billing methods were devised for payment of benefits.
§ 1395u(b)(3)(B). The first method provides for payment "on the
basis of an itemized bill." This method, commonly known as
"balance billing," is the source of the controversy at bar.
Balance billing allows a physician to bill a Medicare
beneficiary an amount in excess of the reasonable charge, with
the local carrier reimbursing the beneficiary for 80% of the
reasonable charge. The second method, "assignment," restricts a
physician's fee to the reasonable charge, with the physician
being reimbursed by the local carrier for 80% of the fee and
the remaining 20% being paid by the beneficiary.
Under both payment plans, Medicare pays for 80% of the
reasonable charge. The difference lies in the actual fee.
Balance billing "provides a `safety valve' for physicians who
believe that the fee schedule does not adequately reflect the
quality of services they provide." Physician Payment Review
Commission ("PPRC"), 1989 Annual Report to Congress at 137.
Supporters of balance billing argue that it gives beneficiaries
access to quality medical services. Although the total cost of
medical services is higher than the reasonable charge level,
they say that Medicare pays a large enough portion of the
physician's fee to justify the excess cost.
Not surprisingly, opponents of balance billing assert that
"extra bills become out-of-pocket liabilities." PPRC, 1988
Annual Report to Congress at 130. They also note that many
beneficiaries are unaware of their insurance options and so may
not learn that their physicians balance bill until after the
medical services are performed. The beneficiaries only learn of
their personal liability after the fact — when it is too late
to make other arrangements.
Recognizing the growing concern over balance billing,
Congress, in the mid to late 1980's, adopted several plans to
remedy the situation. In 1984, Congress initiated the
"Participating Physician's Program." This program required
physicians to either accept assignment for all billings in the
coming year (a "participating physician"), or decide whether
to balance bill on a case-by-case basis (a "non-participating
physician"). To encourage physicians to participate and agree
to assignment of all claims, several incentives were created:
(1) participating physicians were listed in a special
directory distributed to beneficiaries; (2) a higher
reasonable charge was allowed for participating physicians,
§ 1395u(b)(4)(A)(iv); and (3) a freeze was placed on the amount
physicians could balance bill § 1395u(j)(1).
In 1986, the freeze was lifted and replaced with a "maximum
allowable actual charge" ("MAAC"), which capped the yearly
increase allowed for physicians who balance bill. §
1395u(j)(1). In addition, the PPRC was established to "make
recommendations to Congress . . . regarding adjustments to the
reasonable charge levels for physicians' services . . . and
changes in the methodology for determining the rates of
payments, and for making payment, for physicians' services . .
." § 1395w-1(b)(1).
Finally, in 1989, balance billing was capped at a "limiting
charge." Under the new provisions, a cap of 25% (or in some
instances 40%) above the "recognized payment amount"*fn2 was
imposed for 1991. The cap was lowered to 20% for 1992 and 15%
beginning in 1993. § 1395w-4(g)(2).
In 1990, New York passed Chapter 572. Under that Chapter,
the limiting charge for physicians who balance bill federal
Medicare beneficiaries was capped at 15% above the federal
reasonable charge for 1991. In 1993 the cap will be reduced to
10%, and 5% if claims billed at or below the reasonable charge
do not increase in 1992 by 5% from their 1989 level.
Physicians who violate this provision are subject to fines
following a hearing. First-time violators may be
fined a maximum of $1,000, while subsequent violations within
five years trigger a maximum fine of $5,000. In addition, the
physician must refund to the beneficiary the excess money
collected. Chapter 572, unlike the federal statute, has no
requirement of willfulness or knowledge on the part of the
violator. Compare with 42 U.S.C. § 1395w-4(g)(1).
At the same time that Congress was considering changes in
the balance billing program, various states considered, and in
several cases adopted, their own restrictions on balance
billing. Massachusetts prohibited the practice altogether in
1985. Physicians who failed to comply with the new state law
could not obtain or renew their Massachusetts medical license.
243 C.M.R. 2.07(15); Mass. G.L.c. 112, § 2. In addition,
disciplinary action could be taken against violators. 243
C.M.R. 103(8), 1.05(5); Mass. G.L.c. 112, § 5 (1986 Supp.). The
legislation prompted a legal challenge, but in Massachusetts
Medical Society v. Dukakis, 815 F.2d 790 (1st Cir. 1987), cert.
denied 484 U.S. 896, 108 S.Ct. 229, 98 L.Ed.2d 188 (1987), the
First Circuit upheld the state statute, ruling that it was not
preempted by the Medicare Act.
In the years that followed, Congress enacted the amendments
discussed above. After passage of the 1989 Amendments,
Pennsylvania enacted its own law prohibiting balance billing.
In Pennsylvania Medical Society v. Marconis, 755 F. Supp. 1305
(W.D.Pa. 1991), the district court upheld the state statute
against a challenge, on preemption grounds, by the Pennsylvania
Medical Society. The Third Circuit affirmed. 942 F.2d 842 (3d.
The Supremacy Clause of the United States Constitution,
Article IV, Cl. 2, lies at the heart of this case. It
This Constitution, and the Laws of the United
States which shall be made in pursuance thereof;
and all Treaties made, or which shall be made,
under the Authority of the United States, shall
be the supreme Law of the Land; and the Judges in
every State shall be bound thereby, any Thing in
the Constitution or Laws of any State to the
The case at bar involves a law — the Medicare Act — that
has been promulgated by the United States Congress. As its
constitutionality has not been challenged, it is presumptively
made "in pursuance" of the Constitution and is thus the
"Supreme Law of the Land." What remains to be decided is
whether Congress meant to permit the states to promulgate
legislation in the same general area.
The initial inquiry is whether Chapter 572 addresses an area
traditionally occupied by the states. This is an important
preliminary determination because when Congress legislates in
a field historically within the police power of the states,
the party arguing preemption carries the heavy burden of
showing that preemption was the "clear and manifest purpose of
Congress." Pacific Gas & Electric v. State Energy Resources
Comm'n, 461 U.S. 190, 206, 103 S.Ct. 1713, 1723, 75 L.Ed.2d 752
(1989) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218,
230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947)); see also
General Motors Corp. v. Abrams, 897 F.2d 34, 41-42 (2d Cir.
1990) ("compelling evidence" of an intention to preempt must be
shown where the area is traditionally regulated by the states).
This arises from the related assumption that Congress does not
normally intend to displace state law. Maryland v. Louisiana,
451 U.S. 725, 746, 101 S.Ct. 2114, 2129, 68 L.Ed.2d 576 (1981).
See also Laurence H. Tribe, American Constitutional Law § 6-25,
at 479-80 (2d ed. 1988) ("The question whether federal law
preempts state action, cannot be reduced to general formulas,
but there does appear to be an overriding reluctance to infer
preemption in ambiguous cases. Such reluctance seems
particularly appropriate in light of the Supreme Court's
repeated emphasis on the central role of Congress in protecting
the sovereignty of the states.").
Chapter 572 clearly involves a matter traditionally within
the police powers of
the state: the regulation of public health and the cost of
medical care. Hillsborough County v. Automated Medical
Laboratories, Inc., 471 U.S. 707, 719, 105 S.Ct. 2371, 2378, 85
L.Ed.2d 714 (1985) ("the regulation of health and safety
matters is primarily, and historically, a matter of local
concern."); Great Atlantic and Pacific Tea Co. v. Cottrell,
424 U.S. 366, 371, 96 S.Ct. 923, 928, 47 L.Ed.2d 55 (1976); Rebaldo
v. Cuomo, 749 F.2d 133, 138 (2d Cir. 1984), cert. denied,
472 U.S. 1008, 105 S.Ct. 2702, 86 L.Ed.2d 718 (1985); Pennsylvania
Medical Society v. Marconis, 942 F.2d 842, 847 (3d Cir. 1991)
("The licensing and regulation of physicians is a state
function."). The balance billing regulations are designed to
provide the elderly and disabled with a high level of health
care at an affordable price. Despite the plaintiffs' arguments
to the contrary, I see no reason to distinguish between the
present case and the blood plasma regulation statutes at issue
Accordingly Chapter 572 is presumptively valid. Plaintiffs
must show that Congress had the "clear and manifest purpose"
to displace it. The task at hand is to determine whether such
a purpose existed.
The Supreme Court has observed that there are three ways in
which Congress manifests an intent to preempt state law.
See, e.g., Schneidewind v. ANR Pipeline, 485 U.S. 293, 300, 108
S.Ct. 1145, 1151, 99 L.Ed.2d 316 (1988); California Fed.
Savings & Loan Ass'n v. Guerra, 479 U.S. 272, 280, 107 S.Ct.
683, 689, 93 L.Ed.2d 613 (1987). The first, "express
preemption," occurs when Congress declares its intention to
preempt state law by so stating. Jones v. Rath Packing Co.,
430 U.S. 519, 525, 97 S.Ct. 1305, 1309, 51 L.Ed.2d 604 (1977). No
such express provision appears here. The second, "implied
preemption," occurs where Congress has impliedly precluded
state regulation by "occupying the field" through the structure
or objectives of federal law. Intent to supersede state law
altogether may be found where the scheme of federal regulation
"is sufficiently comprehensive to make reasonable the inference
that Congress `left no room' for supplementary state
regulation." Guerra, 479 U.S. at 280-81, 107 S.Ct. at 689. As a
third alternative, in those areas where Congress has not
completely displaced state regulation, federal law may
nonetheless preempt state law to the extent that the one
conflicts with the other. This is "conflict preemption." Such a
conflict occurs either because "compliance with both federal
and state regulations is a physical impossibility," or because
the state law stands "as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress."
Guerra, 479 U.S. at 281, 107 S.Ct. at 689 (quoting Florida Lime
& Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83
S.Ct. 1210, 1217-18, 10 L.Ed.2d 248 (1963) and Hines v.
Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581
A. Implied Preemption: Occupation of the Field
Because the Medicare Act itself does not explicitly deal
with preemption, the parties seek to infer Congress' intent
from the comprehensiveness of the Act. Plaintiffs argue that
the federal regulation is so pervasive that Congress must have
intended to preclude state supplementation. Defendants rely on
the complexity of the legislation to draw the opposite
conclusion: If Congress took the time and effort to draft such
elaborate legislation, it surely would have included a clause
denoting preemption if its intent was to preempt.
In attempting to demonstrate that Congress intended
preemption, the plaintiffs offer two occupation-of-the-field
arguments. The first looks to the scope of Congress'
commitment to Medicare. Plaintiffs note the billions of
dollars the federal
government spends on Medicare and the program's "exclusively
federal nature." In their second argument, the plaintiffs
assert that Congress left no room for state legislation of
balance billing when it enacted such an elaborate and
pervasive Medicare statute. The intricate detail of the
statute and its recent amendments, plaintiffs contend, reveal
that Congress intended the fine tuning of billing procedures
be performed by Congress — not by the states.
While both of plaintiffs' arguments have surface appeal,
neither is convincing. As the Third Circuit Court of Appeals
observed in Marconis, Congress appropriates large sums of money
to many programs without intending preemption. 942 F.2d at 850.
For example, although Congress distributes large sums for
highway construction, traffic regulations remain primarily
state matters. Id.
Health care regulations have also been, as a matter of
tradition, primarily state matters. The fact that Congress
passed an elaborate law governing health care is not enough to
uproot that tradition. Plaintiffs' effort to use the bill's
complexity as a springboard to displacement is unconvincing.
They must show a clear and manifest purpose to preempt; merely
exploring the exact contours of the bill does not suffice.
"[T]he subjects of modern social and regulatory legislation
often by their very nature require intricate and complex
responses from the Congress, but without Congress necessarily
intending its enactment as the exclusive means of meeting the
problem." Hillsborough County v. Automated Medical Labs,
471 U.S. 707, 715, 105 S.Ct. 2371, 2376, 85 L.Ed.2d 714 (1985). In
the absence of an express provision indicating Congress' desire
to preempt, I decline to let the breadth of the federal act
strip the state of its power to legislate.
Such an outcome is further compelled by the Act's own
language. To use the Act's scope and complexity as evidence of
a Congress bent on extending federal power, as the plaintiffs
seek to do, is to disregard the many instances where Congress
has conveyed the very opposite intention. Congress repeatedly
concedes state sovereignty on health issues in the text,
enumerating "the practice of medicine," "the manner in which
medical services are provided," "the compensation" of any
provider, and "the administration or operation" of any health
care provider as areas in which it does not purport to control
or supervise. 42 U.S.C. § 1395. Accord, Massachusetts Medical
Society v. Dukakis, supra, 815 F.2d at 791 ("The first section
of the Medicare Act explicitly states the contrary intent to
minimize federal intrusion into the [field of fee regulation of
medical services for the elderly]"). The Act reveals Congress'
intent not to preempt the role of the states in supplementing
federal regulation, but rather an intent to preserve it.
In Marconis, both the district and circuit courts read
meaning not only in what Congress said, but in what it did not
say. The plaintiffs vehemently object to such an approach,
noting the historical reluctance of courts to impute
significance to silence. This caution is understandable.
Attempting to find import in silence is frequently speculative.
But, as the Third Circuit noted in Marconis, this is an
unusual situation with unambiguous Supreme Court precedent:
The appellants [Pennsylvania Medical Society]
cannot overcome the fact that, at the time of the
Medicare amendments in 1989, and since then,
Congress was and has been undisputedly aware of
the fact that at least four states had balance
billing restriction statutes and that similar
restrictions had been considered by some 18
states. . . . This information was included in
the PPRC report submitted to Congress in 1989.
But in the face of this information, Congress did
not include a specific preemption provision in
the 1989 amendments to Medicare, nor has it done
so since. The Supreme Court in a precedent we are
not free to disregard has noted that when
Congress remains silent regarding the preemptive
effect of its legislation on state laws it knows
to be in existence at the time of such
legislation's passing, Congress has failed to
evince the requisite clear and manifest purpose
those state laws. California Fed. Savings & Loan
Ass'n v. Guerra, 479 U.S. at 287-88, 107 S.Ct. at
692-93. Furthermore, in this case the silence is
particularly indicative of congressional intent,
given the extraordinary oversight of the Medicare
program as evidenced by the very existence of the
PPRC with its annual reports to Congress and by the
frequent amendment of the Medicare Act. Congress
has simply not preempted state balance billing
942 F.2d at 850.
Massachusetts prohibited balance billing in 1985 and its
power to do so was upheld by the First Circuit in 1987.
Massachusetts Medical Society v. Dukakis, supra. Yet Congress
declined to preempt explicitly, even as it was further amending
Medicare in subsequent years.
These facts make Congress' silence significant. Congress
affirmatively considered the interaction of the state and
federal laws on balance billing and failed to act. This
silence strongly supports the inference that it did not intend
to displace state regulation.
Defendants and amici urge this Court also to attach
significance to a statement in the House Ways and Means
Committee Report prepared before the Medicare Act was passed.
If truly representative of Congress' intentions on preemption,
the statement expressly underscores federal reluctance to
preclude state regulation: "The Committee intends that nothing
in this section would prejudice the right of any State to
require assignment on Medicare claims as a condition of
licensure in the State." H.R. Report No. 247, 101st Cong., 1st
Sess. 1008 (1989), reprinted in 1989 U.S.Code & Cong.Admin.News
1906, 2479 (App. 164). Plaintiffs insist that this "snippet of
legislative history" be given no weight at all. Because
Congress never adopted the passage in the bill, and even the
Committee Report was superseded by a Conference Report that did
not incorporate the comment, they urge me to discount the
Plaintiffs have the better of this argument. Despite the
Circuit Court's opinion in Marconis, I decline to attribute
value to a comment issued only at the beginning of the bill's
long journey to final adoption. All that can be said about the
comment is that it was not approved by the entire Congress.
Justice Scalia has persuasively observed the pitfalls of
relying on small bits of legislative history:
As anyone familiar with modern-day drafting of
congressional committee reports is well aware,
the references . . . were inserted, at best by a
committee staff member on his or her own
initiative, and at worst by a committee staff
member at the suggestion of a lawyer-lobbyist;
and the purpose of those references was not
primarily to inform the Members of Congress what
the bill meant . . . but rather to influence
judicial construction. . . .
Blanchard v. Bergeron,