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February 7, 1992

RICHARD ABBEY, et al. Plaintiffs, against LOUIS W. SULLIVAN, as Secretary of the Department of Health and Human Services, WILLIAM TOBY, HARVEY W. FRIEDMAN, WILLIAM C. WOODSON, and RELA HEIMBERG, Defendants.


The opinion of the court was delivered by: ROBERT L. CARTER

CARTER, District Judge

This case presents a controversy over the power of a federal court to review a dispute arising under the Medicare Act, 42 U.S.C. § 1395 et seq. (the "Act" or the "Medicare Act"). Plaintiffs are claimants for medical benefits under the Medicare Act. Defendants are the Secretary of the Department of Health and Human Services ("HHS"); the administrator for region II of the Health Care Financing Administration ("HCFA") of HHS; an officer of Empire Blue Cross and Blue Shield, the insurance carrier that administers the Medicare Part B program in the New York area; and the two Medicare hearing officers who reviewed the plaintiffs' claims.

 Some background about the Medicare Act and its claims review process is necessary to an understanding of this case. The Medicare Act is composed of two parts, Part A, 42 U.S.C. §§ 1395c-1395i, and Part B, 42 U.S.C. §§ 1395j-1395w. Part A provides insurance coverage for hospital care and related post-hospital services, and is funded out of Social Security taxes. Part B is a voluntary program of medical insurance for persons who are over 65 or disabled. Individuals pay monthly premiums for insurance that covers portions of certain medical services which are excluded from the Part A program. HHS contracts with private insurance carriers to administer the Part B program. The carrier reviews claims for reimbursement according to procedures established by the Medicare Act and notifies claimants of its initial decision. If a claimant is dissatisfied with the carrier's determination, she can request initial review by the carrier within six months. 42 C.F.R. § 405.807 (1990). The carrier then re-reviews the claim and issues a notice of decision on review to the claimant. 42 C.F.R. § 405.811 (1990).

 The Medicare Carrier's Manual instructs the hearing officer to conduct the required "fair hearing" in one of three ways: in person, over the telephone, or "on the record." A decision on the record ("OTR") is based solely on documentary evidence. The MCM also includes the following provision, interpretation of which is disputed in this case:

 Regardless of the type of hearing requested (telephone, in-person, or a decision based on the record), the HO [hearing officer] prepares and sends to the claimant a decision based on the facts in the record (OTR), unless one of the following apply [sic]:

 - The OTR would significantly delay the hearing;

 - The issue is medical necessity;

 - Oral testimony and cross-examination is [sic] necessary to clarify the facts; or

 - You [the carrier] cannot provide a different HO for the requested hearing.

 If the claimant requested an in-person hearing or telephone hearing, the HO includes as the first paragraph in the OTR decision a statement that he has scheduled the requested type of hearing within the 120 day time limit provided by law, but, meanwhile, has rendered this decision based on the evidence in the file.

 * * *

 An OTR decision may be contraindicated even though requested by a party to the hearing. If the HO decides that an in-person or telephone hearing would help him reach an equitable decision, he notifies all parties of the time and date and explains why oral testimony is needed. If the needed parties do not attend, the HO renders an OTR decision.

 Medicare Carrier's Manual 12021.

 After the "fair hearing" decision, the amount remaining in controversy determines what further review is available to the claimant. If the disputed amount is less than $ 500, no further review is provided. If the amount in controversy is $ 500 to $ 999, the claimant is entitled to review by an Administrative Law Judge ("ALJ"). Isaacs v. Bowen, 865 F.2d 468, 472-75 (2d Cir. 1989). If the amount in controversy is $ 1,000 or more, the claimant is entitled to judicial review in federal district court. Id. ; 42 U.S.C. § 1395ff(b)(2)(B).

 The complaint in this action charges the carrier's hearing officers with failing to follow applicable HHS rules and regulations. Specifically, plaintiffs in groups A and C *fn1" assert that they requested an in-person hearing, along with a written decision on the record before the in-person hearing. The hearing officers involved agreed to conduct an in-person hearing but refused to provide the pre-hearing OTR decision. Plaintiffs claim that such a pre-hearing OTR is required by the MCM provisions cited above, that the insurance carrier is bound to follow the rules and regulations set forth in the MCM, and that its failure to follow those rules constitutes a violation of due process of law. Group B plaintiffs complain that the hearing officers denied them the opportunity at the "fair hearing" to ...

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