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February 14, 1992

BERTHA GARELICK, YOLANDA RESTAINO, ELENA SAVINO, DAVID ATKINSON, BRUCE KONRAD and PETER T. PICKERING, Plaintiffs, against LOUIS W. SULLIVAN, as Secretary of the Department of Health and Human Services, and WILLIAM TOBY, as Administrator, Health Care Financing Administration, Region II, Defendants.


The opinion of the court was delivered by: WILLIAM C. CONNER


 In this action for declaratory judgment and preliminary and permanent injunctive relief, plaintiffs, three hospital-based anesthesiologists and three patients enrolled in Medicare Part B, challenge the constitutionality of section 6102(a) of the Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239, 103 Stat. 2106 (codified at 42 U.S.C. § 1395w-4(g)) ("OBRA-89"). This provision sets limits on the amounts that physicians may charge Medicare patients for their services. The action is currently before the Court on plaintiffs' motion for summary judgment as to all claims and on defendants' cross-motion for summary judgment dismissing plaintiffs' claims.


 The Medicare program is comprised of two parts -- Part A and Part B. Part A, which is not implicated in the instant case, provides institutional health coverage for hospital care and related post-hospitalization services. Part B of the Medicare Act, 42 U.S.C. §§ 1395j-1395w, is a federally subsidized, voluntary program of supplemental medical insurance which covers, in general, 80% of the reasonable cost of certain medical expenses that are excluded from the Part A program.

 Under Part B, Medicare enrollees obtain benefits in return for the payment of monthly premiums in an amount determined by the Secretary of Health and Human Services. See id. § 1395r(b)-(c); § 1395(t). These premiums, together with contributions from the federal government, make up the Federal Supplementary Medical Insurance Trust Fund (the "Trust Fund"). Id. § 1395t.

 Physicians may routinely accept assignment of claims for treatment of Part B Medicare patients, or may accept assignment of Medicare claims on a selective basis, or may refuse to accept assignment of any Medicare claims. Physicians who do accept assignment of claims for services rendered under Part B agree to accept the charges approved by Medicare in full satisfaction for their services and submit claims and receive reimbursement directly from the carrier under the Part B program. When a claim is unassigned, that is, when a physician does not accept assignment, the physician is obligated to prepare and submit the Medicare claim form to the carrier on behalf of the patient, but the carrier then sends reimbursement directly to the patient. On such unassigned claims the physician looks directly to the patient or his or her private insurance carrier for payment.

 In 1984, Congress enacted a sweeping cost-control provision in Section 2306 of the Deficit Reduction Act, Pub. L. No. 98-369, 98 Stat. 494 ("DEFRA") (codified at 42 U.S.C. § 1395u(h)). Prior to DEFRA, all physicians were permitted to decide on a claim-by-claim basis whether or not to accept assignment of Medicare claims. If a physician chose not to accept assignment, Medicare placed no limitation on the amount that he or she could charge a Medicare beneficiary. Medicare reimbursement, however, was limited to a "reasonable charge" as determined by Medicare, leaving the beneficiary responsible for the difference between the physician's actual charge and the Medicare reimbursement.

 In the health care provisions of the Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-509, 100 Stat. 1874 ("OBRA-86"), Congress further restricted the amounts non-participating physicians could charge Medicare beneficiaries. Section 9331 of OBRA-86 effectively replaced the DEFRA fee freeze by limiting non-participating physicians' charges to Medicare beneficiaries in accordance with a formula called the physician's "Maximum Allowable Actual Charge" ("MAAC"). The MAAC as originally enacted was based on the physician's actual charges for the second quarter of 1984 but was subject to adjustment in limited circumstances after administrative review. See 42 U.S.C. § 1395ff.

 The health care provisions of OBRA-89 mandate the conversion of the Medicare reimbursement system to one based on a Medicare fee schedule, incorporating a "relative value scale" and an annual "conversion factor" instead of employing prevailing fees. 42 U.S.C. § 1395w-4(a). Section 6102(a) of OBRA-89 effectively replaces the MAAC fee limitation formula with a different concept called the "limiting charge." 42 U.S.C. § 1395w-4(g). Under this concept, as of January 1, 1991, physicians who do not accept assignment of Medicare approved amounts in full satisfaction of their fees are, in most instances, prohibited from charging any Medicare patient more than 125% of the fee allowed by Medicare for the services rendered.

 Beginning January 1, 1992, the "recognized payment" or reimbursed portion of the fee for a physician's service to a Medicare patient is determined on the basis of a number of criteria, including the "relative value" for the service as determined under OBRA-89 section 6102(c)(2), the "conversion factor" for the year established under subsection (d), and the "geographic adjustment factor" for the service for the fee schedule area established under subsection (e)(2). 42 U.S.C. § 1395w-4(b)(1). Under section 6102(a), effective January 1992, the limiting charge may not be higher than 120% of the recognized payment amount, and after 1992, the limiting charge may not be higher than 115% of the recognized payment amount. 42 U.S.C. § 1395w-4(g)(2).

 Physicians whose charges exceed the limiting charge are subject to sanctions which include penalties of up to $ 2,000 per violation plus twice the amount claimed for the service in accordance with 42 U.S.C. § 1842(j)(2). See 42 U.S.C. § 1395w-4(g)(1).

 Plaintiffs contend that the limiting charge restriction, as applied to hospital-based anesthesiologists; is unconstitutional because it is arbitrary and discriminatory, and because it is demonstrably irrelevant to valid Congressional policy. Plaintiffs further contend that the limiting charge restriction violates the due process clause and equal protection component of the Fifth Amendment and violates that Fifth ...

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