The opinion of the court was delivered by: HECKMAN
The parties have consented to have the undersigned conduct any and all further proceedings in this case, including the entry of final judgment, in accordance with 28 U.S.C. § 636(c). Pending for decision are plaintiffs' motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure (Item 22) and defendants' cross-motion for summary judgement (Item 27).
Plaintiffs are individual physicians and groups of physicians who specialize in radiology, and practice in the Western New York area. They are all "participating physicians" under the Medicare program. As participating physicians, they have agreed to accept payment on an assignment-related basis for services provided to their Medicare patients. 42 U.S.C. § 1395u(h)(1).
Plaintiffs receive reimbursement for their radiologist services under the Medicare Part B program, which pays for nonhospital medical services including physician services. Medicare Part B is administered nationwide by a network of private insurance carriers under contract with the Health Care Financing Administration (HCFA), a division of the Department of Health and Human Services (HHS). 42 U.S.C. § 1395u(a); see Anderson v. Bowen, 881 F.2d 1, 2 (2d Cir. 1989). The private carrier acts as the Secretary's agent in the review and payment of Part B claims. 42 U.S.C. § 1395(u).
Blue Shield is the carrier designated by the Secretary to administer the Medicare program for all of New York State outside of the greater New York metropolitan area. The program is administered on the basis of four geographic localities, with Western New York designated as Locality 1.
On May 23, 1994, plaintiffs commenced this action against Donna Shalala, as Secretary of the Department of Health and Human Services (the Secretary), and the Department of Health and Human Services (HHS), alleging that the Secretary improperly applied the "doctrine of comparability" to Medicare reimbursement rates for their radiologist services in Locality 1 and that as a result, the reimbursements they receive are less than that to which they are entitled under the Act.
The doctrine of comparability may be applied in the calculation of Medicare reimbursements only where an insurance carrier administering the Part B program also offers a private insurance program. If it is determined that the carrier's private insurance program is "comparable" to Medicare, then the carrier may not allow a higher payment for a service provided to a Medicare patient than it would allow if a comparable service under comparable circumstances had been provided to a patient covered by its private insurance plan. 42 U.S.C. § 1395u(b)(3)(B); 42 C.F.R. § 405.508.
Of the four localities in which Blue Shield administers the Medicare program, it offers a private insurance program only in Locality 1. Thus, Locality 1 is the only service area in which a comparability limitation can be applied. Plaintiffs contend, however, that their reimbursement should not have been limited to the amounts allowed under Blue Shield's private insurance plan because the private plan is not comparable to Medicare.
Neither party specifically addresses the difference in reimbursement rates resulting from the application of comparability limitations. Nor is any concrete example presented in the voluminous administrative record. There is some indication of the differential, however, at Exhibit 24 (T. at 538-41).
In a Blue Cross memorandum addressing the establishment of radiology fee schedules for 1989, it was noted that the fee schedules for Western New York radiologist services were approximately 25 percent less than the same fees for the other three localities in Upstate New York (Id. at 540).
At the administrative hearing, held on March 24 and 25, 1992, plaintiffs argued that the comparability provisions of 42 U.S.C. § 1395u(b)(3)(B) should not have been applied in Locality 1 because the policy that HCFA employs to determine whether a private plan is comparable to Medicare is not consistent with the laws and regulations. Plaintiffs also argued that the HCFA policy is an unpublished regulation and is not merely interpretive but changes the regulation itself. Finally, plaintiffs contended that HCFA and Blue Shield applied comparability arbitrarily and capriciously.
On June 25, 1992, ALJ Margaret Quinn determined that the "comparability limitations are permissible, both under law and regulations, that there [sic] application in this instance, and the policy of HCFA in general is neither contrary to the statute nor is it a substantive change of the statute which would require publication. Therefore, comparability, as a policy in Locality 1, is proper" for the period March 17, 1989 through March 30, 1990 (Item 22, Ex. H, p. 27). The ALJ also denied plaintiffs' request to reopen prior cases dating back to October 1, 1985 (Id.). On March 30, 1994, the Health and Human Services Appeals Council reviewed and upheld ALJ Quinn's determination as the final decision of the Secretary.
On October 3, 1996, plaintiffs moved for summary judgment with respect to each of the six causes of action presented in their second amended complaint. Defendants cross-moved for summary judgment on the same issues on December 16, 1996. Plaintiffs' claims can be summarized as follows:
1. The Secretary's determination to apply comparability limitations to Medicare reimbursements in Locality 1 is inconsistent with and in violation of the comparability statute and regulation.
2. The Secretary's application of comparability is unlawful and invalid in that the policy HCFA employs to determine whether comparability is appropriate is a substantive rule that was never promulgated as a formal regulation in accordance with the Administrative Procedure Act.
3. The Secretary's application of comparability is unlawful and invalid in that the policy HCFA employs to determine whether comparability is appropriate was never published in the Federal Register as an "interpretive" rule in accordance with 42 U.S.C. § 1395hh(c)(1).
4. ALJ Quinn's June 25, 1992 decision was arbitrary, capricious, an abuse of discretion, not in accordance with the law, and not supported by substantial evidence in that it contains certain findings of fact that are not supported by the evidence in the record.
5. The Secretary's application of comparability was arbitrary and capricious in that sometime after 1980, the Secretary and HCFA changed their interpretation of the comparability provisions of the Medicare statute and regulation.
6. The plaintiffs' requests for reopening were supported by good cause and the Secretary's denial of same was arbitrary and capricious, an abuse of discretion, not in accordance with the law, and not supported by substantial evidence.
Plaintiffs are seeking judgment declaring the application of comparability in Locality 1 to be unlawful and invalid, and compelling the Secretary to recalculate Medicare payments for their services.
The Medicare Act provides that "the findings of the Secretary as to any fact, if supported by substantial evidence, shall be conclusive . . . ." 42 U.S.C. 405(g) (incorporated through 42 U.S.C. § 1395ii). Substantial evidence is that which a "reasonable mind might accept as adequate to support a conclusion . . . ." Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 83 L. Ed. 126, 59 S. Ct. 206 (1938), quoted in Richardson v. Perales, 402 U.S. 389, 401, 28 L. Ed. 2d 842, 91 S. Ct. 1420 (1971); Jones v. Sullivan, 949 F.2d 57, 59 (2d Cir. 1991). Under this standard, judicial review of the Secretary's decision is limited, and the reviewing court may not try the case de novo or substitute its findings for those of the Commissioner. Richardson, supra, 402 U.S. at 401. The court's sole inquiry is "whether the record, read as a whole, yields such evidence as would allow a reasonable mind to accept the conclusions reached" by the Commissioner. Sample v. Schweiker, 694 F.2d 639, 642 (9th Cir. 1982). The Commissioner's determination cannot be upheld, however, when it is based on an erroneous view of the law that improperly disregards highly probative evidence. Grey v. Heckler, 721 F.2d 41, 44 (2d Cir. 1983); Marcus v. Califano, 615 F.2d 23, 27 (2d Cir. 1979).
Thus, judicial review of the Commissioner's determination involves two levels of inquiry. First, the court must decide whether the correct legal principles were applied in making the determination. Johnson v. Bowen, 817 F.2d 983, 985 (2d Cir. 1987); Baybrook v. Chater, 940 F. Supp. 668, 672 (D.Vt. 1996). Second, if correct legal principles were applied, the court must decide if the ALJ's decision is supported by substantial evidence. Johnson, supra, 817 F.2d at 985.
In the present case, "the HHS Appeals Council denied plaintiffs' challenge to the method by which reimbursement rates for radiologist services are calculated" (Item 22, P 2). While this court is compelled to accept the Secretary's supported findings of fact, plaintiffs' claims present questions of law involving the Secretary's construction of the governing statute and regulation, and her interpretation of the law. Judicial review of such claims is de novo. Hughes v. Chater, 895 F. Supp. 985, 993 (N.D.Ill. 1995); Rivera v. Sullivan, 771 F. Supp. 1339, 1351 (S.D.N.Y. 1991).
Specifically, this court has jurisdiction to review the validity of regulations and policies related to Medicare Part B payment methodology pursuant to the grant of general federal-question jurisdiction found in 28 U.S.C. § 1331.
See Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 673-678, 90 L. Ed. 2d 623, 106 S. Ct. 2133 (1986); Abbott Radiology Associates v. Sullivan, 801 F. Supp. 1012, 1015-18 (W.D.N.Y. 1992); Abbey v. Sullivan, 788 F. Supp. 165, 168 (S.D.N.Y. 1992); Kuritzky v. Blue Shield of Western New York, Inc., 850 F.2d 126, 128 (2d Cir. 1988).
The standard for reviewing the Secretary's interpretation of a statute or regulation under her purview was established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-45, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984). In Chevron, the Supreme Court determined that where Congress has spoken directly to the issue presented, the court must give effect to Congress' intent as expressed in the language and legislative history of the statute. If, however, the statute is "silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Id. at 843.
In assessing the reasonableness of the Secretary's interpretation, the court need not find that it is the only acceptable interpretation or the one the court would have given if the issue had been presented directly to it in the first instance. Id. at n. 11; Connecticut Dep't of Income Maintenance v. Heckler, 471 U.S. 524, 532, 85 L. Ed. 2d 577, 105 S. Ct. 2210 (1985). Thus, the Secretary is entitled to deference so long as the interpretation is reasonable, Cosgrove v. Sullivan, 999 F.2d 630, 632-33 (2d Cir. 1993), and the deference to be given is such that the Secretary's interpretation should not be overturned "unless there are compelling indications that it is wrong." Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 384, 23 L. Ed. 2d 371, 89 S. Ct. 1794 (1969); Weeks v. Quinlan, 838 F.2d 41, 43 (2d Cir. 1988).
Though both sides posit the comparability limitation as a simple concept which deceptively appears to be quite complex, this court echoes the observation of Justice Blackmun in Lukhard v. Reed, 481 U.S. 368, 95 L. Ed. 2d 328, 107 S. Ct. 1807 (1987) (Blackmun, J., concurring): "In a statutory area as complicated as this one, the administrative authorities are far more able than this Court to determine congressional intent in the light of experience in the field." Id. at 383 (case involving the definition of income under the AFDC program); see also, St Mary's Hospital of Troy v. Blue Cross and Blue Shield Ass'n, 788 F.2d 888, 890 (2d Cir. 1986) (quoting Marina Mercy Hospital v. Harris, 633 F.2d 1301, 1304 (9th Cir. 1980)) (the Secretary has broad discretion "particularly in a program as complex and ripe with potential for abuse as Medicare").
Plaintiffs assert on a number of grounds, however, that the Secretary's interpretation of the comparability statute fails to satisfy even this highly deferential standard.
THE STATUTORY AND REGULATORY FRAMEWORK
The only statutory reference to Medicare's comparability limitation is found at 42 U.S.C. § 1395u(b) which states, in pertinent part, that:
(3) Each such contract [between Medicare and a private carrier] shall provide that the carrier--
(A) will take such action as may be necessary to assure that, where payment under this part for a service is on a cost basis, the cost is reasonable cost . . . ;
(B) will take such action as may be necessary to assure that, where payment under this part for a service is on a charge basis, such charge will be reasonable and not higher than the charge applicable, for a comparable service and under comparable circumstances, to the policyholders and subscribers of the carrier, . . . .
From its inception, Medicare has paid charges that are "reasonable" for the particular service involved, less any copayment. 42 U.S.C. § 1395l(a)(1). Effective January 1, 1971, Medicare reimbursement rates were determined using a "reasonable charge" formula. 42 C.F.R. § 405.504(a)(2) (1977). Applying this methodology, a physician treating a Medicare patient would be paid the lower of: (1) the physician's actual charge for the service, (2) the physician's customary charge,
or (3) the current prevailing charge
in the locality for that service. However, under 42 U.S.C. § 1395u(b)(3)(B), reimbursements can be made at an amount lower than Medicare's "reasonable charge" rate where "comparability" applies.
(a) Application of limitation. The carrier may not in any case make a determination of reasonable charge which would be higher than the charge upon which it would base payment to its own policyholders for a comparable service in comparable circumstances. The charge upon which it would base payment, however, does not necessarily mean the amount the carrier would be obligated to pay. Under certain circumstances, some carriers pay amounts on behalf of individuals who are their policyholders which are below the customary charges of physicians or other persons to other individuals. Payment under the supplementary medical program would not be limited to these lower amounts.
(b) When comparability exists. "Comparable circumstances," as used in the Act and this subpart, refers to the circumstances under which services are rendered to individuals and the nature of the carrier's health insurance programs and the method it uses to determine the amounts of payments under these programs. Generally, comparability would exist where:
(1) The carrier bases payment under its program on the customary charges, as presently constituted, of physicians or other persons and on current prevailing charges in a locality, and
(2) The determination does not preclude recognition of factors such as speciality status and unusual circumstances which affect the amount charged for a service.
42 C.F.R. § 405.508 (1991). Thus, in an effort to contain costs, the Secretary limits payment for services to Medicare patients to the amount its designated carrier pays on behalf of its private policyholders under "comparable circumstances."
Medicare reimbursements for radiology services were calculated using the "reasonable charge methodology" from 1971 until 1989. In Locality 1, however, reimbursement rates were lower than Medicare's "reasonable charge" rate because of ...