Medical Society of New York v. Cuomo

976 F.2d 812
CourtCourt of Appeals for the Second Circuit
DecidedSeptember 24, 1992
DocketNo. 1634, Docket 91-9364
StatusPublished
Cited by2 cases

This text of 976 F.2d 812 (Medical Society of New York v. Cuomo) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Medical Society of New York v. Cuomo, 976 F.2d 812 (2d Cir. 1992).

Opinion

McLAUGHLIN, Circuit Judge:

Plaintiffs, the Medical Society of the State of New York, the American Medical Association, and Isadore Rosenfeld, M.D. ( Appellants”) appeal from a judgment entered in the United States District Court for the Southern District of New York (Charles S. Haight, Jr., Judge) granting summary judgment to the State of New York and Doctor David M. Axelrod, Commissioner of the New York Department of Health (collectively “the State” or “New York”).

New York enacted Chapter 572 of the Laws of New York in July of 1990, with an effective date of January 1, 1991. N.Y.Pub. Health Law § 19 (McKinney Supp.1992). Chapter 572 limits the amount that a physician may charge to beneficiaries under the Health Insurance for the Aged Act (“Medicare Act” or “the Act”) 42 U.S.C. §§ 1395c-1395w. Appellants challenged Chapter 572 in the district court on the ground, inter alia, that it is preempted by the Medicare Act1. Both sides moved for summary judgment, and the district court granted the State’s motion, holding that Chapter 572 is not preempted by the Act. We agree with the district court and, therefore, affirm.

BACKGROUND

The facts of this case are ably set forth in the district court’s comprehensive opinion, reported at 777 F.Supp. 1157 (S.D.N.Y.. 1991), familiarity with which is assumed.

The Medicare Act

The Medicare program was established in 1965 to pay for the medical care of the aged and certain disabled individuals. 42 U.S.C. § 1395c. Part B of the Act, § 1395j-1395w, addresses doctors’ bills and establishes a voluntary, federally subsidized program of supplementary medical insurance, generally reimbursing beneficiaries for part of the cost of certain doctors’ services, x-rays, lab tests, and other medi[814]*814cal services. See generally Isaacs v. Bowen, 865 F.2d 468, 470 (2d Cir.1989) (discussing Medicare Part B reimbursement procedure). The Secretary of Health and Human Services contracts with private insurance carriers who administer the Part B claim process. 42 U.S.C. § 1395u. The Act provides beneficiaries coverage for 80% of the “reasonable charge” for a particular medical service or procedure.2 The beneficiary is responsible for the remaining 20%.

Physicians participating in Part B may choose between two payment options: “assignment billing” and “balance billing.” Id. at § 1395u(b)(3)(B). Under the former, physicians accept the reasonable charge for a given service thereby assuring that the Medicare payments will be made directly to them. Id. at § 1395u(b)(3)(B)(ii). Under the latter, physicians charge “on the basis of an itemized bill,” and they are not limited to the reasonable charge. Id. at § 1395u(b)(3)(B)(i). Under balance billing, however, Medicare does not pay the physician directly. Rather, Medicare pays the patient 80% of the reasonable charge for the services rendered, and the physician must look only to the patient for his fee.

Balance billing has always been controversial. Opponents contend that many beneficiaries are victimized by the process because they are unaware of the insurance options and often do not know that their physicians “balance bill” until after services have been rendered. They also contend that balance billing thwarts Medicare’s goal of reducing health care costs for beneficiaries because it invariably increases the amount charged to the beneficiary personally. Because this amount is generally not covered by other types of insurance, “extra bills become out-of-pocket liabilities” of the patient. Physicians Payment Review Commission (“PPRC”) 1988 Annual Report to Congress at 130.

Congress has repeatedly tried to discourage balance billing. The Deficit Reduction Act of 1984 (“DEFRA”) created the “Participating Physician’s Program,” requiring physicians either to accept assignment billing for all Medicare billings in a given year (thereby becoming a “participating physician”), or to balance bill in every case (a “non-participating physician”). Incentives were created to nudge the physicians into becoming participating physicians, and a cap was placed on the fees that a nonparticipating physician could charge to Medicare beneficiaries. 42 U.S.C. §§ 1395u(b)(4)(A)(iv), 1395u(j)(l); see also Pennsylvania Medical Soc’y v. Marconis, 942 F.2d 842, 844 (3d Cir.1991); American Medical Ass’n v. Bowen, 857 F.2d 267, 268 (5th Cir.1988).

The Omnibus Budget Reconciliation Act of 1986 (“OBRA ’86”) lifted the cap and replaced it with a series of Maximum Allowable Actual Charges (“MAAC”s) limiting the annual increase that non-participating physicians could charge for each service rendered to Medicare beneficiaries. See 42 U.S.C. § 1395u(j)(l)(C); Bowen, 857 F.2d at 268-69. OBRA ’86 also established the Physician Payment Review Commission to recommend annual rates and methods of payment for Medicare services. Id. §§ 1395w-l(a) and (b)(1).

The PPRC has twice described balance billing as a “safety valve” against the deterioration of services provided to Medicare beneficiaries. PPRC, 1988 Annual Report to Congress 173; PPRC, 1989 Annual Report to Congress 137. However, in its 1989 report, the PPRC also recommended that a national fee schedule be substituted for the reasonable charge standard and that balance billing charges be limited to a [815]*815fixed percentage of the fee schedule amount. PPRC, 1989 Annual Report to Congress 137. Following its consideration of the 1989 PPRC report, Congress placed additional restrictions on physicians who balance bill in the Omnibus Budget Reconciliation Act of 1989 (“OBRA ’89”). The most significant of these changes was the imposition of “limiting charges” on nonparticipating physicians. Under this sys-. tern, a cap of 125%, (or in some cases 140%) of the “recognized payment amount”3 for a particular service was imposed for 1991. The limiting charge was lowered to 120% for 1992, and 115% for 1993 and thereafter. § 1395w-4(g)(2).

State Legislation

The Medicare program “is funded entirely by the federal government,” and “[traditionally, states have played no role in setting Medicare rates and handling Medicare payments.” See Rebaldo v. Cuomo, 749 F.2d 133, 135 (2d Cir.1984), cert. denied, 472 U.S. 1008, 105 S.Ct. 2702, 86 L.Ed.2d 718 (1985). Nevertheless, two states, Massachusetts and Pennsylvania, led a movement to effectively prohibit balance billing. Mass.Gen.L. ch. 112 § 2 (1990); Pa.Stat.Ann. tit. 35, § 449.31 et seq. (Purdon Supp.1991).

The 1985 Massachusetts statute made the disavowal of balance billing a condition to the issuance or renewal of a license to practice medicine.

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