Opinion ID: 462745
Heading Depth: 2
Heading Rank: 1

Heading: Substantive Due Process Challenge to the Fee Freeze

Text: 13 Appellants' principal contention on appeal is that the fifteen-month freeze on the fees non-participating physicians may charge their Medicare patients deprives them of their property in violation of the Due Process Clause of the Fifth Amendment. 6 Appellants concede that Congress has the power to regulate medical services and charges, Appellants' Brief at 23-25, but nevertheless insist that in doing so, Congress must provide an administrative mechanism to ensure that all doctors are guaranteed a reasonable profit. Since Congress has not established such a regulatory board in this case, they argue that their substantive due process rights have been violated. We disagree. 14 The test for determining whether economic and social regulation meets substantive due process requirements is well established: [i]f the laws passed are seen to have a reasonable relation to a proper legislative purpose, and are neither arbitrary nor discriminatory, the requirements of due process are satisfied.... Nebbia v. New York, 291 U.S. 502, 537, 54 S.Ct. 505, 516, 78 L.Ed. 940 (1934); see also North Dakota State Board of Pharmacy v. Snyder's Drug Stores, Inc., 414 U.S. 156, 164-67, 94 S.Ct. 407, 412-14, 38 L.Ed.2d 379 (1973); In re Permian Basin Area Rate Cases, 390 U.S. 747, 769-70, 88 S.Ct. 1344, 1361-62, 20 L.Ed.2d 312 (1968). The Supreme Court has repeatedly emphasized that the judicial role in analyzing due process challenges to economic and social regulation is a limited one: 15 The Oklahoma law may exact a needless, wasteful requirement in many cases. But it is for the legislature, not the courts, to balance the advantages and disadvantages of the new requirement.... It is enough that there is an evil at hand for correction, and that it might be thought that the particular legislative measure was a rational way to correct it. 16 The day is gone when this court uses the Due Process Clause of the Fourteenth Amendment to strike down state laws, regulatory of business and industrial conditions, because they may be unwise, improvident, or out of harmony with a particular school of thought.... 17 Williamson v. Lee Optical of Oklahoma, Inc., 348 U.S. 483, 487-88, 75 S.Ct. 461, 464-65, 99 L.Ed. 563 (1955). See also Ferguson v. Skrupa, 372 U.S. 726, 729-32, 83 S.Ct. 1028, 1030-32, 10 L.Ed.2d 93 (1963); Day-Brite Lighting, Inc. v. Missouri, 342 U.S. 421, 423, 72 S.Ct. 405, 407, 96 L.Ed. 469 (1952); Nebbia, 291 U.S. at 537-38, 54 S.Ct. at 516. With these principles in mind, we began our analysis of the constitutionality of the temporary fee freeze. 18 By enacting Sec. 2306, Congress intended to accomplish two objectives. First, in order to curtail the increase in the federal deficit, Congress froze the customary and prevailing charges for physician's services during the fifteen-month period from July 1, 1984 to September 30, 1985. See, e.g., 130 Cong.Rec.S. 8373, 8375 (daily ed. June 27, 1984) (Sen. Dole) (Under Sec. 2306, $2.5 billion will be saved by freezing for fifteen months the customary and prevailing charge levels used to determine what medicare will pay for physicians' services.), reprinted in 1984 U.S.Code Cong. & Ad.News 2151, 2156 (hereafter Legislative History). In addition, Congress was concerned that non-participating physicians would make up any profits lost as the result of the freeze by raising their actual charges to Medicare enrollees. See, e.g., H.R.Conf.Rep. No. 861, 98th Cong., 2d Sess. 757, 1314 (1984) (hereafter H.R.Conf.Rep. No. 98-861), reprinted in Legislative History at 2002; 130 Cong.Rec.H. 7085, 7086 (daily ed. June 27, 1984) (Rep. Rostenkowski), reprinted in Legislative History at 2144. In order to prevent non-participating physicians from shifting the burden of the freeze to Medicare beneficiaries, Congress placed a ceiling on the amount non-participating physicians could charge their Medicare beneficiaries. 7 As Senator Dole, Chairman of the Senate Committee on Finance, explained: 19 [T]here has been a great deal of concern about how physicians can be prevented from shifting the burden of such a freeze to beneficiaries. Simply freezing what we pay for physician services provides little protection to program beneficiaries. If a physician does not elect to take assignment, beneficiaries can be held responsible for the full difference between what the program pays and what the physician charges. 20 [T]he conferees spent a great deal of time in discussions with the administration trying to address this concern. As a result, the conferees agreed to a [temporary fee freeze] provision which works in concert with organized medicine's voluntary freeze. 21 130 Cong.Rec. at S. 8375, reprinted in Legislative History at 2156. Accord H.R.Conf.Rep. No. 98-861 at 1314, reprinted in Legislative History at 2002; 130 Cong.Rec.H. 7085, 7086 (daily ed. June 27, 1984) (Rep. Rostenkowski), reprinted in Legislative History at 2144. 22 The legislative history reveals that the temporary fee freeze provision was carefully drawn in order to accomplish these two objectives--to reduce the federal deficit without placing the burden of such reduction solely on Medicare beneficiaries. The fee freeze is based on each physician's charges for similar services in the quarter immediately preceding the freeze (i.e., charges for the quarter beginning April 1, 1984). Thus, the fee ceiling is not arbitrary. 23 Congress also intended this freeze to work in concert with the efforts--which are to be commended--of the American Medical Association and many individual medical societies which have urged their members voluntarily to freeze their fees. 130 Cong.Rec.H. 7085, 7086 (daily ed. June 27, 1984) (Rep. Rostenkowski), reprinted in Legislative History at 2144; see also H.R.Conf.Rep. No. 98-861 at 1314 ([I]n light of the efforts of many medical societies that have urged their members to voluntarily freeze their fees ..., the Conferees believe that this provision will work in concert with those efforts .....), reprinted in Legislative History at 2002. 24 Significantly, the fee freeze is a temporary measure based upon what each physician actually charged Medicare beneficiaries during the April 1, 1984 quarter. 8 During the fifteen-month freeze, the Secretary of Health and Human Services is required to study the issue of medical services provided to Medicare enrollees and to make recommendations for the future in sufficient detail to serve as the basis for legislative action which Congress can take to assure that any burden of effectively constraining the growth of cost in the Medicare Part B program, which Congress intends to be borne by providers and physicians, is not transferred (in whole or in part) so as to become an additional burden on Part B beneficiaries in the form of increased out-of-pocket costs, reduced services, or reduced access to needed physician care. Deficit Reduction Act of 1984, Pub.L. No. 98-369, Sec. 2306(d), 98 Stat. 494, 1072. 25 Under these circumstances, we hold that Congress could reasonably determine that a temporary fee freeze, pending the preparation of a more comprehensive program, was necessary in order to prevent Medicare beneficiaries from bearing the burden of the reduction in Medicare expenditures. 26 In Minnesota Ass'n of Health Care Facilities, Inc. v. Minnesota Department of Public Welfare, 742 F.2d 442 (8th Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 1191, 84 L.Ed.2d 337 (1985), the Eighth Circuit upheld the constitutionality of a similar statute. In that case, Minnesota had enacted a statute limiting the rates which nursing homes participating in the Medicaid program may charge patients who do not receive Medicaid benefits. The Minnesota Association of Health Care Facilities contended that the regulation of the fees its members could receive from private sources violated the requirements of substantive due process. The Eighth Circuit, however, found that the Minnesota statute satisfied these requirements because [t]he Minnesota legislature could reasonably find that differences in rates for the same nursing home services, depending wholly upon whether or not a resident receives medical assistance, are inimical to the public welfare, and thus it could properly choose to regulate the rates that nursing homes participating in Medicaid charge the residents who do not receive medical assistance. Id. at 447. Similarly, Congress determined in the instant case that limiting the increase in Medicare payments without also limiting the total fees that may be charged to Medicare beneficiaries would be harmful to the public welfare because it would place the burden of cost reductions solely upon Medicare beneficiaries. 9 27 Appellants argue, however, that in order to regulate physicians' fees (i.e., to fix the fees), Congress must establish a regulatory mechanism to set standards in such a way that all physicians can make a reasonable profit. As stated above, the due process test is whether the law has a reasonable relation to a proper legislative purpose, and is neither arbitrary nor discriminatory. Under the particular facts and circumstances of this case, we conclude that the legislative purposes are legitimate--i.e., to control federal spending in order to alleviate deficit problems, and to promote the public welfare by precluding physicians from shifting the burden of the reductions onto Medicare beneficiaries--and we conclude that the means chosen by Congress are not unreasonable--i.e., the fees are fixed at what this physician himself charged in the recent past (the quarter immediately preceding the freeze period), and the freeze is temporary pending a study which can form the basis for more permanent legislation. Under these circumstances, we hold that due process does not require Congress to follow the ratemaking procedures suggested by appellants. We are not confronted with the issue of whether due process would require ratemaking or other such procedures in the case of permanent legislation, 10 and we express no opinion thereon. 11