Opinion ID: 154016
Heading Depth: 2
Heading Rank: 1

Heading: The Medicare Part B payment scheme

Text: Medicare, the federal medical insurance program for the aged and disabled, is composed of two parts--A and B. Part A provides hospital insurance benefits, and is funded from social security taxes. See 42 U.S.C. §§ 1395c-1395i-4. Part B, which is at issue in this case, is a voluntary program that provides Medicare beneficiaries with supplemental medical insurance benefits for physicians’ and other health care services. See id. at §§ 1395j-1395w-4. Funding for Part B is derived from monthly premiums paid by beneficiaries, as well as from federal government contributions. By statute, HHS is responsible for administering the program, and it contracts with private insurance carriers to perform certain administrative functions on behalf of the Secretary. See id. at § 1395u. These functions include evaluation and payment of Part B claims. See id. Prior to 1992, the payment amount for Part B claims was the lesser of (1) the physician’s actual charge; (2) the physician’s customary charge; or (3) the prevailing -2- charge in the locality for similar services. See 42 U.S.C. § 1395(a) (1988). Effective January 1, 1992, Congress revised the method for calculating the payment amount for Part B claims for physicians’ services to the lesser of (1) the physician’s actual charge; or (2) an amount determined pursuant to a fee schedule set by the Secretary. 42 U.S.C. § 1395w-4(a). Under the fee schedule, the payment amount is calculated by multiplying three factors: (1) the relative value for the service; (2) the conversion factor; and (3) the geographic adjustment factor. 42 U.S.C. § 1395w-4(b)(1). The three factors utilized in determining the payment amount are all established by the Secretary. Only the conversion factor is at issue in this case. In 1991, the Secretary was directed by Congress, in what is referred to by the parties as the budget neutrality provision, to set the initial value for the conversion factor in such a manner that, if [the new payment scheme] were to apply during 1991 using such conversion factor, [it] would result in the same aggregate amount of payments . . . for physicians’ services as the estimated aggregate amount of the payments . . . for such services in 1991. 42 U.S.C. § 1395w-4(d)(1)(B). Once established, the conversion factor must be annually updated. Not later than April 15 of each year . . . the Secretary [is required to] transmit to the Congress a report that includes a recommendation on the appropriate update . . . in the conversion factor . . . for all physicians’ services . . . in the following year. 42 U.S.C. § 1395w-4(d)(2)(A). In making the annual recommendation, the Secretary is required to consider, among other things, the percentage by which actual expenditures for all physicians’ services and for the services involved under [Part B] for the fiscal year ending in the year preceding the year in which such recommendation is made were greater or less than actual expenditures -3- for such services in the fiscal year ending in the second preceding year. 42 U.S.C. § 1395w-4(d)(2)(A)(ii). The Secretary is also required to include in the annual recommendation a statement of the percentage by which (I) the actual expenditures for physicians’ services under [Part B] (during the fiscal year ending in the preceding year . . .) . . . exceeded, or was less than (II) the expenditures projected for the fiscal year. 42 U.S.C. § 1395w-4(d)(2)(i). By May 15 of each year, the Physician Payment Review Commission (PPRC) is required to review the Secretary’s recommendation and submit to Congress its own report, including its recommendations respecting the update . . . in the conversion factor . . . for the following year. 42 U.S.C. § 1395w-4(d)(2)(F). Thereafter, [u]nless Congress otherwise provides, . . . the update for a year is equal to the Secretary’s estimate of the percentage increase in the appropriate update index . . . for the year. 42 U.S.C. § 1395w-4(d)(3)(A)(i). Once the annual update is established, the Secretary is required to have published in the Federal Register, during the last 15 days of October . . . , the conversion factor . . . which will apply to physicians’ services for the following year and the update . . . determined . . . for such year. 42 U.S.C. § 1395w-4(d)(1)(C)(ii). Prior to January 1 of each year, the Secretary is also required to send an updated fee schedule, including the conversion factor, to each physician providing Medicare Part B services (including both participating and non-participating physicians). 42 U.S.C. §§ 1395w-4(b)(1), 1394w- 4(h). The fee schedule is transmitted to physicians in conjunction with notices relating to the participating physician program under 42 U.S.C. § 1395u(h). See 42 U.S.C. § 1395w- 4(h). Accordingly, physicians have the right to review the fee schedule for a given year -4- and decide whether to be participating or non-participating physicians. B. Participating and non-participating physicians The following information is taken directly from the Sixth Circuit’s opinion in American Academy of Ophthalmology v. Sullivan, 998 F.2d 377 (6th Cir. 1993), and is applicable to the new Medicare Part B payment scheme at issue in this case: Physicians have two options for receiving payment for the services they provide to Medicare beneficiaries. A physician may accept the beneficiary’s assignment of Medicare benefits, in which case the physician agrees to accept the established Medicare fee schedule amount as full payment for all covered services provided to Medicare beneficiaries. Medicare, through the local carrier, directly pays the physician 80% of the fee schedule amount. The beneficiary is required to pay the remaining 20% (the coinsurance amount). Beneficiaries must also pay an annual deductible of $100. Alternatively, a physician may decline to accept assignment. In such cases, Medicare pays 80% of the fee schedule amount, and the beneficiary pays the coinsurance amount plus any difference between the physician's charge and the fee schedule amount. Physicians have two options when dealing with the Medicare program. A physician may become a participating physician, in which case the physician agrees to accept assignment of Medicare benefits for all Part B services that the physician provides. 42 U.S.C. § 1395u(h). Alternatively, a physician may decline to become a participating physician, in which case the physician may accept or decline the assignment of Medicare benefits on a case-by-case basis. Id. at 379.1 C. Preclusion of judicial review of conversion factor With the adoption of the new Part B payment scheme, Congress enacted a provision barring administrative and judicial review of the Secretary’s determinations in establishing the fee schedule. 42 U.S.C. § 1395w-4(i)(1). Specifically, this no review 1 The amended complaint in this case does not indicate whether plaintiff was a participating or non-participating physician for 1992. However, from the face of the complaint, it is apparent that plaintiff chose to treat Medicare Part B patients during 1992. -5- provision states: There shall be no administrative or judicial review under section 1395ff of this title or otherwise of-- (A) the determination of the adjusted historical payment basis . . . , (B) the determination of relative values and relative value units . . . , (C) the determination of conversion factors . . . , (D) the establishment of geographic adjustment factors . . . , and (E) the establishment of the system for the coding of physicians’ services. Id. (emphasis added). D. Plaintiff’s complaint Plaintiff filed this proposed class action pursuant to 28 U.S.C. § 1331 alleging the Secretary violated 42 U.S.C. § 1395w-4(d)(1)(B), the budget neutrality provision. Append. at 1-2. More specifically, plaintiff alleged that, [o]n information and belief, the budget neutrality provision has been violated by the defendants because the aggregate amount of payments for physicians’ services, by applying the 1992 conversion factor during 1991, would not have resulted in the same aggregate amount of payments as the estimated aggregate amount of payments for such services in 1991. Id. at 4. In his appellate brief, plaintiff expands upon these allegations and asserts that, in establishing the 1992 conversion factor, the Secretary erroneously concluded if the new payment system had been in effect during 1991, the volume of certain services would have varied from those actually rendered under the old payment system. Accordingly, plaintiff asserts, the Secretary erroneously and unnecessarily reduced the amount of the conversion factor for 1992, thereby reducing aggregate spending under the new payment system. Plaintiff further asserts that, when the new payment system was implemented in 1992, the volume offsets predicted by the Secretary did not occur, thereby demonstrating the 1992 conversion factor was erroneously calculated. Based upon these allegations, plaintiff -6- requests an order requiring defendant to comply with the budget neutrality provision, an order requiring defendant to pay all claims made by physicians in 1992 in the amounts required by the budget neutrality provision of Medicare Part B, such amounts to be paid into a common fund for disbursement to those physicians, and corresponding declaratory relief. Id. at 4-5. E. Proceedings in the district court Defendants responded to plaintiff’s complaint by filing a motion to dismiss for lack of subject matter jurisdiction. After allowing the parties to brief the matter, and after hearing oral argument, the district court granted defendants’ motion to dismiss.