Court Opinion

ID: 3028012
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:39:34.107789+00
Date Added: 2024-06-11T11:47:58.184944
License: Public Domain

United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                  ___________

                                  No. 00-3139
                                  ___________

Minnesota Senior Federation,          *
Metropolitan Region; Mary Sarno,      *
                                      *
      Plaintiffs - Appellants,        *
                                      * Appeal from the United States
      v.                              * District Court for the
                                      * District of Minnesota.
United States of America; Tommy G. *
Thompson,* Secretary of Health and    *
Human Services,                       *
                                      *
      Defendants - Appellees.         *
                                 ___________

                            Submitted: May 17, 2001

                                 Filed: December 13, 2001
                                  ___________

Before LOKEN, ROSS, and FAGG, Circuit Judges.
                           ___________

LOKEN, Circuit Judge.

      The “Medicare+Choice” program was enacted as part of the Balanced Budget
Act of 1997 and is now codified at 42 U.S.C. §§ 1395w-21 to w-28. The program
includes reimbursement provisions that encourage managed health care organizations

      *
      Tommy G. Thompson has been appointed to serve as Secretary of Health and
Human Services, and is substituted as appellee under Federal Rule of Appellate
Procedure 43(c)(2).
to be cost-effective and to pass cost savings on to their members in the form of
additional benefits or reduced charges. As under prior law, cost effectiveness is
measured by a formula based primarily on “fee-for-service” health care costs in each
local community, an approach that results in substantial geographic variations.
Though Congress intended to reduce these disparities, the Medicare+Choice formula
still produces wide variations in the payments Medicare provides to managed health
care providers. Because “excess” payments may be passed on to Medicare
beneficiaries, the end result is that Medicare benefits are more generous in some
communities than in others.

       In this case, the Minnesota Senior Federation and Mary Sarno, a Florida
resident who would like to live with her daughter in Minnesota, seek a declaratory
judgment that the Medicare+Choice formula violates their constitutional rights to
travel and to equal protection of the law. The district court1 granted defendants’
motion to dismiss for failure to state a claim upon which relief may be granted.
Minnesota v. United States, 102 F. Supp. 2d 1115 (D. Minn. 2000).2 The Federation
and Sarno appeal. Reviewing the dismissal de novo, and taking all facts alleged in
the complaint as true, see Knapp v. Hanson, 183 F.3d 786, 788 (8th Cir. 1999)
(standard of review), we affirm.

                                  I. Background

       Medicare was established in 1965 and presently serves some thirty-nine million
elderly and disabled Americans. Uniform benefits were initially provided under

      1
       The HONORABLE DONALD D. ALSOP, United States District Judge for the
District of Minnesota.
      2
      The district court also dismissed the State of Minnesota’s claim that the
Medicare+Choice formula violates its rights under the Tenth Amendment. See 102
F. Supp. 2d at 1119-23. The State did not appeal that ruling.

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Medicare Part A and Medicare Part B, and these programs continue today. See 42
U.S.C. §§ 1395c–1395i-5; 1395j–1395w-4. For beneficiaries who enroll in Parts A
and B and elect to obtain benefits on a “fee-for-service” basis, Medicare payments are
made for each service rendered. Amounts Medicare pays to providers vary in part
because of geographic differences in the fees charged for providing those services.

       In 1972, Congress enacted Medicare Part C, a program that permits managed
health care organizations to enter into “risk contracts” under which the organization
provides a full range of Medicare services and receives a single monthly capitation
payment for each enrollee. See 42 U.S.C. § 1395mm; 42 C.F.R. § 417.594.
Capitation payments are determined by a formula that is based upon the projected
cost of treating beneficiaries under the traditional fee-for-service system. Thus, the
formula incorporates wide geographic variations in health care costs. But under
Medicare Part C, the variations can result in different benefits to Medicare
beneficiaries because, when a managed care organization receives more in capitation
payments from Medicare than it costs to provide Medicare services to its enrollees
(an “excess” that is determined by a complex formula), it may pass this cost saving
on to enrollees in the form of reduced premiums, reduced co-payments, or additional
health care benefits. See 42 U.S.C. § 1395mm(g)(2); 42 C.F.R. § 417.592.

       Medicare+Choice, which is the new Medicare Part C, was enacted in 1997 to
“allow beneficiaries to have access to a wide array of private health plan choices in
addition to traditional fee-for-service Medicare. . . . [and] enable the Medicare
program to utilize innovations that have helped the private market contain costs and
expand heath care delivery options.” H.R. Conf. Rep. No. 105-217, at 585 (1997),
reprinted in 1997 U.S.C.C.A.N. 176, 205-06. Medicare+Choice includes a modified
capitation payment formula intended to reduce the prior geographic payment
variations. But the government concedes that substantial discrepancies remain. For
example, Mary Sarno is a Medicare Part C enrollee who lives in Broward County,
Florida. In 1999, the managed care reimbursement rate for Broward County, Florida,

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was $676.64. Sarno’s daughter lives in Minnesota. In 1999, the managed care
reimbursement rate for Dakota County, Minnesota, was $394.92. The generous
reimbursement rate in Broward County enabled Sarno’s plan to offer unlimited
prescription drugs, no co-payments for physician visits and various services, and no
annual premium. By contrast, Medicare Part C enrollees in Dakota County paid an
annual premium of $1,137, were charged higher co-payments, and received virtually
no prescription drug coverage. Such disparities are the basis for appellants’ claims
that the Medicare+Choice formula violates their travel and equal protection rights.

                                    II. Discussion

       The Federation and Sarno attack the discriminatory impact of the
Medicare+Choice formula because it results, for example, in Medicare beneficiaries
in southern Florida receiving more benefits at less cost than their similarly situated
counterparts in Minnesota. Appellants mount two constitutional challenges to this
federal statutory regime. First, they argue that because the formula implicates the
constitutional right to travel, it is subject to strict scrutiny and fails that standard of
review because it is not narrowly tailored to meet a compelling government interest.
Second, they argue in the alternative that the formula does not withstand even
deferential rational basis review and therefore violates their right to equal protection
guaranteed by the Due Process Clause of the Fifth Amendment.

       A. Equal Protection. We agree with the district court that appellants’
alternative equal protection argument is without merit. When a federal economic or
social welfare program is challenged on equal protection grounds, and no suspect
class or fundamental constitutional right is implicated, the proper standard of judicial
review is rational basis, the “paradigm of judicial restraint.” FCC v. Beach
Communications, Inc., 508 U.S. 307, 314 (1993). Congress does not violate the right
to equal protection “merely because the classifications made by its laws are
imperfect,” Dandridge v. Williams, 397 U.S. 471, 485 (1970), “or because in practice

                                           -4-
[a classification] results in some inequality,” Lindsley v. Natural Carbonic Gas Co.,
220 U.S. 61, 78 (1911). “In areas of social and economic policy, a statutory
classification . . . must be upheld against equal protection challenge if there is any
reasonably conceivable state of facts that could provide a rational basis for the
classification.” Beach Communications, 508 U.S. at 313.

      Distributing Social Security and Medicare benefits is a massive undertaking
which “requires Congress to make many distinctions among classes of beneficiaries
while making allocations from a finite fund.” Bowen v. Owens, 476 U.S. 340, 345
(1986). Accordingly, the Supreme Court has rejected numerous equal protection
challenges to the ways in which these benefits are distributed. Congress adopted the
Medicare+Choice program as a means of containing costs and expanding health care
delivery options. These are legitimate objectives. Appellants argue that the
Medicare+Choice formula is irrational because it discriminates against Medicare
beneficiaries enrolled with efficient providers, like those in Minnesota. We reject this
argument for the reasons stated by the district court:

      [T]his decision -- to allow managed care organizations to share
      “savings” with Medicare beneficiaries instead of requiring them to
      return the difference to the Medicare program itself -- hardly renders the
      Medicare+Choice program unconstitutional on equal protection
      grounds. . . . The Medicare+Choice program increases the health care
      options of a number of elderly Americans while reducing the strain on
      the public fisc. The fact that not all elderly Americans . . . enjoy the
      same windfall as others is unfortunate, but not unconstitutional. Perhaps
      there are better solutions or solutions that are more fair, but the
      Medicare+Choice payment method is certainly “rational” in a
      constitutional sense.

102 F. Supp. 2d at 1125. It was not irrational or arbitrary for Congress to devise a
payment formula based on local health care costs and then to encourage cost-efficient
managed care providers to increase benefits for their Medicare enrollees. Though the

                                          -5-
resulting geographic benefit discrepancies may seem unfair, “equal protection is not
a license for courts to judge the wisdom, fairness, or logic of legislative choices.”
Beach Communications, 508 U.S. at 313.

       B. The Right to Travel. No doubt fearing that the Medicare+Choice formula
would survive rational basis review, appellants primarily contend that it must be
subjected to, and cannot survive, strict scrutiny because it impinges upon the
constitutional right to travel. The district court concluded that the formula does not
implicate the constitutional right to travel. 102 F. Supp. 2d at 1126-28. We agree.

       Although the word travel is not found in the Constitution, the Supreme Court
has frequently recognized “the constitutional right to travel from one State to
another.” Saenz v. Roe, 526 U.S. 489, 498 (1999) (quotation omitted). Because
travel is a fundamental right, “any classification which serves to penalize the exercise
of that right, unless shown to be necessary to promote a compelling governmental
interest, is unconstitutional.” Shapiro v. Thompson, 394 U.S. 618, 634 (1969). In
Saenz, 526 U.S. at 500, the Court recently reviewed its many right-to-travel cases and
concluded that this right -

      embraces at least three different components. It protects the right of a
      citizen of one State to enter and to leave another State, the right to be
      treated as a welcome visitor rather than an unfriendly alien when
      temporarily present in the second State, and, for those travelers who
      elect to become permanent residents, the right to be treated like other
      citizens of that State.

       Appellants’ right-to-travel claims do not fall within the three components
identified in Saenz. Rather, in arguing that the Medicare+Choice formula must be
subjected to the strict scrutiny applied in right-to-travel cases, appellants rely
primarily on dicta from the plurality opinion in an earlier case stating that “[a] state
law implicates the right to travel when it actually deters such travel . . . .” Attorney

                                          -6-
General of New York v. Soto-Lopez, 476 U.S. 898, 903 (1986) (plurality opinion).
The constitutional right to travel is implicated in this case, appellants argue, because
Mary Sarno and others are deterred from moving to a community they would prefer
by the reduced Medicare benefits they would receive from a managed care provider
in that other community. We reject this right-to-travel theory for several reasons.

       First, and most importantly, Soto-Lopez -- and the Court’s other modern cases
-- have applied the federal constitutional right to travel to state legislation that had
a negative impact on travel between the various States.3 Here, on the other hand,
appellants attack a federal statutory regime because it allegedly deters interstate
travel. In effect, appellants argue that a federal program that fails to achieve
nationwide uniformity in the distribution of government benefits is subject to strict
scrutiny because it will deter travel to unfavored locales. Such a contention is clearly
too broad.4 Not surprisingly, it finds no support in the Supreme Court’s right-to-
travel cases. Instead, the Court has emphasized time and again that rational basis
review is appropriate in considering the constitutionality of federal social welfare
programs such as Medicare. See Bowen v. Gilliard, 483 U.S. 587, 601-03 (1987)
(rejecting the argument that an AFDC amendment should be subjected to “heightened
scrutiny” because it “interferes with a family’s fundamental right to live in the type
of family unit it chooses”).

      3
        Except for cases dealing with federal restrictions on international travel, such
as Aptheker v. Secretary of State, 378 U.S. 500, 503-04 (1964), the Court’s right-to-
travel jurisprudence has focused on a fundamental issue of federalism, the extent to
which States may restrict American citizens’ right to travel within their nation. See,
e.g., the concurring opinions of Justice Brennan and Justice O’Connor in Zobel v.
Williams, 457 U.S. 55, 65, 71 (1982).
      4
       Appellants’ theory would seemingly call into question an entire host of federal
programs, including Medicaid, Temporary Assistance to Needy Families, and
numerous agricultural subsidies, all of which provide different benefit levels based
on regional price conditions.

                                          -7-
       Second, appellants cite no later case applying the “deterrent” dicta of Soto-
Lopez. Earlier cases such as Shapiro and Memorial Hospital v. Maricopa County,
415 U.S. 250, 257 (1974), spoke of state restrictions that “served to penalize the
exercise of the right to travel.” In Saenz, the Court summarized its right-to-travel
jurisprudence without citing Soto-Lopez, and it rejected an “actual deterrence”
analysis, focusing instead on “the citizen’s right to be treated equally in her new State
of residence.” 526 U.S. at 504-05. Here, Sarno would be treated equally with other
Minnesotans if she moved there; she is deterred from moving because she would be
voluntarily giving up more generous benefits available in Florida. In these
circumstances, the Medicare+Choice formula is not affirmatively penalizing her right
to travel. We conclude the Supreme Court would not extend the constitutional right
to travel to governmental disincentives of this type, provided of course that they
withstand rational basis review.

       For these reasons, and those lucidly stated by the district court, see 102 F.
Supp. 2d at 1126-28, we conclude that the right to travel is not implicated by the
Medicare+Choice formula and therefore is subject only to rational basis review. As
the current formula satisfies this deferential standard, the judgment of the district
court must be affirmed. However unfairly the current Medicare Part C funding
mechanism may seem to impact some classes of Medicare beneficiaries, “the fact the
line might have been drawn differently at some points is a matter for legislative,
rather than judicial, consideration.” United States R.R. Ret. Bd. v. Fritz, 449 U.S.
166, 179 (1980).

      A true copy.

             Attest:

                 CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.

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