The opinion of the court was delivered by: HARRIS
STANLEY S. HARRIS, UNITED STATES DISTRICT JUDGE
In December 1986, the American Society of Cataract and Refractive Surgery filed a complaint challenging the constitutionality of the Omnibus Budget Reconciliation Act of 1986, P.L. 99-509, which places limits on the amounts physicians may charge Medicare patients for the performance of cataract surgery. The complaint was amended in February to include several doctors and patients who claimed direct injury from the statute.
Defendants filed a motion for judgment on the pleadings and for dismissal. Upon consideration of defendants' motion, plaintiffs' opposition thereto, defendants' reply, and the entire record herein, defendants' motion is granted.
The Health Insurance for the Aged Act, 42 U.S.C. § 1395 et seq., commonly known as Medicare, consists of two parts: Part A covers services furnished by hospitals and other related providers; Part B provides supplemental medical insurance benefits, including physicians' services. 42 U.S.C. §§ 1395 et seq. The statutes in question in this suit involve only Part B.
Medicare allows individuals over 65 to pay monthly premiums into a trust fund which is supplemented by contributions from the federal government.
Beneficiaries then have two ways to pay for a physician's services rendered under Part B: (1) they can either pay the physician directly and then seek reimbursement from Medicare;
or (2) they can allow the physician to accept the beneficiary's right to reimbursement.
The amount of reimbursement is based on the "reasonable charge" for the service. The reasonable charge is determined by the lowest of three charges: (1) the physician's actual charge for the service; (2) the physician's customary charge for the service; or (3) the prevailing charge for the service according to a fee profile developed by the local Medicare insurance carrier. 42 U.S.C. § 1395u(b)(3).
Because the Medicare beneficiary may either assign his claim or pay the physician directly, Medicare provides physicians with two options. They may become a "participating physician," or they may remain a "non-participating physician." Participating physicians agree to accept assignment from the Medicare beneficiary and to limit their fees to the established Medicare reasonable charge. Non-participating physicians originally remained free to chose to accept assignment on a case-by-case basis, and also to charge an amount greater than the Medicare reasonable charge.
However, in 1984, Congress passed the Deficit Reduction Act, P.L. 98-369 (DEFRA) which included a cost-control statute which required physicians to decide each year whether they would be Medicare "participating" or "non-participating" physicians. DEFRA (P.L. No. 98-369; 98 Stat. 1071, § 2306(c) (1984).) DEFRA froze the fees that non-participating physicians could charge Medicare beneficiaries and provided for sanctions against any physician who "knowingly and willfully" billed an amount in excess of that level. 42 U.S.C. § 1395u(j)(1)(A) (Supp. 1989). The Omnibus Budget Reconciliation Act of 1986, P.L. 99-509 (OBRA-86), lifted the DEFRA fee freeze, but replaced it with other limitations on what physicians may charge Medicare beneficiaries.
See OBRA-86 § 9331, codified at 42 U.S.C. § 1395u(b)(4)(A) (hereinafter § 9331). Generally, it imposed limits in the form of a maximum allowable charge (MAAC) on what physicians may charge their Medicare patients. § 9331(b).
Because of a specific concern over the cost of cataract surgery, Congress enacted § 9334 which addresses payment for cataract surgical procedures. OBRA-86, § 9334, codified at 42 U.S.C. § 1395u(b)(11), (hereinafter § 9334). Section 9334 (a)(3) limits the amount both participating and non-participating physicians may charge Medicare patients for cataract surgical procedures.
Plaintiffs allege that this statute and HHS's interpretation of the interaction between § 9334 and § 9331 are unconstitutional.
In challenging the reductions, plaintiffs make several allegations. First, plaintiffs state that Congress lacks the authority to regulate private financial arrangements between a physician and a patient. Second, plaintiffs contend that the fee restriction are arbitrary and irrational and thus are in violation of their due process rights. Third, plaintiffs claim that the restrictions violate the equal protection clauses of both the 5th and 14th Amendments by irrationally singling out physicians who perform cataract surgery and significantly impairing patients' freedom to choose and pay for quality medical care. Fourth, plaintiffs dispute the HHS's interpretation to two provisions of OBRA-86, sections 9334 and 9331, claiming that HHS's interpretation results in two separate and inconsistent fee limitations and violates the mandatory notice and comment requirements of the Administrative Procedure Act (APA). The Court will address the constitutional claims first, and then the claims based on the APA.
Before reaching the merits of the case, the issue of standing must be addressed. The defendants claim that the patient plaintiffs do not satisfy the "irreducible minimum" requirement set forth in Valley Forge Christian College v. Americans United for Separation of Church and State, 454 U.S. 464, 102 S. Ct. 752, 758, 70 L. Ed. 2d 700 (1982). Defendants claim that the patient plaintiffs have not alleged any actual or threatened injury which can be fairly traced to the actions of defendants. Defendants further claim the patient plaintiffs' only damage is being prevented from paying higher costs for the same medical care. (Defendants' Motion at 13). Defendants, however, are missing the more crucial injury that patient plaintiffs suffer -- foregoing all Medicare benefits in exchange for care from a physician of their choice. In essence, the patient is denied access to a physician of his or her choice if that doctor refuses to treat Medicare patients because of the fee limitations. As the Court of Appeals for this Circuit pointed out in New York State Ophthalmological Society v. Bowen, 272 U.S. App. D.C. 170, 854 F.2d 1379, 1385 (D.C.Cir.), reh'g denied en banc, 274 U.S. App. D.C. 88, 861 F.2d 1283 (D.C.Cir. 1988), cert. denied, 490 U.S. 1098, 109 S. Ct. 2448, 104 L. Ed. 2d 1003 (1989), "a provision that, as a practical matter, conditions access to a desired service or exemption from an approval requirement on a patient's 'voluntary' decision to give up a valuable benefit is tantamount to a direct penalty imposed on the patient who chooses the service."
Defendants also claim the physician plaintiffs do not have standing. Defendants contend that if physicians choose to forego expensive state of the art equipment then that decision is discretionary and too attenuated to establish standing. However, defendants go on to cite legislative history which shows that part of the purpose of the OBRA-86 restrictions is to single out "exactly these sorts of purchases as examples of the wasteful purposes to which funds were being put . . . ." Defendants' Motion at 15. Thus, while defendants call the injuries speculative and attenuated, it appears that Congress intended just such injuries and reactions among cataract physicians. Given such a direct relationship and the actual injury alleged in the amended complaint, the Court declines to accept the defendants' argument that plaintiffs do not have standing to challenge the statutory provisions.
Essentially, plaintiffs' first three claims focus on the constitutionality of Congress's actions. They claim Congress does not have the authority to regulate private financial arraignments between doctors and patients, and that even if Congress did, Congress's limitations on what non-participating physicians may charge Medicare patients is irrational and violates both the physicians' and patients' equal protection rights.
A. Congressional Authority
Plaintiffs first allege that Congress lacks the authority to regulate the fees that non-participating physicians may charge because the fee limitations are not valid exercises of Congress's authority to spend money in aid of the general welfare. Plaintiffs contend that the fee limitations do not implicate any expenditure of funds by the federal government. Lacking such expenditure of federal funds, plaintiffs allege that the General Welfare Clause, Art. I, § 8, cl. 1, does not give Congress authority to regulate the non-participating physicians' fees. (Plaintiffs' Opposition at 13.) Plaintiffs take the position that since the "charges of nonparticipating physicians, and the entitlement of those physicians to payment from their patients, are independent from the operation of the Medicare program," then the amount that non-participating physicians charge Medicare beneficiaries is also independent of Congress's funding of Medicare, and thus outside of the scope of the General Welfare Clause. (Plaintiffs' Opposition at 11.) The Court disagrees with this rationale. As defendants point out in their Reply Brief in Support of Motion for Judgment on the Pleadings and To Dismiss (Defendants' Reply), the actions of non-participating physicians are not truly independent of the Medicare program since by treating Medicare patients, non-participating physicians are an integral part of the workings and functioning of the Medicare system. (Defendants' Reply at 5.) Although Medicare patients of non-participating physicians directly receive the funding from the government for their eye care, the non-participating physicians are ultimately the recipients of that federal funding. In addition, not only is cataract surgery the most common and most rapidly growing surgical procedure covered by Medicare, it is also a procedure that is performed predominantly on Medicare beneficiaries.
Legislative History P.L. 99-509, at 88, reprinted in 1986 U.S.Code Cong. & Admin.News 3607, 3678. Studies have shown that over 80 percent of all cataract surgeries are performed on Medicare ...