The opinion of the court was delivered by: ROYCE C. LAMBERTH
This matter comes before the court upon the parties' cross-motions for summary judgment. Plaintiff in Civil Action No. 90-1528, Blue Cross and Blue Shield Association ("BCBS"), a not-for-profit organization, is the owner and licensor of Blue Cross and Blue Shield service marks. Among other things, BCBS provides support services seventy-four autonomous not-for-profit health insurance companies or member plans which are located throughout the United States.
Member plans issue health insurance policies to individuals as well as groups. BCBS asserts that various regulations that were promulgated under the Medicare statute are arbitrary and capricious, an abuse of discretion or are otherwise not in accordance with law in violation of the Administrative Procedure Act, 5 U.S.C. § 706(2) (1988) ("APA").
Plaintiff in Civil Action No. 90-1356, Health Insurance Association of America, Inc. ("HIAA"), represents approximately three-hundred and twenty commercial health insurance companies that enter into various types of contractual agreements with employers and other entities which sponsor employer group health plans ("EGHP's"). HIAA challenges many of the same regulations as BCBS. Accordingly, on September 21, 1990, the court granted defendants' oral motion to consolidate HIAA's case with Civil Action No. 90-1528. Defendants in these cases are Dr. Louis Sullivan, the Secretary of the United States Department of Health and Human Services ("HHS"), and Gail R. Wilensky, the Administrator of the Health Care Financing Administration ("HFCA").
Also involved in these cases are amici Casmira Gayton, Jeanette and Clarence Howlett, who support plaintiffs' motions for summary judgment on the ground that 42 C.F.R. § 411.24(i) is arbitrary and capricious.
Medicare, which is authorized by Title VIII of the Social Security Act, is an extensive federally funded program that provides health insurance for the aged and the disabled. 42 U.S.C. §§ 1395 et seq. (1988). Medicare is divided into two parts: Part A, which provides insurance for inpatient institutional services, home-health services and other post-hospital services, id. at §§ 1395c through 1395i-3, and Part B, which covers physician, outpatient hospital and various other health services. Id. at §§ 1395j through 1395w-3. Both Part A and Part B contain deductible and coinsurance provisions. See id. at §§ 1395e and 1395b-1. As a result, Medicare does not pay the entire cost of health care that is provided to beneficiaries.
The Medicare program is administered by HCFA. HCFA is responsible for developing policies and regulations to ensure compliance with the Medicare statute. HCFA does not, however, process and pay Medicare claims, but rather contracts with private insurance companies to do so. See id. at §§ 1395h, 1395u.
From its inception until 1980, Medicare was the primary source of payment for the medical expenses for nearly all of its beneficiaries.
Accordingly, under most circumstances Medicare was the "primary" payer of health care benefits and EGHP's
were "secondary" payers, liable only for the costs that remained after Medicare made its payments. Accordingly, most insurance companies' contracts with employers and EGHP's only covered "secondary" costs.
Three provisions of the MSP statute are relevant to this case. The first expressly mandates that Medicare pay secondary to alternate sources. It states that a Medicare payment "may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that -- (1) payment has been made, or can reasonably be expected to be made, with respect to the item or service" that is provided by an EGHP to cover one or more of the three categories of MSP beneficiaries.
42 U.S.C. § 1395y(b)(2)(A)(i) (Supp. 1990) (emphasis added).
The second relevant provision applies when Medicare mistakenly makes the primary payment. This provision allows the government to recover any payments that should have been made by the alternate source. This section, entitled "Conditional Payment," states that:
any payment under this subchapter with respect to any item or service to which subparagraph (A) applies shall be conditioned on reimbursement to the appropriate Trust Fund Established by this subchapter when notice or other information is received that payment for such item has been or could be made under such subparagraph.
The third salient provision provides the mechanism by which the government can recover conditional Medicare payments. This section provides that:
in order to recover payment under this subchapter for such an item or service, the United States may bring an action against any entity which is required or responsible under this subsection to pay with respect to such item or service (or any portion thereof) under a primary plan . . . or against any entity (including any physician or provider) that has received payment from that entity with respect to the item or service, and may join or intervene in any action related to the events that gave rise to the need for the item or service.
Id. at § 1395y(b)(2)(B)(ii). Thus, upon making a conditional payment, the government may "bring an action against any entity which is required or responsible to pay" to recover its expenditure. Id.
From 1983 until 1989, the regulations that were promulgated by HCFA to enforce the MSP statute were rather consistent in their scope and effect. These rules and regulation stated that upon making a conditional payment the government may bring an action against the employer or EGHP.
These rules and regulations also required the beneficiary to cooperate in any action brought by HCFA against the employer or the plan.
In 1989, HCFA promulgated new regulations to implement the MSP statute, five of which are at issue in these cases. See 54 FR 41,716-41, 747 (Oct. 11, 1989) (later codified at 42 C.F.R. §§ 405, 411, 412 and 489). The 1989 regulations reflected the government's concern that the MSP statute had fallen far short of the government's expectations in terms of reducing the cost of the Medicare program. See GAO Report of November 29, 1988, tab 3 to defendants' motion for summary judgment. Government studies estimated that the federal government suffered losses between $ 400 million and $ 1 billion per year prior to 1989 due to the Medicare program. See Investigation by the Office of the Inspector General ("OIG"), tab 1 to defendants' motion for summary judgment.
The OIG's study attributed this massive financial loss to a variety of factors, including the fact that "Medicare contractors do not aggressively pursue MSP claims and there are few incentives for Medicare contractors to pay claims," as well as the fact that "some insurance companies have avoided compliance with MSP requirements and continued their previous practice of paying benefits secondary to Medicare, long after the effective date of the MSP statutes." Id. at 2. The report concluded that "the most direct solution may be to require either insurance companies or employers, depending on which maintains the beneficiary files, to report to the government those employees who have health coverage who fall into MSP categories." Id. at 3. Consequently, the 1989 regulations at issue here expanded HCFA's ability to recover conditional payments by permitting HCFA to bring direct actions against third party payers, i.e. insurance companies, as well as employers and EGHP's.
The language of Rule 56(c) of the Federal Rules of Civil Procedure indicates that summary judgment is appropriate when examination of the record as a whole reveals "no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." In examining the record, the court must view all inferences in the light most favorable to the nonmoving party. Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986).
The scope of a court's review of an agency's exercise of its rulemaking authority is limited. United Mineworkers of America, International Union v. Dole, 870 F.2d 662, 666 (D.C. Cir. 1989). Pursuant to Chevron, the court must first consider whether Congress manifested an "unambiguously expressed intent" that resolves the dispute of the statute's meaning. Abbott Laboratories v. Young, 920 F.2d 984, 987, 17 U.S.P.Q.2D (BNA) 1027 (D.C. Cir. 1990), cert. denied sub nom. Abbott Laboratories v. Kessler, 116 L. Ed. 2d 49,. . . U.S. . . ., 112 S. Ct. 76 (1991) ("Abbott Labs") (quoting Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984)). The language of the statute in question is the best indication of congressional intent. Abbott Labs, 920 F.2d at 987. If the statute clearly speaks to the issue, then the reviewing court need not defer to the agency's interpretation because the court is in as good a position as the agency to interpret and apply the statute. The court may also look to the statute's legislative history to determine whether Congress clearly addressed the issue. See id. at 988.
On the other hand, if the language of the statute does not clearly address the issue at hand, the court must then proceed to the second step of Chevron and ask whether the agency's construction "falls within the bounds of reasonableness." Id. The court in Abbott Labs stated that "the 'reasonableness' of an agency's construction depends on the construction's 'fit' with the statutory language as well as its conformity to statutory purposes." Id. It is in this context that agencies are to use their discretion when interpreting the statute and that the reviewing court is to defer to their expertise and judgment.
When reviewing an agency's action under the second step of Chevron, the APA applies. Pursuant to the APA, a court reviewing agency action will hold unlawful and set aside agency action, findings and conclusions that are found to be arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law. See 5 U.S.C. § 706(2)(A) (1982). In general, this standard of review is highly deferential and presumes agency action to be valid. See Environmental Defense Fund, Inc. v. Costle, 657 F.2d 275, 283 (D.C. Cir. 1981) (citing Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 28 L. Ed. 2d 136, 91 S. Ct. 814 (1971)). The court must affirm the agency's decision if a rational basis for that decision exists, even if the court disagrees. Costle, 657 F.2d at 283. While deferential to agency action, the court's review of the facts must be searching and careful; the agency's action must be based on a consideration of relevant factors. Id. The scope of the court's review of agency action is usually confined to the full administrative record before the agency at the time the agency action was taken. Volpe, 401 U.S. at 825.
Plaintiffs assert that five of the 1989 regulations are arbitrary and capricious in violation of the APA. Due to the number of regulations at issue in these cases, the court shall address each regulation individually.
Both plaintiffs challenge 42 C.F.R. § 411.24(e) which states:
Recovery from third parties. HCFA has a direct right of action to recover from any entity responsible for making primary payment. This includes an employer, an insurance carrier, plan, or program, and a third party administrator.
A third party administrator ("TPA") agreement, also known as an administrative services only agreement, is an arrangement by which the insurance company assumes no risk to provide coverage or pay for health care benefits, but rather agrees only to administer the payment of health care benefits that are self-funded by the employer. TPA's may be the parties which physically make the payments for health care benefits, but they do so using the employer's money.
Plaintiffs assert that this section violates the APA because it exceeds HCFA's statutory authority. Plaintiffs do not dispute the fact that when they agree to insure payments provided for by employers or EGHP's they become entities "responsible to pay" under the MSP statute and as such HCFA may bring a direct action against them for the benefits. Plaintiffs assert, however, that the MSP statute clearly does not permit HCFA to bring a direct action against insurance companies when they are acting as TPA's. Plaintiffs claim that this regulation improperly changes the wording of the statute by adding the word "making" to the "party responsible to pay" language. Plaintiffs allege that when the statute ...