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July 5, 1994

ERIC MENDEZ, JR., et al., Defendants.

The opinion of the court was delivered by: STANLEY S. HARRIS

 Before the Court are defendants' motion to dismiss, plaintiff's opposition, and defendants' reply. Also before the Court are plaintiff's and defendants' cross-motions for summary judgment and the oppositions and replies thereto. Summary judgment may be granted only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In considering a summary judgment motion, all evidence and the inferences to be drawn from it must be considered in a light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). Although "findings of fact and conclusions of law are unnecessary on decisions of motions under Rule 12 or 56," the Court nonetheless sets forth its analysis for the benefit of the parties. Fed. R. Civ. P. 52(a).


 Plaintiff, a nonprofit trade association of residential treatment centers ("RTCs") providing care and treatment to emotionally ill youths, challenges several aspects of defendants' management of the Civilian Health and Military Program of the Uniformed Services program ("CHAMPUS"). *fn1" CHAMPUS is a health care benefit program for retired members and dependents of active and retired members of the uniformed services. 32 C.F.R. § 199.3. CHAMPUS supplements the direct medical care system provided by the uniformed services, and is designed to provide financial assistance on a cost-sharing basis to CHAMPUS beneficiaries for certain medical care obtained from civilian sources. Id. § 199.4(a). Among the benefits offered by CHAMPUS is psychiatric care in RTCs:

Residential treatment is a specific level of care to be differentiated from acute, intermediate and long term hospital care, where the least restrictive environment is maintained to allow for normalization of the patient's surroundings.

 Id. § 199.6(b)(4)(vii). An RTC provides children and adolescents under the age of 21 "a total 24-hour therapeutically planned group living and learning situation where psychotherapeutic interventions can take place." Id.

 Health Management Services International ("HMS"), an independent contractor, assists in the certification and coverage determinations. Specifically, OCHAMPUS contracted for HMS to: (1) review new RTC applications and conduct on-site surveys of both newly applying and previously authorized RTCs; (2) draft revised CHAMPUS RTC Standards for consideration by the Department of Defense; and (3) review the medical necessity and appropriateness of mental health care provided in individual cases. *fn2" Thus, HMS assists in both the certification and coverage processes.

 HMS is required to apply the JCAHO CSM standards, the CHAMPUS RTC Standards, and state licensing requirements in its surveys. Based on the surveys, HMS submits its findings and recommendation regarding certification to the Mental Health Program Branch of OCHAMPUS, which evaluates the findings and recommendation to ensure they conform to regulatory requirements. OCHAMPUS retains all final decisionmaking authority, and determines what action should be taken. Before terminating a previously authorized RTC's certification, OCHAMPUS sends out a notice of proposed termination. The RTC may meet with OCHAMPUS officials and submit a plan of corrective action, after which the facility is resurveyed. A denial of certification or termination of certification is appealable under the administrative appeal process set forth in 32 C.F.R. § 199.10.

 Certified RTCs may receive reimbursement for the cost-shared amount of covered benefits. The care must be medically or psychologically necessary. Id. § 199.4(b)(4)(vii). The RTC must obtain preadmission authorization and continuing periodic approval ("concurrent review") of the medical or psychological necessity of the care at least every 30 days. Preadmission authorization and concurrent review are performed by HMS, another CHAMPUS mental health contractor, or a fixed price contractor. Under the current administrative appeal procedures, an RTC or beneficiary may request reconsideration of the initial coverage determination within 90 days' notice thereof. Id. § 199.10(b)(1). The reconsideration is performed by the same contractor who made the initial determination, but by a member who was not involved in making the initial determination in order to ensure an independent review of the case. *fn3" Id. § 199.10(b)(2). If a beneficiary is dissatisfied with the reconsideration, a hearing may be requested. Id. § 199.15(i)(1). An RTC, however, may request a hearing only if the issue involves a "waiver of liability," that is, whether the RTC reasonably could have been expected to know that the services would not be covered. Id. § 199.15(i)(1), (2). In most cases, however, the reconsideration determination is the final step in the administrative appeal process for RTCs.

 At any level of appeal, the reviewer may address any issues presented by the record and is not limited to addressing the specific issues raised by the appealing party. Id. § 199.10(a)(9). This may result in the denial of coverage for previously authorized care. Additionally, the burden of proof is on the appealing party to establish affirmatively by substantial evidence the appealing party's entitlement to coverage. Id. § 199.10(a)(3).

 Plaintiff challenges several aspects of the certification and coverage processes. With respect to the certification process, plaintiff contends that OCHAMPUS improperly has delegated standard-setting authority to HMS, or in the alternative, that HMS nonetheless has created and applied new standards, in violation of the Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. ("APA"), and the Due Process Clause of the Fifth Amendment. With respect to the coverage process, plaintiff contends that the regulation permits the retroactive denial of coverage in violation of due process. Plaintiff also challenges the limitations on the ability of RTCs to cross-examine peer reviewers, the allocation of the burden of proof, and the curtailment of the appeal procedure. Finally, plaintiff seeks relief from delays in the processing of appeals for both certification and coverage determinations.


 Defendants contend that plaintiff lacks standing to challenge the certification and coverage processes on the grounds that plaintiff has failed to establish that its members have suffered any concrete injury. An association ...

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