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March 31, 1998

MAURICE McCREARY, M.D., et al., Plaintiffs,
PAUL OFFNER, Defendant, UNITED STATES OF AMERICA, Defendant-Intervenor.

The opinion of the court was delivered by: FRIEDMAN


 Former Chief Judge Ervin of the Fourth Circuit aptly described the unenviable circumstance each judge finds himself or herself in when faced with a case involving the interpretation of certain provisions of the Medicare and Medicaid statutes:

There can be no doubt but that the statutes and provisions in question, involving the financing of Medicare and Medicaid, are among the most completely impenetrable texts within human experience. Indeed, one approaches them at the level of specificity herein demanded with dread, for not only are they dense reading of the most tortuous kind, but Congress also revisits the area frequently, generously cutting and pruning in the process and making any solid grasp of the matters addressed merely a passing phase.

 Rehabilitation Ass'n of Virginia v. Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994). The case before this Court is no exception to this grim jurisprudential picture.


 This case is about doctors who have provided health care services to indigent elderly patients in the District of Columbia and their assertion that the District underpaid them for those services from 1990 to 1997. The District claims to have paid everything it was obligated to pay pursuant to its interpretation -- and the interpretation of the United States Department of Health and Human Services -- of the Medicare and Medicaid statues.

 The Medicare Act, 42 U.S.C. §§ 1395-1395ccc, provides two types of federally funded insurance to people 65 years or older and certain disabled individuals: (1) coverage for inpatient services (Part A coverage), and (2) coverage for physician services, outpatient hospital services, durable medical equipment, and certain other services and supplies not covered under Part A (Part B coverage). All persons eligible for Medicare receive Part A coverage. To receive Part B coverage, however, a Medicare-eligible patient must pay insurance premiums. After the Part B beneficiary pays an annual deductible ($ 100.00), the federal government pays 80 percent of the Medicare-allowed charge amount for the services rendered. The Part B beneficiary must pay the remaining 20 percent, called a co-payment or co-insurance. This payment plan (the premiums, deductibles and co-payments) is called "Part B cost sharing."

 The Medicaid Act, 42 U.S.C. §§ 1396-1396v, established a cooperative federal-state public assistance program (separate from Medicare) that provides federal financial assistance to states electing to provide medical services to certain low-income individuals through HHS-approved medical assistance programs. The District of Columbia has elected to participate in the Medicaid program, and its Medicaid plan has been approved by HHS.

 Through matching funds, the federal government contributes between 50 and 83 percent of the funding for Medicaid, and participating states are responsible for the rest. Each state develops a schedule or methodology that establishes the fee that the state will pay a service provider for every item or service covered under the state's Medicaid plan. Where Medicare and Medicaid cover the same services, the state Medicaid fee amount is almost always less than the reasonable charge for services that the federal government sets for Medicare reimbursement; it also is generally even less than the 80 percent of the reasonable charge figure that the federal government pays under Medicare's Part B plan. See Rehabilitation Ass'n of Virginia v. Kozlowski, 42 F.3d at 1447. Medicaid service providers must accept whatever Medicaid payment they receive as payment in full and, unlike Medicare service providers, may not ask Medicaid patients to pay any money beyond that amount.

 Historically, the Medicare and Medicaid fields have established two different categories of people who qualify for Medicare, but who were too poor to pay for Part B cost sharing: QMBs and dual eligibles. A QMB or a "Qualified Medicare Beneficiary" is: (1) an individual who is qualified for Medicare, (2) not poor enough to qualify for Medicaid, and (3) too poor to pay for Part B cost sharing. A dual eligible is an individual who is eligible for benefits under both Medicare and Medicaid. Some dual eligibles are not able to afford the required insurance premiums under Part B of Medicare. In 1988, Congress eliminated the distinction between dual eligibles and QMBs. Individuals who cannot afford to pay for Part B Coverage (whether they are qualified for Medicaid or not) are now collectively referred to as QMBs.

 The Medicaid Act requires that the plan of any participating state must provide "for making medical assistance available for Medicare cost sharing . . . for qualified Medicare beneficiaries . . . ." 42 U.S.C. § 1396a(a)(10)(E). This subsection of the Medicaid Act, however, never addressed the exact amount that states must pay toward Medicare cost sharing. A different subsection addressed the topic of payment amounts in the following manner:

In the case of medical assistance furnished under this subchapter for medicare cost-sharing respecting the furnishing of a service or item to a [QMB], the State plan may provide payment in an amount with respect to the service or item that results in the sum of such payment amount and any amount of payment made under [Medicare] with respect to the service or item exceeding the amount that is otherwise payable under the State plan for the item or service for eligible individuals who are not [QMBs].

 42 U.S.C. § 1396a(n) (emphasis added). The historical interpretation of this subsection is at the heart of this case. Defendant maintains that the language of Section 1396a(n) ("the State plan may provide payment") means that the District has never been obligated to pay any amount for health care services provided to QMBs that exceeds the Medicaid fee amount. Plaintiffs argue that despite the apparent permissiveness of the language of this section, states have been obligated to pay the full cost sharing amount, even if that amount exceeds the Medicaid fee amount, because health care providers are entitled to full payment (based on the higher Medicare fee amount) for the services rendered for QMBs. *fn1"

 From 1992 to 1994, four circuit courts agreed with plaintiffs' interpretation of Section 1396a(n) by rejecting policies like the District's that limited: or capped payments of Medicare Part B cost sharing for QMBs. See New York City Health and Hospitals Corp. v. Perales, 954 F.2d 854, 857 (2d Cir. 1992) ("Providers who furnish medical care to Medicare-eligible patients have the right to collect 100% of their reasonable costs or charges."); Pennsylvania Medical Soc'y v. Snider, 29 F.3d 886, 892 (3d Cir. 1994) ("Congress required the states opting to cover QMBs to stand in the shoes of QMBs with respect to the Part B cost-sharing payments. . . . Accordingly, Medicare Part B service providers who supply service to QMBs are entitled to recover 100% of the reasonable costs and charges."); Rehabilitation Ass'n of Virginia, Inc. v. Kozlowski, 42 F.3d 1444, 1459 (4th Cir. 1994) ("There can be no doubt but that the QMB is a Medicare enrollee, and that payment on her behalf must be made at the Medicare rate."); Haynes Ambulance Service, Inc. v. Alabama, 36 F.3d 1074, 1077 (11th Cir. 1994) ("The [Medicaid] statute requires the state to pay the Medicare cost-sharing amounts at issue without limitation to the Medicaid rate.").

 On August 5, 1997, however, Congress enacted the Balanced Budget Act of 1997. It included a section entitled "Clarification Regarding State Liability for Medicare Cost-Sharing." This section, Section 4714 of the Balanced Budget Act, provides that a state is not required to make any payment for Medicare deductibles, coinsurance or copayments for QMBs if that payment exceeds a state's set Medicaid fee amount. See Balanced Budget Act of 1997, § 4714(a)(2), Pub. L. 105-33, 111 Stat.251. It provides that a QMB shall not have any legal liability for payment to a provider, and that the amount of payment made by Medicare and a state (if any) is to be ...

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