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Martin v. Shalala

July 31, 1995

LOIS MARTIN, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED AND ALAN R. KOHLHAAS, M.D., ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS-APPELLANTS,

v.

DONNA E. SHALALA, IN HER CAPACITY AS SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES AND ASSOCIATED INSURANCE COMPANIES INCORPORATED, DOING BUSINESS AS BLUE CROSS AND BLUE SHIELD OF INDIANA, DEFENDANTS-APPELLEES.



On Appeal from the United States District Court for the Southern District of Indiana, New Albany Division. No. 89 C 77 -- S. Hugh Dillin, Judge.

Before POSNER, Chief Judge, BAUER and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

ARGUED FEBRUARY 13, 1995

DECIDED JULY 31, 1995

Plaintiffs-appellants Lois Martin, a Medicare beneficiary, and Dr. Alan Kohlhaas, a physician who receives assignments of Medicare payments for his services to Medicare beneficiaries, brought suit against the Secretary of Health and Human Services ("Secretary") and Associated Insurance Companies (d/b/a Blue Cross Blue Shield) ("Associated"), the insurance carrier designated to administer benefits under Medicare's Part B program in the State of Indiana. One of Associated's duties is to establish the "locality classification" of geographical areas of Indiana. The plaintiffs object to their classification as a "Category 03" non-urban locality. The district court dismissed the case for lack of subject matter jurisdiction. It concluded that, as a suit seeking an "amount determination," the plaintiffs were required to exhaust their administrative remedies before filing a court action. For the reasons that follow, we affirm that jurisdictional decision.

I BACKGROUND

A. Statutory Framework

Title XVIII of the Social Security Act, 42 U.S.C. sec. 1395 et seq., known as "Medicare," provides federal reimbursement for medical care to the aged and disabled and is administered by the Secretary. There are two components to the program. Part A provides hospital insurance benefits, and is funded out of social security taxes. Part B makes available supplementary medical insurance benefits for medical and other health services, including physicians' services, on a voluntary basis to eligible persons for a monthly premium. *fn1 As such, it is similar to private medical insurance programs but with substantial federal subsidies. See Schweiker v. McClure, 456 U.S. 188, 190 (1982). Like private insurance policies, Part B excludes or limits payment on certain medical items and services; thus, actual reimbursement on health-related services may be less than what was requested. *fn2

By statute the Secretary is authorized to contract with insurance carriers like Associated to perform administrative functions under the Medicare Act on behalf of the Secretary. The functions include administering the payment of qualified claims. 42 U.S.C. sec. 1395u. The Congress has required carriers to assure that, "where payment . . . for a service is on a charge basis, such a charge will be reasonable." Id. at sec. 1395u(b)(3)(B). Under that mandate, therefore, carriers must determine whether benefits are due, and in what amount, and to whom payment should be made (i.e., the beneficiary or his or her assignee, the physician or other person furnishing the services). *fn3 When deciding upon a "reasonable charge" for a medical item or service, the carriers must give consideration to the physician's or supplier's "customary charge" and the locality's "prevailing charge." 42 U.S.C. sec. 1395u(b)(3)(L); 42 C.F.R. sec. 405.501 et seq. The amount established by the carrier as "reasonable" is considered a "screen" above which a charge is not reasonable and reimbursement will not be paid.

B. Facts

In this case, Associated is the carrier responsible for administering the Medicare Part B program in Indiana. It established the "prevailing charges in the locality for similar services" under sec. 1395u(b)(3) and the "locality" classifications under 42 C.F.R. sec. 405.505. *fn4 Associated classified Dearborn County as a "Category 03" rural locality, with the lowest Medicare Part B reimbursement in Indiana. The complaint before us challenges this determination.

Ms. Martin is a resident of Dearborn County, Indiana, who received medical services covered by Part B of Medicare. Dr. Alan Kohlhaas, the other plaintiff, is a physician practicing medicine in Dearborn County, Indiana, and is on the staff of Dearborn County Hospital. He is an assignee of his patients who have received medical services from him that are covered by Medicare Part B. Ms. Martin and Dr. Kohlhaas filed a class action complaint against the Secretary and Associated to challenge "the methods used by which Part B Medicare benefit amounts for medical services provided in Dearborn County, Indiana, were and are determined under . . . 'Medicare.' " R.10 at para. 1. *fn5 According to the complaint, the plaintiffs were "deprived of their property rights to full payment of their respective Part B Medicare benefit amounts," in particular "because the methods used by the Carrier to determine 'the prevailing charges in the locality for similar services' for medical services rendered in Dearborn County . . . were grossly negligent and wrongful." Id. They contend that Associated's classification of Dearborn County as a "Category 03" or rural locality results in unjustifiably lower benefit payments than those paid in nearby Cincinnati, which is classified as an urban area and which therefore is given higher reimbursements for the same medical services. Id. at paras. 20, 23. The complaint alleges that the carrier's failure to determine properly the prevailing charges "caus[ed] plaintiffs and the class to be deprived of the full Part B Medicare benefit to which each is entitled." Id. at para. 24.

The complaint also asserts that there is no administrative remedy available to these plaintiffs to challenge Associated's method for establishing the locality classification of Dearborn County. Id. at para. 32. The plaintiffs seek a declaration that the prevailing charges in Dearborn County for its medical services are comparable to those in the Cincinnati area; they also seek an order that they be granted a fair hearing, damages for ...


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