865 F2d 264 Isaacs v. United States

865 F.2d 264

Unpublished Disposition

Duane L. ISAACS, Plaintiff-Appellant,
v.
UNITED STATES of America, Defendant-Appellee.

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

1

No. 87-15154.

2

United States Court of Appeals, Ninth Circuit.

Submitted* Dec. 16, 1988.
Decided Dec. 28, 1988.

3

Before: CANBY and WILLIAM A. NORRIS, Circuit Judges, and JUDITH N. KEEP,** District Judge.

4

MEMORANDUM***

5

This appeal arises from the denial of Isaacs' summary judgment motion and the grant of the government's motion to dismiss. We are presented with the issue of whether the limitation on the fees that physicians may charge their Medicare Part B insured patients violates physicians' and their patients' constitutional rights of due process and liberty of contract. The issue of whether this limitation constitutes a taking in violation of the Fifth Amendment is also presented. We affirm the thoughtful decision of the trial judge.

I. FACTUAL BACKGROUND

6

Isaacs is a podiatrist who alleges that 86.3% of his patients are Medicare-insured. According to his affidavit attached to his motion for summary judgment, he has never elected to become a "participating physician" per 42 U.S.C. Sec. 1395u(R)(1), and has never entered into a contract with any of his patients by which he agreed to accept assignments of their Medicare benefits pursuant to 42 U.S.C. Sec. 1395u(b)(3)(B)(ii). Many of his patients are 65 years of age or older and are enrolled in Part B of the Medicare Program. Congress, in 1984 and again in 1986, passed legislation that impacted Part B by imposing restrictions on the fees that physicians may charge Medicare-insured patients. Isaacs, acting pro se, raises several constitutional challenges to this legislation: He alleges violations of the due process, liberty of contract, and takings clauses. The district court denied his motion for summary judgment, and granted the government's motion to dismiss. He appeals.

7

The Medicare Program is divided into two parts. Part A provides insurance that covers the cost of hospital services and related post-hospital services. 42 U.S.C. Secs. 1395c-1395i. Part B is a voluntary supplemental health insurance program for individuals 65 years of age or over; it provides coverage for physicians' fees and other medical services. 42 U.S.C. Secs. 1395j-1395w. This appeal concerns Part B exclusively.

8

Under Part B, Medicare enrollees obtain coverage in return for monthly premium payments. 42 U.S.C. Sec. 1395r(a). These premiums, plus contributions from the federal government, make up the fund from which Part B claims are paid. 42 U.S.C. Sec. 1395t. Part B enrollees are reimbursed for only 80% of what Medicare determines to be a "reasonable charge" for a service provided; the enrollee is responsible for paying the remainder. 42 U.S.C. Sec. 1395u(b). This "reasonable charge" is the lowest of: (1) the physician's actual charge; (2) the physician's "customary charge" to Medicare beneficiaries for similar services; and (3) the "prevailing charge" for similar services in the locality. 42 U.S.C. Sec. 1395u(b)(3). Before the Deficit Reduction Act of 1984, the "customary charge" and the "prevailing" charge were updated each year based on the prior year's data.

9

Prior to 1984, differing methods for payment of Part B claims existed. If the physician agreed, an enrollee could assign his claim for reimbursement from Medicare to the physician. In that case, the physician could not charge more than the "reasonable charge" established by Medicare. 42 U.S.C. Sec. 1395u(b)(3)(B)(ii). Medicare would reimburse the physician for 80% of the reasonable charge, and the patient would pay the remainder. The reasonable charge therefore provided a limit on the amount payable to physicians who accepted assignments of claims. Alternatively, an enrollee could pay his physician for the full cost of the services rendered and would thereafter present his claim to Medicare for the reimbursable amount. If that were the method selected, physicians could set their prices without regard to Medicare's reasonable charge. The enrollee was responsible for the difference between the physician's actual charge and the reasonable charge as determined by, and reimbursed according to, Medicare. Under this system of payment, physicians could choose to accept assignments on a case by case basis. If the physician chose not to accept assignments, Medicare placed no limitation on the amount the physician charged.

10

The Deficit Reduction Act of 1984 (DEFRA) made certain changes in Part B's reimbursement structure, two of which are important in the case at bar. First, it established a "participating physician" program. Second, it put a freeze on the amount that could be collected for services to Medicare Part B enrollees by both participating and nonparticipating physicians.

11

Under the participating physician program, physicians that treat Medicare Part B enrollees may elect to become a participating physician. 42 U.S.C. Sec. 1395u(h)(1). DEFRA established several incentives for physicians to enter a participating physician agreement, See e.g. 42 U.S.C. Secs. 1395u(h)(2), (3), 1395u(i)(1)-)4), but also imposed restrictions on their fees. As a participating physician, physicians agree to accept payment on an assignment basis for all of their Medicare Part B enrollees. Medicare's reasonable charge thus becomes the participating physicians' maximum charge. Those physicians who chose not to become a participating physician may still elect whether or not to accept assignments of claims, but are not required to do so. Although nonparticipating physicians are not limited by Medicare's reasonable charge, they were subject to DEFRA's temporary freeze on their fees which was imposed in 1984.

12

In 1984, DEFRA imposed a freeze on all physicians' fees charged to Medicare Part B enrollees. The "customary" and "prevailing" charges used to determine the reasonable charge were frozen at their 1983-1984 levels; this thereby froze participating physicians' fees as well as the fees of those nonparticipating physicians who took claims on an assignment basis. 42 U.S.C. Sec. 1395u(b)(4)(A)-(D). DEFRA also addressed the fees of those nonparticipating, nonassignment-accepting physicians. It prohibited those physicians from billing charges in excess of their actual charges for the quarter beginning April 1, 1984. 42 U.S.C. Sec. 1395u(j)(1). This was done to prevent those Part B enrollees who used this type of physician from shouldering the effect of the freeze. Notably, by freezing the actual charges of each nonparticipating physician, DEFRA served to freeze the variations in fees that existed between such physicians.

13

In 1986, Congress once again turned its attention to Part B of the Medicare Program and passed the Omnibus Budget Reconciliation Act of 1986 (OBRA); section 9331 of this Act is at the heart of this appeal. Section 9331 addressed the issue of the fees chargeable to Part B enrollees, and created further incentives for physicians to become participating physicians.

14

Two incentives created under OBRA concern the "prevailing charge" and the "actual charge," two of the figures used by Medicare in determining the reimbursable amount or the "reasonable charge." Under OBRA, if the prevailing charge is used for determining the reasonable charge, then the amount reimbursed to nonparticipating physicians is less than that reimbursed to participating physicians. See 42 U.S.C. Sec. 1395u(b)(4)(A)(iv). As far as actual charges, 1984 DEFRA's temporary freeze was replaced with another temporary measure. The actual charges of participating physicians are now unfrozen from their 1984 levels. A nonparticipating physician's actual charge for a service is set by an OBRA formula (the "maximum allowable actual charge" or MAAC formula) that uses as a reference the physician's April to June 1984 rate compared to that of other nonparticipating physicians' rates. This was an attempt by Congress to address the disparate fee levels of nonparticipating physicians that had been frozen in place by 1984 DEFRA. See 42 U.S.C. Sec. 1395u(j)(1); 42 U.S.C. Sec. 1395u(j)(1)(C)(i)-(iii). A monitoring system of the actual charges of nonparticipating physicians, with attendant civil sanctions for violations, was established under OBRA. 42 U.S.C. Sec. 1395u(j)(1)(B)(i) & 1395u(j)(2).

DISCUSSION

15

By restricting the fees a physician may charge a Medicare Part B insured patient, Isaacs contends that DEFRA and OBRA, violate his constitutional rights of due process and liberty of contract. He also alleges an unconstitutional taking. Although he omits his argument made in the proceedings below based on the General Welfare Clause of the Constitution, he presents this court with several novel arguments based on the constitutional rights of his patients. The district court concluded that Isaacs suffered no constitutional violation. We agree and further hold that Isaacs has no standing to raise the arguments regarding his patients.

16

Appellant contends that DEFRA and OBRA violate substantive due process. He alleges that Congress had no compelling justification for the passage of this legislation, and furthermore that they impair his fundamental right of freedom to contract. See Appellant's Brief p. 6-13.

17

We disagree. The test for determining whether economic and social regulation meets the requirements of substantive due process is one of a reasonable relationship: "[i]f the laws passed are seen to have a reasonable relation to a proper legislative purpose, and are neither arbitrary nor discriminatory, the requirements of due process are satisfied...." Nebbia v. New York, 291 U.S. 502, 537 (1934). Contrary to the strict scrutiny standard urged by appellant in this case, a court's role in determining this relationship is decidedly a narrow one. Williamson v. Lee Optical of Oklahoma, Inc., 348 U.S. 483, 487-88 (1955).

18

In 1965, the Medicare Program was established based on the reasoning that "Government action should not be limited to measures that assist the aged only after they have become needy"; its goal was to make economic security for the aged a realistic and attainable goal. S.Rep. No. 404, 89th Cong., 1st Sess. (1965), reprinted in 1965 U.S.Code Cong. & Admin.News 1943, 1964. Congress, in the 1980's, passed several pieces of legislation to ensure the continued viability of the Medicare Program. See e.g., The Tax Equity and Fiscal Responsibility Act of 1982, P.L. No. 970248 (Sept. 3, 1982). DEFRA and OBRA were resultant acts.

19

DEFRA and OBRA were enacted with twin goals in mind. First, Congress intended to control the federal deficit by curtailing the spiralling cost of Medicare. See e.g., 130 Cong.Rec. S 8373, 8375 (daily ed. June 27, 1984) reprinted in 1984 U.S.Code Cong. & Admin.News 2151, 2156. Second, it wanted to accomplish this objective without placing the burden solely on Medicare enrollees. Id. In other words, Congress was concerned that if it imposed fee restrictions upon physicians servicing Plan B enrollees, in an attempt to reduce the federal deficit, it had to put a freeze on fees which could be charged patients or else the physicians would shift the burden of reductions upon Medicare enrollees. See Whitney v. Heckler, 780 F.2d 963, 971 (11th Cir.1986) cert. denied 107 S.Ct. 65 (1986). These goals therefore led to the restriction of fees that nonparticipating physicians could charge their Medicare Part B insured patients. The formula used to determine lawful fees is based on fees that the physician himself charged in the past, or on the basis of a comparison of the fees that other nonparticipating physicians charged for similar services. This goal and formula is not arbitrary or irrational.

20

We hold that DEFRA and OBRA satisfy the requirements of due process. The Eleventh Circuit, in upholding the constitutionality of DEFRA, stated:

21

[T]he due process test is whether the law has a reasonable relation to a proper legislative purpose, and is neither arbitrary nor discriminatory. Under the particular facts and circumstances of this case, we conclude that the legislative purposes are legitimate--i.e., to control federal spending in order to alleviate deficit problems, and to promote the public welfare by precluding physicians from shifting the burden of the reductions onto Medicare beneficiaries--and we conclude that the means chosen by Congress are not unreasonable....

22

Whitney v. Heckler, 780 F.2d at 971; see also American Medical Ass'n v. Heckler, 606 F.Supp. 1422, 1437-38 (S.D.Ind.1985). OBRA is simply an extension of the provisions adopted in DEFRA; both are designed to limit Medicare expenditures while providing protection for Medicare enrollees. See H.R.Rep. 99-727, 99th Cong., 2d Sess. 87 87 (1986), reprinted at 1986 U.S.Code Cong. & Admin.News 3677. "When Congress adopted the provisions for the temporary freeze in July, 1984, we did so in order to save Medicare expenditures, moderate the rapid increase in health care costs, provide financial protection to beneficiaries, and provide us time to review payment reforms. The extension of the freeze through 1986 was based on these same considerations." Id.

23

Appellant, although framing his argument in equal protection language, see e.g., Appellant's Reply Brief p. 5 & 8, makes one additional due process argument. He contends that the 1984 DEFRA legislation impermissibly froze the disparate fee levels of nonparticipating physicians, and the 1986 OBRA legislation was only a "token attempt" by Congress to rectify this situation. Id. at 6. He claims that this situation unjustifiably discriminates against those physicians charging lower fees.

24

Again, appellant's due process argument is defeated under the rational relationship test. The reasons for the challenged legislation have been stated above. As far as the variations created by the 1984 DEFRA legislation between fees charged by nonparticipating physicians, this is simply a by-product of the main purpose of the legislation, which was to cut the spiralling costs of Medicare without placing the burden of payment on Medicare enrollees. Appellant's complaint arises after 1986. In 1986, Congress manifested its awareness of the problem of the disparate fees and in OBRA established provisions to deal with it. See 42 U.S.C. Sec. 1395u(j)(1)(C)(i)-(iii).

25

Appellant contends that his liberty of contract has been infringed by the legislation. Again, he claims this is a fundamental right. His contention is misplaced. To infringe on his liberty of contract, the legislation must bear no rational relationship to any legitimate legislative objective. West Coast Hotel Co. v. Parrish, 300 U.S. 379, 391-92 (1937); Whitney v. Heckler, 780 F.2d at 972-73. As was just previously discussed, this court finds that there is a rational relationship to a legitimate legislative end.

26

Appellant also states that the restriction of his fees constitutes a taking in violation of the Fifth Amendment. He argues that 86.3% of his patients are Medicare Part B enrollees, and in the absence of the contested legislation he would immediately raise his prices to these patients by at least 8%. See Appellant's Brief p. 3. Moreover, appellant states in support of this argument that he is required by moral and ethical considerations to treat these patients. See Appellant's Brief p. 21; Appellant's Reply Brief p. 15.

27

We hold that there has been no taking under the Fifth Amendment of appellant's property. "It is well-established that government price regulation does not constitute a taking of property where the regulated group is not required to participate in the regulated industry." Whitney v. Heckler, 780 F.2d at 972, which held that a fee freeze under DEFRA is not a taking where decision of physician to treat Medicare insured patients is voluntary. In spite of appellant's moral and ethical obligations, his treatment of these Medicare-insured patients is voluntary and therefore no taking has occurred.

28

The last issue that we must deal with in the instant case is that of the standing of appellant to argue his patients' claims against DEFRA and OBRA. First, appellant did not raise this issue below. "The rule is well settled that a reviewing court will not generally consider a matter not first raised in the trial court." United States v. Greger, 716 F.2d 1275, 1277 (9th Cir.1983). Furthermore, none of appellant's patients have chosen to join in this action. Compare American Medical Ass'n v. Heckler, 606 F.Supp. 1422 (1985) (several patients joined as plaintiffs in the cause of action challenging DEFRA's fee restrictions on physicians' fees).

29

Second, the principle of allowing one to assert the rights of another not before the court is narrowly construed. In determining this issue, the court must first inquire as to the relationship between the litigant and the parties whose rights he seeks to assert. "[T]he relationship between the litigant and the third party may be such that the former is fully, or very nearly, as effective a proponent of the right as the latter ..." Singleton v. Wulff, 428 U.S. 106, 115 (1976). Second, it must be determined whether an obstacle exists that would prevent the third party from asserting his right himself. Id.

30

In the case at bar, appellant-physician seeks relief from the legislation that restricts the fees charged to his Medicare-insured patients. This legislation serves to protect the very people whose rights appellant claims to be asserting from that which appellant seeks to do. The two interests are diametrically opposed. This court fails to see how appellant could ever be an effective proponent of his patients' rights in this case. Furthermore, if the patients deem themselves in some way harmed by the legislation, they can file suit for themselves; there is no obstacle that would prevent them from doing so.

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AFFIRMED.

*

The panel unanimously finds this case suitable for decision without oral argument. Fed.R.App.P. 34(a) and Ninth Circuit Rule 34-4

**

The Honorable Judith N. Keep, United States District Judge for the Southern District of California, sitting by designation

***

This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3