# American Academy of Ophthalmology, Inc. v. Sullivan

> Court of Appeals for the Sixth Circuit · July 9, 1993 · 998 F.2d 377

URL: https://www.frixlaw.com/law-library/cases/9011862

## Case

- **Full name:** AMERICAN ACADEMY OF OPHTHALMOLOGY, INC. the Cleveland Ophthalmological Society, Academy of Medicine of Cleveland, Plaintiff-Intervenor-Appellant v. Louis SULLIVAN, M.D., Secretary, United States Department of Health and Human Services and Gail R. Wilensky, Ph.D., Administrator, Health Care Financing Administration, United States Department of Health and Human Services
- **Court:** Court of Appeals for the Sixth Circuit
- **Decided:** July 9, 1993
- **Citations:** 998 F.2d 377; 1993 U.S. App. LEXIS 17025; 1993 WL 246374
- **Precedential status:** Published
- **Opinion:** Dissent by Kennedy
- **Judges:** Contie, Kennedy, Siler
- **Cited by:** 11 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9011862

## How later opinions describe it (automated extraction)

- explaining concepts of "assignment" and "participating physicians"

## Opinion text

KENNEDY, Circuit Judge,
dissenting.
I agree with much of the majority opinion but disagree with the majority’s disposition of the equal protection issue and with that portion of section II entitled “Waiver of Medicare Reimbursement” and, as a result, the outcome. Because I find the Cataract Demonstration to exceed the authority of the Secretary to waive the ordinary statutory reimbursement requirements granted in 42 U.S.C. § 1395b-1(b), I would reverse the decision of the District Court.
The majority begins its analysis by stating, on page 382, that the “contention that ordinary Medicare payment rules cannot be replaced by a negotiated bundled payment scheme is contradicted by the Act’s plain language.” It then cites and quotes for this proposition the authorization for the development of experimental reimbursement projects found in 42 U.S.C. § 1395b-1(a)(1)(A). While section 1395b-1(a)(1)(A) may authorize the development of such projects, in light of the detailed reimbursement provisions in the Act and the specific requirement for waiver of those statutory reimbursement provisions, found in section 1395b-1(b), the majority’s implication that the issue begins and ends with section 1395b-1(a)(1)(A) is misleading. Even demonstration projects “increasing the efficiency and economy of health services ... without adversely affecting the quality of such services,” the mandate of section 1395b-1(a)(1)(A), must still either comply with the ordinary statutory reimbursement scheme or come within the authority to waive those provisions found in section 1395b-1(b). Thus, whether a particular demonstration project is “contradicted” by the “plain language” of section 1395b-1(a)(1)(A) may be a threshold issue, but it does not finally resolve the ultimate issue of whether such a project “is contradicted by the Act’s plain language.” In the present case, since the Cataract Demonstration involves a reimbursement scheme different than the ordinary statutory reimbursement provisions, the issue must ultimately be decided on the waiver authority found in section 1395b-1(b).
The majority correctly summarizes the appropriate standard for reviewing agency interpretation of a statute administered by that agency. Deference to the construction given to a statute by the agency primarily involved in administering it is an important principle of agency law. There are, however, as the majority recognizes, several analytic steps which must be satisfied before deference is appropriate. The reviewing Court first must determine whether Congress has directly spoken “unambiguously” on the “precise question at issue.” Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44 , 104 S.Ct. 2778, 2781-83 , 81 L.Ed.2d 694 (1984). If Congress has spoken, then the court must follow the statute. Id. If the statute does not directly address the issue or does so ambiguously, then the court must determine whether the administering agency’s interpretation of the statute is a “permissible” one. Id. Only if this latter step is fulfilled should a reviewing court defer to the agency interpretation. Id. A permissible construction of a statute is one “not in conflict with the plain language of the statute.” K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 292 , 108 S.Ct. 1811, 1818 , 100 L.Ed.2d 313 (1988). “In ascertaining the plain meaning of the statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole.” Id. at 291 , 108 S.Ct. at 1818 .
The interpretation followed by the Secretary, the District Court, and the majority is a simple one. Reading the last clause of the waiver by itself — which states that the Secretary may waive compliance with reimbursement requirements “insofar as such requirements relate to ... reimbursement or payment only for such services or items which may be specified in the experiment” — authorization is found for waiving any reimbursement requirement as long as the experiment specifies it. According to a passage from the District Court quoted by the majority, “the Secretary is authorized to conduct the Cataract Demonstration which will test whether a change from existing payment methods to one based on ‘negotiated rates’ is advisable, so long as the Secretary ‘specifie[s] in the experiment’ the ‘services or items’ for which the statutory requirements pertaining to reimbursement or payment would be waived *389 during the course of the demonstration.” Panel Op. at 383 (quoting District Court Memorandum Opinion and Order at 14).
Unfortunately, this simple and, at first glance, apparently plausible construction of the statute employed by the Secretary, the District Court, and the majority is not a permissible one. To read the last clause of the waiver found in section 1395b-l(b) in this way is to render the previous two clauses meaningless. As the majority and District Court implicitly recognize, the Secretary’s reading means that any statutory reimbursement requirement may be waived as long as it is “specified in the experiment.” Such a broad reading makes the last clause the only of the three waiver clauses which need ever be employed. Under this interpretation there would be no need to resort to the first waiver clause, which authorizes waivers of requirements relating “to reimbursement or payment on the basis of reasonable cost,” or the second waiver clause, which authorizes waivers of requirements relating to reimbursement or payment “(in the ease of physicians) on the basis of reasonable charge,” because such waiver authority could be established in every case simply by specifying the change in the experiment. A reading of a statute that renders two-thirds of the operative language meaningless cannot be a reasonable or permissible one.
In order to give meaning to the first two waiver clauses, the entire sentence must be read as including three categories of authorized waivers: reasonable cost reimbursements, reasonable charge physician fees, and other reimbursements or waivers the experiment specifies. The parenthetical phrase “in the case of physicians” thus indicates that the second waiver clause is the exclusive grant of waiver power in regard to physicians. Read this way, section 1395b-1(b) grants the Secretary authority to waive the statutory reimbursement methods for physicians where they are based on the reasonable charge method. In regard to physicians, no further waiver authority is granted. Therefore, because the fees involved in cataract surgery are, since 1992, based on the fee schedule mandated by section 1395w-4 and not on the reasonable charge method, there is no authorization for the bundling method employed by the Cataract Demonstration inasmuch as it reimburses physicians at any rate other than the fee schedule rate.
As the majority acknowledges, the third and final waiver clause was added to section 1395b-1(b) in 1972 in order to expand the design possibilities for demonstration projects. See Pub.L. No. 92-603, § 222 (b)(2), 86 Stat. 1393 (1972). The Secretary argues that any interpretation other than the one it proposes essentially ignores the 1972 amendment. I disagree. Under interpretations that allow the first two clauses to have meaning, the third clause still increases the waiver power of the Secretary. Further, the later addition of the third clause points out the importance of reading section 1395b-1(b) in such a way that all three clauses have meaning. If Congress had intended, in passing the 1972 amendment, to remove any limitations on waiver authority that might result from the first two clauses, it could easily have struck the two existing clauses when it added the third. It did not.
The majority responds to this construction of section 1395b-1(b) in an abbreviated paragraph on page 386. The majority correctly observes that if the parenthetical phrase “in the case of physicians” is read to indicate that the clause it modifies is the sole waiver in regard to reimbursement of physicians, then only physicians’ reimbursements based on a reasonable charge may be modified in a demonstration project. The majority correctly observes that since reimbursement of physicians’ services is now based on fee schedules, under section 1395w-4, and not on the reasonable charge basis, this leaves the Secretary without power to waive the statutory reimbursement provisions in regard to physicians. Without any further analysis, the majority simply concludes that such a result is not one the statute should be read to mandate. I do not see why such a construction is inappropriate. Unlike the majority’s construction, it gives meaning to all three waiver clauses of section 1395b-1(b). If Congress had desired, in changing from the reasonable charge basis to a fee schedule basis for physician reimbursement, to grant the Secretary new authority to waive such reim *390 bursement provisions, it could easily have done so at that time. It did not. It left section 1395b-1(b) as written. 1
Finally, I must also note my disagreement with the majority’s disposition of the plaintiffs’ equal protection challenge. After quoting the District Court’s holding that the Secretary possesses a “legitimate governmental purpose” to which the Cataract Demonstration is “rationally related,” the majority holds that the issue is moot because of an announcement by the director of the HCFA, Dr. Joseph R. Antos. Director Antos’ announcement states that “HCFA and each individual provider have agreed on many specific details,” including maintaining the requirement that beneficiaries continue to pay 20 percent of the cataract surgery. Panel Op. at 21. This “announcement” is a tenuous basis for disposing of the assertion of such an important constitutional right. Director Antos’ statement does not indicate what form the agreements reached with the providers take, or that in any way they are binding. Terms reached by agreement with the providers presumably can be cancelled or modified in the same way.
Plaintiffs’ equal protection challenge is a serious one. If the Cataract Demonstration is implemented in its original form, with the Secretary reimbursing for 100 percent of cataract surgery and thus requiring no coinsurance or deductible from the beneficiary, then patients using a Cataract Demonstration provider will effectively be paying nothing for their surgery, while patients using a non-Cataract Demonstration provider will be paying 20 percent of the cost of the surgery. What plaintiffs challenge is the fate which might await any non-Cataract Demonstration physician who would attempt to counter the obvious economic consequences of this situation by reducing the fee and charging only 80 percent of the cost of the surgery (i.e., waiving the coinsurance and deductible requirement): Medicare fraud prosecution under 42 U.S.C. § 1320a-7b(b)(1). In other words, the routine billing practice of one physician participating in the Cataract Demonstration, in which the beneficiary is required to pay no portion of the cost of the surgery, would subject another, non-participating physician to criminal charges. It is this unequal treatment which plaintiffs would require to be supported by a rational basis. It is hard to say that in the face of such a serious threat to their livelihood and the tenuousness of the agreements on which the majority depends, non-Cataract Demonstration ophthalmologists “have no personal stake,” Panel Op. at 22 (citing United States Parole Comm’n v. Geraghty, 445 U.S. 388, 396 , 100 S.Ct. 1202, 1208 , 63 L.Ed.2d 479 (1980)), in appellate review of their equal protection challenge.
. In fact, members of the House of Representatives in floor debate have discussed the scope of section 1395b-1(b)'s waiver authority in relation to the Cataract Demonstration. I recognize that "subsequent legal history is a 'hazardous basis for inferring the intent of an earlier' Congress.” Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633, 650 , 110 S.Ct. 2668, 2678 , 110 L.Ed.2d 579 (1990) (quoting United States v. Price, 361 U.S. 304, 313 , 80 S.Ct. 326, 332 , 4 L.Ed.2d 334 (1960)). However, where statements by members of Congress support a construction of a statute derived from the words and structure of the statute itself, they are worthy at least of noting. This is especially true when this legislative history is directed at precisely the issue being litigated. In floor debate, Representative Stark, Chair of the Health Subcommittee of the Ways and Means Committee of the House of Representatives, agreed with Representative Solomon that the Secretary would exceed the waiver authority of section 1395b — 1(b) in regard to physician reimbursement if the Secretary utilized a bundled fee method. 137 Cong.Rec. H5110 (Daily Ed., June 26, 1991) (discussion of Representatives Solomon, Stark, and Natcher). This statement was based upon the change in physician reimbursement, in the 1989 Amendments to the Medicare Act, from reasonable charge to a fee schedule. At one point during this colloquy, Rep. Solomon inquired of Rep. Stark, "Under [the fee schedule] reimbursement methodology, does [the Secretary,] pursuant to Section 1395b-1(b), have the authority to waive either the fee schedule or .the deductible and coinsurance requirements as envisioned in the cataract demonstration project?” Id. Rep. Stark responded that as he understood section 1395b-1(b), "the [Secretary] does not have the necessary authority.” Id. To Rep. Stark, the changes in physician reimbursement methodology in the Cataract Demonstration violated the "clear statutory limitation” on the Secretary's authority found in section 1395b-1(b). Id.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9011862. Public record. Not legal advice.