# Opposition Brief — Shalala v. Grijalva > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_1423%3A5 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1999 - **Citation:** 526 U.S. 1096 ## Text fit Gok Ge BEG ies. pi cnn i teats eae Gat CE ED No. 98-1284 om MAR 99 1999. In The | OFFICE GE THE CLERK Supreme Court of the United States October Term, 1998 7 DONNA E. SHALALA, SECRETARY OF HEALTH AND HUMAN SERVICES, y. Petitioner, GREGORIA GRIJALVA, MARY LEA, JOSEPHINE BALESTRERI, FRED S. SCHERZ, KEVIN A. DRISCOLL, MINA AMES, EDMUNDO B. CARDENAS, ARLINE T. DONOHO, GOLDIE M. POWELL, and RICHARD BAXTER, as individuals and representatives of a class of persons similarly situated, Respondents. + On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Ninth Circuit * RESPONDENTS’ BRIEF IN OPPOSITION TO PETITION FOR A WRIT OF CERTIORARI $ Lenore E. Gerarp SALLY Hart Legal Assistance (Counsel of Record) to the Elderly Center for Medicare 1453 Mission St., Ste. 500 Advocacy, Inc. San Francisco, CA 94103 1730 E. River Rd., Ste. 107 (415) 861-4444 Tucson, AZ 85718 Carot Ss. JIMENEZ (520) 577-1611 5182 Katella Ave., Ste. 106 Gnt Derorp Los Alamitos, CA 90720 Center for Medicare (562) 430-0239 Advocacy, Inc. Auprey Kraus P.O. Box 350 Conter ton Health Willimantic, CT 06226 520 S. Lafayette Park Pl., Counsel for Respondents Ste. 214 Los Angeles, CA 90057 (213) 383-4519 COCKLE LAW BRIEF PRINTING CO, (#00) 225-6964 OR CALL COLLECT (402) 342-2831 b1¢¥ <3 one a a Pee ge! xi i 4 REVISED STATEMENT OF QUESTIONS PRESENTED Respondents suggest that a more accurate statement of the Questions Presented, both in content and in recog- nition of the Secretary’s goal with this Petition, is as follows: Whether the judgments below should be vacated, and the case remanded to the district court to begin the litigation anew, because of either (1) legislation which the Secretary explicitly declined to rely on in the court of appeals, which has made no significant change to the relevant portions of the Medicare statute, and which the Secretary has misrepresented to the Court, or (2) a recent decision of this Court which, upon objective scrutiny, has no bearing on the outcome of the instant case. Whether the courts below correctly concluded, like other courts considering government health services delivered by HMOs, that when the federally created, mandated, and operated Medicare program contracts with private HMOs to provide Medicare benefits, their coverage decisions constitute state action. Whether the courts below correctly concluded that the Secretary violated principles of due process, which have been recognized as a requirement in the Medicare program by numerous courts, when she did not require her contracting HMOs to provide adequate notice and hearings upon the reduction or termination of Medicare benefits. TABLE OF CONTENTS Page INTRODUCTION qo occisccevekudeon ct eee 1 STATUTORY AND REGULATORY PROVISIONS DOVORNEDD. co ccs ccntiencn tethbennie see 2 STATEMENT OF THE CASE. 20.0... ccccccccecccccks 5 REASONS FOR DENYING THE WRIT............. 13 A. The Factual And Legal Context Of Sullivan Renders The Decision On State Action In That Case Of No Relevance To The Instant Case... 23 B. The Secretary’s Limited Compliance With The Remedial Order Does Not Moot The Case, And The District Court Has Continuing Jurisdiction To Consider Whether Its Order Should Be MEOGEIOE 5. occccacunacecccncct cine 21 CONCLUSION «oes os csc Cannneseeciene een 27 iii TABLE OF AUTHORITIES Page Cases: Agostini v. Felton, 521 U.S. 203 BRB iirc otic tie 26 American Manufacturers Mutual Insurance Co. v. Sullivan, 119 S.Ct. 977 Fg) ee ee a ets passim Blum v. Yaretsky, 457 U.S. 991 PAM rks cahixgs 12, 18 Bodimetric Health Services, Inc. v. Aetna Life & Casu- alty, 903 F.2d 480 (7th Cir. ca! EES SES act ae ig Bowen v. Kizer, 485 U.S. 386 (1988).................. 22 Catanzano v. Dowling, 60 F.3d 113 (2d Cir. 1995) ...9, 16 City of Mesquite v. Aladdin's Castle, Inc., 455 US. 1 St EUR TS RA ala Gung Rela 24 Daniels v. Wadley, 926 F.Supp. 1305 (M.D.Tenn. 1996), vacated in part, 145 F.3d 1330 (6th Cir. SMUPRT EWN e Stas rie cees calle eee 16 Edmonson v. Leesville Concrete Co., 500 US. 614 a AUG ine tes Oss OK tek een 14 FEA v. Algonquin SNG, Inc., 426 U.S. 548 (3976) 3.3%: 24 Fox v. Bowen, 656 F.Supp. 1236 (D.Conn. 1986) ....9, 17 Gray Panthers v. Schweiker, 652 F.2d 146 (1980), appeal after remand, 716 F.2d 23 (D.C. Cir. 1983) ..6, 20 Grijalva v. Shalala, 152 F.3d 1115 (9th Cir. 1998)...... 12 Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51 SEMIS sity ck wtb s Gata ond 17 Himmler v. Califano, 611 F.2d 137 (6th Cir. 1979)...... 9 |.K. v. Dillenberg, 836 F.Supp. 694 (D.Ariz. 1993) ...9, Jackson v. Metropolitan Edison Co., 419 U.S. 345 PPE Sad Piece enksaeWal aceon ane iv TABLE OF AUTHORITIES - Continued Page Kraemer v. Heckler, 737 F.2d 214 (2d Cir. 1984)... 9, 17, 20 Lewis v. Continental Bank Corp., 494 U.S. 472 (1990) .... 22 Lugar v. Edmondson Oil Co., 457 U.S. 922 (1982) ..... 14 Martinez v. Richardson, 472 F.2d 1121 (10th Cir. 1973), on later motion, 655 F.Supp. 95 (D.N.M. 1986), appeal dis’d, 874 F.2d 751 (10th Cir. 1989) . .6, 20 Mathews v. Diaz, 426 U.S. 67 (1976) ........ cece eeee 5 Mathews v. Eldridge, 424 U.S. 319 (1976) ......... passim McCuin v. Sec. of H.H.S., 817 F.2d 161 (1st Cir. AGRI D, sak ckabcds Featdl aan canna rian ees eewene salen hs 6 National Independent Coal Operators’ Assn. v. Kleppe, MPD UG. TO CEST O) Soo sks os a kcanvecuengeeaenann 24 Northeastern Fla. Chapter of the Associated Gen. Con- tractors v. City of Jacksonville, 508 U.S. 656 (1993) .... 24 Perry v. Chen, 985 F.Supp. 1197 (D.Ariz. 1996)....... 16 Princeton Univ. v. Schmid, 455 U.S. 100 (1982)........ 22 Schweiker v. McClure, 456 U.S. 188 (1982).......... 5, 20 Standard Oil v. U.S., 429 U.S. 17 (1976)...........085 26 Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001 (Sth Cir. 1985)... ... cc cccuccsvcesccceses 26 U.S. Dep't of Treasury v. Galioto, 477 U.S. 556 (1986) .... 22 Vorster v. Bowen, 709 F.Supp. 934 (C.D.Cal. 1989) ..... 9 West v. Atkins, 487 U.S. 42 (1988) ............005. 18, 19 a Vv TABLE OF AUTHORITIES — Continued Page CONSTITUTION, STATUTES AND REGULATIONS: Balanced Budget Act of 1997 (BBA), Pub. L. No. 105-33, § 4001, 111 Stat. 251, 275 § 4001: toe Oe Sree RPE Pere re rar errs ct 19 BUA TONE SOU oi ecc kes te sne tae sa veawecyect ion 23 fe Se i rere rere ee ere re tree 24 Social Security Act, Tit. XVIII, codified at 42 U.S.C. 1395 et seq. 42 U.S.C.: § 1395d(a) (S.S.A. § 1812(a)) ..... 6... eee eee 3 § 1395k(a)(2) (S.S-A. § 1832) ............00 00s 4 Social Security Act: © TSIEN ZNA). 0 wei eee veccescewerserevercees 2 G TBS ANC). onic a vice ccc evecccc espa 19 Bt) ee Serer errr irae erty y ise seer S § 1852(g)(3)(B)(idi) 1... cece eee e eee eeees 23 ORE ib inic's sp daine'énvodk segs tdensecnaawes passim § 1862(a)(1) (42 U.S.C. § 1395y(a)) .......... 18 42 U.S.C.: : § 13956f (S.S.A. § 1869) ..... cece ccceceecences 6 § 1395mm (S.S.A. § 1876)........ 6.6.0 eee 2, 6 § 1395mm(c)(1) (S.S.A. § 1876(c)(1)) ... 4, 22, 24 vi TABLE OF AUTHORITIES — Continued Page § 1395mm(c)(2)(A) (S.S.A. § 1876(c)(2)(A)) ...-. 4 § 1395mm(c)(5)(A) (S.S.A. § 1876(c)(5)(A)) ... . 22 § 1395mm(c)(5)(B) (S.S.A. § 1876(c)(5)(B)) ..... 7 A2 USC. © 1965 053s iindctessnesccs pias vaocrieeres 14 Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, § 114(a), 96 Stat. 324, 341...... 6 42 C.E.R.: S GOD.7O1 OF OG. oa is cc bie Cea acue eee een ERY 6 5 G06.008 ef G88. 655 eT eg eee 6 S O09.1-409 GE. 6 os i pcdaarcdcushdatouniiewereed 5 G 410.1-410.175 6k civic eng 5 § 417.1-417.694 .......... hed hea ORAS wre 7 MisCELLANEOUS: 62 Fed. Reg. 23368 (April 30, 1997) ...........5..00 11 Mcllrath, GAO Report, Medicare HMOs, American Medical News 3 (November 18, 1996).............. 6 Report of testimony by Bruce C. Vladek, HCFA Administrator, at February 10, 1995 hearing of the Health Subcommittee of the House Ways and Means Committee, reported at 842 New Developments 5-7, Medicare & Medicaid Guide (CID). sso 00d ik peach pA GE wel eek Aa ROT ae 7 Rule GOGs), FRACS, «..s:0:dy's dope Re dn cha Ce hee es 26 S. J. Stayn, Securing Access to Care in HMOs: Toward a Uniform Model of Grievance and Appeal Procedures, 94 Couum. L. Rev. 1674 (1994)........... 8 The Medicare Coverage Issues Manual, HCFA- PUD. 6 onc de wine saeap obec weds coiee ene teres cistern 18 mer re ree = —“—— INTRODUCTION The Secretary argues that a writ of certiorari should be issued for two reasons, neither of which is well taken. The facts and legal context of American Manufacturers Mutual Insurance Co. v. Sullivan, 119 S.Ct. 977 (1999), differ so dramatically from those in the instant case that Sullivan has no bearing on the state action issue. Here, in contrast to the workers’ compensation program at issue in Sullivan, Medicare’s status as a pubfecentitlement man- dated by congressionally established substantive stan- dards, to which due process protections have always attached, compels the finding of state action which the courts below correctly made. In addition, for several reasons, it is not necessary or appropriate for the decisions below to be vacated and the case remanded in light of the Balanced Budget Act (BBA), which was passed and in effect before briefing was com- pleted in the court of appeals. First, the Secretary explic- itly declined to raise this issue at the appropriate time below, apparently viewing the BBA as not relevant to the issues here raised. Second, any apparent compliance by the BBA and its implementing regulations with the judg- ment below responded only in small part to the deficien- cies identified by the district court. Third, as the court of appeals observed, the district court may modify its order in light of later developments if the Secretary so requests and the legal standards are met; that procedure, not the vacating of the judgments below without full briefing and in the face of inaccurate and misleading statements by the Secretary, is the appropriate procedure for resolving these issues. Furthermore, although the Secretary suggests that this case might be appropriate for plenary review, she is in error: there is no conflict between the circuits on the issues raised in this case, and the court of appeals prop- erly applied rules of law in the state action and due process contexts which have long been settled by this Court. Indeed, the Secretary’s main effort is to manipu- late the BBA and Sullivan as the mechanisms for negating lower court decisions with which she disagrees. In her eagerness to have the lower court opinions simply disap- pear, the Secretary has repeatedly mischaracterized the nature of the Medicare program and the content and relevance of the BBA. The petition for a writ of certiorari should be denied and the decisions below left intact. ¢ STATUTORY AND REGULATORY PROVISIONS INVOLVED The Secretary asserts that the HMO portion of the Medicare statute in effect when the district court made its decision has been superseded by entirely new Medi- care+Choice legislation. That is not correct. The HMO portion of the Medicare statute and program remains in effect, with only minor changes, renamed as one of the Medicare+Choice coordinated care options allowed by the Balanced Budget Act of 1997 (BBA), Pub. L. No. 105-33, § 4001, 111 Stat. 251, 275 (Social Security —Act (S.S.A.) § 1851(a)(2)(A)). Compare BBA, §§ 4001-4002, 111 Stat. 275-330 (only partially set forth in Pet.App. 70a and 100a-101a) with the prior HMO provisions, 42 U.S.C. §§ 1395mm et seq. Because the Secretary failed to include significant and relevant portions of the BBA in her —— —_ Appendix, the current HMO portion of the Medicare statute, including the minor changes made by the BBA, is set forth as Respondents’ Appendix (Resp.App.). Although the BBA includes an expedited HMO reconsideration determination in its appeal procedures for Medicare HMO beneficiaries, S.S.A. § 1852(g), Pet.App. 93a-101a, this change complies with only one part of the district court’s remedial order. The Secretary ignores the fact that four other important parts of that order remain unmet. Also, contrary to the Secretary’s description of Medi- care HMOs as making coverage determinations according to their own professional and contractual obligations without government participation or assistance, Pet.Br. 16-17, 20, the Medicare statute specifies the health ser- vices provided to beneficiaries of the program. Under Part A, these services must include: (1) inpatient hospital services . . . for up to 150 days... ; (2)(A) post-hospital extended care services for up to 100 days... ; (3) ... home health services; and (4) in lieu of certain other benefits, hospice GARG. 3... 42 U.S.C. § 1395d(a). Under Part B, services that Medicare must cover include: (A)(i) home health services ... ; (B) medical and other health services [including physician services, outpatient therapies and diagnostic tests, home dialysis equipment, antigens, durable medical equip- ment, and ambulance services]. . . ; (C) outpatient physical therapy services (D) [certain health clinic services]; (E) comprehensive outpatient rehabilita- tion facility services; and (F) facility services furnished in connec- tion with surgical procedures specified by the Secretary... . 42 U.S.C. § 1395k(a)(2). These provisions remain intact under the BBA. HMOs which contract with the Medicare program are required to provide their enrollees with the full range of services covered by Medicare for beneficiaries generally. 42 U.S.C. § 1395mm(c)(2)(A). This section also remains intact under the BBA. Congress included a mandatory enforcement mecha- nism for the standards prescribed for Medicare HMOs: “The Secretary may not enter into a contract under this section with an eligible organization unless it meets the requirements of this subsection and subsection (e) of this section with respect to members enrolled under this sec- tion.” 42 U.S.C. § 1395mm(c)(1). Again, this section remains intact under the BBA. Resp. App. 7. + STATEMENT OF THE CASE l.a. The Medicare program, established by Con- gress in 1965, mandates that the federal government cover specific medical services for Medicare beneficiaries. The Secretary has issued extensive regulations and administrative manuals defining with precision the pack- age of health services covered and the process by which coverage determinations are made pursuant to the stat- ute. 42 C.F.R. §§ 409.1-409.68, 410.1-410.175. Incident to this legislative determination, the courts have definitively established that Medicare benefits are constitutionally protected property rights. Schweiker v. McClure, 456 U.S. 188, 198 (1982); Mathews v. Diaz, 426 U.S. 67 (1976). In the traditional fee-for-service program, which has existed since Medicare’s inception in 1965, health care providers are paid directly for services already rendered to Medicare beneficiaries. The Secretary contracts with private insurers, called “intermediaries” under Part A and “carriers” under Part B, to process claims and other- wise administer the benefits. These private insurers make coverage determinations including those related to medi- cal necessity, make payments to providers and benefici- aries, establish guidelines and utilization screens for coverage, and investigate fraudulent billing practices. This Court has determined that, in exercising their con- tractual duties, the fiscal intermediaries act as the Secre- tary’s agents. McClure, 456 U.S. at 190; see also, e.g., Bodimetric Health Services, Inc. v. Aetna Life & Casualty, 903 F.2d 480, 487 (7th Cir. 1990). From Medicare’s beginning, Congress has required an administrative appeal process culminating in judicial review for beneficiaries who are denied benefits. 42 U.S.C. § 1395ff. The Secretary has promulgated detailed regulations governing this appeals process. 42 C.FR. §§ 405.701 et seq. and 405.801 et seq. It has been clearly established that the requirements of procedural due pro- cess apply to the Medicare administrative appeals sys- tem. See, e.g., McCuin v. Sec. of H.H.S., 817 F.2d 161, 171-175 (1st Cir. 1987); Gray Panthers v. Schweiker, 652 F.2d 146 (1980), appeal after remand, 716 F.2d 23 (D.C.Cir. 1983); Martinez v. Richardson, 472 F.2d 1121 (10th Cir. 1973), on later motion, 655 F.Supp. 95, 102-103 (D.N.M. 1986) (reaffirming original judgment under updated due process analysis), appeal dismissed, 874 F.2d 751 (10th Cir. 1989). In 1982, Congress authorized widespread Medicare contracting with risk-based HMOs. Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, § 114(a), 96 Stat. 324, 341 (codified at 42 U.S.C. § 1395mm). Under this system, Medicare pays contracting HMOs monthly a flat fee or capitation payment to provide or cover the con- gressionally mandated package of services. The Secretary has actively encouraged Medicare beneficiaries to enroll in HMOs, and the growth in the number of Medicare beneficiaries enrolled in HMOs accelerated greatly in the 1990’s.! ' In 1996, 3.8 million Medicare beneficiaries were enrolled in HMOs, more than double the 1.5 million beneficiaries enrolled just three years earlier. McIlrath, GAO Report, Medicare HMOs, American Medical News 3 (November 18, 1996); Report Contrary to the Secretary’s suggestion, Medicare HMOs are not analogous to private HMOs. Congress has specified the package of services that Medicare HMOs must provide, supra at 3, and the Secretary has elaborated upon these mandates through extensive regulations and manuals. Coverage decisions by Medicare HMOs may be appealed to the Secretary and federal court; in fact, when Congress included risk-based HMO coverage, it expanded HMO beneficiary appeal rights beyond those conferred in the Medicare fee-for-service appeal process to include failure to receive services as well as denials of payment. 42 U.S.C. § 1395mm(c)(5)(B). Extensive and detailed conditions are attached to HMO participation in the Medicare program. 42 C.F.R. §§ 417.1-417.694. b. The Joint Statement of Facts presented to the district court in this case identified a number of problems with the Medicare HMO program. The six thick volumes of exhibits, which included declarations of named plain- tiffs, other beneficiaries and professionals, excerpts from discovery, and studies and investigative reports, show a pattern of denials by HMOs, particularly of certain more costly types of health services. Beneficiaries’ primary remedy for denial of service is the administrative appeal process established by statute and regulations. But he defects of this process impair the relief which it should offer to HMO enrollees who are of testimony by Bruce C. Vladek, HCFA Administrator, at February 10, 1995 hearing of the Health Subcommittee of the House Ways and Means Committee, reported at 842 New Developments 5-7, Medicare & Medicaid Guide (CCH). denied services.2 HMO notices of denial to beneficiaries are infrequently given and, even when given, are inade- quate in content. The hearing process that follows is seriously flawed, both by its extensive delays when ser- vices are urgently needed and by the inability of benefici- aries to obtain and supply supporting evidence. As a result, most beneficiaries have no effective remedy when services are denied. 2. In an effort to correct this harmful situation, HMO-enrolled Medicare beneficiaries brought the instant lawsuit, stating four claims. First, the Secretary failed to enforce the obligations of her contracting HMOs to pro- vide congressionally mandated services. Second, the Sec- retary did not enforce the requirement that her HMOs provide adequate notice when they deny coverage of such health services. Third, the Secretary’s failure to pro- vide HMO beneficiaries with a timely appeal when needed health services are denied deprives them of a meaningful hearing. Fourth, in HMO appeals the Secre- tary should place the burden of proof on the HMO rather than on the beneficiary. After certifying a nationwide class action, the district judge issued summary judgment for beneficiaries on counts two and three of the complaint and for the Secretary on count four. The district court specifically retained jurisdiction to resolve count one. a. Under two separate analyses, the district court found that, contrary to the Secretary’s contention, HMO service denials constituted state action. First, the court 2 See generally S. J. Stayn, Securing Access to Care in HMOs: Toward a Uniform Model of Grievance and Appeal Procedures, 94 Co.um. L. Rev. 1674 (1994). explained that Medicare HMOs fulfill two separate func- tions, as insurers and as direct providers of medical care. This case challenges HMOs’ performance of Medicare's insurer function; it does not challenge HMOs’ perfor- mance as providers of medical care. Pet.App. 33a. Courts have consistently found that private contractors fulfilling this insurance function for Medicare act as agents of the Secretary. See Kraemer v. Heckler, 737 F.2d 214, 215 (2d Cir. 1984); Himmler v. Califano, 611 F.2d 137, 140 (6th Cir. 1979); Vorster v. Bowen, 709 F.Supp. 934, 936 (C.D.Cal. 1989); Fox v. Bowen, 656 F.Supp. 1236, 1238 (D.Conn. 1986). In the present case, the district court found that “there is nothing unique about the performance of these same duties by HMOs which warrants a contrary finding here.” Pet.App. 34a. Secondly, the court analyzed HMO denials of Medi- care services under the criteria set forth in Catanzano v. Dowling, 60 F.3d 113 (2d Cir. 1995) (decisions by private home health agencies to deny or reduce the amount of home health care for Medicaid recipients amount to state action triggering due process rights), and in J.K. v. Dillen- berg, 836 F.Supp. 694 (D.Ariz. 1993) (decisions by private entities that contracted with the state to perform Medi- caid mandated behavioral health care duties constituted state action). As in Catanzano and Dillenberg, the district court found that the criteria for state action apply here. Specifically, the district court found that, with respect to Medicare HMO service denials: (1) the government pays for covered services; (2) the government regulates HMOs’ activities as they apply to Medicare beneficiaries, espe- cially benefit coverage determinations; (3) the Secretary issues regulations and directives which cannot be 10 ignored, and creates the legal framework which governs the activities complained of by beneficiaries; and (4) Med- icare beneficiaries appeal HMO service denials directly to the Secretary, who has the power to overturn the HMO decision. Pet.App. 32a-33a. b. The district court held that Medicare benefici- aries who are denied coverage by contracting HMOs are entitled to due process as are Medicare beneficiaries who are denied coverage in the fee-for-service system. Id. at 34a-35b. The court then applied the balancing test set forth by this Court in Mathews v. Eldridge, 424 U.S. 319 (1976), to determine the extent of procedural protections required for HMO beneficiaries by due process. Pet.App. 42a-45a. It concluded that the Secretary’s current notice and hearing procedures violated due process. Subsequently, at the court’s request, both parties fully briefed their positions regarding the content of the remedi«: order. Court of Appeals Supplemental Excerpts of Record 1010-1078. The court ordered the parties to enter into binding settlement discussions as to the details of a meaningful notice and appeals process, with the understanding that the Secretary's right to appeal the state action issue would be preserved. When the Secre- tary took the position that she would not be bound by any settlement agreement, the district court considered the parties’ briefing as to the specifics of the injunction and issued its judgment on March 3, 1997. Pet.App. 59a-69a. The court did not strike down Medicare legisla- tion or regulations, but ordered the Secretary to make reforms in five specific areas of its HMO notice and appeals process. 11 c. On April 30, 1997, two days before the deadline for filing a notice of appeal, the Secretary published a “Final Rule with comment period”, which implemented a portion of the court’s order. 62 Fed. Reg. 23368 (April 30, 1997). She then requested a stay of the judgment pending appeal, claiming that her new regulations complied with many of the court’s procedural requirements, and, signifi- cantly, that the other requirements would be addressed by additional regulations in the near future. Def. Motion for Stay Pending Appeal (5/13/97), in Court of Appeals Excerpts of Record (C.A.E.R.) 200. The district court granted the stay based on the Secretary’s assurances regarding further compliance: “[T]he entire case may become largely moot if the Secretary’s attestations regarding rule changes are true and are implemented without delay.” Pet.App. 68a. However, consistent with her regrettably misleading practices throughout this liti- gation, the Secretary has never issued regulations imple- menting the rest of the district court’s judgment. d. On August 5, 1997, the Balanced Budget Act of 1997 was enacted, folding Medicare HMOs into a broader Medicare+Choice set of options. The BBA also inserted into the statute some time frames for expedited appeals. Although the BBA was enacted before the Secretary filed her reply brief in the court of appeals, she declined to discuss the new statute. Instead, she stated without qualification that the BBA provisions “have no effect on the arguments presented in this appeal.” Gov’t Reply Br. at 10 n.9. Furthermore, at oral argument before the court of appeals on January 13, 1998, the Secretary again dis- claimed any effect on this case by the BBA, which had become effective on January 1, 1998. 12 The BBA provided for expedited appeal in some but not all of the situations addressed by the district court. Unfortunately, neither it nor the Secretary’s implement- ing regulations complied with other important protec- tions included in the judgment below. First, they do not satisfy the five-day timeliness standard for written denial notices.* Second, they do not provide for an ‘ndependent, non-HMO decision-maker in expedited reviews. Third, they fail to provide for urgently needed services to con- tinue pending expedited review. Fourth, they do not implement the congressional mandate for the Secretary’s enforcement of HMO contractual conditions. 3. The Ninth Circuit, in a unanimous opinion writ- ten by Judge Wiggins, affirmed the district court’s deci- sion. Pet.App. la-21a. First, the court of appeals held that HMO denials of services to Medicare beneficiaries consti- tute state action. The court considered each of the factors that point to state action, and stated that, although each factor alone might not be sufficient to establish state action, together they show that the HMOs and the federal government are joint participants in providing Medicare services. Pet.App. 9a-10a. The court distinguished Blum v. Yaretsky, 457 U.S. 991 (1982), where physicians made medical treatment decisions based on professional stan- dards, from Grijalva, where HMOs make Medicare cover- age determinations pursuant to federal law. Pet.App. 11a. 3 The Petition incorrectly asserts that the five-day standard is unreasonably rigid. In fact, the judgment carefully provides for extensions of up to sixty days when needed to “make a responsibly considered medical determination.” Pet.App. 60a. 13 The court of appeals then performed its own balanc- ing test under Mathews v. Eldridge, and concluded that due process does require the procedural protections for Medicare beneficiaries enrolled in HMOs that were ordered by the district court. Pet.App. 13a. Finally, the court addressed the Secretary’s argument that intervening regulations warranted modifying the district court’s injunction. Judge Wiggins noted that the district court has continuing jurisdiction over its injunc- tion and that the Secretary could seek modification through the district court. Pet.App. 20a. As the Secretary had expressly advised the Ninth Circuit that the BBA did not change the issues before it, the court did not address the BBA. Subsequently, the Secretary filed a Petition for Rehearing With Suggestion For Rehearing En Banc. Her petition was based largely on a reversal in position, namely, that the BBA does affect the issues and relief in this case. The panel unanimously denied the petition, and the court as a whole declined to rehear the case en banc. Pet.App. 22a-23a. ¢ REASONS FOR DENYING THE WRIT A. The Factual And Legal Context Of Sullivan Renders The Decision On State Action In That Case Of No Relevance To The Instant Case. 1. The Secretary’s reliance on American Manufac- turers Mutual Insurance Co. v. Sullivan, 119 S.Ct. 977 (1999), as providing grounds to vacate and remand the 14 decision below is misplaced. In Sullivan, this Court held that a private insurer’s decision to withhold payment and seek utilization review of whether particular medical treatments were reasonable and necessary is not fairly attributable to the state so as to subject the insurer to the Fourteenth Amendment's constraints. Thus, although the Sullivan decision generally discusses this Court’s state action jurisprudence, it has no specific relevance to this case and offers no basis for requiring the appeals and district courts to revisit their analyses. a. Initially, it needs to be emphasized that Sullivan does not modify this Court’s prior holdings on state action. While enlightening in the application of state action principles to a case under 42 U.S.C. § 1983 involv- ing workers’ compensation, Sullivan does not alter the analytical framework relied on by the courts below in this case. This Court reaffirmed the traditional two-step approach enunciated in Lugar v. Edmondson Oil Co., 457 U.S. 922, 937 (1982), and reached its conclusion that there was no state action by distinguishing the situation in Sullivan from prior state action cases and by carefully parsing the factual contexts in which the different contro- versies arose. 119 S.Ct. at 985-989. The court of appeals’ critique in the instant case is entirely consistent with this Court’s long-standing approach, and Sullivan makes no change in those parameters previously outlined.4 4 Sullivan also demonstrates that there is no significance to the Secretary’s observation that the appellate courts’ decisions in Sullivan and the instant case failed to include the three principles applicable to the second Lugar factor, as set out in Edmonson v. Leesville Concrete Co., 500 U.S. 614, 621-622 (1991). See Pet.Br. 16. The absence of an explicit statement of these 15 b. It is of paramount importance to the resolution of this Petition, however, that the legal and factual context of Sullivan differs dramatically from the instant case. Unlike Sullivan, where the state action inquiry focused on private decisions to withhold payment for medical care based on professional standards, with no state obligation to pay or provide benefits, 119 S.Ct. at 986-988, the state action inquiry in the present case turns on HMO coverage determinations which are based on federal law and the governmental obligation to provide benefits. The Secretary contends that the state action holding below was “predicate[d] . . . largely on the government's regulatory role.” Pet.Br. 16. Given this Court’s repeated recognition, including in Sullivan, 119 S.Ct. at 986, that regulation alone does not convert private action into state action, it is not surprising that the Secretary would seek to frame this case as merely an instance of government regulation. This situation, however, is vastly different from one involving a regulated industry, as the state action finding is here predicated on a comprehensive federal statutory scheme establishing the Medicare pro- gram. See supra at 2-4. The structure and operation of the Medicare pro- gram, which is detailed at length in the statute, the regu- lations, and the manuals, are the responsibility of the Secretary to carry out and enforce, and the HMOs which contract with the Secretary play subordinate roles in this principles does not necessarily undercut the implicit propriety of the lower courts’ analytical approach, regardless of the ultimate outcome of those analyses. 16 scheme. The Secretary not only sets the benefit entitle- ment package, coverage and standards for quality, orga- nization, delivery of services, and notice and appeal rights, but exercises a virtual monopsony in its role as the exclusive buyer of beneficiary services. Unlike Sullivan, 119 S.Ct. at 988, and Jackson v. Metropolitan Edison Co., 419 U.S. 345, 352-353 (1974), where the state had no obligation to provide service or benefits, in this case the government is obligated to ensure that HMOs provide all federally mandated public benefits. That is the critical difference from the instant case, where the obligation has always attached to the government. Courts have invariably found state action in the con- text of government health benefits obligated by statute and provided via a delegation to HMO. In a number of recent decisions courts have explicitly rejected arguments against state action like that made by the Secretary. In Catanzane, 60 F.3d at 117-120, state action and consequent due process protections were found in a managed care arrangement for Medicaid benefits. In Perry v. Chen, 985 F.Supp. 1197 (D.Ariz. 1996), the court held that managed care organizations contracting with the state’s Medicaid program must meet due process requirements when they deny health services to beneficiaries. In Daniels v. Wadley, 926 F.Supp. 1305, 1311 (M.D.Tenn. 1996), vacated on this point sub nom. Daniels v. Menke, 145 F.3d 1330 (6th Cir. 1998) (table) (vacated for change of circumstances), the district court held that Medicaid-contracting HMOs are state actors and so are subject to due process standards when they deny health services to beneficiaries. Finally, in J.K. v. Dillenberg, 836 F.Supp. at 697-699, state action 17 with constitutional protections was found in private men- tal health case management services provided under con- tract with the state Medicaid program. c. There is no logic in according preferential treat- ment to HMOs which participate in the Medicare system, when, like fee-for-service providers, they contract with the federal government to carry out federally established coverage decisions and as such are acting as agents. See, e.g., Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 54, 64 (1984); Bodimetric Health Services, Inc., 903 F.2d at 487; Kraemer, 737 F.2d at 215; Fox, 656 F.Supp. at 1238. That HMOs participate both in the Medicare program and in the private sector is not a relevant concern. Rather, it is their voluntary participa- tion in the Medicare program and in the provision of Medicare benefits which defines their role as state actors, for, in that context, the HMOs’ actions are “fairly attribu- table to the State.” Sullivan, 119 S.Ct. at 989. A finding of no state action in the HMO Medicare context, and the consequent reduction in beneficiary rights, would also create a double and unequal standard for Medicare beneficiaries, depending on whether they were HMO-enrolled or in fee-for-service. The courts below explicitly recognized this unfairness and the fact that there is nothing in the legislative record to indicate a congressional intention to create such a disparate system. See Pet.App. 34a-35a. Further, the Secretary significantly errs by stating that the court below “conclud[ed] that medical treatment decisions by private HMOs concerning their Medicare- 18 beneficiary members are properly attributed to the fed- eral government.” Pet.Br. 16 (emphasis supplied). In fact, the court of appeals’ ruling clearly was limited to coverage decisions by Medicare HMOs rather than medical judg- ments. Pet.App. 11a. By contrast, Sullivan did not involve coverage determinations but, rather, withholding pay- ment to providers pending resolution of medical treat- ment disputes, where standards were not established by the state. 119 S.Ct. at 986.° The present case is also quite different from prior cases where the challenged activity turned on judgments made by medical professionals. In Blum v. Yaretsky, 457 U.S. at 1008-1009, this Court held that physician treat- ment decisions do not involve state action. The lower courts here rightly distinguished HMO coverage deter- minations from the situations in Blum and its progeny where no state action was found. Pet.App. 8a-10a, 30a. The Secretary’s attempt to insulate herself and her HMOs from accountability by cloaking them in independent pro- fessional discretion must fail. See Pet.Br. 17-18 n. 6. The situation in this case — unlike Sullivan — is similar to West v. Atkins, 487 U.S. 42 (1988). There, the Court 5 The Medicare statute contains a section listing exclusions from its package of covered services; several of the exclusions are services “not reasonable and necessary for... [various listed purposes].” S.S.A. § 1862(a)(1). The Secretary has further defined in detail the situations where these exclusions are found. See, inter alia, The Medicare Coverage Issues Manual, HCFA-Pub. 6. These Medicare coverage exclusio~s are not analogous to the Pennsylvania legislation analyzed in Sullivan, where medical judgment was a prerequisite to entitlement. 19 found that a state-contracted physician's delivery of med- ical treatment to state prison hospital inmates was action fairly attributable to the state, as it had an obligation to provide adequate medical care, it delegated that function, and the private actor voluntarily assumed the obligation by contract. Id. at 56. These are the same factors identified by the district and appellate courts below in concluding that there is state action in this situation. See Pet.App. 10a, 32a. Indeed, the effect of the BBA is to accentuate the Medicare parallel to the circumstances which defined state action in West. Under the BBA, when beneficiaries elect to enroll in managed care organizations, they will be “locked in” and dependent on their HMOs to make cov- erage decisions according to federal law. S.S.A. § 1851(e)(2)(C), added by BBA § 4001, 111 Stat. 281 (mis- leadingly omitted from Pet.App.; see id. at 78a). Conse- quently, beneficiaries’ circumstances will be remarkably similar to those of the inmates in West, who also had no alternative to the health care available from the contract- ing physician — a state actor. e. The Secretary wrongly discerns significance in her observation that the relationship between Medicare beneficiaries and HMOs is the “product of a private choice.” Pet.Br. 17. But it is irrelevant that an HMO’s connection to its Medicare beneficiary members resem- bles the HMO relationship to private health beneficiaries on the issue of choice of plans. As this Court noted in West, 487 U.S. at 56 n. 15, whether the role of a putative state actor “parallels one in the private sector is not, by itself, reason to conclude that the former is not acting under color of state law in performing his duties.” 20 The relevant private decision-making at issue in this case is not that of Medicare beneficiaries choosing the HMO route. It is, rather, the voluntary decision of private health plans to participate as contractors in the Medicare program. Consequently, like intermediaries in the tradi- tional fee-for-service Medicare market, they must adhere to the statutory and contractual entitlements to benefits. 2. The lower courts correctly held that principles of due process require the procedural protections ordered in this case for Medicare HMOs. In Sullivan, this Court held that the Due Process Clause does not apply to medical benefits under the Pennsylvania workers’ compensation law because there is no protected property interest in those benefits. 119 S.Ct. at 990. Here, in direct contrast, this Court, as well as numerous other courts, has long recognized that due process principles apply to the Medi- care package of health benefits. McClure, 456 U.S. at 198; see also, e.g., Kraemer, 737 F.2d at 222; Gray Panthers, 652 F.2d at 146; Martinez, 472 F.2d at 1121; Martinez, 655 F.Supp. 95, 99. The Secretary complains that, in its due process anal- ysis, the court of appeals did not give substantial weight to agency views, but she misquotes the court’s opinion. Pet.Br. 18. Judge Wiggins rejected the Secretary’s asser- tion that Eldridge confers “great deference” upon the Sec- retary’s views on the appropriate level of procedural protection, for the simple reason that the language and standard suggested by the Secretary simply do not appear in Eldridge. See Pet.App. 13a n.3. In fact, the district judge did give deference to her views on this point, as he conscientiously reviewed both the Secretary’s existing procedures and arguments, ruling in her favor on 21 one of the four counts. Pet.App. 24a et seq. In formulating relief, the district court asked the Secretary to file a response to the proposed judgment and then ordered beneficiaries to engage in settlement talks with the Secre- tary on the remaining issues. District Court Minute Entry of 2/3/97, in C.A.E.R. 199. The court of appeals reviewed the government’s interests in a separate section of its opinion, and, even after applying the deference due under Eldridge, the court determined that the government had simply failed to advance any convincing argument that the burden on it outweighed the need for additional due process protections. B. The Secretary’s Limited Compliance With The Remedial Order Does Not Moot The Case, And The District Court Has Continuing Jurisdiction To Con- sider Whether Its Order Should Be Modified. 1. The Secretary’s assertion that this case would warrant plenary review absent its alleged similarity with Sullivan is unfounded. The decisions below were not nearly so sweeping as to have “declare{d] unconstitu- tional the Secretary’s implementation of a major federal program.” Pet.Br. 20. Rather, they simply held that one circumscribed aspect of the Medicare program - appeal rights for HMO beneficiaries - needed improvement to meet judicially recognized standards. Nor did the deci- sions “constitutionalize” private HMOs. Id. HMOs con- duct their activities as before, except that a)>eal procedures for Medicare beneficiaries, which have alw.«'s been prescribed by the Secretary, are somewhat stricter. 22 2. Contrary to the Secretary’s repeated assertions, the BBA and regulations do not substantially alter the controversy or moot this case. First, the district court's decision did not strike down any particular provisions of the Medicare statute or regulations. Rather, the court focused on the Medicare appeals process as it existed in practice, and ordered the Secretary to improve the proc- ess in certain specific ways. Pet.App. 24a-64a. Thus, the BBA did not replace legislation declared invalid by the court, and for that reason many of the decisions cited by the Secretary are not directly applicable to this case. See, e.g., Lewis v. Continental Bank Corp., 494 U.S. 472 (1990); Bowen v. Kizer, 485 U.S. 386 (1988); U.S. Dep’t of Treasury v. Galioto, 477 U.S. 556 (1986); Princeton Univ. v. Schmid, 455 U.S. 100 (1982). Second, the BBA and the new regulations do not satisfy the requirements of the district court’s remedial order. The BBA renamed Medicare risk-contracting HMOs ‘ grouped them together with some new structures for providing Medicare benefits, and “coordinated care plans,’ shifted some of the relevant statutory provisions to a new section of the Medicare statute. But neither the statutory framework nor the statutory provisions addressed by the lower courts have changed. Section 1395mm(c)(1) of title 42, which forbids the Secretary from entering into a con- tract with an HMO unless it meets the statutory require- ments and upon which the lower courts relied (Pet.App. 20a, 54a), has not been repealed. Section 1395mm(c)(5)(A)’s requirement of meaningful procedures for hearing and resolving grievances between enrollees and the HMO also remains in the statute. See Resp.App. 7. 23 Although the Secretary describes in glowing detail the salubrious contents of the BBA (Pet.Br. 20-22), she fails to note that many of its procedural provisions deal with matters not raised in this litigation, such as decision- making by qualified medical personnel and the time lim- itation for non-expedited reconsiderations. Other BBA provisions touted in the Petition simply repeat in statu- tory form procedural characteristics of the existing sys- tem, such as independent review of adverse HMO reconsiderations and subsequent levels of review by ALJs and federal courts. Only one important element of the district court’s remedial order is satisfied by the BBA: the requirement that an expedited HMO reconsideration by the HMO be provided within three days (or 72 hours in the BBA) for urgently needed health services. S.S.A. § 1852(g)(3)(B)(iii), added by BBA § 4001, 111 Stat. 294. However, the other key components of the court order are not met in the BBA and the Secretary’s regula- tions. For example, recognizing the frequent need for prompt medical treatment, the district court required that HMOs make initial determinations within five days of a request for a health care service unless more time is required by the HMO. Pet.App. 60a. The court also required the continuation of on-going and urgently needed acute care services (unless harmful to the enrollee) pending an expedited reconsideration deter- mination. Id. at 63a. Finding that existing “notice and informal hearing requirements set forth by statute and regulations are all but ignored,” id. at 51a, the court required the Secretary to enforce Congress’ statutory pro- hibition against renewing contracts with HMOs that do not comply with federal standards. Id. at 54a-55a, 61a, 24 63a. The BBA does not satisfy these obligations, and the Secretary continues to ignore the bulk of the remedial order. The Petition asserts that the prohibition against con- tracting with non-compliant HMOs was mooted by the BBA in its enactment of S.S.A. § 1857, BBA § 4001, 111 Stat. 319. Pet.Br. 24 n.13. While it is true that the new S.S.A. § 1857 uses permissive language in authorizing the Secretary to terminate non-compliant Medicare+Choice organizations generally, the Petition fails to disclose the fact that the BBA did not repeal 42 U.S.C. § 1395mm(c)(1), which mandates non-renewal of Medicare contracts with deficient HMOs. Resp.App. 7. Under the rules of statu- tory construction, the more specific provision of section 1395mm(c)(1) continues to be controlling in Medicare contracts with HMOs under Medicare+Choice. And where, as here, the intervening legislation and regula- tions do not resolve many of the underlying controversies or issues, the case is not moot. Northeastern Fla. Chapter of the Associated Gen. Contractors v. City of Jacksonville, 508 U.S. 656, 662 (1993) (municipal ordinance conferring minority business preferences voluntarily replaced dur- ing appeal did not moot case when replaced by similar statute); City of Mesquite v. Aladdin's Castle, Inc., 455 U.S. 283, 289 (1992) (voluntary compliance did not moot judg- ment). See also, e.g., National Independent Coal Operators’ Assn. v. Kleppe, 423 U.S. 388, 393 n.4 (1976) (challenge to validity of regulations regarding administrative hearings not moot where regulation reissued after filing of suit required a hearing if requested); FEA v. Algonquin SNG, Inc., 426 U.S. 548, 558 n.8 (1976) (challenge to administra- tive imposition of fees on oil imports not mooted by new i 25 federal statute because it did not eliminate one type of fee which respondents sought to enjoin). 3. The Secretary asks the Court to vacate the court of appeals’ decision and remand this case to the district court with instructions to vacate its judgment as well and conduct such further proceedings as may be appropriate in light of the BBA and new regulations. Pet.Br. 26. This action is neither necessary nor appropriate for several reasons. First, it is apparent that the Secretary’s regulatory and legislative initiatives were in reaction to the injunc- tion in this case. Even the Secretary should not be allowed to manipulate the judicial process by offering half a loaf after her efforts to evade compliance have failed. As discussed above, the Secretary advised the court of appeals that it need not consider the effect of the BBA in deciding the appeal. Although that legislation became law in August 1997, before the appeal was fully briefed and argued, the Secretary informed the court that it should not consider its provisions: “[T]hese changes have no effect on the arguments presented in this appeal.” Gov’t Reply Brief at 10 n.9 (emphasis added). Further- more, although oral argument took place after the Janu- ary 1, 1998 effective date of the BBA, the Secretary still did not ask the court to consider its effect. Having expressly waived her opportunity to raise this legislation below, the Secretary should not be allowed to use it now to further delay or deny relief to tens of thousands of Medicare beneficiaries. 26 Second, the relief requested by the Secretary, recon- sideration by the district court, may be obtained without the issuance of a writ of certiorari vacating the court of appeals’ decision. The district court retained jurisdiction to consider the effects of the procedural changes ordered, Pet.App. 58a, 64a, and, in any event, the Secretary may seek modification in light of the BBA changes on remand to the district court pursuant to Rule 60(b), F.R.Civ.P. At the conclusion of his opinion for the unanimous panel below, Judge Wiggins noted precisely this point: The district court has continuing jurisdiction over the modification of the injunction. See Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1030 (9th Cir. 1985) (declining to remand to district court with directions to mod- ify injunction, noting that the party “may apply directly” to the district court for modification in light of post-trial events). The Secretary may move in the district court for a modification of its injunction. Pet.App. 21a. See also, e.g., Agostini v. Felton, 521 U.S. 203 (1997) (discussing standards for a Rule 60(b) motion); Standard Oil v. U.S., 429 U.S. 17 (1976) (unsuccessful appellant may make a Rule 60(b) motion on remand). Because the intervening legislation and regulations complied only in small part with the lower court’s order, this case is far from moot. The court of appeals’ opinion directing the Secretary to seek consideration of these subsequent events in the district court was correct. It is not necessary, and certainly not equitable, for this Court to vacate the decisions below merely to allow the Secre- tary to belatedly raise additional issues. The Secretary, like all other litigants, should apply to the district court for that relief, rather than ask for this Court’s interven- tion merely because of the fortuitous timing of the peti- tion for a writ of certiorari. CONCLUSION For the reasons stated, the Court should deny the petition for a writ of certiorari. Lenore E. GERARD Legal Assistance to the Elderly 1453 Mission, Ste. 500 San Francisco, CA 94103 (415) 861-4444 Carot S. JIMENEZ 5182 Katella Ave., Ste. 106 Los Alamitos, CA 90720 (562) 430-0239 AuprREY Kraus Center for Health Care Rights 520 S. Lafayette Park PI., Ste. 214 Los Angeles, CA 90057 (213) 383-4519 March 29, 1999 Respectfully submitted, SaLty Hart (Counsel of Record) Center for Medicare Advocacy, Inc. 1730 E. River Rd., Ste. 107 Tucson, AZ 85718 (520) 577-1611 Gitt DeFrorp Center for Medicare Advocacy, Inc. P.O. Box 350 Willimantic, CT 06226 (860) 456-7790 Counsel for Respondents App. 1 Soc. Sec. Act § 1876 [codified 42 U.S.C. § 1395mm] PAYMENTS TO HEALTH MAINTENANCE ORGANI- ZATIONS AND COMPETITIVE MEDICAL PLANS Sec. 1876. (a)(1)(A) The Secretary shall annually determine, and shall announce (in a manner intended to provide notice to interested parties) not later than Sep- tember 7 before the calendar year concerned - (i) a per capita rate of payment for each class of individuals who are enrolled under this section with an eligible organization which has entered into a risk-sharing contract and who are entitled to benefits under part A and enrolled under part B, and (ii) a per capita rate of payment for each class of individuals who are so enrolled with such an organization and who are enrolled under part B only. For purposes of this section, the term “risk-sharing con- tract” means a contract entered into under subsection (g) and the term “reasonable cost reimbursement contract” means a contract entered into under subsection (h). (B) The Secretary shall define appropriate classes of members, based on age, disability status, and such other factors as the Secretary determines to be appropriate, so as to ensure actuarial equivalence. The Secretary may add to, modify, or substitute for such classes, if such changes will improve the deter- mination of actuarial equivalence. (C) The annual per capita rate of payment for each such class shall be equal to 95 percent of the adjusted average per capita cost (as defined in para- graph (4)) for that class. (D) In the case of an eligible organization with a risk-sharing contract, the Secretary shall make monthly payments in advance and in accordance App. 2 with the rate determined under subparagraph (C) and except as provided in subsection (g)(2), to the organization for each individual enrolled with the organization under this section. (E)(i) The amount of payment under this para- graph may be retroactively adjusted to take into account any difference between the actual number of individuals enrolled in the plan under this section and the number of such individuals estimated to be so enrolled in determining the amount of the advance payment. (ii)(1) Subject to subclause (Il), the Secretary may make retroactive adjustments under clause (i) to take into account individuals enrolled during the period beginning on the date on which the individual enrolls with an eligible organization (which has a risk-sharing contract under this section) under a health benefit plan operated, sponsored, or contributed to by the individual’s em- ployer or former employer (or the employer or former employer of the individual’s spouse) and ending on the date on which the individual is enrolled in the plan under this section, except that for purposes of making such retroactive adjustments under this clause, such period may not exceed 90 days. (II) No adjustment may be made under subclause (I) with respect to any individual who does not certify that the organization provided the individual with the explanation described in subsection (c)(3)(E) at the time the individual enrolled with the organization. (F)(i) At least 45 days before making the announcement under subparagraph (A) for a year App. 3 (beginning with the announcement for 1991), the Sec- retary shall provide for notice to eligible organiza- tions of proposed changes to be made in the methodology or benefit coverage assumptions from the methodology and assumptions used in the pre- vious announcement and shall provide such organi- zations an opportunity to comment on such proposed changes. (ii) In each announcement made under subpara- graph (A) for a year (beginning with the announcement for 1991), the Secretary shall include an explanation of the assumptions (including any benefit coverage assump- tions) and changes in methodology used in the announce- ment in sufficient detail so that eligible organizations can compute per capita rates of payment for classes of indi- viduals located in each county (or equivalent area) which is in whole or in part within the service area of such an organization. (2) With respect to any eligible organization which has entered into a reasonable cost reimbursement con- tract, payments shall be made to such plan in accordance with subsection (h)(2) rather than paragraph (1). (3) Subject to subsections (c)(2)(B)({ii) and (c)(7), payments under a contract to an eligible organization under paragraph (1) or (2) shall be instead of the amounts which (in the absence of the contract) would be otherwise payable, pursuant to sections 1814(b) and 1833(a), for services furnished by or through the organization to indi- viduals enrolled with the organization under this section. (4) For purposes of this section, the term “adjusted average per capita cost” means the average per capita amount that the Secretary estimates in advance (on the App. 4 basis of actual experience, or retrospective actuarial equivalent based upon an adequate sample and other information and data, in a geographic area served by an eligible organization or in a similar area, with appropri- ate adjustments to assure actuarial equivalence) would be payable in any contract year for services covered under parts A and B, or part B only, and types of expenses otherwise reimbursable under parts A and B, or part B only (including administrative costs incurred by organi- zations described in sections 1816 and 1842), if the ser- vices were to be furnished by other than an eligible organization or, in the case of services covered only under section 1861(s)(2)(H), if the services were to be furnished by a physician or as an incident to a physi- cian’s service. (5) The payment to an eligible organization under this section for individuals enrolled under this section with the organization and entitled to benefits under part A and enrolled under part B of this subchapter shall be made from the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund. The portion of that payment to the organization for a month to be paid by each trust fund shall be deter- mined as follows: (A) In regard to expenditures by eligible orga- nizations having risk-sharing contracts, the allocation shall be determined each year by the Secretary based on the relative weight that benefits from each fund contribute to the adjusted average per capita cost. (B) In regard to expenditures by eligible organi- zations operating under a reasonable cost reimburse- ment contract, the initial allocation shall be based on vise App. 5 the plan’s most recent budget, such allocation to be adjusted, as needed, after cost settlement to reflect the distribution of actual expenditures. The remainder of that payment shall be paid by the former trust fund. (6) Subject to subsections (c)(2)(B)(ii) and (c)(7), if an individual is enrolled under this section with an eligi- ble organization having a risk-sharing contract, only the eligible organization shall be entitled to receive payments from the Secretary under this title for services furnished to the individual. (b) For purposes of this section, the term “eligible organization” means a public or private entity (which may be a health maintenance organization or a competi- tive medical plan), organized under the laws of any State, which - (1) is a qualified health maintenance organiza- tion (as defined in section 1310(d) of the Public Health Service Act), or (2) meets the following requirements: (A) The entity provides to enrolled mem- bers at least the following heaith care ser- vices: (i) Physicians’ services performed by physicians (as defined in section 1861(r)(1)). (ii) Inpatient hospital services. App. 6 (iii) Laboratory, X-ray, emergency, and preventive services. (iv) Out-of-area coverage. (B) The entity is compensated (except for deductibles, coinsurance, and copayments) for the provision of health care services to enrolled members by a payment which is paid on a periodic basis without regard to the date the health care services are pro- vided and which is fixed without regard to the frequency, extent, or kind of health care service actually provided to a member. (C) The entity provides physicians’ services primarily (i) directly through physicians who are either employees or partners of such organization, or (ii) through contracts with individual physicians or one or more groups of physicians (organized on a group practice or individual practice basis). (D) The entity assumes full financial risk on a prospective basis for the provision of the health care services listed in subpara- graph (A), except that such entity may - (i) obtain insurance or make other - arrangements for the cost of providing to any enrolled member health care ser- vices listed in subparagraph (A) the aggregate value of which exceeds $5,000 in any year, (ii) obtain insurance or make other arrangements for the cost of health care service listed in subparagraph (A) pro- vided to its enrolled members other than through the entity because medical necessity required their provision before they could be secured through the entity, ET re i App. 7 (iii) obtain insurance or make other arrangements for not more than 90 percent of the amount by which its costs for any of its fiscal years exceed 115 percent of its income for such fiscal year, and (iv) make arrangements with phy- sicians or other health professionals, health care institutions, or any combina- tion of such individuals or institutions to assume all or part of the financial risk on a prospective basis for the provision of basic health services by the physicians or other health professionals or through the institutions. (E) The entity has made adequate provision against the risk of insolvency, which provi- sion is satisfactory to the Secretary. Paragraph (2)(A)(ii) shall not apply to an entity which had contracted with a single State agency administering a State plan approved under title XIX of this chapter for the provision of services (other than inpatient hospital ser- vices) to individuals eligible for such services under such State plan on a prepaid risk basis prior to 1970. (c)(1) The Secretary may not enter into a contract under this section with an eligible organization unless it meets the requirements of this subsection and subsection (e) with respect to members enrolled under this section. (2)(A) The organization must provide to members enrolled under this section, through providers and other persons that meet the applicable requirements of this title and part A of title XI - (i) only those services covered under parts A and B of this title, for those members entitled to App. 8 benefits under part A and enrolled under part B, or (ii) only those services covered under part B, for those members enrolled only under such part, which are available to individuals residing in the geo- graphic area served by the organization, except that (I) the organization may provide such members with such additional health care services as the members may elect, at their option, to have covered, and (II) in the case of an organization with a risk-sharing contract, the organiza- tion may provide such members with such additional health care services as the Secretary may approve. The Secretary shall approve any such additional health care services which the organization proposes to offer to such members, unless the Secretary determines that including such additional services will substantially discourage enrollment by covered individuals with the organization. (B) If there is a national coverage determination made in the period beginning on the date of an announcement under subsection (a)(1)(A) and ending on the date of the next announcement under such subsection that the Secretary projects will result in a significant change in the costs to the organization of providing the benefits that are the subject of such national coverage determination and that was not incorporated in the deter- mination of the per capita rate of payment included in the announcement made at the beginning of such period - (i) such determination shall not apply to risk- sharing contracts under this section until the first contract year that begins after the end of such period; and ad taal App. 9 (ii) if such coverage determination provides for coverage of additional benefits or under additional circumstances, subsection (a)(3) shall not apply to payment for such additional benefits or benefits pro- vided under such additional circumstances until the first contract year that begins after the end of such period, unless otherwise required by law. (3)(A)(i) Each eligible organization must have an open enrollment period, for the enrollment of individuals under this section, of at least 30 days duration every year and including the period or periods specified under clause (ii), and must provide that at any time during which enrollments are accepted, the organization will accept up to the limits of its capacity (as determined by the Secretary) and without restrictions, except as may be authorized in regulations, individuals who are eligible to enroll under subsection (d) in the order in which they apply for enrollment, unless to do so would result in failure to meet the requirements of subsection (f) or would result in the enrollment of enrollees substantially nonrepresentative, as determined in accordance with reg- ulations of the Secretary, of the population in the geo- graphic area served by the organization. (ii)(1) If a risk-sharing contract under this section is not renewed or is otherwise terminated, eligible organi- zations with risk-sharing contracts under this section and serving a part of the same service area as under the terminated contract are required to have an open enroll- ment period for individuals who were enrolled under the terminated contract as of the date of notice of such termi- nation. If a risk-sharing contract under this section is App. 10 renewed in a manner that discontinues coverage for indi- viduals residing in part of the service area, eligible orga- nizations with risk-sharing contracts under this section and enrolling individuals residing in that part of the service area are required to have an open enrollment period for individuals residing in the part of the service area who were enrolled under the contract as of the date of notice of such discontinued coverage. (II) The open enrollment periods required under subclause (I) shall be for 30 days and shall begin 30 days after the date that the Secretary provides notice of such requirement. (III) Enrollment under this clause shall be effective 30 days after the end of the open enrollment period, or, if the Secretary determines that such date is not feasible, such other date as the Secretary specifies. (B) An individual may enroll under this section with an eligible organization in such manner as may be prescribed in regulations and may terminate his enroll- ment with the eligible organization as of the beginning of the first calendar month following the date on which the request is made for such termination (or, in the case of financial insolvency of the organization, as may be pre- scribed by regulations) or, in the case of such an organi- zation with a reasonable cost reimbursement contract, as may be prescribed by regulations. (C) The Secretary may prescribe the procedures and conditions under which an eligible organization that has entered into a contract with the Secretary under this subsection may inform individuals eligible to enroll Pe CLE eT EEL ee eR Ee ee App. 11 under this section with the organization about the organi- zation, or may enroll such individuals with the organiza- tion. No brochures, app'tication forms, or other promotional or informational! material may be distributed by an organization to (or for the use of) individuals eligible to enroll with the organization under this section unless (i) at least 45 days before its distribution, the organization has submitted the material to the Secretary for review and (ii) the Secretary has not disapproved the distribution of the material. The Secretary shall review all such material submitted and shall disapprove such mate- rial if the Secretary determines, in the Secretary’s discre- tion, that the material is materially inaccurate or misleading or otherwise makes a material misrepresenta- tion. (D) The organization must provide assurances to the Secretary that it will not expel or refuse to re-enroll any such individual because of the individual’s health status or requirements for health care services, and that it will notify each such individual of such fact at the time of the individual’s enrollment. (E) Each eligible organization shall provide each enrollee, at the time of enrollment and not less frequently than annually thereafter, an explanation of the enrollee’s rights under this section, including an explanation of - (i) the enrollee’s rights to benefits from the organization, (ii) the restrictions on payments under this title for services furnished other than by or through the organization, App. 12 (iii) out-of-area coverage provided by the orga- nization, (iv) the organization’s coverage of emergency services and urgently needed care, and (v) appeal rights of enrollees. (F) Each eligible organization that provides items and services pursuant to a contract under this section shall provide assurances to the Secretary that in the event the organization ceases to provide such items and ser- vices, the organization shall provide or arrange for sup- plemental coverage of benefits under this title related to a pre-existing condition with respect to any exclusion period, to all individuals enrolled with the entity who receive benefits under this title, for the lesser of six months or the duration of such period. (G)(i) Each eligible organization having a risk-shar- ing contract under this section shall notify individuals eligible to enroll with the organization under this section and individuals enrolled with the organization under this section that — (I) the organization is authorized by law to ter- minate or refuse to renew the contract, and (II) termination or nonrenewal of the contract may result in termination of the enrollments of indi- viduals enrolled with the organization under this section. (ii) The notice required by clause (i) shall be included in - (I) any marketing materials described in sub- paragraph (C) that are distributed by an eligible EE RR eee ree App. 13 organization to individuals eligible to enroll under this section with the organization, and (II) any explanation provided to enrollees by the organization pursuant to subparagraph (E). (4) The organization must - (A) make the services described in paragraph (2) (and such other health care services as such indi- viduals have contracted for) (i) available and access- ible to each such individual, within the area served by the organization, with reasonable promptness and in a manner which assures continuity, and (ii) when medically necessary, available and accessible twenty- four hours a day and seven days a week, and (B) provide for reimbursement with respect to services which are described in subparagraph (A) and which are provided to such an individual other than through the organization, if (i) the services were medically necessary and immediately required because of an unforeseen illness, injury, or condition and (ii) it was not reasonable given the circumstances to obtain the services through the organization. (5)(A) The organization must provide meaningful procedures for hearing and resolving grievances between the organization (including any entity or individual through which the organization provides health care ser- vices) and members enrolled with the organization under this section. (B) A member enrolled with an eligible organiza- tion under this section who is dissatisfied by reason of his failure to receive any health service to which he believes he is entitled and at no greater charge than he believes he is required to pay is entitled, if the amount in controversy is $100 or more, to a hearing before the Secretary to the App. 14 same extent as is provided in section 205(b), and in any such hearing the Secretary shall make the eligible organi- zation a party. If the amount in controversy is $1,000 or more, the individual or eligible organization shall, upon notifying the other party, be entitled to judicial review of the Secretary’s final decision as provided in section 205(g), and both the individual and the eligible organiza- tion shall be entitled to be parties to that judicial review. In applying sections 205(b) and 205(g) as provided in this subparagraph, and in applying section 205(1) thereto, any reference therein to the Commissioner of Social Security or the Social Security Administration shall be considered a reference to the Secretary or the Department of Health and Human Services, respectively. (6) The organization must have arrangements, established in accordance with regulations of the Secre- tary, for an ongoing quality assurance program for health care services it provides to such individuals, which pro- gram (A) stresses health outcomes and (B) provides review by physicians and other health care professionals of the process followed in the provision of such health care services. (7) A risk-sharing contract under this section shall provide that in the case of an individual who is receiving inpatient hospital services from a subsection (d) hospital (as defined in section 1886(d)(1)(B)) as of the effective date of the individual’s - (A) enrollment with an eligible organization under this section — (i) payment for such services until the date of the individual’s discharge shall be made App. 15 under this title as if the individual were not enrolled with the organization, (ii) the organization shall not be financially responsible for payment for such services until the date after the date of the individual’s dis- charge, and (iii) the organization shall nonetheless be paid the full amount otherwise payable to the organization under this section; or (B) termination of enrollment with an eligible organization under this section — (i) the organization shall be financially responsible for payment for such services after such date and until the date of the individual’s : discharge, (ii) payment for such services during the stay shall not be made under section 1886(d), and (iii) the organization shall not receive any payment with respect to the individual under this section during the period the individual is not enrolled. ig Fat Se Sole ale In the case of an individual’s termination of enrollment, the organization shall provide the individual with a copy of the written request for termination of enrollment and a written explanation of the period (ending on the effective date of the termination) during which the individual continues to be enrolled with the organization and may not receive benefits under this title other than through the organization. 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