Appendix — Kwoun v. Southeast Missouri Professional Standards Review Organization

In THE

. SPANIOL, JR.

CLERK

Supreme Court of the United States

Octoser Term, 1986

Soune O. Kwovun, et al.,

Petitioners,

vs.

SoutHeast Missouri ProressionaL STANDARDS

Review OrncanizaTion, ef al., "

Respondents.

APPENDIX OF OPINIONS AND STATUTES TO

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Louis GimupENn*

Noran J. Ryan

317 North 11th Street

Suite 1220

St. Louis, Missouri 63101

(314) 241-6607

Juuivus LeVonne CHAMBERS

CuarLes STEPHEN Ratston

99 Hudson Street

New York, New York 10013

(212) 219-1900

Attorneys for Petitioners

*Counsel of Record

nts

Page

Decision of the United States

Court of Appeals for the Eighth

Circuit, February 4, 1987... la

Memorandum Decision of the

United States District Court

for the Eastern District of

Missouri, December 23, 1981 .. 56a

Memorandum Decision of the

United States District Court

for the Eastern District of

Missouri, September 19, 1985 .. 56a

Memorandum Decision of the

United States District Court

for the Eastern District of

Missouri, March 27, 1986... 124a

Memorandum Decision and Order

of the United States District

Court for the Eastern District

of Missouri, June 3, 1986... 140a

Order of the United States

District Court for the Eastern

District of Missouri, South-

eastern Division, March 27,

ae ee ee oe ae er ee ee a 144a

Order of the United States

Court of Appeals for the

Eighth Circuit Affirming the

District Court, February 4,

ae é fe Ue Re Ue we ee el lt 145a

Order of the United States

Court of Appeals for the

Eighth Circuit Denying

Rehearing, March 9, 1987... 147a

9. Constitutional Provision

Se st a sk A EO 8 ee Oe

10. Statutes Involved: 149a

42 U.S.C. § 1320c-5; 149a

42 U.S.C. § 1320c-6; 150a

42 U.S.C. § 1320c-8; 15la

42 U.S.C. § 1320c-9; 152a

42 U.C.C. § 1320c-16; 155a

42 U.S.C. § 1981; 156a

42 U.S.C. § 1985(3). 157a

11. Regulations Involved ..... 158a

42 C.F.R. § 474.3; 158a

42 C.F.R. § 474.4; 158a

42 C.F.R. § 474.5; 159a

42 C.F.R. § 474.6; 160a

42 C.F.R. § 474.7; 160a

42 C.F.R. § 474.8; 16la

42 C.F.R. § 474.9; 162a

42 C.F.R. § 474.10 163a

P.S.R.O. Program Manual, 167a

Chapt. XXIV

- la -

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 85-2379

Soung O. Kwoun, et al.,

Appellees,

Vv.

Southeast Missouri Professional

Standards Review Organization, et al.,

Appellants.

No. 86-1502

No. 86-1838

—— == oS SE Ee ES

Soung O. Kwoun, et al.,

Appellants,

Ve

South2zast Missouri Professional

Standards Review Organization, et al.,

Appellees.

Submitted: November 10, 1986

Filed: February 4, 1987

- 2a -

Appeals from the United States District

Court for the Eastern District

of Missouri

Before HEANEY and BOWMAN, Circuit Judges,

and ARNOLD,* District Judge.

ARNOLD, District Judge

The U.S. Department of Health and

Human Services (HHS) oversees Medicare

payments to doctors and hospitals. See

42 U.S.C. § 902, § 1395kk(a). As part of

its oversight responsibilities, HHS is

authorized to exclude doctors and hos-

pitals from eligibility for Medicare pay-

ments if services have been provided that

are substantially in excess of need or

fail to meet professional standards. See

42 U.S.C. § 1395y(d)(1)(c). To determine

*/ The HONORABLE MORRIS S. ARNOLD,

United States District Judge for the

Western District of Arkansas, sitting by

designation.

whether to exclude doctors and hospitals

il

- 3a -

from eligibility, HHS uses’ reports

submitted by regional and statewide peer

review organizations. See 42 U.S.C. §

1395y(g). The HHS office with the spe-

cific responsibility for making such

determinations is called the Health Care

Financing Administration (HCFA).

In December, 1978, HCFA notified the

regional peer review group for southeast-

ern Missouri! that the patient discharge

rates in that region indicated the pos-

sibil.sty of abuses in claims for Medicare

payments. The regional peer review group

began an investigation that eventually

focused on the Poplar Bluff Hospital and

the doctors with ‘admitting privileges

there. Soung Kwoun is one of those doc-

1 The regional peer review group is

known as the Southeast Missouri Pro-

fessional Standards Review Organization

(SEMO).

- 40 -

tors. Following the investigation, the

regional peer review group recommended to

the statewide peer review group? that the

hospital change some of its procedures

and that Dr. Kwoun be excluded from

eligibility for Medicare payments for ten

years. The statewide peer review group

adopted the recommendation of the re-

gional peer review group and then trans-

mitted the report and recommendations to

HCFA in March, 1980.

In September, 1980, HCFA notified

Dr. Kwoun of the recommendation and

advised him of his right to oppose it.

After an informal hearing in December,

1980, and aijitional consideration of the

2 The other plaintiffs are cor-

porate entities in which Dr. Kwoun has an

interest.

3 The statewide peer review group

is known as the Missouri Statewide

Professional Standards Review Council.

@ $6 -

peer review group report and Dr. kwoun’s

responses to it, HCFA adopted the re-

commendation. In September, 1981, HCFA

officially excluded Dr. Kwoun from

eligibility for Medicare payments for a

period of ten years. Dr. Kwoun then

asked for a formal hearing before an

administrative law judge. The admin-

istrative law judge reversed the ex-

clusion, citing procedural and sub-

stantive errors by HCFA, especially the

reliance of HCFA on informal discussions

with members of the regional peer review

group as the basis for excluding Dr.

Kwoun. The administrative law judge then

ordered Dr. Kwoun’s' reinstatement to

eligibility for Medicare payments.

Dr. Kwoun subsequently brought this

action against certain HCFA employees,

members of the regional and statewide

= 66 «

peer review groups, two state officials

involved in state proceedings brought

against Dr. Kwoun as a result of the

recommendation of the peer review group,

and the insurance company that admin-

isters the Medicare payments program

under contract with the government. 4 Dr.

Kwoun claimed that the HCFA employees?

deprived him of certain property and

liberty interests without due process and

subjected him to malicious prosecution

and extreme and outrageous conduct. He

asserted that the members of the regional

4 The insurance company was dis-

missed on grounds other than those in-

volved in these appeals; its dismissal

was not appealed.

5° The HCFA employees are collec-

tively referred to by the parties as the

federal defendants.

eT |

o 70 «

and statewide peer review groups® and the

state officials deprived him of equal

rights under the law to make and enforce

contracts and conspired to deprive him

of the equal protection of the laws. His

complaint against the peer review group

members and the state officials also

contained counts for malicious prosecu-

tion and extreme and outrageous conduct.

Finally, Dr. Kwoun claimed that the

state officials deprived him of certain

property and liberty interests without

due process.

The HCFA employees moved for summary

judgment on the basis of absolute inm-

munity. The district court denied the

motion. Three of the HCFA employees ap-

6 The members of the regional and

statewide peer review groups are collec-

tively referred to by the parties as the

SEMO defendants.

~ a =

peal the denial of absolute immunity.’

While the HCFA employees’ appeal was

pending, the district court dismissed,

sua sponte, the case against all defen-

dants on the ground of qualified immun-

ity. The plaintiffs appeal these dis-

missals. We affirm the orders of dis-

missal of all defendants but do so on the

ground of absolute rather than qualified

immunity.

I.

We turn first to the federal defen-

dants -- the HCFA employees. Defendant

Frank Kram is the HCFA employee who re-

viewed the peer review group report and

accepted its recommendation to exclude

Dr. Kwoun from eligibility for Medicare

reimbursement. Defendant Don Nicholson

7 A fourth HCFA employee was named

as a defendant but did not appeal.

o te =

is the HCFA employee who signed the

notice of proposed exclusion; defendant

Ralph Howard is the HCFA employee who

signed the final decision excluding Dr.

Kwoun. Apparently the acts of defendant

Kram are the primary focus of attention;

the complaint is cryptic on this point,

and the only specific allegation against

defendants Nicholson and Howard in the

plaintiffs’ brief is that their conduct

"was in a line with the earlier conduct

of Kram ... and furthered and reinforced

the previous lack of arms’ length deal-

ing."

While the regional peer review group

was investigating Dr. Kwoun, but before

it submitted its report to HCFA, defen-

dant Kram apparently met with the members

of the investigating committee in the

offices of the statewide peer review

- 10a -

group and discussed the investigation of

Dr. Kwoun. The administrative law judge

found that the report of the peer review

group did not meet the substantive due

process requirements set forth in the

applicable policy manual and federal

regulations. He found in addition that

Dr. Kwoun had been denied substantive due

process because defendant Kram’s adoption

of the recommendation to exclude him from

eligibility for Medicare payments was

based at least in part on defendant

Kram’s discussions with members of the

regional peer review group before the

report was issued and not on the report

itself.®

8 Because HCFA failed to follow

certain procedural requirements relating

to notice to Dr. Kwoun in December, 1979,

of the proposed exclusion, the federal

defendants are also charged with denying

Dr. Kwoun procedural due process. These

allegations are apparently included only

- lia -

Barr v. Matteo, 360 U.S. 564, 575

(1959) (plurality opinion), grants ab-

solute immunity from common-law tort

claims to federal officials acting "with-

in the outer perimeter of [their] line of

duty." Our court has described absolute

immunity from common-law torts as apply-

ing to acts connected "’... more or less

.-.- with the general matters committed by

law to the officer’s control or supervi-

sion, and not ... manifestly or palpably

beyond his’ authority.’" Bushman __v.

Seiler, 755 F.2d 653, 655 (8th Cir.

1985), quoting Norton v. McShane, 332

F.2d 855, 859 (5th Cir. 1964), cert.

as a basis for the constitutional claims

against then. In addition, the federal

defendants are charged with various

misconduct during the hearing before the

administrative law judge. These charges

are also apparently included only as a

basis for the constitutional claims

against then.

~ 14a -

denied, 380 U.S. 981 (1965). The plain-

tiffs contend that defendant Kram (and by

extension defendants Nicholson and

Howard, those officials having relied on

defendant Kram’s recommendation) acted

outside the scope of his authority be-

cause defendant Kram was involved in

“ascussions with members of the regional

peer review group before its report was

issued.

The first mention of HCFA in the

regulations governing the imposition of

exclusion sanctions under the Medicare

program provides that a peer review group

is to submit a report on violations to

HCFA after an investigation of possible

violations. See 42 C.F.R. § 474.3(b), §

474.8(a). Following submission of a peer

review group report, HCFA is to determine

whether a violation has occurred and is

- 13a =

to provide notice to the alleged violator

of the proposed exclusion. See 42 C.F.R.

§ 474.10(a), § 474.10(c). There is no

mention of HCFA involvement prior to the

issuance of a peer review group report.

On the other hand, there-is no ex-

plicit prohibition of such involvement

either. Furthermore, HHS is charged with

the duty of "promoting the effective,

efficient, and economical delivery of

health care services, and of promoting

the quality of services of the type for

which [Medicare] payment may be made."

See 42 U.S.C. § 1395y(g). HHS also has

the authority to contract with peer re-

view groups in order to carry out its

duties. Id. All parties agree that it

was HCFA that notified the regional peer

review group of data indicating possible

Medicare abuses. It seems apparent,

- 14a -

then, that any involvement of HCFA enm-

ployees in a peer review group investi-

gation after that notification would be

within the scope of their authority.

Even if acceptance of the recommen-

dation to exclude was pened on improper

factors (such as consideration of matters

outside the peer review group report),

that does not make the earlier actions of

the HCFA employees outside the scope of

their authority; it merely makes’ the

acceptance of the recommendation incor-

rect. The federal defendants are there-

fore entitled to absolute immunity § from

common-law tort claims.

A more difficult question is how to

categorize the purpose of the duties of

the HCFA employees in the context of the

process for imposing exclusion sanctions

on possible violators of the rules gov-

- 15a -

erning Medicare payments.? The courts

have recognized that the reasons for

granting absolute immunity to _ federal

officials from common-law tort claims --

to protect them "in the execution of

their federal statutory -duties from

criminal or civil actions based on state

law," Butz v. Economou, 438 U.S. 478, 489

(1978) -- do not apply to claims based on

violations of constitutional law. Id. at

495,

In most cases, "federal executive

officials exercising discretion are

entitled only to ... qualified immunity"

9- The dissent would remand to the

district court for a determination of

which federal defendants’ duties can be

characterized aes prosecutorial or adju-

dicative. Affidavits and exhibits al-

ready submitted by the federal defendants

to the district court, however, establish

that each one had the authority to "ini-

tiate or continue a proceeding subject to

agency adjudication." Butz v. Economou,

438 U.S. 478, 516 (1978).

~~ 168 -

from constitutional claims. Id. at 507.

Absolute immunity from _ constitutional

claims is to be granted only in "those

exceptional situations where it is demon-

strated that [such] immunity is essential

for the conduct of the public business."

ya. The determination of when such ex-

ceptional situations exist is a "’func-

tional’" one, Harlow v. Fitzgerald, 457

U.S. 800, 810 (1982), and "[t]he_ burden

of justifying absolute immunity rests on

the official asserting the claim." Id.

at 812.

"(J)judicial, prosecutorial, and

legislative functions require absolute

immunity," id. at 811, and therefore

"agency officials performing certain

functions analogous to those of a prose-

- iva -

cutor"19 are entitled to absolute im-

munity. Butz, 438 U.S. at 515. The

Supreme Court has held only that in

"initiating a prosecution and in present-

ing the [case against the defendant]"--

those prosecutorial functions "intimately

associated with the judicial phase" of

his duties -- is a prosecutor entitled to

absolute immunity. Imbler _v. Pachtman,

424 U.S. 409, 430-31 (1976). Whether a

prosecutor acting as "an administrator or

[an] investigative official rather than

10 "The decision to initiate ad-

ministrative proceedings against an

individual ... is very much like the

prosecutor’s decision to initiate or move

forward with a criminal prosecution. An

agency official, like a prosecutor, may

have broad discretion in deciding whether

a proceeding should be brought and what

sanctions should be sought." Butz, 438

U.S. at 515. "[T]hose officials who are

responsible for the decision to initiate

or continue a proceeding subject to

agency adjudication are entitled to

absolute immunity ... for their parts in

that decision." Id. at 516.

- 18a -

+++ an advocate" is entitled to absolute

immunity is a question that the Court has

expressly reserved. Id.

The federal defendants argue that

the process of deciding whether to impose

exclusion sanctions on a person under the

Medicare program is analogous to an

agency decision on whether to initiate

administrative proceedings against a

person in order to suspend or revoke his

federal registration as a commodities

futures merchant, see Butz, 438 U.S. at

481, or in order to impose professional

disciplinary sanctions, see Austin Muni-

F.2d 676, 689 (5th Cir. 1985). They

therefore argue that actions taken prior

to the formal hearing before the adminis-

trative law judge (defendant Kram’s al-

- 19a -

legedly improper consultation with men-

bers of the regional peer review group in

January, 1980, and the failure to give

adequate notice to Dr. Kwoun in December,

1979, of the fact that he was being con-

sidered for exclusion sanctions) occurred

in the context of essentially advocatory

prosecutorial duties -- "deciding whether

a proceeding should be brought and what

sanctions should be sought," Butz, 438

U.S. at 515, against "a specific target,"

Gray _v. Bell, 712 F.2d 490, 501 (D.C.

Cir. 1983), cert. denied, 465 U.S. 1100

(1984).

We agree. The statutes and regula-

tions governing the exclusion sanctions

process obviously anticipate the possi-

bility of a formal adjudicative hearing

before an administrative law judge de-

signated by the appeals counsel of HHS.

- 20a -

See, 42 U.S.C. § 1395y(d)(3) and 42

C.F.R. § 474.10(g)(1), § 405.1533. The

hearing is de novo, and HCFA has the

burden of proof. Appeal of the decision

of the administrative law judge is to the

appeals counsel of HHS. See 42 C.F.R. §

405.1561. Judicial review of the appeals

council decision is a possibility. See

42 U.S.C. § 1395y(d) (3).

The federal defendants further argue

that their alleged misconduct during the

formal hearing before the administrative

law judge was clearly advocatory. We

agree. An agency official’s presentation

of evidence in an agency hearing is pro-

tected for the same reasons that a

prosecutor’s presentation of evidence

before a court is protected. Butz, 438

U.S. at 517.

- 21a -

Because the actions of the federal

defendants at all relevant times were

prosecutorial in nature, those defendants

are entitled to absolute immunity from

constitutional claims. The dismissal

orders of the district court as to the

federal defendants are therefore af-

firmed.

II.

The SEMO defendants include the

regional peer review corporate body, the

statewide peer review corporate body, the

directors and officers of both groups,

the regional peer review group represen-

tative to the statewide peer review

group, the members of the regional peer

review group investigation oversight com-

mittee, the Poplar Bluff Hospital review

coordinator for the regional peer review

group, the physician advisers to the

ee

- 22a -

Poplar Bluff Hospital appointed by the

regional peer review group, and the

members of the regional peer review group

investigating team specifically assigned

to Dr. Kwoun. 11 These defendants argue

that because they were participating ina

review process established and governed

by federal law, they are federal actors

11 The complaint does not specify

whether the individual SEMO defendants

are sued in their individual or their

official capacity. However, our con-

clusions about the nature of the ex-

clusion sanctions process and the role of

peer review groups within that process

make that question irrelevant. In ad-

dition, it turns out that some of the

individual SEMO defendants either were

not associated with the peer. review

groups at the relevant times, did not

participate in the investigation of Dr.

Kwoun, or participated only as expert

witnesses in the formal hearing before

the administrative law judge. Our con-

clusions about the nature of the ex-

clusion sanctions process and the role of

peer review groups within that process

make it unnecessary for us to make

separate rulings as to the different

classes of SEMO defendants.

=- 228 =

for the purpose of any analysis of their

activities in relation to the investiga-

tion of Dr. Kwoun. We agree.

HHS is suthorized to contract with

peer review groups to carry out its duty

to promote "the effective, efficient, and

economical delivery of health care ser-

vices, and [to promote] the quality of

services of the type for which [Medicare]

payment may be made." See 42 U.S.C. §

1395y(g). Medicare payments may not be

made for items or services that are not

"reasonable and necessary for the diag-

nosis or treatment of illness or injury."

See 42 US.C. § 1395y(a) (1) (A). When a

peer review group does undertake such a

contract, the peer review group "must

...- review some or all of the profes-

sional activities ... of physicians ...

in the provision of health care services

ee ee

- 24a =

and items for which [Medicare] payment

may be made ... for the purpose of de-

termining whether ... [those] services

and items are ... reasonable and medical-

ly necessary and whether such services

and items are not allowable under ...

section 1395y." See 42 U.S.C. § 1320c-

3(a)(1)(A). The peer review group is

to determine, on the basis of its review,

whether Medicare payments are to be made

for the services reviewed. See 42 U.S.C.

§ 1320c-3(a) (2). The determination of

the peer review group is conclusive as to

Medicare payments unless it is changed by

reconsideration of the peer review

group.12 See 42 U.S.C. §1320c-3(a)

12 Once HHS acts on the recommenda-

tion of the peer review group, a formal

hearing before an administrative law

judge is available for review of the

action taken by HHS, with eventual

judicial review also available. See 42

U.S.C. § 1395y(d) (3).

|

ae

- 25a -

(2)(C). In other words, HHS essentially

uses the peer review group as a consul-

tant that recommends whether or not a

doctor should continue to be eligible for

Medicare reimbursements.

Consultants who investigate whether

the services provided by doctors are

necessary and eligible for Medicare re-

imbursement have been held to be "govern-

mental agents for immunity purposes."

Bushman v. Seiler, 755 F.2d 653, 655 (8th

Cir. 1985) (defendant was consultant to

insurance company that was Medicare car-

rier for HHS). See also Gross v. Seder-

strom, 429 F.2d 96, 99 (8th Cir. 1970)

(defendants were elected committee mem-

bers who investigated farmer’s eligibil-

ity for grain program for federal Agri-

cultural Stabilization and Conservation

Service; held to be federal officials for

- 26a -

immunity purposes in suit resulting from

denial of farmer’s application for parti-

cipation). The SEMO defendants were

therefore acting as federal officials for

immunity purposes.

As federal officials for the purpose

of an analysis of eligibility for immun-

ity, the SEMO defendants are immune from

common-law tort claims if their actions

were not "’... manifestly or palpably

beyond [their] authority.’" Bushman, 755

F.2d at 655, quoting Norton v. McShane,

332 F.2d 855, 859 (5th Cir. 1964), cert.

denied, 380 U.S. 981 (1965). The plain-

tiffs apparently concede that the actions

of the SEMO defendants were within the

authority given by the statute, since

their argument concentrates on the as-

sertion that the SEMO defendants are not

federal officials. Furthermore, although

- 27a -

the administrative law judge found that

the peer review group report was defi-

cient and even inaccurate in several

respects, he made no finding that the

SEMO defendants had investigated Dr.

Kwoun in any manner not authorized by

statute or by their contract with HHS.

We hold, therefore, that the SEMO de-

fendants are absolutely immune from the

common-law tort claims asserted against

them.

The SEMO defendants argue that they

are also entitled to immunity from con-

stitutional claims because their actions

were essentially prosecutorial in nature.

They contend that the peer review groups

are analogous to the professional organ-

izations to whom absolute immunity from

constitutional claims has been granted

when disciplinary actions have resulted

- 28a -

in a lawsuit by the person disciplined.

Inc. v. National Association of Securi-

j eale c., 7587 F.2d 676, 689

(Sth Cir. 1985) (prosecutorial and ad-

judicative functions of securities

dealers’ association disciplinary com-

mittee); Clulow v. State of Oklahoma, 700

F.2d 1291, 1298 (10th Cir. 1983) (prose-

cutorial function of bar disciplinary

committee); and Simons v. Bellinger, 643

F.2d 774, 782 (D.C. Cir. 1980) (prose-

cutorial and adjudicative functions of

bar committee on unauthorized practice of

law). We agree.

Peer review groups that are eligible

to contract with HHS must be "composed of

a substantial number of the licensed doc-

tors of medicine and osteopathy engaged

in the practice of medicine or surgery in

- 29a -

the area and who are representative of

the practicing physicians in the area"

and must be judged by HHS to be "able ...

to perform reviews of the pattern of

quality of care in an area of medical

practice where actual performance is

measured against objective criteria which

define acceptable and adequate practice."

See 42 U.S.C. § 1320c-1(1) (A), § 1320c-

1¢2). In conducting reviews under con-

tract with HHS, the peer review groups

are to “apply professionally developed

norms of care, diagnosis, and treatment

based upon typical patterns of practice

within the [relevant] geographic area ...

taking into consideration national norms

where appropriate." See 42 U.S.C. §

1320c-3 (6). The norms with respect to

treatment for particular illnesses or

health conditions are to include "the

- 30a -

types and extent of the health care

services which ... are considered within

the range of appropriate diagnosis and

treatment of such illness[es] or health

condition[{s], consistent with profession-

ally recognized and accepted patterns of

care." See 42 U.S.C. § 1320c-3(a) (6) (A).

In other words, the medical peer

review groups are organizations of pro-

fessionals charged with the task of eval-

uating the performance of members of that

profession. Thus, although medical peer

review groups are not associations of

professionals supervised by a licensing

body, see e.g., Austin Municipal Securi-

ties, Inc., 757 F.2d at 680, and Clulow,

700 F.2d at 1297, they are nonetheless

very similar to such associations. Fur-

thermore, although medical peer review

groups do not control a professional’s

- 31a -

ability to practice in all contexts, see

e.g., Simons, 643 F.2d at 781 (bar con-

mittee has power to disbar attorneys),

they do control to some extent a profes-

Sional’s ability to practice in a par-

ticular class of cases -- those that

involve claims for Medicare reimburse-

ment. See 42 U.S.C. § 1320c-3 (a) (2) (C),

§ 1395y(d) (3) (determination of peer re-

view group on eligibility for Medicare

reimbursement is conclusive unless

changed by reconsideration of peer review

group, formal hearing decision of admin-

istrative law judge, decision of appeals

council of HHS, or judicial review).

Thus medical peer review groups are very

Similar to bar committees that control

whether a lawyer may practice before

certain courts. See, e.g., Simons, 643

F.2d at 775.

- 32a -

Absolute immunity from even consti-

tutional claims was granted to the

securities dealers’ association discipli-

nary committee in Austin Municipal

Securities, Inc., 757 F.2d at 689, and to

the bar disciplinary and practice com-

mittees in Clulow, 700 F.2d at 1298, and

Simons, 643 F.2d at 782. Such immunity

was granted because each committee’s

function shared the characteristics of

the judicial process, because an un-

favorable recommendation from each com-

mittee had the potential of provoking a

retaliatory lawsuit, and because the

subject of each committee’s actions had

adequate opportunity to challenge those

actions through judicial review. See

s n¢c., 757

F.2d at 689, Clulow, 700 F.2d at 1298,

and Simons, 643 F.d at 782, all incorpor-

‘

- 33a -

ating the tests specified in Butz v.

Economou, 438 U.S. 478, 513 and 515-16

(1978).

We find that the review activities

of the medical peer review groups at

issue here -- those entrusted to them by

Congress so that the Medicare program can

function effectively, efficiently, and

economically, see 42 U.S.C. § 1395y(g)--

are similar enough to the review activi-

ties of the disciplinary and practice

committees declared to be immune in the

cases discussed above that similar pro-

tection should be extended. 13

13 The dissent relies on a statu-

tory provision, 42 U.S.C. § 1320c-6(b),

in arguing that the SEMO defendants are

entitled only to qualified immunity.

Legislative history on this provision, in

either its current or previous incarna-

tion, is sparse. The legislative history

for the entire peer review statute cur-

rently in effect refers to the intent of

Congress to exempt peer review reports

from coverage under the Freedom of

- 34a -

Information Act. See H.R. Conf. Rep.

760, 97th Cong., 2d Sess. 443, reprinted

in 1982 i

781, 1223. This exemption was probably a

statement of agreement with the conclu-

sions of the court in Public Citizen

Health Research Group _v. Department of

Health, Education, and Welfare, 668 F.2d

537, 544 (D.C. Cir. 1981), that, for FOIA

purposes, peer review groups were not

intended to be, do not qualify as, and

should not be considered to be government

agencies. However, it also supports the

conclusion that Congress, unaware that

the courts would find some consultants

advising government agencies to be

federal actors for immunity purposes (as

opposed to FOIA purposes), originally

considered the members of peer review

groups to be private parties and sought

to protect them to come extent from civil

liability. In order words, the statute

was an effort to extend some protection

to people who were thought to have none,

rather than an attempt to restrict

protection already acknowledged to exist.

See e.g., S.~ Rep. 1431, 91st Cong., 2d

Sess. 162 (1970)("The amendment provides

protection from civil liability for those

engaged in required review activities

---")(In reference to an early incarna-

tion of the statute)(emphasis added).

Once such consultants were considered

federal actors for immunity purposes, of

course, they became eligible for absolute

immunity because of the prosecutorial or

adjudicative function of their duties.

|

- 35a -

We are not unmindful of the problems

that may arise from the extension to

medical peer review groups of absolute

immunity from both common-law tort claims

and constitutional claims. We are con-

vinced, however, that in order for the

Medicare program to work effectively,

efficiently, and economically, see 42

U.S.C. § 1395y(g), some controls on

quality of care must be exercised. We

are also convinced that the exercise of

controls on quality of care greatly in-

creases the benefits derived from the

Medicare program by both the individual

Medicare patients and our society as a

The statutory provision is now super-

fluous for anyone except a consultant who

would-not be considered a federal actor

for immunity purposes or one, classified

as a federal actor for immunity purposes,

whose duties would not be considered

prosecutorial or adjudicative.

- 368 =

whole. We are further convinced that the

only way to ensure both the effectiveness

of the peer review system and the will-

ingness of private doctors to participate

in it is to insulate them from damage

claims that may result from that work.

The alternative to the use of private

doctors to review medical decisions is

the use of agency officials, who are much

less likely to possess the expertise to

evaluate such medical decisions. The use

of agency officials to review medical

decisions would almost certainly lead to

a far less effective, efficient, and

economical Medicare program. In short,

we are convinced that absolute immunity

is "essential for the conduct of the

public business," Butz, 438 U.S. at 507,

in this critical health care area. The

availability of administrative and judi-

- 37a -

cial review serves as a check against

abuse of the power inherent in the peer

review system and against mistakes or

sloppiness in that system. A further

check over the long run is the power of

HHS to terminate its contract with any

peer review group.14 See 42 U.S.C. §

1320c-2(c) (6).

We therefore hold that the SEMO

defendants are absolutely immune _ from

constitutional claims as well as common-

law tort claims. The dismissal orders of

the district court as to the SEMO defen-

dants are affirmed.

III.

We turn last to the two state of-

ficials involved in state proceedings

brought against Dr. Kwoun as a result of

14 Such a termination is not sub-

ject to judicial review. See 42 U.S.C.

§ 1320c-2(f).

- 36a -

the recommendation of the peer review

groups. Defendant W. F. Montgomery is

the deputy director for medical services

of the Missouri Department of Social

Services; defendant Gary Clark is the

executive secretary of the Missouri State

Board of Registration for the Healing

Arts.

The Missouri Department of Social

Services received a copy of the peer

review group report that was submitted to

HCFA. On the basis of that report, the

Missouri Department of Social Services

suspended Dr. Kwoun from eligibility for

payments under the state Medicaid pro-

gram. Defendant Montgomery was apparent-

ly the state officer who initiated the

suspension.

The Missouri State Board of Regis-

tration for the Healing Arts -- the state

- 39a -

licensing body for doctors, see Mo. Ann.

Stat. § 334.120 (Vernon 1987, which has

the power to suspend or revoke a doctor’s

license, see Mo. Ann. Stat. § 334.100

(Vernon 1987) -- also received a copy of

the peer review group report that was

submitted to HCFA. On the basis of that

report, the Missouri State Board of Reg-

istration for the Healing Arts initiated

proceedings to suspend or revoke Dr.

Kwoun’s licence to practice medicine in

Missouri. Defendant Clark, as the execu-

tive secretary of the board, was appar-

ently the officer who initiated the pro-

ceedings for the board. He is considered

an administrative officer (rather than a

Clerical employee). See Mo. Ann. Stat. §

334.123 (Vernon 1987) and Mo. Ann. Stat.

§ 620.010.15(4) (Vernon 1987).

- 40a -

Defendant Montgomery’s suspension of

Dr. Kwoun from eligibility for state

Medicaid payments is clearly an act that

was performed under the discretionary

powers of his position; similarly, de-

fendant Clark’s act in initiating license

suspension/revocation proceedings against

Dr Kwoun is clearly an act that was per-

formed under the discretionary powers of

his position. Each is therefore immune

under Missouri law from the common-law

tort claims asserted against him. Kan-

Vv rou Freeman,

685 S.W.2d 831, 835 (Mo. 1985) (en banc).

This analysis of absolute immunity

from constitutional claims for these

state defendants is the same as that

applicable to federal defendants. Butz

Vv onomou, 438 U.S. 478, 504 (1978).

We therefore find that each is also

- 41a -

immune from the constitutional claims

asserted against him.

The process of deciding whether to

impose a state Medicaid exclusion sanc-

tion, the process of deciding whether to

initiate a license suspension/revocation

pennies, and the process of deciding

whether to impose a federal Medicare ex-

clusion sanction are all of a kind. Each

is essentially an advocatory prosecutor-

ial function -- "deciding whether a pro-

ceeding should be brought and what sanc-

tions should be sought," Butz, 438 U.S.

at 515, against "a specific target," Gray

V¥..M@ih, 732 F.24 490, S01 (D.C. Cir.

1983), cert. denied, 465 U.S. 1100

(1984). Indeed, the administrative and

judicial review available under Missouri

law is similar to that available under

federal law. See Mo. Ann. Stat. §

- 42a -

621.055.1 (Vernon 1987), Mo. Ann. Stat. §

536.100 (Vernon 1953) (review of exclusion

from state Medicaid program); Mo. Ann.

Stat. § 334.100.2 and § 334.100.3 (Vernon

1987), Mo. Ann. Stat. § 621.100, § 621.

110, and § 621.145 (Vernon 1987), and Mo.

Ann. Stat. § 536.100 (Vernon 1953) (review

of suspension/revocation of license to

practice medicine); and 42 U.S.C. § 2395y

(da) (3) (review of exclusion from federal

Medicare program).

The orders dismissing the _ state

defendants, along with the orders dis-

missing the federal defendants and the

SEMO defendants, are therefore affirmed.

- 43a -

HEANEY, Circuit Judge, dissenting.

I respectfully dissent. In my view,

this Court should not blindly accord

absolute immunity to all federal defen-

dants for their alleged violations of Dr.

Kwoun’s constitutional rights and should

not accord absolute immunity to any of

the Southeast Missouri Professional

Standards Review Organization (SEMO)

defendants for their alleged violations

of Dr. Kwoun’s constitutional rights. I

am otherwise in accord with the major-

ity.

The Federal Defendants:

Absolute immunity should not be

extended to all of the federal defendants

for their alleged constitutional viola-

tions at this time because the record

does not establish that all of them are

necessarily entitled to it. The majority

- 44a -

correctly notes that entitlement to

absolute immunity for constitutional vio-

lations is governed by Butz v. Economou,

438 U.S. 478 (1978), which holds that

"agency officials performing certain

functions analogous to those of a prose-

cutor" are entitled to absolute immunity.

Id. at 515. What they neglected to point

out is that the burden of establishing

absolute immunity rests on those who

claim it, see Harlow v. Fitzgerald, 457

U.S. 800, 812 (1982); Butz, 438 U.S. at

506, and that the issue is one of fact to

be decided in the first instance by the

trial court. We should do as the Supreme

Court of the United States did in Butz

and remand the matter to the district

court to determine which federal defen-

dants, if any, were "responsible for the

decision to initiate or continue a pro-

- 45a -

ceeding subject to agency adjudication"

and to grant absolute immunity to those

defendants and those only. Butz, 438

U.S. at 523, on remand, 466 F.Supp. 1351

(S.D. N.Y. 1979) (finding that all but two

of the defendants were entitled to abso-

lute immunity).

This Court is in no position to

determine which federal officials are

entitled to absolute immunity on the

record before it. The district court has

already held that the federal defendants

are entitled to qualified immunity only.

Thus, we can hardly rely on the court’s

earlier decision to support a claim for

absolute immunity. The district court

should be given an opportunity to review

the full record and make appropriate

findings. Dr. Kwoun is entitled to have

an opportunity to submit any additional

- 46a -

evidence that may be relevant and to

fully argue his position before the

district court.

Lest it be argued that the district

court’s March 27, 1986, sua sponte order

dismissing the complaint against all

federal defendants is tantamount to

granting absolute immunity, I would point

out that the district court does not

mention the federal defendants in that

order. Moreover, the court discussed the

federal defendants in its September 19,

1985, order and held that absolute inm-

munity should not be extended to them

under Butz. it is also important to note

the district court specifically refused

to dismiss Dr. Kwoun’s claims under 42

U.S.C. § 1981 and 42 U.S.C. § 1985(3)

stating the complaint clearly alleged Dr.

Kwoun was denied participation in the

- 47a -

Medicare program because of his race.

This is a clear allegation of a constitu-

tional violation that can only be avoided

if the district court finds it meritless

or specifically finds that each federal

defendant is entitled to absolute im-

munity.

The SEMO Defendants:

Absolute immunity should not be

extended to the SEMO defendants for a

very simple reason. Congress specifical-

ly provided that participants in the

1 The record before us does not

disclose whether the allegations of

racial discrimination are purely con-

Cclusory in nature. SEMO’s investigation

initially focused on Poplar Bluff

Hospital which reportedly had the highest

readmission rate per 100 discharges of

any hospital in its region. It was

subsequently narrowed to four doctors,

including Dr. Kwoun. As a result of the

proceedings, however, neither the

hospital nor the other three doctors were

sanctioned. This action was reserved for

Dr. Kwoun, apparently the only minority

doctor in the hospital.

j

- 48a -

review process were entitled to qualified

immunity only. At the time the events in

this case took place, 42 U.S.C. § 1320c-

6(b) (1), provided:

(b) (1) No individual who, as a

member or employee of any

Professional Standards Review

Organization or of any Statewide

Professional Standards Review

Council or who furnishes

professional counsel or services to

such organization or council, shall

be held by reason of the performance

by him of any duty, function, or

activity authorized or required of

Professional Standards Review

Organizations or of Statewide

Professional Standards Review

Councils under this part, to have

violated any criminal law, or to be

civilly liable under any law, of the

United States or of any State (or

political subdivision thereof)

provided he has exercised due care.

(2) The provisions of

paragraph (1) shall not apply with

respect to any action taken by an

individual if such individual, in

taking such action, was motivated by

malice toward any person affected by

such action.

Id. (as amended October 25, 1977 (en-

phasis added).

ecm ee

- 498 -

The current statutory section,

effective September 3, 1982, provides:

(b) Employees and fiduciaries

of organizations having contracts

with Secretary

No person who is employed by,

or who has a fiduciary relationship

with, any such organization or who

furnishes professional services to

such organization, shall be held by

reason of the performance by him of

any duty, function, or activity

required or authorized pursuant to

this part or to a valid contract

entered into under this part, to

have violated any criminal law, or

to be civilly liable under any law

of the United States or of any state

(or political subdivision thereof)

42 U.S.C. § 1320c-6(b) (emphasis added).

It is clear that under either pro-

vision, qualified, not absolute, immunity

is the standard to be applied to the SEMO

defendants. In a case with facts nearly

identical to the instant case, a black

doctor brought suit against a Profes-

sional Standards Review Organization

(PSRO), its staff, a hospital, and hospi-

iii

- $0a -

tal officials, alleging discrimination in

determining that many of the medical

services performed by the doctor for his

Medicare and Medicaid patients were

unnecessary. With regard to the immunity

of the PSRO and its staff, the court

stated: "Defendant concedes, and both

statutory provisions specify, that PSRO

defendants are not immune from liability

if they act with malice." Taylor v. Flint

Osteopathic Hosp., Inc., 561 F. Supp.

1152, 1160 (E.D. Mich. 1983).2 Thus, the

2 Neither party saw fit to appeal

any aspect of Judge Boyle’s decision in

Taylor. Subsequent to her decision,

however, Judge Boyle was appointed to the

Michigan state bench and the case was

reassigned to Senior Judge George E.

Woods. The PSRO and PSRO officials

(defendants) again moved for summary

judgment, arguing that the doctor’s

section 1981 claims, remaining after

their initial summary judgment motions,

should be dismissed because the doctor

had failed to establish disparate

treatment at the hands of the defendants.

Judge Woods granted the defendants’

y

4

- 51a -

statute is so clear that the Taylor

defendants saw fit to concede and the

court to expressly state that the PSRO

and PSRO officials were entitled to

qualified immunity only.

In this respect, the federal statute

follows state statutes which have nearly

uniformly codified the common law grant-

ing only qualified immunity to peer

summary judgment motion. On appeal, the

Sixth Circuit, in an unpublished opinion,

reversed and vacated only Judge Woods’

ruling and order, holding that, with

respect to the section 1981 claim, issues

of fact remained concerning the defen-

dants’ justifications for their actions.

The Circuit Court thus remanded the case

for trial on the merits. Taylor v. Flint

, No. 84-1206 (6th

Cir. May 28, 1985). Thus, Judge Boyle’s

finding that the PSRO and its officials

are entitled to qualified immunity

remains in effect and, in the final

analysis, Dr. Taylor will receive exactly

what Dr. Kwoun should receive -- a trial

on the merits of his discrimination claim.

- 52a -

review committees. ? The reasons for

qualified immunity is clear:

Peer review statutes, which

state legislatures have enacted with

increasing frequency in recent

3 See, e.g., Hayden v. Foryt, 407

So.2d 535, 536 (Miss. 1982), (granting

review committee and witnesses before

committee qualified immunity); Franco v.

District Court of Denver, 641 P.2d 922,

925 (Colo. 1982) (granting review commit-

tee and committee members qualified

immunity) ;

403 So.2d 1025, 1028 (Fla.

App. 1981)(granting hospital staff and

disciplinary body and its agents quali-

fied immunity); Hackenthal _v. Weissbein,

154 Cal. Rptr. 423, 426-27 (1979) (grant-

ing qualified immunity to witnesses at

hearing of peer review committee of

nonpublic institution); Matviuw v.

Johnson, 388 N.E.2d 795, 799 (Ill. App.

1979) (granting witnesses at hearing of

peer review committee qualified immu-

nity), aff’d, 444 N.E.2d 606 (1980); see

Southwick and Slee, Quality As-

, 5&5 J. Legal Med.

343, 386-96 (1984); D. Gregory, Immunity

’

11 Legal Aspects of Med. Practice No. 9,

pp. 1, 2-4 (Sept. 1983); J. C. Norman,

eins "

- "

Committee Members from Suit, 11 Legal

Aspects of Med. Practice No. 2, pp. 4-7

(Feb. 1983).

- $3a -

years, are directed toward the

attainment of an elevated quality of

health care at a reasonably low cost

to the patient. Such legislation is

based on the premise that the eval-

uation of the professional conm-

petency of doctors is best left to

the specialized expertise of their

peers, subject only to limited

judicial surveillance. Peer review

legislation promotes self-regulatory

competence usually by protecting

committee members with a qualified

immunity and committee proceedings

with some degree of confidentiality.

Franco v. District Court of Denver, 611

P.2d 922, 925 (Colo. 1982)(citing, Note,

The Legal Liability of Medical Peer

{eo}

Hospital Staff Privileges, 28 Drake L.

Rev. 692 (1978-79); Note, Medical Peer

Review Protection In the Health Care

e are

Industry, 52 Temple L.Q. 552 (1979)).

Yet, it does not follow from the impor-

tance of and need for candor in peer re-

view proceedings that peer review com-

mittees and those testifying before them

should be accorded an absolute privilege

to testify or render decisions in a

racially discriminatory manner. Such

conduct, as has been alleged in this

- 548 -

case, advances no important interest of

society or the professions and indeed

actually hinders competent performance of

the important tasks peer review commit-

tees are set up to perforn. Thus, the

conduct to which we may be affording an

absolute privilege in this case and to

which the majority’s decision will most

certainly afford an absolute privilege in

future cases, has "no place in a forum

convened to determine the qualifications

of an individual to continue in the

practice of his profession." Matviuw v.

Johnson, 388 N.E.2d 795, 799 (Ill. App.

(1979), aff'd, 444 N.E.2d 606 (I1l.

1980).

To summarize, I would remand this

matter to the district court to determine

which of the federal defendants performed

a function analogous to that of a prose-

- 55a -

cutor, arranged for the presentation of

the government’s case in the course of

the administrative proceeding, or per-

formed adjudicatory functions. Only

those defendants should be extended abso-

lute immunity for the alleged unconstitu-

tional acts directed at Dr. Kwoun. I

would further direct the district court

to extend only qualified immunity to the

SEMO defendants for their alleged uncon-

stitutional acts. If Congress wishes to

extend absolute immunity to those who

participate in the peer-review process in

prosecutorial or adjudicative functions,

it is free to do so. Until it does, I

believe we are bound by the statute as

written.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH

CIRCUIT.

- 56a -

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

SOUTHEASTERN DIVISION

No. S81-123 C

Soung O. Kwoun, M.D.

Plaintiff,

Vv.

Richard S. Schweiker,

etc., 2 ai.,

Defendants.

Filed December 23, 1981

MEMORANDUM

This case is now before this Court

on the motion of the defendants to dis-

miss or in the alternative for summary

judgment. Defendants bring this motion

pursuant to Rules 12(b)(1) and 12(b) (6)

of the Federal Rules of Civil Procedure

and contend that this Court lacks the

requisite subject matter jurisdiction

- 57a -

because plaintiff failed to exhaust his

administrative remedies. In addition,

defendants assert that plaintiff’s com-

plaint fails to state a claim upon which

relief may be granted because the pro-

cedures that the defendants afforded the

plaintiff did not fail to comply with due

process requirements.

Plaintiff’s cause of action arises

out of an initial determination by the

Health Care Financing Administration

(hereinafter HCFA) (which is a branch of

the Department of Health and Human Ser-

vices) to exclude the plaintiff from the

medicare reimbursement program. The

plaintiff was notified on September 11,

1981 that the agency was suspending his

receipt of reimbursement under the Medi-

care Program pending any administrative

appeals pursuant to 42 U.S.C. § 1320c.

- 56a -

Plaintiff is presently reimbursed in

excess of $200,000.00 per year for his

work at Henrickson Clinic. Upon suspen-

sion of his payments, the plaintiff

petitioned this Court for a temporary

restraining order, alleging that the

agency had improperly excluded him from

the Medicare Program by not affording him

the procedural steps required by the

statute and regulations. In response, a

temporary restraining order was insti-

tuted on September 17, 1981. At this

time, this Court believed that the

plaintiff would suffer irreparable injury

unless injunctive relief was granted and

that defendants would not be adversely

affected during the period in which the

Order was in effect. However, after

considering the claims of the plaintiff

and defendants and the statutory scheme

i.

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- 59a -

it is this Court’s conclusion that it

lacks the requisite subject matter

jurisdiction to consider plaintiff’s

claim, or to order any relief in this

matter.

In order to understand the validity

of the plaintiff’s claims and the power

of this Court to review those claims, it

is necessary to examine the statutory

scheme and the extent of review that the

plaintiff already has received at the

agency level. The defendants have

charged the plaintiff with violating the

sections of the Social Security Act,

which requires a provider of medical

services to give patients only those

services that are medically necessary and

also requires a doctor to meet profes-

sional standards. 42 U.S.C. § 1320c-

9a(A) (B). In order to assure the en-

- 60a -

forcement of these statutory mandates,

Congress established Professional

Standard Review Organization (hereinafter

PSRO), and charged it with the responsi-

bility of determining whether doctors

were complying with statutory require-

ments. 42 U.S.C. § 1320c-1(b) (1) (A).

The PSRO is ordinarily composed of a

number of local physicians. Congress

purposefully provided that a PSRO should

be operated by and comprised of physi-

cians in the private sector; it was the

intent of the legislature that the men-

bers of the PSRO would serve as govern-

mental experts, who were familiar with

local conditions and the quality of medi-

cal services that doctors rendered in

their particular locality. Public Citi-

- 6la -

79-2364 (D.C. Cir. Oct. 23, 1981). In

the event that a PSRO determines that a

doctor is providing unnecessary medical

services or is not living up to profes-

sionally recognized standards, it is

their duty to make a report and send that

report with comments to the Statewide

Professional Review Council. 42 U.S.C.

§§ 1320c-11, c-6,c-9(b)(1). Prior to the

transmission of this report the alleged

violator is given notice of his failure

to comply with statutory standards and an

opportunity to respond to any accusa-

tions. The Review Council then sends a

report to the HCFA, which reviews the

information and gives the alleged vio-

lator notice of its decision and an

opportunity to submit "documentary evi-

dence and written argument concerning the

proposed action" of the agency. 42

- 62a -

C.F.R. § 474.10(c). In the event that

the HCFA determines, after a review of

all the evidence, that the exclusion of

the doctor from the Medicare Program is

appropriate, the reimbursement of bene-

fits will cease thirty days after the

agency’s decision. The statute and

regulations further provide that a pro-

vider of health care only will become re-

eligible to receive benefits if the

Secretary decides to reverse the decision

of the HCFA, or if a court determines

that the final decision of the Secretary

is inappropriate. The Social Security

Act allows for judicial review of the

agency decision only after the Secretary

has entered its final order. 42 U.S.C. §

405(g).

It is evident from the documents and

exhibits submitted by both plaintiff and

- 63a -

defendants that plaintiff’s activities

were reviewed pursuant to the statutory

scheme required by the Social Security

Act. In April of 1979 the Southeast

EE APOE LIP RE

Missouri Foundation for Medical Care

(SEMO), a Professional Standards Review

Organization (PSRO) in southeast Missouri

began to review Poplar Bluff Hospital be-

cause of its extremely high re-admission

rate. As a result of monitoring the hos-

pital, an in-depth review of Dr. Kwoun’s

and other doctors’ admissions to Poplar

Bluff Hospital was made. Due to Dr.

Kwoun’s alleged failure to cooperate and

due to his standard of patient care in

February of 1980 SEMO transmitted its

report to the Missouri Statewide Profes-

sional Standards Review Council. This

council then transmitted this report with

its comment to the HCFA which recommended

- 64a -

a sanction be imposed. Dr. Kwoun was

advised in writing in September of 1980

by the Central Office of HCFA of its

intent to exclude his participation under

the Social Security Reimbursement Pro-

gram. The doctor was also notified of

his egnactanbes to contest this deter-

mination by writing and personal ap-

pearance. On December 5, 1980, Dr. Kwoun

took advantage of this opportunity and

appeared at the administrative review

before the director of HCFA. The evi-

dence adduced at the trial was’ then

submitted to SEMO for further review and

recommendation. On September 2, 1981,

HCFA advised Dr. Kwoun that he would be

excluded from participation in the Medi-

care Program pursuant to 42 U.S.C. §

1395y(d)(1)(c) for a period of ten years.

The letter also notified the doctor of

- 65a -

his right to a hearing before the ALJ.

Accompanying the decision was a statement

which details the basis for the decision

to exclude the plaintiff. The letter

states that among the grounds for exclu-

sion are that the doctor failed to meet

professionally recognized standards of

health care. Specifically, the charges

were that the doctor made inappropriate

use of pacemakers, laboratory services,

drug usage, scheduling of surgery, and

use of ancillary services. Finally the

agency accused Dr. Kwoun of rendering

services inconsistent with the diagnosis

of certain patients. Dr. Kwoun is pres-

ently appealing this decision in the

manner prescribed by the statute.

Plaintiff is requesting this Court

to invoke its mandamus’ jurisdiction

pursuant to 28 U.S.C. § 1361 so as to

- 66a -

compel this federal agency to comply with

the due process requirements of the Fifth

Amendment of the Constitution. In addi-

tion, he requests injunctive relief so

that he might continue to be reimbursed

for his medical services. Plaintiff does

not dispute the fact that the procedural

steps as described were taken. However,

plaintiff alleges that the agency failed

to follow its own regulations in viola-

tion of the Fifth Amendment in the fol-

lowing manners: first, a report dealing

with Poplar Bluff Hospital was converted

into a report involving plaintiff and his

medical practices; second, plaintiff

alleges that he was nut given sufficient

opportunity to discuss the charges

against them with the PSRO, in the letter

sent to the doctor in September 1981, the

agency alleges that the doctor refused to

- 67a -

meet with the PSRO; third, the Statewide

Council and HCFA merely rubber stamped

the report of the PSRO; finally, the

letter of September 2, 1981 merely re-

ferred to a hearing before an ALJ, as

opposed to stipulating that plaintiff had

a right to review by the Appeals Council.

Subsequent to the receipt of this letter

plaintiff has appealed the decision of

the HCFA, pursuant to the required stat-

utory procedure. However, the plaintiff

contends that the failure of the agency

to follow its own regulations constitutes

a violation of the due process clause of

the Fifth Amendment and thereby entitles

him to immediate judicial relief.

In response to plaintiff’s claims

that his constitutional rights were

violated and he therefore is entitled to

judicial relief, the defendants advance

- 68a -

two arguments. First, defendants contend

that the plaintiff has failed to make the

requisite showing for preliminary relief.

Secondly, the government argues that this

Court lacks the requisite subject matter

jurisdiction to consider this cause of

action pursuant to its mandamus jurisdic-

tion.

Before granting injunctive relief it

is the obligation of courts to balance

the relative hardships and benefits to

the plaintiff and defendant. In a recent

case decided by a district court in the

Eastern District of New York, the court

held that a doctor suspended from the

receipts of benefits pursuant to the

Social Security Act, was not entitled to

a preliminary injunction. mlich v

Schweicker, No. 81-2865 (E.D.N.Y. Sep-

tember 16, 1981). The court reasoned

- 69a -

that the potential harm to the public

caused by a delay in the exclusion of a

doctor who allegedly provided substandard

medical care, from the Medicare Program,

outweighed the potential harm to plain-

tiff’s medical practice. In addition,

the court reasoned that the plaintiff

failed to establish a likelihood of

success on the merits because he had not

exhausted his administrative remedies.

Finally, any harm that the plaintiff may

suffer during suspension will be alle-

viated if the plaintiff ultimately pre-

vails because he will receive compen-

sation for those services that he has

provided in the interim. However, if the

agency and courts sustain the decision to

exclude the plaintiff from the Medicare

Program, recoupment of reimbursement

payment is by no means certain. For

» 70a =

these reasons, further preliminary in-

junctive relief does not seem appropriate

under the circumstances of this case.

The remaining issue for this Court

to determine is whether this Court has

the necessary jurisdiction to consider

plaintiff’s claim at this particular

time. Section 405(g) of the Social

Security Act provides for judicial review

of challenges to agency determinations

only after the Secretary renders his

final decision on the merits.} In fact,

the statute expressly precludes judicial

review of the decision to exclude a

1 The statute provides:

Any individual, after any final

decision of the Secretary made after a

hearing to which he was a party, ir-

respective of the amount in controversy,

may obtain a review of such decision by a

civil action commenced within sixty days

after the mailing to him of notice of

such decision or within such further time

as the Secretary may allow.

- 7a -

physician from the Medicare Program until

"after such hearing as is provided in

Section 405(g) of the Title". 42 U.S.C.

§ 1395y(d) (3).

The Supreme Court has held that the

"final decision" requirement embodied in

the Social Security Act is a statutorily

specified jurisdictional prerequisite,

and therefore is more than a codification

of the judicially developed doctrine of

exhaustion. W. oa i, .422

U.S. 749 (1975). However, there is an

exception to the rule that requires the

plaintiff to exhaust his administrative

remedies prior to judicial review. In

the event the party seeking judicial

review establishes that the agency has

violated his constitutional right, a

court may intervene prior to the conclu-

sion of the administrative processes.

- 72a =<

Nevertheless, to fall within the excep-

tion to this rule, a party must present a

constitutional claim which is collateral

to the substantive claim, making adequate

relief unobtainable at a post-termination

hearing. Matthews v. Eldridge, 424 U.S.

319 (1975); Weinberger v. Salfi, 422 U.S.

749 (1975). In addition, the mere as-

sertion of a constitutional claim is

insufficient; the record must reflect a

colorable claim. ij Vv alifano,

621 F.2d 1 (1st Cir.1980).

It is the opinion of this Court that

plaintiff’s cause of action does not fall

within the exception to the exhaustion of

administrative remedies rule. As stated,

the requirement of a "final decision" by

the Secretary, embodied in the statute,

is central to the requisite grant of

subject matter jurisdiction. Weinberger

- 73a <

v. Salfi, supra. Furthermore, it is

clear that plaintiff’s claim is not

collateral to his substantive claim, and

that the agency will be capable of cor-

recting any procedural defects in a later

evidentiary proceeding. The plaintiff is

not questioning the constitutionality of

the statute nor is he presenting an issue

which is beyond the jurisdictional powers

of the Secretary to determine.2 The

plaintiff is only claiming that the

agency has failed to follow its own

guidelines. Nor is it always the rule

2 In Lemlich v. Schweiker, supr 4

the district court reached the plain-

tiff’s due process claim. However, the

issue in that case was whether the

constitution required a full evidentiary

hearing prior to the suspension of bene-

fits. The court held that a post-evi-

dentiary hearing was adequate. Interven-

tion in Lemlich was appropriate because

further agency proceedings would not have

resolved the constitutional issue before

the court.

- 74a -

that an agency’s violations of its own

regulations always raise a constitutional

question. United States v. Caceres, 440

U.S. 741 (1978); Morton v. Ruiz, 415 U.S.

199 (1971). Therefore this Court will

not consider the merits of plaintiff’s

cause of action.

It is the opinion of this Court that

intervention with agency procedures would

be premature at this time. It would be

inconsistent with the intent of Congress

and the statutory scheme to preclude the

agency from compiling an evidentiary

record, which will allow for adequate

judicial review, in the event that be-

comes necessary. It was evidently the

intent of the legislature that this court

should benefit from the expertise of the

agency and the doctors asked to serve on

PSRO.

- 75a -

Accordingly, defendants’ motion for

summary judgment will be granted, and

defendants’ motion to dismiss will be

denied as moot because this Court has

considered matters outside of the

pleadings pursuant to Rule 56 of the

Federal rules of Civil Procedure. In

addition, the Order of this Court dated

September 17, 1981, granting injunctive

relief shall be vacated and this case

shall be dismissed.

_LS/_

UNITED STATES DISTRICT JUDGE

Dated: December 23, 1981.

- 764 -

UNITED STATES DISTRICT COURT

E.D. MISSOURI

SOUTHEASTERN DIVISION

==-sSS Se eS SSS SS SS SES SS

No. $84-259C(D)

Soung O. Kwoun, et al.,

Plaintiffs,

Vv.

Southeast Missouri Professional

Standards Review Organization, et al.,

Defendants.

Sept. 19, 1985

MEMORANDUM

WANGELIN, District Judge

This matter is before the Court upon

six separate motions to dismiss the

above-styled action or, in the alter-

native, for summary judgment. Said mo-

tions were brought by defendants Howard,

- 77a -

Nicholson, Kram, and Secretary of Health

and Human Services; defendants Southeast

Missouri Professional Standards Review

Organization (SEMO PSRO) and named phy-

sicians (SEMO Doctors); defendant Legaspi

and defendant Bregant. Each of the above

named defendants incorporate Defendants’

Suggestions in Support of Motions of de-

fendant SEMO PSRO and others to dismiss

or, in the alternative, for summary judg-

ment filed with this Court January 18,

1985 as argument in support of their

individual and collective motions.

FACTUAL BACKGROUND

Plaintiffs’ cause of action arises

out of an initial determination by the

Health Care Financing Administration

(hereinafter HCFA), which is a branch of

the Department of Health and Human Ser-

vices, to exclude the plaintiff from the

- 78a -

medicare reimbursement program. The

plaintiff was notified on September 11,

1981 that the agency was suspending his

receipt of reimbursement under the Medi-

care Program pending any administrative

appeals pursuant to 42 U.S.C. § 1320c.

Plaintiff subsequently filed an

action before Administrative Law Judge

Francis J. Eyerman. The ALJ exonerated

plaintiff Dr. Kwoun from all accusations

against hin. Plaintiffs filed this ac-

tion alleging defendants’ conduct in the

above mentioned proceedings constituted

violations of 42 U.S.C. § 1981 (Count I);

42 U.S.C. § 1985(2) (Count II); 42 U.S.C.

§ 1985(3)(Count III); and the Fifth

Amendment (Count IV). Plaintiffs further

assert tort claims for malicious prosecu-

tion (Count V); intentional infliction

of emotional distress (Count VI); and

ke

a

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4

Pe nt eee

f

!

}

:

:

;

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- 79a -

prima facie tort (Count VII).

In determining the sufficiency of a

complaint in the face of a motion to

dismiss for failure to state a claim

pursuant to Federal Rule 12(b)(6), the

accepted rule as articulated by the

United States Supreme Court is that "a

complaint should not be dismissed for

failure to state a claim unless it

appears beyond doubt that the plaintiff

can prove no set of facts in support of

his claim which would entitle him to

relief." Conley v. Gibson, 355 U.S. 41,

45-46, 78 &.Ct. 99, 102, 2 L.Ed.2da 80

(1957). If, on a motion to dismiss or a

motion for judgment on the pleadings,

matters outside the pleadings are pre-

sented to and not excluded by the Court,

the motion shall be treated as one for

summary judgment and disposed of as

- 80a -

provided in Rule 56. Fed. R. Civ. P.

12(c). Under Rule 56,

[t]he judgment sought shall be

rendered forthwith if the pleadings,

depositions, answers to interro-

gatories, and admissions on file,

together with the affidavits, if

any, show that there is no genuine

issue as to any material fact and

that the moving party is entitled to

a judgment as a matter of law.

When a motion for summary judgment

is made and supported as provided in this

rule, an adverse party may not rest upon

the mere allegations or denials of his

pleading, but his response, by affidavits

or as otherwise provided in this rule,

must set forth specific facts showing

that there is a genuine issue for trial.

If he does not so respond, summary

judgment, if appropriate, shall be en-

tered against hin.

Defendants appear to raise chal-

lenges under both Rule 12(b) (6) and Rule

OGL RAT AW we

- 8la -

56(c), and accordingly, to the extent

that the Court will consider matters out-

side the pleadings on a given claim, the

ruling shall be based on Rule 56(c).

A. “

Defendants’ first ground for

dismissal is that the three corporate

plaintiffs do not have a cause of action

in that the complaint only alleged claims

by plaintiff Kwoun not the three cor-

porate plaintiffs. Defendants further

assert that because the corporate plain-

tiffs are not members of a race, they

cannot assert a cause of action under 42

U.S.C. §§ 1981 or 1985. Moreover, defen-

dants assert that because no sanctions

were brought against the corporate plain-

tiffs, they have no cause of action for

denial of equal protection or due process

or a Claim for malicious prosecution.

mci A CAM at

- 82a -

Defendants’ motion to dismiss for

failure to state a cause of action as to

three corporate plaintiffs must be

denied. The complaint regarding these

three plaintiffs is sufficient since it

",.. contains allegations from which an

inference fairly may be drawn that evi-

dence of material points will be intro-

duced at trial." 5 Wright & Miller,

Federal Practice & Procedure, § 1216 at

122-123 (1969). Moreover, corporations

may file claims under 42 U.S.C. § 1981 as

well as § 1985 and the United States

Constitution. Des Vergners v. Seckonk

Water District, 601 F.2d 9 (1st Cir.

1979). The relationship between plain-

tiff Kwoun and each of the corporate

plaintiffs is articulated in the Amended

Complaint. In each instance, plaintiff

Kwoun is either the principal stockholder

ae ee

- 83a -

or trustee of the plaintiff corporations

and the plaintiff corporations are or

have provided medical service. Given the

possibility of alleged harm to plaintiff

Kwoun, this Court finds that there is an

inference that the plaintiff corporations

in which plaintiff Kwoun was involved

were also injured.

Thus, because the corporate plain-

tiffs may have been damaged by defen-

dants’ actions and because corporations

are persons for purposes of civil rights

and Fifth Amendment claims, the corporate

plaintiffs do have a cause of action and

defendants’ motion to dismiss will be

denied.

B.

Next, defendants assert that defen-

dant SEMO doctors should be dismissed

because defendant SEMO PSRO is a Missouri

- 84a -

not-for-profit corporation which can be

sued in its corporate name and that the

inclusion of defendants SEMO doctors is

surplusage. This contention also fails.

Corporate officers and directors

have personal liability under the federal

civil rights acts if they intentionally

cause a corporation to infringe on the

rights secured by those acts. j an v.

Wheaton-Haven Recreation Association, 517

F.2a 1141, 1146 (4th Cir. 1975). In

Vv ivers Ss nc., 501

F.2d 324 (1974), the Seventh Circuit

found that the concept of separate

identify between shareholders, directors,

and officers and their corporation is not

sacrosanct. It demands even less respect

if it becomes clear that the corporation

is used as a shield to violate the civil

rights of others. Id. at 340 n.23.

ee ae en am

- 85a -

Plaintiffs’ amended complaint alleges

that defendant doctors through defendant

SEMO PSRO have abridged plaintiffs’ civil

rights. As such plaintiffs’ amended

complaint is sufficient to state a cause

of action against both defendant SEMO

PSRO and defendant SEMO doctors.

Cc.

Defendants’ next contention is that

plaintiffs’ claim under 42 U.S.c. §§

1981, 1985(2), 1985(3), the Fifth Amend-

ment, and their state claims are preclud-

ed by the Medicare Act. in support of

this contention defendants cite Middlesex

Cc Ww j v. Nation Sea

Clammers Association, 453 U.S. 1, 101

S.Ct. 2615, 69 L.Ed.2d 435 (1981).

In Mi ) wera or-

ity the Court determined that when

remedial devices provided in a particular

een

- $6a -

Act are sufficiently comprehensive, they

may suffice to demonstrate Congressional

intent to preclude the remedy of suits

under the civil rights acts. Id. at 20,

101 S.Ct. at 2626.

The scope of the preclusion provi-

sion has engendered much litigation and

little consensus. It is agreed by all of

the circuits that the central target of a

Section 405(h) preclusion is "any action

envisioning recovery of any claim emanat-~-

ing from" the Medicare Act. Association

a j sv alifano,

569 F.2d 101, 107 (D.C. Cir. 1977).

The holding in Middlesex County Sew-

erage Authori ty created a narrow excep-

tion to the Supreme Court’s 1981 holding

in Maine v. Thiboutot, 448 U.S. 1, 100

S.Ct. 2502, 65 L.Ed.2d 555 (1980) that 42

U.S.C. § 1983 authorizes a cause of

- 87a -

action for violations of federal statu-

tory rights. The court in Middlesex was

concerned that administrative procedures

contained in particular statutes should

not be circumvented. Middlesex, 453 U.S.

at 20, 101 S.Ct. at 2626.

Defendants cite V.N.A. of Greater

Tift City, Inc. v. Heckler, 711 F.2d 1020

(lith Cir. 1983) for the proposition of

the Medicare Acts’ exclusivity. While

defendants correctly state the principle

of V.N.A. of Greater Tift City, Inc., the

facts here are distinguishable. In

V.N.A. the plaintiffs’ claims were seek-

ing recovery on a claim directly related

to provisions of the Act and the Court

held that plaintiffs were limited to the

provisions of the Act when seeking a

remedy. Here, however, plaintiffs are

alleging separate claims unrelated to the

- 88a -

Act. The only connection between

the Act and plaintiffs’ claims is that

plaintiffs’ claims arose during other

proceedings under the Act. Plaintiff

Kwoun has availed himself of the remedies

available under the Act for his claims

under the Act. Now plaintiffs are

seeking redress for alleged wrongs which

arose separate and apart from the Act.

Accordingly, defendants’ assertion that

the Medicare Act precludes plaintiffs’

action is unfounded.

- 89a -

D.

Next, defendants seek to dismiss all

of plaintiffs’ civil rights claims

contending that plaintiff Kwoun’s attempt

to mitigate as reflected in Kwoun v.

Schweiker, 528 F.Supp. 1004 (E.D. Mo.

1981) constitutes collateral estoppel.

The Eighth Circuit has continuously

held that only a prior final judgment on

the merits can have the effect of

collateral estoppel. Oldham _v. Prit-

chett, 599 F.2d 274, 276 n.1 (8th Cir.

1979); Poe v. John Deere Co., 695 F.2d

1103, 1105 (8th Cir. 1982). Further, a

dismissal without prejudice operates to

leave the parties as if no action had

been brought at all. Moore v. St. Louis

Music Supply, Inc., 539 F.2d 1191, 1194

(8th Cir. 1976).

- 90a -

In Kwoun v. Schweiker, the Court

specificly states that it will not con-

sider the merits of plaintiffs’ cause of

action. 528 F.Supp. 1004 at 1008. Judge

Nangle left open the possibility of

reaching the merits of plaintiffs’ cause

of action if the situation arose where

such consideration was appropriate. Id.

Thus Kwoun v. Schweiker was not a deci-

sion on the merits and defendants’ claim

of collateral estoppel is without merit.

E.

Defendants next contend that because

they are members of a PSRO they are

government officials and thus subject to

a three year statute of limitations.

Defendants rely on Smith v. North Lou-

isiana Medical Review Assn., 735 F.2d 168

(5th Cir. 1984). In Smith, the Fifth

Circuit found that a PSRO is a federal

aa aS

ee UP reat ee ee

er SNE EVES Ce RE

- 9la -

entity because it is created by federal

statute and performs a critical federal

function of monitoring costs of services

provided under the Medicare Act. Id. at

173.

However, an entity’s status as a

federal entity is controlled by Con-

gress’s intent in creating the organiza-

tion. Recent cases have made it Clear

that any general definition of the term

agency can be of only limited utility to

a court confronted with one of the myriad

organizational arrangenents for getting

the business of the government done. The

unavoidable fact is that each new ar-

rangement must be examined anew and in

its own context. Public Citizen Health v.

Dept.Health, Ed., Etc., 668 F.2d 537, 542

(D.C. Cir. 1981).

- 92a -

The Report of the Senate Committee

on Finance on the Social Security Amend-

ments of 1972, S.Rep. No. 92-1230, 92

Cong., 2nd Sess. (1972) provides a clear

summary of Congress’s intent as to the

status PSRO’s should have with respect to

government versus private agency.

The committee believes that the

review process should be based upon the

premise that only physicians are, in

general, qualified to judge whether

services ordered by other physicians are

necessary. The committee is aware of in-

creasing instances of criticism directed

at the use of insurance company personnel

and government employees in reviewing the

medical necessity of services. S.Rep.

supra at 256.

The committee has therefore included

an amendment, as it did in H.R. 17550,

- 93a -

which authorizes the establishment of

independent professional standards review

organizations by means of which practic-

ing physicians would assume responsi-

bility for reviewing the appropriateness

and quality of the services provided

under medicare and medicaid.

The committee’s bill provides spe-

cifically for the establishment of

independent professional standards review

organizations formed by organizations

representing substantial numbers of

practicing physicians in local areas to

assume responsibility for the review of

service (but not payments) provided

through the medicare and medicaid

programs. Id. at 257.

It is preferable and appropriate

that organizations of professionals

undertake review of members of their

- 94a -

profession rather than for government to

assume that role. The inquiry of the

committee into medicare and medicaid

indicates that government is ill equipped

to assume adequate utilization review.

Indeed, in the committee’s opinion,

government should not have to review

medical determinations unless the medical

profession evidences an unwillingness to

properly assume the task. Id. at 258.

Priority in designation as a PSRO

would be given to organizations estab-

lished at local levels representing sub-

stantial numbers of practicing physicians

who are willing and believed capable of

progressively assuming responsibility for

overall continuing review of institution-

al and outpatient care and services.

Local sponsorship and operation should

help engender confidence in the familiar-

;

- 95a -

ity of the review group with norms of

medical practice in the area as well as

in their knowledge of available health

care resources and facilities. Parti-

cipation in a PSRO would be voluntary and

open to every physician in the area. Id.

at 259.

PSRO physicians engaged in the

review of the medical necessity for

hospital care and justification of need

for continued hospital care must be ac-

tive hospital staff members. The purpose

here is to assure that only doctors

knowledgeable in the provision and prac-

tice of hospital care will review such

care. Jd. at 260.

It is expected that a PSRO would

operate in a manner which conserves and

maximizes the productivity of physician

°

3

f

b

:

review time without unduly imposing on

- 96a -

his principal function, the provision of

health care services to his own patients.

Id. at 264.

Employees of PSRO would be selected

by the organization and would not be gov-

ernment employees. Id. at 266.

This Court finds that these expres-

sions demonstrate the fixed purpose of

Congress that PSRO’s should be indepen-

dent medical organizations operated by

practicing physicians in the private

sector, and not government agencies run

by government employees. Public Citizen

Health v. Dept. of Health Fed. etc., 668

F.2d 537, 543 (D.C. Cir. 1981). A find-

ing that defendant SEMO PSRO and defen-

dant SEMO doctors make up a governmental

agency would be inconsistent with the

Congressional purpose.

- 97a -

As such, plaintiffs’ claim provides

a sound basis for applying the five year

statute of limitations contained in MoRS

§ 516.120. Moreover, the Eighth Circuit

has determined that the five year statute

of limitations is applicable for actions

brought under 42 U.S.C: § 1981. See

e ° ss

553 F.2d 1185 (8th Cir. 1977).

The five-year Missouri statute,

§ 516-120 Mo. Ann. Stat., however,

is applicable because a proceeding

under § 1981 represents an action

upon a liability implied, subd. 1;

or an "action upon a liability

created by a statute," subd. 2; or

an action for "injury to the person

or rights of another, not arising on

contract and not herein otherwise

enumerated," subd. 4. This Court

need not decide which of these

subdivisions covers this statutory

action but the cases indicate that a

§ 1981 action properly fits the

description of one or more subdi-

visions of § 516.120.

id. at 1188.

- 98a -

Additionally, plaintiffs alleged

that the complained of actions constitute

a continuing course of conduct and did

not accrue at a specific isolated date.

If plaintiffs’ allegations are found to

be true, no statute of limitation began

to run until the date of the hearing

before ALJ Eyerman. As such there is

sufficient recent conduct to sustain a

cause of action in this matter and de-

fendants’ motion to dismiss based upon

the statute of limitations will be

denied.

F.

Defendants Kram, Nicholson, and

Howard assert sovereign immunity and seek

to dismiss all claims against them. De-

fendants contend that they are entitled

to absolute immunity because plaintiffs’

claims arise from the initiation of

- 99a -

administrative actions of a prosecutorial

nature.

The Supreme Court has issued a clear

description of the immunities available

to federal officials in Butz v. Economou,

438 U.S. 478, 98 S.Ct. 2894, 57 L.Ed.2a

895 (1978). Without retracing the

Supreme Court’s steps, it is abundantly

clear that federal officials cannot claim

immunity if their actions are manifestly

beyond their line of duty. Butz, supra

at 484-85, 98 S.Ct. at 2899-2900.

In the present case, plaintiffs

allege misconduct seemingly beyond the

scope of defendants’ duty and authority.

Plaintiffs cite the ALJ’s finding that

"the HCFA employees were involved in

defendant SEMO PSRO’s Sanction Report

long before it was any of their business,

even before it was issued by defendant

meena cee teeaiaine eon

- 100a -

SEMO PSRO and defendant SEMO doctors."

This Court finds that reasonable minds

could differ as to whether such activity

is within defendants’ scope of authority.

Accordingly, defendants Kram, Nicholson,

and Howard will not be dismissed based

upon an absolute immunity theory.

G.

Defendants next seek to dismiss

plaintiffs’ claims under 42 U.S.C. § 1981

contending that plaintiffs have failed to

plead a denial of any right protected by

the act and have failed to plead detailed

factual allegations showing the defen-

dants’ actions were racially motivated.

In a civil rights action, pleadings

are to be liberally construed. Only when

the plaintiff can prove no set of facts

that would entitle him to relief is a

District Court warranted in granting a

- 10l1la -

motion to dismiss. Windsor v. Bethesda

General Hospital, 523 F.2d 891, 893 (8th

Cir. 1975).

Plaintiffs’ complaint contends that

plaintiff was denied participation in the

Medicare program, subjected to abuses in

connection with the sanction process and

essentially deprived of income because of

his race. Among the rights protected by

42 U.S.C. § 1981 are the right to earn a

living without regard to one’s race, to

make contracts for education, to fair use

and access to justice, and to participate

in public benefits programs. See Graham

v. Richardson, 403 U.S. 365, 91 S.Ct.

1848, 29 L.Ed.2d 534 (1971); Johnson v

allw x ss e -, 421 U.S.

454, 95 §&.Ct. 1716, 44 L.Ed.2d 295

(1975); Runyon v. McCrary, 427 U.S. 160,

96 S.Ct. 2586, 49 L.Ed.2d 415 (1976);

- 102a -

Martinez v. Fox Valley Bus Lines, 17

F.Supp. 576 (N.D. Ill. 1936); Pennsyl-

vania v. Local 542, 347 F.Supp. 268 (E.D.

Penn. 1972).

In Tavlor v. Flint Osteopathic

Hospital, Inc., 561 F.Supp. 1152 (E.D.

Mich. 1983) the Court denied defendant’s

motion to dismiss saying: i.

... Plaintiff’s complaint appears to

state a claim under § 1981 against

the PSRO in as much as it alleges,

in essence, that the PSRO acted ina

discriminatory manner in performing

its peer review functions and that

PSRO’s discriminatory conduct

precluded plaintiff from performing

his "contracts" with his patients

and, ultimately, with FOH.

The PSRO’s sole direct chal-

lenge to the § 1981 claim is that it

js devoid ef specific factual alle-

gations that PSRO’S treatment of

plaintiff differed from their treat-

ment of similarly situated white

persons, as required by § 1981.

This Court having concluded, how-

ever, that the complaint fairly

apprises the PSRO of the elements of

plaintiffs’ claim under § 1981, the

motion to dismiss this claim pur-

suant to F.R.Civ. P. 12(b)(6) is

hereby denied.

- 103a -

id. at 1159-60.

Defendants in this case are in no

better position than defendant in Taylor.

Plaintiffs have alleged actions taken

which if true have deprived plaintiffs of

rights protected by 42 U.S.c. § 1981.

Further, plaintiff has alleged that the

actions were motivated by plaintiff’s

race. Accordingly, this court finds that

plaintiff has stated a cause of action

under 42 U.S.C. § 1981.

H.

Defendants next move to dismiss

Count II of plaintiffs’ complaint

alleging a violation of 42 U.S.c. §

1985(2). Section 1985(2) relates to in-

stitutions and processes of federal

judicial proceedings and conspiracies to

obstruct the course of justice in state

courts. Kush v. Rutledge, 460 U.S. 719,

- 104a -

103 S.Ct. 1483, 75 L.Ed.2d 413 (1983).

Moreover, § 1985(2) expressly requires

force, intimidation, or threat against

persons holding public office, witnesses,

or jurors. Williams v. St. Joseph Hos~-

pital, 629 F.2d 448, 451 (7th Cir. 1980).

There are no allegations regarding

either federal courts or state courts in

plaintiffs’ complaint or amended com-

plaint. Further, plaintiffs have not

alleged that defendants ever subjected

any person to any force, intimidation or

threat. Accordingly, this Court will

grant defendants’ motion to dismiss Count

II of plaintiffs’ amended complaint.

I.

Defendants further contend that

plaintiffs have failed to state a cause

of action under 42 U.S.C. § 1985(3)

claiming the amended complaint (1) fails

- 105a -

to adequately allege the existence of a

conspiracy, (2) fails to allege an

invidiously discriminatory animus, and

(3) fails to allege the deprivation of a

constitutional right protected by 6§

1985(3).

Under Fed. R. Civ. P. 8, technical

niceties of pleading are not required.

Rather a short and plain Summary of the

facts sufficient to give fair notice of

the claim asserted is sufficient. Means

Vv. Wilson, 522 F.2d 833, 840 (8th Cir.

1975). In addition, a complaint under 42

U.S.C. § 1985(3) must allege facts to

show that intentional or invidious

discrimination was the object of the

conspiracy. Griffin v. Breckenridge, 403

U.S. 88, 91 S.Ct. 1790, 29 L.Ed.2a 338

(1971).

- 106a -

In Means v. Wilson, the complaint

alleged that the defendant conspired with

"private individuals" and two other named

individuals to ensure defendant was re-~

elected. s_v. Wi , 522 F.2d at

840-41. Upon no more than the above, the

Eighth Circuit found that the plaintiff

had stated a cause of action under 42

U.S.C. § 1985(3). Id.

In the present case, plaintiffs have

alleged that the named defendants "acted

individually, together, and with others.

..-" Such allegations fairly raises the

inference of conspiracy. Following the

precedent of Means, supra, the Court

finds that plaintiffs’ amended complaint,

although inartfully drafted, does allege

conspiracy sufficiently to state a claim

under 42 U.S.C. § 1985(3).

- 107a -

Defendants’ contention that the

complaint fails to allege a class based

animus is also without merit. The

amended complaint alleges that plaintiff

Kwoun is an Asian-American and that

defendants subjected him to treatment

different than that reserved for white

persons. The amended complaint then

enumerates all of plaintiffs’ charges of

how he was treated. This Court finds the

pleadings sufficient to allege a class

based animus and thus support a § 1985(3)

cause of action.

Defendants’ contention that plain-

tiffs’ § 1985(3) claim must fail because

it lacks a constitutional predicate is

also without merit. Case law supports

plaintiffs’ contention that 42 U.S.c. §

1981 provides a substantive basis for

redress under § 1985(3). In Witten v.

- 108a -

A.H. Smith and Co., 567 F.Supp. 1063

(D.Md. 1983), Judge Miller examined the

language of the _ statute, the general

legislative history with regard to the

rights -for which a remedy is provided by

§ 1985(3), and the intent of the Forty

Second Congress. Judge Miller concluded

that 42 U.S.C. § 1981 is a proper sub-

stantive basis for a claim of redress

under § 1985(3). Id. at 1072. This same

position was taken in Miller v. St. Louis

Theatrical Co., No. 83-2305C(1)(E.D. Mo.

August 1, 1984).

As discussed supra, this Court has

determined that plaintiffs have raised a

colorable claim under 42 U.S.C. § 1981.

Accordingly, defendants’ motion to dis-

miss plaintiffs’ § 1985(3) claim will be

denied.

- 109a -

J.

Defendants seek to dismiss plain-

tiffs’ Count Iv. Plaintiffs agree that

defendant SEMO PSRO and defendant SEMO -

doctors are not federal officials subject

to a claim under the Fifth Amendment.

Accordingly, plaintiffs’ Count IV will be

dismissed with respect to defendant SEMO

PSRO and defendant SEMO doctors.

Defendants Kran, Nicholson, and

Howard challenge plaintiffs’ constitu-

tional claims contending that there is no

private right of action under the Fifth

Amendment because plaintiff Kwoun had an

alternate remedy via the adninistrative

review process and that plaintiff has not

alleged the deprivation of a constitu-

tionally protected property interest

without due process.

- 430a - -

The Supreme Court has held that

victims of a constitutional violation by

a federal officer have a right to recover

damages against the official in federal

court despite the absence of any statute

conferring such a right. Bivens v. Six

Unknewn Federal Narcotics Agents, 403

U.S. 388, 91 S.Ct. 1999, 19 L.Ed.2d 619

(1971). Additionally, plaintiffs are not

limited to statutorily created causes of

action to the exclusion of a Bivens

action if the alternative remedy is not

equally effective and intended to operate

as a substitute for the action under

Bivens. Carlson v. Green, 446 U.S. 14,

100 S.Ct. 1468, 64 L.Ed.2d 15 (1980).

The "Medicare Act" provides only for

reimbursement in connection with care

services provided without compensation.

it does not provide compensation for

- llla -

plaintiffs’ alleged loss of reputation,

emotional distress, lost business,

punitive damages, nor an opportunity to

be heard before a jury. All of the

aforementioned differences between the

Medicare Act remedy and a Bivens action

are significant and counsel in favor of

allowing plaintiffs’ claim in Count Iv

against defendants Kran, Nicholson, and

Howard. Carlson v. Green, supra.

Further, plaintiffs have alleged the

deprivation of constitutionally protected

rights without the benefit of due

process.

"To have a property interest in a

benefit, a person Cleariy must have

more than an abstract need or desire

fer it. He must have more than a

unilateral expectation of it. He

must, instead, have a legitimate

Claim of entitlement to it. It is a

purpose of the ancient institution

of property to protect those claims

upon which people rely in their

daily lives, reliance that must not

be arbitrarily undermined. It is a

- 112a -

purpose of the constitutional right

to a hearing to provide an oppor-

tunity for a person to vindicate

those claims.

"Property interests, of course, are

not created by the Constitution.

Rather, they are created and their

dimensions are defined by existing

rules or understandings that stem

from an independent source such as

state law -- rules or understandings

that secure certain benefits and

that support claims of entitlement

of those benefits."

Board of Regents v. Roth, 408 U.S. 564,

577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d

548 (1972). Here plaintiff asserts a

property interest in his continued par-

ticipation in the Medicare Program and to

receive reimbursement for his services.

Physicians such as plaintiff Kwoun are

entitled to participation in the Medicare

Program provided they comply with certain

conditions and requirements under 42

U.S.C. §§ 1320 and 1395. This Court

finds that these conditions and require-

- 1l3a -

ments are sufficient to secure benefits

and to support claims of entitlement to

those benefits under the rule in Board of

Regents v. Roth, supra.

Plaintiff also alleges deprivation

of his interest in his profession and a

right. to earn a living. These interests

have long been recognized as property

interests which are protested by due

process. Schware_ v. Board of Bar Ex-

aminers, 353 U.S. 232, 238, 77 S.Ct. 752,

755, 1 L.Ed.2d 796 (1957).

Plaintiff also has alleged that he

was denied fair access to the procedures

normally provided to physicians under the

Medicare Act. The Eighth Circuit has

previously determined v.nat if a plaintiff

can prove defendant interfered with his

right to procedural due process, he is

entitled to damages that actually re-

- 114a -

sulted, which would include, for example,

mental and emotional distress. Bishop v-

Tice, 622 F.2d 349, 357 (8th Cir. 1980).

Accordingly, this Court finds that

plaintiff Kwoun’s amended complaint

alleges deprivation of the types of

property and liberty interests which are

necessary to state a claim under the

Fifth Amendment.

K.

Defendants seek to dismiss plain-

tiffs’ claim of malicious prosecution

contending that neither defendant SEMO

PSRO or defendant SEMO doctors commenced

a prosecution against defendant Kwoun:

"The elements of a cause for mali-

cious prosecution are: (1) commence-

ment of prosecution of the proceed-

ings against the present plaintiff;

(2) its legal causation by the pres-

ent defendant; (3) its termination

in favor of the present plaintiff;

(4) absence of probable cause for

such proceedings; (5) the presence

of malice therein; (6) damage to

- 115a -

Plaintiff by reason thereof."

Palermo v. Cottom, 525 S.W.2a 758, 763

(Mo. App. 1975). Of these six factors

defendants complain of only the first:

A person’s acts may be the legal

cause of prosecution if instituted

at his insistence and request. It

is sufficient if his action takes

the form of an affidavit on which

the case is based, regardless of

further participation in the prose-

cution.... To impose liability

there must be affirmative action by

way of advice, encouragement, pres-

sure or something similar in the

institution, or causing the insti-

tution of the prosecution.

Id.

In this case plaintiff has alleged

that defendants prepared fraudulent

reports and recommended that plaintiff be

permanently excluded from participation

in Medicare and related programs. Plain-

tiff further alleges that defendants’

recommendations and reports precipitated

the institution of the action complained

- 116a -

of. Such allegations are sufficient to

survive a motion to dismiss for failure

to state a cause of action for which

relief can be granted.

L.

Defendants also seek to dismiss

plaintiffs’ claim for outrageous conduct

contending that the conduct alleged in

the complaint is not extreme and out-

rageous as a matter of law.

The Missouri Supreme Court “has

accepted the Restatement’s view that a

right of action does exist for damages

for severe emotional distress, intention-

ally and recklessly caused, by ‘extreme

and outrageous conduct.’" Pretsky v.

ou s O., 396

S.W.2d 566 (Mo. Sup. 1965); Nelson v.

Grice, 411 S.W.2d 117 (Mo. Sup. 1967).

- 117a -

Both of the cited cases quote at

length from the Restatement’s comment on

the type of conduct which will give rise

to such liability. Essentially the

conduct must have been "so outrageous in

character, and so extreme in degree, as

to go beyond all possible bounds of

decency, and to be regarded as atrocious,

and utterly intolerable in a civilized

community." Restatement, § 46 p. 73.

Warrem_v. Parrish, 436 S.W.2d 670, 673

(Mo. Supp. 1969).

In passing upon the sufficiency of

plaintiffs’ complaint, the Court must

consider the truth of the facts alleged,

giving them liberal construction and give

plaintiff the benefit of all fair impli-

cations from such facts. Matthews v.

Pratt, 367 S.W.2d 632,634 (Mo. Supp.

1963).

aaa es

- 118a -

In the present case plaintiffs

allege that defendants willfully issued a

sanction report caliing for permanent

exclusion which contained manufactured

and fabricated matters and refused to

provide plaintiff Kwoun notice of charges

or any opportunity to explain his situa-~

tion. Plaintiff further alleges that

defendants thereafter pursued the matter

through the statewide council and HCFA,

with notice to the public, deliberately

misstating facts, and contriving exhibits

in their efforts to further prosecute

him. Plaintiff alleges not one act but a

continuous course of conduct. If the

facts plaintiff alleges are true, rea-

sonable men might well consider defen-

dants’ actions of such an extreme and

outrageous nature as will render them

liable for extreme emotional distress

- 119a -

intentionally caused thereby.

M.

Defendants seek next to dismiss

plaintiffs’ claim for prima facie tort.

The doctrine of prima facie tort, which

first appeared in the Restatement, has

been adopted by the courts of Missouri,

Porter v. Crawford, 611 S.W.2d 265 (Mo.

App. 1980). However, as is clearly set

out in the Restatement, the doctrine is

applicable only when the factual basis of

the complaint does not fall within the

parameters of an established tort.

Thus, application of the doctrine is

not justified here as plaintiff~ has

factually alleged malicious prosecution

and outrageous conduct which are torts

presently recognized by Missouri courts.

Plaintiffs have cited the case of

Vv i ’ fe) 3

- 120a -

646 S.W.2da 130 (Mo. App. 1983) to support

the position that an alternative tort

claim does not defeat the prima facie

tort claim. The court in Lohse, however,

dismissed plaintiff’s claim because

plaintiff failed to plead any facts to

support the claim. The court made no

comment as to the appropriateness of a

prima facie tort claim pled as a second

cause with wrongful discharge. Id. at

130-31.

Accordingly, because plaintiffs have

alleged the same set of facts as mali-

cious prosecution and prima facie tort,

this Court will dismiss the prima facie

tort claim.

N.

Finally, defendants seek summary

judgment on all counts:

Summary judgment is an extreme

remedy, one which is not to be

- 12la -

entered unless the movant has

established his right to a judgment

witi such clarity as to leave no

room for controversy and that the

other party is not entitled to

recover under any discerible cir-

cumstances.

* “t * * *

+++ the Supreme Court set the

standard that should be applied when

one party to a lawsuit in federal

court makes a motion for a summary

judgment:

Summary judgment should be

entered only when the plead-

ings, depositions, affidavits,

and admissions filed in the

case ‘show that [except as to

the amount of damages] there is

no genuine issue as to any

material fact and that the

moving party is entitled to a

judgment as a matter of law.’

Rule 56(c), Fed. Rules Civ.

Proc. This rule authorizes

summary judgment ‘only where

the moving party is entitled to

judgment as a matter of law,

where it is quite clear what

the truth is, ... [and where]

no genuine issue remains for

trial ... [for] the purpose of

the rule is not to cut liti-

gants off from their right of

trial by jury if they really

have issues to try.’

Ozark Milling Co. v. Allied Mills, Inc.,

480 F.2d 1014, 1015 (8th Cir. 1973);

U.S. 620, 627, 64 8.Ct. 724, 728, 88

L.Ed. 967 (1944).

In the present case plaintiffs have

alleged violations of the civil rights

statutes, malicious prosecution, con-

spiracy, and outrageous conduct. Each of

these charges are in themselves questions

of fact in that their ultimate determina-

tion revolves on findings of motivation,

intent, good-faith, and subjective feel-

ings. The Eighth Circuit has determined

that summary judgment is notoriously

inappropriate for a determination of

claims on which the issue of intent,

good-faith, or other subjective feelings

played dominate roles. McGee v. Hester,

724 F.2a 89,91 (8th Cir. 1984). In this

instance this Court finds summary judg-

ment inappropriate due to the inherently

- 123a -

factual nature of plaintffs’ Claims and

the belief that reasonable minds could

differ as to defendants’ culpability for

their alleged actions.

Accordingly, defendants’ motions

will be granted in part and denied in

part.

- 124a -

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

SOUTHEASTERN DIVISION

No. S$84-259 C(D)

Soung O. Kwoun, et al.,

Plaintiffs,

V.

Southeast Missouri Professional

Standards Review Organization, et al.,

Defendants.

Filed March 27, 1986

MEMORANDUM

This matter is before the Court wen

sponte.

CTU BACKGROUN

Plaintiffs brought this action as a

result of an initial determination by the

Health Care Financing Administration

(HCFA), which excluded plaintiffs from

- 125a -

the Medicare reimbursement program. This

decision was made pursuant to the recom-

mendations and efforts of the defendants.

Plaintiffs subsequently filed an action

before an Administrative Law Judge pur-

suant to the appeals provisions of 42

U.S.C. § 1320(c). The ALJ reversed the

HCFA decision and reinstated plaintiffs

to the reimbursement program. woun v.

S ° fe) t d view Org.,

622 F.Supp. 520, 523 (E.D. Mo. 1985).

Plaintiff then filed the instant action

alleging various civil rights and tort

violations. However, all of plaintiffs’

allegations may be categorized as an

action for malicious prosecution which

resulted in various alleged constitution-

al deprivations.1

1 For a complete recital of

plaintiffs’ allegations see kKwoun_ v.

Southeast Mo. Pro. Standards Review Org.,

- 126a -

The Court on its own motion now

considers the question of whether

defendants are entitled to any immunity

from actions, such as the above-styled

matter, due to their congressional man-

date to conduct intensive reviews of

government funded health services. For

the reasons set forth below, the Court

finds that defendants are entitled to

immunity and, thus, this action must be

dismissed.

isto nd _ Ev ion of PSROs

The health care delivery system in

the United States is the first industry

to be comprehensively regulated since the

1930s. Health expenditures continue to

escalate out of proportion to the rest of

the economy. As long ago as 1976, 42.2%

supra at 523.

- 2278 =

of the nations health expenditures came

from public funds. Gibson & Mueller,

National Health Expenditures, Fiscal Year

1976, Sec. Sec. Bull. 3, 4. Publicity

generated by instances of fraud and other

abuse in government funded health pro-

grams focused attention on both the

dubious quality and the unnecessary

quantity of the health care delivered in

this country. Miller, PSRO Data _ and

Information: Disclosure to State Health

R t encies, 57 Boston U.L. Rev.

245, 246 (1977).

When it established Medicare and

Medicaid in 1965, Congress recognized the

need to curb practitioner and provider

induced demand in order to contain the

cost of government funded medical ser-

vices. Id. To this end payments under

these programs are limited to medically

- 4268 -

necessary health care services. 42 U.S.C.

§ 1395(f)(7)7 § 1396. Congress required

each hospital to organize a committee of

physicians to evaluate the necessity of

health care provided therein. See 42

U.S.C. § 1395X(e) (6); 45 C.F.R. §§ 250.

18, .19 (1975). Those internal review

activities, however, were nothing more

than token lip service and could be aptly

characterized as more form than sub-

stance. S. Rep. No. 1230, 92nd Cong.,

2nd Sess. 255 (1972). Congress needed to

put teeth into the requirement that fed-

erally financed health care be medically

necessary. In order to promote effec-

tive, efficient, and economical delivery

of Medicare and Medicaid, Congress

enacted the PSRO Amendment to the Social

Security Act. Act of Oct. 30, 1972, Pub.

L. No. 92-603, tit. II, 249F(b), 86 Stat.

- 129a -

1429 (modified at 42 U.S.c. § 1320c, et

seq. (Sup. II, 1972), as amended, (Supp.

V, 1975). Thus, the PSRO Amendment was

adopted in response to recognition that

the original review system incorporated

into the Medicare Program failed to

control the costs of government sponsored

medical care.

This legislation established a sys-

tem of external monitoring of institu-

tionally based health care services which

Congress intended would be free from the

conflicts of interest inherent in the old

in-house review methods. PSROsS are to

determine (1) whether particular institu-

tionally based services are medically

necessary, (2) whether they are of

acceptable quality, and (3) whether

appropriate care could effectively be

provided on an outpatient basis or more

- 130a -

economically in an inpatient facility of

a different type. 42 U.S.C. § 1320c-

4(a)(1). The PSRO is also provided with

various enforcement sanctions. Among

these sanctions is the recommendation

that the practitioner or provider be

prohibited from participation in the

reimbursement programs. 42 U.S.C. §1320c-

9(b)(1) (Supp. II, 1972).

Sanctions are appropriate whenever a

practitioner or provider has "grossly and

flagrantly" violated the statute or has

failed to comply with his statutory

obligations in a substantial number of

cases. Id. In the instant case, defen-

dants found that plaintiffs had violated

the statute to such an extent as to

warrant imposition of sanctions. The

HCFA agreed and plaintiffs were excluded

from participation in the Medicare and

- 4348 <=

Medicaid reimbursement programs.

immunity of PSROs

Congress did not specifically

provide PSROs with immunity from legal

actions such as that in the instant

matter. However, a careful review of the

legislative history of the PsRO Amendment

Clearly indicates that some form of

immunity is both necessary and desirable.

In formulating the present psrRo

Amendment, Congress was convinced that

the old utilization review system was

simply not adequate; in fact, the old

system was characteristically ineffec-

tive. It was fragmented, retrospective,

and incomplete. Numerous witnesses who

testified before the Serate Subcommittee

stated that a significant Proportion of

the health services provided under Medi-

care and Medicaid were in excess of those

- 132a -

which would be found medically necessary,

and the old system failed to prevent this

from happening. 117 Cong. Rec. 21266

(6/11/71).

The key to making a PSRO work ef-

fectively is the degree of motivation and

sincerity of the physicians and medical

organization in each area. 117 Cong.

Record 21267 (6/22/71). The stakes are

too high and public concern and scrutiny

too great for anyone to delude himself

that a pro forma PSRO will be acceptable.

Id. Substance and not form must be the

test of a PSRO. Performance and profes-

sionalism will be the criteria of

judgment.

From the foregoing, it is abundantly

clear that Congress expected that PSROs

would conduct active, comprehensive, and

probing reviews even if such reviews are

- 133a -

not popular with the providers under

investigation. Without such an intent,

Congress would have left the weak and

ineffective rubber stamping method in

place.

In the instant case, defendants

conducted a review just as Congress

anticipated all PSROs should. At the

completion of this review, defendants

recommended that plaintiffs be excluded

from the various government reimbursement

programs. HCFA agreed with defendants’

recommendation and issued an order to

that effect.

Plaintiffs ttook advantage of the

appeals process as provided by the stat-

ute. 42 U.S.C. § 1320(c). In this

instance, the appeals process worked in

plaintiffs’ favor and the HCFA ruling was

reversed. Thus, to this point in the

- 134a -

proceedings, the review process func-

tioned just as Congress anticipated it

should.

However, plaintiffs then brought the

instant action. This action has thrown

Congress’s well-intentioned and carefully

constructed plan into chaos. How can a

PSRO be expected to conduct extensive

reviews if by doing so it becomes the

target of a lawsuit such as the above-

styled matter? Quite obviously it can-

not. The instigation of lawsuits such as

this will have a chilling effect upon the

vigor with which these reviews will be

undertaken. This was simply not cCon-

gress’ intent.

Immunity has consistently been

provided for groups and individuals who,

by legal mandate, are charged with under-

taking unpopular tasks.

- 135a -

The most recent example is articu-

lated in Malley, et al. v. Briggs, et

al.-, ___ U.S. _ (slip opinion)

(3/5/86). In Malley the Supreme Court

ruled that police officers who believed

that the facts stated in an affidavit are

true and submits them to a neutral

magistrate may be entitled to immunity

under the objective reasonableness

standard of Harlow v. Fitzgerald, 457

U.S. 800 (1982).

Under this ruling officers cannot

avoid liability under the rule of

qualified immunity on the grounds that

the act of applying for an arrest warrant

is per se objectively reasonable where

the officer believes that the facts

alleged in his affidavit are true, and

that he is entitled to rely on the

judicial officer’s judgment in issuing

- 136a -

the warrant and hence finding that

probable cause exists. The question is

whether a reasonably well-trained officer

in petitioner’s position would have known

that his affidavit failed to establish

probable cause and that he should not

have applied for the warrant. If such

was the case, the application for the

warrant was not objectively reasonable,

because it created the unnecessary danger

of an unlawful arrest.

In the instant case, the same type

of immunity should be afforded. Defen-

dants, like the officer in Malley,

investigated a situation and presented

their findings to a neutral party for a

determination on their recommendation.

As in Malley where the magistrate issued

the requested warrants, the Director of

HCFA acted favorably on defendants’

- 3378 =

recommendation. Subsequently, Plaintiffs

obtained a reversal through the appeals

process just as in Malley, the grand jury

refused to indict, and charges were

dropped. The question then becomes whe-

ther defendants herein knew or should

have known that their recommendation was

improper. If this question is answered

in the negative then defendants are

immune from liability under the immunity

theory articulated in Malley. In Malley

the court determined that only where the

warrant application is so lacking in

indicia of probable cause as to render

official belief in its existence unrea-

sonable will the shield of immunity be

lost. Malley, et al. v. Briggs, supra,

Slip op. p. 9.

Here, if defendants’ recommendations

were so lacking in factual basis that

- 138a -

defendants could not have believed them

to be proper, plaintiffs’ action should

stand. However, after careful considera-

tion of all pleadings and supporting

documents, the Court finds that defen-

dants conducted their review just as

Congress intended. Further, defendants’

recommendations were made with objective

belief that plaintiffs should be excluded

from the reimbursement programs based

upon the facts uncovered in defendants’

investigation. Thus, defendants should

be shielded from liability pursuant to

the Supreme Court’s ruling in Malley.

As the foregoing clearly indicates,

Congress has determined that comprehen-

sive review of government funded health

care is in the public interest. Yet

Congress did not specifically provide

immunity to encourage PSROs to vigorously

- 139a -

pursue their appointed tasks. The Court

will correct Congress’ oversight with its

ruling today. Plaintiffs and those

Similarly situated must not be allowed to

use the Court system to gain revenge for

actions which Congress ordered PSROs to

' undertake. Accordingly, this Court will

enter an Order dismissing plaintiffs’

complaint based upon defendants’ in-

herently necessary immunity.

Dated this 27th day of March, 1986.

=

H. Kenneth Wangelin

United States District Judge

- 140a -

IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

SOUTHEASTERN DIVISION

No. S 84-259 C(D)

Soung O. Kwoun, et al.,

Plaintiffs,

Vv.

Southeast Missouri Professional

Standards Review Organization, et al.,

Defendants.

Filed June 3, 1986

MEMORANDUM AND ORDER

The matter is before the court upon

plaintiffs’ motion to alter or amend

judgment and to clarify judgment.

On March 2, 1986, this Court

dismissed the above styled matter.

First, plaintiffs are concerned in their

motion for clarification as to whether

- l4ia - :

the Court intended to dismiss all defen-

dants. The Court understands that

plaintiffs are concerned that this Court

may not have jurisdiction over defendants

Kram, Nicholson, and Howard. To that end

the Court considers its March 27, 1986

order to overrule its September 19, 1985

order denying said defendants’ motions to

dismiss. Thus, the Court has, by its

March 27, 1986 order, dismissed all

defendants.

Next, plaintiffs move this Court to

alter or amend its March 27, 1986 order.

The basis for plaintffs’ motion is

plaintiffs’ perception that the Court

overlooked or ignored the provisions of

42 U.S.C. § 1320(c)-6. While this

Court’s March 27, 1986 order does not

mention 42 U.S.C. § 1320(c)-6, the Court

did consider said section. This section

- 142a -

provides support for the Court’s conten-

tion that Congress intended to provide

immunity. The section does not provide

guidelines as to how the immunity is to

be applied under any given set of cir-

cumstances. It is clear, however, that

the type of immunity that this Court

found controlling in its March 27, 1986

order is compatible with the type of

immunity Congress attempted to provide in

42 U.S.C. § 132(c)-6. Therefore, this

Court’s determination that defendants are

protected by a qualified immunity based

upon a standard of objective reasonable-

ness shall not be altered.

Accordingly,

IT IS HEREBY ORDERED that plain-

tiffs’ motion to alter or amend this

Court’s March 27, 1986 order be and is

DENIED; and

- 143a -

IT IS FURTHER ORDERED that plain-

tiffs’ motion to Clarify this cCourt’s

March 27, 1986 order be and is DENIED.

Dated this 3rd day of June, 1986.

8/8

H. Kenneth Wangelin

United States District Judge

- 144a -

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

SOUTHEASTERN DIVISION

No. S$84-259 C(D)

Soung O. Kwoun, et al.,

Plaintiffs,

V «

Southeast Missouri Professional

Standards Review Organization, et al.,

Defendants.

= SSE ELSES SEE SSS SS SS SSS SS SS SS SE SS SES SS

ORDER

In accordance with the Memorandum

filed this date and incorporated herein,

IT IS HEREBY ORDERED that the above-

styled matter be and is DISMISSED.

Dated this 27th day of March, 1986.

s/s __

H. Kenneth Wangelin

United States District Judge

- 145a -

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

hf = =

No. 85-2379

Soung 0. Kwoun, et al.,

Appellees,

Vv.

Southeast Missouri Professional

Standards Review Organization,

et al.,

Appellants.

Nos. 86-1502/1838

Soung O. Kwoun, et al.,

Appellants,

Vv.

Southeast Missouri Professional

Standards Review Organization,

et al.,

Appellees.

- 146a -

Appeals from the United States District

Court for the Eastern District

of Missouri

JUDGMENT

These appeals from the United States

District Court were submitted on the

record of the said district court, briefs

of the parties and were argued by coun-

sel.

Upon consideration of the premises,

it is hereby ordered and adjudged that

the judgment of the district court is

affirmed in accordance with the opinion

of this Court.

February 4, 1987

Order entered in accordance with opinion.

s/s

Clerk, U.S. Court of Appeals, 8th

Circuit

- 147a -

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 85-2379EM

and =

Soung O. Kwoun, et al.

Appellees,

Vv.

Southeast Missouri Professional

Standards Review Organization, et al.,

Appellants.

No. 86-1502/1838EM

Soung 0. Kwoun, et Bi.

Appellants,

Ve

Southeast Missouri Professional

Standards Review Organization, et al.,

Appellees.

- 148a - «

Appeals from the United States District

Court for the Eastern District

of Missouri

ORDER

Petition for rehearing en banc of

Soung O. Kwoun, et al., has been con-

sidered by the Court and is denied.

Petition for rehearing by the panel

is also denied.

March 9, 1987

Order entered at the Direction of the

Court:

__8/s

Clerk, U.S. Court of Appeals

Eighth Circuit.

- 149a -

Constitutional Provision Involved

This case involves the Fifth Amend-

ment to the Constitution of the United

States which provides, in pertinent part:

No person shall ... be deprived

of life, liberty, or property,

without due process of law....

STATUTES INVOLVED

42 U.S.C. § 1320c-5.

(a) Each Professional Stan-

dards Review Organization shall

apply professionally developed norms

of care, diagnosis, and treatment

based upon typical patterns of prac-

tice in its regions (including typi-

cal lengths-of-stay for institu-

tional care by age and diagnosis) as

principal points of evaluation and

review. The National Professional

Standards Review Council and the

Secretary shall provide such tech-

nical assistance to the organization

as will be helpful in utilizing and

applying such norms of care, diag-

nosis, and treatment. Where the

actual norms of care, diagnosis, and

treatment in a Professional Stan-

dards Review Organization area are

significantly different from pro-

fessionally developed regional norms

of care, diagnosis, and treatment

approved for comparable conditions,

- 150a -

the Professional Standards Review

Organization concerned shall be so

informed, and in the event that

appropriate consultation and dis-

cussion indicate reasonable basis

for usage of other norms in the area

concerned, the Professional Stan-

dards Review Organization may apply

such norms in such area as are

approved by the National Profes-

sional Standards Review Council.

(c)(2) Each review organiza-

tion, agency, or person referred to

in paragraph (1) shall utilize the

norms developed under this section

as a principal point of evaluation

and review for determining, with

respect to any health care services

which have been or are proposed to

be provided, whether such care and

services are consistent with the

criteria specified in section 1320c-

4(a)(1) of this title.

(b) No person who is employed

by, or who has a fiduciary relation-

ship with, any such organization or

who furnishes professional services

to such organizations, shall be held

by reason of the performance by him

of any duty, function, or activity

required or authorized pursuant to

this part—or—to a valid contract

- 15la -

entered into under this part, to

have violated any criminal law, or

to be civilly liable under any law

of the United States or of any State

(or political subdivision thereof)

provided he has exercised due care.

Aug. 14, 1935, c. 531, Title XI, § 1157,

as added Sept. 3, 1982, Pub.L. 9%7=248,

Title I, § 143, 96 Stat. 389.)

42 U.S.C. § 1320c-8.

(a) Any beneficiary or recipi-

ent who is entitled to benefits

under this chapter (other than sub-

chapter V) or a provider Or prac-

titioner who is dissatisfied with a

determination with respect toa a

Claim made by a Professional Stan-=

dards Review Organization iff Garry=

ing out its responsibilities fer the

review of professional activities ih

accordance with paragraphs (i) ad

(2) of section 1320c-4(a) of this

title shall, after being notified of

such determination, be entitled to a

reconsideration thereof by the Pro-

fessional Standards Review Organiza=~

tion and, where the Professional

Standards Review Organization reaf-<

firms such determination in a State

which has established a Statewide

Professional Standards Review

Council, and where the matter in

controversy is $100 or more, such

determination shall be reviewed by

professional members of such Council

- 152a -

and, if the Council so determined,

revised.

(b) Where the determination of

the Statewide Professional Standards

Review Council is adverse to the

beneficiary or recipient (or, in the

absence of such Council in a State

and where the matter in controversy

ie 8100 or more), such beneficiary

or recipient shall be entitled to a

hearing thereon by the Secretary to

the same extent as ia provided in

section 405(b) of this title, and,

where the amount in controversy is

$1,000 or more, to judicial review

of the Secretary’s final decision

after such hearing as is provided in

section 405(g) of this title, The

Secretary will render a decision

enly after appropriate professional

censuitation en the matter,

| (@) Any Feview eF als pre=

vy @ead under this seetien shail be in

tien Of ay Feview, hearing, oF

appeal under this chapter with

reapect to the same issue.

42.U,.8,.C, § 19206=9.

(b) (1) If after reasonable

notice and opportunity for discus~

sion with the practitioner or

provider concerned, any Professional

Standards Review Oraanization sub-

mits a report and recummendations to

- 153a -

the Secretary pursuant to section

1320c-6 of this title (which report

and recommendations shall be _ sub-

mitted through the Statewide Pro-

fessional Standards Review Council,

if such council has been estab-

lished, which shall promptly trans-

mit such report and recommendations

together with ang additional com-

ments and recommendations thereon aa

it deems appropriate) and if the

Secretary etermines that such

practitioner or provider, in pro=

viding health care services over

which such organization has review

responsibility and for which payment

(in whole or in part) may be made

under this chapter has--

(A) by failing, in a substan-

tial number ef cases, substan-

tially te comply with any ebli-

@atien f ea @h Aim wader

subsectien (a) ef this section,

ee

(B) by grossly and flagrantly

Violating any such obligation

in one or more instances,

demonstrated an unwillingness or a

lack of ability substantially toe

rr with such obligations, he (in

addition to any other sanction pro=

vided under law) may exclude (perma~

nently for such perese as the

Secretary may prescribe) such prac-

titioner or provider from eligibil-

ity to provide such services on a

reimbursable basis.

- 154a -

(2) A determination made by the

Secretary under this subsection

shall be effective at such time and

upon such reasonable notice to the

public and to the person furnishing

the services involved as may be

specified in regulations. Such

determination shall be effective

with respect to services furnished

to an individual on or after the

effective date of auch determination

(except that in the case of inatitu=

tional health care services such

determination shall be effective in

the manner provided in subchapter

XVIII of this chapter with respect

to terminations of provider agree~

ments), and shall remain in effect

until the Secretary finds and gives

reasonable notice to the public that

the basis fer such determination has

heen Femeved and that there is rea=

eenable assurance that it will Ret

PeCUL

(3) TR Liew Of the sanetion

authorized by paragraph (1), the

Secretary may require that (as a

condition to the continued eligibil-

ity of such practitioner or provider

to provide such health care services

on a reimbursable basis) such prac-

titioner or provider pay to the

United States, in case such acts or

conduct involved the provision or

ordering by such practitioner or

provider of health care services

which were medically improper or

unnecessary, an amount not in excess

of the actual or estimated cost of

~ 395a -

the medically improper or unneces-

Sary services so provided, or (if

less) $5,000. Such amount may be

deducted from any sums Owing by the

United States (or any instrumental-

ity thereof) to the person from whom

such amount is claimed.

(4) Any person furnishing ser-

vices described in paragraph (1) who

is dissatisfied with a determination

made by the Secretary under this

subsection shall be entitled to

reasonable notice and opportunity

for a hearing thereon by the Secre-

tary to the same extent as is pro-

vided in section 405(b) of this

title, and to judicial review of the

Secretary’s final decision after

such hearing as is provided in

section 405(q) of this title.

42 U.S.C, § 1320¢6-16.

(b) (1) No individual who, as a

member or employee of any Profes-

sional Standards Review Organization

or of any Statewide Professional

Standards Review Council or who

furnishes professional counsel or

services to such organization or

council, shall be held by reason of

the performance by him or any duty,

function, or activity authorized or

required of Professional Standards

Review Organizations or of Statewide

Professional Standards Review Coun-

cils under this part, to have vio-

- 156a -

lated any criminal law, or to be

civilly liable under any law, of the

United States or of any State (or

political subdivision thereof) pro-

vided he has exercised due care.

(2) The provisions of para-

graph (1) shall not apply with re-

spect to any action taken by any

individual if such individual, in

taking such action, was motivated by

malice toward any person affected by

such action.

As amended Oct. 25, 1977, Pub.L. 95-142,

§ 5(i) (nm), 91 Stat. 1190, 1191.

42 U.S.C, § 198):

(R.

All persons within the jurisdiction

of the United States shall have the

same right in every State and Terri-

tory to make and enforce contracts,

to sue, be parties, give evidence,

and to the full and equal benefit of

all laws and proceedings for the

security of persons and property as

is enjoyed by white citizens, and

shall be subject to like punishment,

pains, penalties, taxes, licenses,

and exactions of every kind, and to

no other.

S. § 1977.)

- 157a -

(3) If two or more persons in

any State or Territory conspire ...

for the purpose of depriving, either

directly or indirectly, any person

or class of persons of the equal

protection of the laws, or of equal

privileges and immunities under the

laws; ... in any case of conspiracy

set forth in this section, if one or

more persons engaged therein do, or

cause to be done, any act in fur-

therance of the object of such con-

spiracy, whereby another is injured

in his person or property, or de-

prived of having and exercising any

right or privilege of a citizen of

the United States, the party so

injured or deprived may have an

action for the recovery of damages

occasioned by such injury or depri-

vation, against any one or more of

the conspirators.

R.S. § 1980.

(a) The PSRO shall identify

situations that may result in a

violation of the obligations speci-

fied in § 474.1 and help to prevent

their occurrence as provided in §

474.4.

(b) The PSRO shall determine

when a violation of an obligation

has occurred and report the matter,

with recommendations for action, to

the Statewide Council of, if there

is no Council, to HCFA.

(c) The PSRO shall use the

authority or influence it may pros-

sess and enlist the support of other

professional or government agencies,

including the State Medicaid Agency,

to ensure that each practitioner and

provider complies with the obliga-

tion of § 474.1.

violation.

If a PSRO identifies a situation

that may result in a violation, it shall

send the practitioner or provider a

written notice containing the following

information:

(a) The obligation involved;

atin.

- 159a -.-

(b) The situation, circun-

stances, or activity which, if con-

tinued, may result in a violation;

(c) The authority and respon-

sibility of the PSRO to report a

violation of obligations;

(da) At the discretion of the

PSRO, a suggested method for cor-

recting the situation and a time

period for corrective action by the

practitioner or provider;

(e) The sanction that the PSRO

could recommend if a violation

occurs; and

(f) An invitation to discuss

the problem with representatives of

the PSRO.

42 C.F.R. § 474.5 Factors in PSRO

jet inati ; violation.

If the PSRO identifies a violation,

it shall determine:

(a) Which obligation specified

in § 474.1 has been violated; and

(b) Whether the practitioner or

provider has:

(1) Failed to comply substan-

tially with an obligation in a

significant number of cases; or

- 158a -

(a) The PSRO shall identify

situations that may result in a

violation of the obligations speci-

fied in § 474.1 and help to prevent

their occurrence as provided in §

474.4.

(b) The PSRO shall determine

when a violation of an obligation

has occurred and report the matter,

with recommendations for action, to

the Statewide Council of, if there

is no Council, to HCFA.

(c) The PSRO shall use the

authority or influence it may pros-

sess and enlist the support of other

professional or government agencies,

including the State Medicaid Agency,

to ensure that each practitioner and

provider complies with the obliga-

tion of § 474.1.

42 C.F.R. § 474.4 Action on potential

violation.

If a PSRO identifies a situation

that may result in a violation, it shall

send the practitioner or provider a

written notice containing the following

information:

(a) The obligation involved;

- 16la -

(2) The obligation violated;

(3) The basis for the deter-

mination;

(4) The sanction to be recom-

mended; and

(5) The right of the prac-

titioner or provider to submit to

the PSRO, within 20 days of the date

on the notice, additional informa-

tion or written request for a meet-

ing with the PSRO to review and

discuss the determination, or both.

(b) Review of determination.

(1) The PSRO may, on the basis

of additional information submitted

by the practitioner or provider,

affirm, modify, or reverse its

determination or the sanction to be

recommended; and

(2) The PSRO shall promptly

give written notice to the prac-

titioner or provider of any action

it takes as result of the additional

information received.

42_ C.F.R. § 474.8 _PSRO report to the

Statewide Council or to HCFA.

(a) Manner of reporting. If

the PSRO determines that a violation

has occurred, it shall submit a

report to the Statewide Council or,

if there is no council, directly to

HCFA.

- 162a -

(b)

The PSRO report shall include:

(1) Identification of the prac-

titioner or provider and in the case

of a provider, the name of its

director, administrator, or owner;

(2) The type of health care

service involved;

(3) A statement of facts des-

cribing each failure to comply with

an obligation, with specific dates,

places, circumstances, and any other

relevant information;

(4) Pertinent documentary evi-

dence;

(5) Copies of written corres-

pondence and written summaries of

oral exchanges with the practitioner

or provider regarding the violation;

(6) The PSRO’s determination

that the practitioner or provider

has violated an obligation under the

Act; and

(7) The PSRO’s recommendation

of the sanction, if any, and the

basis for that recommendation.

42 C.F.R. § 474.9 Role and functions of

¢) Stat ide ¢ il.

(a) Council review and comment.

The Council shall:

® ee

- 163a =

(1) Review the report submit-

ted by the PSRO to assure that it is

complete and complies with all re-

quirements set forth in § 474.8(b);

and

(2) Prepare a statement con-

curring or nonconcurring with the

PSRO’s recommended action and

identifying any areas in which the

PSRO report is incomplete.

(b) Transmittal to HCFA. The

Council shall promptly transmit to

HCFA the PSRO report and its state-

ment of concurrence or nonconcur-

rence with any additional comments

or recommendations.

42_ C.F-R. § 474.10 Action by HCFA on

receipt of the report.

(a) Determination of viola-

tion. HCFA will review the PSRO

report and determine (on the basis

of the factors specified in § 474.5)

whether a violation has occurred.

(b) Determination of sanction.

If HCFA concludes that there is a

violation, it will determine whether

to impose a sanction after consider-

ing:

(1) The recommendation of the

PSRO and the Statewide Council;

(2) The type of offense;

- 164a -

(3) The severity of the of-

fense;

(4) The anticipated deterrent

effect of the sanction;

(5) The previous sanction rec-

ord of the practitioner or provider;

(6) Availability of alternative

sources of services in the commun-

ity; and

(7) Any other matters relevant

to the particular case.

(c) Notice of proposed sanc~

tion. (1) If HCFA proposes to

impose a sanction in accordance with

§472.2 (or to terminate a provider

agreement in accordance with § 405.

614(a)(5)), it will send the

provider or practitioner written

notice of its intent and the reasons

for the proposed sanction.

(2) Within 15 days of the date

on the notice, the provider or prac-

titioner may submit documentary

evidence and written argument con-

cerning the proposed action.

(3) For good cause shown by

the provider or practitioner, HCFA

may extend the 15-day period.

(d) Notice to provider or prac~

° (1) If, after

exhaustion of the procedures

_— - Y

- 165a -

specified in paragraph (c) of this

section, HCFA decides to impose a

sanction, it will notify the pro-

vider or practitioner and the State

Medicaid and Title V agencies of the

adverse determination and of the

sanction to be imposed at least 30

Gays before the effective date of

the sanction.

(2) The notice will specify:

(i) The basis for the deter-

mination;

(ii) The sanction to be

imposed;

(iii) The effective date and, if

appropriate, the duration of the

exclusion;

(iv) The appeal rights of the

practitioner or provider; and

(v) In the case of exclusion,

the earliest date on which HCFA will

accept a request for reinstatement.

(e) Public Notice. HCFA will

publish notice in a newspaper of

general circulation in the PSRO

area. The notice will identify the

sanctioned provider or practitioner;

the obligation in § 474.1 which has

been violated; specify the sanction

imposed and, if the sanction is

exclusion, the effective date and

duration.

(f) Notice to other affected

entities. HCFA will give notice, as

appropriate, to:

- 166a -

(1) The PSRO that originated

the sanction report and the State-

wide Council involved;

(2) PSROs in adjacent areas;

(3) State Medicaid fraud con-

trol units, and State licensing

bodies;

(4) Hospitals, skilled nursing

facilities, home health agencies,

and health maintenance organizations

(HMO’s) ;

(5) Medical societies and

other professional organizations;

and

(6) Medicare carriers and

intermediaries, health care prepay-

ment plans, and other affected

agencies and organizations.

(1) A practitioner or provider

dissatisfied with a HCFA determina-

tion is entitled to a hearing and

review by the appeals council in

accordance with §§ 405.1531 through

405.1595 of this chapter.

(2) The HCFA determination

will continue in effect unless

revised by a hearing decision.

- 167a -

PROGRAM MANUAL

P.S.R.O. Program Manual Chapter XXIV,

Page 1,

Issue Date:

June 20, 1978

The Department of Health, Education and

Welfare recognizes that PSROs operate as

independent, private, nonprofit corpora-

tions. However, included in each PSRO’s

activities is the performance, under

contract with HCFA, of a statutory and

regulatory function supported by Federal

funds, as noted above.