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Pennsylvania Medical Society v. Snider

argued: May 26, 1994.


On Appeal from the United States District Court for the Middle District of Pennsylvania. (D.C. Civ. Action No. 92-cv-00481).

Before: Cowen, Roth, Circuit Judges, and Brown, District Judge*fn*

Author: Cowen


COWEN, Circuit Judge.

Under the Medicaid Act, a state participating in the Medicaid program must pay certain cost-sharing expenses for qualified Medicare beneficiaries (QMBs) in order to make these QMBs eligible for certain Medicare benefits called Medicare Part B services. The State of Pennsylvania, which participates in the Medicaid program, limits its coinsurance and deductible payments under Medicare Part B so that the total amount of the reimbursements does not exceed the amount that the health care provider would have received for the services pursuant to the Medicaid plan. Pennsylvania Medical Society and Dr. James B. Regan brought this action under 42 U.S.C. § 1983 seeking a declaration that the Pennsylvania Medicaid Plan violated the Medicare Act and the Medicaid Act. The district court denied relief by granting summary judgment for the defendants. This appeal followed.*fn1 We have jurisdiction under 28 U.S.C. § 1291 and our review is plenary because only purely legal questions are involved. We hold that the Pennsylvania limitation on payment violates both the Medicare Act and the Medicaid Act, and will reverse the judgment of the district court.


The question presented in this appeal implicates the Medicare Act and the Medicaid Act. Accordingly, we will summarize the relevant statutory provisions involved and sketch the context from which the dispute arose.


The Medicare Act, 42 U.S.C. §§ 1395-1395ccc, established the Medicare program. Under the Medicare Act, the federal government funds the Medicare program. Eligibility for Medicare benefits is based on old age or disability: an individual must be at least 65 years old or disabled to be eligible. 42 U.S.C. § 426(a). These individuals are commonly referred to as Medicare-eligible patients.

Medicare coverage is primarily divided into two parts. Part A covers all inpatient hospital expenses through an insurance plan. See 42 U.S.C. §§ 1395c to 1395i-4. All Medicare-eligible patients receive this benefit. This coverage is not in dispute in this case.

Part B covers certain physician services, hospital outpatient services, and other health services not covered under Part A. See 42 U.S.C. §§ 1395j to 1395w-4(j). Part B coverage is not freely or automatically available to all Medicare-eligible patients. To obtain this coverage, Medicare-eligible patients must first enroll in the Part B insurance program by paying insurance premiums ("Part B insurance premiums"). See §§ 1395o -1395s. Once this is done, the federal government pays 80% of the "reasonable costs" of outpatient hospital services and 80% of the "reasonable charges" for physician services rendered to the insured. § 1395l. The Part B patients themselves must pay the remaining 20% of the charges for the reasonable outpatient hospital services and physician services (co-payments or coinsurance), as well as an annual deductible. Id. ; § 1395cc(a)(2)(A). Together, the Part B premiums, deductibles and coinsurance are generally referred to as "Part B cost-sharing." Reasonable costs and charges for the services covered under Part B are established pursuant to the Medicare Act and its implementing regulations. See § 1395w-4(a), (b).

However, the payment of the Part B insurance premiums, the 20% coinsurance, and the deductibles poses a serious problem for some poor Medicare-eligible patients. Therefore, these individuals may have to forego Part B coverage completely. How Congress resolved this problem is at the heart of the dispute in this case.


The Medicaid Act, 42 U.S.C. § 1396 et seq., established the Medicaid program which is separate from the Medicare program. Under the Medicaid Act, the federal government and the states jointly fund the Medicaid program with the federal government contributing approximately between 50% and 83% of the funding, with the states responsible for the rest. § 1396d(b). Eligibility for Medicaid benefits is based on need. A patient becomes eligible if his or her income falls below a certain level. See § 1396d(a).

A state is not required to participate in the Medicaid program, but if it decides to participate, it must comply with the Medicaid Act and its implementing regulations. § 1396c. A participating state*fn2 must propose a plan that meets certain statutory requirements laid down in § 1396a(a). The plan must establish a schedule of payment rates or payment methods for the various kinds of medical care that a Medicaid patient may seek. § 1396a(a)(30). All parties agree that these rates are almost always lower than the rates established under Medicare as reasonable costs and charges. Medicaid service providers (including doctors and hospitals) must accept the Medicaid payment as payment in full, and may not ask the Medicaid patient to pay any money beyond that amount. § 1320a-7b(d); 42 C.F.R. § 447.15 (1993). To become effective, the plan must be approved by the Secretary of the United States Department of Health and Human Services ("the Secretary"). § 1396a(b).

Some individuals are eligible for benefits under both the Medicare and Medicaid Acts: they are either old-aged or disabled, and they are poor. These individuals are commonly called "dual eligibles." But some old-aged or disabled may not be poor enough to be eligible for Medicaid benefits. Moreover, for those dual eligibles who meet the Medicaid poverty requirement but cannot pay for Medicare Part B coverage, Medicaid may not provide for all the services covered by Medicare Part B.


Since the very inception of the Medicare and Medicaid programs, Congress has made several attempts to solve the problems as sketched above. As a result, several provisions in the Medicaid Act, see 42 U.S.C. §§ 1396a(a)(15) (repealed 1988), 1396a(a)(10)(E), 1396d(p), 1396a(n), established an interplay between the Medicare Act and the Medicaid Act.

Congress enacted § 1396a(a)(15) in 1965 which at first required states through their Medicaid programs to pay all of the Medicare Part A premiums for dual eligibles, and permitted states to impose part of the Part B cost-sharing on the individuals based on their ability to pay.*fn3 Congress eliminated this distinction in 1967, permitting states to require dual eligibles to share in the cost-sharing for both Part A and Part B coverage.*fn4 This amendment did not affect the command that together dual eligibles and states were to pay the Part B cost- sharing in full. See New York City Health & Hosps. Corp. v. Perales, 954 F.2d 854, 860 (2d Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 461 (1992) (interpreting § 1396a(a)(15)).

In 1986, Congress permitted states to pay the Part B cost-sharing for those Medicare-eligible individuals who are too poor to pay the Part B cost-sharing on their own, but not poor enough to be Medicaid-eligible, who are termed "qualified Medicare beneficiaries (QMBs)." This is called the optional "buy-in" program whereby the states may pay the Part B cost-sharing for the individuals to enroll them in the Medicare Part B program. See the Omnibus Budget Reconciliation Act of 1986 (OBRA '86), Pub. L. No. 99-509, § 9403, 100 Stat. 1874, 2053-55 (codified as amended at §§ 1396a(a)(10)(E), 1396d(p), 1396a(n)). The dispute of this case focuses on these provisions.

Section 1396a(a)(10)(E) provided that the states have an option whether to provide Part B cost-sharing to a QMB. The statute specifically used the language of "at the option of a State." Id., 100 Stat. at 2053 (repealed). A QMB was essentially defined in § 1396d(p)(1) as a Medicare-eligible individual whose income is below the federal poverty line but "who, but for section [1396a(a)(10)(E)] and the election of the State, is not eligible for medical assistance under the [Medicaid] plan." Id., 100 Stat. 2054. Section § 1396d(p)(3) defines cost-sharing as including Part B premiums, coinsurance and deductibles and certain other enrollment premiums. Section 1396a(n) states that a state plan may provide a payment amount for Part B services exceeding the amount otherwise payable under a Medicaid plan.

The participation in the QMB program was low. By 1988 only one State had chosen to provide this benefit to QMBs. H.R. Rep. No. 105(II), 100th Cong., 2d Sess. 59 (1988), reprinted in 1988 U.S.C.C.A.N. 857, 882. Concerned about this low participation, and recognizing that Medicare coverage was being expanded to cover certain services that were previously covered by Medicaid, giving states certain savings, Congress made the option to provide Medicare Part B benefits for the QMBs mandatory by requiring the states to pay the Part B cost-sharing for the QMBs. See id. at 59-60, reprinted in 1988 U.S.C.C.A.N. at 882-83. This was accomplished by deleting "at the option of a State" from § 1396a(a)(10)(E). Medicare Catastrophic Coverage Act of 1988 (MCCA), Pub. L. No. 100-360, § 301(a)(1), 102 Stat. 683, 748. No other substantive changes were made. In the same year, the QMB definition was broadened by repealing § 1396d(p)(1)(B).

The Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647, § 8434(a), 102 Stat. 3342, 3805. That is, this amendment has the effect of making all dual eligibles QMBs. For the sake of clarity, we will refer to these individuals covered by the current definition of QMB as "QMBs and dual eligibles." Section 1396a(a)(15), which covered only dual eligibles, was deleted by the Family Support Act of 1988, Pub. L. No. 100-485, Title VI, § 608(a)(14)(I)(iii), 102 Stat. 2343, 2416.

In 1989 Congress added § 1396a(a)(10)(E)(ii) which mandates that participating states pay the cost-sharing for certain qualified disabled and working individuals described in § 1396d(s) but limited the payment to only one item as listed in § 1396d(p)(3)(A)(i). Pub. L. No. 101-239, § 6408(d)(1), 103 Stat. 2106, 2268 (1989). In 1990 Congress added § 1396a(a)(10)(E)(iii) which requires participating states to extend certain QMB benefits to those Medicare-eligible individuals who are above the federal poverty line, but specifically limits these benefits to Part B premiums only. Pub. L. No. 101-508, § 4501(b)(3), 104 Stat. 1388, 1388-165 (1990).

In 1989 Congress further amended the Medicare Act to require that physicians treating QMBs accept assignment, thereby precluding physicians from balance-billing*fn5 QMBs. Pub. L. No. 101-239, § 6102(a), 103 Stat. 2106, 2181-82 (1989) (codified at 42 U.S.C. § 1395w-4(g)(3)(A)). This provision took effect on April 1, 1990. Id. § 6101, 103 Stat. 2168-69.


The State of Pennsylvania is a participant in the Medicaid program and has established a Medicaid plan which was approved by the Secretary. Pennsylvania pays the QMBs' Medicare Part B premiums in full, and pays the Medicare Part B deductible and coinsurance only if, and to the extent that, the amount already paid under Medicare Part B, plus its payment, does not exceed the Medicaid allowance. An applicable Pennsylvania regulation provides in part that "if a [Medicaid] recipient also has Medicare coverage, the [State] may be billed for charges that Medicare applied to the deductible or coinsurance, or both. Payment will be made in accordance with established [Medicaid] rates and fees." 55 Pa. Code § 1101.64(b).

It appears that this regulation leads to a result that Pennsylvania pays nothing once the patient's deductible has been exhausted and pays at its lower Medicaid rates, rather than the Medicare rates, before the deductible has been exhausted.*fn6 See App. at 35 (Stipulation P 23). However, the Secretary and the Pennsylvania Secretary of Public Welfare argue that Pennsylvania is permitted to limit its coinsurance and deductible payments under Medicare Part B so that the total amount of the reimbursements does not exceed the amount that the health care provider would have received for the services rendered under Medicaid. Although there may be some slight differences between the Pennsylvania regulation and the position the Secretary asserts before us, we will treat them as the same. Any difference is immaterial in the context of this appeal because our holding requires payment of all Part B cost-sharing.

Under the Pennsylvania payment system, Pennsylvania invariably pays little or no money for QMBs' Part B cost-sharing because the Medicaid rates are invariably lower than the Medicare rates, and are almost always lower than the Part B payment rates, i.e., 80% of the Medicare rates. Health care providers who supply services to QMBs in Pennsylvania thus may not recover the Part B cost-sharing that non-QMB Medicare Part B patients would pay on their own to service providers.


The question presented is whether the Pennsylvania plan and regulations (the "Penn Plan") limiting Medicaid payment to the extent that the Medicaid payment, plus Medicare payment, does not exceed the payment otherwise available under Medicaid violates either the Medicare Act or the Medicaid Act. We hold that the Penn Plan violates both the Medicare Act and the buy-in provisions of the Medicaid Act. In so holding, we find support in the statutory language, statutory context and legislative history, as well as New York City Health & Hosps. Corp. v. Perales, 954 F.2d 854 (2d Cir.), cert. denied, ___ U.S. ___, 113 ...

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