Brief - Standard of Review for Agency Actions under Medicare - Association of American Medical Colleges v. United States, No. 98-56190 (9th Cir. 07/11/2000)

This case arises out of efforts by the Secretary of Health and Human Services (the "Secretary") to review Medicare Part B billings by teaching hospitals and to recover potential overpayments for services rendered by such hospitals to Medicare beneficiaries. The review is called the Physicians at Teaching Hospitals ("PATH") program, and is conducted in the form of audits by the HHS's Office of the Inspector General ("OIG"). After a PATH audit of the billings submitted by the University of Pennsylvania Health System produced a settlement of over $30 million for the government for Medicare claims submitted between 1989 and 1994, the review was extended to teaching hospitals nationwide. The key findings in the University of Pennsylvania PATH audit were (1) a lack of documentation showing the physical presence of the teaching physician during a service performed by a resident and subsequently billed for payment under Medicare Part B, and (2) "upcoding" -- i.e., billing for a more complex level of care than that which was provided.

The core issue of the PATH audits was whether the government was "double-billed" for the care provided residents. The federal government, through Part A General Medical Education (GME) grants and other programs, pays the training costs for most of the medical residency training. This includes the salary of the residents and additional monies to pay staff to train and supervise the residents. The government had maintained for many years that since it has already paid for the resident's salary, it would not pay for medical care provided by the residents. (This is much more complex under Medicaid, where the states are free to pay for resident care or not pay for it. This case only involves Medicare.) While the government also pays to defer the cost of supervising staff, it has allowed such staff to bill for their care that they provide. As with all audits of government paid health care services, the auditors use the documentation in the patient medical records to determine the appropriateness of the services providers. At many medical schools this documentation was inadequate or non-existent, often being little more than resident notes, countersigned hours to weeks later. The medical schools claimed that the attending physicians had been there and rendered the care. It was just a documentation problem and one they were not responsible for because HCFA had not specifically spelled out the rules until 1995. The heart of their claim of misunderstanding is a sort of latches defense - the fiscal intermediaries paid the claims and thus implicitly endorsed the practice.

The Office of Inspector General (OIG), through the PATH audit process, rejected these claims of misunderstanding and treated this claims as false claims since there was no documentation that it was performed by the physician who billed for it. (Despite the denials of the medical schools, it is clear that a lot of the work was not supervised in any meaningful sense of the word.) The medical schools and others are attempting to attack the PATH audit process under the Administrative Procedures Act as an improper agency action. They argue that HHS and Department of Justice are using the PATH process to coerce institutions to settle these cases because the potential losses at trial are so large. The district court dismissed the action for lack of subject matter jurisdiction on defendant's motion to dismiss, ruling that the action is premature because there has been no final agency action, plaintiffs have adequate alternative remedies, and the issues are not ripe for adjudication.

This case is governed by Shalala v. Illinois Council on Long Term Care, Inc., 120 S. Ct. 1084 (2000), which was decided after the oral arguments before the appeals court. Illinois Council construed the statutory limitations on reviewing actions taken under the Medicare Act, finding that judicial review is not available unless there is no other avenue of review. The difficulty in this case is that HHS does provide administrative review for some potential actions taken under the PATH process, but not for others, forcing the court to determine if it can sufficiently predict what type of review will be available, i.e., if the case is ripe for decision. In other cases, Justice takes over the case and prosecutes it as civil or criminal fraud, affording the defendant the full range of evidentiary and procedural protections available at trial. Most difficultly, the agency has made no final rules on the standards for PATH reviews nor does it seem to be attempting to make such rules. Since these are just investigations, they are clearly the type of preliminary agency action that is not subject to judicial review.

The court upheld the district court's finding that the case is not ripe for decision, but reversed its dismissal of the case with prejudice. The court ruled that the case may be re-filed at such time as institutions have suffered specific, remediable harm from improper agency action in the PATH process. The case is important for institutions subject to the PATH process, but is an incomplete picture of the process because, as an appeal of a dismissal, it assumes the truth of plaintiff's position.