B-234152, Jan 13, 1989

B-234152, Jan 13, 1989

MISCELLANEOUS TOPICS - Human Resources - Health care - Medicare - Review procedures DIGEST: 1. Any expansion of peer Review Organization review of health care services under Medicare may not be arbitrary or lack procedural due process and must bear rational relationship to legitimate governmental end. Association of American Physicians & Surgeons v. Weinberger, 395 F.Supp. 125 (N.D. Ill.) (three judge court) (1975). 2. Whether increased use of national standards by Peer Review Organizations in reviewing Medicare health care services would conflict with statutory requirement for regional norms of care depends on number of factors, including scope and specificity of national standards and how different they are from regional practice. 42 U.S.C. Sec. 1320c 3(a)(6). 4. If Peer Review Organization (PRO) review of health care services under Medicare interferes with the treatment of Medicare patients, it is possible such interference may subject PRO to malpractice liability. See Wickline v. California, 192 Cal. App. 3d 1630, 228 Cal. Rptr. 661 (1986). MISCELLANEOUS TOPICS - Human Resources - Health care - Medicare - Physicians - Malpractice 3. If increased national standards for Medicare reimbursement force physicians to deviate from local common law standards of care, those physicians would no longer be protected by existing statutory immunity. 42 U.S.C. Sec. 1320c-6(c). MISCELLANEOUS TOPICS - Human Resources - Health care - Medicare - Malpractice - Government liability 5. It is unclear whether 42 U.S.C. Sec. 1320c-6(d) would obligate the federal government to pay malpractice judgment incurred by Peer Review Organization in connection with performance of its duties under Medicare. 6. While Congress has declared that U.S. shall be liable for its actions relating to certain negligence-based claims in same manner and to same extent as private citizens, such liability would not extend to issuance or promulgation of standards or rules. 28 U.S.C. Sec. 2674. MISCELLANEOUS TOPICS - Human Resources - Health care - Medicare - Revision 7. Any significant changes in the Medicare program which are not enacted in legislation or promulgated as formal rules are vulnerable to potential legal challenges on procedural grounds. 5 U.S.C. Secs. 551 et seq. Legal issues resulting from expanded review under the Medicare program (Code 973636) - B-234152.

Group Director, PEMD - Linda Demlo:

You have requested our assistance in proposing the expansion of Medicare review by the Health Care Financing Administration (MCFA), particularly through using national standards, and conducting such reviews prospectively. Since to a limited extent, HCFA already does both, legal issues will arise to the extent you propose significant deviation from existing practice. We provide a general discussion of these issues and their implications below. To summarize some major points: where your proposal could be viewed as placing undue pressure on physician decision making, it will increase the likelihood of legal challenges; if your proposal would cause deviation from local common law standards of care, physicians would not be protected by existing statutory immunity and, thus, may resist participating in Medicare; and any significant changes in the Medicare program which are not enacted in legislation or promulgated as formal rules will be more vulnerable to legal challenge. The following legal analysis answers your questions in a narrative format.

PRACTICE OF MEDICINE

In enacting the Medicare program, Congress explicitly sought to avoid exercising supervision or control over the practice of medicine. U.S.C. Sec. 1395. However, as health care costs escalated, Congress increasingly became concerned that, the program was paying for unnecessary procedures and overutilization of medical resources. /1/ In 1972, Congress enacted legislation requiring Professional Standards Review Organizations to be designated in various regions of the country to review provider Medicare and Medicaid services to determine whether the services were medically necessary, met professionally recognized standards of health care, and were provided on an outpatient or more economical basis, where appropriate. Pub.L. No. 92-603, Title II, Sec. 249F(b), 86 Stat. 1429-1445 (197d), 42 U.S.C. Secs. 1320c-1320c-19 (1976).

The professional Standards and Review provision of Public Law 9d-603 was challenged on the ground that it interfered with the constitutional right of physicians to practice their profession. A U.S. District Court rejected this argument:

"In order to avoid over-utilization of health care services and to achieve more effective control over the costs of those services, Congress has enacted the "Professional Standards Review" legislation. The legislation does set forth certain professional standards which must be met in furtherance of this statutory purpose. The statute, however, does not bar physicians from practicing their profession but only "provides standards for the dispensation of Federal funds." Considering the purpose behind this statutory scheme and the requirements set forth in the statute to achieve this purpose, this Court finds that the challenged legislation is not so "patently arbitrary and lacking in rational justification' as to be violative of the Due Process Clause of the Fifth Amendment." Association of American Physicians & Surgeons v. Weinberger, 395 F.Supp. 125, 132 (N.D.I11.5 (1975) (three judge court), summarily affirmed 423 U.S. 975, 96 S.Ct. 388, 46 L.Ed. 2d 299 (1975).

Although Congress has since revised this law by enacting the Peer Review Improvement Act of 1982 (Pub.L. No. 97-248, Title 1, Subtitle C, Secs. 141 -l5O, 96 Stat. 381-395 (1982), 42 U.S.C. Secs. 1320c-1320c 11), for purposes of our analysis the relevant aspects of the law remain unchanged. Medicare review is still held to the same Constitutional standard articulated in the Association of American Physicians case, above, as it affects the practice of medicine: such review may not be arbitrary or lack procedural due process and must bear a rational relationship to a legitimate governmental end. 395 F.Supp. at 132.

NATIONAL STANDARDS

The peer Review Improvement Act of 1982 requires that each peer review organization (PRO), in reviewing activities in its area, apply "professionally developed norms of care, diagnosis, and treatment based upon typical patterns of practice within the geographic area served by the organization as principal points of evaluation of review, taking into consideration national norms where appropriate." 42 U.S.C. Sec. 1320c- 3(a)(6). This language will accommodate the inclusion of national standards in PRO review, "where appropriate." However, the practical implications of this language are not altogether clear and, unfortunately, the legislative history does not elaborate. At the point at which imposition of national standards begins to override regional norms of care, the requirement that regional norms serve as the "principal points" of review will be violated. lt is impossible to say in the abstract when that point is reached; such a determination can be made only on a case-by- case basis. In this regard, Congress recently added language requiring increased emphasis on specific local considerations:

"As a component of the norms described ... the organization shall take into account the special problems associated with delivering care in remote rural areas, the availability of service alternatives to inpatient hospitalization, and other appropriate factors (such as the distance from a patient's residence to the site of care, family support, availability of proximate alternative sites of care, and the patient's ability to carry out necessary or prescribed self-care regimens) that could adversely affect the safety or effectiveness of treatment provided on an outpatient basis." 42 U.S.C. Sec. 1320c 3(a)(6), as amended by the Omnibus Budget Reconciliation Act of 1987, Pub.L. No. 100-203, Sec. 4094, 101 Stat. 1330- 136 (1987).

Ultimately, whether the national standards of review you envision would conflict with regional norms of care and treatment or with the special needs of remote areas would depend on a number of factors, including the scope and specificity of the national standards and how different they are from regional practices.

Increasing the emphasis on national standards would also highlight the provision in the Professional Standards and Review legislation, granting civil immunity to physicians and providers working in conjunction with a PRO in the Medicare program. In addition to requiring compliance with PRO standards for reimbursement, this law provides that:

"No doctor of medicine or osteopathy and no provider ... of health care services shall be civilly liable to any person under any law of the United States or of any State (or political subdivision thereof) on account of any action taken by him in compliance with or reliance upon professionally developed norms of care and treatment applied by an organization under contract pursuant to section 1320c-2 of this title operating in the area where such doctor of medicine or osteopathy or provider took such action; but only if

"(2) he exercised due care in all professional conduct taken or directed by him and reasonably related to, and resulting from, the actions taken in compliance with or reliance upon such professionally accepted norms of care and treatment." 42 U.S.C. Sec. 1320c-6(c).

The "due care" provision, by incorporating the norms developed for the peer review process, effectively requires a physician to comply with local common law standards of care in order to maintain immunity while participating in Medicare. See, Cost Containment and the Standard of Medical Care, 75 Cal. L. Rev. 1719, 1752 (1987). It is questionable whether physicians will abandon this immunity by eschewing local standards of care for national standards, even though compliance with national standards guarantees reimbursement; depending on how different the proposed national standards are from existing local standards, physicians may resist participating in the Medicare program: Correspondingly, in order to successfully implement national standards, it may be necessary to amend the statute by eliminating the "due care" standard. This would ensure that physicians are provided immunity based on compliance with national standards.

Given the fact that a PRO is substantially composed of local physicians, /2/ elimination of the "due care" standard raises the possibility that physicians could influence PROs to endorse standards of care which would tend to insulate themselves from liability. See 75 Cal. L. Rev. supra at 1752. Thus, a law removing the "due care" standard might be challenged as authorizing an unconstitutional delegation of legislative authority to private associations (PRO's). Although such a challenge might not succeed, /3/ this possibility provides a basis for suggesting that Congress, upon eliminating the "due care" standard, also require HCFA to issue detailed standards for PROs through the formal Administrative Procedure Act rulemaking process. /4/

PROSPECTIVE REVIEW

Congress has provided sufficient authority for PROs to conduct prospective reviews (or reviews of proposed treatments which have not yet been rendered), as follows:

"Any utilization and quality control peer review organization entering into a contract with the Secretary under this part must perform the following functions:

"(1) The organization shall review some or all of the professional activities in the area, subject to the terms of the contract, of physicians and other health care practitioners ... in the provision of health care services and items for which payment may be made (in whole or in part) under subchapter XVIII of this chapter for the purpose of determining whether -

"(A) such services and items are or were reasonable and medically necessary ...,;

"(C) in case such services and items are proposed to be provided in a hospital or other health care facility on an inpatient basis, such services and items could, consistent with the provision of appropriate medical care, be effectively provided more economically on an outpatient basis or in an inpatient health care facility of a different type.

. . . . . "(3) Whenever the organization makes a determination that any health care services or items furnished or to be furnished to a patient by any practitioner or provider are disapproved, the organization shall promptly notify such practitioner or provider, such patient, and the agency or organization responsible for the payment of claims under subchapter XVIII or this chapter ..." 42 U.S.C. Sec. 1320c-a(l)(A).

It is our understanding that PROs are currently conducting prospective reviews and that your proposal would be to increase the frequency or intensity of those reviews already taking place. To the extent that the proposed changes would not constitute a significant deviation from present practice, we see little problem. However, if the proposed changes would result in undue pressure on physician decision-making, more serious legal problems might result.

Based on the assumption that more immediate review exacerbates pressure on physicians, the timing of review has been treated with particular sensitivity in litigation:

"The central issue in this litigation is not the principle of utilization review per se. Indeed, plaintiffs' principal witness admitted that a decision by a utilization review committee made after a retrospective review, a review which occurs at some point (days, weeks, or months) after admission, does not affect a doctor's practice of medicine or interfere with the doctor-patient relationship. Plaintiffs recognize that some form of review is necessary to prevent unscrupulous doctors from admitting patients who do not require hospitalization. However, plaintiffs contend that the new regulations which mandate immediate review of the doctor's decision to admit a patient have the effect of allowing H.E.W. to interfere with a function and duty traditionally reserved to qualified medical professionals. Defendant responds by stating that the procedures by which the federal government determines whether or not it will make reimbursement do not result in an interference with the practice of medicine. As a general principle the Secretary is correct in making such an argument. .... Yet these new regulations may have the effect of directly influencing a doctor's decision on what type of medical treatment will be provided, thus directly interfering with the practice of medicine. Whether or not the regulations have such an impact, which would be in violation of the various statutes (footnote citing 42 U.S.C. Sec. 1395) and, perhaps amount to unconstitutional conduct, is not a question for us to decide at this time." American Medical Association v. Weinberger, 522 F.2d 921, 924-925 (7th Cir. 1975).

In this case, the Court of Appeals affirmed the granting of a preliminary injunction against the enforcement of new Medicare and Medicaid regulations requiring review within 24 hours of a physician's decision to hospitalize a patient. The decision to grant the injunction was based on the perceived likelihood of harm to the plaintiffs but, in fact did not constitute a final legal determination on the statutory and constitutional issues. An attorney for the American Medical Association indicated that, although this issue remains "viable," he was unaware of a case where third party payer cost containment standards have been invalidated for interfering with a physician's right to practice medicine. Again, the degree of concern to be raised regarding your proposal depends on the extent to which it deviates from current standards of prospective review. To the extant that PRO review becomes more immediate and detailed, the probable success of a legal challenge based on interference with the practice of medicine will correspondingly increase. A more recent decision by the California Court of Appeals indicates that such review, if based on defectively designed or implemented standards, may subject the third party conducting the review to malpractice liability. Wickline v. State of California, 192 Cal. App. 3d 1630, 228 Cal. Rptr. 661 (1986), review granted 231 Cal. Rptr. 560, 727 P. 2d 753 (1986), review dismissed, 239 Cal. Rptr. 805, 741 P. 2d 613 (1987) (originally published at 183 Cal. App. 3d 1175) (1986). This decision involved a ruling by Medi -Cal, the Medicaid payer for the state of California, to authorize payment for fewer days of hospitalization than the plaintiff's doctor thought advisable. At trial, based on the legal theory of negligence, Wickline won a $500,000 verdict against the state of California. Carlova, A Jury Lands a $5OO,OOO Haymaker on Health Bureaucrats, Med. Econ., May 16, 1983, at 80.

Although the verdict was overturned on appeal, the appeals court indicated that a patient deprived of adequate care may be entitled to recover from that patient's third-party payer:

"The patient who requires treatment and who is harmed when care which should have bean provided is not provided should recover for the injuries suffered from all those responsible for the deprivation of such care, including, when appropriate, health care payers. Third party payers of health care services can be held legally accountable when medically inappropriate decisions result from defects in the design or implementation of cost containment mechanisms as, for example, when appeals made on a patient's behalf for medical or hospital care are arbitrarily ignored or unreasonably disregarded or overridden." Wickline v. California, supra at 1645; 228 Cal. Rptr. at 670-671,

Although this is a state, not a federal, case and it has received some criticism for its legal reasoning, /5/ it nevertheless could have major ramifications for third party payers if it is followed in other jurisdictions. /6/ An attorney for the American Medical Association indicated that, although he was "surprised" to know of no more recent malpractice cases discussing the potential liability of third party payers, /7/ the Association includes a detailed discussion of the Wickline case in seminars held for its physician members. Thus, if you recommend prospective review that would increase pressure on physicians, it would be prudent to include adequate procedures to resolve physician/PRO disputes before they interfere with the treatment of patients.

It is not clear how much protection from liability the Professional Standards and Review legislation affords PROs. At least one commentator has indicated that it would be desirable to construe this law to afford PROs no protection. 62 Washington L. Rev., supra at 811. However, an argument can be made that the Professional Standards and Review law protects PROs from the consequences of their actions under Medicare. The relevant provision reads as follows:

"The Secretary shall make payment to an organization under contract with him pursuant to this part, or to any member or employee thereof, or to any person who furnishes legal counsel or services to such organization, in an amount equal to the reasonable amount of the expenses incurred, as determined by the Secretary, in connection with the defense of any suit, action, or proceeding brought against such organization, member, or employee related to the performance of any duty or function under such contract by such organization, member, or employee." 42 U.S.C. Sec. l32Oc -6(d).

Read literally, expenses incurred "in connection with" the defense of a suit would not appear to include damages; however, it is not certain exactly how a court would construe this language. An attorney for SCFA indicated that the language has not yet been applied to PROs.

An important point is that, while we have been unable to locate any examples of a PRO having been sued by a physician or patient, requiring PROs to enforce more stringent standards may increase the likelihood of such legal action. It is possible that uncertainty over the extent of indemnification under section 42 U.S.C. 1320c-6(d) may have the practical consequences of discouraging entities from contracting to act as PROs. Therefore, in order to successfully implement prospective review requirements, it may be necessary to amend section 42 U.S.C. 1320c-6(c) to expressly include indemnification against damages.

In your memorandum, you asked if there would be any difference if SCFA adopts its own criteria as opposed to those previously adopted or and endorsed by a medical group or specialty society. We would consider it a fundamental principle that SCFA is responsible for whatever criteria it adopts, regardless of the source. Moreover, agency rules most constitute a reasonable interpretation of the intent of Congress. Pacific Gas and Elec. Co. v. U.S., 664 F.2d 1133 (9th Cir. 1981), on remand 554 P. Supp. 345 (N.D. Cal. 1983). In this sense, adopting criteria previously endorsed by professional associations or commentators possibly could lend credence to HCFA's rulemaking.

Your memorandum evidences a concern that HCFA might be liable for the consequences of its own cost containment standards or rules. As an agency of the federal government, HCFA would have sovereign immunity. This is the basic legal principle that the United States cannot be sued in its own courts or in the courts of any state unless by its express consent. 2 Am. Jur. Administrative Law Sec. 577 (1962). While Congress has declared that the United States shall be liable for its actions relating to certain negligence-based claims, in the same manner and to the same extent as private citizens, /8/ such liability would not extend to the issuance or promulgation of standards or rules.

In your memorandum, you also ask how HCFA should go about incorporating these national and/or prospective standards for review into the Medicare program. Specifically, you focus on formal rulemaking. Because we are unsure what you specifically intend to recommend to HCFA, we will briefly discuss the relevant rule pertaining to formal and informal rulemaking.

Whenever an agency promulgates, amends or repeals a statement of general applicability and future effect, the Administrative Procedure Act /9/ requires that agency to follow formal rulemaking procedures, including the provision of public notice and comment. Three relevant exceptions are provided: (1) interpretative rules; (2) general statements of policy; and (3) rules of agency organization. 5 U.S.C. Sec. 553(b).

The purpose of the first exception, for interpretive rules, is to explain ambiguous terms in legislative enactments without having to undertake cumbersome proceedings. American Hospital Association v. Bowen, 834 P.2d 1037, 1045 (D.C. Cir. 1987). Under this exception, courts have allowed agencies to forgo formal rulemaking in cases where the agencies are explicating Congress' desires as opposed to adding substantive content of their own. Id. at 1045.

The purpose of the second exception, for general statements of policy, is to allow agencies to announce tentative intentions for the future without binding themselves. Id. at 1046. Generally, courts have held that general statements of policy do not impose any rights and obligations and genuinely leave agencies and their decision makers free to exercise discretion. Id. at 1046.

The purpose of the third exception, for procedural rules, is to ensure that agencies retain latitude in organizing their internal operations. id. at 1047. Courts have generally inquired whether the procedure being enacted encoded a substantial value judgment or put a stamp of approval or disapproval on a given type of behavior. id. at 1047.

It would appear that the promulgation of national and/or more restrictive standards of review might be considered interpretive rules, if the Congress has already enacted a statutory provision calling for such new or more restrictive standards in some detail. In such a case, HDFA could argue that it is merely fleshing out the intention of the law. Absent such authority, it would be safer to advise HCFA tro promulgate such standards as formal rules.

/1/ S. Rep. No. 1230, 92d Cong. 2d Sess. 254 (1972).

/2/ See 42 U.S.C. Sec. 1320c-1.

/3/ See Note, PSRO: Malpractice Liability and the Impact of the Civil Immunity Clause, 62 Geo. L.J. 1499, 1511 (1974); But see, 75 Cal L. Rev., supra at 1752.

/4/ As governed by 5 U.S.C. Secs. 551, et seq.

/5/ 75 Cal. L. Rev., supra at 1749-1750.

/6/ See Note, Reexamining the Physician's Duty of Care in Response to Medicare's Prospective Payment System, 62 Washington L. Rev. 791, 810 (1- 987) (citing Wickline and various commentators advocating imposing liability on third party payers as a possible solution to the malpractice dilemma of physicians).

/7/ One possible reason is the widespread use of "gag orders" in medical malpractice cases. See, 75 Cal. L. Rev. supra at 1748 n. 124; Washington Post, Oct. 26, 1988, at 1, col. 1.

/8/ 28 U.S.C. Sec. 2874.

/9/ 5 U.S.C. Secs. 551 et seq.