American Hospital Asso. v. Bowen

American Hospital Asso. v. Bowen

Opinion

 [*1041]  WALD, Chief Judge:

We face here the issue of whether the Department of Health and Human Services ("HHS"), in implementing the system of "peer review" of Medicare outlays called for by Congress in its 1982 amendments to the Medicare Act, erred in not first undertaking the notice and comment rulemaking generally prescribed by the Administrative Procedure Act ("APA"), 5 U.S.C. § 533. Because we conclude that the directives issued and contracts entered into by HHS constitute mere procedural rules or general statements of policy that do not substantially alter the rights or interests of regulated hospitals, we hold that HHS [**2]  has satisfied the requirements of § 553 of the APA, and therefore reverse the judgment of the district court.

I. THE FACTUAL SETTING OF THIS CASE

Since 1965, the Medicare program has provided for the reimbursement by the federal government of those medical expenses incurred by persons over 65 and of persons suffering from certain disabilities. Typically, this reimbursement has been paid directly to the hospitals and doctors who provide health care to Medicare recipients.

] In 1982, Congress amended the Medicare Act to provide for a new method of reviewing the quality and appropriateness of the health care provided by these medical providers to Medicare beneficiaries. It did so by passing the Peer Review Improvement Act of 1982, Pub. L. No. 97-248, § 143, 96 Stat. 382 (1982), 42 U.S.C. §§ 1320c et seq., which called for HHS to contract with "peer review organizations," or PROs, private organizations of doctors that would monitor "some or all of the professional activities" of the provider of Medicare services in their areas. 42 U.S.C. § 1320c-3(a)(1). A primary goal of Congress was to put into place a review system that [**3]  would crack down on excessive reimbursements to hospitals for treatments of Medicare patients. ¹ 

 [**4]  In passing the 1982 amendments, Congress painted with a broad brush, leaving HHS to fill in many important details of the workings of peer review. ] The amendmments require HHS to designate geographic areas generally corresponding to each state, to be served by individual peer review organizations. 42 U.S.C. § 1320c-2(a). HHS must then enter into an agreement, initially for a two-year term, with a PRO in each area. 42 U.S.C. § 1320c-2(b)(1) and (c)(3). Entities seeking to qualify as PROs must contain a sufficient number of physicians practicing in the PRO are to carry our the requisite review functions. 42 U.S.C. § 1320c-1.

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