SCHWEIKER, SECRETARY OF HEALTH AND HUMAN SERVICES v. McCLURE ET AL.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
Argued March 1, 1982
Decided April 20, 1982
Part B of the Medicare program under the Social Security Act provides federally subsidized insurance against the cost of certain physician services, outpatient physical therapy, X-rays, laboratory tests, and certain other medical and health care. The Secretary of Health and Human Services is authorized to contract with private insurance carriers to administer the payment of Part B claims. If the carrier refuses on the Secretary's behalf to pay a portion of a claim, the claimant is entitled to a "review determination," based on the submission of written evidence and arguments, and, if the amount in dispute is $100 or more, a still-dissatisfied claimant then has a right to an oral hearing, at which an officer chosen by the carrier presides. The statute and regulations make no further provision for review of the hearing officer's decision. After decisions by hearing officers were rendered against them, appellee claimants sued in Federal District Court to challenge the constitutional adequacy of the hearings afforded to them. The court held that the hearing procedures violated appellees' rights to due process insofar as the final, unappealable decision regarding their claims was made by carrier appointees, that due process required additional safeguards to reduce the risk of erroneous deprivation of Part B benefits, and that appellees were entitled to a de novo hearing conducted by an administrative law judge of the Social Security Administration.
The hearing procedures in question do not violate due process requirements. Pp. 195-200.
POWELL, J., delivered the opinion for a unanimous court.
Deputy Solicitor General Geller argued the cause for appellant. With him on the briefs were Solicitor General Lee, Edwin S. Kneedler, Lynne K. Zusman, Robert P. Jaye, and Henry Eigles.
Harvey Sohnen argued the cause for appellees. With him on the brief were Stefan M. Rosenzweig, Clifford Sweet, Sally Hart Wilson, and Gill Deford. *
[ Footnote * ] Briefs of amici curiae urging affirmance were filed by David R. Brink for the American Bar Association; and by Mary Ellen McCarthy for Coalition of Senior Citizens, Inc., et al.
JUSTICE POWELL delivered the opinion of the Court.
The question is whether Congress, consistently with the requirements of due process, may provide that hearings on disputed claims for certain Medicare payments be held by private insurance carriers, without a further right of appeal.
Title XVIII of the Social Security Act, 79 Stat. 291, as amended, 42 U.S.C. 1395 et seq. (1976 ed. and Supp. IV), commonly known as the Medicare program, is administered by the Secretary of Health and Human Services. It consists of two parts. Part A, which is not at issue in this case, provides insurance against the cost of institutional health services, such as hospital and nursing home fees. 1395c-1395i-2 (1976 ed. and Supp. IV). Part B is entitled "Supplementary [456 U.S. 188, 190] Medical Insurance Benefits for the Aged and Disabled." It covers a portion (typically 80%) of the cost of certain physician services, outpatient physical therapy, X-rays, laboratory tests, and other medical and health care. See 1395k, 1395l, and 1395x(s) (1976 ed. and Supp. IV). Only persons 65 or older or disabled may enroll, and eligibility does not depend on financial need. Part B is financed by the Federal Supplementary Medical Insurance Trust Fund. See 1395t (1976 ed. and Supp. IV). This Trust Fund in turn is funded by appropriations from the Treasury, together with monthly premiums paid by the individuals who choose voluntarily to enroll in the Part B program. See 1395j, 1395r, and 1395w (1976 ed. and Supp. IV). Part B consequently resembles a private medical insurance program that is subsidized in major part by the Federal Government.
Part B is a social program of substantial dimensions. More than 27 million individuals presently participate, and the Secretary pays out more than $10 billion in benefits annually. Brief for Appellant 9. In 1980, 158 million Part B claims were processed. Ibid. In order to make the administration of this sweeping program more efficient, Congress authorized the Secretary to contract with private insurance carriers to administer on his behalf the payment of qualifying Part B claims. See 42 U.S.C. 1395u (1976 ed. and Supp. IV). (In this case, for instance, the private carriers that performed these tasks in California for the Secretary were Blue Shield of California and the Occidental Insurance Co.) The congressional design was to take advantage of such insurance carriers' "great experience in reimbursing physicians." H. R. Rep. No. 213, 89th Cong., 1st Sess., 46 (1965). See also 42 U.S.C. 1395u(a); S. Rep. No. 404, 89th Cong., 1st Sess., 53 (1965).
The Secretary pays the participating carriers' costs of claims administration. See 42 U.S.C. 1395u(c). In return, the carriers act as the Secretary's agents. See 42 CFR 421.5(b) (1980). They review and pay Part B claims for the [456 U.S. 188, 191] Secretary according to a precisely specified process. See 42 CFR part 405, subpart H (1980). Once the carrier has been billed for a particular service, it decides initially whether the services were medically necessary, whether the charges are reasonable, and whether the claim is otherwise covered by Part B. See 42 U.S.C. 1395y(a) (1976 ed. and Supp. IV); 42 CFR 405.803(b) (1980). If it determines that the claim meets all these criteria, the carrier pays the claim out of the Government's Trust Fund - not out of its own pocket. See 42 U.S.C. 1395u(a)(1), 1395u(b)(3), and 1395u(c) (1976 ed. and Supp. IV).
Should the carrier refuse on behalf of the Secretary to pay a portion of the claim, the claimant has one or more opportunities to appeal. First, all claimants are entitled to a "review determination," in which they may submit written evidence and arguments of fact and law. A carrier employee, other than the initial decisionmaker, will review the written record de novo and affirm or adjust the original determination. 42 CFR 405.807-405.812 (1980); McClure v. Harris, 503 F. Supp. 409, 411 (ND Cal. 1980). If the amount in dispute is $100 or more, a still-dissatisfied claimant then has a right to an oral hearing. See 42 U.S.C. 1395u(b)(3)(C); 42 CFR 405.820-405.860 (1980). An officer chosen by the carrier presides over this hearing. 405.823. The hearing officers "do not participate personally, prior to the hearing [stage], in any case [that] they adjudicate." 503 F. Supp., at 414. See 42 CFR 405.824 (1980).
Hearing officers receive evidence and hear arguments pertinent to the matters at issue. 405.830. As soon as practicable thereafter, they must render written decisions based on the record. 405.834. Neither the statute nor the regulations make provision for further review of the hearing officer's decision. 1 See United States v. Erika, Inc., post, p. 201. [456 U.S. 188, 192]
This case arose as a result of decisions by hearing officers against three claimants. 2 The claimants, here appellees, sued to challenge the constitutional adequacy of the hearings afforded them. The District Court for the Northern District of California certified appellees as representatives of a nationwide class of individuals whose claims had been denied by carrier-appointed hearing officers. 503 F. Supp., at 412-414. On cross-motions for summary judgment, the court concluded that the Part B hearing procedures violated appellees' right to due process "insofar as the final, unappealable decision regarding claims disputes is made by carrier appointees . . . ." Id., at 418.
The court reached its conclusion of unconstitutionality by alternative lines of argument. The first rested upon the principle that tribunals must be impartial. The court thought that the impartiality of the carrier's hearing officers was compromised by their "prior involvement and pecuniary interest." Id., at 414. "Pecuniary interest" was shown, the District Court said, by the fact that "their incomes as hearing officers are entirely dependent upon the carrier's decisions regarding whether, and how often, to call upon their services." 3 Id., at 415. Respecting "prior involvement," the [456 U.S. 188, 193] court acknowledged that hearing officers personally had not been previously involved in the cases they decided. But it noted that hearing officers "are appointed by, and serve at the will of, the carrier [that] has not only participated in the prior stages of each case, but has twice denied the claims [that] are the subject of the hearing," and that five out of seven of Blue Shield's past and present hearing officers "are former or current Blue Shield employees." 4 Id., at 414. (Emphasis in original.) See also 42 CFR 405.824 (1980). The District Court thought these links between the carriers and their hearing officers sufficient to create a constitutionally intolerable risk of hearing officer bias against claimants.
The District Court's alternative reasoning assessed the costs and benefits of affording claimants a hearing before one of the Secretary's administrative law judges, "either subsequent to or substituting for the hearing conducted by a carrier appointee." 503 F. Supp., at 415. The court noted that Mathews v. Eldridge, 424 U.S. 319, 335 (1976), makes three factors relevant to such an inquiry:
As to the second Mathews factor of risk of erroneous deprivation and the probable value of added process, the District Court found the record "inconclusive." 503 F. Supp., at 416. The court cited statistics showing that the two available Part B appeal procedures frequently result in reversal of the carriers' original disposition. 6 But it criticized these statistics for failing to distinguish between partial and total reversals. The court stated that hearing officers were required neither to receive training nor to satisfy "threshold criteria such as having a law degree." Ibid. On this basis it held that "it must be assumed that additional safeguards would reduce the risk of erroneous deprivation of Part B benefits." Ibid.
On the final Mathews factor involving the Government's interest, the District Court noted that carriers processed 124 million Part B claims in 1978. 503 F. Supp., at 416. The court stated that "[o]nly a fraction of those claimants pursue their currently-available appeal remedies," and that "there is no indication that anything but an even smaller group of claimants will actually pursue [an] additional remedy" of appeal [456 U.S. 188, 195] to the Secretary. Ibid. Moreover, the court said, the Secretary already maintained an appeal procedure using administrative law judges for appeals by Part A claimants. Increasing the number of claimants who could use this Part A administrative appeal "would not be a cost-free change from the status quo, but neither should it be a costly one." Ibid.
Weighing the three Mathews factors, the court concluded that due process required additional procedural protection over that presently found in the Part B hearing procedure. The court ordered that the appellees were entitled to a de novo hearing of record conducted by an administrative law judge of the Social Security Administration. 7 App. to Juris. Statement 36a. We noted probable jurisdiction, 454 U.S. 890 (1981), and now reverse.
The hearing officers involved in this case serve in a quasi-judicial capacity, similar in many respects to that of administrative law judges. As this Court repeatedly has recognized, due process demands impartiality on the part of those who function in judicial or quasi-judicial capacities. E. g., Marshall v. Jerrico, Inc., 446 U.S. 238, 242 -243, and n. 2 (1980). We must start, however, from the presumption that the hearing officers who decide Part B claims are unbiased. See Withrow v. Larkin, 421 U.S. 35, 47 (1975); United States v. Morgan, 313 U.S. 409, 421 (1941). This presumption can be rebutted by a showing of conflict of interest or some other specific reason for disqualification. 8 See Gibson [456 U.S. 188, 196] v. Berryhill, 411 U.S. 564, 578 -579 (1973); Ward v. Village of Monroeville, 409 U.S. 57, 60 (1972). See also In re Murchison, 349 U.S. 133, 136 (1955) ("to perform its high function in the best way `justice must satisfy the appearance of justice' ") (quoting Offutt v. United States, 348 U.S. 11, 14 (1954)). But the burden of establishing a disqualifying interest rests on the party making the assertion.
Fairly interpreted, the factual findings made in this case do not reveal any disqualifying interest under the standard of our cases. The District Court relied almost exclusively on generalized assumptions of possible interest, placing special weight on the various connections of the hearing officers with the private insurance carriers. 9 The difficulty with this reasoning is that these connections would be relevant only if the carriers themselves are biased or interested. We find no basis in the record for reaching such a conclusion. 10 As previously noted, the carriers pay all Part B claims from federal, and not their own, funds. Similarly, the salaries of the hearing officers are paid by the Federal Government. Cf. Marshall [456 U.S. 188, 197] v. Jerrico, Inc., supra, at 245, 251. Further, the carriers operate under contracts that require compliance with standards prescribed by the statute and the Secretary. See 42 U.S.C. 1395u(a)(1)(A)-(B), 1395u(b)(3), and 1395u(b) (4) (1976 ed. and Supp. IV); 42 CFR 421.200, 421.202, and 421.205(a) (1980). In the absence of proof of financial interest on the part of the carriers, there is no basis for assuming a derivative bias among their hearing officers. 11 [456 U.S. 188, 198]
Appellees further argued, and the District Court agreed, that due process requires an additional administrative or judicial review by a Government rather than a carrier-appointed hearing officer. Specifically, the District Court ruled that "[e]xisting Part B procedures might remain intact so long as aggrieved beneficiaries would be entitled to appeal carrier appointees' decisions to Part A administrative law judges." 12 503 F. Supp., at 417. In reaching this conclusion, the District Court applied the familiar test prescribed in Mathews v. Eldridge, 424 U.S., at 335 . See supra, at 193-195. We may assume that the District Court was correct in viewing the private interest in Part B payments as "considerable," though "not quite as precious as the right to receive welfare or social security benefits." 503 F. Supp., at 416. We likewise may assume, in considering the third Mathews factor, that the additional cost and inconvenience of providing administrative law judges would not be unduly burdensome. 13
We focus narrowly on the second Mathews factor that considers the risk of erroneous decision and the probable value, if any, of the additional procedure. The District Court's reasoning on this point consisted only of this sentence:
The judgment of the District Court is reversed, and the case is remanded for judgment to be entered for the Secretary.
[ Footnote 2 ] Appellee William McClure was denied partial reimbursement for the cost of an air ambulance to a specially equipped hospital. The hearing officer determined that the air ambulance was necessary, but that McClure could have been taken to a hospital closer to home. Appellee Charles Shields was allowed reimbursement for a cholecystectomy but was denied reimbursement for an accompanying appendectomy. The hearing officer reasoned that the appendectomy was merely incidental to the cholecystectomy. Appellee "Ann Doe" was denied reimbursement for the entire cost of a sex-change operation. The hearing officer ruled that the operation was not medically necessary.
[ Footnote 3 ] The District Court recognized that hearing officer salaries are paid from a federal fund and not the carrier's resources. McClure v. Harris, 503 F. Supp. 409, 415 (1980).
[ Footnote 4 ] In this connection, the court referred to the judicial canon requiring a judge to disqualify himself from cases where a "`lawyer with whom he previously practiced law served during such association as a lawyer concerning the matter.'" 503 F. Supp., at 414-415, quoting Judicial Conference of the United States, Code of Judicial Conduct, Canon 3C(1)(b). The court found that application to hearing officers of standards more lax than those applicable to the judiciary posed "a constitutionally-unacceptable risk of decisions tainted by bias." 503 F. Supp., at 415.
Additionally, the court thought it significant that "no meaningful, specific selection criteria govern[ed] the appointment of hearing officers" and that hearing officers were trained largely by the carriers whose decisions they were called upon to review. Ibid.
[ Footnote 5 ] "Eligibility for Part B Medicare benefits is not based on financial need. Part B covers supplementary rather than primary services. Denial of a particular claim in a particular case does not deprive the claimant of reimbursement for other, covered, medical expenses." Id., at 416.
[ Footnote 6 ] "[Appellant] establish[es] that between 1975 and 1978, carriers wholly or partially reversed, upon `review determination,' their initial determinations in 51-57 percent of the cases considered. Of the adverse determination decisions brought before hearing officers, 42-51 percent of the carriers' decisions were reversed in whole or in part." Ibid.
[ Footnote 7 ] The court added that appellees "are not entitled to further appeal or review of the Administrative Law Judge's decision." App. to Juris. Statement 36a.
[ Footnote 8 ] The Secretary's regulations provide for the disqualification of hearing officers for prejudice and other reasons. See 42 CFR 405.824 (1980); App. 23-25. Appellees neither sought to disqualify their hearing officers nor presently make claims of actual bias. Tr. of Oral Arg. 34 (argument of counsel for appellees).
[ Footnote 9 ] Before this Court, appellees urge that the Secretary himself is biased in favor of inadequate Part B awards. They attempt to document this assertion - not mentioned by the District Court - by relying on the fact that the Secretary both has helped carriers identify medical providers who allegedly bill for more services than are medically necessary and has warned carriers to control overutilization of medical services. See Brief for Appellees 17-18.
This action by the Secretary is irrelevant. It simply shows that he takes seriously his statutory duty to ensure that only qualifying Part B claims are paid. See 42 U.S.C. 1395y(a) (1976 ed. and Supp. IV); 42 CFR 405.803(b) (1980). It does not establish that the Secretary has sought to discourage payment of Part B claims that do meet Part B requirements. Such an effort would violate Congress' direction. Absent evidence, it cannot be presumed.
[ Footnote 10 ] Similarly, appellees adduced no evidence to support their assertion that, for reasons of psychology, institutional loyalty, or carrier coercion, hearing officers would be reluctant to differ with carrier determinations. Such assertions require substantiation before they can provide a foundation for invalidating an Act of Congress.
[ Footnote 11 ] The District Court's analogy to judicial canons, see n. 4, supra, is not apt. The fact that a hearing officer is or was a carrier employee does not create a risk of partiality analogous to that possibly arising from the professional relationship between a judge and a former partner or associate.
We simply have no reason to doubt that hearing officers will do their best to obey the Secretary's instruction manual:
[ Footnote 12 ] The claim determination and appeal process available for Part A claims differs from the Part B procedure. See generally 42 CFR part 405, sub-part G (1980), as amended, 45 Fed. Reg. 73932-73933 (1980). See also United States v. Erika, Inc., post, at 206-207, and nn. 8 and 9.
[ Footnote 13 ] No authoritative factual findings were made, and perhaps this conclusion would have been difficult to prove. It is known that in 1980 about 158 million Part B claims - up from 124 million in 1978 - were filed. Even though the additional review would be available only for disputes in excess of $100, a small percentage of the number of claims would be large in terms of number of cases.
[ Footnote 14 ] The District Court's opinion may be read as requiring that hearing officers always be attorneys. Our cases, however, make clear that due process does not make such a uniform requirement. See Vitek v. Jones, 445 U.S. 480, 499 (1980) (POWELL, J., concurring in part); Parham v. J. R., 442 U.S. 584, 607 (1979); Morrissey v. Brewer, 408 U.S. 471, 486 , 489 (1972). Cf. Goldberg v. Kelly, 397 U.S. 254, 271 (1970). Neither the District Court in its opinion nor the appellees before us make a particularized showing of the additional value of a law degree in the Part B context.
[ Footnote 15 ] The record contains information on nine hearing officers. Two were retired administrative law judges with 15 to 18 years of judging experience, five had extensive experience in medicine or medical insurance, one had been a practicing attorney for 20 years, and one was an attorney with 42 years' experience in the insurance industry who was self-employed as an insurance adjuster. Record, App. to Defendants' Reply to Plaintiffs' Memorandum of Points and Authorities in Support of Motion for Summary Judgment 626, 661-662, 682-685. [456 U.S. 188, 201]