American Hospital Association v. Bowen

834 F. 2d 1037 (D.C. Cir. 1987)

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Nature of the Case

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Facts

Congress created Peer Review Organizations (PRO) to oversee the expenditure of Medicare money by doctors and hospitals. PRO's would contract with HHS, conduct a review, and determine if doctors and hospitals were performing within certain standards. Congress painted with a broad brush, leaving D to fill in many important details of the workings of peer review. The amendments require D to designate geographic areas generally corresponding to each state, to be served by individual peer review organizations. The agency has broad discretion in negotiating each of these contracts. Congress left much of the specifics of the hospital-PRO relationship to the inventiveness of D, empowering it to promulgate regulations governing PROs in order to implement the peer review program. The legislative history of the peer review amendments suggests that this was no oversight: Congress apparently expected D to design and put into place the numerous procedures necessary to administer the PRO program. If the report was negative, HHS would not pay certain Medicare reimbursement funds or it might impose other sanctions. Regulations were created for PRO's including their activities and enforcement powers. HHS did not follow notice and comment procedures in taking all of these steps, but it did for some of them. D concedes that neither the transmittals, the RFP, nor the contracts ultimately entered into were issued pursuant to the notice and comment procedures generally required by § 553 of the APA. American (P) petitioned D for rulemaking asking for a complete set of regulations governing PROs. D refused. A sued to have the transmittals and directives declared invalid for failure to comply with Section 553 comment and notice. The district court, on cross-motions for summary judgment and on D's motion to dismiss, held that virtually all of D's communications, with the exception of Medicare Hospital Manual Transmittal No. 367 and Medicare Intermediary Manual Transmittal No. 1079, § 3789c, were invalid for failure to comply with the APA's notice and comment requirements. The court's May 30, 1986 order also invalidated the RFPs, and the contracts entered into thereunder as violative of § 553. D appealed.