New York Law Review

Tag: Medicare reimbursement

  • Medical Society of New York v. New York State Department of Health, 83 N.Y.2d 447 (1994): Upholding Statutes Incorporating Federal Standards

    Medical Society of New York v. New York State Department of Health, 83 N.Y.2d 447 (1994)

    A state statute that references federal regulations for a specific calculation or standard does not violate the state constitution’s prohibition against incorporation by reference if the state statute is complete in itself and the legislature was aware of the implications of referencing the federal standard.

    Summary

    The Medical Society of New York challenged Public Health Law § 19, arguing it became unenforceable after amendments to the Medicare Act changed how Medicare rates were calculated. They also claimed it violated the state constitution’s prohibition against incorporation by reference. The Court of Appeals held that the statute remained enforceable, as the term “reasonable charge” referred to Medicare’s recognized payment amount regardless of the calculation method. The Court also found no unconstitutional incorporation by reference because the statute was complete and the legislature was aware of the federal changes.

    Facts

    In 1990, New York enacted Public Health Law § 19 to limit physician charges to Medicare beneficiaries, addressing concerns about “balance billing” (charging patients more than Medicare’s approved rate). The law capped charges above the federal “reasonable charge.” In 1992, the federal government changed its Medicare reimbursement methodology from the “reasonable charge” system to a resource-based relative value scale (RBRVS) fee schedule.

    Procedural History

    The Medical Society of New York filed a combined CPLR article 78 proceeding and declaratory judgment action, arguing that Public Health Law § 19 became unenforceable after the Medicare Act amendments in 1992 and that it violated the state constitution. The Appellate Division upheld the law. The Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether Public Health Law § 19 became unenforceable after January 1, 1992, when the federal government stopped using the “reasonable charge” method for Medicare reimbursement.
    2. Whether Public Health Law § 19 violates the proscription against legislative incorporation by reference contained in article III, § 16 of the State Constitution.

    Holding

    1. No, because the Legislature intended the term “reasonable charge” to refer to Medicare’s recognized payment amount, regardless of the specific methodology used to calculate it.
    2. No, because the statute is complete in itself, and the Legislature was aware of the impending changes to the Medicare Act when it enacted the law.

    Court’s Reasoning

    The Court reasoned that interpreting the statute to become meaningless after the change in federal methodology would lead to an absurd result, as the Legislature intended to prevent excessive charges to Medicare beneficiaries. The Court stated, “the construction to be adopted is the one which will not cause objectionable results, or cause inconvenience * * * or absurdity.” The Court concluded that the term “reasonable charge” was used to refer to Medicare’s recognized, reasonable payment amount as determined by HHS, irrespective of the particular methodology employed to calculate that amount.

    Regarding the incorporation by reference argument, the Court emphasized that the constitutional prohibition aims to prevent the Legislature from incorporating provisions that affect public interests in ways not fully understood. The Court cited People ex rel. Board of Commrs. v Banks, 67 NY 568, 576 for the proposition that the prohibition is meant to prevent the enactment of affirmative legislation, “the nature of which is explained only by reference instead of actually set forth.” The court emphasized that the key consideration is whether the incorporation results in the creation of substantive obligations or requirements.

    The Court found that Public Health Law § 19 did not violate this proscription because it simply capped the amount a physician could charge above the patient’s Medicare coverage. The statute was complete and contained all the information required for intelligent legislative action. The legislative history showed awareness of the changes in the Medicare Act. The Court determined, “the statute simply does not incorporate any new substantive requirements or obligations.”

  • Edward J. Dillon M.D. v. State of New York, 71 N.Y.2d 556 (1988): State Liability Under Unapproved Contracts

    Edward J. Dillon M.D. v. State of New York, 71 N.Y.2d 556 (1988)

    A party contracting with the State is presumed to know the statutes regulating its contracting powers, and the State’s acceptance of benefits under an unauthorized contract does not create liability.

    Summary

    Dr. Dillon, a pathology professor at Downstate College of Medicine, sought additional compensation for services in the kidney transplant program beyond his state salary and supplemental payments. A draft agreement for $145,000 annually was never executed or approved by the State Comptroller. Downstate received Medicare benefits for these services and partially compensated Dillon, who deemed it insufficient and sued the state. The Court of Appeals held that because the contract was not approved by the State Comptroller as required by State Finance Law § 112, Dillon could not recover the additional compensation, even under an implied contract theory. This case highlights the strict requirements for contracting with the state and the limitations on recovering payments without proper authorization.

    Facts

    Dr. Dillon, a professor at Downstate College of Medicine, provided pathology services in the college’s kidney transplant program for end-stage renal disease (ESRD) patients from April 1981 to March 1983.
    A draft agreement proposed paying Dillon $145,000 per year for these services, but it was never executed by Downstate or approved by the State Comptroller.
    Downstate received Medicare funds for ESRD patient care and paid Dillon a portion, which he rejected as inadequate.

    Procedural History

    Dillon sued the State in the Court of Claims, seeking additional compensation.
    The State moved to dismiss, arguing the lack of Comptroller approval under State Finance Law § 112.
    The Court of Claims granted the motion.
    The Appellate Division modified the order, reinstating the causes of action for money had and received.
    The Court of Appeals reversed the Appellate Division’s order and dismissed the claim.

    Issue(s)

    Whether the State is liable to Dr. Dillon for additional compensation for services rendered under a contract that was neither executed by the State nor approved by the State Comptroller, based on a theory of money had and received (implied contract).

    Holding

    No, because the Medicare statute does not give claimant any legal claim to funds paid to Downstate for his services and Dillon’s contract was never approved by the State Comptroller as required by law. Dillon cannot maintain an action against the state.

    Court’s Reasoning

    The Court distinguished between contracts implied in fact (based on conduct) and contracts implied in law (quasi-contracts). The court stated that a contract implied in fact is subject to the requirements of section 112 of the State Finance Law.
    The court noted, “Although the action is recognized as an action in implied contract, the name is something of a misnomer because it is not an action founded on contract at all; it is an obligation which the law creates in the absence of agreement when one party possesses money that in equity and good conscience he ought not to retain and that belongs to another.”
    The court explained that the Medicare statute governs the relationship between the Secretary of Health and Human Services and providers of medical services, not individual physicians. “In short, the State has not received nor is it holding sums of money to which claimant is entitled any more than any of the several physicians or therapists are entitled to the itemized sums listed on the hospital’s bill for various services they supplied to in-patients and which, in the aggregate, constituted the hospital’s total charge.”
    Because the contract was not approved by the State Comptroller, as required for contracts exceeding $5,000, it was not enforceable against the State. The court emphasized that parties contracting with the State are presumed to know the limitations on the State’s contracting power: “A party contracting with the State is chargeable with knowledge of the statutes which regulate its contracting powers and is bound by them (Belmar Contr. Co. v State of New York, 233 NY 189,194).”
    Even if the State benefitted from Dillon’s services, this did not estop it from challenging the contract’s validity. The court referenced the established principle that the State’s acceptance of benefits does not imply liability when a contract lacks proper authorization, citing Becker & Assoc. v State of New York, 48 NY2d 867.