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.”