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Administrative Law Keyed to Aman
American Hospital Association v. Bowen
Citation:
834 F.2d 1037 (1987)Facts
The Medicare program, established in 1965, provides for federal reimbursement of medical expenses for persons over 65 and certain disabled individuals. In 1982, Congress amended the Medicare Act by passing the Peer Review Improvement Act, which required HHS to contract with Peer Review Organizations (PROs) to monitor the quality and appropriateness of healthcare provided to Medicare beneficiaries. The PRO system replaced the previous Professional Standards Review Organizations (PSROs), which had shown mixed results in controlling Medicare costs.
The 1982 amendments required HHS to designate geographic areas for PROs, enter into contracts with PROs, and establish objectives against which PROs would be judged. Hospitals were required to contract with their local PRO to participate in Medicare. PROs were tasked with reviewing whether services provided were “reasonable and medically necessary” and thus eligible for Medicare reimbursement.
In 1983, Congress further modified Medicare by introducing a prospective payment system (PPS), paying hospitals according to predetermined rates based on diagnosis-related groups (DRGs) rather than actual costs. This increased the importance of peer review to prevent hospitals from gaming the system.
HHS implemented the PRO program through regulations promulgated in accordance with the APA, as well as through various directives, transmittals, and contracts that were not subjected to notice and comment procedures. AHA challenged these latter communications as invalid under the APA.
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