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Health Maintenance Organizations and State DRG Hospital Cost Control Programs: The Need for Federal Preemption

Published online by Cambridge University Press:  24 February 2021

Robert F. Blomquist
Robert F. Blomquist*
Affiliation:
University of Pennsylvania (Wharton School); Cornell Law School
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Abstract

The growth of Health Maintenance Organizations (HMOs) as alternatives to the conventional Health care system is the result of HMOs' financial competitiveness and their ability to provide efficient Health care without wasteful and costly medical procedures. An HMO's goal is to minimize the cost of providing responsible medical care. As a result, HMOs attempt to limit the length of stay of a patient in a hospital by providing alternatives to hospital care. They achieve a competitive advantage by utilizing less expensive methods of treatment. The emergence of diagnostically related group (DRG) regulatory systems threaten the viability of HMOs by eliminating their competitive advantage. State-adopted DRG systems require hospitals to charge a fixed rate to all patients with similar diagnoses. This eliminates the advantage an HMO might gain by reducing a patient's length of stay. The Author argues that since HMOs are federally supported, they should be exempt from any DRG system implemented by a state. Further, the Author argues that while federal law ostensibly eliminates the conflict between HMOs and the DRG systems, HMOs are still restrained from free negotiations with hospitals. Accordingly, the Author contends that courts should apply federal statutes that encourage HMOs, preempt state laws, and thus allow HMOs to negotiate freely with hospitals regarding the rates of payment for patients.

Type
Articles
Information
American Journal of Law & Medicine , Volume 10 , Issue 1 , Spring 1984 , pp. 1 - 29
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 1984

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Footnotes

The Author is a member of the firm of Davis, Reberkenny & Abramowitz, P.A., in Cherry Hill, New Jersey. The Author also served as trial counsel and appellate counsel for Health Care Plan of New Jersey, Inc., a federally qualified Health maintenance organization in litigation before the United States courts. Health Care Plan of New Jersey, Inc. v. Schweiker, 533 F. Supp. 440 (D.N.J. 1982), aff'd mem., 707 F.2d 1391 (3rd Cir. 1982), cert. den. sub nom. Health Care Plan of New Jersey, Inc. v. Heckler, 104 S. Ct. 71 (1983).

References

1 See generally, Public Health office of Health Research, Statistics and Technology, U.S. Dep't of Health and Human Services, Health United States 66-67 (1980). New Jersey State Dep't of Health, Status Report on New Jersey Health Maintenance Organizations (HMOS) 23-24 (Nov. 1980).

2 Most Health insurance plans are the fee-for-service type. Under these plans, the insurer agrees to reimburse the insured for any customary and reasonable medical charges. The third party insurer bears the economic risk that the insured will require the medical treatment. Examples of fee-for-service systems are Blue Cross and Blue Shield.

3 Pub. L. No. 93-222, 87 Stat. 931 (1973) (codified at 42 U.S.C. § 300e-10 (1973)).

4 42 U.S.C. § 300e-10(c) (1982).

5 See infra notes 35-52 and accompanying text.

6 Pub. L. No. 98-21, 97 Stat. 150 (1983) (codified at 42 U.S.C. § 1395ww(c)(D) (1983)).

7 42 U.S.C. § 1395ww(c)(l)(D); see also 42 U.S.C. § 1395 (c)(3)(A), (c)(4), (c)(5) (1983).

8 See infra notes 65-76 and accompanying text.

9 See infra notes 77-84 and accompanying text.

10 42 U.S.C. § 1395ww(c)(l)(D) (1983).

11 See generally Bloom, The Structures and Activities of Generic Health Maintenance Organizations, N.Y.L.J.; Health Maintenance Organizations: Legal, Funding and Practical Considerations 96 (1974). The term “Health Maintenance Organization” or “HMO” was originally coined in 1970 to describe organizations that had been in existence since the late 1920's and had demonstrated substantially lower hospital utilization than the medical care system as a whole. This new term surfaced in

March 1970 [when] Under Secretary of Health, Education and Welfare, John G. Veneman, proposed regulations for reimbursing HMOs caring for Medicare beneficiaries. HMOs previously were paid on a cost basis for the individual services that they performed for Medicare beneficiaries. This did not conform to the prepaid per capita basis on which HMOs operated. HMOs also contended that they were being taken advantage of because their cost for most medical services was lower because of their efficiency. The administration requested that qualified Medicare beneficiaries be permitted to choose to have all their care provided by HMOs.

Congressional Quarterly, Inc., 1972 Congressional Quarterly Almanac 769.

12 office of Health Maintenance Organizations, U.S. Dep't of Health and Human Services, Selected Annotated Bibliography of Health Maintenance Organizations 1974-1978 9 (1982). For an extensive discussion of the diverse early development of HMO prototypes in America, see Lewis, Discussion of the HMO Concept, in Legal and Business Problems of Health Maintenance Organizations 10 (1974). See also Group Health Ass'n of America, Survey of Operational HMOS and HMO Prototypes (1973); W. Maccoll, Group Practice and Prepayment of Medical Care (1966).

13 Group Practice Plans were set up in the early 1900s by labor unions and business organizations. They hired physicians on salary or paid them a commission to provide Health care for workers. Some of the early American programs involved the lumbering and mining industries, railroads, and the International Ladies Garment Workers’ Union. The first modern group practice developed as a rural cooperative venture in 1929. Under this effort, spearheaded by Dr. Michael Shadid, farmers in Elk City, Oklahoma formed a medical cooperative, Community Hospital Association (CHA), and sold shares to raise money for a new hospital. CHA, in turn, guaranteed the farmers comprehensive care from the hospital's staff for a set yearly rate.

The CHA venture was followed by such seasoned prototypes as the Group Health Association in Washington, D.C. (1937), Kaiser Foundation Medical Care Plan (1942), and Group Health Cooperative of Puget Sound (CHC) (1940s).

New models were developed in the 1960s and early 1970s before passage of the Health Maintenance Organization Act of 1973 (HMO Act) by Congress. These plans included the Harvard Community Health Association (Boston), The Genesee Valley Group Health Association (Rochester, New York) and the Rhode Island Group Health Association (Providence). The seminal prototype of the individual practice association (IPA) is the Foundation for Medical Care (FMC) developed in California's San Joaquin Valley in the early 1950s. FMC was a comprehensive organizational arrangement on the part of fee-for-service oriented physicians who saw the need for prepaid medical delivery systems but found various aspects of prepaid group practice undesireable.

The FMC model—followed in varying degrees by other physicians during the ensuing years of the 1950s, 1960s and early 1970s—was different from the group practice model in that administration was under physician control; medical services were rendered in a solo practice setting, physician practice was open rather than consisting of a closed panel, and physician compensation was on a fee-for-service basis arrived at through prenegotiated fee schedules.

HMO prototypes which preceded congressional legislation in 1973 did not develop as part of a grand strategy or preconceived design. Rather, the prototypes developed as specific, individualized responses to perceived community needs. The Group Health Association (GHA) in Washington, D.C. developed in response to the problem of mortgage foreclosure caused by the financial drain of serious illness on area residents. Bank officials developed GHA as a way of providing and financing medical care on a budgetable, predictable basis.

As another example, the Kaiser Foundation Medical Care Plans grew out of capitation arrangements originally devised to bring medical care to remote construction sites. Capitation arrangements were provided by an independent physician's group with sufficient income to relocate near construction sites and to finance Health care facilities.

The great diversity in origin of prepaid group practices and prepaid individual programs led to considerable diversity in the structure and operating concepts of the various HMO prototypes which evolved throughout the nation during the period 1929 to 1973. Some, like GHA, reflected strong consumer desires to play a direct role in the financing and administration of Health care services. Others, like Kaiser, exhibited early corporate involvement and a workable relationship with independent physician groups. Indeed, at the onset of the 1970s, considerable interest was manifested by diverse groups in prepaid medical delivery systems. These included hospitals, medical foundations and insurers as sponsors or working partners. This momentum captured the attention of the Nixon Administration and created bipartisan pressure for legislation in Congress.

14 office of Health Maintenance Organizations, U.S. DEP't of Health, Education and Welfare, Selected Annotated Bibliography of Health Maintenance Organizations 1974-1978 (1980).

15 President's Message to Congress National Health Strategy, 7 Weekly Comp. of Pres. Doc. 224 (Feb. 18, 1971).

16 See supra note 3.

17 Id.

18 42 U.S.C. § 300e-10(c) (1982).

19 Up until 1970, there was no generic name for prepaid Health systems. See supra note 11 and accompanying text.

20 42 U.S.C. § 300e-6, e-7, e-11 (1982).

21 42 U.S.C. § 300e(b), e-l(2), e-11 (1982).

22 42 U.S.C. § 300e-ll(b)(l), e-9(a)(l) (1982).

23 U.S. CONST, art. VI, § 2. This provides:

This Constitution, and the laws of the United States which shall be made in pursuance thereof, and all treaties made, or which shall be made, under the authority of the United States, shall be the Supreme Law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or law of any state to the contrary notwithstanding.

24 First, the HMO Act struck down state laws which required HMOs to receive a medical society's approval as a precondition to operation. Next, states were not permitted to require physicians to serve on an HMO's board of directors. Third, states could not mandate that HMOs extend privileges to any physician wishing to become affiliated with the HMO. Fourth, a state could not require that an HMO fulfill financial requirements such as initial capitalization of monetary reserves against losses. Finally, HMOs were permitted to solicit members through appropriate advertising without any interference by state law. 42 U.S.C § 300e-10(b) (1982).

25 See generally Congressional Quarterly, Inc., 1973 Congressional Quarterly Al-Manac 499-500. See also infra notes 118-123 and accompanying text.

26 Senator Javits was one of the sponsors of the legislation. In debating the proposed federal preemption provision on the floor of the Senate, Senator Javits indicated that if the bill were not able to override state laws, the country would be “absolutely thwarted” in any effort to lower medical costs. Senator Javits had noted earlier in debate that the system “responds primarily to professional interests, often at the expense of the public interest.” If HMOs as the “most promising” new form of Health care delivery are not encouraged, Javits said, the country would have more trouble implementing any national Health insurance plan at some future date. Congressional Quarterly, Inc., 1973 Congressional Quarterly Almanac 503. Compare the attitude of the House prior to agreeing to the conference report which recommended the federal preemption provision. The House Interstate and Foreign Commerce Committee reported H.R. 7974 (H.R. Rep. No. 451,93d Cong., 1st Sess. (1973)), which represented a watered-down version of two measures—the original legislation considered (H.R. 51) and the bill (H.R. 7974) reported to the full committee by the Health Subcommittee. This substitute, adopted by the committee on August 1, 1973, was devised to meet several Nixon Administration objections which included objection to the override of conflicting state laws. Congressional Quarterly, Inc., 1973 Congressional Quarterly Almanac 504. Deletion of the Federal Override Provision was explained in the Committee Report (H.R. Rep. No. 451, 93d Cong., 1st Sess. (1973)) as follows: “the committee is impressed by the rapid change already underway in state legislation designed to remove these barriers [restricting HMO development].” Congressional Quarterly, Inc., 1973 Congressional Quarterly Almanac 504.

27 Pub. L. No. 93-641, 88 Stat. 2225 (codified as amended at 42 U.S.C. §§ 300k to 300n-5 (1982)).

28 Congressional Quarterly, Inc., 1974 Congressional Quarterly Almanac 406.

29 42 U.S.C. § 300k-2(a)(3) (1982).

30 42 U.S.C. § 300n-l(c)(8) (1982). It is also important that the NHPRDA mentioned as one of its purpose provisions to provide “incentives for the use of appropriate alternative levels of Health care, and for the substitution of ambulatory and intermediate Health care for inpatient hospital care.” 42 U.S.C. § 300k(a)(4) (1982). HMOs are, by their very nature, organizations that provide ambulatory and intermediate Health care services.

31 Key provisions of the amendatory legislation allowed federally qualified HMOs to trim their required basic Health services, required only large and more established HMOs to provide an open enrollment period to patients with Health problems, and revised provisions of the 1973 Act requiring certain employers to offer HMO services in addition to traditional fee-for-service insurance policies. See 42 U.S.C. § 1395ww(c)(l)(D).

32 S. 14, 93 d Cong., 1st Sess., 119 Cong. Rec. 41-089-96 (1973). See, generally Congressional Quarterly, INC., 1973 Congressional Quarterly Almanac 499. S. 14 passed the Senate on May 15, 1973 and authorized $805 million to begin HMO programs in the three year period 1974-1976. Unenacted bills on HMOs, leading up to the 1973 Congressional session, were prolific. The Senate considered two bills during 1972, S. 1182 (the Administration's bill) and S. 3327 introduced by Senator Edward Kennedy, Chairman of the Health Subcommittee of the Senate Labor and Public Welfare Committee. The Health Subcommittee held hearings in February, April and May of 1972 on Heath Maintenance Organizations. The testimony adduced from these early hearings formed a foundation for later Congressional action on HMOs; the testimony is important because it tended to set the tone for subsequent Congressional debate on HMO policy options. See generally Congressional Quarterly, Inc., 1972 Congressional Quarterly Almanac 770-73.

On July 21, 1972, the full Labor and Public Welfare Committee of the Senate voted 17-0 to report Senator Kennedy's bill, S. 3327, S. Rep. NO. 978, 92d Cong., 2d Sess. (1972) (amending the Public Health Services Act, Pub. L. No. 78-410), to provide for establishment of Health maintenance organizations. The $5.2 billion of authorized federal support for HMOs provided, inter alia, for planning grants and loans to study the feasibility of developing and expanding HMOs and Health service organizations (HSOs, which were to be Health delivery organizations in rural areas), initial development grants, construction grants and operating grants and loans. Importantly, Senator Kennedy's bill would preempt state legislation that would inhibit or restrict the operation of HMOs or HSOs receiving federal financial assistance under the bill. Congressional Quarterly, Inc., 1972 Congressional Quarterly Almanac 772.

After S. 3327 was reported, it was referred to the Senate Finance Committee in keeping with Senator Kennedy's promise when he introduced the bill on March 13, 1972 that the Finance Committee would have an opportunity to comment on the bill. The Senate Finance Committee was discharged upon its request on August 1, 1972 from further consideration of the bill, the action left the bill in the same form reported by the Labor and Public Welfare Committee. On September 20, 1972 by a 60-14 roll call vote, the Senate passed S. 3327 with six amendments. The bill received strong bipartisan support at the outset. Id. at 773.

The House Interstate and Foreign Commerce Subcommittee on Public Health and Environment held hearings in April and May 1972 on bills (H.R. 5615 and H.R. 11728) to establish federal support for HMOs. The Subcommittee on September 21 reported a clean bill (H.R. 16782) to the full committee; however, the measure was not reported from committee. Of particular interest was testimony received on April 13, 1972 by the House Subcommittee from Dr. Paul M. Ellwood, Jr., Director of the American Rehabilitation Foundation:

It is entirely possible that the HMO approach will succeed because of the conspicuous success of the prototype HMOs. It is an organizational form that matches America's propensity to create complex and well-managed systems. It is also timely in that it recognizes the urgent need to pull together the disparate pieces of an increasingly specialized industry.

Id. at 774.

33 42 U.S.C. § 300e-10(c) (1982).

34 42 U.S.C. § 300e-10 (1982).

35 Grimaldi, DRG Reimbursement in New Jersey: Some Initial Results, Hosp. Progress, Jan. 1981, at 41.

36 Id.; see also, U.S. General Accounting Office, Rising Hospital Costs can be Restrained by Regulatory Payment and Improving Management 15-16 (Sept. 19, 1980).

37 Grimaldi, supra note 35.

38 Id.

39 Medical Society of New Jersey, DRG: A New Classification System (Nov. 1980); see also 48 Fed. Reg. 39,751, 39,804-05 (1983).

40 “The rationale for using this case-mix measure for reimbursement was that length of stay, the dependent variable in determining DRGs, related reasonably well with total hospitali zation costs.” DRG Creep—A New Hospital Acquired Disease, 304 New Eng. J. Med. 1602, 1603 (1981) [hereinafter cited as DRG Creep].

The grouping process rationale assumes that the type and quantity of resources consumed vary with a patient's length of stay. Initially all discharged hospital patients are categorized into what are known as “major diagnostic categories,” or MDCs. These MDCs are premised on the idea that patients with similar characteristics evoke clinical responses that result in similar patterns of hospital resource use. Patients in the MDCs are divided into DRGs, according to whether certain variables are found to have a significant effect on the length and cost of hospital stay. The essential variables utilized in the DRG system are the presence or absence of operating room procedure, the principal diagnosis, age and sex of the patient. Moreover, the presence of a complication or “comorbid condition” also affects the DRG classification. Medical Society of New Jersey, DRG: A New Classification (1982 Update).

41 DRG Creep, supra note 40, at 1603. “A potentially more important development is the consideration by the Health Care Financing Administration of the use of a DRG based case-mix index to adjust reimbursement ceilings for Medicare patients.” Id.

42 This provision currently affects hospitals in four states: New York, Massachusetts, Maryland and New Jersey. 48 Fed. Reg. 39,751, 39,806 (1983).

43 N.J. Stat. Ann. § 26:2H-18(b) (West 1983).

44 N.J. Admin. Code tit. VIII, § 31B (1984).

45 In 1982, the New Jersey Commissioner increased the number of DRGs from the originally constituted 383 to 467. N.J. Admin. Code tit. VIII, § 31B-5.3 (1982). Under New Jersey's system, the number of DRGs varies by MDC ranging from 5 in MDC 22 (burns) to 48 in MDC 8 (diseases of the musculoskeletal system and connective tissue). New Jersey State Hosp. Ass'n, New Jersey Hospital Reimbursement Under S.446: Elements and Effects 3 (1982).

46 See generally Health Care Plan of New Jersey, Inc. v. Schweiker, 553 F. Supp. 440, 442-43 (D.N.J. I982),aff'd, 707F.2d 1391 (3d Cir. 1983), cert, denied sub nom. Health Care Plan of New Jersey v. Heckler, 104 S. Ct. 71 (1983).

47 New Jersey State Dep't of Health, Status Report on New Jersey Health Maintenance Organization (HMOS) 28 (Nov. 1980). Hospital administrators use medical record abstracts to determine a particular patient's MDC and DRG. These medical record abstracts, among other things, identify illnesses for which patients were treated, surgical procedures performed, and length of hospitalization. New Jersey Hosp. Ass'n, supra note 45, at 2.

48 “Outliers” are explained as follows:

Not all patients are assigned to a DRG. Those with atypically long or short lengths of stay … are isolated statistically and reimbursed at an ‘average’ payment rate.

About 19% of all discharges [in New Jersey] [were] expected to be trimpoint outliers in 1982. In addition, patients who statisfy at least one of the following conditions will be treated as outliers:

  • —

    — patients who discharged themselves against medical advice

  • —

    — patients who die while hospitalized

  • —

    — patients in DRGs with fewer than six merged abstracts and bills in 1979 fin other words, where this type of DRG for an individual hospital was rare]

  • —

    — patients in any of the 74 DRGs deemed to have poorly-defined clinical characteristics, and

  • —

    — patients admitted and discharged on the same day [before midnight].

New Jersey Hosp. Ass'n, supra note 45, at 3.

The system would operate in the following manner. For example, under MDC category 11 (diseases and disorders of the kidney and urinary tract) with the subcategory of DRG 304 (kidney, ureter and/or major bladder procedure, with a principal diagnosis of neoplasm, age 70) “trim points” are established at a low point of 8 and a high point of 30 days. All discharged patients having that hospital-determined classification who stay in the hospital between 8 and 30 days are charged the same “flat rate.” Patients with lengths of stay below 8 days and above 30 days who would ordinarily be assigned to this category would be considered “outliers.” Instead, they are assessed on the hospital's overall per diem “average” payment rate. As another example, a patient with MDC 1 (cranial and /or peripheral nerve disorder, age 70) would be charged the flat DRG rate for that category as allowed to the hospital by the New Jersey Hospital Rate Commission. Outliers would have a low trim point of 3 days and a high trim point of 22 days.

A secondary purpose was to redress the financial plight of inner city hospitals which had incurred large costs caring for indigent patients. Health Care Plan, 553 F. Supp. at 442. To the end of assisting inner city hospitals, the state statute expressly provides for the inclusion of certain financial elements in each hospital's rate structure which had not been recognized under the previous state hospital rate system known generically as “share.” These elements include indigency care costs, bad debts and hospital working capital needs, among others. Id.

49 N.J. Stat. Ann. § 26:2H-18(D) (West 1983).

50 15 N.J. Admin. Reg. 1326, 1329 (Aug. 15, 1983).

51 Id.

52 N.Y. Times, Sept. 1, 1983, at 1, col. 1.

53 Pub. L. No. 98-21, 97 Stat. 149-52 (codified at 42 U.S.C. § 1395ww (1983)).

54 553 F. Supp. 440 (D.N.J. 1982), aff'd, 707 F.2d 1391 (3d Cir. 1983), cert, denied sub nom. Health Care Plan of New Jersey v. Heckler, 104 S. Ct. 71 (1983).

55 Both testimonial and documentary evidence was provided at trial regarding five of t he nine HMOs then operating in the state: HIP of Greater New Jersey, Cumberland Regional Health Plan, Southshore Health Plan, Rutgers Community Health Plan, as well as Health Care of New Jersey, Inc. Brief for Appellant at 20-25, Health Care Plan of New Jersey v. Schweiker, 707 F.2d 1391 (3d Cir. 1983); Brief for Petitioner at 17-20, Health Care Plan of New Jersey v. Heckler, 104 S. Ct. 71 (1983).

56 See, e.g., Rosenberg, Payment by Diagnosis: How the Great Experiment is Going, Med. Econ., Mar. 10, 1982, at 254.

57 Health Care Plan, bbi F. Supp. at 441.

58 Brief for Petitioner at 24-52, Health Care Plan of New Jersey v. Heckler, 104 S. Ct. 71 (1983).

59 Brief of Solicitor General at 3, Health Care Plan of New Jersey, Inc. v. Heckler, 104 S. Ct. 71 (1983).

60 Id. at 4.

61 104 S. Ct. 71 (1983).

62 See infra notes 74-76 and accompanying text.

63 See infra notes 74-84 and accompanying text.

By and large the principle beneficiaries of Medicare “Part A” benefits for partial compensation of inpatient hospital services are “individuals who are age 65” who “are eligible for retirement benefits” under the statute. 42 U.S.C. § 1395C(1) (1983). While a limited number of individuals under 65 can receive benefits (e.g. those with “end stage renal disease“) this number is relatively insignificant in terms of total federal expenditures.

64 42 U.S.C. § 1395ww(c) (1983).

65 42 U.S.C. §§ 1395mm, 1395ww(a)(2)(A) (1983).

66 42 U.S.C. § 1395ww(c)(l)-(c)(4) (1983).

67 4 2 U.S.C. § 1395ww(c)(5) (1983).

68 42 U.S.C. § 1395ww(c)(l)(D) (1983).

69 42 U.S.C. § 1395ww(c)(l)(B) (1983).

70 See supra notes 43-48 and accompanying text.

71 Id.

72 This construction was first advanced by Larry Oday, Esq.—a former HCFA official intimately involved in reviewing and implementing the Social Security Act Amendments of 1983 before entering private practice—in a paper presented to a conference of the Group Health Foundation and the National Health Lawyers Association on March 1 and 2, 1984 in Washington, D.C. See Oday, Effect ofPPS on Alternative Delivery Systems, HMOs and the Law: Legal Issues for HMO Lawyers and Managers (Mar. 1-2, 1984).

This statutory construction is derived by the general delegation of discretionary authority in 42 U.S.C. § 1395ww(c)(l) (1983) read in conjunction with the mandatory provisions found under 42 U.S.C. § 1395ww(c)(3) and (c)(4) (1983). While the Secretary must grant waiver if all applicable criteria are met, the Secretary apparently has the discretionary authority under the general delegation provision to allow waivers when less than all applicable criteria are met.

73 Under 42 U.S.C. § 1395ww(c)(3) (1983) the Secretary shall “discontinue payments,” and thus rescind federal waiver, if a state's HMO-hospital negotiation assurance is joined with three other deficiencies: (1) the system does not apply to substantially all non-federal acute care hospitals; (2) the system does not meet the 75% cost review requirement; and (3) the anti-skimming provisions of the statute are violated.

74 [H]ealth maintenance organizations (HMOs)… are not precluded from negotiating directly with hospitals with respect to their rates of payment for inpatient hospital services. However, no negotiated discount shall become a cost charged to other payers. Discounts shall be treated as courtesy adjustments, and the [hospital] records that are generated shall show that the Commission-approved charges are paid in full. The value of any discounts will be considered to be paid by the hospital as secondary payer. 15 N.J. Admin. Reg. 1326, 1329 (Aug. 15, 1983) (to be codified at N.J. Admin. Code tit. VIII, 8-31B-3.39) (emphasis added).

75 15 N.J. Admin. Reg. 1326, 1329 (Aug. 15, 1983).

76 Id.

77 Address by William V. Corr, Esq., counsel, Subcommittee o\n Health and Environment, House Committee on Energy and Commerce to Conference Luncheon of the Group Health Foundation and the National Health Lawyers Association (Mar. 1, 1984, Washington, D.C.).

78 Wash. Post. Nat'l Wkly Ed., Mar. 12, 1984, at 15, col. 3. See also Congressional Quarterly Weekly Report, Mar. 24, 1984, at 685.

79 Budget of the United States, Fiscal 1985.

80 Meyer, Health in Agenda for Progress: Examining Federal Spending 241, 245 (E. McAllister ed. 1981).

81 G. Mills & J. Palmer, The Deficit Dilemma: Budget Policy in the Reagan Era 48 (1983).

82 Winston, The Department of Health and Human Services in Mandate for Leadership: Policy Management in a Conservative Administration 245, 264-70 (C. Heatherly ed. 1981). See also Meyer, supra note 80, at 241-64.

83 Washington Report on Medicine and Health/Perspectives 1 (McGraw Hill, Nov. 7, 1983).

84 iSee generally N.Y. Times, Mar. 11, 1984, at 23, col. 1 (Federal Advisory Panel on Medicare Costs studies ways to avoid future short term insolvency of Medicare system and recommends several measures of federal retrenchment); W. Lammers, Public Policy and the Aging (1983).

85 553 F. Supp. 440 (D.N.J. 1982), a^'d, 707 F.2d 1391 (3d Cir. 1983), cert, denied sub rum. Health Care Plan of New Jersey, Inc. v. Heckler, 104 S. Ct. 71 (1983).

86 104 S. Ct. 71 (1983).

87 707 F.2d 1391 (3d Cir. 1983).

88 553 F. Supp. 440 (D.N.J. 1982).

89 U.S. CONST, art. VI, § 2.

90 389 U.S. 235 (1967).

91 411 U.S. 624 (1973).

92 Id. at 639; see also Jones v. Rath Packing Co., 430 U.S. 519, reh'g denied, 431 U.S. 925 (1977) (California flour labeling law regarding strict maximum moisture loss provisions invalidated in face of flexible federal moisture loss laws, since consumer value comparisons intended by federal fair packaging and labeling act would be inhibited).

93 L. Tribe, American Constitutional Law 378 (1978). See also the excellent analysis of Judge Devitt in Cosmetic, Toiletry and Fragrance Ass'n, Inc. v. Minnesota, 440 F. Supp. 1216 (D. Minn. 1977), affd, 575 F.2d 1256 (8th Cir. 1978), where the court rejected the state contention that aerosol container manufacturers could comply with both the state labeling law which required a warning label on the container itself, and federal “conspicuousness” provision requiring the warning label on external packaging. The court noted that “[t]his conflict is not merely textual, it appears to be the product of differing policy goals—use awareness and purchase awareness“; thus, the state law was “an obstacle to full effectuation of the federal purpose.” 440 F. Supp. 1216, 1224.

94 See L. Tribe, supra note 93, at 378-79, 384, 386-87.

95 312 U.S. 52(1941).

96 Id. at 67.

97 As documented in a recent U.S. Government publication, one of The most potent incentives for HMOs is the incentive to economize on inpatient hospital expenses. See supra note 1. This is because inpatient hospital expenses constitute an HMO's major operating cost.

98 457 U.S. 332 (1982).

99 Id. at 339 n.7.

100 See Lawson v. Suwannee Fruit & Steamship Co., 336 U.S. 198, 201 (1949). See generally Sands, 2A Sutherland Statutory Construction § 46.05 (1977).

101 42 U.S.C § 300e-10 (1982).

102 4 2 U.S.C. § 300e-10(c).

103 Id.

104 553 F. Supp. 440 (D.N.J. 1982), ajfd, 707 F.2d 1391 (3d Cir. 1983),cert, deniedsub mm. Health Care Plan of New Jersey v. Heckler, 104 S. Ct. 71 (1983).

105 Id. at 445.

106 Id.

107 Id. at 446.

108 L. Tribe, supra note 93, at 378.

109 Reference is in the past tense since New Jersey's DRG system has, subsequent to this case, been amended to ostensibly allow HMO-hospital negotiations. See supra notes 56-58 and accompanying text.

110 Health Care Plan, 553 F. Supp. at 446.

111 Id.

112 Boys Markets, Inc. v. Retail Clerks Union, Local 770, 398 U.S. 235, 250 (1970).

113 Pub. L. No. 93-222, 87 Stat. 931 (codified at 42 U.S.C. § 300e-10 (1973)).

114 Pub. L. No. 93-641, 88 Stat. 2225 (codified at 42 U.S.C. §§ 300k-t (1982)). The Supreme Court has recognized that in pari materia statutory construction is particularly appropriate when construing acts passed by the same Congress. United States v. American Bldg. Maintenance Indus., 422 U.S. 271, 277 (1975).

115 The “no-standing” rationale of the New Jersey District Court was as follows:

Plaintiff further relies on the National Health Planning and Resources Development Act of 1974, 42 U.S.C. §§ 300k-300t [sic] as an additional source of federal preemption. Plaintiff points especially to 42 U.S.C. § 300k-2, which sets forth a Congressional finding as to seventeen factors which “deserve priority consideration in the formulation of national Health planning goals and in the development and operation of federal, state, and area Health planning and resource development programs.” 42 U.S.C. § 300k-2(a). A number of these factors are pertinent of [the plaintiff) including the third of the list of seventeen, which specifically mentions HMOs. Plaintiff has not explained why this list gives it standing to call for the invalidation of the DRG system or of any state law. Nor has plaintiff explained why it is entitled to relief under 42 U.S.C. § 300n-l(c). This subsection, along with 42 U.S.C. § 300n-l(a), deals with factors to be considered when federal funds are given, 42 U.S.C. § 300(l)-2(e), (g), (referred to in 42 U.S.C. § 300n-l(a)) and when states consult with the federal government. 42 U.S.C. § 300(l)-2(f), 300m-l. If these statutes provide grounds for preventing the use of federal funds in certain cases, it is enough to say that plaintiff has not sought this form of relief. The provisions appear to create no warrant for invalidation of state law.

Health Care Plan, 553 F. Supp. at 447.

116 42 U.S.C. § 300k(a)(4) (1982).

117 42 U.S.C. § 300k-2(a)(3) (1982).

118 42 U.S.C. § 300n-l(c)(8) (1982).

119 Hines v. Davidowitz, 312 U.S. 52, 67 (1941).

120 Zuber v. Allen, 396 U.S. 168, 186 (1969); NLRB v. Denver Bldg. & Const. Trades Council, 341 U.S. 675 (1951). Cf. Consumer Prod. Safety Comm. v. GTE Sylvania, Inc., 447 U.S. 102, 118 (1980) (“ordinarily even the contemporaneous remarks of a single legislator who sponsors a bill are not controlling in analyzing legislative history“).

121 S. Rep. No. 93-129,93d Cong., 1st Sess. reprinted in 1973 U.S. Code Cong. & Ad. News 3033, 3039.

122 Id. at 3039.

123 Id. at 3057.

124 Id. at 3036 (emphasis added).

125 Id. at 3058.

126 4 2 U.S.C. § 1395ww(c)(l)(D) (1983).

127 4 2 U.S.C. § 300n-l(c)(8) (1982). See also 42 C.F.R. §§ 121-6(a)(l), 122-412(a)(10).

128 42 U.S.C. § 300e-10 (1982).

129 See generally 42 U.S.C. §§ 300e(b), 300k-2(l-10) (1982); 42 U.S.C. 1395(c) (1983).

130 Id.; see also Medler v. United States Bureau of Reclamation, 616 F.2d 450, 453 (9th Cir. 1980); Westinghouse Elec. Corp. v. Pacific Gas & Elec. Co., 326 F.2d 575, 580 (9th Cir. 1964).

131 See also Berman v. Parker, 348 U.S. 26 (1954). See generally supra note 100.

132 See generally J. Sigler & B. Beede, The Legal Sources of Public Policy 127-28 (1978); Boubjerg, Competition v. Regulation in Medical Care: An Overdrawn Dichotomy,, 34 Vand. L. Rev. 965, 976-77 (1981) (Special Symposium, Market-Oriented Approaches to Achieving Health Policy Goals).

133 A. Enthoven, Health Plan viii; see also 70-75 (1980).