Kwoun v. Southeast Missouri Professional Standards Review Organization Appendix of Opinions and Statutes to Petition for Writ of Certiorari

    No. 86-....

In th e

g>ujirpmr Court of tlir In itri ^tatrs
October T erm , 1986

S oung 0 .  K woun, et al.,

vs.
Petitioners,

S outheast M issouri P rofessional S tandards 
R eview  Organization, et al.,

Respondents.

APPENDIX OF OPINIONS AND STATUTES TO 
PETITION FOR A WRIT OF CERTIORARI TO THE 

UNITED STATES COURT OF APPEALS 
FOR THE EIGHTH CIRCUIT

L ouis Gilden*
Norah J .  R yan

317 North 11th Street 
Suite 1220
St. Louis, Missouri 63101 
(314) 241-6607

J uliu s L eV onne Chambers 
Charles S tephen  R alston 

99 Hudson Street 
New York, New York 10013 
(212) 219-1900

Attorneys for Petitioners

^Counsel of Record



Table of Contents

Decision of the United States 
Court of Appeals for the 
Circuit, February 4, 1987 . .
Memorandum Decision of the 
United States District Court 
for the Eastern District of 
Missouri, December 23, 1981 .
Memorandum Decision of the 
United States District Court 
for the Eastern District of 
Missouri, September 19, 1985 .
Memorandum Decision of the 
United States District Court 
for the Eastern District of 
Missouri, March 27, 1986 . . .
Memorandum Decision and Order 
of the United States District 
Court for the Eastern District 
of Missouri, June 3, 1986 . .
Order of the United States 
District Court for the Eastern 
District of Missouri, South­
eastern Division, March 27,
1986 ....................... ..
Order of the United States 
Court of Appeals for the 
Eighth Circuit Affirming the 
District Court, February 4,
1987 ..........................
Order of the United States 
Court of Appeals for the 
Eighth Circuit Denying 
Rehearing, March 9, 1987 . . .

Page

Eighth 
. la

. 56a

. 56a

124a

. 140a

144a

145a

147a



149a
Constitutional Provision 
Involved ...............
Statutes Involved: 149a

42 u . s . c . § 1320C-5; 149a
42 u . s . c . § 1320C-6; 150a
42 u . s . c . § 1320C-8; 151a
42 u . s . c . § 1320C-9; 152a
42 u . c . c . § 1320C-16; 155a
42 u . s . c . § 1981; 156a
42 u . s . c . § 1985(3) . 157a

Regulations Involved ........ 158a
42 C.F.R. § 474.3; 158a
42 C.F.R. § 474.4; 158a
42 C.F.R. § 474.5; 159a
42 C.F.R. § 474.6; 160a
42 C.F.R. § 474.7; 160a
42 C.F.R. § 474.8; 161a
42 C.F.R. § 474.9; 162a
42 C.F.R. § 474.10 163a
P.lS . R.0 . Program Manual. 167a

Chapt. XXIV



- la -
UNITED STATES COURT OF APPEALS 

FOR THE EIGHTH CIRCUIT

No. 85-2379

Soung O. Kwoun, et al.,
Appellees,

v.
Southeast Missouri Professional 
Standards Review Organization, et al.,

Appellants.

No. 86-1502 
No. 86-1838

Soung O. Kwoun, et al.,
Appellants,
v.

Southeast Missouri Professional 
Standards Review Organization, et al.,

Appellees.

Submitted: November 10, 1986 
Filed: February 4, 1987



2a

Appeals from the United States District 
Court for the Eastern District 

of Missouri

Before HEANEY and BOWMAN, Circuit Judges, 
and ARNOLD,* * District Judge.

ARNOLD, District Judge
The U.S. Department of Health and 

Human Services (HHS) oversees Medicare 
payments to doctors and hospitals. See 
42 U.S.C. § 902, § 1395kk(a). As part of 
its oversight responsibilities, HHS is 
authorized to exclude doctors and hos­
pitals from eligibility for Medicare pay­
ments if services have been provided that 
are substantially in excess of need or 
fail to meet professional standards. See 
42 U.S.C. § 1395y(d)(1)(c). To determine
*7 The HONORABLE MORRIS S. ARNOLD, 
United States District Judge for the 
Western District of Arkansas, sitting by 
designation.
whether to exclude doctors and hospitals



3a
from eligibility, HHS uses reports 
submitted by regional and statewide peer 
review organizations. See 42 U.S.C. § 
1395y(g). The HHS office with the spe­
cific responsibility for making such 
determinations is called the Health Care 
Financing Administration (HCFA).

In December, 1978, HCFA notified the 
regional peer review group for southeast­
ern Missouri1 that the patient discharge 
rates in that region indicated the pos­
sibility of abuses in claims for Medicare 
payments. The regional peer review group 
began an investigation that eventually 
focused on the Poplar Bluff Hospital and 
the doctors with admitting privileges 
there. Soung Kwoun is one of those doc- 1

1 The regional peer review group is 
known as the Southeast Missouri Pro­
fessional Standards Review Organization 
(SEMO).



4a
tors.2 Following the investigation, the 
regional peer review group recommended to 
the statewide peer review group3 that the 
hospital change some of its procedures 
and that Dr. Kwoun be excluded from 
eligibility for Medicare payments for ten 
years. The statewide peer review group 
adopted the recommendation of the re­
gional peer review group and then trans­
mitted the report and recommendations to 
HCFA in March, 1980.

In September, 1980, HCFA notified 
Dr. Kwoun of the recommendation and 
advised him of his right to oppose it. 
After an informal hearing in December, 
1980, and additional consideration of the

2 The other plaintiffs are cor­
porate entities in which Dr. Kwoun has an 
interest.

3 The statewide peer review group 
is known as the Missouri Statewide 
Professional Standards Review Council.



5a
peer review group report and Dr. kwoun's 
responses to it, HCFA adopted the re­
commendation. In September, 1981, HCFA 
officially excluded Dr. Kwoun from 
eligibility for Medicare payments for a 
period of ten years. Dr. Kwoun then 
asked for a formal hearing before an 
administrative law judge. The admin­
istrative law judge reversed the ex­
clusion, citing procedural and sub­
stantive errors by HCFA, especially the 
reliance of HCFA on informal discussions 
with members of the regional peer review 
group as the basis for excluding Dr. 
Kwoun. The administrative law judge then 
ordered Dr. Kwoun's reinstatement to 
eligibility for Medicare payments.

Dr. Kwoun subsequently brought this 
action against certain HCFA employees, 
members of the regional and statewide



6a
peer review groups, two state officials 
involved in state proceedings brought 
against Dr. Kwoun as a result of the 
recommendation of the peer review group, 
and the insurance company that admin­
isters the Medicare payments program 
under contract with the government.4 Dr. 
Kwoun claimed that the HCFA employees5 
deprived him of certain property and 
liberty interests without due process and 
subjected him to malicious prosecution 
and extreme and outrageous conduct. He 
asserted that the members of the regional

4 The insurance company was dis­
missed on grounds other than those in­
volved in these appeals; its dismissal 
was not appealed.

5 The HCFA employees are collec­
tively referred to by the parties as the 
federal defendants.



7a
and statewide peer review groups6 and the 
state officials deprived him of equal 
rights under the law to make and enforce 
contracts and conspired to deprive him 
of the equal protection of the laws. His 
complaint against the peer review group 
members and the state officials also 
contained counts for malicious prosecu­
tion and extreme and outrageous conduct. 
Finally, Dr. Kwoun claimed that the 
state officials deprived him of certain 
property and liberty interests without 
due process.

The HCFA employees moved for summary 
judgment on the basis of absolute im­
munity. The district court denied the 
motion. Three of the HCFA employees ap­

6 The members of the regional and 
statewide peer review groups are collec­
tively referred to by the parties as the 
SEMO defendants.



8a -
peal the denial of absolute immunity.7 
While the HCFA employees' appeal was 
pending, the district court dismissed, 
sua sponte, the case against all defen­
dants on the ground of qualified immun­
ity. The plaintiffs appeal these dis­
missals. We affirm the orders of dis­
missal of all defendants but do so on the 
ground of absolute rather than qualified 
immunity.

I.
We turn first to the federal defen­

dants — ■ the HCFA employees. Defendant 
Frank Kram is the HCFA employee who re­
viewed the peer review group report and 
accepted its recommendation to exclude 
Dr. Kwoun from eligibility for Medicare 
reimbursement. Defendant Don Nicholson

7 A fourth HCFA employee was named 
as a defendant but did not appeal.



9a
is the HCFA employee who signed the 
notice of proposed exclusion; defendant 
Ralph Howard is the HCFA employee who 
signed the final decision excluding Dr. 
Kwoun. Apparently the acts of defendant 
Kram are the primary focus of attention; 
the complaint is cryptic on this point, 
and the only specific allegation against 
defendants Nicholson and Howard in the 
plaintiffs7 brief is that their conduct 
"was in a line with the earlier conduct 
of Kram ... and furthered and reinforced 
the previous lack of arms7 length deal­
ing ."

While the regional peer review group 
was investigating Dr. Kwoun, but before 
it submitted its report to HCFA, defen­
dant Kram apparently met with the members 
of the investigating committee in the 
offices of the statewide peer review



10a
group and discussed the investigation of 
Dr. Kwoun. The administrative law judge 
found that the report of the peer review 
group did not meet the substantive due 
process requirements set forth in the 
applicable policy manual and federal 
regulations. He found in addition that 
Dr. Kwoun had been denied substantive due 
process because defendant Kraut's adoption 
of the recommendation to exclude him from 
eligibility for Medicare payments was 
based at least in part on defendant 
Kram's discussions with members of the 
regional peer review group before the 
report was issued and not on the report 
itself.8

8 Because HCFA failed to follow 
certain procedural requirements relating 
to notice to Dr. Kwoun in December, 1979, 
of the proposed exclusion, the federal 
defendants are also charged with denying 
Dr. Kwoun procedural due process. These 
allegations are apparently included only



11a
Barr V .  Matteo, 360 U.S. 564, 575 

(1959) (plurality opinion), grants ab­
solute immunity from common-law tort 
claims to federal officials acting "with­
in the outer perimeter of [their] line of 
duty." Our court has described absolute 
immunity from common-law torts as apply­
ing to acts connected "'. . . more or less 
... with the general matters committed by 
law to the officer's control or supervi­
sion, and not ... manifestly or palpably 
beyond his authority.'" Bushman v. 
Seiler. 755 F.2d 653, 655 (8th Cir. 
1985) , quoting Norton v. McShane. 332 
F.2d 855, 859 (5th Cir. 1964), cert.

as a basis for the constitutional claims 
against them. In addition, the federal 
defendants are charged with various 
misconduct during the hearing before the 
administrative law judge. These charges 
are also apparently included only as a 
basis for the constitutional claims 
against them.



12a
denied. 380 U.S. 981 (1965). The plain­
tiffs contend that defendant Kram (and by 
extension defendants Nicholson and 
Howard, those officials having relied on 
defendant Kram's recommendation) acted 
outside the scope of his authority be­
cause defendant Kram was involved in 
discussions with members of the regional 
peer review group before its report was 
issued.

The first mention of HCFA in the 
regulations governing the imposition of 
exclusion sanctions under the Medicare 
program provides that a peer review group 
is to submit a report on violations to 
HCFA after an investigation of possible 
violations. See 42 C.F.R. § 474.3(b), § 
474.8(a). Following submission of a peer 
review group report, HCFA is to determine 
whether a violation has occurred and is



13a
to provide notice to the alleged violator 
of the proposed exclusion. See 42 C.F.R. 
§ 474.10(a), § 474.10(c). There is no 
mention of HCFA involvement prior to the 
issuance of a peer review group report.

On the other hand, there is no ex­
plicit prohibition of such involvement 
either. Furthermore, HHS is charged with 
the duty of "promoting the effective, 
efficient, and economical delivery of 
health care services, and of promoting 
the quality of services of the type for 
which [Medicare] payment may be made." 
See 42 U.S.C. § 1395y(g) . HHS also has 
the authority to contract with peer re­
view groups in order to carry out its 
duties. Id. All parties agree that it 
was HCFA that notified the regional peer 
review group of data indicating possible 
Medicare abuses. It seems apparent,



14a
then, that any involvement of HCFA em­
ployees in a peer review group investi­
gation after that notification would be 
within the scope of their authority.

Even if acceptance of the recommen­
dation to exclude was based on improper 
factors (such as consideration of matters 
outside the peer review group report), 
that does not make the earlier actions of 
the HCFA employees outside the scope of 
their authority; it merely makes the 
acceptance of the recommendation incor­
rect. The federal defendants are there­
fore entitled to absolute immunity from 
common-law tort claims.

A more difficult question is how to 
categorize the purpose of the duties of 
the HCFA employees in the context of the 
process for imposing exclusion sanctions 
on possible violators of the rules gov­



- 15a
erning Medicare payments.9 The courts 
have recognized that the reasons for 
granting absolute immunity to federal 
officials from common-law tort claims —  

to protect them "in the execution of 
their federal statutory duties from 
criminal or civil actions based on state 
law," Butz v. Economou. 438 U.S. 478, 489 
(1978) —  do not apply to claims based on 
violations of constitutional law. Id. at 
495.

In most cases, "federal executive 
officials exercising discretion are 
entitled only to ... qualified immunity"

9 The dissent would remand to the 
district court for a determination of 
which federal defendants/ duties can be 
characterized as prosecutorial or adju­
dicative. Affidavits and exhibits al­
ready submitted by the federal defendants 
to the district court, however, establish 
that each one had the authority to "ini­
tiate or continue a proceeding subject to 
agency adjudication." Butz v. Economou, 
438 U.S. 478, 516 (1978).



16a
from constitutional claims. Id. at 507. 
Absolute immunity from constitutional 
claims is to be granted only in "those 
exceptional situations where it is demon­
strated that [such] immunity is essential 
for the conduct of the public business." 
Id. The determination of when such ex­
ceptional situations exist is a "'func­
tional7" one, Harlow v. Fitzgerald. 457 
U.S. 800, 810 (1982), and "[t]he burden 
of justifying absolute immunity rests on 
the official asserting the claim." Id. 
at 812.

"[Jjudicial, prosecutorial, and 
legislative functions require absolute 
immunity," id. at 811, and therefore 
"agency officials performing certain 
functions analogous to those of a prose-



17a
cutor"10 are entitled to absolute im-
munity. Butz, 43 8 U.S. at 515. The
Supreme Court has held only that in
"initiating a prosecution and in present­
ing the [case against the defendant] " —  
those prosecutorial functions "intimately 
associated with the judicial phase" of 
his duties —  is a prosecutor entitled to 
absolute immunity. Imbler v. Pachtman. 
424 U.S. 409, 430-31 (1976). Whether a 
prosecutor acting as "an administrator or 
[an] investigative official rather than

10 "The decision to initiate ad­
ministrative proceedings against an 
individual ... is very much like the 
prosecutor's decision to initiate or move 
forward with a criminal prosecution. An 
agency official, like a prosecutor, may 
have broad discretion in deciding whether 
a proceeding should be brought and what 
sanctions should be sought." Butz. 438 
U.S. at 515. "[TJhose officials who are 
responsible for the decision to initiate 
or continue a proceeding subject to 
agency adjudication are entitled to 
absolute immunity ... for their parts in 
that decision." Id. at 516.



18a
... an advocate" is entitled to absolute 
immunity is a question that the Court has 
expressly reserved. Id.

The federal defendants argue that 
the process of deciding whether to impose 
exclusion sanctions on a person under the 
Medicare program is analogous to an 
agency decision on whether to initiate 
administrative proceedings against a 
person in order to suspend or revoke his 
federal registration as a commodities 
futures merchant, see Butz. 438 U.S. at 
481, or in order to impose professional 
disciplinary sanctions, see Austin Muni­
cipal Securities. Inc, v. National Asso­
ciation of Securities Dealers. Inc., 757 
F. 2d 676, 689 (5th Cir. 1985). They 
therefore argue that actions taken prior 
to the formal hearing before the adminis­
trative law judge (defendant Kram's al­



19a
legedly improper consultation with mem­
bers of the regional peer review group in 
January, 1980, and the failure to give 
adequate notice to Dr. Kwoun in December, 
1979, of the fact that he was being con­
sidered for exclusion sanctions) occurred 
in the context of essentially advocatory 
prosecutorial duties —  "deciding whether 
a proceeding should be brought and what 
sanctions should be sought," Butz. 438 
U.S. at 515, against "a specific target," 
Gray v. Bell. 712 F.2d 490, 501 (D.C. 
Cir. 1983), cert. denied. 465 U.S. 1100 
(1984) .

We agree. The statutes and regula­
tions governing the exclusion sanctions 
process obviously anticipate the possi­
bility of a formal adjudicative hearing 
before an administrative law judge de­
signated by the appeals counsel of HHS.



20a
See. 42 U.S.C. § 1395y(d)(3) and 42 
C.F.R. § 474.10(g)(1), § 405.1533. The 
hearing is de novo, and HCFA has the 
burden of proof. Appeal of the decision 
of the administrative law judge is to the 
appeals counsel of HHS. See 42 C.F.R. § 
405.1561. Judicial review of the appeals 
council decision is a possibility. See 
42 U.S.C. § 1395y(d)(3).

The federal defendants further argue 
that their alleged misconduct during the 
formal hearing before the administrative 
law judge was clearly advocatory. We 
agree. An agency official's presentation 
of evidence in an agency hearing is pro­
tected for the same reasons that a 
prosecutor's presentation of evidence 
before a court is protected. Butz. 438
U.S. at 517.



21a
Because the actions of the federal 

defendants at all relevant times were 
prosecutorial in nature, those defendants 
are entitled to absolute immunity from 
constitutional claims. The dismissal 
orders of the district court as to the 
federal defendants are therefore af­
firmed.

II.
The SEMO defendants include the 

regional peer review corporate body, the 
statewide peer review corporate body, the 
directors and officers of both groups, 
the regional peer review group represen­
tative to the statewide peer review 
group, the members of the regional peer 
review group investigation oversight com­
mittee, the Poplar Bluff Hospital review 
coordinator for the regional peer review 
group, the physician advisers to the



22a
Poplar Bluff Hospital appointed by the 
regional peer review group, and the 
members of the regional peer review group 
investigating team specifically assigned 
to Dr. Kwoun.11 These defendants argue 
that because they were participating in a 
review process established and governed 
by federal law, they are federal actors 11

11 The complaint does not specify 
whether the individual SEMO defendants 
are sued in their individual or their 
official capacity. However, our con­
clusions about the nature of the ex­
clusion sanctions process and the role of 
peer review groups within that process 
make that question irrelevant. In ad­
dition, it turns out that some of the 
individual SEMO defendants either were 
not associated with the peer review 
groups at the relevant times, did not 
participate in the investigation of Dr. 
Kwoun, or participated only as expert 
witnesses in the formal hearing before 
the administrative law judge. Our con­
clusions about the nature of the ex­
clusion sanctions process and the role of 
peer review groups within that process 
make it unnecessary for us to make 
separate rulings as to the different 
classes of SEMO defendants.



23a
for the purpose of any analysis of their 
activities in relation to the investiga­
tion of Dr. Kwoun. We agree.

HHS is authorized to contract with 
peer review groups to carry out its duty 
to promote "the effective, efficient, and 
economical delivery of health care ser­
vices, and [to promote] the quality of 
services of the type for which [Medicare] 
payment may be made." See 42 U.S.C. § 
1395y(g). Medicare payments may not be 
made for items or services that are not 
"reasonable and necessary for the diag­
nosis or treatment of illness or injury." 
See 42 US.C. § 1395y(a)(1)(A). When a 
peer review group does undertake such a 
contract, the peer review group "must 
. . . review some or all of the profes­
sional activities ... of physicians ... 
in the provision of health care services



24a
and items for which [Medicare] payment 
may be made . . . for the purpose of de­
termining whether . . . [those] services 
and items are ... reasonable and medical­
ly necessary and whether such services 
and items are not allowable under . . . 
section 1395y." See 42 U.S.C. § 1320c- 
3(a)(1)(A). The peer review group is 
to determine, on the basis of its review, 
whether Medicare payments are to be made 
for the services reviewed. See 42 U.S.C. 
§ 1320c-3(a)(2). The determination of 
the peer review group is conclusive as to 
Medicare payments unless it is changed by 
reconsideration of the peer review 
group.12 See 42 U.S.C. §132Qc-3(a)

12 Once HHS acts on the recommenda­
tion of the peer review group, a formal 
hearing before an administrative law 
judge is available for review of the 
action taken by HHS, with eventual 
judicial review also available. See 42 
U.S.C. § 1395y(d)(3).



25a
(2)(C). In other words, HHS essentially 
uses the peer review group as a consul­
tant that recommends whether or not a 
doctor should continue to be eligible for 
Medicare reimbursements.

Consultants who investigate whether 
the services provided by doctors are 
necessary and eligible for Medicare re­
imbursement have been held to be "govern­
mental agents for immunity purposes." 
Bushman v. Seiler. 755 F.2d 653, 655 (8th 
Cir. 1985)(defendant was consultant to 
insurance company that was Medicare car­
rier for HHS). See also Gross v. Seder- 
strom. 429 F.2d 96, 99 (8th Cir. 1970) 
(defendants were elected committee mem­
bers who investigated farmer's eligibil­
ity for grain program for federal Agri­
cultural Stabilization and Conservation 
Service; held to be federal officials for



26a
immunity purposes in suit resulting from 
denial of farmer's application for parti­
cipation) . The SEMO defendants were 
therefore acting as federal officials for 
immunity purposes.

As federal officials for the purpose 
of an analysis of eligibility for immun­
ity, the SEMO defendants are immune from 
common-law tort claims if their actions 
were not "'. . . manifestly or palpably 
beyond [their] authority.'" Bushman, 755 
F.2d at 655, quoting Norton v. McShane. 
332 F. 2d 855, 859 (5th Cir. 1964), cert. 
denied. 380 U.S. 981 (1965). The plain­
tiffs apparently concede that the actions 
of the SEMO defendants were within the 
authority given by the statute, since 
their argument concentrates on the as­
sertion that the SEMO defendants are not 
federal officials. Furthermore, although



27a
the administrative law judge found that 
the peer review group report was defi­
cient and even inaccurate in several 
respects, he made no finding that the 
SEMO defendants had investigated Dr. 
Kwoun in any manner not authorized by 
statute or by their contract with HHS. 
We hold, therefore, that the SEMO de­
fendants are absolutely immune from the 
common-law tort claims asserted against 
them.

The SEMO defendants argue that they 
are also entitled to immunity from con­
stitutional claims because their actions 
were essentially prosecutorial in nature. 
They contend that the peer review groups 
are analogous to the professional organ­
izations to whom absolute immunity from 
constitutional claims has been granted 
when disciplinary actions have resulted



28a
in a lawsuit by the person disciplined. 
See e.g.. Austin Municipal Securities, 
Inc, v. National Association of Securi­
ties Dealers. Inc.. 757 F.2d 676, 689 
(5th Cir. 1985)(prosecutorial and ad­
judicative functions of securities 
dealers' association disciplinary com­
mittee) ; Clulow v. State of Oklahoma. 700 
F.2d 1291, 1298 (10th Cir. 1983) (prose­
cutorial function of bar disciplinary 
committee); and Simons v. Bellinger. 643 
F.2d 774, 782 (D.C. Cir. 1980)(prose­
cutorial and adjudicative functions of 
bar committee on unauthorized practice of 
law). We agree.

Peer review groups that are eligible 
to contract with HHS must be "composed of 
a substantial number of the licensed doc­
tors of medicine and osteopathy engaged 
in the practice of medicine or surgery in



29a
the area and who are representative of 
the practicing physicians in the area" 
and must be judged by HHS to be "able ... 
to perform reviews of the pattern of 
quality of care in an area of medical 
practice where actual performance is 
measured against objective criteria which 
define acceptable and adequate practice." 
See 42 U.S.C. § 1320c—1(1) (A) , § 1320c-
1(2). In conducting reviews under con­
tract with HHS, the peer review groups 
are to "apply professionally developed 
norms of care, diagnosis, and treatment 
based upon typical patterns of practice 
within the [relevant] geographic area ... 
taking into consideration national norms 
where appropriate." See 42 U.S.C. § 
1320c-3(6). The norms with respect to 
treatment for particular illnesses or 
health conditions are to include "the



30a
types and extent of the health care 
services which . • . are considered within 
the range of appropriate diagnosis and 
treatment of such illness[es] or health 
conditions] , consistent with profession­
ally recognized and accepted patterns of 
care." See 42 U.S.C. § 1320c—3(a)(6)(A).

In other words, the medical peer 
review groups are organizations of pro­
fessionals charged with the task of eval­
uating the performance of members of that 
profession. Thus, although medical peer 
review groups are not associations of 
professionals supervised by a licensing 
body, see e.g., Austin Municipal Securi­
ties . Inc. . 757 F.2d at 680, and Clulow. 
700 F.2d at 1297, they are nonetheless 
very similar to such associations. Fur­
thermore, although medical peer review 
groups do not control a professional's



31a
ability to practice in all contexts, see 
e.q. . Simons. 643 F.2d at 781 (bar com­
mittee has power to disbar attorneys), 
they do control to some extent a profes­
sional's ability to practice in a par­
ticular class of cases —  those that 
involve claims for Medicare reimburse­
ment. See 42 U.S.C. § 1320C-3(a) (2) (C) , 
§ 1395y(d)(3)(determination of peer re­
view group on eligibility for Medicare 
reimbursement is conclusive unless 
changed by reconsideration of peer review 
group, formal hearing decision of admin­
istrative law judge, decision of appeals 
council of HHS, or judicial review). 
Thus medical peer review groups are very 
similar to bar committees that control 
whether a lawyer may practice before 
certain courts. See, e.q., Simons, 643
F.2d at 775.



32a
Absolute immunity from even consti­

tutional claims was granted to the 
securities dealers' association discipli­
nary committee in Austin Municipal 
Securities. Inc.. 757 F.2d at 689, and to 
the bar disciplinary and practice com­
mittees in Clulow. 700 F.2d at 1298, and 
Simons. 643 F. 2d at 782. Such immunity
was granted because each committee's 
function shared the characteristics of 
the judicial process, because an un­
favorable recommendation from each com­
mittee had the potential of provoking a 
retaliatory lawsuit, and because the 
subject of each committee's actions had 
adequate opportunity to challenge those 
actions through judicial review. See 
Austin Municipal Securities. Inc., 757
F.2d at 689, Clulow. 700 F.2d at 1298, 
and Simons. 643 F.d at 782, all incorpor­



33a
ating the tests specified in Butz v. 
Economou. 438 U.S. 478, 513 and 5 1 5 - 1 6  

(1978) .
We find that the review activities 

of the medical peer review groups at 
issue here —  those entrusted to them by 
Congress so that the Medicare program can 
function effectively, efficiently, and 
economically, see 42 U.S.C. § 1395y(g)—  
are similar enough to the review activi­
ties of the disciplinary and practice 
committees declared to be immune in the 
cases discussed above that similar pro­
tection should be extended.13

13 The dissent relies on a statu­
tory provision, 42 U.S.C. § 1320c-6(b), 
in arguing that the SEMO defendants are 
entitled only to qualified immunity. 
Legislative history on this provision, in 
either its current or previous incarna­
tion, is sparse. The legislative history 
for the entire peer review statute cur­
rently in effect refers to the intent of 
Congress to exempt peer review reports 
from coverage under the Freedom of



34a

Information Act. See H.R. Conf. Rep. 
760, 97th Cong., 2d Sees. 443, reprinted 
in 1982 U.S Code Cong, and Admin. News 
781, 1223. This exemption was probably a 
statement of agreement with the conclu­
sions of the court in Public Citizen 
Health Research Group v. Department of 
Health. Education, and Welfare. 668 F. 2d 
537, 544 (D.C. Cir. 1981), that, for FOIA 
purposes, peer review groups were not 
intended to be, do not qualify as, and 
should not be considered to be government 
agencies. However, it also supports the 
conclusion that Congress, unaware that 
the courts would find some consultants 
advising government agencies to be 
federal actors for immunity purposes (as 
opposed to FOIA purposes), originally 
considered the members of peer review 
groups to be private parties and sought 
to protect them to come extent from civil 
liability. In order words, the statute 
was an effort to extend some protection 
to people who were thought to have none, 
rather than an attempt to restrict 
protection already acknowledged to exist. 
See e.g. . S. Rep. 1431, 91st Cong., 2d 
Sess. 162 (1970)("The amendment provides 
protection from civil liability for those 
engaged in required review activities 
...")(In reference to an early incarna­
tion of the statute)(emphasis added). 
Once such consultants were considered 
federal actors for immunity purposes, of 
course, they became eligible for absolute 
immunity because of the prosecutorial or 
adjudicative function of their duties.



35a
We are not unmindful of the problems 

that may arise from the extension to 
medical peer review groups of absolute 
immunity from both common-law tort claims 
and constitutional claims. We are con­
vinced, however, that in order for the 
Medicare program to work effectively, 
efficiently, and economically, see 42 
U.S.C. § 1395y(g), some controls on
quality of care must be exercised. We 
are also convinced that the exercise of 
controls on quality of care greatly in­
creases the benefits derived from the 
Medicare program by both the individual 
Medicare patients and our society as a

The statutory provision is now super­
fluous for anyone except a consultant who 
would not be considered a federal actor 
for immunity purposes or one, classified 
as a federal actor for immunity purposes, 
whose duties would not be considered 
prosecutorial or adjudicative.



36a
whole. We are further convinced that the 
only way to ensure both the effectiveness 
of the peer review system and the will­
ingness of private doctors to participate 
in it is to insulate them from damage 
claims that may result from that work. 
The alternative to the use of private 
doctors to review medical decisions is 
the use of agency officials, who are much 
less likely to possess the expertise to 
evaluate such medical decisions. The use 
of agency officials to review medical 
decisions would almost certainly lead to 
a far less effective, efficient, and 
economical Medicare program. In short, 
we are convinced that absolute immunity 
is "essential for the conduct of the 
public business," Butz, 438 U.S. at 507, 
in this critical health care area. The 
availability of administrative and judi­



37a
cial review serves as a check against 
abuse of the power inherent in the peer 
review system and against mistakes or 
sloppiness in that system. A further 
check over the long run is the power of 
HHS to terminate its contract with any 
peer review group.14 See 42 U.S.C. § 
1320C-2(c)(6).

We therefore hold that the SEMO 
defendants are absolutely immune from 
constitutional claims as well as common- 
law tort claims. The dismissal orders of 
the district court as to the SEMO defen­
dants are affirmed.

III.
We turn last to the two state of­

ficials involved in state proceedings 
brought against Dr. Kwoun as a result of

14 Such a termination is not sub­
ject to judicial review. See 42 U.S.C.
§ 1320C-2(f).



38a
the recommendation of the peer review 
groups. Defendant W. F. Montgomery is 
the deputy director for medical services 
of the Missouri Department of Social 
Services; defendant Gary Clark is the 
executive secretary of the Missouri State 
Board of Registration for the Healing 
Arts.

The Missouri Department of Social 
Services received a copy of the peer 
review group report that was submitted to 
HCFA. On the basis of that report, the 
Missouri Department of Social Services 
suspended Dr. Kwoun from eligibility for 
payments under the state Medicaid pro­
gram. Defendant Montgomery was apparent­
ly the state officer who initiated the 
suspension.

The Missouri State Board of Regis­
tration for the Healing Arts —  the state



39a -
licensing body for doctors, see Mo. Ann. 
Stat. § 334.120 (Vernon 1987, which has 
the power to suspend or revoke a doctor's 
license, see Mo. Ann. Stat. § 334.100 
(Vernon 1987) —  also received a copy of 
the peer review group report that was 
submitted to HCFA. On the basis of that 
report, the Missouri State Board of Reg­
istration for the Healing Arts initiated 
proceedings to suspend or revoke Dr. 
Kwoun's licence to practice medicine in 
Missouri. Defendant Clark, as the execu­
tive secretary of the board, was appar­
ently the officer who initiated the pro­
ceedings for the board. He is considered 
an administrative officer (rather than a 
clerical employee). See Mo. Ann. Stat. § 
334.123 (Vernon 1987) and Mo. Ann. Stat. 
§ 620.010.15(4) (Vernon 1987).



40a
Defendant Montgomery's suspension of 

Dr. Kwoun from eligibility for state 
Medicaid payments is clearly an act that 
was performed under the discretionary 
powers of his position; similarly, de­
fendant Clark's act in initiating license 
suspension/revocation proceedings against 
Dr Kwoun is clearly an act that was per­
formed under the discretionary powers of 
his position. Each is therefore immune 
under Missouri law from the common-law 
tort claims asserted against him. Kan- 
aaawa v. State bv and through Freeman. 
685 S .W.2d 831, 835 (Mo. 1985) (en banc).

This analysis of absolute immunity 
from constitutional claims for these 
state defendants is the same as that 
applicable to federal defendants. Butz 
v. Economou. 438 U.S. 478, 504 (1978).
We therefore find that each is also



41a
immune from the constitutional claims 
asserted against him.

The process of deciding whether to 
impose a state Medicaid exclusion sanc­
tion, the process of deciding whether to 
initiate a license suspension/revocation 
proceeding, and the process of deciding 
whether to impose a federal Medicare ex­
clusion sanction are all of a kind. Each 
is essentially an advocatory prosecutor­
ial function —  "deciding whether a pro­
ceeding should be brought and what sanc­
tions should be sought," Butz, 438 U.S.
at 515, against "a specific target," Gray 
V. Bell. 712 F. 2d 490, 501 (D.C. Cir. 
1983), cert. denied. 465 U.S. 1100 
(1984). Indeed, the administrative and 
judicial review available under Missouri 
law is similar to that available under 
federal law. See Mo. Ann. Stat. §



42a
621.055.1 (Vernon 1987), Mo. Ann. Stat. § 
536.100 (Vernon 1953)(review of exclusion 
from state Medicaid program); Mo. Ann. 
Stat. § 334.100.2 and § 334.100.3 (Vernon 
1987), Mo. Ann. Stat. § 621.100, § 621. 
110, and § 621.145 (Vernon 1987), and Mo. 
Ann. Stat. § 536.100 (Vernon 1953)(review 
of suspension/revocation of license to 
practice medicine); and 42 U.S.C. § 2395y 
(d)(3)(review of exclusion from federal 
Medicare program).

The orders dismissing the state 
defendants, along with the orders dis­
missing the federal defendants and the 
SEMO defendants, are therefore affirmed.



43a
HEANEY, Circuit Judge, dissenting.

I respectfully dissent. In my view, 
this Court should not blindly accord 
absolute immunity to all federal defen­
dants for their alleged violations of Dr. 
Kwoun's constitutional rights and should 
not accord absolute immunity to any of 
the Southeast Missouri Professional 
Standards Review Organization (SEMO) 
defendants for their alleged violations 
of Dr. Kwoun's constitutional rights. I 
am otherwise in accord with the major­
ity.
The Federal Defendants:

Absolute immunity should not be 
extended to all of the federal defendants 
for their alleged constitutional viola­
tions at this time because the record 
does not establish that all of them are 
necessarily entitled to it. The majority



44a
correctly notes that entitlement to 
absolute immunity for constitutional vio­
lations is governed by Butz v. Economou. 
438 U.S. 478 (1978), which holds that 
"agency officials performing certain 
functions analogous to those of a prose­
cutor" are entitled to absolute immunity. 
Id. at 515. What they neglected to point 
out is that the burden of establishing 
absolute immunity rests on those who 
claim it, see Harlow v. Fitzgerald. 457 
U.S. 800, 812 (1982); Butz. 438 U.S. at 
506, and that the issue is one of fact to 
be decided in the first instance by the 
trial court. We should do as the Supreme 
Court of the United States did in Butz 
and remand the matter to the district 
court to determine which federal defen­
dants, if any, were "responsible for the 
decision to initiate or continue a pro­



45a
ceeding subject to agency adjudication" 
and to grant absolute immunity to those 
defendants and those only. Butz. 438 
U.S. at 523, on remand. 466 F.Supp. 1351 
(S.D. N.Y. 1979)(finding that all but two 
of the defendants were entitled to abso­
lute immunity).

This Court is in no position to 
determine which federal officials are 
entitled to absolute immunity on the 
record before it. The district court has 
already held that the federal defendants 
are entitled to qualified immunity only. 
Thus, we can hardly rely on the court's 
earlier decision to support a claim for 
absolute immunity. The district court 
should be given an opportunity to review 
the full record and make appropriate 
findings. Dr. Kwoun is entitled to have 
an opportunity to submit any additional



46a
evidence that may be relevant and to 
fully argue his position before the 
district court.

Lest it be argued that the district 
court's March 27, 1986, sua soonte order 
dismissing the complaint against all 
federal defendants is tantamount to 
granting absolute immunity, I would point 
out that the district court does not 
mention the federal defendants in that 
order. Moreover, the court discussed the 
federal defendants in its September 19, 
1985, order and held that absolute im­
munity should not be extended to them 
under Butz♦ it is also important to note 
the district court specifically refused 
to dismiss Dr. Kwoun's claims under 42 
U.S.C. § 1981 and 42 U.S.C. § 1985(3)
stating the complaint clearly alleged Dr. 
Kwoun was denied participation in the



47a
Medicare program because of his race.1 
This is a clear allegation of a constitu­
tional violation that can only be avoided 
if the district court finds it meritless 
or specifically finds that each federal 
defendant is entitled to absolute im­
munity.
The SEMO Defendants:

Absolute immunity should not be 
extended to the SEMO defendants for a 
very simple reason. Congress specifical­
ly provided that participants in the 1

1 The record before us does not 
disclose whether the allegations of 
racial discrimination are purely con- 
clusory in nature. SEMO's investigation 
initially focused on Poplar Bluff 
Hospital which reportedly had the highest 
readmission rate per 100 discharges of 
any hospital in its region. It was 
subsequently narrowed to four doctors, 
including Dr. Kwoun. As a result of the 
proceedings, however, neither the 
hospital nor the other three doctors were 
sanctioned. This action was reserved for 
Dr. Kwoun, apparently the only minority 
doctor in the hospital.



48a
review process were entitled to qualified 
immunity only. At the time the events in 
this case took place, 42 U.S.C. § 1320c- 
6(b)(1), provided:

(b)(1) No individual who, as a 
m e m b e r  or empl o y e e  of any 
Professional Standards Review 
Organization or of any Statewide 
Professional Standards Review 
C o u n c i l  or w h o  f u r n i s h e s  
professional counsel or services to 
such organization or council, shall 
be held by reason of the performance 
by him of any duty, function, or 
activity authorized or required of 
Professional Standards Review 
Organizations or of Statewide 
Professional Standards Review 
Councils under this part, to have 
violated any criminal law, or to be 
civilly liable under any law, of the 
United States or of any State (or 
political subdivision thereof) 
provided he has exercised due care.

(2) The provisions of
paragraph (1) shall not apply with 
respect to any action taken by an 
individual if such individual, in 
taking such action, was motivated by 
malice toward any person affected by 
such action.

Id. (as amended October 25, 1977 (em­
phasis added).



49a
The current statutory section, 

effective September 3, 1982, provides:
(b) Employees and fiduciaries 

of organizations having contracts 
with Secretary

No person who is employed by, 
or who has a fiduciary relationship 
with, any such organization or who 
furnishes professional services to 
such organization, shall be held by 
reason of the performance by him of 
any duty, function, or activity 
required or authorized pursuant to 
this part or to a valid contract 
entered into under this part, to 
have violated any criminal law, or 
to be civilly liable under any law 
of the United States or of any state 
(or political subdivision thereof) 
provided he has exercised due care.

42 U.S.C. § 1320c-6(b) (emphasis added).
It is clear that under either pro­

vision, qualified, not absolute, immunity 
is the standard to be applied to the SEMO 
defendants. In a case with facts nearly 
identical to the instant case, a black 
doctor brought suit against a Profes­
sional Standards Review Organization 
(PSRO), its staff, a hospital, and hospi­



50a
tal officials, alleging discrimination in 
determining that many of the medical 
services performed by the doctor for his 
Medicare and Medicaid patients were 
unnecessary. With regard to the immunity
of the PSRO and its staff, the court
stated: "Defendant concedes, and both
statutory provisions specify, that PSRO
defendants are not immune from liability 
if they act with malice." Taylor v. Flint 
Osteopathic Hosp., Inc.. 561 F. Supp. 
1152, 1160 (E.D. Mich. 1983).2 Thus, the

2 Neither party saw fit to appeal 
any aspect of Judge Boyle's decision in 
Taylor. Subsequent to her decision, 
however, Judge Boyle was appointed to the 
Michigan state bench and the case was 
reassigned to Senior Judge George E. 
Woods. The PSRO and PSRO officials 
(defendants) again moved for summary 
judgment, arguing that the doctor's 
section 1981 claims, remaining after 
their initial summary judgment motions, 
should be dismissed because the doctor 
had failed to establish disparate 
treatment at the hands of the defendants. 
Judge Woods granted the defendants'



51a
statute is so clear that the Tavlor 
defendants saw fit to concede and the 
court to expressly state that the PSRO 
and PSRO officials were entitled to 
qualified immunity only.

In this respect, the federal statute 
follows state statutes which have nearly 
uniformly codified the common law grant­
ing only qualified immunity to peer

summary judgment motion. On appeal, the 
Sixth Circuit, in an unpublished opinion, 
reversed and vacated only Judge Woods' 
ruling and order, holding that, with 
respect to the section 1981 claim, issues 
of fact remained concerning the defen­
dants' justifications for their actions. 
The Circuit Court thus remanded the case 
for trial on the merits. Tavlor v. Flint 
Osteopathic Hosp., Inc., No. 84-1206 (6th 
Cir. May 28, 1985). Thus, Judge Boyle's 
finding that the PSRO and its officials 
are entitled to qualified immunity 
remains in effect and, in the final 
analysis, Dr. Taylor will receive exactly 
what Dr. Kwoun should receive —  a trial 
on the merits of his discrimination claim.



52a
review committees.3 * * * * * * * 11 The reasons for
qualified immunity is clear:

Peer review statutes, which 
state legislatures have enacted with 
increasing frequency in recent

3 See, e.q., Havden v. Forvt. 407 
So.2d 535, 536 (Miss. 1982), (granting
review committee and witnesses before 
committee qualified immunity); Franco v. 
District Court of Denver. 641 P. 2d 922, 
925 (Colo. 1982)(granting review commit­
tee and committee members qualified
immunity); Buckner v. Lower Florida Keys 
Hosp. Dist. . 403 So.2d 1025, 1028 (Fla.
App. 1981)(granting hospital staff and 
disciplinary body and its agents quali­
fied immunity); Hackenthal v. Weissbein. 
154 Cal. Rptr. 423, 426-27 (1979)(grant­
ing qualified immunity to witnesses at 
hearing of peer review committee of 
nonpublic institution) ; Matviuw v. 
Johnson. 388 N.E. 2d 795, 799 (111. App.
1979)(granting witnesses at hearing of 
peer review committee qualified immu­
nity) , aff'd. 444 N.E.2d 606 (1980); see 
also Southwick and Slee. Quality As­
surance in Health Care. 5 J. Legal Med. 
343, 386-96 (1984); D. Gregory, Immunity
for Physicians in Peer-Review Committees.
11 Legal Aspects of Med. Practice No. 9, 
pp. 1, 2-4 (Sept. 1983) ; J. C. Norman,
So-Called Physician "Whistle-Blowers" 
Protected: Immunity of Peer-Review
Committee Members from Suit. 11 Legal 
Aspects of Med. Practice No. 2, pp. 4-7 
(Feb. 1983).



53a
years, are directed toward the 
attainment of an elevated quality of 
health care at a reasonably low cost 
to the patient. Such legislation is 
based on the premise that the eval­
uation of the professional com­
petency of doctors is best left to 
the specialized expertise of their 
peers, subject only to limited 
judicial surveillance. Peer review 
legislation promotes self-regulatory 
competence usually by protecting 
committee members with a qualified 
immunity and committee proceedings 
with some degree of confidentiality.

Franco v. District Court of Denver. 611 
P. 2d 922, 925 (Colo. 1982) (citing, Note, 
The Legal Liability of Medical Peer 
Review Participants For Revocation of 
Hospital Staff Privileges. 28 Drake L. 
Rev. 692 (1978-79); Note, Medical Peer 
Review Protection In the Health Care 
Industry. 52 Temple L.Q. 552 (1979)).
Yet, it does not follow from the impor­
tance of and need for candor in peer re­
view proceedings that peer review com­
mittees and those testifying before them 
should be accorded an absolute privilege
to testify or render decisions in a
racially discriminatory manner. Such
conduct, as has been alleged in this



54a
case, advances no important interest of 
society or the professions and indeed 
actually hinders competent performance of 
the important tasks peer review commit­
tees are set up to perform. Thus, the 
conduct to which we may be affording an 
absolute privilege in this case and to 
which the majority's decision will most 
certainly afford an absolute privilege in 
future cases, has "no place in a forum 
convened to determine the qualifications 
of an individual to continue in the 
practice of his profession." Matviuw v. 
Johnson. 388 N.E.2d 795, 799 (111. App. 
(1979), aff'd. 444 N.E.2d 506 (111. 
1980).

To summarize, I would remand this 
matter to the district court to determine 
which of the federal defendants performed 
a function analogous to that of a prose­



55a
cutor, arranged for the presentation of 
the government's case in the course of 
the administrative proceeding, or per­
formed adjudicatory functions. Only 
those defendants should be extended abso­
lute immunity for the alleged unconstitu­
tional acts directed at Dr. Kwoun. I 
would further direct the district court 
to extend only qualified immunity to the 
SEMO defendants for their alleged uncon­
stitutional acts. If Congress wishes to 
extend absolute immunity to those who 
participate in the peer-review process in 
prosecutorial or adjudicative functions, 
it is free to do so. Until it does, I 
believe we are bound by the statute as 
written.
A true copy.

Attests
CLERK, U.S. COURT OF APPEALS, EIGHTH
CIRCUIT.



56a
UNITED STATES DISTRICT COURT 
EASTERN DISTRICT OF MISSOURI 

SOUTHEASTERN DIVISION

No. SB 1-12 3 C

Soung O. Kwoun, M.D.
Plaintiff,

v.
Richard S. Schweiker, 
etc., et al..

Defendants.

Filed December 23, 1981 
MEMORANDUM

This case is now before this Court 
on the motion of the defendants to dis­
miss or in the alternative for summary- 
judgment. Defendants bring this motion 
pursuant to Rules 12(b)(1) and 12(b)(6) 
of the Federal Rules of Civil Procedure 
and contend that this Court lacks the 
requisite subject matter jurisdiction



57a
because plaintiff failed to exhaust his 

administrative remedies. In addition, 

defendants assert that plaintiff's com­
plaint fails to state a claim upon which 

relief may be granted because the pro­
cedures that the defendants afforded the 

plaintiff did not fail to comply with due 

process requirements.
Plaintiff's cause of action arises 

out of an initial determination by the 
Health Care Financing Administration 

(hereinafter HCFA)(which is a branch of 

the Department of Health and Human Ser­

vices) to exclude the plaintiff from the 

medicare reimbursement program. The 

plaintiff was notified on September 11, 
1981 that the agency was suspending his 
receipt of reimbursement under the Medi­

care Program pending any administrative 

appeals pursuant to 42 U.S.C. § 1320c.



58a
Plaintiff is presently reimbursed in 
excess of $200,000.00 per year for his 
work at Henrickson Clinic. Upon suspen­
sion of his payments, the plaintiff 
petitioned this Court for a temporary 
restraining order, alleging that the 
agency had improperly excluded him from 
the Medicare Program by not affording him 
the procedural steps required by the 
statute and regulations. In response, a 
temporary restraining order was insti­
tuted on September 17, 1981. At this
time, this Court believed that the 
plaintiff would suffer irreparable injury 
unless injunctive relief was granted and 
that defendants would not be adversely 
affected during the period in which the 
Order was in effect. However, after 
considering the claims of the plaintiff 
and defendants and the statutory scheme



59a
it is this Court's conclusion that it 
lacks the requisite subject matter 
jurisdiction to consider plaintiff's 
claim, or to order any relief in this 
matter.

In order to understand the validity 
of the plaintiff's claims and the power 
of this Court to review those claims, it 
is necessary to examine the statutory 
scheme and the extent of review that the 
plaintiff already has received at the 
agency level. The defendants have 
charged the plaintiff with violating the 
sections of the Social Security Act, 
which requires a provider of medical 
services to give patients only those 
services that are medically necessary and 
also requires a doctor to meet profes­
sional standards. 42 U.S.C. § 1320c-
9a(A) (B) . In order to assure the en-



60a
forcement of these statutory mandates, 
Congress established Professional 
Standard Review Organization (hereinafter 
PSRO), and charged it with the responsi­
bility of determining whether doctors 
were complying with statutory require- 
ments. 42 U.S.C. § 1320c-l(b) (1) (A) .
The PSRO is ordinarily composed of a 
number of local physicians. Congress 
purposefully provided that a PSRO should 
be operated by and comprised of physi­
cians in the private sector; it was the 
intent of the legislature that the mem­
bers of the PSRO would serve as govern­
mental experts, who were familiar with 
local conditions and the quality of medi­
cal services that doctors rendered in 
their particular locality. Public Citi­
zen Health Research Group v. Department 
of Health. Education, and Welfare. No.



61a
79-2364 (D.C. Cir. Oct. 23, 1981). In
the event that a PSRO determines that a 
doctor is providing unnecessary medical 
services or is not living up to profes­
sionally recognized standards, it is 
their duty to make a report and send that 
report with comments to the Statewide 
Professional Review Council. 42 U.S.C. 
§§ 1320C-11, c-6,c-9(b)(1). Prior to the 
transmission of this report the alleged 
violator is given notice of his failure 
to comply with statutory standards and an 
opportunity to respond to any accusa­
tions. The Review Council then sends a 
report to the HCFA, which reviews the 
information and gives the alleged vio­
lator notice of its decision and an 
opportunity to submit "documentary evi­
dence and written argument concerning the 
proposed action" of the agency. 42



62a
C.F.R. § 474.10(c). In the event that
the HCFA determines, after a review of 
all the evidence, that the exclusion of 
the doctor from the Medicare Program is 
appropriate, the reimbursement of bene­
fits will cease thirty days after the 
agency's decision. The statute and 
regulations further provide that a pro­
vider of health care only will become re- 
eligible to receive benefits if the 
Secretary decides to reverse the decision 
of the HCFA, or if a court determines 
that the final decision of the Secretary 
is inappropriate. The Social Security 
Act allows for judicial review of the 
agency decision only after the Secretary 
has entered its final order. 42 U.S.C. § 
405(g).

It is evident from the documents and 
exhibits submitted by both plaintiff and



63a
defendants that plaintiff's activities 
were reviewed pursuant to the statutory- 
scheme required by the Social Security 
Act. In April of 1979 the Southeast 
Missouri Foundation for Medical Care 
(SEMO), a Professional Standards Review 
Organization (PSRO) in southeast Missouri 
began to review Poplar Bluff Hospital be­
cause of its extremely high re-admission 
rate. As a result of monitoring the hos­
pital, an in-depth review of Dr. Kwoun's 
and other doctors' admissions to Poplar 
Bluff Hospital was made. Due to Dr. 
Kwoun's alleged failure to cooperate and 
due to his standard of patient care in 
February of 1980 SEMO transmitted its 
report to the Missouri Statewide Profes­
sional Standards Review Council. This 
council then transmitted this report with 
its comment to the HCFA which recommended



64a
a sanction be imposed. Dr. Kwoun was 
advised in writing in September of 1980 
by the Central Office of HCFA of its 
intent to exclude his participation under 
the Social Security Reimbursement Pro­
gram. The doctor was also notified of 
his opportunity to contest this deter­
mination by writing and personal ap­
pearance. On December 5, 1980, Dr. Kwoun 
took advantage of this opportunity and 
appeared at the administrative review 
before the director of HCFA. The evi­
dence adduced at the trial was then 
submitted to SEMO for further review and 
recommendation. On September 2, 1981,
HCFA advised Dr. Kwoun that he would be 
excluded from participation in the Medi­
care Program pursuant to 42 U.S.C. § 
1395y(d)(1)(c) for a period of ten years. 
The letter also notified the doctor of



65a
his right to a hearing before the ALJ. 
Accompanying the decision was a statement 
which details the basis for the decision 
to exclude the plaintiff. The letter 
states that among the grounds for exclu­
sion are that the doctor failed to meet 
professionally recognized standards of 
health care. Specifically, the charges 
were that the doctor made inappropriate 
use of pacemakers, laboratory services, 
drug usage, scheduling of surgery, and 
use of ancillary services. Finally the 
agency accused Dr. Kwoun of rendering 
services inconsistent with the diagnosis 
of certain patients. Dr. Kwoun is pres­
ently appealing this decision in the 
manner prescribed by the statute.

Plaintiff is requesting this Court 
to invoke its mandamus jurisdiction 
pursuant to 28 U.S.C. § 1361 so as to



66a
compel this federal agency to comply with 
the due process requirements of the Fifth 
Amendment of the Constitution. In addi­
tion, he requests injunctive relief so 
that he might continue to be reimbursed 
for his medical services. Plaintiff does 
not dispute the fact that the procedural 
steps as described were taken. However, 
plaintiff alleges that the agency failed 
to follow its own regulations in viola­
tion of the Fifth Amendment in the fol­
lowing manners: first, a report dealing 
with Poplar Bluff Hospital was converted 
into a report involving plaintiff and his 
medical practices; second, plaintiff 
alleges that he was not given sufficient 
opportunity to discuss the charges 
against them with the PSRO, in the letter 
sent to the doctor in September 1981, the 
agency alleges that the doctor refused to



67a
meet with the PSRO; third, the Statewide 
Council and HCFA merely rubber stamped 
the report of the PSRO; finally, the 
letter of September 2, 1981 merely re­
ferred to a hearing before an ALJ, as 
opposed to stipulating that plaintiff had 
a right to review by the Appeals Council. 
Subsequent to the receipt of this letter 
plaintiff has appealed the decision of 
the HCFA, pursuant to the required stat­
utory procedure. However, the plaintiff 
contends that the failure of the agency 
to follow its own regulations constitutes 
a violation of the due process clause of 
the Fifth Amendment and thereby entitles 
him to immediate judicial relief.

In response to plaintiff's claims 
that his constitutional rights were 
violated and he therefore is entitled to 
judicial relief, the defendants advance



68a
two arguments. First, defendants contend 
that the plaintiff has failed to make the 
requisite showing for preliminary relief. 
Secondly, the government argues that this 
Court lacks the requisite subject matter 
jurisdiction to consider this cause of 
action pursuant to its mandamus jurisdic­
tion.

Before granting injunctive relief it 
is the obligation of courts to balance 
the relative hardships and benefits to 
the plaintiff and defendant. In a recent 
case decided by a district court in the 
Eastern District of New York, the court 
held that a doctor suspended from the 
receipts of benefits pursuant to the 
Social Security Act, was not entitled to 
a preliminary injunction. Lemlich v. 
Schweicker, No. 81-2865 (E.D.N.Y. Sep­
tember 16, 1981). The court reasoned



69a
that the potential harm to the public 
caused by a delay in the exclusion of a 
doctor who allegedly provided substandard 
medical care, from the Medicare Program, 
outweighed the potential harm to plain­
tiff's medical practice. In addition, 
the court reasoned that the plaintiff 
failed to establish a likelihood of 
success on the merits because he had not 
exhausted his administrative remedies. 
Finally, any harm that the plaintiff may 
suffer during suspension will be alle­
viated if the plaintiff ultimately pre­
vails because he will receive compen­
sation for those services that he has 
provided in the interim. However, if the 
agency and courts sustain the decision to 
exclude the plaintiff from the Medicare 
Program, recoupment of reimbursement 
payment is by no means certain. For



70a
these reasons, further preliminary in­
junctive relief does not seem appropriate 
under the circumstances of this case.

The remaining issue for this Court 
to determine is whether this Court has 
the necessary jurisdiction to consider 
plaintiff's claim at this particular 
time. Section 405(g) of the Social 
Security Act provides for judicial review 
of challenges to agency determinations 
only after the Secretary renders his 
final decision on the merits.1 In fact, 
the statute expressly precludes judicial 
review of the decision to exclude a

1 The statute provides:
Any individual, after any final 

decision of the Secretary made after a 
hearing to which he was a party, ir­
respective of the amount in controversy, 
may obtain a review of such decision by a 
civil action commenced within sixty days 
after the mailing to him of notice of 
such decision or within such further time 
as the Secretary may allow.



71a
physician from the Medicare Program until 
"after such hearing as is provided in 
Section 405(g) of the Title". 42 U.S.C. 
§ 1395y(d)(3).

The Supreme Court has held that the 
"final decision" requirement embodied in 
the Social Security Act is a statutorily 
specified jurisdictional prerequisite, 
and therefore is more than a codification 
of the judicially developed doctrine of 
exhaustion. Weinberger v. Saifi. 422 
U.S. 749 (1975). However, there is an 
exception to the rule that requires the 
plaintiff to exhaust his administrative 
remedies prior to judicial review. In 
the event the party seeking judicial 
review establishes that the agency has 
violated his constitutional right, a 
court may intervene prior to the conclu­
sion of the administrative processes.



72a
Nevertheless, to fall within the excep­
tion to this rule, a party must present a 
constitutional claim which is collateral 
to the substantive claim, making adequate 
relief unobtainable at a post-termination 
hearing. Matthews v. Eldridae. 424 U.S. 
319 (1975); Weinberger v. Salfi. 422 U.S. 
749 (1975) . In addition, the mere as­
sertion of a constitutional claim is 
insufficient; the record must reflect a 
colorable claim. Kechiian v. Califano. 
621 F.2d 1 (1st Cir.1980).

It is the opinion of this Court that 
plaintiff's cause of action does not fall 
within the exception to the exhaustion of 
administrative remedies rule. As stated, 
the requirement of a "final decision" by 
the Secretary, embodied in the statute, 
is central to the requisite grant of 
subject matter jurisdiction. Weinberger



73a
v. Salfi. supra. Furthermore, it is 
clear that plaintiff's claim is not 
collateral to his substantive claim, and 
that the agency will be capable of cor­
recting any procedural defects in a later 
evidentiary proceeding. The plaintiff is 
not questioning the constitutionality of 
the statute nor is he presenting an issue 
which is beyond the jurisdictional powers 
of the Secretary to determine.2 The 
plaintiff is only claiming that the 
agency has failed to follow its own 
guidelines. Nor is it always the rule

2 In Lemlich v. Schweiker. supra, 
the district court reached the plain­
tiff's due process claim. However, the 
issue in that case was whether the 
constitution required a full evidentiary 
hearing prior to the suspension of bene­
fits. The court held that a post-evi­
dentiary hearing was adequate. Interven­
tion in Lemlich was appropriate because 
further agency proceedings would not have 
resolved the constitutional issue before 
the court.



74a
that an agency's violations of its own 
regulations always raise a constitutional 
question. United States v. Caceres. 440 
U.S. 741 (1978); Morton v. Ruiz. 415 U.S. 
199 (1971). Therefore this Court will 
not consider the merits of plaintiff's 
cause of action.

It is the opinion of this Court that 
intervention with agency procedures would 
be premature at this time. It would be 
inconsistent with the intent of Congress 
and the statutory scheme to preclude the 
agency from compiling an evidentiary 
record, which will allow for adequate 
judicial review, in the event that be­
comes necessary. It was evidently the 
intent of the legislature that this court 
should benefit from the expertise of the 
agency and the doctors asked to serve on
PSRO.



75a
Accordingly, defendants' motion for 

summary judgment will be granted, and 
defendants' motion to dismiss will be 

denied as moot because this Court has 

considered matters outside of the 

pleadings pursuant to Rule 56 of the 

Federal rules of Civil Procedure. In 
addition, the Order of this Court dated 
September 17, 1981, granting injunctive
relief shall be vacated and this case 
shall be dismissed.

__________ .. .  /?/___________________________UNITED STATES DISTRICT JUDGE

Dated: December 23, 1981.



76a
UNITED STATES DISTRICT COURT 

E.D. MISSOURI 
SOUTHEASTERN DIVISION

No. S84-259C(D)

Soung O. Kwoun, et al..
Plaintiffs,

v.
Southeast Missouri Professional 
Standards Review Organization, et al.,

Defendants.

Sept. 19, 1985 

MEMORANDUM
WANGELIN, District Judge

This matter is before the Court upon 
six separate motions to dismiss the 
above-styled action or, in the alter­
native, for summary judgment. Said mo­
tions were brought by defendants Howard,



77a
Nicholson, Kram, and Secretary of Health 
and Human Services; defendants Southeast 
Missouri Professional Standards Review 
Organization (SEMO PSRO) and named phy­
sicians (SEMO Doctors); defendant Legaspi 
and defendant Bregant. Each of the above 
named defendants incorporate Defendants' 
Suggestions in Support of Motions of de­
fendant SEMO PSRO and others to dismiss 
or, in the alternative, for summary judg­
ment filed with this Court January 18, 
1985 as argument in support of their 
individual and collective motions.

FACTUAL BACKGROUND
Plaintiffs' cause of action arises 

out of an initial determination by the 
Health Care Financing Administration 
(hereinafter HCFA), which is a branch of 
the Department of Health and Human Ser­
vices, to exclude the plaintiff from the



78a
medicare reimbursement program. The 
plaintiff was notified on September 11, 
1981 that the agency was suspending his 
receipt of reimbursement under the Medi­
care Program pending any administrative 
appeals pursuant to 42 U.S.C. § 1320c.

Plaintiff subsequently filed an 
action before Administrative Law Judge 
Francis J. Eyerman. The ALJ exonerated 
plaintiff Dr. Kwoun from all accusations 
against him. Plaintiffs filed this ac­
tion alleging defendants' conduct in the 
above mentioned proceedings constituted 
violations of 42 U.S.C. § 1981 (Count I); 
42 U.S.C. § 1985(2)(Count II); 42 U.S.C. 
§ 1985(3)(Count III); and the Fifth 
Amendment (Count IV). Plaintiffs further 
assert tort claims for malicious prosecu­
tion (Count V) ; intentional infliction 
of emotional distress (Count VI); and



79a
prima facie tort (Count VII).

In determining the sufficiency of a 
complaint in the face of a motion to 
dismiss for failure to state a claim 
pursuant to Federal Rule 12(b)(6), the 
accepted rule as articulated by the 
United States Supreme Court is that "a 
complaint should not be dismissed for 
failure to state a claim unless it 
appears beyond doubt that the plaintiff 
can prove no set of facts in support of 
his claim which would entitle him to 
relief." Conlev v. Gibson. 355 U.S. 41, 
45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80
(1957) . If, on a motion to dismiss or a 
motion for judgment on the pleadings, 
matters outside the pleadings are pre­
sented to and not excluded by the Court, 
the motion shall be treated as one for 
summary judgment and disposed of as



80a.
provided in Rule 56. Fed. R. Civ. P.
12(c). Under Rule 56,

[t ]he judgment sought shall be 
rendered forthwith if the pleadings, 
depositions, answers to interro­
gatories, and admissions on file, 
together with the affidavits, if 
any, show that there is no genuine 
issue as to any material fact and 
that the moving party is entitled to 
a judgment as a matter of law.
When a motion for summary judgment 

is made and supported as provided in this 
rule, an adverse party may not rest upon 
the mere allegations or denials of his 
pleading, but his response, by affidavits 
or as otherwise provided in this rule, 
must set forth specific facts showing 
that there is a genuine issue for trial. 
If he does not so respond, summary 
judgment, if appropriate, shall be en­
tered against him.

Defendants appear to raise chal­
lenges under both Rule 12(b)(6) and Rule



81a
56(c), and accordingly, to the extent 
that the Court will consider matters out­
side the pleadings on a given claim, the 
ruling shall be based on Rule 56(c).

A.
Defendants' first ground for 

dismissal is that the three corporate 
plaintiffs do not have a cause of action 
in that the complaint only alleged claims 
by plaintiff Kwoun not the three cor­
porate plaintiffs. Defendants further 
assert that because the corporate plain­
tiffs are not members of a race, they 
cannot assert a cause of action under 42 
U.S.C. §§ 1981 or 1985. Moreover, defen­
dants assert that because no sanctions 
were brought against the corporate plain­
tiffs, they have no cause of action for 
denial of equal protection or due process 
or a claim for malicious prosecution.



- 82a
Defendants' motion to dismiss for 

failure to state a cause of action as to 
three corporate plaintiffs must be 
denied. The complaint regarding these 
three plaintiffs is sufficient since it 
"... contains allegations from which an 
inference fairly may be drawn that evi­
dence of material points will be intro­
duced at trial." 5 Wright & Miller, 
Federal Practice & Procedure, § 1216 at
122-123 (1969). Moreover, corporations
may file claims under 42 U.S.C. § 1981 as 
well as § 1985 and the United States 
Constitution. Des Veraners v. Seckonk 
Water District. 601 F.2d 9 (1st Cir. 
1979) . The relationship between plain­
tiff Kwoun and each of the corporate 
plaintiffs is articulated in the Amended 
Complaint. In each instance, plaintiff 
Kwoun is either the principal stockholder



83a
or trustee of the plaintiff corporations 
and the plaintiff corporations are or 
have provided medical service. Given the 
possibility of alleged harm to plaintiff 
Kwoun, this Court finds that there is an 
inference that the plaintiff corporations 
in which plaintiff Kwoun was involved 
were also injured.

Thus, because the corporate plain­
tiffs may have been damaged by defen­
dants' actions and because corporations 
are persons for purposes of civil rights 
and Fifth Amendment claims, the corporate 
plaintiffs do have a cause of action and 
defendants' motion to dismiss will be 
denied.

B.
Next, defendants assert that defen­

dant SEMO doctors should be dismissed 
because defendant SEMO PSRO is a Missouri



84a
not-for-profit corporation which can be 
sued in its corporate name and that the 
inclusion of defendants SEMO doctors is 
surplusage. This contention also fails.

Corporate officers and directors 
have personal liability under the federal 
civil rights acts if they intentionally 
cause a corporation to infringe on the 
rights secured by those acts. Tillman v. 
Wheaton-Haven Recreation Association. 517 
F.2d 1141, 1146 (4th Cir. 1975) . In
Clark v.__Universal Builders, Inc. , 501
F.2d 324 (1974), the Seventh Circuit 
found that the concept of separate 
identify between shareholders, directors, 
and officers and their corporation is not 
sacrosanct. It demands even less respect 
if it becomes clear that the corporation 
is used as a shield to violate the civil 
rights of others. Id. at 340 n. 23.



85a
Plaintiffs7 amended complaint alleges 
that defendant doctors through defendant 
SEMO PSRO have abridged plaintiffs7 civil 
rights. As such plaintiffs7 amended 
complaint is sufficient to state a cause 
of action against both defendant SEMO 
PSRO and defendant SEMO doctors.

c .

Defendants7 next contention is that 
plaintiffs7 claim under 42 U.S.C. §§ 
1981, 1985(2), 1985(3), the Fifth Amend­
ment, and their state claims are preclud­
ed by the Medicare Act. In support of 
this contention defendants cite Middlesex 
County Sewerage Authority v. National Sea 
Clammers Association. 453 U.S. 1, 101 
S.Ct. 2615, 69 L.Ed.2d 435 (1981).

In Middlesex County Sewerage Author­
ity the Court determined that when 
remedial devices provided in a particular



86a
Act are sufficiently comprehensive, they 

may suffice to demonstrate Congressional 

intent to preclude the remedy of suits 

under the civil rights acts. Id. at 20, 

101 S . c t .  at 2626.
The scope of the preclusion provi­

sion has engendered much litigation and 
little consensus. It is agreed by all of 

the circuits that the central target of a 

Section 405(h) preclusion is "any action 

envisioning recovery of any claim emanat­

ing from" the Medicare Act. Association 

of American Medical Colleges v. Califano, 
569 F .2d 101, 107 (D.C. Cir. 1977).

The holding in Middlesex County Sew­

erage Authority created a narrow excep­

tion to the Supreme Court's 1981 holding 

in Maine v. Thiboutot. 448 U.S. 1, 100 

S.Ct. 2502, 65 L.Ed.2d 555 (1980) that 42 
U.S.C. § 1983 authorizes a cause of



87a
action for violations of federal statu­
tory rights. The court in Middlesex was 
concerned that administrative procedures 
contained in particular statutes should 
not be circumvented. Middlesex. 453 U.S. 
at 20, 101 S.Ct. at 2626.

Defendants cite V.N.A. of Greater 
Tift City, Inc, v. Heckler. 711 F.2d 1020 
(11th Cir. 1983) for the proposition of 
the Medicare Acts' exclusivity. While 
defendants correctly state the principle 
of V.N.A. of Greater Tift City, Inc., the 
facts here are distinguishable. In 
V.N.A. the plaintiffs' claims were seek­
ing recovery on a claim directly related 
to provisions of the Act and the Court 
held that plaintiffs were limited to the 
provisions of the Act when seeking a 
remedy. Here, however, plaintiffs are
alleging separate claims unrelated to the



88a
Act. The only connection between 

the Act and plaintiffs" claims is that 

plaintiffs" claims arose during other 

proceedings under the Act. Plaintiff 

Kwoun has availed himself of the remedies 

available under the Act for his claims 
under the Act. Now plaintiffs are. 

seeking redress for alleged wrongs which 

arose separate and apart from the Act. 
Accordingly, defendants' assertion that 

the Medicare Act precludes plaintiffs" 

action is unfounded.



89a
D.

Next, defendants seek to dismiss all 
of plaintiffs' civil rights claims 
contending that plaintiff Kwoun's attempt 
to mitigate as reflected in Kwoun v . 
Schweiker. 528 F.Supp. 1004 (E.D. Mo.
1981) constitutes collateral estoppel.

The Eighth Circuit has continuously 
held that only a prior final judgment on 
the merits can have the effect of 
collateral estoppel. Oldham v. Prit­
chett . 599 F. 2d 274, 276 n.l (8th Cir.
1979); Poe v. John Deere Co. . 695 F.2d
1103, 1105 (8th Cir. 1982). Further, a
dismissal without prejudice operates to 
leave the parties as if no action had 
been brought at all. Moore v. St. Louis 
Music Supply. Inc. . 539 F.2d 1191, 1194
(8th Cir. 1976).



90a
In Kwoun v. Schweiker, the Court 

specificly states that it will not con­

sider the merits of plaintiffs'’ cause of 

action. 528 F.Supp. 1004 at 1008. Judge 

Nangle left open the possibility of 

reaching the merits of plaintiffs' cause 

of action if the situation arose where 
such consideration was appropriate. Id. 

Thus Kwoun v. Schweiker was not a deci­
sion on the merits and defendants' claim 

of collateral estoppel is without merit.

E.
Defendants next contend that because 

they are members of a PSRO they are 

government officials and thus subject to 

a three year statute of limitations. 

Defendants rely on Smith v. North Lou­

isiana Medical Review Assn.. 735 F.2d 168 
(5th Cir. 1984) . In Smith, the Fifth

Circuit found that a PSRO is a federal



91a
entity because it is created by federal 
statute and perforins a critical federal 
function of monitoring costs of services 
provided under the Medicare Act. Id. at 
173.

However, an entity's status as a 
federal entity is controlled by Con­
gress's intent in creating the organiza­
tion. Recent cases have made it clear 
that any general definition of the term 
agency can be of only limited utility to 
a court confronted with one of the myriad 
organizational arrangements for getting 
the business of the government done. The 
unavoidable fact is that each new ar­
rangement must be examined anew and in 
its own context. Public Citizen Health v. 
Dept.Health. Ed.. Etc., 668 F.2d 537, 542 
(D.C. Cir. 1981).



92a
The Report of the Senate Committee 

on Finance on the Social Security Amend­
ments of 1972, S .Rep. No. 92-1230, 92 
Cong., 2nd Sess. (1972) provides a clear 
summary of Congress's intent as to the 
status PSRO's should have with respect to 
government versus private agency.

The committee believes that the 
review process should be based upon the 
premise that only physicians are, in 
general, qualified to judge whether 
services ordered by other physicians are 
necessary. The committee is aware of in­
creasing instances of criticism directed 
at the use of insurance company personnel 
and government employees in reviewing the 
medical necessity of services. S.Rep. 
supra at 256.

The committee has therefore included 
an amendment, as it did in H.R. 17550,



93a
which authorizes the establishment of 
independent professional standards review 
organizations by means of which practic­
ing physicians would assume responsi­
bility for reviewing the appropriateness 
and quality of the services provided 
under medicare and medicaid.

The committee's bill provides spe­
cifically for the establishment of 
independent professional standards review 
organizations formed by organizations 
representing substantial numbers of 
practicing physicians in local areas to 
assume responsibility for the review of
service (but not payments) provided
through the medicare and medicaid
programs. Id. at 257.

It is preferable and appropriate
that organizations of professionals 
undertake review of members of their



94a
profession rather than for government to 
assume that role. The inquiry of the 
committee into medicare and medicaid 
indicates that government is ill equipped 
to assume adequate utilization review. 
Indeed, in the committee's opinion, 
government should not have to review 
medical determinations unless the medical 
profession evidences an unwillingness to 
properly assume the task. Id. at 258.

Priority in designation as a PSRO 
would be given to organizations estab­
lished at local levels representing sub­
stantial numbers of practicing physicians 
who are willing and believed capable of 
progressively assuming responsibility for 
overall continuing review of institution­
al and outpatient care and services. 
Local sponsorship and operation should 
help engender confidence in the familiar­



95a
ity of the review group with norms of 
medical practice in the area as well as 
in their knowledge of available health 
care resources and facilities. Parti­
cipation in a PSRO would be voluntary and 
open to every physician in the area. Id. 
at 259.

PSRO physicians engaged in the 
review of the medical necessity for 
hospital care and justification of need 
for continued hospital care must be ac­
tive hospital staff members. The purpose 
here is to assure that only doctors 
knowledgeable in the provision and prac­
tice of hospital care will review such 
care. Id. at 260.

It is expected that a PSRO would 
operate in a manner which conserves and 
maximizes the productivity of physician 
review time without unduly imposing on



96a
his principal function, the provision of 
health care services to his own patients. 
Id. at 264.

Employees of PSRO would be selected 
by the organization and would not be gov­
ernment employees. Id. at 266.

This Court finds that these expres­
sions demonstrate the fixed purpose of 
Congress that PSRO's should be indepen­
dent medical organizations operated by 
practicing physicians in the private 
sector, and not government agencies run 
by government employees. Public Citizen 
Health v. Dept, of Health Fed, etc., 668
F . 2d 537, 543 (D.C. Cir. 1981). A find­
ing that defendant SEMO PSRO and defen­
dant SEMO doctors make up a governmental 
agency would be inconsistent with the 
Congressional purpose.



97a
As such, plaintiffs' claim provides 

a sound basis for applying the five year 
statute of limitations contained in MoRS 
§ 516.120. Moreover, the Eighth Circuit 
has determined that the five year statute 
of limitations is applicable for actions 
brought under 42 U.S.C. § 1981. See 
Drake v. Southwestern Bell Telephone Co., 
553 F.2d 1185 (8th Cir. 1977).

The five-year Missouri statute, 
§ 516-120 Mo. Ann. Stat., however, 
is applicable because a proceeding 
under § 1981 represents an action 
upon a liability implied, subd. 1; 
or an "action upon a liability 
created by a statute," subd. 2; or 
an action for "injury to the person 
or rights of another, not arising on 
contract and not herein otherwise 
enumerated," subd. 4. This Court 
need not decide which of these 
subdivisions covers this statutory 
action but the cases indicate that a 
§ 1981 action properly fits the 
description of one or more subdi­
visions of § 516.120.

Id. at 1188.



98a
Additionally, plaintiffs alleged 

that the complained of actions constitute 
a continuing course of conduct and did 
not accrue at a specific isolated date. 
If plaintiffs7 allegations are found to 
be true, no statute of limitation began 
to run until the date of the hearing 
before ALJ Eyerman. As such there is 
sufficient recent conduct to sustain a 
cause of action in this matter and de­
fendants' motion to dismiss based upon 
the statute of limitations will be 
denied.

F.
Defendants Kram, Nicholson, and 

Howard assert sovereign immunity and seek 
to dismiss all claims against them. De­
fendants contend that they are entitled 
to absolute immunity because plaintiffs' 
claims arise from the initiation of



99a
administrative actions of a prosecutorial 
nature.

The Supreme Court has issued a clear 
description of the immunities available 
to federal officials in Butz v. Economou. 
438 U.S. 478, 98 S.Ct. 2894, 57 L.Ed.2d 
895 (1978). Without retracing the 
Supreme Court's steps, it is abundantly 
clear that federal officials cannot claim 
immunity if their actions are manifestly 
beyond their line of duty. Butz. supra 
at 484-85, 98 S.Ct. at 2899-2900.

In the present case, plaintiffs 
allege misconduct seemingly beyond the 
scope of defendants' duty and authority. 
Plaintiffs cite the ALJ's finding that 
"the HCFA employees were involved in 
defendant SEMO PSRO's Sanction Report 
long before it was any of their business, 
even before it was issued by defendant



100a
SEMO PSRO and defendant SEMO doctors." 
This Court finds that reasonable minds 
could differ as to whether such activity 
is within defendants7 scope of authority. 
Accordingly, defendants Kram, Nicholson, 
and Howard will not be dismissed based 
upon an absolute immunity theory.

G.
Defendants next seek to dismiss 

plaintiffs7 claims under 42 U.S.C. § 1981 
contending that plaintiffs have failed to 
plead a denial of any right protected by 
the act and have failed to plead detailed 
factual allegations showing the defen­
dants7 actions were racially motivated.

In a civil rights action, pleadings 
are to be liberally construed. Only when 
the plaintiff can prove no set of facts 
that would entitle him to relief is a 
District Court warranted in granting a



101a
motion to dismiss. Windsor v. Bethesda 
General Hospital. 523 F.2d 891, 893 (8th 
Cir. 1975).

Plaintiffs' complaint contends that 
plaintiff was denied participation in the 
Medicare program, subjected to abuses in 
connection with the sanction process and 
essentially deprived of income because of 
his race. Among the rights protected by 
42 U.S.C. § 1981 are the right to earn a 
living without regard to one's race, to 
make contracts for education, to fair use 
and access to justice, and to participate 
in public benefits programs. See Graham 
v. Richardson. 403 U.S. 365, 91 S.Ct. 
1848, 29 L.Ed.2d 534 (1971); Johnson v 
Railway Express Agency, Inc.. 421 U.S. 
454, 95 S.Ct. 1716, 44 L.Ed.2d 295
(1975); Runvon v. McCrary. 427 U.S. 160, 
96 S.Ct. 2586, 49 L.Ed.2d 415 (1976);



102a
Martinez v. Fox Valiev Bus Lines. 17 
F .Supp. 576 (N.D. 111. 1936); Pennsyl­

vania V.  Local 542. 347 F.Supp. 268 (E.D. 
Penn. 1972) .

In Taylor v. Flint Osteopathic
Hospital. Inc.. 561 F.Supp. 1152 (E.D.
Mich. 1983) the Court denied defendant's
motion to dismiss saying:

... Plaintiff's complaint appears to 
state a claim under § 1981 against 
the PSRO in as much as it alleges, 
in essence, that the PSRO acted in a 
discriminatory manner in performing 
its peer review functions and that 
P S R O 's discriminatory conduct 
precluded plaintiff from performing 
his "contracts" with his patients 
and, ultimately, with FOH.

The PSRO's sole direct chal­
lenge to the § 1981 claim is that it 
is devoid of specific factual alle­
gations that PSRO's treatment of 
plaintiff differed from their treat­
ment of similarly situated white 
persons, as required by § 1981.
This Court having concluded, how­
ever, that the complaint fairly 
apprises the PSRO of the elements of 
plaintiffs' claim under § 1981, the 
motion to dismiss this claim pur­
suant to F.R.Civ. P, 12(b)(6) is 
hereby denied.



103a
Id. at 1159-60.

Defendants in this case are in no 
better position than defendant in Tavlor. 
Plaintiffs have alleged actions taken 
which if true have deprived plaintiffs of 
rights protected by 42 U.S.C. § 1981.
Further, plaintiff has alleged that the 
actions were motivated by plaintiff's 
race. Accordingly, this court finds that 
plaintiff has stated a cause of action 
under 42 U.S.C. § 1981.

H.
Defendants next move to dismiss 

Count II of plaintiffs' complaint 
alleging a violation of 42 U.S.C. § 
1985(2). Section 1985(2) relates to in­
stitutions and processes of federal 
judicial proceedings and conspiracies to 
obstruct the course of justice in state 
courts. Kush v. Rutledge. 460 U.S. 719,



104a
103 S.Ct. 1483, 75 L„Ed.2d 413 (1983). 

Moreover, § 1985(2) expressly requires 

force, intimidation, or threat against 

persons holding public office, witnesses, 

or jurors. Williams v. St. Joseph Hos­

pital, 629 F .2d 448, 451 (7th Cir. 1980).

There are no allegations regarding 
either federal courts or state courts in 

plaintiffs' complaint or amended com­

plaint. Further, plaintiffs have not 

alleged that defendants ever subjected 

any person to any force, intimidation or 

threat. Accordingly, this Court will 

grant defendants' motion to dismiss Count 

II of plaintiffs' amended complaint.
I.

Defendants further contend that 
plaintiffs have failed to state a cause 
of action under 42 U.S.C. § 1985(3) 

claiming the amended complaint (1) fails



105a
to adequately allege the existence of a 
conspiracy, (2) fails to allege an 
invidiously discriminatory animus, and
(3) fails to allege the deprivation of a 
constitutional right protected by § 

1985(3).
Under Fed. R. Civ. P. 8, technical 

niceties of pleading are not required. 
Rather a short and plain summary of the 
facts sufficient to give fair notice of 
the claim asserted is sufficient. Means 
v. Wilson. 522 F.2d 833, 840 (8th Cir.
1975). In addition, a complaint under 42 
U.S.C. § 1985(3) must allege facts to
show that intentional or invidious 
discrimination was the object of the 
conspiracy. Griffin v. Breckenridge, 403 
U.S. 88, 91 S.Ct. 1790, 29 L.Ed.2d 338
(1971).



106a
In Means v. Wilson, the complaint 

alleged that the defendant conspired with 

"private individuals" and two other named 

individuals to ensure defendant was re­

elected. Means v. Wilson, 522 F.2d at 

840-41. Upon no more than the above, the 

Eighth Circuit found that the plaintiff 

had stated a cause of action under 42 
U.S.C. § 1985(3). Id.

In the present case, plaintiffs have 

alleged that the named defendants "acted 

individually, together, and with others. 

..." Such allegations fairly raises the 

inference of conspiracy. Following the 

precedent of Means. supra, the Court 

finds that plaintiffs' amended complaint, 

although inartfully drafted, does allege 
conspiracy sufficiently to state a claim 
under 42 U.S.C. § 1985(3).



107a
Defendants' contention that the 

complaint fails to allege a class based 
animus is also without merit. The 
amended complaint alleges that plaintiff 
Kwoun is an Asian-American and that 
defendants subjected him to treatment 
different than that reserved for white 
persons. The amended complaint then 
enumerates all of plaintiffs' charges of 
how he was treated. This Court finds the 
pleadings sufficient to allege a class 
based animus and thus support a § 1985(3) 
cause of action.

Defendants' contention that plain­
tiffs' § 1985(3) claim must fail because 
it lacks a constitutional predicate is 
also without merit. Case law supports 
plaintiffs' contention that 42 U.S.C. § 
1981 provides a substantive basis for 
redress under § 1985(3). In Witten v.



108a
A.H. Smith and Co. . 567 F.Supp. 1063 
(D.Md. 1983), Judge Miller examined the 

language of the statute, the general 

legislative history with regard to the 

rights for which a remedy is provided by 
§ 1985(3), and the intent of the Forty 

Second Congress. Judge Miller concluded 

that 42 U.S.C. § 1981 is a proper sub­

stantive basis for a claim of redress 

under § 1985(3). Id. at 1072. This same 

position was taken in Miller v. St. Louis 

Theatrical Co.. No. 83-2305C(l)(E.D. Mo. 
August 1, 1984).

As discussed supra. this Court has 

determined that plaintiffs have raised a 

colorable claim under 42 U.S.C. § 1981. 
Accordingly, defendants' motion to dis­

miss plaintiffs' § 1985(3) claim will be
denied.



109a
J.

Defendants seek to dismiss plain­
tiffs7 Count IV. Plaintiffs agree that 
defendant SEMO PSRO and defendant SEMO 

doctors are not federal officials subject 
to a claim under the Fifth Amendment. 
Accordingly, plaintiffs' Count IV will be 
dismissed with respect to defendant SEMO 
PSRO and defendant SEMO doctors.

Defendants Kram, Nicholson, and 
Howard challenge plaintiffs' constitu­
tional claims contending that there is no 
private right of action under the Fifth 
Amendment because plaintiff Kwoun had an 
alternate remedy via the administrative 
review process and that plaintiff has not 
alleged the deprivation of a constitu­
tionally protected property interest 
without due process.



110a
The Supreme Court has held that 

victims of a constitutional violation by 

a federal officer have a right to recover 

damages against the official in federal 

court despite the absence of any statute 

conferring such a right. Bivens v. Six 

Unknown Federal Narcotics Agents. 403 

U.S. 388, 91 S.Ct. 1999, 19 L.Ed.2d 619 

(1971). Additionally, plaintiffs are not 
limited to statutorily created causes of 

action to the exclusion of a Bivens 
action if the alternative remedy is not 
equally effective and intended to operate 
as a substitute for the action under 

Bivens. Carlson v. Green. 446 U.S. 14, 

100 S.Ct. 1468, 64 L.Ed.2d 15 (1980).

The "Medicare Act" provides only for 

reimbursement in connection with care 

services provided without compensation. 

It does not provide compensation for



111a
plaintiffs7 alleged loss of reputation, 
emotional distress, lost business, 
punitive damages, nor an opportunity to 
be heard before a jury. All of the 
aforementioned differences between the 
Medicare Act remedy and a Bivens action 
are significant and counsel in favor of 
allowing plaintiffs7 claim in Count IV 
against defendants Kram, Nicholson, and 
Howard. Carlson v. Green, supra.

Further, plaintiffs have alleged the 
deprivation of constitutionally protected 
rights without the benefit of due 
process.

"To have a property interest in a 
benefit, a person clearly must have 
more than an abstract need or desire 
for it. He must have more than a 
unilateral expectation of it. He 
must, instead, have a legitimate 
claim of entitlement to it. It is a 
purpose of the ancient institution 
of property to protect those claims 
upon which people rely in their 
daily lives, reliance that must not 
be arbitrarily undermined. It is a



112a
purpose of the constitutional right 
to a hearing to provide an oppor­
tunity for a person to vindicate 
those claims.
"Property interests, of course, are 
not created by the Constitution. 
Rather, they are created and their 
dimensions are defined by existing 
rules or understandings that stem 
from an independent source such as 
state law —  rules or understandings 
that secure certain benefits and 
that support claims of entitlement 
of those benefits."

Board of Regents v. Roth. 408 U.S. 564,
577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d
548 (1972) . Here plaintiff asserts a
property interest in his continued par­
ticipation in the Medicare Program and to 
receive reimbursement for his services. 
Physicians such as plaintiff Kwoun are 
entitled to participation in the Medicare 
Program provided they comply with certain 
conditions and requirements under 42 
U.S.C. §§ 1320 and 1395. This Court 
finds that these conditions and require-



113a
merits are sufficient to secure benefits 
and to support claims of entitlement to 
those benefits under the rule in Board of 
Regents v. Roth, supra.

Plaintiff also alleges deprivation 
of his interest in his profession and a 
right to earn a living. These interests 
have long been recognized as property 
interests which are protected by due 
process. Schware v. Board of Bar Ex­
aminers . 353 U.S. 232, 238, 77 S.Ct. 752, 
755, 1 L.Ed.2d 796 (1957).

Plaintiff also has alleged that he 
was denied fair access to the procedures 
normally provided to physicians under the 
Medicare Act. The Eighth Circuit has 
previously determined that if a plaintiff 
can prove defendant interfered with his 
right to procedural due process, he is 
entitled to damages that actually re­



114a
suited, which would include, for example, 
mental and emotional distress. Bishop v. 
Tice. 622 F.2d 349, 357 (8th Cir. 1980). 
Accordingly, this Court finds that 
plaintiff Kwoun's amended complaint 
alleges deprivation of the types of 
property and liberty interests which are 
necessary to state a claim under the 
Fifth Amendment.

K.
Defendants seek to dismiss plain­

tiffs' claim of malicious prosecution 
contending that neither defendant SEMO 
PSRO or defendant SEMO doctors commenced 
a prosecution against defendant Kwoun:

"The elements of a cause for mali­
cious prosecution are: (1) commence­
ment of prosecution of the proceed­
ings against the present plaintiff; 
(2) its legal causation by the pres­
ent defendant; (3) its termination 
in favor of the present plaintiff;
(4) absence of probable cause for 
such proceedings; (5) the presence 
of malice therein; (6) damage to



115a -
plaintiff by reason thereof."

Palermo v. Cottom. 525 S.W.2d 758, 763

(Mo. App. 1975) . Of these six factors
defendants complain of only the first:

A person's acts may be the legal 
cause of prosecution if instituted 
at his insistence and request. It 
is sufficient if his action takes 
the form of an affidavit on which 
the case is based, regardless of 
further participation in the prose­
cution. ... To impose liability 
there must be affirmative action by 
way of advice, encouragement, pres­
sure or something similar in the 
institution, or causing the insti­
tution of the prosecution.

Id.

In this case plaintiff has alleged 

that defendants prepared fraudulent 

reports and recommended that plaintiff be 

permanently excluded from participation 

in Medicare and related programs. Plain­

tiff further alleges that defendants' 

recommendations and reports precipitated 
the institution of the action complained



116a
of. Such allegations are sufficient to 
survive a motion to dismiss for failure 
to state a cause of action for which 
relief can be granted.

L.
Defendants also seek to dismiss 

plaintiffs' claim for outrageous conduct 
contending that the conduct alleged in 
the complaint is not extreme and out­
rageous as a matter of law.

The Missouri Supreme Court "has 
accepted the Restatement's view that a 
right of action does exist for damages 
for severe emotional distress, intention­
ally and recklessly caused, by 'extreme 
and outrageous conduct.'" Pretskv v. 
Southwestern Bell Telephone Co., 396
S .W. 2d 566 (Mo. Sup. 1965); Nelson v. 
Grice. 411 S.W.2d 117 (Mo. Sup. 1967).



117a
Both of the cited cases quote at 

length from the Restatement's comment on 
the type of conduct which will give rise 
to such liability. Essentially the 
conduct must have been "so outrageous in 
character, and so extreme in degree, as 
to go beyond all possible bounds of 
decency, and to be regarded as atrocious, 
and utterly intolerable in a civilized 
community." Restatement, § 46 p. 73. 
Warrem v. Parrish. 436 S.W.2d 670, 673 
(Mo. Supp. 1969).

In passing upon the sufficiency of 
plaintiffs' complaint, the Court must 
consider the truth of the facts alleged, 
giving them liberal construction and give 
plaintiff the benefit of all fair impli­
cations from such facts. Matthews v .
Pratt. 367 S.W.2d 632,634 (Mo. Supp.
1963).



118a
In the present case plaintiffs 

allege that defendants willfully issued a 

sanction report calling for permanent 

exclusion which contained manufactured 

and fabricated matters and refused to 

provide plaintiff Kwoun notice of charges 
or any opportunity to explain his situa­

tion. Plaintiff further alleges that 

defendants thereafter pursued the matter 

through the statewide council and HCFA, 

with notice to the public, deliberately 

misstating facts, and contriving exhibits 

in their efforts to further prosecute 
him. Plaintiff alleges not one act but a 
continuous course of conduct. If the 

facts plaintiff alleges are true, rea­
sonable men might well consider defen­

dants7 actions of such an extreme and 

outrageous nature as will render them 
liable for extreme emotional distress



119a
intentionally caused thereby.

M.
Defendants seek next to dismiss 

plaintiffs' claim for prima facie tort. 
The doctrine of prima facie tort, which 
first appeared in the Restatement, has 
been adopted by the courts of Missouri, 
Porter v. Crawford. 611 S.W.2d 265 (Mo. 
App. 1980) . However, as is clearly set 
out in the Restatement, the doctrine is 
applicable only when the factual basis of 
the complaint does not fall within the 
parameters of an established tort.

Thus, application of the doctrine is 
not justified here as plaintiff has 
factually alleged malicious prosecution 
and outrageous conduct which are torts 
presently recognized by Missouri courts.

Plaintiffs have cited the case of 
Lohse v. St. Louis Children's Hospital.



120a
646 S . W.2d 130 (Mo. App. 1983) to support 
the position that an alternative tort 

claim does not defeat the prima facie 

tort claim. The court in Lohse. however, 

dismissed plaintiff's claim because 
plaintiff failed to plead any facts to 
support the claim. The court made no 

comment as to the appropriateness of a 

prima facie tort claim pled as a second 

cause with wrongful discharge. id. at 
130-31.

Accordingly, because plaintiffs have 
alleged the same set of facts as mali­

cious prosecution and prima facie tort, 
this Court will dismiss the prima facie 
tort claim.

N.
Finally, defendants seek summary 

judgment on all counts:

Summary judgment is an extreme
remedy, one which is not to be



121a
entered unless the movant has 
established his right to a judgment 
with such clarity as to leave no 
room for controversy and that the 
other party is not entitled to 
recover under any discerible cir­
cumstances .

* * * * *
. . . the Supreme Court set the 
standard that should be applied when 
one party to a lawsuit in federal 
court makes a motion for a summary 
judgment:

Summary judgment should be 
entered only when the plead­
ings, depositions, affidavits, 
and admissions filed in the 
case 'show that [except as to 
the amount of damages] there is 
no genuine issue as to any 
material fact and that the 
moving party is entitled to a 
judgment as a matter of law.' 
Rule 56(c), Fed. Rules Civ. 
Proc. This rule authorizes 
summary judgment 'only where 
the moving party is entitled to 
judgment as a matter of law, 
where it is quite clear what 
the truth is, ... [and where] 
no genuine issue remains for 
trial ... [for] the purpose of
the rule is not to cut liti­
gants off from their right of 
trial by jury if they really 
have issues to try.'

Ozark Milling Co. v. Allied Mills, Inc. , 

480 F . 2d 1014, 1015 (8th Cir. 197 3) ;



122a
Sartor v. Arkansas Natural Gas Corp_. , 321 

U.S. 620, 627, 64 S.Ct. 724, 728, 88 

L.Ed. 967 (1944) .
In the present case plaintiffs have 

alleged violations of the civil rights 

statutes, malicious prosecution, con­

spiracy, and outrageous conduct. Each of 
these charges are in themselves questions 
of fact in that their ultimate determina­

tion revolves on findings of motivation, 

intent, good-faith, and subjective feel­
ings. The Eighth Circuit has determined 

that summary judgment is notoriously 

inappropriate for a determination of 

claims on which the issue of intent, 

good-faith, or other subjective feelings 

played dominate roles. McGee v. Hester, 

724 F.2d 89, 91 (8th Cir. 1984). In this 
instance this Court finds summary judg­
ment inappropriate due to the inherently



123a
factual nature of plaintffs' claims and 

the belief that reasonable minds could 

differ as to defendants' culpability for 
their alleged actions.

Accordingly, defendants' motions 

will be granted in part and denied in 
part.



124a
UNITED STATES DISTRICT COURT 
EASTERN DISTRICT OF MISSOURI 

SOUTHEASTERN DIVISION

No. S84-259 C(D)

Soung O. Kwoun, et al.,
Plaintiffs,

v.
Southeast Missouri Professional 
Standards Review Organization, et al.,

Defendants.

Filed March 27, 1986 
MEMORANDUM

This matter is before the Court ua 
sponte.

FACTUAL BACKGROUND
Plaintiffs brought this action as a 

result of an initial determination by the 
Health Care Financing Administration 
(HCFA), which excluded plaintiffs from



125a
the Medicare reimbursement program. This 

decision was made pursuant to the recom­

mendations and efforts of the defendants. 

Plaintiffs subsequently filed an action 
before an Administrative Law Judge pur­

suant to the appeals provisions of 42 

U.S.C. § 1320(c). The ALJ reversed the 
HCFA decision and reinstated plaintiffs 

to the reimbursement program. Kwoun v . 

Southeast Mo. Pro. Standards Review Org., 

622 F.Supp. 520, 523 (E.D. Mo. 1985). 

Plaintiff then filed the instant action 

alleging various civil rights and tort 

violations. However, all of plaintiffs' 

allegations may be categorized as an 

action for malicious prosecution which 

resulted in various alleged constitution­

al deprivations.1

1 For a complete recital of 
plaintiffs' allegations see Kwoun v . 
Southeast Mo. Pro. Standards Review Org.,



126a
The Court on its own motion now 

considers the question of whether 
defendants are entitled to any immunity 
from actions, such as the above-styled 
matter, due to their congressional man­
date to conduct intensive reviews of 
government funded health services. For 
the reasons set forth below, the Court 
finds that defendants are entitled to 
immunity and, thus, this action must be 
dismissed.

History and Evolution of PSROs
The health care delivery system in 

the United States is the first industry 
to be comprehensively regulated since the 
1930s. Health expenditures continue to 
escalate out of proportion to the rest of 
the economy. As long ago as 1976, 42.2%

supra at 523.



127a
of the nations health expenditures came 
from public funds. Gibson & Mueller, 
National Health Expenditures. Fiscal Year 
1976, Soc. Sec. Bull. 3, 4. Publicity 
generated by instances of fraud and other 
abuse in government funded health pro­
grams focused attention on both the 
dubious quality and the unnecessary 
quantity of the health care delivered in 
this country. Miller, PSRO Data and 
Information: Disclosure to State Health 
Regulatory Agencies. 57 Boston U.L. Rev. 
245, 246 (1977).

When it established Medicare and 
Medicaid in 1965, Congress recognized the 
need to curb practitioner and provider 
induced demand in order to contain the 
cost of government funded medical ser­
vices. Id. To this end payments under 
these programs are limited to medically



128a
necessary health care services. 42 U.S.C. 
§ 1395(f)(7); § 1396. Congress required 
each hospital to organize a committee of 
physicians to evaluate the necessity of 
health care provided therein. See 42 
U.S.C. § 1395X(e)(6); 45 C.F.R. §§ 250. 
18, .19 (1975). Those internal review
activities, however, were nothing more 
than token lip service and could be aptly 
characterized as more form than sub­
stance. S. Rep. No. 1230, 92nd Cong., 
2nd Sess. 255 (1972). Congress needed to 
put teeth into the requirement that fed­
erally financed health care be medically 
necessary. In order to promote effec­
tive, efficient, and economical delivery 
of Medicare and Medicaid, Congress 
enacted the PSRO Amendment to the Social 
Security Act. Act of Oct. 30, 1972, Pub. 
L. No. 92-603, tit. II, 249F(b), 86 Stat.



129a
1429 (modified at 42 U.S.C, § 1320c, et 
seq. (Sup. II, 1972), as amended, (Supp. 
V, 1975). Thus, the PSRO Amendment was 
adopted in response to recognition that 
the original review system incorporated 
into the Medicare Program failed to 
control the costs of government sponsored 
medical care.

This legislation established a sys­
tem of external monitoring of institu­
tionally based health care services which 
Congress intended would be free from the 
conflicts of interest inherent in the old 
in-house review methods. PSROs are to 
determine (1) whether particular institu­
tionally based services are medically 
necessary, (2) whether they are of 
acceptable quality, and (3) whether 
appropriate care could effectively be 
provided on an outpatient basis or more



130a
economically in an inpatient facility of 
a different type. 42 U.S.C. § 1320c- 
4(a)(1). The PSRO is also provided with 
various enforcement sanctions. Among 
these sanctions is the recommendation 
that the practitioner or provider be 
prohibited from participation in the 
reimbursement programs. 42 U.S.C. §1320c- 
9(b)(1) (Supp. II, 1972).

Sanctions are appropriate whenever a 
practitioner or provider has "grossly and 
flagrantly" violated the statute or has 
failed to comply with his statutory 
obligations in a substantial number of 
cases. Id. In the instant case, defen­
dants found that plaintiffs had violated 
the statute to such an extent as to 
warrant imposition of sanctions. The 
HCFA agreed and plaintiffs were excluded 
from participation in the Medicare and



13la
Medicaid reimbursement programs.

Immunity of PSROs
Congress did not specifically 

provide PSROs with immunity from legal 
actions such as that in the instant 
matter. However, a careful review of the 
legislative history of the PSRO Amendment 
clearly indicates that some form of 
immunity is both necessary and desirable.

In formulating the present PSRO 
Amendment, Congress was convinced that 
the old utilization review system was 
simply not adequate; in fact, the old 
system was characteristically ineffec­
tive. It was fragmented, retrospective, 
and incomplete. Numerous witnesses who 
testified before the Senate Subcommittee 
stated that a significant proportion of 
the health services provided under Medi­
care and Medicaid were in excess of those



132a
which would be found medically necessary, 
and the old system failed to prevent this 
from happening. 117 Cong. Rec. 212 66 
(6/11/71).

The key to making a PSRO work ef­
fectively is the degree of motivation and 
sincerity of the physicians and medical 
organization in each area. 117 Cong. 
Record 21267 (6/22/71). The stakes are 
too high and public concern and scrutiny 
too great for anyone to delude himself 
that a pro forma PSRO will be acceptable. 
Id. Substance and not form must be the 
test of a PSRO. Performance and profes­
sionalism will be the criteria of 
j udgment.

From the foregoing, it is abundantly 
clear that Congress expected that PSROs 
would conduct active, comprehensive, and 
probing reviews even if such reviews are



133a
not popular with the providers under 
investigation. Without such an intent, 
Congress would have left the weak and 
ineffective rubber stamping method in 
place.

In the instant case, defendants 
conducted a review just as Congress 
anticipated all PSROs should. At the 
completion of this review, defendants 
recommended that plaintiffs be excluded 
from the various government reimbursement 
programs. HCFA agreed with defendants' 
recommendation and issued an order to 
that effect.

Plaintiffs took advantage of the 
appeals process as provided by the stat­
ute. 42 U.S.C. § 1320(c) . In this 
instance, the appeals process worked in 
plaintiffs' favor and the HCFA ruling was 
reversed. Thus, to this point in the



134a
proceedings, the review process func­
tioned just as Congress anticipated it 
should.

However, plaintiffs then brought the 
instant action. This action has thrown 
Congress's well-intentioned and carefully 
constructed plan into chaos. How can a 
PSRO be expected to conduct extensive 
reviews if by doing so it becomes the 
target of a lawsuit such as the above- 
styled matter? Quite obviously it can­
not. The instigation of lawsuits such as 
this will have a chilling effect upon the 
vigor with which these reviews will be 
undertaken. This was simply not Con­
gress' intent.

Immunity has consistently been 
provided for groups and individuals who, 
by legal mandate, are charged with under­
taking unpopular tasks.



135a
The most recent example is articu­

lated in Mallev. et al. v. Briggs, et
al. . ___  U . S . ___ (slip opinion)
(3/5/86). In Malley the Supreme Court 
ruled that police officers who believed 
that the facts stated in an affidavit are 
true and submits them to a neutral 
magistrate may be entitled to immunity 
under the objective reasonableness 
standard of Harlow v. Fitzgerald. 457 
U.S. 800 (1982).

Under this ruling officers cannot 
avoid liability under the rule of 
qualified immunity on the grounds that 
the act of applying for an arrest warrant 
is per se objectively reasonable where 
the officer believes that the facts 
alleged in his affidavit are true, and 
that he is entitled to rely on the 
judicial officer's judgment in issuing



136a
the warrant and hence finding that 
probable cause exists. The question is 
whether a reasonably well-trained officer 
in petitioner's position would have known 
that his affidavit failed to establish 
probable cause and that he should not 
have applied for the warrant. If such 
was the case, the application for the 
warrant was not objectively reasonable, 
because it created the unnecessary danger 
of an unlawful arrest.

In the instant case, the same type 
of immunity should be afforded. Defen­
dants, like the officer in Mallev, 
investigated a situation and presented 
their findings to a neutral party for a 
determination on their recommendation. 
As in Mallev where the magistrate issued 
the requested warrants, the Director of 
HCFA acted favorably on defendants'



137a
recommendation. Subsequently, plaintiffs 
obtained a reversal through the appeals 
process just as in Mallev. the grand jury 
refused to indict, and charges were 
dropped. The question then becomes whe­
ther defendants herein knew or should 
have known that their recommendation was 
improper. If this question is answered 
in the negative then defendants are 
immune from liability under the immunity 
theory articulated in Mallev. In Mallev 
the court determined that only where the 
warrant application is so lacking in 
indicia of probable cause as to render 
official belief in its existence unrea­
sonable will the shield of immunity be 
lost. Mallev. et al. v. Briggs, supra, 
slip op. p. 9.

Here, if defendants' recommendations 
were so lacking in factual basis that



138a
defendants could not have believed them 
to be proper, plaintiffs' action should 
stand. However, after careful considera­
tion of all pleadings and supporting 
documents, the Court finds that defen­
dants conducted their review just as 
Congress intended. Further, defendants' 
recommendations were made with objective 
belief that plaintiffs should be excluded 
from the reimbursement programs based 
upon the facts uncovered in defendants' 
investigation. Thus, defendants should 
be shielded from liability pursuant to 
the Supreme Court's ruling in Mallev.

As the foregoing clearly indicates, 
Congress has determined that comprehen­
sive review of government funded health 
care is in the public interest. Yet 
Congress did not specifically provide 
immunity to encourage PSROs to vigorously



139a
pursue their appointed tasks. The Court 
will correct Congress' oversight with its 
ruling today. Plaintiffs and those
similarly situated must not be allowed to 
use the Court system to gain revenge for 
actions which Congress ordered PSROs to 
undertake. Accordingly, this Court will 
enter an Order dismissing plaintiffs' 
complaint based upon defendants' in­
herently necessary immunity.

Dated this 27th day of March, 1986.

s/s ____________________
H. Kenneth Wangelin 

United States District Judge



140a
IN THE UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF MISSOURI 
SOUTHEASTERN DIVISION

NO. S 84-259 C(D)

Soung O. Kwoun, et al..
Plaintiffs,

v.
Southeast Missouri Professional 
Standards Review Organization, et al.,

Defendants.

Filed June 3, 1986

MEMORANDUM AND ORDER 
The matter is before the court upon 

plaintiffs' motion to alter or amend 
judgment and to clarify judgment.

On March 2, 1986, this Court
dismissed the above styled matter. 
First, plaintiffs are concerned in their 
motion for clarification as to whether



141a -
the Court intended to dismiss all defen­
dants. The Court understands that 
plaintiffs are concerned that this Court 
may not have jurisdiction over defendants 
Kram, Nicholson, and Howard. To that end 
the Court considers its March 27, 1986 
order to overrule its September 19, 1985 
order denying said defendants' motions to 
dismiss. Thus, the Court has, by its 
March 27, 1986 order, dismissed all 
defendants.

Next, plaintiffs move this Court to 
alter or amend its March 27, 1986 order. 
The basis for plaintffs' motion is 
plaintiffs' perception that the Court 
overlooked or ignored the provisions of 
42 U.S.C. § 1320(c)-6. While this 
Court' s March 27, 1986 order does not 
mention 42 U.S.C. § 1320(c)-6, the Court 
did consider said section. This section



142a
provides support for the Court's conten­
tion that Congress intended to provide 

immunity. The section does not provide 
guidelines as to how the immunity is to 
be applied under any given set of cir­
cumstances. It is clear, however, that 
the type of immunity that this Court 
found controlling in its March 27, 1986
order is compatible with the type of 
immunity Congress attempted to provide in 
42 U.S.C. § 132(c)-6. Therefore, this
Court's determination that defendants are 
protected by a qualified immunity based 
upon a standard of objective reasonable­
ness shall not be altered.

Accordingly,
IT IS HEREBY ORDERED that plain­

tiffs' motion to alter or amend this 
Court's March 27, 1986 order be and is
DENIED; and



143a
IT IS FURTHER ORDERED that plain­

tiffs' motion to clarify this Court's 
March 27, 1986 order be and is DENIED. 

Dated this 3rd day of June, 1986.

_____ s/s_____________________
H. Kenneth Wangelin 

United States District Judge



144a
UNITED STATES DISTRICT COURT 
EASTERN DISTRICT OF MISSOURI 

SOUTHEASTERN DIVISION

No. S84-259 C(D)

Soung 0. Kwoun, et al..
Plaintiffs,

v.
Southeast Missouri Professional 
Standards Review Organization, et al.,

Defendants.

ORDER
In accordance with the Memorandum

filed this date and incorporated herein,
IT IS HEREBY ORDERED that the above-

styled matter be and is DISMISSED.
Dated this 27th day of March, 1986.

_______ s/s___________________
H. Kenneth Wangelin 
United States District Judge



145 a
UNITED STATES COURT OF APPEALS 

FOR THE EIGHTH CIRCUIT

No. 85-2379

Soung O. Kwoun, et al.,
Appellees,

v.
Southeast Missouri Professional 
Standards Review Organization, 
et al. ,

Appellants.

Nos. 86-1502/1838

Soung O. Kwoun, et al.,
Appellants,
v.

Southeast Missouri Professional 
Standards Review Organization, 
et al. ,

Appellees



146a
Appeals from the United States District 

Court for the Eastern District 
of Missouri

JUDGMENT
These appeals from the United States 

District Court were submitted on the 
record of the said district court, briefs 
of the parties and were argued by coun­
sel .

Upon consideration of the premises, 
it is hereby ordered and adjudged that 
the judgment of the district court is 
affirmed in accordance with the opinion 
of this Court.

February 4, 1987
Order entered in accordance with opinion.

_____ s/s_____________________________
Clerk, U.S. Court of Appeals, 8th 
Circuit



147a
UNITED STATES COURT OF APPEALS 

FOR THE EIGHTH CIRCUIT

NO. 85-2379EM

Soung O. Kwoun, et al..
Appellees, 

v.
Southeast Missouri Professional 
Standards Review Organization, et al

Appellants.

No. 86-1502/1838EM

Soung O. Kwoun, et al.,
Appellants,
v.

Southeast Missouri Professional 
Standards Review Organization, et al

Appellees



148a

Appeals from the United States District 
Court for the Eastern District 

of Missouri

ORDER
Petition for rehearing en banc of 

Soung 0. Kwoun, et al. , has been con­
sidered by the Court and is denied.

Petition for rehearing by the panel 
is also denied.

March 9, 1987
Order entered at the Direction of the 
Court:

______ s/s____________________
Clerk, U.S. Court of Appeals 
Eighth Circuit.



149a
Constitutional Provision Involved 
This case involves the Fifth Amend­

ment to the Constitution of the United 
States which provides, in pertinent part:

No person shall ... be deprived 
of life, liberty, or property, 
without due process of law....

STATUTES INVOLVED 
42 U.S.C. § 1320C-5.

(a) Each Professional Stan­
dards Review Organization shall 
apply professionally developed norms 
of care, diagnosis, and treatment 
based upon typical patterns of prac­
tice in its regions (including typi­
cal lengths-of-stay for institu­
tional care by age and diagnosis) as 
principal points of evaluation and 
review. The National Professional 
Standards Review Council and the 
Secretary shall provide such tech­
nical assistance to the organization 
as will be helpful in utilizing and 
applying such norms of care, diag­
nosis, and treatment. Where the 
actual norms of care, diagnosis, and 
treatment in a Professional Stan­
dards Review Organization area are 
significantly different from pro­
fessionally developed regional norms 
of care, diagnosis, and treatment 
approved for comparable conditions,



150a
the Professional Standards Review 
Organization concerned shall be so 
informed, and in the event that 
appropriate consultation and dis­
cussion indicate reasonable basis 
for usage of other norms in the area 
concerned, the Professional Stan­
dards Review Organization may apply 
such norms in such area as are 
approved by the National Profes­
sional Standards Review Council.

(c)(2) Each review organiza­
tion, agency, or person referred to 
in paragraph (1) shall utilize the 
norms developed under this section 
as a principal point of evaluation 
and review for determining, with 
respect to any health care services 
which have been or are proposed to 
be provided, whether such care and 
services are consistent with the 
criteria specified in section 1320c- 
4(a)(1) of this title.

42 U.S.C. £ 132QC-6.

(b) No person who is employed 
by, or who has a fiduciary relation­
ship with, any such organization or 
who furnishes professional services 
to such organizations, shall be held 
by reason of the performance by him 
of any duty, function, or activity 
required or authorized pursuant to 
this part or to a valid contract



151a
entered into under this part, to 
have violated any criminal law, or 
to be civilly liable under any law 
of the United States or of any State 
(or political subdivision thereof) 
provided he has exercised due care.

Aug. 14, 1935, c. 531, Title XI, § 1157, 
as added Sept. 3, 1982, Pub.L. 97-248, 
Title I, § 143, 96 Stat. 389.)
42 U.S.C. S 1320C-8.

(a) Any beneficiary or recipi­
ent who is entitled to benefits 
under this chapter (other than sub­
chapter V) or a provider or prac­
titioner who is dissatisfied with a 
determination with respect to a 
claim made by a Professional Stan­
dards Review Organization in carry­
ing out its responsibilities for the 
review of professional activities in 
accordance with paragraphs (1) and
(2) of section 1320C-4 (a) of this 
title shall, after being notified of 
such determination, be entitled to a 
reconsideration thereof by the Pro­
fessional Standards Review Organiza­
tion and, where the Professional 
Standards Review Organization reaf­
firms such determination in a State 
which has established a Statewide 
Professional Standards Review 
Council, and where the matter in 
controversy is $100 or more, such 
determination shall be reviewed by 
professional members of such Council



152a
and, if the Council so determined, 
revised.

(b) Where the determination of 
the Statewide Professional Standards 
Review Council is adverse to the 
beneficiary or recipient (or, in the 
absence of such Council in a State 
and where the matter in controversy 
is $100 or more) , such beneficiary 
or recipient shall be entitled to a 
hearing thereon by the Secretary to 
the same extent as is provided in 
section 405(b) of this title, and, 
where the amount in controversy is 
$1,000 or more, to judicial review 
of the Secretary's final decision 
after such hearing as is provided in 
section 405(g) of this title. The 
Secretary will render a decision 
only after appropriate professional 
consultation on the matter.

(c) Any review or appeals pro­
vided under this section shall be in 
lieu of any review, hearing, or 
appeal under this chapter with 
respect to the same issue.

42 U.S.C. 5 132Oc-9.

(b)(1) If after reasonable 
notice and opportunity for discus­
sion with the practitioner or 
provider concerned, any Professional 
Standards Review Organization sub­
mits a report and recommendations to



153a
the Secretary pursuant to section 
1320c-6 of this title (which report 
and recommendations shall be sub­
mitted through the Statewide Pro­
fessional Standards Review Council, 
if such council has been estab­
lished, which shall promptly trans­
mit such report and recommendations 
together with any additional com­
ments and recommendations thereon as 
it deems appropriate) and if the 
Secretary determines that such 
practitioner or provider, in pro­
viding health care services over 
which such organization has review 
responsibility and for which payment 
(in whole or in part) may be made 
under this chapter has—

(A) by failing, in a substan­
tial number of cases, substan­
tially to comply with any obli­
gation imposed on him under 
subsection (a) of this section, 
or
(B) by grossly and flagrantly 
violating any such obligation 
in one or more instances,

demonstrated an unwillingness or a 
lack of ability substantially to 
comply with such obligations, he (in 
addition to any other sanction pro­
vided under law) may exclude (perma­
nently for such period as the 
Secretary may prescribe) such prac­
titioner or provider from eligibil­
ity to provide such services on a 
reimbursable basis.



154a
(2) A determination made by the 

Secretary under this subsection 
shall be effective at such time and 
upon such reasonable notice to the 
public and to the person furnishing 
the services involved as may be 
specified in regulations. Such 
determination shall be effective 
with respect to services furnished 
to an individual on or after the 
effective date of such determination 
(except that in the case of institu­
tional health care services such 
determination shall be effective in 
the manner provided in subchapter 
XVIII of this chapter with respect 
to terminations of provider agree­
ments) , and shall remain in effect 
until the Secretary finds and gives 
reasonable notice to the public that 
the basis for such determination has 
been removed and that there is rea­
sonable assurance that it will not recur.

(3) In lieu of the sanction 
authorized by paragraph (1), the 
Secretary may require that (as a 
condition to the continued eligibil­
ity of such practitioner or provider 
to provide such health care services 
on a reimbursable basis) such prac­
titioner or provider pay to the 
United States, in case such acts or 
conduct involved the provision or 
ordering by such practitioner or 
provider of health care services 
which were medically improper or 
unnecessary, an amount not in excess 
of the actual or estimated cost of



155a
the medically improper or unneces­
sary services so provided, or (if 
less) $5,000. Such amount may be 
deducted from any sums owing by the 
United States (or any instrumental­
ity thereof) to the person from whom 
such amount is claimed.

(4) Any person furnishing ser­
vices described in paragraph (1) who 
is dissatisfied with a determination 
made by the Secretary under this 
subsection shall be entitled to 
reasonable notice and opportunity 
for a hearing thereon by the Secre­
tary to the same extent as is pro­
vided in section 405(b) of this 
title, and to judicial review of the 
Secretary's final decision after 
such hearing as is provided in 
section 405(g) of this title.

42 U.S.C. § 1320C-16.

(b) (1) No individual who, as a 
member or employee of any Profes­
sional Standards Review Organization 
or of any Statewide Professional 
Standards Review Council or who 
furnishes professional counsel or 
services to such organization or 
council, shall be held by reason of 
the performance by him or any duty, 
function, or activity authorized or 
required of Professional Standards 
Review Organizations or of Statewide 
Professional Standards Review Coun­
cils under this part, to have vio­



156a
lated any criminal law, or to be 
civilly liable under any law, of the 
United States or of any State (or 
political subdivision thereof) pro­
vided he has exercised due care.

(2) The provisions of para­
graph (1) shall not apply with re­
spect to any action taken by any 
individual if such individual, in 
taking such action, was motivated by 
malice toward any person affected by 
such action.

As amended Oct. 25, 1977, Pub.L. 95-142,
§ 5 (i) (n), 91 Stat. 1190, 1191.
42 U.S.C. S 1981:

All persons within the jurisdiction 
of the United States shall have the 
same right in every State and Terri­
tory to make and enforce contracts, 
to sue, be parties, give evidence, 
and to the full and equal benefit of 
all laws and proceedings for the 
security of persons and property as 
is enjoyed by white citizens, and 
shall be subject to like punishment, 
pains, penalties, taxes, licenses, 
and exactions of every kind, and to 
no other.

(R. S. § 1977.)



157a
42 U.S.C. S 1985 (3):

(3) If two or more persons in 
any State or Territory conspire ... 
for the purpose of depriving, either 
directly or indirectly, any person 
or class of persons of the equal 
protection of the laws, or of equal 
privileges and immunities under the 
laws; ... in any case of conspiracy 
set forth in this section, if one or 
more persons engaged therein do, or 
cause to be done, any act in fur­
therance of the object of such con­
spiracy, whereby another is injured 
in his person or property, or de­
prived of having and exercising any 
right or privilege of a citizen of 
the United States, the party so 
injured or deprived may have an 
action for the recovery of damages 
occasioned by such injury or depri­
vation, against any one or more of 
the conspirators.

R.S. § 1980.



158a -

REGULATIONS INVOLVED 
42 C.F.R. § 474.3 PSRO responsibilities.

(a) The PSRO shall identify 
situations that may result in a 
violation of the obligations speci­
fied in § 474.1 and help to prevent 
their occurrence as provided in § 
474.4.

(b) The PSRO shall determine 
when a violation of an obligation 
has occurred and report the matter, 
with recommendations for action, to 
the Statewide Council of, if there 
is no Council, to HCFA.

(c) The PSRO shall use the 
authority or influence it may pros- 
sess and enlist the support of other 
professional or government agencies, 
including the State Medicaid Agency, 
to ensure that each practitioner and 
provider complies with the obliga­
tion of § 474.1.

A2— C.F.R.__§ 474.4 Action on potentialviolation.
If a PSRO identifies a situation 

that may result in a violation, it shall 
send the practitioner or provider a 
written notice containing the following 
information:

(a) The obligation involved;



159a

(b) The situation, circum­
stances, or activity which, if con­
tinued, may result in a violation;

(c) The authority and respon­
sibility of the PSRO to report a 
violation of obligations;

(d) At the discretion of the 
PSRO, a suggested method for cor­
recting the situation and a time 
period for corrective action by the 
practitioner or provider;

(e) The sanction that the PSRO 
could recommend if a violation 
occurs; and

(f) An invitation to discuss 
the problem with representatives of the PSRO.

42 Cj_F. R. § 474.5____ Factors in PSRO
determination of a violation.

If the PSRO identifies a violation, 
it shall determine:

(a) Which obligation specified 
in § 474.1 has been violated; and

(b) Whether the practitioner or 
provider has:

(1) Failed to comply substan­
tially with an obligation in a 
significant number of cases; or



160a
(2) Grossly and flagrantly vio­

lated an obligation in one or more 
instances.

42 C.F.R. § 474.6 Basis for recommended 
sanction.

The PSRO's recommendation of the 
type of sanction to be imposed shall be 
based on a consideration of:

(a) The type of offense in­volved ;
(b) The severity of the of­

fense ;
(c) The anticipated deterrent 

effect of the recommended sanction;
(d) The previous sanction

record of the practitioner or pro­
vider; and

(e) Other factors that the
PSRO concludes are relevant to a 
particular case.

42 C.F.R. § 474.7 Notice and review of 
PSRO determination of violation.

(a) Written notice. if the
PSRO determines that a violation has 
occurred, it shall promptly give 
written notice to the practitioner 
or provider containing the following 
information:

(1) The determination of a 
violation;



161a
(2) The obligation violated;
(3) The basis for the deter­

mination;
(4) The sanction to be recom­

mended ; and
(5) The right of the prac­

titioner or provider to submit to 
the PSRO, within 20 days of the date 
on the notice, additional informa­
tion or written request for a meet­
ing with the PSRO to review and 
discuss the determination, or both.

(b) Review of determination.
(1) The PSRO may, on the basis 

of additional information submitted 
by the practitioner or provider, 
affirm, modify, or reverse its 
determination or the sanction to be 
recommended; and

(2) The PSRO shall promptly 
give written notice to the prac­
titioner or provider of any action 
it takes as result of the additional 
information received.

42 C.F.R. § 474.8 PSRO report to the
Statewide Council or to HCFA.

(a) Manner of reporting. If 
the PSRO determines that a violation 
has occurred, it shall submit a 
report to the Statewide Council or, 
if there is no council, directly to 
HCFA.



- 162a
(b) Content of the report. 

The PSRO report shall include:
(1) Identification of the prac­

titioner or provider and in the case 
of a provider, the name of its 
director, administrator, or owner;

(2) The type of health care 
service involved;

(3) A statement of facts des­
cribing each failure to comply with 
an obligation, with specific dates, 
places, circumstances, and any other 
relevant information;

(4) Pertinent documentary evi­
dence ;

(5) Copies of written corres­
pondence and written summaries of 
oral exchanges with the practitioner 
or provider regarding the violation;

(6) The PSRO's determination 
that the practitioner or provider 
has violated an obligation under the 
Act; and

(7) The PSRO's recommendation 
of the sanction, if any, and the 
basis for that recommendation.

42 C.F.R. § 474,9 Role and functions of 
the Statewide Council.

(a) Council review and comment. The Council shall:



163a
(1) Review the report submit­

ted by the PSRO to assure that it is 
complete and complies with all re­
quirements set forth in § 474.8(b); 
and

(2) Prepare a statement con­
curring or nonconcurring with the 
P S R O 's recommended action and 
identifying any areas in which the 
PSRO report is incomplete.

(b) Transmittal to HCFA. The 
Council shall promptly transmit to 
HCFA the PSRO report and its state­
ment of concurrence or nonconcur­
rence with any additional comments 
or recommendations.

42 C.F.R. § 474.10 Action bv HCFA on 
receipt of the report.

(a) Determination of viola­
tion. HCFA will review the PSRO 
report and determine (on the basis 
of the factors specified in § 474.5) 
whether a violation has occurred.

(b) Determination of sanction. 
If HCFA concludes that there is a 
violation, it will determine whether 
to impose a sanction after consider­
ing:

(1) The recommendation of the 
PSRO and the Statewide Council;

(2) The type of offense;



164a
(3) The severity of the of­

fense;
(4) The anticipated deterrent 

effect of the sanction;
(5) The previous sanction rec­

ord of the practitioner or provider;
(6) Availability of alternative 

sources of services in the commun­ity ; and
(7) Any other matters relevant 

to the particular case.
(c) Notice of proposed sanc­

tion. (1) If HCFA proposes to 
impose a sanction in accordance with 
§472.2 (or to terminate a provider 
agreement in accordance with § 405. 
614(a)(5)), it will send the 
provider or practitioner written 
notice of its intent and the reasons 
for the proposed sanction.

(2) Within 15 days of the date 
on the notice, the provider or prac­
titioner may submit documentary 
evidence and written argument con­
cerning the proposed action.

(3) For good cause shown by 
the provider or practitioner, HCFA 
may extend the 15-day period.

(d) Notice to provider or prac­
titioner and the State Medicaid and 
Title VI_ agencies. (1) if, after 
exhaustion of the procedures



165a
specified in paragraph (c) of this 
section, HCFA decides to impose a 
sanction, it will notify the pro­
vider or practitioner and the State 
Medicaid and Title V agencies of the 
adverse determination and of the 
sanction to be imposed at least 3 0 
days before the effective date of 
the sanction.

(2) The notice will specify:
(i) The basis for the deter­

mination;
(ii) T he s a n c t i o n  to be 

imposed;
(iii) The effective date and, if 

appropriate, the duration of the 
exclusion;

(iv) The appeal rights of the 
practitioner or provider; and

(v) In the case of exclusion, 
the earliest date on which HCFA will 
accept a request for reinstatement.

(e) Public Notice. HCFA will 
publish notice in a newspaper of 
general circulation in the PSRO 
area. The notice will identify the 
sanctioned provider or practitioner; 
the obligation in § 474.1 which has 
been violated; specify the sanction 
imposed and, if the sanction is 
exclusion, the effective date and 
duration.

(f) Notice to other affected 
entities. HCFA will give notice, as 
appropriate, to:



166a
(1) The PSRO that originated 

the sanction report and the State­
wide Council involved;

(2) PSROs in adjacent areas;
(3) State Medicaid fraud con­

trol units, and State licensing bodies;
(4) Hospitals, skilled nursing 

facilities, home health agencies, 
and health maintenance organizations (HMO's);

(5) Medical societies and 
other professional organizations; and

(6) Medicare carriers and 
intermediaries, health care prepay­
ment plans, and other affected 
agencies and organizations.

(5) Effect of HCFA determina­tion.
(1) A practitioner or provider 

dissatisfied with a HCFA determina­
tion is entitled to a hearing and 
review by the appeals council in 
accordance with §§ 405.1531 through 
405.1595 of this chapter.

(2) The HCFA determination 
will continue in effect unless 
revised by a hearing decision.



167a

PROGRAM MANUAL

P.S.R.O. Program Manual Chapter XXIV,
Page 1,
Issue Date:
June 20, 1978

The Department of Health, Education and 
Welfare recognizes that PSROs operate as 
independent, private, nonprofit corpora­
tions. However, included in each PSRO's 
activities is the performance, under 
contract with HCFA, of a statutory and 
regulatory function supported by Federal 
funds, as noted above.



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