Advanced Medical Technologies, Inc. v. Shalala

Decision Date11 July 1997
Docket NumberCivil Action No. 5474(JBS).,Civil Action No. 96-5473.
PartiesADVANCED MEDICAL TECHNOLOGIES, INC., and Jem Tech Health Services, Plaintiffs, v. Donna SHALALA, Secretary, et al., Defendants. HEALTH SYSTEM CARE, INC., Plaintiff, v. Donna SHALALA, Secretary, et al., Defendants.
CourtU.S. District Court — District of New Jersey

Steven H. Berkowitz, Southampton, PA, Fredric R. Cohen, Katz, Ettin, Levine, Kurzweil & Weber, Cherry Hill, NJ, for Plaintiffs.

Faith S. Hochberg, United States Attorney by Louis J. Bizzarri, Assistant United States Attorney, Mitchell H. Cohen, Camden, NJ, for Defendants.

OPINION

SIMANDLE, District Judge.

I. Background

Plaintiffs in these two related cases have petitioned for a preliminary injunction against defendants, the parties responsible for the administration of the Medicare laws. Plaintiffs claim that defendants have engaged in improper practices, resulting in the denial of payment to plaintiffs for the provision of medical supplies to Medicare beneficiaries.

The plaintiffs in these two related cases are Advanced Medical Technology, Inc. and Jem Tech Health Services, Inc. (in Civil Action 96-5473), and Health System Care, Inc. (in Civil Action 96-5474) (collectively referred to as "plaintiffs"). These are independent medical supply companies which provide medical supplies to beneficiaries under the Medicare Act (Title XVIII of the Social Security Act, as amended, 42 U.S.C. § 1395, et seq.) upon the instructions of physicians. As suppliers of durable medical equipment ("DME"), plaintiffs may apply for reimbursement from the Medicare Program, administered by the Health Care Finance Administration ("HCFA"). The HCFA, in turn, has contracted with entities such as defendants Blue Shield of South Carolina and its subsidiary, Palmetto Government Benefits Administrators ("Blue Cross" and "Palmetto") to process and decide the claims of the suppliers and beneficiaries. Such regional carriers, referred to as Durable Medical Equipment Regional Carriers ("DMERCs"), are congressionally authorized by 42 U.S.C. § 1395u (generally) and § 1395m(a)(12) (with respect to durable medical equipment).

Plaintiffs are suppliers of urological supplies and surgical dressings. Medicare Part B pays for urological supplies as part of the benefit for "prosthetics." 42 U.S.C. §§ 1395k(a)(2)(I), 13951(a)(1), 1395m(h), & 1395x(s)(8). Medicare pays for such supplies if a beneficiary has permanent urinary incontinence, and must use a catheter or external collection device. 42 C.F.R. § 410.36(a)(2); Medicare Carrier's Manual ("MCM") § 2130, reprinted in CCH Medicare and Medicaid Guide, ¶ 3152. The benefit does not include such supplies as adult diapers or rubber sheets. MCM § 2130. Similarly, Medicare Part B pays for surgical dressings in specific circumstances, spelled out in the statute and regulations, 42 U.S.C. §§ 13951(a)(1), 1395m(i), 1395x(s)(5); 42 C.F.R. §§ 410.10(g), 410.36(a)(1), and in any event such dressings are "limited to primary and secondary dressings required for the treatment of a wound caused by, or treated by, a surgical procedure," MCM § 2079, reprinted in CCH Medicare and Medical Guide, ¶ 3140.

Plaintiffs allege that their claims for payment for devices they have supplied have been wrongfully denied, delayed or mismanaged by defendants, and that defendants are wrongfully seeking to recoup certain funds previously paid to plaintiffs upon claims. Plaintiffs allege that the defendants are applying secret policies and are acting on a random and arbitrary manner which makes it impossible for plaintiffs to remain in business. Plaintiffs challenge certain documentation requirements imposed to verify medical necessity and to assure that the devices have been received and used by the beneficiary.

Plaintiffs seek an order from the court requiring the Secretary of Health and Human Services to properly administer the Medicare program for durable medical equipment; to eliminate alleged systemwide bias against DME suppliers; to institute prompt, fair review of claims; and to provide meaningful information and records to support rejections of claims. Plaintiffs' complaints contain assertions of jurisdiction under 28 U.S.C. §§ 1331 and 1361.

In response to plaintiffs' application for preliminary injunction, defendants raised the issue of whether this court has jurisdiction to hear plaintiffs' claims, arguing that plaintiffs have failed to exhaust their administrative remedies, and asserting that plaintiffs' claims have not been pursued to a final decision for purposes of judicial review. After conducting a telephone conference with counsel for the parties, this court determined that a hearing on the threshold issues of jurisdiction and exhaustion would be appropriate. The parties submitted supplemental information as to these issues and oral argument was held on February 13, 1997.1

II. Discussion
A. Jurisdiction under 28 U.S.C. § 1331 — Exhaustion of Administrative Remedies

Defendants argue that this court does not have jurisdiction to entertain plaintiffs' application for a preliminary injunction under 28 U.S.C. § 1331 because plaintiffs have failed to exhaust their administrative remedies. Judicial review of final decisions of the Secretary denying Medicare claims is available upon exhaustion of remedies under 42 U.S.C. § 1395u(b)(3)(C) and 42 C.F.R. §§ 405.801 — 405.872 (1996).

The limited authority granted by Congress to the federal courts to review Medicare reimbursement decisions is stated in 42 U.S.C. § 1395ff(b)(1), which states in relevant part:

Any individual dissatisfied with any determination under subsection (a) [pertaining to entitlement to and amount of Medicare benefits] of this section as to ...

(C) the amount of benefits under part A or part B of this subchapter (including a determination where the amount is determined to be zero) ...

shall be entitled to a hearing thereon by the Secretary to the same extent as is provided in section 405(b) of [Title 42] and to judicial review of the Secretary's final decision after such hearing as is provided in Section 405(g) of [Title 42] ...2

The availability of judicial review under § 405(g), requiring a "final decision of the Secretary made after a hearing," is the exclusive means of judicial review of Medicare Act decisions, Heckler v. Ringer, 466 U.S. 602, 614-15, 104 S.Ct. 2013, 2021-22, 80 L.Ed.2d 622 (1984), pursuant to § 405(h),3 which is incorporated into the Medicare Act by 42 U.S.C. § 1395ii.

Title 42, United States Code, Section 405(g), as amended, currently states as follows:

(g) Judicial review

Any individual, after any final decision of the Commissioner of Social Security made after a hearing to which he was a party, irrespective 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 Commissioner of Social Security may allow. Such action shall be brought in the district court of the United States for the judicial district in which the plaintiff resides, or has his principal place of business, or, if he does not reside or have his principal place of business within any such judicial district, in the United States District Court for the District of Columbia. As part of the Commissioner's answer the Commissioner of Social Security shall file a certified copy of the transcript of the record including the evidence upon which the findings and decision complained of are based. The court shall have power to enter, upon the pleadings and transcript of the record, a judgment affirming, modifying, or reversing the decision of the Commissioner of Social Security, with or without remanding the cause for a rehearing. The findings of the Commissioner of Social Security as to any fact, if supported by substantial evidence, shall be conclusive, and where a claim has been denied by the Commissioner of Social Security or a decision is rendered under subsection (b) of this section which is adverse to an individual who was a party to the hearing before the Commissioner of Social Security, because of failure of the claimant or such individual to submit proof in conformity with any regulation prescribed under subsection (a) of this section, the court shall review only the question of conformity with such regulations and the validity of such regulations. The court may, on motion of the Commissioner of Social Security made for good cause shown before the Commissioner files the Commissioner's answer, remand the case to the Commissioner of Social Security for further action by the Commissioner of Social Security, and it may at any time order additional evidence to be taken before the Commissioner of Social Security, but only upon a showing that there is new evidence which is material and that there is good cause for the failure to incorporate such evidence into the record in a prior proceeding; and the Commissioner of Social Security shall, after the case is remanded, and after hearing such additional evidence if so ordered modify or affirm the Commissioner's findings of fact or the Commissioner's decision, or both, and shall file with the court any such additional and modified findings of fact and decision, and a transcript of the additional record and testimony upon which the Commissioner's action in modifying or affirming was based. Such additional or modified findings of fact and decision shall be reviewable only to the extent provided for review of the original findings of fact and decision. The judgment of the court shall be final except that it shall be subject to review in the same manner as a judgment in other civil actions. Any action instituted in accordance with this subsection shall survive notwithstanding any change in the person occupying the office of Commissioner of Social Security or any vacancy in such office.

Plaintiffs concede that they have not exhausted...

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