Almy v. Sebelius

• Decision Date: 03 September 2010
• Docket Number: Civil Action No. RDB–08–1245.
• Parties: Monique D. ALMY, Chapter 7 Trustee For the Bankruptcy Estate of Bionicare Medical Technologies, Inc., Plaintiff,v.Kathleen SEBELIUS, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Massachusetts

749 F.Supp.2d 315

Monique D. ALMY, Chapter 7 Trustee For the Bankruptcy Estate of Bionicare Medical Technologies, Inc., Plaintiff,

v.Kathleen SEBELIUS, Secretary, United States Department of Health and Human Services, Defendant.

Civil Action No. RDB–08–1245.

United States District Court, D. Maryland.

Sept. 3, 2010.Opinion on Reconsideration Oct. 29, 2010.

Matthew W. Cheney, Crowell and Moring LLP, Washington, DC, for Plaintiff.Allen F. Loucks, Larry D. Adams, Office of the United States Attorney, Baltimore, MD, for Defendant.

MEMORANDUM OPINION

RICHARD D. BENNETT, District Judge.

Plaintiff Monique D. Almy (“Plaintiff”), the Chapter 7 trustee for the bankruptcy estate of Bionicare Medical Technologies, Inc.'s (“Bionicare” or “Supplier”), has filed this action against Kathleen Sebelius in her official capacity as Secretary of the United States Department of Health and Human Services (the “Secretary”). Plaintiff seeks judicial review and reversal of eight final decisions of the Secretary's Medicare Appeals Council concerning Medicare coverage and payment for claims relating to the BIO–1000, a medical device for treatment of osteoarthritis of the knee. Currently pending are the parties' cross-motions for summary judgment. The parties' submissions have been reviewed and a hearing was conducted on July 27, 2010. For the reasons set forth below, this Court affirms the Secretary's final decisions, as they were not arbitrary and capricious and were supported by substantial evidence. Accordingly, Plaintiff's Motion for Summary Judgment (Paper No. 39) is DENIED and Defendant's Motion for Summary Judgment (Paper No. 44) is GRANTED.

BACKGROUND

I. Coverage under the Medicare Statute

The Medicare program, a federally funded health insurance program for the aged and disabled, is set forth in Title XVIII of the Social Security Act, commonly referred to as the Medicare Act (the “Act”). 42 U.S.C. §§ 1395 et seq. The instant action involves Part B of the Act, which is a supplemental program that insures costs relating to various medical services, including the provision of durable medical equipment (“DME”). 42 U.S.C. §§ 1395k(a)(1), 1395x(n), 1395x(s), and 1395m(j)(5). The Act and its associated regulations provide that Medicare coverage extends to all items of DME except those deemed to be “experimental or investigational,” 42 C.F.R. § 411.15( o ), and “not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” 42 U.S.C. § 1395y(a)(1)(A).

Medicare coverage is determined in one of three ways. The Secretary, through its Centers for Medicare and Medicaid Services (“CMS”),¹ may issue a binding national coverage determination (“NCD”), which reflects the Secretary's decision as to whether or not an item or service is covered nationally. 42 U.S.C. § 1395ff(f)(1)(B). Alternatively, a Medicare contractor may choose to issue a local coverage determination (“LCD”), stating that an item or service is covered in that particular contractor's jurisdiction. 42 U.S.C. § 1395ff(f)(2)(B). Finally, in instances where no NCD or LCD applies, individual coverage determinations may be made by Medicare contractors, which apply the “not reasonable and necessary” standard in the course of processing benefits claims. 68 Fed. Reg. 63692, 63693 (Nov. 7, 2003) (final rule).

II. Processing of DME Claims

To have a benefits claim processed, a DME supplier must timely provide a Medicare contractor with sufficient information to permit determinations regarding coverage and payment. 42 U.S.C. § 1395 l (e); 42 C.F.R. § 424.5(a)(6). In addition, an electronic DME claim must include a Healthcare Common Procedure Coding System (“HCPCS”) billing code. 45 C.F.R. §§ 162.1000(a), 162.1002(b)(3).

Medicare benefit claims are processed by administrative contractors, which are private insurance companies hired by the Secretary to perform various functions, including the provision of coverage and payment determinations in accordance with the Medicare statute and agency guidelines. 42 U.S.C. § 1395u; 42 C.F.R. §§ 405.803, 421.200. Claims by DME suppliers are submitted to jurisdiction-specific administrative contractors called DME Medicare Administrative Contractors (“DMACs”) for processing. 42 U.S.C. § 1395u; 42 C.F.R. § 421.200. Each of the four geographic jurisdictions created by the Centers for Medicare and Medicaid Services (“CMS”) has its own DMAC. 42 U.S.C. § 1395m(a)(12); 42 C.F.R. §§ 424.32, 421.210(b), 421.404(c)(2). If the DMAC determines that the DME item is covered or otherwise reimbursable under Medicare, it will furnish a payment amount that is equal to “80 percent of the lesser of ... the actual charge for the item; [or] the fee schedule amount for the item.” 42 C.F.R. § 414.210(a).

If a DME item is denied coverage under Medicare and “neither the beneficiary nor the supplier knew, or reasonably could have been expected to know, that the DME item would not be covered because of lack of medical necessity,” Medicare often will still supply payment for the DME item. Pl.'s Statement of Material Facts (“SOMF”) ¶ 9 (citing Medicare Claims Processing Manual (“MCPM”) Ch. 30, § 20). On the other hand, if a beneficiary knows, or could be expected to know, that coverage will be denied for lack of medical necessity, the beneficiary will generally be held liable for the claim. Pl.'s SOMF ¶ 9; 42 U.S.C. § 1395pp. In situations where the supplier is the sole entity with knowledge or constructive knowledge of an imminent coverage denial, the supplier must shoulder liability for its costs. 42 C.F.R. § 411.406(e).

Suppliers may provide beneficiaries with written “advance beneficiary notice” (“ABN”) that states that Medicare will probably not cover or pay for a DME item because of a lack of medical necessity. When this written notice is supplied to the beneficiary, the beneficiary is liable for payment of the DME item. 42 C.F.R. § 411.404(b); MCPM Ch. 30, § 40.1.1. In the ABN, the supplier must state the potential reason for Medicare's denial of DME payment and must also declare the reason the supplier anticipates Medicare will not cover or pay for the DME. Pl.'s SOMF ¶ 10; MCPM Ch. 30, § 50.2.1. An ABN that simply states that Medicare might not pay for DME and fails to offer a reason for non-payment is called a “generic ABN.” Pl.'s SOMF ¶ 10; MCPM Ch. 30, § 40.3.6.1. A generic ABN does not give adequate notice to a beneficiary of Medicare's potential denial of DME payment. MCPM Ch. 30, § 40.3.6.1.

III. The Medicare Appeals Process for DME Claims

A party dissatisfied with the decision of the DME Medicare Administrative Contractor (“DMAC”) regarding a claim for Medicare's coverage or payment may request a “redetermination” by the same DMAC. 42 C.F.R. §§ 405.940–405.958; 42 U.S.C. § 1395ff(a)(3). The DMAC's redetermination process is non-adversarial, and its decision is nonprecedential. 42 C.F.R. § 405.948. A party receiving a “redetermination” may seek further review by applying for a “reconsideration” by a qualified independent contractor (“QIC”). 42 C.F.R. § 405.960; 42 U.S.C. §§ 1395ff(b)(1)(A) and (C). If the QIC is tasked with reconsidering a finding on whether an item or service is medically reasonable and necessary, then the QIC must consider input from a panel of physicians or other appropriate health care professionals. 42 C.F.R. §§ 405.968(a)(1) and (c)(3). The QIC's “reconsideration,” which is non-precedential, may be further appealed to an Administrative Law Judge (“ALJ”). 42 C.F.R. §§ 405.1000–02; 42 U.S.C. §§ 1395ff(b)(1)(A), (E) and (d)(1). The ALJ's decision is similarly non-precedential and is required to be based on the evidence in the administrative record. 42 C.F.R. § 405.1046.

Finally, the ALJ's decision may be appealed to the Medicare Appeals Council (“MAC”), which is a division of the Department of Health and Human Services. The MAC reviews the administrative record and makes a decision based solely on those facts. 42 C.F.R. § 405.1122. The decision by the MAC constitutes the Secretary's final decision for purposes of judicial review. 42 U.S.C. § 1395ff(b)(1)(A); 42 C.F.R. § 405.1136.

IV. Bionicare's Claims for the BIO–1000

Plaintiff Monique D. Almy (“Plaintiff”) is the Chapter 7 trustee for the bankruptcy estate of Bionicare Medical Technologies, Inc. (“Bionicare” or “Supplier”). From March 4, 2004, until the company filed for bankruptcy in 2007, Bionicare was enrolled in the Medicare program as a supplier of durable medical equipment (“DME”). It manufactured and distributed the Bionicare Stimulator System, Model 1000 (“BIO–1000”), which is used to treat osteoarthritis of the knee by delivering electrical pulses to the knee joint.

In 1997, Murray Electronics, the company from which Bionicare licensed the BIO–1000, provided the Food and Drug Administration (“FDA”) with notification of its intent to distribute the BIO–1000 commercially, pursuant to Section 510(k) of the Federal Food, Drug, and Cosmetic Act. A.R. at 20755–58. In its notification, Murray Electronics stated that the BIO–1000 was “substantially equivalent” to the transcutaneous electric nerve stimulator (“TENS”), which was a predicate device already legally on the market. A.R. at 20756. Based upon its equivalence to the TENS, the FDA approved the BIO–1000 for marketing as a “Class II” device in July 1997, to be used as an “adjunctive therapy ... [for] reducing the level of pain and symptoms associated with osteoarthritis of the knee ....” A.R. at 306–08, 367–71.

The FDA reaffirmed its clearance of the BIO–1000 in 2003, and in 2006, the FDA decided that the BIO–1000 could also be used as an adjunctive therapy to reduce hand stiffness and pain associated with rheumatoid arthritis. A.R. at 309–10, 20765–67. CMS supplied the BIO–1000 with a Healthcare Common Procedure Coding System (“HCPCS”) code, which became effective on January 1, 2006, and in April of 2006, CMS created a DME fee schedule for the...