Colorado Heart Institute, LLC v. Johnson

• Decision Date: 20 April 2009
• Docket Number: Civil Action No. 08-1626 (RMC).
• Citation: 609 F.Supp.2d 30
• Court: U.S. District Court — District of Columbia
• Parties: COLORADO HEART INSTITUTE, LLC, et al., Plaintiffs, v. Charles E. JOHNSON,<SMALL><SUP>1</SUP></SMALL> Acting Secretary, U.S. Department of Health and Human Services, Defendant.

609 F.Supp.2d 30

COLORADO HEART INSTITUTE, LLC, et al., Plaintiffs, v. Charles E. JOHNSON,¹ Acting Secretary, U.S. Department of Health and Human Services, Defendant.

Civil Action No. 08-1626 (RMC).

United States District Court, District of Columbia.

April 20, 2009.

Helen Gerostathos Guyton, Mintz Levin Cohn Ferris Glovsky & Popeo, P.C., Washington, DC, Thomas Smith Crane, Nicholas C. Cramb, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, MA, for Plaintiffs.

Nicholas P. Cartier, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

ROSEMARY M. COLLYER, District Judge.

The Stark Law, 42 U.S.C. § 1395nn, generally prohibits a physician from referring Medicare patients to an "entity for the furnishing of designated health services" ("DHS") where a financial relationship exists between the physician and the entity. The Centers for Medicare & Medicaid Services ("CMS") currently interprets this statutory language to refer only to the entity that directly bills Medicare for DHS. However, effective October 1, 2009, CMS will interpret this language to also include a second entity that provides DHS to the first entity that directly bills Medicare. Plaintiffs are physicians and physician-owned entities that provide DHS under contract with hospitals in Colorado. Under CMS's current interpretation, only the hospital—the billing entity—is considered to be furnishing DHS and, therefore, the individual physician Plaintiffs can lawfully refer their Medicare patients to the entities they own. But under CMS's new interpretation, the physician-owned entities that provide DHS under contract with the hospitals also will be considered to be furnishing DHS. Consequently, absent an applicable exception, the Stark Law will prohibit the individual physician Plaintiffs from referring their Medicare patients to their own entities. Plaintiffs seek a declaration that CMS's new interpretation of entities furnishing DHS is unlawful, and move for summary judgment. Defendant moves to dismiss or, in the alternative, for summary judgment. This Court lacks subject matter jurisdiction. Accordingly, it will grant Defendant's motion to dismiss and deny Plaintiffs' motion for summary judgment.

I. BACKGROUND

Medicare is a federally funded program that subsidizes health insurance for the elderly and disabled. See 42 U.S.C. § 1395 et seq. The Stark Law was enacted "to address the strain placed on the Medicare Trust fund by the overutilization of certain medical services by physicians who, for their own financial gain rather than their patients' medical need, referred patients to entities in which the physicians held a financial interest." Am. Lithotripsy Soc'y v. Thompson, 215 F.Supp.2d 23, 26 (D.D.C.2002). To prevent such financial conflicts of interest from influencing medical decision-making, the Stark Law sets out explicit prohibitions intended to restrict the ability of physicians to profit from their own referrals. Specifically, the statute generally prohibits physicians from making a referral to an "entity for the furnishing of designated health services"² that will be paid by Medicare if the physician, or an immediate family member of the physician, has a "financial relationship"³ with the entity.⁴ 42 U.S.C. § 1395nn(a)(1)(A). In addition to the general prohibition on referrals, the Stark Law provides that an "entity may not present or cause to be presented a claim" for Medicare reimbursement of DHS referred in violation of the statute. Id. § 1395nn(a)(1)(B). The statute further provides that no Medicare payments may be made for such services, and any amounts collected for such services must be refunded. Id. § 1395nn(g)(1) & (2). An entity that knowingly presents or causes to be presented a prohibited claim, or knowingly enters into a prohibited arrangement or scheme, is subject to civil monetary penalties and liability under the False Claims Act, 31 U.S.C. § 3729 et seq. Id. § 1395nn(g)(3) & (4).⁵

Plaintiffs in this case include: (i) three entities that provide diagnostic and therapeutic cardiac catheterization and related services ("Cath Labs"); (ii) cardiologists and vascular surgeons who perform and refer catheterization services in the Cath Labs and who have an ownership or investment interest in one or more of the Cath Labs; (iii) a cardiology practice that is part owner of the Cath Labs; and (iv) a company and its owner that provide management services to two of the Cath Labs. See Am. Compl. ¶¶ 1-36. Under Medicare's billing rules, only a hospital may bill for the cardiac catheterization services performed by the Cath Labs. See Medicare Provider Reimbursement Manual, Part I, Ch. 21, § 2118.1. As a result, the Cath Labs provide their services to hospitals "under arrangements" in which the hospitals contract with the Cath Labs to provide "nursing and technical personnel, equipment, drugs, and medical supplies" for the cardiac catheterization services. Am. Compl. ¶¶ 42, 60. Each of the hospitals that has contracted with a Cath Lab "establishes its own prices, negotiates reimbursement amounts with third-party payors, and bills such payors including Medicare and Medicaid for all hospital services including those provided under arrangement." Id. ¶ 53. The hospitals then pay the Cath Labs a "flat fee for each service provided." Id. ¶ 52. The Cath Labs, in turn, distribute the earnings from the fees paid by the hospitals "to the physician investors according to their ownership interests." Id. ¶ 64. Due to efficiencies, the Cath Labs can provide the cardiac catheterization services "at a lower cost than could be provided by the hospitals." Id. ¶ 54. "Accordingly, the hospitals profit by having these services under arrangement." Id. And because Medicare only reimburses hospitals for such services, "only a very small percentage" of the Cath Labs' revenues "are generated from services that could be performed and billed from an independent outpatient facility." Id. ¶ 43.

The Secretary of Health and Human Services ("HHS") has authority to promulgate regulations implementing the Medicare program, including the Stark Law, see 42 U.S.C. §§ 1395hh(a)(1) & 1395nn(b)(4), and has delegated his authority to CMS. Because the Stark Law does not define when an entity furnishes DHS, it has been left to CMS to do so by regulation. Under CMS's current regulations, "[a] person or entity is considered to be furnishing DHS if it is the person or entity to which CMS makes payment for the DHS, directly or upon assignment on the patient's behalf." 42 C.F.R. § 411.351 (definition of "entity"). Accordingly, presently in an "under arrangements" transaction, only the hospital is considered to be an entity furnishing DHS; the entities supplying DHS to the hospital, such as the Cath Labs, are not considered to be entities furnishing DHS. Therefore, the Stark Law does not currently prohibit the individual physician Plaintiffs from making referrals to the Cath Labs in which they have a financial interest.

This will all change on October 1, 2009, when CMS's final rule that Plaintiffs challenge here takes effect. That rule provides that "[a] person or entity is considered to be furnishing DHS if it is the person or entity that has performed services that are billed as DHS" or it "is the person or entity that has presented a claim to Medicare for the DHS...." Changes to Physician Self-Referral Rules, 73 Fed. Reg. 48,434, at 48,751 (Aug. 19, 2008) (to be codified at 42 C.F.R. § 411.351 (definition of "entity")). Thus, effective October 1, 2009, both the hospital and the entities supplying DHS to the hospital, such as the Cath Labs, will be considered to be entities furnishing DHS in an "under arrangements" transaction. Consequently, absent an applicable exception, the Stark Law will prohibit the individual physician Plaintiffs from making referrals to their own Cath Labs.

Plaintiffs sue the Secretary of HHS in his official capacity seeking a declaration that CMS's broadened definition of an entity furnishing DHS "is contrary to clear congressional intent, based on an impermissible construction of the Stark Law, arbitrary and capricious, and exceeds the agency's authority," in contravention of the Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq. Am. Compl. at 4-5 (Introduction). Plaintiffs assert that the Court has jurisdiction under Section 702 of the APA, 5 U.S.C. § 702, and the general federal question statute, 28 U.S.C. § 1331. Id. ¶ 38. They move for summary judgment. Defendant moves to dismiss for lack of subject matter jurisdiction, or in the alternative, for summary judgment.

II. LEGAL STANDARD

Federal courts are courts of limited jurisdiction and the law presumes that "a cause lies outside this limited jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994); St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 82 L.Ed. 845 (1938). Because "subject-matter jurisdiction is an `Art. III as well as a statutory requirement[,] no action of the parties can confer subject-matter jurisdiction upon a federal court.'" Akinseye v. District of Columbia, 339 F.3d 970, 971 (D.C.Cir.2003) (quoting Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982)). On a motion to dismiss for lack of subject-matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of establishing that the court has subject-matter jurisdiction. Kokkonen, 511 U.S. at 377, 114 S.Ct. 1673.

Because subject-matter jurisdiction focuses on the court's power to hear the claim, however, the court must give the plaintiff's factual allegations closer scrutiny when resolving a Rule 12(b)(1) motion than would be required for a Rule 12(b)(6) motion for failure to state a claim. Macharia v. United States, 334 F.3d 61, 64, 69 (D.C.Cir.2003); Grand Lodge of Fraternal Order of Police v. Ashcroft, 185...