Erringer v. Thompson, CIV 01-112-TUC-BPV.

• Decision Date: 19 September 2001
• Docket Number: No. CIV 01-112-TUC-BPV.,CIV 01-112-TUC-BPV.
• Parties: Christopher T. ERRINGER, et al., on behalf of themselves and a class of persons similarly situated, Plaintiffs, v. Tommy THOMPSON, Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Arizona

189 F.Supp.2d 984

Christopher T. ERRINGER, et al., on behalf of themselves and a class of persons similarly situated, Plaintiffs, v. Tommy THOMPSON, Secretary of Health and Human Services, Defendant.

No. CIV 01-112-TUC-BPV.

United States District Court, D. Arizona.

September 19, 2001.

Dina R. Lesperance, Arizona Ctr. for Disability Law, Phoenix, AZ, Sally Hart, Arizona Ctr. for Disability Law, Tucson, AZ, Gill Deford, Hilary S. Dalin, Mansfield Ctr., CT, Judith A. Stein, Center for Medicare Advocacy Inc., Willimantic, CT, for plaintiffs.

Sheila Lieber, Carlotta P. Wells, U.S. Dept of Justice Civil Division, Washington, DC, for defendant.

ORDER

VELASCO, United States Magistrate Judge.

PROCEDURAL BACKGROUND

This is a class action suit brought by various Medicare claimants against the Secretary of Health & Human Services challenging the Medicare policy and practice of denying beneficiaries payment for health services based on Local Coverage Determinations (LCDs). LCDs are created by private entities that contract with Medicare to delineate medical services or items for which coverage is authorized but to which no national policy applies. Plaintiffs claim that these LCDs are promulgated by private intermediaries without established criteria for their enactment, without notice to the public and an opportunity to comment, and without notice given to beneficiaries that denial of benefits is based on the LCDs.

The original Complaint was filed on March 16, 2001. The Amended Complaint, adding two additional named plaintiffs, was filed on June 15, 2001. Defendants filed a Motion to Dismiss on June 27, 2001 (Docket # 18). Plaintiffs filed an Opposition to Defendant's Motion to Dismiss ("Response" Docket # 24), and Defendant's filed a Reply on July 26, 2001. All parties have consented to proceed before Magistrate Judge Velasco. A hearing on the Motion to Dismiss was held on September 12, 2001.

Amended Complaint

Four individuals bring this suit on behalf of themselves and a class of persons similarly situated: Christopher T. Erringer, Lawrence Corcoran, Ethel W. Vestal, and Valerie Lavaque ("Plaintiffs"). The Plaintiffs, at all times relevant, were entitled to benefits under the Medicare program. The Plaintiffs each claim to have had medicare benefits denied them based on Local Coverage Determinations ("LCDs"), and are at various stages in the review process of an initial denial of coverage, although at the time of filing the Amended Complaint, no Plaintiff had completed a hearing before an Administrative Law Judge ("ALJ"). Subsequently, Plaintiffs' Response to the Motion to Dismiss indicates that Plaintiff Erringer was scheduled to appear before an ALJ on August 2, 2001, and Plaintiff Corcoran recently received a favorable decision at the Part B carrier hearing stage of his appeal. Plaintiff's counsel, at the hearing, notified the court that Plaintiff Erringer was informed by the ALJ at his administrative hearing that he would receive a favorable determination. All Plaintiffs' claim, however, that at the initial determination stage when Plaintiffs were sent a notice of denial of coverage, the actual basis for the denial, the LCDs, is not mentioned in the notice. Plaintiffs were notified, if at all, of the LCDs which formed the basis for denial in various manners and at various stages of review.

Plaintiffs raise four causes of action in the Amended Complaint: (1) violation of the Administrative Procedure Act ("APA"), 5 U.S.C. § 553; (2) violation of the Social Security Act ("SSA") § 1871, 42 U.S.C. § 1395hh; (3) violation of the Due Process Clause of the United States Constitution; and (4) violation of two provisions of the Medicare regulations setting standards for administrative appeals, 42 C.F.R. §§ 405.809, and 405.811.

Plaintiffs seek: (1) a declaratory judgment that the Secretary has violated the above statutory, Constitutional, and regulatory provisions; (2) an injunction prohibiting the defendant from denying Medicare payment based on LCD's until the Secretary has promulgated a regulation formally adopting the standards and procedures that are used to make such LCDs; and (3) an injunction denying payment at the initial and review determination levels based on a Medicare LCD without giving the beneficiary notice of the application and content of the Local Coverage Determination and the opportunity to submit controverting evidence.

Motion to Dismiss

Defendant's Position

The Defendant contends that Plaintiffs' claims arise under the Medicare Act. Consequently, their claims must be channeled through the administrative process created by the Medicare statute and the Secretary's implementing regulations, both of which require exhaustion of administrative remedies before filing a case in a federal court. Because each of the named plaintiffs has a pending administrative claim, this Court lacks jurisdiction over plaintiffs' amended complaint.

Plaintiffs' Position

Plaintiffs assert that jurisdiction in this case is based on "the well established principle that exhaustion under 42 U.S.C. § 405(g) will be waived when the issues raised cannot be resolved through the administrative appeals process." In the alternative, Plaintiffs argue that jurisdiction should be found under 28 U.S.C. § 1331(" § 1331") (federal question jurisdiction) or 28 U.S.C. § 1361 (Mandamus Act jurisdiction).

DISCUSSION

Medicare Program and Coverage Determinations

The Medicare program, Title XVIII of the Social Security Act (the Act), 42 U.S.C § 1395 et seq., is a health insurance program for eligible elderly and disabled individuals. Part A of the Medicare Act (hospital insurance) provides care in hospitals as an inpatient, critical access hospitals (small facilities that give limited outpatient and inpatient services to people in rural areas), skilled nursing facilities, hospice care, and some home health care. 42 U.S.C. § 1395j et seq. Part B of the Medicare Act (supplementary medical insurance) covers eighty per cent of the Medicare rate, called the "reasonable charge" for certain physician services, out-patient physical therapy, x-rays, laboratory testing and similar ancillary medical services. 42 U.S.C. § 1395j et seq. Under section 1862(a)(1) of the Act, no payment may be made under Part A or Part B for any expenses incurred for items or services that "are not reasonable and necessary for the diagnosis or treatment of illness or injury..." 42 U.S.C. § 1395y(a)(1)(A).

Responsibility for making coverage decisions has been delegated by the Secretary to the Health Care Financing Administration ("HCFA"). The HCFA has, in turn, entered into agreements with carriers and fiscal intermediaries ("Medicare contractors") to review, process, and pay claims under Parts A and B of the Medicare program. See 42 U.S.C. §§ 1395h, 1395v. Medicare contractors are responsible for determining, on a case-by-case basis, whether a particular service is covered by the Medicare program. Medicare contractors are required to do so applying the Act and regulations, and, in some instances, additional guidance provided by the HCFA in the form of Rulings, Medicare Manual provisions, and various other guidance.

National Coverage Determinations

One approach the Secretary has taken to determine whether an item or service is reasonable and necessary, is to issue national coverage determinations ("NCDs"). See 42 C.F.R. § 405.860. The HCFA makes NCDs either granting, limiting, or excluding Medicare coverage for a specific medical service, procedure or device, pursuant to section 1862(a)(1) of the Act. 42 U.S.C. § 1395y(a)(1). An NCD is binding on all carrieres, fiscal intermediaries, and ALJs.

Local Coverage Determinations

When the HCFA decides that an NCD is not appropriate, HCFA contractors may make a local coverage determination¹ ("LCD") to provide guidance to beneficiaries and health care providers whose claims they process about whether a particular item or service is covered under the Medicare Act in a certain geographic region of the country. 65 Fed.Reg. 31124, at 31126. An LCD provides guidance, in the absence of, or as an adjunct to, an NCD by describing the clinical circumstances and settings under which an item or service is available, or is not available, to a beneficiary under section 1862(a)(1)(A) of the Act. Id. An LCD is not binding on a contractor in another area of the country or on an ALJ who decides cases at higher stages of the appeal process. Id.

Currently, the promulgation of LCDs is outlined in HCFA's Medicare Program Integrity Manual (PIM). Each LCD must reflect local medical practice within the contractor's jurisdiction, and must be supported by substantial medical evidence. PIM Ch.1, §§ 2.1.B, 2.3.2.1, 2.3.2. The contractor must ensure that LCDs are consistent with the Medicare statute, regulations, NCDs, and other applicable federal guidance. PIM, Ch.1, § 2.1.B. The PIM also requires that contractors engage in a notice and comment process before publishing coverage policies.

The LCD development process is presently undergoing modification. HCFA intends to publish, through notice and comment rulemaking, standards that the agency will use to make both NCDs and LCDs under section 1862(a)(1) of the Act. 65 Fed.Reg. 31124 (May 16, 2000). The two broad criteria HCFA is considering for application to the development of LCDs are whether the item or service has been demonstrated to achieve a medical benefit and whether coverage of the item adds value to the Medicare population. 65 Fed.Reg. at 31126.

Additionally, the BIPA sets forth procedures by which an individual may appeal a denial of coverage for an item or service based on an existing LCD or NCD coverage determination. BIPA defines the term "local coverage determination" to mean

a determination by a fiscal intermediary or a carrier under part A or part B, as applicable, respecting whether or not a particular item or service is covered on an intermediary or carrier-wide basis under...