Farkas v. Blue Cross and Blue Shield of Michigan, 92-CV-70556-DT.

• Decision Date: 30 September 1992
• Docket Number: No. 92-CV-70556-DT.,92-CV-70556-DT.
• Citation: 803 F. Supp. 87
• Parties: Neil J. FARKAS, D.O. and Neil J. Farkas, D.O., P.C., Plaintiffs, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN and Secretary of Health and Human Services, Defendants.
• Court: U.S. District Court — Western District of Michigan

803 F. Supp. 87

Neil J. FARKAS, D.O. and Neil J. Farkas, D.O., P.C., Plaintiffs, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN and Secretary of Health and Human Services, Defendants.

No. 92-CV-70556-DT.

United States District Court, E.D. Michigan, S.D.

September 30, 1992.

Gordon S. Gold, Southfield, Mich., for plaintiffs.

Debra A. Spicer and Edward W. Fisher, Detroit, Mich., for defendants.

OPINION AND ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS AND DISMISSING PLAINTIFFS' COMPLAINT, AND ORDER VACATING TEMPORARY RESTRAINING ORDER

ROSEN, District Judge.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Neil J. Farkas, D.O. and Neil J. Farkas, D.O., P.C. ("Dr. Farkas" or "Plaintiff") commenced this action in Wayne County Circuit Court on December 21, 1991. In his two-count Complaint, Dr. Farkas alleged that as a result of billing and directory listing errors regarding his medical practice, Blue Cross and Blue Shield of Michigan ("BCBSM") is liable to him for tortious interference with business relationship and business expectancy (Count I) and intentional infliction of emotional distress (Count II).

Approximately two weeks after filing his Complaint, Dr. Farkas received a letter dated January 7, 1992 from BCBSM in which BCBSM advised him that, from then on, all Medicare claims submitted by him would be subject to manual review by BCBSM's Medicare Prepayment Utilization Review Department ("PPUR"). To prevent BCBSM from subjecting him to Medicare PPUR review, Farkas filed a motion for temporary restraining order/preliminary injunction in Wayne County Circuit Court. It was in that motion that Plaintiff first raised the PPUR issue (i.e., no mention of PPUR review or its legality or illegality was made in Plaintiff's Complaint).

Based upon Plaintiff's post-Complaint Medicare administration/PPUR review allegations, the Secretary of Health and Human Services (the "Secretary" or the "Government") intervened and removed this action to this Court.¹ Plaintiff subsequently moved to remand the action to state court.

On March 12, 1992, this Court conducted a hearing on Plaintiff's motion for preliminary injunction and his motion for remand. After hearing the oral arguments of counsel for the parties, the Court determined that Farkas's post-Complaint PPUR claim was a "separate and independent claim" under 28 U.S.C. § 1441(c). Therefore, the Court ordered Plaintiff's post-Complaint PPUR claims severed from his tortious interference/intentional infliction of emotional distress Complaint claims, and remanded those state-law tort claims to state court.

With respect to Plaintiff's remaining federal PPUR claim, the Government argued at the hearing that Dr. Farkas is not entitled to judicial review of the decision to put him on Medicare Prepayment Utilization Review. Therefore, the Government argued for dismissal of the federal court action.

In light of the Government's hearing arguments, the Court ordered the parties to submit briefs on the issue of whether Dr. Farkas is entitled to judicial review of the Secretary's determination to place him on PPUR.

The Government and BCBSM timely complied with the Court's additional briefing directive by filing separate Fed.R.Civ. Pro. 12(b) Motions and supporting Briefs, seeking dismissal of Plaintiff's PPUR-placement claim. The Defendants both argue in their Motions that, under the applicable federal statutes, Plaintiff's exclusive avenue for redress of his complaint — if any avenue is available to him at all — is the administrative review mechanism provided in the statute. They further argue that complete and full exhaustion of administrative remedies is a prerequisite to any court challenge relating to the provision of Medicare benefits. Thus, according to the Defendants, because Dr. Farkas has not exhausted his administrative remedies, the court lacks subject matter jurisdiction over this matter and, therefore, this action should be dismissed.

Plaintiff filed two separate Briefs responding to the Government's and BCBSM's respective Motions on April 9 and April 24, 1992, to which Responses the Government replied in a Reply Brief filed April 28, 1992.

Although the Court initially indicated to the parties that no hearing would be held on the Motions to Dismiss, Plaintiff requested in a letter dated May 28, 1992 that the Court hear oral argument. Acting in response to Plaintiff's request, the Court reconsidered its initial "no hearing" determination, and decided that oral argument would be helpful. Accordingly, a hearing on Defendants' Motions was held on September 10, 1992.

Having reviewed and considered the parties' respective briefs on the Motions for dismissal, and having heard the oral arguments of the parties' attorneys at the September 12, 1992 hearing, the Court is now prepared to rule on Defendants' Motions, and this Opinion and Order sets forth that ruling.

II. DISCUSSION

A. PREPAYMENT UTILIZATION REVIEW ("PPUR")

1. Introduction

According to the January 7, 1992 letter Dr. Farkas received from BCBSM, a review of his medical records had revealed "numerous problems ... in laboratory procedures and other diagnostic studies, as well as office visits." Therefore, BCBSM advised Dr. Farkas that Medicare billings submitted by him after January 7, 1992 would be subject to BCBSM's Medicare prepayment utilization review ("PPUR"). Being placed on BCBSM's PPUR requires that all Medicare billings submitted by Dr. Farkas would have to be accompanied by documentation relating to the patient's condition and treatment rendered. The billings along with the documentation would then be reviewed by the PPUR Department, and following that review a determination would be made regarding payment.

2. Medicare's Statutory/Regulatory Scheme

Unlike Medicare's "Part A" hospitalization coverage, Medicare does not provide universal-comprehensive coverage for physician's services.² Rather, Medicare's supplemental medical insurance "Part B" physician's services coverage afforded resembles coverage provided by a private medical insurance program. Just as in the case of private medical insurance, certain services and items are specifically excluded from coverage. See 42 U.S.C. §§ 1395k, 1395l, 1395x, 1395y(a). Similarly, like private insurers, Medicare specifies a number of limits on payment for medical items and services. See e.g., 42 U.S.C. §§ 1395u(b)(3)(B) and 1395w-4. See also, 42 C.F.R. § 405.501 et seq; 42 C.F.R. § 415.

Since Medicare Part B does not cover all health-related services or items provided to an eligible Medicare beneficiary, the mere provision of a service or item to a Medicare beneficiary is insufficient in and of itself to trigger reimbursement, or to trigger reimbursement at the price charged. The Medicare Act and its implementing regulations specify and define those services and items for which Part B reimbursement can be made, as well as the conditions and limitations on payment of covered items and services. See e.g., 42 U.S.C. §§ 1395k, 1395l, 1395x(s), 1395y; 42 C.F.R. §§ 405.411 et seq.; 405.501 et seq.; 410.1 et seq.

In administering Part B, the Secretary of HHS is authorized to contract with entities referred to as "carriers" to handle the administration of Medicare claims. 42 U.S.C. § 1395u. BCBSM is an authorized Medicare carrier.

By statute, the Secretary is expressly authorized to utilize Medicare carriers to perform certain delineated functions, including audits of Medicare provider records to insure that proper Medicare payments are made and to apply safeguards against unnecessary utilization of services furnished by providers to Medicare beneficiaries. 42 U.S.C. § 1395u(a); 42 C.F.R. § 405.501 et seq.³

The Part B carrier, acting as the Secretary's agent, further must determine whether a particular claim meets the applicable Part B criteria, 42 C.F.R. §§ 405.803, 421.200, including whether the service rendered by the physician or item provided is necessary for the diagnosis or treatment of an illness (see 42 U.S.C. § 1395y(a)(1); 42 C.F.R. § 405.310(k)), whether the service or item is otherwise covered or excluded from Part B coverage (see 42 U.S.C. §§ 1395k, 1395x(s); 42 C.F.R. § 410.1 et seq.), and the amount that may be reimbursed for the service or item (see 42 U.S.C. §§ 1395u(b)(3), 1395w-4; 42 C.F.R. §§ 405.501 et seq.; 415.1 et seq.).

The Act requires that the carrier establish and maintain procedures whereby an individual may obtain a fair hearing by the carrier in any case were the amount in controversy is $100 or more and a request for payment has been denied, or not acted upon with reasonable promptness, or where the amount of payment is disputed. See 42 U.S.C. § 1395u(b)(3)(C).⁴ The carrier is also required by regulation to provide an informal review prior to a hearing. 42 C.F.R. § 405.807. A carrier or hearing officer may also reopen a previous determination regarding payment, and revise that determination. 42 C.F.R. §§ 405.841, 405.842.

For items or services rendered prior to January 1, 1987, the Medicare Act afforded no further review of Part B matters after the carrier's fair hearing process. However, as part of the Omnibus Budget Reconciliation Act of 1986 (the "OBRA Amendments"), Congress amended the Medicare Act to afford post-carrier fair hearing review by an administrative law judge regarding Part B disputes where the amount in controversy exceeds $500, and judicial review after exhaustion of administrative remedies if the amount in controversy is at least $1,000. See 42 U.S.C. § 1395ff; 42 C.F.R. §§ 405.807, 405.820.

By statute, the foregoing administrative review mechanism is an exclusive remedy. 42 U.S.C. § 405(h), made applicable to the Medicare Act by 42 U.S.C. § 1395ii, provides:

The findings and decision of the Secretary after a hearing shall be binding upon all individuals who are parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal or governmental agency except as

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