Gordian Med., Inc. v. Sebelius, No. CV 10-3933 CAS (FFMx)
| Decision Date | 04 April 2012 |
| Docket Number | No. CV 10-3933 CAS (FFMx) |
| Court | U.S. District Court — Central District of California |
| Parties | GORDIAN MEDICAL, INC., Plaintiff, v. KATHLEEN SEBELIUS, Secretary, Department of Health and Human Services, Defendant. |
ANDRÉ BIROTTE JR.
United States Attorney
LEON W. WEIDMAN
Assistant United States Attorney
Chief, Civil Division
RUSSELL W. CHITTENDEN
Attorneys for Defendant Kathleen Sebelius, Secretary, Department of Health and Human Services
PLACE: Courtroom of the Honorable Christina A. Snyder This action under 42 U.S.C. §§ 405(g), 1395ff(b)(1)(A) for judicial review of a final decision by Kathleen Sebelius, Secretary of Health and Human Services (the "Secretary") came on regularly for trial on January 6, 2012. The Court makes the following findings of fact and conclusions of law:
FINDINGS OF FACT
I. STATUTORY AND REGULATORY BACKGROUND
1. The Medicare statute, 42 U.S.C. § 1395 et seq., sets forth a federal health insurance program for the elderly and disabled. This cases arises under Part B, which is a voluntary program subsidized by enrollee premiums and appropriated monies. Id. §§ 1395j, 1395o, 1395r, 1395t. Part B provides reimbursement for covered "medical and other health services," which include physician services and some durable medical equipment ("DME"), prosthetics, orthotics, and supplies (collectively, "DMEPOS"). Id. §§ 1395k(a)(1), 1395m(j)(5), 1395x(s)(1), (2)(A), (6), (8), & (9). As pertinent here, certain surgical dressings are among the medical supplies that potentially qualify for Part B coverage. Id. §§ 1395m(j)(5)(D), 1395x(s)(5); 42 C.F.R. § 410.36(a)(1).
2. The statute bars payment for all items and services that "are 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) The Secretary has broad authority to explicate the "not reasonable and necessary" coverage exclusion and other coverage provisions in case-specific adjudications or through generally applicable rules that may be established by notice and comment rulemaking or in less formal guidance. Heckler v. Ringer, 466 U.S. 602, 617 (1984); Maximum Comfort, Inc. v. Sec'y of Health and Human Servs., 512 F.3d 1081, 1084 (9th Cir. 2007).
3. The Secretary, through the Centers for Medicare & Medicaid Services ("CMS"), contracts with private insurance companies to administer the Part B claims process. 42 U.S.C. §§ 1395u, 1395kk-1. DMEPOS benefit claims are administered by four DME Medicare Administrative Contractors ("DME MACs") (formerly known as DME Regional Carriers or "DMERCs"). Id. §§ 1395m(a)(12), 1395kk-1; 42 C.F.R. §§ 421.200, 421.210(b), 421.404(c)(2).
4. Medical supplies and other items of DMEPOS must be furnished "incident to a physician's service" or by a "supplier" that possesses both a valid Medicare supplier number and "billing privileges." 42 U.S.C. §§ 1395m(j)(1), 1395x(d); 42 C.F.R. § 424.57. The supplier's claim must include the appropriate billing code from the Healthcare Common Procedure Coding System ("HCPCS") Level II codes. 45 C.F.R. §§ 162.1000(a), 162.1002(b)(3). See also id. §§ 160.103, 162.100.
5. If a Medicare beneficiary or any assignee of the individual's benefit claim is dissatisfied with a reimbursement determination, the statute and regulations afford several levels of administrative review and, potentially, judicial review. 42 U.S.C. § 1395ff; 42 C.F.R. Part 405, Subpart I. Upon receipt of a claim for payment, the Medicare contractor issues an "initial determination" addressing whether the item or service is covered and meets all other payment requirements, and, if so, the amount deemed owing. 42 U.S.C. § 1395ff(a)(1); 42 C.F.R. § 405.920. If the claimant is dissatisfied with the initial determination, a "redetermination" may be requested by the same contractor. 42 U.S.C. § 1395ff(a)(3); 42 C.F.R. § 405.940. Next, if the claimant is not satisfied with the contractor's redetermination, a "reconsideration" may be requested by a "qualified independent contractor" ("QIC"). 42 U.S.C. § 1395ff(b)(1)(A) & (C); 42 C.F.R. § 405.960. A still dissatisfied claimant may then request a hearing, "as provided in [42 U.S.C. § ] 405(b)," before an administrative law judge ("ALJ"). 42 U.S.C. § 1395ff(b)(1)(A), (E) & (d)(1); 42 C.F.R. § 405.1002.The ALJ's decision may be reviewed by the Medicare Appeals Council ("MAC") of the Departmental Appeals Board. 42 U.S.C. § 1395ff(d)(2); 42 C.F.R. § 405.1100.
6. If dissatisfied after the above administrative appeals process, as here, the claimant may also seek judicial review, "as provided in [42 U.S.C. § ] 405(g)," of the final agency decision of the ALJ or the MAC. 42 U.S.C. § 1395ff(b)(1)(A), (E); 42 C.F.R. § 405.1136.1
7. Plaintiff Gordian Medical, Inc. ("Gordian") is a Medicare enrolled supplier of wound care supplies, including non-bordered composite dressings. (Gordian's Complaint [Dkt. 1] ("Compl.") at ¶¶ 7, 8; Defendant's Answer to Complaint [Dkt. 17] ("Answer") at ¶¶ 7, 8.) Gordian is the successor-in-interest to another Medicare supplier, American Medical Technologies, Inc. (Compl. at ¶ 7.)
8. Medicare coverage of surgical dressings was addressed in the Medicare contractor's Local Coverage Determination (LCD) for Surgical Dressings L11449. In September 2006, the contractor issued a Bulletin Article notifying Medicare suppliers of a revision to the definition of "composite dressings," which was effective October 1, 2006. Under the revised definition, the requisite "bacterial barrier" for a composite dressing must encompass the entire dressing pad including an adhesive border. The Bulletin Article further provided that the HCPCS Level II codes forcomposite dressings without adhesive borders, A6200, A6201, and A6202, were invalid for purposes of Medicare claims submission. The Bulletin Article also provided that such non-bordered composite dressings should be billed as specialty absorptive dressings without adhesive border under different HCPCS Level II codes, A6251, A6252, and A6253.2
9. In July 2007, CMS issued a HCPCS Quarterly Update providing that, effective July 1, 2007, composite dressings billed under HCPCS codes A6200, A6201, and A6202 "are non-covered by Medicare." CMS Manual System, Pub. 100-4, Medicare Claims Processing Manual, Transmittal 1388 (Dec. 7, 2007).
10. Gordian, however, continued to submit reimbursement claims under HCPCS codes A6200, A6201, and A6202. Gordian used those billing codes in claiming reimbursement for dressings supplied to nine Medicare beneficiaries during a three-month period (between December 2007 and February 2008). (A.R. 11.)3 The Medicare contractor denied those reimbursement claims. (See Compl. at ¶ 33; A.R. 301-02.)
11. Gordian timely appealed those claim denials, but it received adverse redeterminations by the original Medicare contractor, (A.R. 320-89); adverse reconsiderations by the QIC, (A.R. 313-18); and an adverse decision by an ALJfollowing an "on-the-record" hearing. (A.R. 163-74.) The MAC then issued the final decision of the Secretary. The MAC sustained the denials of coverage based on CMS' July 2007 HCPCS Quarterly Update. (A.R. 3-11.)
12. On May 25, 2010, Gordian filed this record review action seeking relief under the Medicare statute and the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 551 et seq. and 701 et seq. (Compl. at ¶¶ 4, 5.) Gordian seeks reimbursement in accordance with the prior definition of "composite dressings" and the fee schedule payment amounts for HCPCS codes A6200, A6201, and A6202. (Id. at pp. 20-21.) Gordian alleges matters beyond the scope of the MAC's final decision, i.e., that the Secretary unlawfully revised the definition of "composite dressings" and invalidated HCPCS codes A6200, A6201, and A6202 for purposes of Medicare claims submission. (Id. at 70-87.)
1. Subject matter jurisdiction over Gordian's challenge to the Secretary's final decision is based on the Medicare statute, 42 U.S.C. § 1395ff(b)(1)(A), which authorizes judicial review "as provided in [42 U.S.C. § ] 405(g)." On review, the Secretary's findings "as to any fact, if supported by substantial evidence, shall be conclusive . . ." Id. § 405(g). Also, judicial review of the Secretary's final decision must be based solely on the administrative record. See id. See also 5 U.S.C. § 706.
2. Under 42 U.S.C. § 405(g), the court must affirm the findings of the Secretary "if they are supported by 'substantial evidence' and if the proper legal standards were applied." Mayes v. Masanari, 276 F.3d 453, 458-59 (9th Cir. 2001). "'Substantial evidence' is more than a mere scintilla but less than a preponderance; it is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Id. at 459 (internal quotation and citation omitted). Whether substantial evidence supports a finding is determined from the administrative record as a whole,with the court weighing both the evidence that supports and the evidence that detracts from the Secretary's conclusion. Sandgathe v. Chater, 108 F.3d 978, 980 (9th Cir. 1997). In applying the substantial evidence standard, "a reviewing court may not substitute its own judgment for that of the agency." Memorial, Inc. v. Harris, 655 F.2d 905, 912 (9th Cir. 1980) (citing Citizens to Protect Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971)). Thus, "[w]hen the evidence rationally can be interpreted in more than one way, the court must uphold the [Secretary's] decision." Mayes v. Masanari, 276 F.3d at 459. See also Memorial, Inc. v. Harris, 655 F.2d at 912 (...
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