Mackenzie Medical Supply, Inc. v. Leavitt

Decision Date31 October 2007
Docket NumberNo. 06-1630.,06-1630.
Citation506 F.3d 341
PartiesMacKENZIE MEDICAL SUPPLY, INCORPORATED, Plaintiff-Appellant, v. Michael O. LEAVITT, in his capacity as Secretary of Health and Human Services, Defendant-Appellee, and Tommy G. Thompson, in his capacity as Secretary of the United States Department of Health and Human Services, Defendant.
CourtU.S. Court of Appeals — Fourth Circuit

Before TRAXLER, Circuit Judge, HAMILTON, Senior Circuit Judge, and ROBERT J. CONRAD, JR., Chief United States District Judge for the Western District of North Carolina, sitting by designation.

Affirmed by published opinion. Senior Judge HAMILTON wrote the opinion, in which Judge TRAXLER and Judge CONRAD joined.


HAMILTON, Senior Circuit Judge:

In this action, MacKenzie Medical Supply, Inc. (MacKenzie) seeks to set aside the Secretary of the United States Department of Health and Human Services' (the Secretary) determination that it overpaid MacKenzie $508,747.57 in Medicare reimbursement payments for 135 power wheelchairs that MacKenzie provided to Medicare recipients between September 1, 1998 and February 28, 1999. According to the Secretary, MacKenzie is liable for the overpayment because a post-payment audit revealed that insufficient medical documentation existed to establish the medical necessity of providing each power wheelchair at issue. In its defense, MacKenzie argued that the documentation that it submitted for reimbursement, in the form of certificates of medical necessity (CMN), as the term CMN is defined in 42 U.S.C. § 1395m(j)(2)(B), sufficed to qualify for reimbursement. Rejecting MacKenzie's argument, the district court granted summary judgment in favor of the Secretary. MacKenzie appealed, and we affirm.


The Medicare Act (the Medicare Act), 42 U.S.C. § 1395 et seq., establishes a federally subsidized health insurance program for eligible aged and disabled persons. Akin to private health insurance programs, the Medicare Act and its implementing regulations promulgated by the Secretary set forth conditions and limitations on the coverage of medical services and equipment. See 42 U.S.C. §§ 1395k, 1395l, 1395x(s), 1395y(a)(1)-(22), 1395ff(a); 42 C.F.R. § 411.15(a)-(r). Of relevance on appeal, Part B coverage under the Medicare Act extends to durable medical equipment (DME), including power wheelchairs used in the medicare recipient's home (including institutions used as his home other than hospitals or skilled nursing facilities). 42 U.S.C. §§ 1395k(a)(2)(B), 1395x(n), and 1395x(s)(6); 42 C.F.R. § 410.38(a)-(c).

The Medicare program is administered by the Center for Medicare & Medicaid Services (CMS), a division of the United States Department of Health and Human Services (HHS) supervised by the Secretary. Gulfcoast Medical Supply, Inc. v. Secretary, HHS, 468 F.3d 1347, 1349 (11th Cir.2006). At all times relevant to this appeal, in administering Part B, CMS, under the authority of the Secretary, acted through private fiscal contractors called "carriers."1 42 U.S.C. § 1395u. Carriers performed a variety of functions, such as making coverage determinations in accordance with the Medicare Act and agency guidance. 42 C.F.R. §§ 405.803, 421.200. Carriers also conducted audits of the claims submitted for payment, and adjusted payments and payment requests. Id.; 42 C.F.R. § 421.214. Carriers paid Medicare suppliers on the basis of assignments of benefits executed by the Medicare beneficiaries. 42 U.S.C. § 1395u(b)(3)(B); 42 C.F.R. §§ 424.55, 802.

During the relevant time period, certain carriers, called DME Regional Carriers (DME Regional Carriers), processed DME claims within designated regions of the country. 42 U.S.C. § 1395u; 42 C.F.R. § 421.210. During the relevant time period, the DME Regional Carrier for Region C, which includes Maryland, was Palmetto Government Benefits Administrators (Palmetto). Notably, the Region C DMEPOS2 Supplier Manual (Autumn 1998) included the following guidelines for coverage of the power wheelchairs at issue here:

1. The patient's condition is such that without the use of a wheelchair the patient would otherwise be bed or chair confined; and,

2. The patient's condition is such that a wheelchair is medically necessary and the patient is unable to operate a wheelchair manually; and,

3. The patient is capable of safely operating the controls for the power wheelchair.

(J.A. 156-57). The same manual further provided that "[a] patient who requires a power wheelchair usually is totally nonambulatory and has severe weakness of the upper extremities due to a neurologic or muscular disease/condition." (J.A. 157). In all cases, Medicare Part B coverage is limited to services that are medically "reasonable and necessary" for the diagnosis or treatment of illness. 42 U.S.C. § 1395y(a)(1)(A).

Pursuant to 42 U.S.C. § 1395l(e), payment on a DME claim under Part B cannot be made "unless there has been furnished such information as may be necessary in order to" support payment of the claim. To facilitate claims processing for DME, the Medicare Act permits DME suppliers to distribute CMNs to physicians. 42 U.S.C. § 1395m(j)(2)(A); Gulfcoast Medical Supply, Inc., 468 F.3d at 1349. The Medicare Act defines CMN as "a form or other document containing information required by the carrier to be submitted to show that an item is [medically] reasonable and necessary for the diagnosis or treatment of illness or injury. . . ." 42 U.S.C. § 1395m(j)(2)(B).

CMS has approved a one-page CMN specifically for power wheelchairs, on which the DME supplier is permitted to provide the following information: (1) identification of the supplier and the beneficiary; (2) a description of the medical equipment; (3) the product code identifying such equipment; and (4) "[a]ny other administrative information (other than information relating to the beneficiary's medical condition) identified by the Secretary." 42 U.S.C. § 1395m(j)(2)(A)(i). Section B of the form also asks a series of questions related to the mobility and medical condition of the beneficiary, which the beneficiary's treating physician or a third party, but not the DME supplier, is permitted to answer. The only part of the form required to be completed by the treating physician is the attestation portion of the form whereby the treating physician certifies via his signature and date that "the medical necessity information in Section B is true, accurate and complete, to the best of my knowledge, and I understand that any falsification, omission, or concealment of material fact in that section may subject me to civil or criminal liability." (J.A. 222).

Of relevance in the present appeal, the Secretary has issued a directive advising Region C DME suppliers that medical documentation in addition to a physician's order for DME may be necessary in order to substantiate compliance with the "reasonable and necessary" requirement of the Medicare Act. Specifically, Region C's Medicare Advisory (September 1996) advised Region C suppliers that:

It is the primary responsibility of those supplying beneficiaries with durable medical equipment, prostheses, orthoses and supplies (DMEPOS) to assure claims billed to Medicare have the proper documentation accurately reflecting the beneficiary's medical condition as it relates to the Medicare coverage criteria by which claims are adjudicated by the Durable Medical Equipment Regional Carrier (DMERC). Even if a supplier has a physician order on file, failure of the patient's medical records to substantiate the condition for which Medicare approves reimbursement subjects the supplier to liability for repayment of that reimbursement to the Medicare program, and possibly to civil and criminal penalties. Therefore, it is to the benefit of suppliers, Medicare beneficiaries and the Medicare Trust Fund that physicians be well informed about their role in evaluating, ordering and documenting the need of DMEPOS for their Medicare patients. The better informed the physician about DMERC Regional Medical Review Policies (RMRPs) and Medicare's coverage criteria for DMEPOS, the less likely the supplier's frustration at filling orders for items that will not be, or should not have been, reimbursed.

(J.A. 249) (emphasis added).

During the period at issue, September 1, 1998, through February 28, 1999, MacKenzie submitted to Palmetto, for reimbursement, claims for a total of 135 power wheelchairs. MacKenzie supported each claim solely with a completed CMN, which claims Palmetto initially approved and made payment.

In April 1999, Palmetto initiated a post-payment audit because: (1) MacKenzie had submitted an extremely high volume of claims for power wheelchairs; (2) more than 30% of the Medicare payments received by MacKenzie during the time period used the same referring physician; and (3) of the 135 beneficiaries receiving power wheelchairs from MacKenzie during the relevant time period, 115 did not previously have any prior wheelchair, such as a manual wheelchair, which failed to indicate a progression of a medical condition that might medically lead to the use of a power wheelchair. These concerns resulted in an audit by a medical investigator of a random sample of thirty out of the 135 claims, twenty-nine of which failed to satisfy the requirements for medical necessity.

The medical investigator requested all relevant medical records from...

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