Maximum Comfort, Inc. v. Thompson

Decision Date28 June 2004
Docket NumberNo. CIV. S-03-1584 LKK/PA.,CIV. S-03-1584 LKK/PA.
Citation323 F.Supp.2d 1060
CourtU.S. District Court — Eastern District of California
PartiesMAXIMUM COMFORT, INC., a California corporation, Plaintiff, v. Tommy G. THOMPSON, Secretary of Health and Human Service of the United States, Defendant.

Bartley S. Fleharty, Wells, Small and Selke, Redding, CA, Mark Alan Jones, Jones and Dyer, Sacramento, CA, for Plaintiff.

Ana Maria Martel, United States Attorney, Sacramento, CA, for Defendant.

ORDER

KARLTON, Senior District Judge.

Plaintiff filed this complaint against the Secretary of the United States Department of Health and Human Services, Tommy G. Thompson ("Secretary"), seeking judicial review of a final administrative decision made by the Medicare Appeals Council ("MAC") of the Department of Health and Human Services. The matter comes before the court on the parties' cross-motions for summary judgment. I decide the motions on the basis of the papers and pleadings filed herein and after oral argument.

I. BACKGROUND

Plaintiff, Maximum Comfort, is a California corporation in the business of selling, leasing, and renting durable medical equipment ("DME"). Plaintiff supplies DME, including motorized wheelchairs, to Medicare and Medicaid beneficiaries throughout California, Oregon and Nevada. Medicare reimburses Maximum Comfort for qualifying DME supplied to its beneficiaries. To receive reimbursement, plaintiff must first submit invoices to and receive approval from CIGNA Healthcare, a private fiscal agent that has contracted with Medicare to process claims.

The dispute in this case concerns reimbursement claims for numerous motorized wheelchairs provided by plaintiff to Medicare beneficiaries. CIGNA initially approved the claims for the motorized wheelchairs and Medicare accordingly provided plaintiff with reimbursement payments. After CIGNA conducted an audit, however, it concluded that the wheelchairs did not qualify for coverage and that Medicare had therefore overpaid plaintiff. Consequently, CIGNA began recouping the payments for the disqualified claims by offsetting plaintiff's Medicare account. Plaintiff challenged CIGNA's decision and exhausted the appeals process. In the final administrative hearing, the MAC concluded that the wheelchairs could not be paid for by Medicare because plaintiff had insufficiently documented the medical necessity of the wheelchairs.

A. PROCEDURAL HISTORY

This case was first heard by this court on October 20, 2003, pursuant to plaintiff's motion for a preliminary injunction. On October 22, the court issued an order explaining that the parties had failed to address certain critical issues and directed them to file supplemental briefing. In that same order, the court enjoined the defendant from "[r]ecouping, offsetting or otherwise collecting from plaintiff any alleged overpayments for any of the beneficiaries which are the subject of this action from any amounts due and owing to plaintiff and from failing to pay such amount when due." Order at 3. The parties filed their supplemental briefing and then filed cross-motions for summary judgment. In due course, a hearing was set and oral argument was heard on the cross-motions. This opinion disposes of all of the pending matters before the court.

B. THE MEDICARE PROGRAM

The Medicare Act, established under Title 18 of the Social Security Act, 42 U.S.C. §§ 1395-1395gg, pays for covered medical care provided to eligible aged and disabled persons. The Medicare Program is administered by the Centers for Medicare and Medicaid Services ("CMS"), a component of the United States Department of Health and Human Services ("HHS").1

The Medicare Act consists of three main parts: Part A, which generally authorizes payment for covered inpatient hospital care and related services, 42 U.S.C. §§ 1395c to 1395i-5, 42 C.F.R. Part 409; Part B, which provides supplementary medical insurance for covered medical services and equipment, 42 U.S.C. §§ 1395j to 1395w-4, 42 C.F.R. Part 410; and Part C, which authorizes beneficiaries to obtain covered services through HMOs and other "managed care" arrangements, 42 U.S.C. §§ 1395w-21 to 1395w-28, 42 C.F.R. Part 422.

This case involves Part B of the Medicare Act. Part B resembles "a private medical insurance program that is subsidized in major part by the federal government."2 Schweiker v. McClure, 456 U.S. 188, 190, 102 S.Ct. 1665, 72 L.Ed.2d 1 (1982). Coverage under this part extends to DME, including wheelchairs used in a patient's home. 42 U.S.C. §§ 1395k, 1395x(s), 1395x(n); 42 C.F.R. § 410.38(a)-(c). As with private medical insurance programs, the statute and its implementing regulations establish conditions and limitations on the coverage of services and equipment, 42 U.S.C. §§ 1395k, 1395l, 1395x(s), and provide for exclusions from coverage. 42 U.S.C. § 1395y(a)(2)-(16); 42 C.F.R. § 411.15(a)-(j). In all cases, Medicare 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); 42 C.F.R. § 411.15(k)(1).

C. MEDICARE CARRIERS

In administering Part B, CMS acts through private fiscal agents called "carriers." 42 U.S.C. § 1395u; 42 C.F.R. Part 421, Subparts A and C; 42 C.F.R. § 421.5(b). Carriers are entities that, under contract with the Secretary, perform a variety of functions including making coverage determinations, determining reimbursement rates and allowable payments, conducting audits of the claims submitted for payment, and rejecting or adjusting payment requests. Claims for DME, prosthetics, and orthotics are processed by designated regional carriers called Durable Medical Equipment Regional Carriers ("DMERCs"). 42 U.S.C. §§ 1395m, 1395u; 42 C.F.R. § 421.210. At all relevant times, the DMERC for Maximum Comfort was CIGNA HealthCare ("CIGNA").

One of the carrier's duties is to conduct post-payment audits to ensure that payments are made in accordance with applicable Medicare payment criteria. When payment is made erroneously, an "overpayment" is assessed and "recouped" from subsequent payments due to the DME supplier.3 42 C.F.R. § 421.200(a)(2); see also 42 U.S.C. §§ 1395g(a), 1395l(j), 1395gg(b)(1); 42 C.F.R. §§ 405.370, 405.371(a)(1), (2), 405.350. The Act provides for relief from liability for a supplier when it is determined that the supplier "did not know, and could not reasonably have been expected to know, that payment would not be made for a service in question." 42 U.S.C. § 1395pp(a).

D. DURABLE MEDICAL EQUIPMENT SUPPLIERS

Private businesses selling health care items and products may enter into agreements with the Secretary to become participants in the Medicare program. See 42 U.S.C. § 1395u(h)(1). Once participants, these business, identified by Medicare as suppliers, can provide hardware to Medicare beneficiaries. Beneficiaries execute an assignment of benefits to the supplier so that it may be reimbursed for the service by Medicare.4 See 42 U.S.C. § 1395u(b)(3)(B). A prerequisite for receipt of reimbursement is submitting a Certificate of Medical Necessity (CMN) to the Carrier. See 42 U.S.C. § 1395m(j)(2)(A).

II. FACTS

On April 3, 2000, CIGNA audited 30 of the 236 power-operated wheelchair claims submitted by plaintiff from its Redding store between January 1, 1998 and January 22, 1999. Administrative Record (A.R.) Vol. 6 at 1585. This audit, identified as the "Hayes group" audit,5 resulted in a determination that plaintiff failed to provide sufficient medical information, including patients' medical records, to substantiate the medical necessity of 22 reimbursement claims. As a result, CIGNA concluded that Maximum Comfort was overpaid a total of $ 640,457.01.6 Id. at 1595. CIGNA subsequently received additional documentation from the plaintiff, reducing the number of problematic claims to 19 and the overpayment amount to $ 548,555.04. Id. at 1634.

On September 14, 2000, CIGNA notified plaintiff that it conducted a second audit of a sample number of the 182 Medicare claims submitted by plaintiff from its Sacramento store between July 1, 1998 and July 2, 1999. A.R. Vol. 5 at 1275. This second audit, known as the "Torres group,"7 resulted in a determination that plaintiff was overpaid $237,229.11. A.R. Vol. 4 at 1180.8 CIGNA determined that the claims did not qualify for reimbursement because, although plaintiff submitted the required CMN for each claim in the Hayes and Torres groups, it failed to provide additional medical documentation to establish the medical necessity and reasonableness of the motorized wheelchairs. A.R. Vol. 5 at 1251; A.R. Vol. 6 at 1585.

Plaintiff challenged both of the overpayment assessments through CIGNA's in-house administrative appeals process, but did not prevail. A.R. Vol. 3 at 572; A.R. Vol. 5 at 1335; see 42 C.F.R. §§ 405.815, 405.821. It then appealed CIGNA's decisions. A.R. Vol. 1 at 20, 22; see 42 C.F.R. § 405.855. Two different Administrative Law Judges (ALJs) issued almost identical decisions in plaintiff's favor, concluding that, as a supplier, plaintiff was only required to submit a CMN to establish the medical necessity and reasonableness of each wheelchair it provided. They further concluded that the Secretary did not have the authority to require that Maximum Comfort provide patient medical records to support medical necessity. A.R. Vol. 2 at 00451; A.R. Vol. 4 at 4.

By notices dated March 21 and November 20, 2001, the MAC notified plaintiff of its determination to review the ALJs' decisions. A.R. Vol. 1 at 21-22; see 20 C.F.R. § 404.969. The MAC's purpose in reviewing the ALJs' decisions was to determine the type of documentation plaintiff was required to obtain and keep to support the medical reasonableness and necessity of the DME it supplied to Medicare beneficiaries. A.R. Vol. 1 at 21, 24.

On June 11, 2003, the MAC issued its opinion reversing the ALJs' decisions that a CMN is the only required medical necessity documentation and reinstating the denial of...

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4 cases
  • Mackenzie Medical Supply, Inc. v. Leavitt, No. CIV. AMD 04-2807.
    • United States
    • U.S. District Court — District of Maryland
    • 14 Marzo 2006
    ...to improve the functioning of a malformed body member. 42 U.S.C. § 1395m(,j)(2)(B). The defendant, relying at least partially on Maximum Comfort v. Thompson,3 323 F.Supp.2d 1060 (E.D.Cal.2004), argues that the above section clearly demonstrates that "Congress has ... stated in unequivocal t......
  • Mackenzie Medical Supply, Inc. v. Leavitt
    • United States
    • United States Courts of Appeals. United States Court of Appeals (4th Circuit)
    • 31 Octubre 2007
    ...support of its position, MacKenzie relies upon a district court case from the Eastern District of California, Maximum Comfort, Inc. v. Thompson, 323 F.Supp.2d 1060 (E.D.Cal. 2004). The Maximum Comfort court held that "[t]he Secretary's contention that Congress provided him with the authorit......
  • Gulfcoast Med. Supply v. Secretary Dept. of Health
    • United States
    • United States Courts of Appeals. United States Court of Appeals (11th Circuit)
    • 3 Noviembre 2006
    ...required to determine the medical necessity of DME conflicts with the plain meaning of § 1395(j)(2)(B)." Maximum Comfort, Inc. v. Thompson, 323 F.Supp.2d 1060, 1067-68 (E.D.Cal.2004). According to the Maximum Comfort court, § 1395m(j)(2)(B) "plainly specifies that Congress intended that wha......
  • Maximum Comfort v. Sec. of Health and Human Serv.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 21 Diciembre 2007
    ...information required from suppliers to make a medical necessity determination must be contained in a CMN." Maximum Comfort, Inc. v. Thompson, 323 F.Supp.2d 1060, 1075 (E.D.Cal.2004). The court further found that the Secretary could not require suppliers of durable medical equipment to obtai......
1 books & journal articles
  • Trial Practice and Procedure - John O'shea Sullivan and Ashby L. Kent
    • United States
    • Mercer University School of Law Mercer Law Reviews No. 58-4, June 2007
    • Invalid date
    ...this issue: MacKenzie Medical Supply, Inc. v. Leavitt, 419 F. Supp. 2d 766 (D. Md. 2006) and Maximum Comfort, Inc. v. Thompson, 323 F. Supp. 2d 1060 (E.D. Cal. 2004). Gulfcoast, 468 F.3d at 1348 n.1. 98. Gulfcoast, 468 F.3d at 1348. 99. Id. at 1348-49 (citing 42 U.S.C. Sec. 1395j to 1395w-4......

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