Maximum Comfort v. Sec. of Health and Human Serv.

• Decision Date: 21 December 2007
• Docket Number: No. 05-15832.,05-15832.
• Parties: MAXIMUM COMFORT INC., Plaintiff-Appellee, v. SECRETARY OF HEALTH AND HUMAN SERVICES; Michael O. Leavitt,<SMALL><SUP>*</SUP></SMALL> Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

512 F.3d 1081

MAXIMUM COMFORT INC., Plaintiff-Appellee, v. SECRETARY OF HEALTH AND HUMAN SERVICES; Michael O. Leavitt,^* Defendants-Appellants.

No. 05-15832.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 13, 2007.

Filed December 21, 2007.

Howard S. Scher, Assistant United States Attorney, Civil Division, Washington, D.C., for the defendants-appellants.

David C. Frederick, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., for the plaintiff-appellee.

Appeal from the United States District Court for the Eastern District of California; Lawrence K. Karlton, Senior Judge, Presiding. D.C. No. CV-03-01584-LKK.

Before: MARY M. SCHROEDER, WILLIAM C. CANBY, JR. and M. MARGARET McKEOWN, Circuit Judges.

CANBY, Circuit Judge:

Appellant, the Secretary of Health and Human Services, administers the federal Medicare program. Appellee Maximum Comfort, Inc. supplies power-operated wheelchairs to Medicare beneficiaries. The Secretary determined that Maximum Comfort was not entitled to reimbursement for equipment it supplied to certain Medicare beneficiaries, because the company did not establish sufficiently that the power wheelchairs were medically necessary. Maximum Comfort sought judicial review of the Secretary's determination, and the district court reversed. The Secretary now appeals.

The primary question before us is whether Maximum Comfort, by submitting for each wheelchair a "certificate of medical necessity"¹ signed by a physician, established conclusively that the wheelchair was medically necessary, thus precluding the Secretary from requiring additional documentation. Like the other two circuit courts that have addressed the question, we conclude that the applicable provisions of the Medicare Act do not make the certificate conclusive, and that the Secretary may require additional documentation to establish medical necessity. See Mac-Kenzie Medical Supply, Inc. v. Leavitt, 506 F.3d 341 (4th Cir.2007); Gulfcoast Medical Supply, Inc. v. Secretary, HHS, 468 F.3d 1347 (11th Cir.2006). We accordingly reverse the decision of the district court.

I. BACKGROUND: PART B OF THE MEDICARE ACT

The Medicare Act, established under, Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395hhh, provides coverage for certain medical services to eligible aged and disabled people. The Medicare Program is administered by the Centers for Medicare and Medicaid Services, on behalf of the Department of Health and Human Services. Part B of the Medicare Act provides supplementary medical insurance for, inter alia, covered medical supplies, including durable medical equipment such as power-operated wheelchairs. 42 U.S.C. §§ 1395j-1395w-4.

In administering Part B, the Centers act through private entities, such as insurance companies, called "carriers."² Claims for durable medical equipment are processed by designated regional carriers. See 42 U.S.C. §§ 1395m(a)(12), 1395u. Upon receipt of a claim for such equipment, the carrier pays the Medicare beneficiary on the basis of an itemized bill, or pays the Medicare supplier on the basis of an assignment of benefits from the beneficiary. 42 U.S.C. § 1395u(b)(3)(B).

In order for the beneficiary, and therefore the equipment supplier, to be reimbursed for a claim, Medicare requires the beneficiary's physician to certify that the services provided were medically required. 42 U.S.C. § 1395n(a)(2); see also 42 U.S.C. § 1395y(a)(1)(A) (Medicare coverage is limited to services that are medically "reasonable and necessary"). In connection with the processing of claims, an equipment supplier "may distribute to physicians" a "certificate of medical necessity," which the statute defines as "a form or other document containing information required by the carrier to be submitted to show that an item is 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. § 1395m(j)(2). Suppliers may include on the certificate only certain information, such as identifying information about the supplier, the beneficiary, the equipment being supplied, and other administrative information unrelated to the beneficiary's medical condition. Id. The remaining information is completed by the beneficiary's physician. If the Secretary requires a supplier of durable medical equipment to provide diagnostic or other medical information in order for payment to be made, the physician "shall provide that information to the entity at the time that the item is ordered...." 42 U.S.C. § 1395u(p)(4).

"For reasons of administrative efficiency, carriers typically authorize payment on claims immediately upon receipt of the claims, so long as the claims do not contain glaring irregularities." Gulfcoast, 46.8 F.3d at 1349. Carriers later may conduct audits to ensure that payments were made in accordance with Medicare criteria. If the carrier discovers that payments were made for equipment not covered by the Medicare Act, it may assess an overpayment and recoup the overpaid amount from the supplier. 42 C.F.R. § 405.371(a). Suppliers, however, may be excused from liability for repayments when they did not have reason to know the equipment they supplied would not be covered by Medicare. 42 U.S.C. § 1395pp. Suppliers also may appeal carriers' claim resolutions through a designated administrative appeals process, 42 U.S.C. § 1395ff(b)(1)(A), and, after exhausting the administrative appeals process, may seek judicial review in federal court pursuant to the Administrative Procedure Act. Id.; 42 U.S.C. § 405(g).

II. FACTS

In 1998 and 1999, Maximum Comfort provided numerous power-operated wheelchairs to Medicare beneficiaries in California, Oregon, and Nevada. CIGNA Healthcare, the designated regional carrier, initially approved the claims for these power-operated wheelchairs, and Medicare accordingly reimbursed Maximum Comfort. CIGNA then conducted an audit of 30 of the 236 power-operated wheelchair claims submitted by Maximum Comfort in 1998 and early 1999. CIGNA concluded that Maximum Comfort had failed to substantiate the medical necessity of 22 of the 30 claims at issue, and concluded from this sample that Maximum Comfort had been overpaid $640,457.01. This amount was reduced to $548,555.04 once Maximum Comfort provided CIGNA with additional documentation. CIGNA then conducted a second audit, examining 182 Medicare claims submitted by Maximum Comfort from mid-1998 to mid-1999. CIGNA concluded that Maximum Comfort was overpaid $237,229.11, again because it failed to provide documentation establishing the medical necessity and reasonableness of the wheelchairs.³

Maximum Comfort unsuccessfully appealed both overpayment assessments through CIGNA's in-house administrative process. The examining officer upheld CIGNA's overpayment assessments, finding that the certificates submitted by Maximum Comfort failed to demonstrate the medical necessity of power wheelchairs, and that either Maximum Comfort failed to seek additional documentation of medical necessity or the beneficiaries' physicians had not responded to requests for additional documentation.⁴

Maximum Comfort then appealed CIGNA's decisions to two Administrative Law Judges ("ALJs") pursuant to 42 C.F.R. § 405.855. The ALJs ruled in Maximum Comfort's favor, finding that (1) for each of the claims at issue, the beneficiary's treating physician had completed a valid certificate of medical necessity certifying that a power wheelchair was reasonable and necessary for the diagnosis or treatment of the beneficiary's injury or the functioning of a malformed body member; and (2) the wheelchairs furnished by Maximum Comfort were medically reasonable and necessary and met the requirements for coverage under Part `B of the Medicare Act. In reaching finding (2), the ALJs concluded that a certificate, of medical necessity alone sufficed to prove the medical necessity of durable medical equipment.

The Medicare Appeals Council sea sponte reviewed the ALJs' decisions and reversed both of them. The Council concluded that Congress did not intend the certificate to be the only mechanism through which suppliers could establish coverage for durable medical equipment, and that nothing prevented the Secretary from imposing additional documentation requirements on equipment suppliers. The Council found that the certificates in issue failed to establish medical necessity, and that Maximum Comfort consequently was not entitled to reimbursement.

The Council also found that certain manuals and newsletters issued by CIGNA instructed Maximum Comfort to retain supporting documentation substantiating its equipment claims in case of an audit. As a result, the Council concluded that Maximum Comfort knew or should have known that its claims were deficient and therefore it was not entitled under 42 U.S.C. § 1395pp to a waiver of its repayment liability.

Maximum Comfort then brought this action challenging the Appeal Council's decision pursuant to the Administrative Procedure Act. See 42 U.S.C. §§ 405(g), 1395ff(b). On cross-motions for summary judgment, the district court ruled in favor of Maximum Comfort. The court found that the plain language of § 1395m(j)(2)(A)(i) establishes that "any and all 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 obtain additional documentation of medical necessity. Id. at 1074-75. As a result, the district court permanently enjoined the Secretary from collecting overpayments from Maximum Comfort in connection with the audited claims. Id. at 1075. This appeal followed.

III. DISCUSSION

A. Whether the certificate of medical necessity is conclusive proof of medical necessity

The first question before us is one of...