Nichole Med. Equip. & Supply, Inc. v. Tricenturion, Inc.

• Decision Date: 13 September 2012
• Docket Number: No. 11–2132.,11–2132.
• Citation: 694 F.3d 340
• Court: U.S. Court of Appeals — Third Circuit
• Parties: NICHOLE MEDICAL EQUIPMENT & SUPPLY, INC., Appellant v. TRICENTURION, INC., formerly known as TriCenturion, LLC; National Heritage Insurance Company, doing business as NHIC Corp.

694 F.3d 340

NICHOLE MEDICAL EQUIPMENT & SUPPLY, INC., Appellant

v.TRICENTURION, INC., formerly known as TriCenturion, LLC; National Heritage Insurance Company, doing business as NHIC Corp.

No. 11–2132.

United States Court of Appeals, Third Circuit.

Argued on April 20, 2012.

Filed: Sept. 13, 2012.

David M. Hollar, Esq. (Argued), Villari, Brandes & Kline, Conshohocken, PA, for Appellant.

Zane David Memeger, Esq., United States Attorney, Margaret L. Hutchinson, Esq., Chief, Civil Division, David A. Degnan, Esq. (Argued), Assistant United States Attorney, Office of United States Attorney, Philadelphia, PA, for Appellees.

Before: McKEE, Chief Judge, SLOVITER, Circuit Judge, and O'CONNOR, Associate Justice (Ret.) ^*

OPINION

McKEE, Chief Judge.

Nichole Medical Equipment and Supply Company (“Nichole Medical”) appeals the district court's dismissal of an action that Nichole Medical brought to recover damages for various state and federal claims. The district court dismissed the suit for lack of subject matter jurisdiction and because Nichole Medical had not stated a claim for which relief could be granted. For reasons that follow, we agree. We also agree that all of Nichole Medical's claims arise under the Medicare Act and that the Defendants/Appellees are therefore immune from suit as officers or employees of the Secretary of the Department of Health and Human Services. Accordingly, we will affirm the district court's dismissal of the complaint.

I. Statutory and Regulatory Background

This suit originates from relationships that were created under the Medicare Act, 42 U.S.C. § 1395 et seq., (“Act”). The Act is administered through private organizations that contract with the Secretary of the Department of Health and Human Services.¹30 Fed. Proc. § 71:746. Pursuant to statutory provisions in effect prior to October 1, 2005, Medicare Part B was administered by organizations known as “carriers.” ²Id. Carriers entered into contracts with the Centers for Medicare and Medicaid Services (“CMS”). The obligations undertaken by carriers under those contracts include paying for items Medicare suppliers provide to Medicare beneficiaries, adjusting any incorrect payments, and recovering overpayments when the carrier concludes an overpayment was made for a covered Medicare benefit. 42 C.F.R. §§ 421.100, 421.200; see also30 Fed. Proc. §§ 71:747, 71:754.

As a result of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the obligations previously imposed on carriers are now undertaken by Medicare Administrative Contractors (“MACs”). See Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub.L. No. 108–173, § 911(e), 117 Stat.2066, 2256 (2003).³ MACS enter into contracts with CMS to perform various duties pursuant to 42 U.S.C. § 1395kk–1. 42 U.S.C. § 1395kk–1; see also42 C.F.R. § 421.401. Those duties include assisting in the administration of the Medicare Integrity Program. 42 U.S.C. § 1395kk–1; see also,30 Fed. Proc. § 71:746.

Pursuant to the Medicare Integrity Program, entities known as “Program Safeguard Contractors” (“PSCs”) contract with CMS to perform various program integrity tasks to “safeguard” Medicare payments on behalf of the Secretary. See42 U.S.C. § 1395ddd(a). PSCs responsibilities include reviewing Medicare payments for potential fraud and ensuring that amounts billed under the Medicare program are appropriate and supported by proper documentation. See42 U.S.C. § 1395ddd(b).

This auditing obligation thus requires MACs and PSCs to determine if amounts paid under Medicare “are reasonable and necessary in accordance with Medicare coverage policies and program instructions.” 42 C.F.R. § 421.500. In discharging this obligation, CMS or a Medicare contractor can suspend payments under the Act in whole or in part “if CMS or the Medicare contractor possesses reliable information that an overpayment existed or that the payments to be made may not be correct, although additional information may be needed for a determination.” ⁴42 C.F.R. § 405.371(a)(1) (emphasis added). A Medicare contractor is also authorized to offset or recoup Medicare payments, in whole or in part, if it is “ determined that the provider or supplier to whom payments are to be made has been overpaid.” 42 C.F.R. § 405.371(a)(3) (emphasis added).

At all times relevant to our inquiry, Nichole Medical was a durable medical equipment supplier,⁵ National Heritage Insurance Company (“NHIC”) was a carrier and/or a MAC ⁶ and TriCenturion was a PSC. See42 U.S.C. § 1395u.

II. Factual Background

This dispute arises from an audit TriCenturion conducted of Nichole Medical's in the course of TriCenturion discharging its obligations under the Act as a PSC. After examining records obtained from Nichole Medical's office, TriCenturion concluded that Nichole Medical “might” be improperly billing Medicare for medical equipment such as the motorized wheelchairs and hospital beds that Nichole Medical provided to Medicare beneficiaries. TriCenturion's examination of Nichole Medical's records also caused TriCenturion to conclude that Nichole Medical had received overpayments from Medicare. Id. at p. 00007, ¶ 26.⁷ TriCenturion also concluded that Nichole Medical had not maintained sufficient medical records to establish the reasonableness and/or medical necessity of some of the medical equipment it had supplied to Medicare beneficiaries. Id. at 00037.

Accordingly, TriCenturion directed Nichole Medical's prior carrier, HealthNow, to withhold payments to Nichole Medical in an effort to recoup the amount that TriCenturion believed had been overpaid to Nichole Medical. Id. at 00007, ¶ 27. TriCenturion determined the offset amount by calculating the actual overpayment of several specific claims. It then used those claims as a representative sampling of Nichole Medical's claims and extrapolated an overpayment amount for all of Nichole Medical's relevant claims from that sample. Id. at 00019.

In addition to the offset, TriCenturion also informed the Attorney General's Office that Nichole Medical had improperly requested reimbursement for certain medical devices delivered to Medicare beneficiaries to fill their prescriptions. TriCenturion persisted in its belief that payments had been improperly made to Nichole Medical even after the Attorney General found no evidence of fraud and refused to prosecute. Id. at 00006, ¶ 23.

For reasons that remain unclear, but presumably because the Attorney General refused to prosecute, HealthNow stopped withholding payments to Nichole Medical and did not attempt to recoup any further payments. Id. at 00066. However, after NHIC succeeded HealthNow, TriCenturion instructed NHIC to re-institute the offset. Id. According to Nichole Medical, reinstituting the offset eventually forced it out of business. Id. Nevertheless, after it went out of business, Nichole Medical pursued an appeal of TriCenturion's determination that it (Nichole Medical) had been overpaid.⁸

The administrative law judge who was handling that appeal subsequently determined that Nichole Medical was entitled to reimbursement on some of the appealed claims for which payment had been withheld or offset, but not all such claims.⁹Id. at 00035. The ALJ also ruled that TriCenturion had failed to: (i) provide proper notice of the post-payment audit; (ii) establish new evidence justifying the post-payment audit; and (iii) fully explain the methodology used for the statistical sampling that resulted in the determination that Nichole Medical had been overpaid or improperly paid under the Act. Id. at 00035–55. The ALJ found that the extrapolated amount determined by examining the 39 claims that were sampled had no legal force because it was impossible to recalculate the sampling. Id. at 00054–6. ¹⁰

The Medicare Appeals Council (“Council”) reviewed the ALJ's decision and found that the ALJ had erred in determining which of the 39 claims was properly paid because all 39 claims had been reopened and reviewed improperly. Id. at 00018–25.

After the Council entered that ruling, Nichole Medical filed this suit against TriCenturion and NHIC alleging that TriCenturion had wrongfully withheld Medicare payments owed to Nichole Medical for equipment it had supplied to Medicare beneficiaries and that that caused Nichole Medical's insolvency. Id. at 00007. Nichole Medical also claimed that “TriCenturion conducted an unannounced, unauthorized and illegal search and seizure of Nichole Medical's Medicare records” when it audited Nichole Medical's cost reports and records. ¹¹ Appx., p. 00006, ¶ 21.

According to Nichole Medical's allegations, it was forced into insolvency because TriCenturion “developed and implemented a business pattern and practice of ignoring and failing to follow statutory and regulatory guidelines and procedures with regard to its audit activities.” Id. at 00009, ¶¶ 37, 40. Nichole Medical asked the district court to award compensation “including, but not limited to, past and future damages of an economic nature, including: attorneys fees, costs, loss of sales, loss of revenue, loss of profits, and other expenses.” Id. at ¶ 43. Nichole Medical bases its claim for damages on various state law torts and breach of the statutory duty of care pursuant to 42 U.S.C. § 1320c–6(b).¹²Id. at 00065.

The district court granted a motion to dismiss based on Nichole Medical's failure to exhaust its claims before the ALJ and the Council as required by the Act. Id. at 00070–77. Alternatively, the district court concluded that the complaint should be dismissed because the challenged conduct was within the scope of TriCenturion's and NHIC's official duties under the Act and that they were therefore immune from suit under the Medicare Act.¹³Id. at 00070–77.

This appeal followed.

III. DiscussionA. Jurisdiction

1. Judicial Review under the Act.

42 U.S.C. § 405(h) is incorporated into the Act pursuant to 42 U.S.C. § 1395ii. Section 405(h) provides

[t]he findings and...