Ohio Hosp. Ass'n v. Shalala

• Decision Date: 18 September 1997
• Docket Number: No. 1:96-CV-2165.,1:96-CV-2165.
• Citation: 978 F.Supp. 735
• Parties: OHIO HOSPITAL ASSOCIATION, et al., Plaintiffs, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — Northern District of Ohio

978 F.Supp. 735

OHIO HOSPITAL ASSOCIATION, et al., Plaintiffs, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant.

No. 1:96-CV-2165.

United States District Court, N.D. Ohio, Eastern Division.

September 18, 1997.

Thomas D. Lambros, Bricker & Bricker, Cleveland, OH, for Plaintiffs.

Kent W. Penhallurick, Office of the U.S. Atty., Cleveland, OH, for Defendant.

MEMORANDUM & ORDER

O'MALLEY, District Judge.

Plaintiffs Ohio Hospital Association and American Hospital Association bring this action on behalf of their member hospitals against Donna E. Shalala, in her capacity as Secretary of Health and Human Services. Plaintiffs assert that the Secretary is improperly and retroactively enforcing new coding and billing standards in connection with Medicare reimbursement for certain medical laboratory tests. Plaintiffs seek to enjoin the Secretary from continuing this enforcement, and also seek a judgment from this Court declaring that: (1) the Secretary did not properly promulgate the new standards; (2) the Secretary cannot retroactively enforce them; and (3) the government cannot hold plaintiffs' member hospitals liable under the False Claims Act.

The Secretary moves to dismiss plaintiffs' complaint on several grounds, including lack of jurisdiction (docket no. 9).¹ For the reasons stated below, the motion to dismiss is GRANTED and this case is dismissed.

I.

The parties generally agree that the following alleged factual background is accurate. Pursuant to 42 U.S.C. § 1395 et seq., the federal Medicare program reimburses qualified hospitals for the cost of providing certain covered medical care to eligible patients. Plaintiffs' member hospitals are all qualified Medicare "providers," which have entered into agreements with the Secretary regarding the provision of services and reimbursement. Regarding reimbursement, the Medicare statute provides that the Secretary shall set out fee schedules for diagnostic laboratory tests provided to outpatients by provider hospitals. 42 U.S.C. § 1395l(h). These fee schedules set out the precise amount of reimbursement Medicare will pay for any particular lab test. Provider hospitals are directed to submit their claims for lab test reimbursement using specific billing codes.

When doctors at the provider hospitals order performance of diagnostic lab tests upon an outpatient, the doctors often order the tests as a group, especially when the tests are automated. For example, a doctor will often order a "Chem 7," which is comprised of seven separate automated chemical tests to determine the following ingredient levels in a patient's blood: chloride, cholesterol, potassium, sodium, creatinine, glucose, and creatine-kinase. Because doctors so frequently order certain automated lab tests as a group, Medicare regulations provide that the provider hospitals must also bill some of these tests as a group, rather than individually. Typically, reimbursement for the tests, when billed as a group, is lower than if the tests had been billed individually.

To give direction to the provider hospitals regarding which diagnostic lab tests should be billed as a group, the Secretary published, several years ago, a "Medicare Hospital Manual." The Medicare Hospital Manual stated that "National Guidelines for [hospital laboratories] on what tests are available in automated batteries are being developed. Until completed, use [billing] codes found in CPT-4, [the American Medical Association Current Procedure Terminology manual]." In turn, the CPT-4 listed 19 different codes for automated tests that should be "bundled" together for billing purposes, when performed simultaneously.

During the period from 1989 to 1996, of the seven tests that comprise a Chem-7, six were included in the list of 19 "bundled" tests contained in the CPT-4; the creatine-kinase test was not on the list. Thus, when a provider hospital billed Medicare for performance of a Chem-7 upon an outpatient, the hospital would normally submit to Medicare two billing codes: one for the creatine-kinase test (code 82550, creatine-kinase test only), and one for the other six tests combined (code 80006, 6 clinical chemistry tests combined). Medicare regularly accepted this type of statement and provided reimbursement.²

Plaintiffs allege that, despite this long-term practice, in 1996 the Secretary joined forces with the office of the United States Attorney General to investigate the billing practices of hospitals, including plaintiffs' members. During this investigation, the Secretary took the position that the hospitals should have bundled all seven of the tests contained in the Chem-7 and submitted only one billing code — code 80007 (7 clinical chemistry tests combined). The Secretary suggested that the hospitals purposely failed to bundle all seven tests together in order to submit higher bills to Medicare for reimbursement, seeking to manipulate the system so as to increase their Medicare receipts.

The Secretary addressed certain other of the member hospitals' billing practices in similar fashion. Thus, plaintiffs point to several other specific examples of billing practices the Secretary now attacks as insufficiently "bundled," despite having tacitly approved those practices through unquestioned reimbursements over the seven year period from 1989 through 1996. Again, the Secretary has taken the position that the hospitals' billing practices were not only improper, but were undertaken intentionally in order to inflate Medicare reimbursements beyond those properly due.

In the context of this broad-scale investigation, the Secretary wrote letters to various member hospitals stating that their claims for reimbursement "may constitute the submission of false claims in violation of the False Claims Act." The Secretary then suggested that the hospitals could avoid prosecution by the Attorney General for violation of the False Claims Act if they cooperated with the Secretary in an investigation of their billing practices over the prior six years. This "cooperation" included repaying Medicare for the "excess reimbursement" the member hospitals allegedly received by virtue of their unbundled billing practices, plus penalties.

Plaintiffs assert that, in practice, the Secretary has followed up her letters to the member hospitals (in which she suggested they may have violated the False Claims Act) by: (1) conducting an audit of each hospital's billings; (2) identifying "errors" based on the hospital's alleged failure to properly bundle test procedures when billing for them; (3) computing the damages the government could recover under a False Claims Act lawsuit (which the Secretary notes in her letters to the hospitals include both a penalty of up to $10,000 per false claim, plus triple the amount of actual damages); and (4) inviting the hospital to pay a penalty of something less than the damages available under the False Claims Act, to avoid legal prosecution. Plaintiffs assert this practice is highly unfair, because: (1) their bundling of claims was correct under then-applicable guidelines; and (2) even though they would not be found liable under the False Claims Act, they cannot risk rejecting the Secretary's invitation to settle, because the damages available under the False Claims Act are so overwhelming.

Plaintiffs have brought this action in an attempt to thwart (or at least slow down) the Secretary's heavy-handed approach to this investigation, and in the hopes of finding an even-handed forum within which to dispute the Secretary's views of their long-standing billing practices. Plaintiffs assert that, without this lawsuit, their member hospitals have no avenue to challenge the Secretary's actions: if the Secretary pursued normal administrative "recoupment" procedures to reclaim her alleged payments of "excess reimbursement," the hospitals could challenge the Secretary's alleged change in position through administrative remedies; by skipping normal recoupment procedures and instead threatening a False Claims Act lawsuit, plaintiffs claim the Secretary has robbed the hospitals of any way to challenge the Secretary's position. Plaintiffs point out, moreover, that the Secretary is demanding payments in excess of those normally available through a recoupment procedure by using the threat of a False Claims Act action to "extort" not just the return of Medicare payments previously received, but the payment of additional sums as well.

The Secretary does not deny that her position regarding the member hospitals' billing practices is different today than it was in the past. Nor does the Secretary deny that her approach to this investigation (and the approach of those counsel who represent her) has been somewhat heavy-handed.³ The Secretary simply argues that this Court is without jurisdiction to question or interfere with her investigation and/or her negotiations with the individual member hospitals, and that this action must, therefore, be dismissed. Despite understandable concern over the Secretary's and Attorney General's investigative tactics, the Court is compelled to agree that this action must be dismissed for lack of subject matter jurisdiction.

II.

There are two general categories into which Rule 12(b)(1) motions to dismiss for lack of subject matter jurisdiction fall: facial attacks and factual attacks. Fed.R.Civ.P. 12(b)(1); United States v. Ritchie, 15 F.3d 592, 598 (6th Cir.1994), cert. denied, 513 U.S. 868, 115 S.Ct. 188, 130 L.Ed.2d 121 (1994). A facial attack challenges the sufficiency of the pleading itself. On such a motion, the Court must take all of the material allegations in the complaint as true and construe them in the light most favorable to the non-moving party. Id. (citing Scheuer v. Rhodes, 416 U.S. 232, 235-37, 94 S.Ct. 1683, 1686-87, 40 L.Ed.2d 90 (1974)). In contrast, a factual attack, as is made here, challenges the factual existence of subject matter jurisdiction.

On this form of motion, the...