Texas Alliance for Home Care Servs. v. Sebelius

• Decision Date: 09 September 2011
• Docket Number: No. 10–cv–747 (RCL).,10–cv–747 (RCL).
• Citation: 811 F.Supp.2d 76
• Parties: TEXAS ALLIANCE FOR HOME CARE SERVICES, et al., Plaintiffs, v. Kathleen SEBELIUS, Secretary, Department of Health and Human Services, et al., Defendants.
• Court: U.S. District Court — District of Columbia

811 F.Supp.2d 76

TEXAS ALLIANCE FOR HOME CARE SERVICES, et al., Plaintiffs,

v.Kathleen SEBELIUS, Secretary, Department of Health and Human Services, et al., Defendants.

No. 10–cv–747 (RCL).

United States District Court, District of Columbia.

Sept. 9, 2011.

William G. Kelly, Jr., Multinational Legal Services, PLLC, Driggs, ID, for Plaintiffs.

Clifford Lee Reeves, II, U.S. Department of Justice, Javier M. Guzman, U.S. Attorney's Office, Washington, DC, for Defendants.

MEMORANDUM OPINION

ROYCE C. LAMBERTH, Chief Judge.I. INTRODUCTION

In 2003, as part of the Medicare Prescription Drug, Improvement, and Modernization Act, Pub. L. No. 108–173, 117 Stat. 2066 (2003) or “MMA,” Congress directed the Department of Health and Human Services (“HHS”) and the Center for Medicaid and Medicare Services (“CMS”) to transition payment for Durable Medical Equipment (“DME”) ¹ under Medicare Part B from a fee schedule to a competitive bidding process by 2009. As part of this new law, Congress declared that CMS could not issue contracts to DME suppliers unless those entities met financial standards specified by the Secretary of HHS. The Secretary, along with an advisory group created by the MMA, held several public meetings on this new program—which included discussions on appropriate financial standards—and published a proposed rule in the Federal Register that, inter alia, described the purposes for collecting a supplier's financial information and gave examples of financial metrics that CMS would consider. In 2007, the Secretary published a final rule outlining the competitive process (the “DME Bidding Program”). The final rule stated that bidders would need to submit certain financial documentation, and directed interested parties to a website for the Program describing ten financial metrics CMS would use to evaluate potential DME suppliers. Before the initial implementation of the DME Bidding Program, Congress amended the statute via the Medicare Improvements for Patients and Providers Act. Pub.L. No. 110–275, 122 Stat. 2494 (2008) (“MIPPA”). These changes pushed back the target dates for implementation, and the Secretary subsequently promulgated an interim final rule incorporating the statutory changes and proceeded with the revised DME Bidding Program. But before the results of the revised Program could be announced, plaintiffs—a DME supplier and an industry group ²—filed suit challenging the Secretary's financial standards. The gravamen of plaintiffs' complaint is that the standards lack the specificity required by statute, leaving potential DME suppliers in the dark when bidding for contracts. The DME Bidding Program has not yet been implemented, however, and so plaintiffs' suit focuses on the procedures used by the Secretary in designing the Program. Specifically, plaintiffs allege that the generality with which the Secretary's rulemaking process discussed financial standards renders the notice-and-comment process required by both the MMA and the Administrative Procedure Act (“APA”) insufficient, that the absence of any published formula for financial viability violates the Freedom of Information Act (“FOIA”), and that the lack of a defined method for determining a supplier's soundness implies that CMS is acting arbitrarily, and the defendants are acting ultra vires. Defendants now move to dismiss plaintiffs' complaint, arguing that judicial review of these questions are precluded by the plain text of the MMA, that plaintiffs lack standing, and that the complaint fails to state a claim upon which relief may be granted. Plaintiffs oppose defendants' request, and have sought several times to amend their original complaint. For the reasons set forth below, the Court finds that it lacks subject-matter jurisdiction over this matter and that, in any event, the Secretary's rulemaking process was legally sufficient. The Court will therefore dismiss this action in its entirety.

II. BACKGROUNDA. Statutory and Regulatory Background

Medicare is an “insurance program” that “provides basic protection against the costs of hospital, related post-hospital, home health services, and hospice care.” 42 U.S.C. § 1395c. Those eligible for the program include individuals over the age of 65, qualified individuals who have less than two years until they reach age-based eligibility, and certain other individuals afflicted with particular medical conditions. Id. Most drugs, medical equipment, and medical services are covered by Medicare, which pays for a significant proportion of the cost in accordance with fee schedules that are published and revised by HHS and CMS—a process that has traditionally applied to the purchase of DME for Medicare beneficiaries.

In the late 1990s Congress—in the wake of “[n]umerous studies conducted by the HHS Office and the Inspector General as well as GAO hav[ing] found the government-determined fee schedule for durable medical equipment (DME) too high for certain items,” H.R.Rep. No. 108–178(II), at 192 (2003)—authorized the Secretary to undertake several demonstration projects implementing a competitive bidding process for setting DME prices. The basic structure of the process is straightforward: Rather than have the Secretary set prices directly, CMS invites all suppliers in a geographical area to submit bid prices at which they would be willing to furnish particular DME products. After receiving bids and removing those entities ineligible under accreditation, financial or other standards, CMS adds up the proposed market shares—starting with the lowest bidder—until the entire market is covered, and awards exclusive contracts to those selected bidders at the median proposed price among the winners. A 1997 law “authorized the Secretary to conduct up to five demonstration projects to test competitive bidding as a way for Medicare to price and pay for” DME. H.R.Conf.Rep. No. 108–391, at 572 (2003).

Three demonstrations were ultimately conducted—two in Polk County, Florida and one in the fine city of San Antonio, Texas. Id. The consensus following these pilot programs was, and remains, that the introduction of competitive bidding into the DME market was a resounding success. As Congress would later observe: “The DME competitive bidding demonstration has been a success. The taxpayers and beneficiaries saved significantly and quality standards were higher under the demonstration.” H.R.Rep. No. 108–178(II), at 192. And HHS concurred: “The demonstration led to lower Medicare fees for almost every item in almost every product category in each round of bidding .... resulting in a nearly 20 percent overall savings at each site.” 71 F.R. 25654, 25657 (2006); see also Hearing on Medicare's DMEPOS Competitive Bidding Program: Hearing before the Subcomm. On Health of the H. Comm. On Ways and Means, 110th Cong. 82 (2008), at 33 (statement of Mr. Hoerger) (“2008 Hearing Tr.”) (expert testimony that demonstrations “produced lower prices” while having “relatively little effect on beneficiary access, quality and product selection”).

Satisfied with the demonstration results, Congress included in the MMA instructions for the Secretary to implement the DME Bidding Program nationwide. Codified at 42 U.S.C. § 1395w–3, the relevant statutory provision directs the Secretary to establish the DME Bidding Program, id. § 1395w–3(a), describes the conditions that must be met by suppliers before any contracts may be awarded, id. § 1395w–3(b)(2), establishes the terms that must be included in any contract, id. § 1395w–3(b)(3), and sets forth the process for payment. Id. § 1395w–3(b)(5). Congress envisioned implementation of the DME Bidding Program over several phases, with “10 of the largest metropolitan statistical areas in 2007; 80 ... in 2009; and remaining areas after 2009.” H.R.Rep. No. 108–391, at 575.

The MMA sets forth conditions to be satisfied before CMS may award a contract under the DME Bidding Program, including that the supplier “meets applicable financial standards specified by the Secretary.” 42 U.S.C. § 1395w–3(b)(2)(A)(1)(ii); see also H.R.Rep. No. 108–391, at 576 (explaining that CMS may not award contracts unless “entities meet financial standards specified by the Secretary, taking into account the needs of small providers”). To determine the appropriate financial standards, the MMA created a Program Advisory and Oversight Committee (“PAOC”), 42 U.S.C. § 1395w–3(c), to “provide advice to the Secretary regarding the implementation of the program, data collection requirements, proposals for efficient interaction among manufacturers and distributors of the items and services providers and beneficiaries, the establishment of quality standards, and other functions specified by the Secretary.” H.R.Rep. No. 108–391, at 577; see also 42 U.S.C. § 1395w–3(c)(3)(A)(ii).

In 2004, the Secretary published notice in the Federal Register of public meetings hosted by PAOC on replacement of “the current DME payment methodology for certain items with a competitive acquisition process to improve the effectiveness of Medicare's methodology for setting DME payment amounts.” 69 F.R. 52723, 52723 (2004). That notice explained that PAOC's role involved, inter alia, advising the Secretary on “financial standards for suppliers under the program.” Id. The notice requested any written comments or questions, and announced that a summary of the meeting would be made publicly available. Id. After this and other public discussions were held, which included discussion on the “[f]inancial capabilities of bidding suppliers,” the Secretary published a proposed rule in May 2006. 71 F.R. at 25658.

In the proposed rule, the Secretary explained that the purpose of evaluating financial standards is to assist CMS “in assessing the expected quality of suppliers, estimating the total potential capacity of selected suppliers, and ensuring that selected suppliers are able to continue to serve market demand for the duration of their contracts.” Id. at...