Total Renal Laboratories, Inc. v. Shalala, 1:99-CV-436-CAM.

CourtUnited States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Northern District of Georgia
Citation60 F.Supp.2d 1323
Docket NumberNo. 1:99-CV-436-CAM.,1:99-CV-436-CAM.
PartiesTOTAL RENAL LABORATORIES, INC., a Florida corporation, d/b/a Dialysis Laboratories, Plaintiff, v. Donna E. SHALALA, Secretary of Health and Human Services, and Blue Cross and Blue Shield of Florida, Inc., a Florida non-profit corporation, Defendants.
Decision Date29 July 1999
60 F.Supp.2d 1323
TOTAL RENAL LABORATORIES, INC., a Florida corporation, d/b/a Dialysis Laboratories, Plaintiff,
Donna E. SHALALA, Secretary of Health and Human Services,
Blue Cross and Blue Shield of Florida, Inc., a Florida non-profit corporation, Defendants.
No. 1:99-CV-436-CAM.
United States District Court, N.D. Georgia, Atlanta Division.
July 29, 1999.

Page 1324

Randall L. Hughes, Adrienne E. Marting, Powell Goldstein Frazer & Murphy, Atlanta, GA, Margaret M. Manning, phv, James T. Grant, phv, Donald A. Goldman, phv, McDermott Will & Emery, Los Angeles, CA, Patric Hooper, phv, Hooper Lundy & Bookman, Los Angeles, CA, for Plaintiff.

Lori M. Beranek, Office of United States Attorney, Howard Henry Lewis, U.S. Department of Health & Human Services, Office of the General Counsel, Atlanta, GA, for Defendants.


MOYE, District Judge.

The above-styled action is before the court on 1) plaintiff's motion for leave to exceed page limitation [# 11]; 2) plaintiff's request for judicial notice [# 12]; 3) defendants' motion to file under seal their opposition to motion for preliminary injunction and motion to dismiss [# 17]; 4) defendants' motion to file under seal their motion to transfer [# 23]; 5) defendants' motion to dismiss [# 19]; 6) plaintiff's motion for preliminary injunction [# 8]; and 7) defendants' motion to transfer [# 22].


The Medicare program is administered by the Secretary of Health and Human Services (the "Secretary"). 42 U.S.C. § 1395kk. It consists of two parts, Part A ("Hospital Insurance") and Part B ("Voluntary Supplementary Medical Insurance").1 Generally, a person is eligible for Part A benefits if he has attained the age of 65 and also is eligible for monthly Social Security retirement benefits or is disabled. 42 U.S.C. §§ 426(a) and 1395c; 42 C.F.R. Part 406. Part A pays primarily for covered inpatient hospital and related health care services. 42 U.S.C. §§ 1395d and 1395x(b), 42 C.F.R. Part 409. Part A is funded by taxes assessed on employees and other government appropriations. 42 U.S.C. § 1395i.

Part B is a voluntary program, which provides benefits for enrolled, covered individuals that supplement and extend the benefits provided by the Part A program, and is financed by funds appropriated by the federal government and by premium payments made by enrollees. 42 U.S.C. §§ 1395k, 1395j and 1395x(s), 42 C.F.R. § 410.3. Part B primarily pays for "medical and other health services," which is defined in the Medicare Act to include (among other services) physician services, services incident to physician services, home dialysis supplies and equipment, institutional dialysis services and supplies and diagnostic laboratory tests. 42 U.S.C. §§ 1395k and 1395x(s).

Although Medicare coverage is generally limited to the elderly and disabled, Congress has made special provisions for individuals suffering from end stage renal disease ("ESRD") by relaxing normal eligibility requirements so that virtually everyone suffering from ESRD is eligible for Medicare. 42 U.S.C. § 1395rr(a). Patients with ESRD require dialysis on a regular basis, as well as a number of associated diagnostic laboratory tests. Dialysis services are provided by ESRD facilities, which may be either hospital-based or free-standing (which includes self-dialysis services). 42 U.S.C. § 1395rr(b). Services provided by hospital-based facilities are paid under Part A; services provided by free-standing clinics are covered under Part B.

Payments for services to patients with ESRD have special rules contained in 42 U.S.C. § 1395rr, which include a prospective payment, or a "composite rate," for these services, regardless of whether they are services paid for under Part A or Part B. This rate is sometimes imprecisely referred

Page 1325

to as the "Part A Composite Rate," even though it could be payment for a Part B service. The Secretary's regulations provide that the composite rate includes a few listed laboratory tests and "routine diagnostic tests." 42 C.F.R. §§ 410.50, 413.170(a), 413.180(a). Laboratory tests not included in the composite rate are paid for under Part B according to a fee schedule. 42 U.S.C. § 13951(h). As almost all ESRD patients are covered by the Medicare program, the Medicare program pays for virtually all of the dialysis and associated laboratory services provided in the United States.

Within the Department of Health and Human Services ("HHS"), the Secretary has delegated administration of the Medicare program to the Health Care Financing Administration ("HCFA"). In addition, the Secretary acts through fiscal agents known as "carriers", which have entered into contracts to perform the duties set forth in 42 U.S.C. § 1395u. As statutory agents for the Secretary, carriers, like Blue Cross Blue Shield of Florida ("BCBSF") in the instant case, perform a variety of functions, such as determining whether medical services are covered under the Medicare program, as well as processing and paying valid claims. The carriers also make waiver determinations; that is, they determine whether claims, which would otherwise not be paid, may be paid pursuant to the waiver provisions of 42 U.S.C. § 1395gg.

Another function of the carriers, acting in conjunction with HCFA, is to suspend Medicare payments when there is reliable evidence of an overpayment, fraud or willful misrepresentation. 42 C.F.R. § 405.371(a)(1). During the period of suspension, the carrier and others, including the Office of the Inspector General and the Department of Justice, may determine whether an overpayment exists and whether there was fraud. 42 C.F.R. § 405.372. At the conclusion of the suspension period, the funds are used to satisfy any Medicare overpayment or other obligations to HHS, or returned to the provider. 42 C.F.R. § 405.373(e).

Plaintiff, Total Renal Laboratories, Inc., formerly known as Dialysis Laboratories, ("DLI") furnishes laboratory services pursuant to physicians' orders for Medicare patients throughout the country and specializes in diagnostic laboratory services for patients with ESRD. Plaintiff performs many of the tests for ESRD facilities that are owned by plaintiff's parent, Total Renal Care Holdings, Inc. Until May 1998, defendants reviewed and approved plaintiff's claims for payment for these services and paid plaintiff in due course. Since May 1998, however, defendants have processed and approved plaintiff's claims for payment, but have withheld the amount due plaintiff — which at this point totals more than $10 million.

More specifically, on May 13, 1998, the carrier notified plaintiff that its payments were being suspended due to possible overpayment and a perceived increase in the volume of calcium testing (the "first suspension"). Plaintiff states that it repeatedly sought, but was consistently denied, more specific information concerning the basis for the suspension. Plaintiff then retained counsel and, through counsel, engaged a national consulting firm that worked with plaintiff's staff in an effort to obtain the medical records needed to verify the allowability of each challenged claim from dialysis facilities and physicians, and organize and analyze the information. Plaintiff submitted this information in a "rebuttal" to the carrier and HCFA in August 1998 to demonstrate that defendants' concerns were baseless. Plaintiff states that the carrier failed to respond timely (or at all) to plaintiff's rebuttal statements or requests for rescission of the suspension, despite the regulatory requirement that the carrier do so within 15 days. 42 C.F.R. § 405.375.

On October 1, 1998, shortly before the first suspension was due to expire, the carrier reopened and redetermined plaintiff's claims for the period January 1, 1995 through April 30, 1996 (Defendant's Exhibit 2). The carrier determined that, between

Page 1326

January 1, 1995 and April 30, 1996, plaintiff was overpaid more than $5 million for laboratory tests that should not have been paid by the Medicare program. (Id.). The information released at that time to plaintiff stated that virtually all of the claims were being denied for lack of documentation, apparently without referring to the material in the rebuttal submission. (Alderman Declaration, Exhibit 18, Attachment 1, p. 2). On October 14, 1998, plaintiff filed a request for carrier hearing and the carrier set the case for hearing on June 15, 1999. (Goldman fourth Declaration, ¶ 15). Plaintiff also requested release of the balance of the funds withheld in the first suspension. The carrier did not release any of the suspended funds contending that the amount determined to be overpaid on October 1, 1998, exceeds the amount suspended pursuant to the first suspension through September 13, 1998.

On September 4, 1998, the carrier notified plaintiff that its Medicare payments were being suspended for a second time due to reliable information that the claims submitted involved fraud or misrepresentation (the "second suspension"). (Defendants' Exhibit 1). This notice stated that the second suspension "may last up to 180 days from the date of [the second notice] and may be extended under certain circumstances in accordance with 42 C.F.R. § 405.372(d)." (Alderman Declaration, Exhibit 16). Plaintiff received no notice of any extension as required by 42 C.F.R. § 405.372(d)(2)(ii), and the second suspension period expired on or about March 3, 1999. (Goldman Fourth Declaration, ¶ 6). The carrier has not released any of the more than $10 million withheld in the second suspension. (Goldman Fourth Declaration, ¶ 7).

On May 7, 1999, the carrier issued a notice to plaintiff announcing "extension" of the "current" suspension for another full year (the "third suspension"). (Goldman Fourth Declaration, ¶¶ 8-9; Exhibit 24). This notice stated that the extension is based upon a "determination that Medicare claims [that plaintiff has] filed have resulted in an overpayment and that payments to be made may...

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