True Health Diagnostics, LLC v. Azar
| Decision Date | 22 July 2019 |
| Docket Number | CIVIL ACTION NO. 9:19-CV-00110-MJT |
| Parties | TRUE HEALTH DIAGNOSTICS, LLC, Plaintiff, v. Alex M. AZAR, II, et al, Defendants. |
| Court | U.S. District Court — Eastern District of Texas |
J. Thad Heartfield, Beaumont, TX, Derek C. Abbott, Pro Hac Vice, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, DE, Michael Kimberly, Pro Hac Vice, Michael S. Nadel, Paul M. Thompson, Pro Hac Vice, McDermott Will & Emery LLP, Washington, DC, for Plaintiff.
Joshua M. Russ, U.S. Attorney's Office, Plano, TX, James Garland Gillingham, United States Attorney's Office, Tyler, TX, for Defendants.
ORDER DENYING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION
Plaintiff True Health Diagnostics LLC ("THD") moves for a preliminary injunction against Defendants Alex M. Azar, II, the United States Department of Health and Human Services Secretary, and Seema Verma, Administrator of the Centers for Medicare and Medicaid Services (collectively, "CMS"), seeking to enjoin CMS from "suspending, escrowing, recouping, or withholding any Medicare or Medicaid Payments from True Health." [Dkt. 20]. CMS opposes the Motion, asserting that the Court lacks subject-matter jurisdiction and that THD fails to carry its burden of establishing all four elements needed for a preliminary injunction. [Dkt. 25]. Because the Court finds that it lacks subject-matter jurisdiction, THD's Motion for a Preliminary Injunction is DENIED. But even if the Court had subject-matter jurisdiction, THD's Motion would be denied because Plaintiff failed to meet its burden of establishing all four elements for a preliminary injunction.
THD provides nationwide diagnostic services, consisting primarily of blood and urine testing, for Medicare beneficiaries. THD provides such services by (1) testing samples from physicians in their lab in either Frisco, Texas, or Richmond, Virginia; or (2) managing outpatient labs in hospitals partnered with THD. Most of THD's 400 employees are lab technicians and billers. Approximately 20% of all THD patients are currently Medicare patients, and 30% of THD revenue comes from CMS [Dkt. 3-2, ¶ 4]. Private providers supply the remaining 70% of revenue.
On May 25, 2017, CMS suspended 100% of THD's Medicare payments, without prior notice, based on "credible allegations of fraud" pursuant to 42 C.F.R. § 405.372(a)(4).1 [Pl.'s Ex. A, Dkt. 35]. As part of its May 26, 2017 letter of suspension (the "May 2017 Letter"), CMS listed eight claims, including claim control numbers and dates of services, that failed to meet Medicare guidelines. [Pl.'s Ex. A, Dkt. 35]. The May 2017 Letter noted that the list of eight claims "is not exhaustive or complete in any sense, as the investigation into this matter is continuing." [Pl.'s Ex. A, Dkt. 35]. THD submitted a rebuttal statement on June 5, 2017 [Pl.'s Ex. B, Dkt. 35], and CMS responded with a refusal to lift the suspension [Pl.'s Ex. C, Dkt. 35]. On June 23, 2017, CMS reduced the suspension to 35% (the "2017 Suspension"). [Dkt. 9-1].
On June 11, 2019, while the 2017 Suspension was in place, CMS implemented a second suspension of Medicare payments based on "recent credible allegations of fraud" (the "2019 Suspension"). The June 13, 2019 letter of suspension (the "June 2019 Letter") concerning the second suspension explained that the 2019 Suspension "is distinct from the suspension that was implemented on May 25, 2017." [Pl.'s Ex. I, Dkt. 35]. The June 2019 Letter provided a list of five allegedly fraudulent claims and, like the May 2017 Letter, noted that the list "is not exhaustive or complete in any sense." [Pl.'s Ex. I, Dkt. 35]. THD submitted its rebuttal statement concerning the 2019 suspension on June 25, 2019. [Pl.'s Ex. J, Dkt. 35].
On July 2, 2019, THD brought suit against CMS for the 2017 and 2019 Suspensions. Specifically, THD alleges five causes of action for CMS's actions: (1) violation of procedural due process; (2) violation of substantive due process; (3) violation of the Administrative Procedure Act; (4) mandamus; and (5) declaratory judgment. [Dkt. 2].
The next day, on July 3, 2019, THD filed an Emergency Motion for a Temporary Restraining Order, seeking a temporary restraining order ("TRO") that enjoins CMS from "suspending, escrowing, or withholding any further Medicare or Medicaid reimbursements for such a time as to allow the parties to brief and argue a motion for a preliminary injunction" and for the "release of the checks that CMS has made out to True Health since June 13, 2019, but not delivered." [Dkt. 3 at 2]. THD argued that it has a substantial likelihood of success on its due process claims, it would suffer irreparable harm in the form of bankruptcy or liquidation by July 8 if not provided injunctive relief, the balance of hardships favors THD, and the injunctive relief would serve the public interest. CMS responded to the TRO motion on July 5, 2019. [Dkt. 9 & 10].
On July 5, 2019, CMS issued a letter notifying THD of an overpayment determination as to the 2017 suspension and issued several letters to THD through Qlarant, a Medicare contractor, informing THD of the following:
Novitas Solutions, another Medicare contractor, issued two more letters to THD that explained why THD was responsible for the overpayment, the rebuttal process, interest assessment, recoupment, payment for the overpay amount, the appeals process, and various other actions THD may take after receiving the overpayment determination. [Dkt. 29-1, 29-2].2
On July 8, 2019, the Court granted the TRO. [Dkt. 12]. Neither party provided the Court with evidence of CMS's overpayment determination of the 2017 Suspension until after it had entered the TRO. The TRO preserved the status quo of a 35% suspension by enjoining CMS "from suspending, escrowing, or otherwise withholding more than 35% of True Health's Medicare or Medicaid payments" until July 18, 2019. [Dkt. 12]. The Court also ordered THD to pay a nominal bond for the TRO. [Dkt. 23]. THD subsequently filed a Motion for Preliminary Injunction. [Dkt. 20]. CMS timely responded to the Preliminary Injunction Motion, arguing the injunction should be denied because the Court lacks subject-matter jurisdiction and that THD fails to meet its burden of establishing all four elements for a preliminary injunction. [Dkt. 25].
On July 17, 2019, the Court held a show cause hearing for the preliminary injunction with all parties and counsel present. Christian Richards, THD's Chief Financial Officer, testified at the hearing. THD also conceded at the hearing that because CMS has made an overpayment determination concerning the 2017 Suspension, THD can now begin the administrative appeals process for the 2017 Suspension. As of this Order, CMS has made no overpayment determination concerning the June 2019 Suspension.
Medicare is the federal medical insurance program for the aged and disabled. 42 U.S.C. § 1395 et seq. A company's participation in the Medicare program is completely voluntary. See 42 C.F.R. § 489.10. The Secretary for the Department of Health and Human Services ("HHS") operates Medicare through CMS, which in turn hires contractors to perform administrative functions on CMS's behalf. 42 U.S.C. § 1395u.
Medicare is a pay-first system. That is, once a Medicare provider submits claims for payment—without any records, documents, or proof that the services were provided or that the services meet Medicare requirements—CMS, through its contractors, automatically pays those claims within a couple of weeks after submission.
CMS can suspend payments, "in whole or in part," when it determines "a credible allegation of fraud exists against a provider or supplier." 42 C.F.R. § 405.371(a)(2). "A credible allegation of fraud is an allegation from any source, including but not limited to the following: (1) Fraud hotline complaints[,] (2) Claims data mining[,] (3) Patterns identified through provider audits, civil false claims cases, and law enforcement investigations." 42 C.F.R. § 405.370(a). "Allegations are considered to be credible when they have indicia of reliability." Id. In cases of suspected fraud, CMS need not issue a notice to the supplier prior to suspension. 42 C.F.R. § 405.372(a)(4).
When CMS suspends a provider or supplier's payments, it must provide the suspended entity an opportunity to submit a rebuttal statement as to why CMS should end the suspension. 42 C.F.R. §§ 405.373(a)(2) ; 405. 374. CMS must then respond to the rebuttal within 15 days with a "notification of determination" that contain "specific findings on the conditions upon which the suspension is initiated, continued, or removed and an explanatory statement of the determination." 42 C.F.R. § 405.375(b)(2). This determination is not appealable and "is not an initial determination" within the Medicare Act administrative process. Id. Cf. 42 C.F.R. § 405.924 ().
After suspending payments, CMS must reevaluate every 180 days whether good cause exist to not continue the suspension. 42 C.F.R. § 405.371(b)(2)(i). In addition to reevaluating good cause every 180 days, CMS must also request a certification from the Office of Inspector General ("OIG") or other law enforcement agency "that the matter continues to be under investigation warranting continuation of the suspension" for each 180-day period. 42 C.F.R. § 405.371...
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