True Health Diagnostics, LLC v. Azar, CIVIL ACTION NO. 9:19-CV-00110-MJT

• Decision Date: 22 July 2019
• Docket Number: CIVIL ACTION NO. 9:19-CV-00110-MJT
• Citation: 392 F.Supp.3d 656
• Parties: TRUE HEALTH DIAGNOSTICS, LLC, Plaintiff, v. Alex M. AZAR, II, et al, Defendants.
• Court: U.S. District Court — Eastern District of Texas

392 F.Supp.3d 656

TRUE HEALTH DIAGNOSTICS, LLC, Plaintiff,

v.Alex M. AZAR, II, et al, Defendants.

CIVIL ACTION NO. 9:19-CV-00110-MJT

United States District Court, E.D. Texas, Lufkin Division.

Signed July 22, 2019

J. Thad Heartfield, The Heartfield Law Firm, 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 GRANTING DEFENDANT'S MOTION TO DISMISS

Michael J. Truncale, United States District Judge

Defendants Alex M. Azar, II, the Secretary of the United States department of Health and Human Services, and Seema Verma, Administrator for the Centers for Medicare and Medicaid Services (collectively, "CMS") move to dismiss the complaint filed by Plaintiff True Health Diagnostics, LLC ("THD") for lack of subject-matter jurisdiction and failure to state a claim upon which relief may be granted. [Dkt. 9]. THD did not file a response to CMS's Motion, and its response time has lapsed. Local Rule CV-7(e). Although THD did not file a separate response to CMS's Motion to Dismiss, THD did address the subject-matter jurisdiction issues in several pleadings and orally during the July 17, 2019 show cause hearing regarding its Motion for Preliminary Injunction. Based on the relevant filings, evidence, and applicable law, CMS's Motion to Dismiss is GRANTED.

I. FACTUAL AND PROCEDURAL BACKGROUND

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 is from CMS [Dkt. #3-2, ¶ 4]. Private providers supply the remaining 70% of revenue.

A. 2017 and 2019 CMS Payment Suspensions

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). [Dkt. 2, ¶ 34]. THD submitted a rebuttal statement on June 5, 2017 [Dkt. 2, ¶ 41], but CMS refused to lift the suspension [Dkt. 2, ¶ 46]. Approximately a month later on June 23, 2017, CMS reduced the suspension to 35% (the "2017 Suspension"). [Dkt. 2, ¶ 49].

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"). [Dkt. 2, ¶ 58]. THD submitted its rebuttal statement concerning the 2019 suspension on June 25, 2019. [Dkt. 3-3]. 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].

Subsequently, on July 5, 2019, CMS moved to dismiss the case based on Federal Rule of Civil Procedure 12(b)(1), lack of subject-matter jurisdiction, and 12(b)(6), failure to state a claim for which relief may be granted. [Dkt. 9]. On the same date, CMS issued an overpayment determination concerning the 2017 Suspension. [Dkt. 9 at 7].

B. The Administrative Process for Medicare Claims

Medicare is the federal medical insurance program for the aged and disabled. 42 U.S.C. § 1395 et seq. A provider'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). 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 (listing actions that are considered initial determinations).

Once CMS determines that there has been an overpayment, it sends an overpayment determination and demand letter to the provider or supplier. This initial overpayment determination triggers the multi-step administrative appeals process for a provider or supplier to follow if it is dissatisfied with the initial overpayment determination. 42 C.F.R. § 405.904(a)(2). The administrative appeal steps are as follows:

(1) A redetermination of the initial determination of overpayment by a Medicare administrative contractor. ( 42 U.S.C. § 1395ff(a)(3)(A) ; 42 C.F.R. § 405.940 et seq. );

(2) A reconsideration by a Qualified Independent Contractor ("QIC") ( 42 U.S.C. § 1395ff(c), (g) ; 42 C.F.R. § 405.960 et seq. );

(3) A de novo review and hearing before an Administrative Law Judge ("ALJ") ( 42 U.S.C. § 1395ff(d) ; 42 C.F.R. §§ 405.1002(a)(2), 405.1006(b) ); and

(4) A review and decision by the Medicare Appeals Council ("MAC"), which is considered a final decision of the Secretary ( 42 U.S.C. § 1395ff(b) ; 42 C.F.R. § 405.1102(a) ).

A provider or supplier may only seek review in a federal district court after a receiving a decision from the MAC. 42 U.S.C. § 1395ff(b)(1)(A) ; 42 C.F.R. § 405.1136 ; 42 C.F.R. § 405.1130.

II. APPLICABLE LAW

"When a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits." Ramming v. United States , 281 F.3d 158, 161 (5th Cir. 2001) (per curiam). Considering Rule 12(b)(1) motions first "prevents a court without jurisdiction from prematurely dismissing a case with prejudice." Id.

Federal courts are courts of limited jurisdiction. They possess only that power authorized by the Constitution and statute. Kokkonen v. Guardian Life Ins. Co. of Am. , 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) ; Bender v. Williamsport Area Sch. Dist. , 475 U.S. 534, 541, 106 S.Ct. 1326, 89 L.Ed.2d 501 (1986). The court must presume it lacks jurisdiction; the party asserting jurisdiction has the burden of establishing the contrary. Id. When a court dismisses for lack of subject matter jurisdiction, that dismissal "is not a determination of the merits and does not prevent the plaintiff from pursuing a claim in a court that does have proper jurisdiction." Ramming , 281 F.3d at 161.

The district court may dismiss for lack of subject matter jurisdiction based on (1) the complaint alone; (2) the complaint supplemented by undisputed facts in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts. Williamson v. Tucker , 645 F.2d 404, 413 (5th Cir. 1981). Regardless of the nature of attack, the party asserting jurisdiction constantly carries the burden of proof to establish that jurisdiction does exist. Ramming v. United States , 281 F.3d 158, 161 (5th Cir. 2001) (per curiam). "A case is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case." CleanCOALition v. TXU Power , 536 F.3d 469, 473 (5th Cir. 2008) (quoting Home Builders Ass'n of Miss., Inc. v. City of Madison , 143 F.3d 1006, 1010 (5th Cir. 1998) (internal quotations omitted).

III. DISCUSSION

THD alleges this Court has subject-matter jurisdiction pursuant to: (1) federal question ( 28 U.S.C. § 1331 ) and 42 U.S.C. § 405(g) ; (2) mandamus jurisdiction ( 28 U.S.C. § 1361 ); (3) the All Writs Act ( 28 U.S.C. § 1651(a) ); (4) Bivens jurisdiction; (5) the Court's inherent equity powers; and (6) the Court's power to preserve its own jurisdiction. [Dkt. 2, ¶ 17]. CMS contends none of those provide this court with subject-matter jurisdiction.

A. This Court lacks federal question jurisdiction.

Although federal courts have original jurisdiction in actions "arising under the Constitution, laws, or treaties of the United States" ( 28 U.S.C. § 1331 ), absent administrative exhaustion, Medicare cases are generally excluded from this general grant of federal-question jurisdiction. Family Rehab., Inc. v. Azar , 886 F.3d 496, 501, n.4 (5th Cir. 2018). This is because "[t]he Medicare act severely restricts the authority of federal courts by requiring ‘virtually all legal attacks under the Act be brought through the agency.’ " Physician Hosps. of Am. v. Sebelius , 691 F.3d 649, 653 (5th Cir. 2012) (quoting Shalala v. Ill. Council on Long Term Care, Inc. , 529 U.S. 1, 13, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000) ). "By statute, claims under Medicare must first be presented to the HHS Secretary." Id.

Federal courts are vested with jurisdiction...