U.S. v. Lahey Clinic Hospital, Inc.

Decision Date04 February 2005
Docket NumberNo. 04-1753.,04-1753.
Citation399 F.3d 1
PartiesUNITED STATES of America, Plaintiff, Appellee, v. LAHEY CLINIC HOSPITAL, INC., Defendant, Appellant.
CourtU.S. Court of Appeals — First Circuit

Richard P. Ward, with whom Ropes & Gray LLP was on brief, for appellant.

Jeffrey Clair, Attorney, Civil Division, United States Justice Department, with whom Peter D. Keisler, Assistant Attorney General, Michael J. Sullivan, United States Attorney, Douglas N. Letter, and Nancy Rue, Attorneys, Civil Division, United States Justice Department, were on brief, for appellee.

Before LYNCH, LIPEZ, HOWARD, Circuit Judges.

LYNCH, Circuit Judge.

The United States filed a civil complaint in federal district court under 28 U.S.C. § 1345 alleging that the Lahey Clinic Hospital billed Medicare and received payment for tests and other diagnostic procedures performed by its clinical laboratory when Lahey knew, or reasonably should have known, that the tests were not reasonable and necessary for diagnosis or treatment of illness or injury of Medicare beneficiaries. The United States sought restitution for these overpayments, including an accounting, disgorgement of improper gains of over $311,000, and prejudgment interest, under common law theories of unjust enrichment and payment under mistake of fact.

Lahey moved for judgment on the pleadings and, in the alternative, for summary judgment. Lahey argued that the Medicare Act, 42 U.S.C. § 1395, et seq., and the attendant administrative procedures promulgated by the Secretary of Health and Human Services (HHS), are the exclusive avenue for recovery by the United States of Medicare overpayments, and as such, the district court had no subject matter jurisdiction. The court denied the motion and certified the question of subject matter jurisdiction to this court under 28 U.S.C. § 1292(b).

On interlocutory appeal, the question presented is whether the district court lacks subject matter jurisdiction because the Medicare Act explicitly or implicitly repeals the grant of federal court jurisdiction under 28 U.S.C. § 1345 or displaces the underlying common law causes of action over which § 1345 gives federal courts jurisdiction. We hold that the Medicare Act does not repeal 28 U.S.C. § 1345 or displace the underlying common law causes of action. We affirm.

I.

Congress established the Medicare program in 1965 by Title XVIII of the Social Security Act. 42 U.S.C. § 1395 et seq. Medicare is a federally subsidized health insurance program for the elderly and certain disabled individuals. See id. § 1395c. The Secretary of HHS is responsible for the Medicare program, and during the time period relevant to this case, the Health Care Financing Administration (HCFA)1 was the component of HHS responsible for administering the Medicare program.

Medicare is divided into two parts: Part A and Part B. Part A provides insurance for covered inpatient hospital and related post-hospital services. Part B provides voluntary and supplementary insurance which covers physicians' and certain other medical and health services, including laboratory tests administered by a hospital and furnished to outpatients for the purpose of diagnosis. Id. §§ 1395j, 1395k, 1395x(s). The Secretary contracts with "fiscal intermediaries" (FIs) and "carriers" to make initial reimbursement determinations and to administer payments. These entities are often private insurance companies. In most circumstances, FIs administer Part A and carriers administer Part B, but FIs administer the program with respect to hospitals for outpatient services covered under Part B.

The claims here concern payments for services provided under Part B of Medicare. During the relevant time period involved in this case, these payment decisions were made "by the Secretary in accordance with the regulations prescribed by him." Id. § 1395ff(a). In order to be reimbursed through Medicare Part B, participating providers must first file a claim with their FI. As for the services involved in this case, they must be reasonable and necessary for diagnosis or treatment of illness or injury; they were covered only if ordered by a treating physician who used the test results in the management of the beneficiary's specific medical problem. 42 C.F.R. § 410.32. Once a payment decision has been made, a dissatisfied provider may seek administrative review of this determination and then judicial review of the Secretary's final decision after the avenues of administrative appeal have been exhausted. Id. § 1395ff(b)(1).

In the late 1980's, Medicare's escalating payments for laboratory services became a source of increasing concern to Congress, the Secretary, and HHS's Office of Inspector General. In legislation that took effect in 1986, Congress imposed payment caps on the amount individual carriers could pay in reimbursement for laboratory services. See 42 U.S.C. 1395l(h). Nonetheless, payments for Part B laboratory services continued to rise, reaching $3.9 billion in fiscal year 1987.

In response to these rising costs, in 1990, the HHS Inspector General (IG) conducted a review of a sample of Medicare billings for the year 1988 and determined that Medicare was paying nearly twice as much as physicians for the same tests. The IG found that much of the added cost was attributable to Medicare's reimbursement of panels of tests. These tests were bundled together and performed at the same time, as an integrated group. The IG found that when physicians ordered these panels of tests, they were billed at a reduced rate to account for savings from performing the tests as a group. However, when Medicare was billed for these tests, the individual tests within the panel were billed separately at their full rate, resulting in greatly increased costs to Medicare.

A 1998 audit by the IG found the same problem in claims for clinical tests performed by hospital laboratories serving outpatients. The 1998 audit also raised concerns about certain hematology indices, which can be generated from the results of other tests. The report concluded that in many instances these indices were automatically prepared when other related tests were ordered and then separately billed to Medicare, even if the index was duplicative or medically unnecessary.

Within the narrow category of services of clinical laboratory tests performed by hospital outpatient laboratories, including chemistry, hematology, and urinalysis tests, the IG found that "Medicare FIs overpaid hospital outpatient department laboratories about $43.6 million ... during a two year period from January 1, 1994 to December 31, 1995." The IG found for that same time period "an additional $15.6 million could have been saved if policies had been developed to preclude payment for additional automated hematology indices."

Accordingly, the IG recommended that the Secretary implement controls to stop these overpayments and seek to recover overpayments previously made. The Secretary agreed and noted that he would "coordinate any recovery activity with the Department of Justice through our Office of General Counsel." A number of civil actions have been instituted to recover some of these costs under various theories. See, e.g., United States v. Blue Cross & Blue Shield of Ala., 156 F.3d 1098 (11th Cir.1998) (False Claims Act); United States v. Tenet Healthcare Corp., 343 F.Supp.2d 922 (C.D.Cal.2004) (common law mistake and negligent misrepresentation). The current dispute between Lahey and the United States arose against this background.

We are careful to say that Lahey does not argue that the United States may not recover overpayments, only that it has chosen the wrong approach in doing so.2 Similarly, the United States has not alleged fraud on Lahey's part in this action. Lahey is a renowned academic medical center that participates in the Medicare program as a "provider of services" to Medicare beneficiaries. Lahey has entered into a provider agreement with the Secretary pursuant to 42 U.S.C. § 1395cc. The agreement provides that Lahey will be reimbursed by Medicare through Blue Cross/Blue Shield of Massachusetts (Lahey's FI during the relevant time period) for medical services that are "reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member." 42 U.S.C. § 1395y(a)(1)(A).

On January 30, 2003, the United States filed an action under 28 U.S.C. § 13453 against Lahey alleging "violations of the common law giving rise to causes of action for unjust enrichment and payment under mistake of fact." The allegations were split into two different groups. The first group asserted that Lahey "repeatedly billed Medicare for separate individual laboratory tests that could practically and more economically be performed as a single panel of tests." This billing practice violated Medicare reimbursement policies which required the tests to be billed as "an integrated, single panel of tests rather than separately." The government also alleged that Lahey knew or should have known of this reimbursement requirement and that Lahey nonetheless submitted numerous individual claims between July 1, 1993 and June 30, 1994. In total, the United States stated that Lahey submitted over 9,300 Medicare claims for unbundled blood chemistry tests.

A second group of allegations asserted that virtually every time a complete blood count test was ordered for a patient and Lahey billed the United States for this test, Lahey performed a medically unnecessary hematology test. Specifically, between July 1, 1993 and December 31, 1996, Lahey submitted over 88,000 claims for payment of certain "automated hemogram indices," which were generated every time a complete blood count was ordered. The United States alleges that Lahey repeatedly billed Medicare for these tests without making any determination that they were medically necessary or...

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