Vertos Med., Inc. v. Novitas Solutions, Inc.

• Decision Date: 27 November 2012
• Docket Number: CIVIL ACTION NO. H-12-3224
• Parties: VERTOS MEDICAL, INC., Plaintiff, v. NOVITAS SOLUTIONS, INC., Defendant.
• Court: U.S. District Court — Southern District of Texas

VERTOS MEDICAL, INC., Plaintiff,

v.NOVITAS SOLUTIONS, INC., Defendant.

CIVIL ACTION NO. H-12-3224

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

Dated: November 27, 2012

MEMORANDUM OPINION SETTING OUT FINDINGS OF FACT AND

CONCLUSION OF LAW DISMISSING FOR LACK OF SUBJECT MATTER

JURISDICTION

This is a suit by a company whose sole business is marketing a medical procedure for relieving spinal compression. The company, Vertos Medical, Inc., challenges the decision by a Medicare Administrative Contractor, Novitas Solutions, Inc., to revise the Local Coverage Determination for the region that includes Texas to place the procedure in the "non-coverage" category for Medicare benefits. Vertos seeks a preliminary injunction requiring Novitas to reinstate the prior standard that allowed a Medicare beneficiary to seek coverage for the costs of Vertos's minimally invasive lumbar decompression, or MILD, medical procedure. This court held an evidentiary hearing on the preliminary injunction application. Before the hearing, Novitas moved to dismiss for lack of subject-matter jurisdiction, and Vertos responded. At the hearing, both parties appeared through counsel and presented evidence. Counsel for both parties also presented arguments on the subject-matter jurisdiction issues.

Based on the pleadings, the motion and response, the record, the testimony of the witnesses, the exhibits admitted into evidence, the arguments of counsel, and the applicable law, this courtenters findings of fact and conclusions of law under Fed. R. Civ. P. 52. These facts and conclusions lead to the dismissal of this suit, and the denial of the injunctive and mandamus relief Novitas seeks, without prejudice, for lack of subject-matter jurisdiction.

I. The Parties and the Procedure

Vertos owns the MILD medical procedure for the treatment of lumbar spinal stenosis. Vertos was formed in 2005 to market the MILD procedure. The MILD procedure is approved by the Federal Drug Administration, which is a necessary, but not a sufficient, condition for Medicare coverage. The MILD procedure is billed with code CPT 0275T, a Category III billing code. Category III billing is generally used for medical services and procedures representing new or emerging technologies. The CPT codes are assigned by the American Medical Association. Vertos could, but has not, raise a protest with the AMA over the inclusion of the MILD procedure in Category III.

Medicare coverage decisions are made on both a national and a regional basis. A National Coverage Determination (NCD) is a determination by the Department of Health and Human Services Secretary about whether a particular item or service is covered by Medicare. See 42 U.S.C. § 1395ff(f)(1)(B). The Medicare program is administered by the Centers for Medicare & Medicaid Services (CMS) through private contractors — carriers or intermediaries — known as Medicare Administrative Contractors (MACs). 42 U.S.C. § 1395kk-1. One function of a MAC is to develop Local Coverage Determinations (LCDs). Id. § 1395kk-1(a)(4). An LCD is a determination by an MAC on whether a particular item or service will be covered by Medicare benefits on an intermediary or carrier-wide basis. All Medicare contractors must be consistent with the NCDs. See 42 C.F.R. § 405.1060(a)(4).

Medicare coverage is limited to items or services that are medically reasonable and necessary. 42 U.S.C. §§ 1395ff(f)(2)(B); 1395y(a)(1)(A). A determination that a Category III item or service is excluded from the non-coverage category does not mean that every beneficiary who seeks coverage will receive it. Such decisions are made on a case-by-case basis. But the determination to include an item or service in the non-coverage category in an LCD means that no beneficiary will receive such coverage. See, e.g., Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 767 n.4 (5th Cir. 2011) (stating that "[a] carrier may automatically deny claims when a 'clear policy serves as a basis for denial' for that type of claim" and categorizing an LCD as setting forth such a policy).

Vertos markets the MILD procedure as a treatment option for patients suffering from lumbar spinal stenosis who, because of conditions such as diabetes or obesity, are not candidates for more invasive options like laminectomies. Most of the patients who have received the MILD procedure are Medicare recipients. The MILD procedure has been reviewed favorably in some studies published in peer-reviewed journals. At least half of those studies were funded by Vertos, and some of the other studies were conducted by physicians receiving financial support from Vertos. The record also contains one peer-review-journal study by physicians with no connection to Vertos reporting negative results after 18 months. Vertos disputes the reliability of this study.

As of May 2012, the country was organized into 15 regions for Medicare administration purposes, with a MAC for each region. Trailblazer Health Enterprises, LLC ("Trailblazer") was the MAC for Jurisdiction 4, which covered Colorado, New Mexico, Oklahoma, and Texas.¹ In 2011,all but one LCD placed the MILD procedure in the non-coverage category. In May 2012, Trailblazer changed its LCD to exempt the MILD procedure from the non-coverage category. At that time, 6 of the 15 regional MACs had LCDs allowing case-by-case coverage decisions for individual Medicare beneficiaries who had or intend to have the MILD procedure. No national insurance company has yet covered the MILD procedure.

In July 2011, Trailblazer had issued an LCD that included the MILD procedure in the non-coverage category. Individual Medicare beneficiaries brought claims against Trailblazer challenging the denial of benefits for the MILD procedure. In May 2012, after 11 favorable Administrative Law Judge decisions on claims by individual Medicare beneficiaries challenging the Trailblazer LCD's classification of the MILD procedure, Trailblazer exempted the procedure from the non-coverage LCD and began to evaluate claims for the MILD procedure on a case-by-case basis. At that time, Trailblazer was aware that it had lost the MAC contract, which had occurred in March 2012.

In the 2012 reorganization of the country's MAC regions, Jurisdictions 4 and 7, serviced by three MACs (Pinnacle, Cahaba, and Trailblazer), were consolidated to form a single expanded area, Jurisdiction H.² This new area includes Arkansas, Louisiana, Mississippi, Colorado, New Mexico, Oklahoma, and Texas.³ Novitas Solutions, Inc. ("Novitas") is the MAC for the newly consolidated Jurisdiction H. As part of the reorganization and consolidation, CMS required the incoming MACs to review the policies of the outgoing MACs and select the most clinically appropriate policies to implement over the consolidated jurisdiction. Novitas reviewed LCDs from Trailblazer, Pinnacle, and Cahaba. At the end of June 2012, Novitas published the LCDs that it intended to implementbetween August 13, 2012 and November 19, 2012, depending on the state. See Document No. 1, ex. D at 3. The Novitas LCD selected a Pinnacle LCD that included Category III procedures such as the MILD procedure in the non-coverage category. This approach reinstates the Trailblazer LCD approach to the MILD procedure that had been in place from July 2011 to May 2012, when Trailblazer exempted the MILD procedure from the non-coverage category. The new LCD has been evaluated by the Department of Health and Human Services and found consistent with the NCD.

Since the consolidation, there are ten operational MACs administering Medicare claims. Of the ten, six have LCDs in place that address the MILD procedure code. Two of the LCDs cover the procedure, four do not provide for coverage, and the remaining four do not address this procedure. In those four jurisdictions, the coverage determination is on a case-by-case basis.

In this lawsuit, Vertos asks this court to require Novitas to reinstate the May 2012 Trailblazer LCD provision that excluded the MILD procedure from the non-coverage category in the LCD for Texas. Novitas argues that Vertos has no standing to seek this relief and that this court has no authority to grant it.

II. The Procedure for Administrative and Judicial Review of LCDs

A Medicare beneficiary whose claim is denied may pursue review either through a claims-appeal process under 42 U.S.C. § 405(g) or by seeking review of an LCD, or both. 42 U.S.C. §§ 1395ff(f)(2,5). Challenging an LCD allows review of an entire provision rather than only the specific claim denial. An LCD challenge is reviewed by an administrative law judge under a reasonableness standard. See 42 U.S.C. § 1395 ff(f)(2)(A); 42 C.F.R. § 426.300(a). A beneficiary's challenge to an individual claim denial is reviewed de novo. See 42 C.F.R. § 405.1000(d). The beneficiary can seek review of an adverse ALJ decision before the Departmental Appeals Board ofthe Department of Health and Human Services. 42 U.S.C. § 1395ff(f)(2)(A)(ii). A decision of the Departmental Appeals Board is a final agency action and is subject to judicial review. Id. § 1395ff(f)(2)(A)(iv).

A patient may challenge coverage determinations through the administrative-review process if the patient is entitled to benefits under Part A or enrolled under Part B of Medicare, and in need of the items or services that are the subject of the coverage determination. See id. § 1395ff(f)(5). Vertos is neither a beneficiary nor a provider and cannot itself access the administrative-review process to challenge the Novitas LCD. Yet the structure of Medicare makes that administrative-review process necessary to a district court's subject-matter jurisdiction.

Vertos is invoking federal subject-matter jurisdiction and has the burden to establish that it is present. See Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir.1981). Federal Rule of Civil Procedure 12(b)(1) governs challenges to a court's subject-matter jurisdiction. "A case is properly...