Yale-New Haven Hosp., Inc. v. Thompson

• Decision Date: 31 August 2001
• Docket Number: No. 3:99CV2546 (GLG).,3:99CV2546 (GLG).
• Citation: 162 F.Supp.2d 54
• Court: U.S. District Court — District of Connecticut
• Parties: YALE-NEW HAVEN HOSPITAL, INC., et al., Plaintiffs, v. Tommy G. THOMPSON, Secretary of Health and Human Services, Defendant.

162 F.Supp.2d 54

YALE-NEW HAVEN HOSPITAL, INC., et al., Plaintiffs, v. Tommy G. THOMPSON, Secretary of Health and Human Services, Defendant.

No. 3:99CV2546 (GLG).

United States District Court, D. Connecticut.

August 31, 2001.

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Jonathan D. Elliot, Kleban & Samor, PC, Southport, CT, Leonard C. Homer, Carel T. Hedlund, Ober, Kaler, Grimes and Shriver, Baltimore, MD, for plaintiffs.

John B. Hughes, U.S. Attorney's Office, New Haven, CT, James J. Gilligan, U.S. Department of Justice, Washington, DC, for defendant.

OPINION

GOETTEL, District Judge.

This action arises from a lingering financial dispute between the Federal government and various hospitals and health care providers over a now-superseded administrative guideline that removed Medicare coverage for investigational medical devices and procedures that had not been approved for marketing by the Food and Drug Administration ("FDA"). Although the guideline was supplanted by regulation over five years ago, numerous reimbursement claims remain outstanding. In this action, Yale-New Haven Hospital ("Yale") and 48 Medicare beneficiaries seek judicial review of a final adverse agency action of the Secretary of Health and Human Services ("Secretary" and "HHS") that denied Medicare coverage for $1.5 million in services involving the surgical implantation of experimental medical devices, provided by Yale to these Medicare beneficiaries. Yale further asks this Court to invalidate the disputed guideline that has prohibited such reimbursement.

Now pending before the Court is the Motion to Dismiss filed by the Secretary of HHS [Doc. # 17]. HHS asserts that the plaintiffs are collaterally estopped from relitigating the issues presented in this lawsuit because these same issues were litigated by Yale in a prior case, Cedars-Sinai Medical Center v. Shalala, 939 F.Supp. 1457 (C.D.Cal.1996), aff'd in part and remanded in part, 125 F.3d 765 (9th Cir.1997), appeal after remand, 177 F.3d 1126 (9th Cir.1999). Alternatively, HHS argues that the complaint fails to set forth a claim upon which relief may be granted. For the reasons set forth below, the Motion to Dismiss will be DENIED.

BACKGROUND

The Medicare Program

The Medicare program, established by Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq., is a government-sponsored health insurance program that pays for covered medical services provided to eligible aged and disabled individuals. See Cedars-Sinai, 939 F.Supp. at 1460. Medicare "Part A," 42 U.S.C. §§ 1395c-1395i, provides insurance for covered inpatient hospital and related services. Medicare "Part B," 42 U.S.C. §§ 1395j-1395w, is a supplemental program insuring the costs of other items and services, including outpatient hospital and physician services, supplies, and laboratory tests. See Manakee Professional Medical Transfer Service, Inc. v. Shalala, 71 F.3d 574, 577 (6th Cir.1995). This case concerns the coverage of services under Medicare Part A.

The Medicare program is supervised by the Health Care Financing Administration ("HCFA"), a component administration of HHS, which in turn contracts with private organizations (usually insurance companies), referred to as "fiscal intermediaries," to act as the Secretary's agents in reviewing and paying claims submitted by health care providers under Part A of this program. 42 U.S.C. § 1395h; 42 C.F.R. §§ 421.3, 421.100, 424.33; see Cedars-Sinai, 939 F.Supp. at 1460. The intermediaries are required by their contracts to give effect to the laws, regulations, rulings, and general instructions issued by HFCA and found in the manuals and intermediary letters, when determining whether and how much payment is to be made to providers for services furnished to Medicare beneficiaries.

To participate in the Medicare program, hospitals enter into "provider agreements" with the Secretary. 42 U.S.C. § 1395cc. The Medicare program then pays the hospitals directly for covered inpatient and outpatient services provided to Medicare beneficiaries less any deductible or coinsurance payments, which are paid by the beneficiaries.

The Medicare Act does not set forth an all-inclusive list of specific treatments and procedures that will and will not be covered. Instead, the Act provides an overriding standard that excludes from coverage all items and services which are not "reasonable and necessary for the diagnosis and treatment of illness or injury." The Act provides:

Notwithstanding any other provision of this subchapter, no payment may be made under part A or part B of this subchapter for any expenses incurred for items or services ... which ... are not reasonable and necessary for the diagnosis and treatment of illness or injury....

42 U.S.C. § 1395y(a)(1)(A); see also 42 C.F.R. § 411.15(k)(1); Goodman v. Sullivan, 891 F.2d 449, 450 (2d Cir.1989). The Act, however, does not define the term "reasonable and necessary" but instead leaves that to the Secretary's determination. 42 U.S.C. § 1395ff(a); State of New York ex rel. Bodnar v. Secretary of HHS, 903 F.2d 122, 125 (2d Cir.1990) ("Bodnar"). The Secretary has carried out this mandate through the promulgation of formal regulations and through instructional manuals and letters to intermediaries and providers setting forth the Secretary's determination of what services will and will not be covered by Medicare. See Wilkins v. Sullivan, 889 F.2d 135, 139 n. 6 (7th Cir.1989).

As part of this overall scheme, Congress also provided for administrative and judicial review of determinations as to coverage and payment. 42 U.S.C. § 1395ff(b). When a request for payment under Medicare Part A is filed with the fiscal intermediary, the intermediary makes the initial determination as to whether the items and services furnished are covered and the amount of any payment due. See 42 C.F.R. §§ 405.702, 405.704(b), (c)(1); 421.100(a), (b). If a determination of non-coverage is made because the services furnished were not reasonable and necessary, the intermediary further ascertains whether payment can be made on the ground that neither the beneficiary nor the provider knew, or reasonably could have been expected to know, that payment for the services furnished would not be made. See 42 C.F.R. §§ 405.704(b)(12), (c)(2), 411.402. If the provider is dissatisfied with the initial determination, it may seek reconsideration. 42 C.F.R. §§ 405.710, 405.711. Following reconsideration, a provider may request a hearing before an administrative law judge. 42 C.F.R. §§ 405.720, 405.722. If not satisfied with the ALJ's determination, the provider may seek further review by the Medicare Appeals Council. 42 C.F.R. § 405.724; 20 C.F.R. §§ 404.967 - 404.969. The Appeals Council may also take the case on its own motion. 20 C.F.R. § 404.969. A provider that has exhausted all of these administrative remedies may then seek judicial review of the Secretary's final decision under 42 U.S.C. § 1395ff(b) (incorporating 42 U.S.C. § 405(g) of the Social Security Act). See Weinberger v. Salfi, 422 U.S. 749, 762-64, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975) (Medicare Act, not 28 U.S.C. § 1331, provides for a district court's review of the Secretary's final determinations); Heckler v. Ringer, 466 U.S 602, 610-11, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984) (requiring exhaustion of administrative remedies before judicial review of an adverse decision of the Secretary denying Medicare payments); State of New York v. Lutheran Center for the Aging, Inc., 957 F.Supp. 393, 396 (E.D.N.Y.1997); Manakee Professional Medical Transfer Service, 71 F.3d at 577-78.

The Challenged Medicare Manual Provision

The administrative guideline at issue in this case, published in both the Medicare Hospital Manual, § 260.1(B), and the Medicare Intermediary Manual, § 3151.1 (referred to by the parties as the "manual provision"), first appeared in July 1986¹ and reads as follows:

Devices Not Approved by FDA. — Medical devices which have not been approved for marketing by the FDA are considered investigational by Medicare and are not reasonable and necessary for the diagnosis or treatment of illness or injury ... Program payment, therefore, may not be made for medical procedures or services performed using devices which have not been approved for marketing by the FDA.

(Final Decision of Medicare Appeals Council dated 10/29/00 at 2.) This manual provision was identified as a "New Policy" and given a prospective effective date of July 15, 1986.

Prior to 1986, the Secretary had issued instructions to its intermediaries stating that Medicare pays for a particular medical device or associated service based upon its general acceptance "by the professional medical community as an effective and proven treatment for the condition for which it is being used" or for the "rarely used, novel, or relatively unknown" treatment or service, based upon authoritative evidence of its safety and effectiveness. (Part A and Part B Intermediary Letters Nos. 77-4 and 77-5.) Thus, a certain amount of discretion was afforded the intermediaries in determining whether reimbursement would be made by Medicare for investigational devices and the services associated with their implantation.

Contrary to these earlier instructions, however, the new 1986 manual provision eliminated the intermediaries' discretion in this regard. In other words, the new provision adopted a "per se" rule that medical devices not approved by the FDA for marketing were not reasonable and necessary.

Under this provision, the devices not covered are defined by reference to the FDA's regulation of medical devices under the Medical Devices Amendments Act of 1976. See 21 U.S.C. §§ 360(k), 360c, 360e, 360j. Under the Medical Devices Amendments Act, before a medical device may be commercially distributed or marketed, notification must be given to the FDA so that the device can be classified according to the degree of regulatory control necessary to insure its...