A and K Medical Supplies v. United States Department of Health and Human Services et al
Filing
28
MINUTES (IN CHAMBERS) Bench Trial by Judge Christina A. Snyder: The Court finds for Defendant Kathleen Sebelius, in her official capacity as Secretary of the Department of Health and Human Services (the "Secretary"). The Court directs the Secretary to submit within ten days proposed findings of fact and conclusions of law that are consistent with this order. The Secretary is further directed to submit a courtesy copy to the Court. Court Reporter: Not Present. (gk)
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 10-9453 CAS (AJWx)
Title
A & K MEDICAL SUPPLIES v. KATHLEEN SEBELIUS.
Present: The Honorable
Date
May 1, 2012
CHRISTINA A. SNYDER
CATHERINE JEANG
Deputy Clerk
Not Present
Court Reporter / Recorder
N/A
Tape No.
Attorneys Present for Plaintiffs:
Attorneys Present for Defendants:
Not Present
Not Present
Proceedings:
I.
(In Chambers:) Bench Trial
INTRODUCTION
On December 9, 2010, plaintiff A & K Medical Supplies (“A&K”), a provider of
durable medical equipment (“DME”), filed the instant action against Kathleen Sebelius,
in her official capacity as Secretary of the Department of Health and Human Services
(“defendant” or the “Secretary”). A&K seeks judicial review of a decision by the
Secretary, through the Medicare Appeals Council (“MAC”), to dismiss A&K’s request
for review of an unfavorable decision concerning a claim for DME reimbursement.
A&K filed its opening trial brief on November 4, 2011. The Secretary filed her
opening trial brief on December 5, 2011.1 After considering the parties’ arguments, the
Court finds and concludes as follows.
II.
STATUTORY AND REGULATORY BACKGROUND
A.
The Medicare Program
The Medicare Act, established under Title XVIII of the Social Security Act
(“the Act”), 42 U.S.C. §§ 1395 et seq., pays for covered medical care provided to eligible
aged and disabled persons. The statute consists of four main parts: Part A, which
generally authorizes payment for covered inpatient hospital care and related services, 42
U.S.C. §§ 1395c to 1395i-5, 42 C.F.R. Part 409; Part B, which provides supplementary
medical insurance for covered medical services, such as doctors’ visits, diagnostic
1
The parties stipulated to the Court rendering its decision without a hearing.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 10-9453 CAS (AJWx)
Date
May 1, 2012
Title
A & K MEDICAL SUPPLIES v. KATHLEEN SEBELIUS.
testing, or covered medical supplies, such as durable medical equipment, prosthetics and
orthotics, 42 U.S.C. §§ 1395j to 1395w-4, 42 C.F.R. Part 410; Part C, which authorizes
beneficiaries to obtain services through HMOs and other “managed care” arrangements,
42 U.S.C. §§ 1395w-21 to 1395w-28, 42 C.F.R. Part 422; and Part D, which will provide
prescription drug benefits to beneficiaries. 42 U.S.C. § 1395w-101, et seq. Medicare
Part B is at issue here because A&K’s request for review bythe MAC involved claims for
DME reimbursement. See Administrative Record (“AR”), 47–51
B.
Medicare Carriers
In administering Medicare Part B, the Center for Medicare and Medicaid Services
(“CMS”) acts through private fiscal agents called “carriers.” 42 U.S.C. § 1395u; 42
C.F.R. Part 421, Subparts A and C, and 42 C.F.R. § 421.5(b). Carriers are private entities
who contract with the Secretary to perform a variety of functions, such as making
coverage determinations in accordance with the Medicare Act, applicable regulations, the
Medicare Part B Supplier Manual, or other agency guidance; determining reimbursement
rates and allowable payments; conducting audits of the claims submitted for payment;
and rejecting or adjusting payment requests. See 42 U.S.C. § 1395u(b)(3)(B); 42 C.F.R.
§ 421.200.
C.
Payment to Medicare Suppliers and Recovery of Overpayments
Medicare processes “hundreds of millions” of claims annually. See Heckler v.
Ringer, 466 U.S. 602, 627 (1984). To maximize cash flow to Medicare providers and
promote administrative efficiency, carriers typically authorize payment on claims
immediately upon receipt of the claims so long as the claims do not contain glaring
irregularities. See Maximum Comfort v. Leavitt, 512 F.3d 1081, 1084 (9th Cir. 2007)
(finding that, for reasons of administrative efficiency, immediate payments are made
to Medicare providers); In re TLC Hospitals, Inc. v. U.S. Dep’t of Health & Human
Servs., 224 F.3d 1008, 1014 (9th Cir. 2000) (finding that immediate payment to
Medicare suppliers is necessary to provide for cash flow). In exercising their regulatory
functions, carriers conduct post-payment audits to ensure that payments were made in
accordance with applicable Medicare payment criteria. When audited, a Medicare
provider seeking payment must provide sufficient evidence to establish the medical
reasonableness and necessity of the services billed to Medicare. 42 U.S.C. §§ 1395g(a),
1395l(e), 1395gg; see also, 42 C.F.R. § 411.15(k)(1). 42 U.S.C. § 1395gg and 42 C.F.R.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 10-9453 CAS (AJWx)
Date
May 1, 2012
Title
A & K MEDICAL SUPPLIES v. KATHLEEN SEBELIUS.
§ 405.370-78 provide for waiver of recovery of overpayments and other payment
adjustments for incorrect payments.
D.
Medicare Coverage of DME
In making coverage decisions, Medicare contractors rely on regulations
promulgated by the Department of Health and Human Services, as well as on National
Coverage Determinations (“NCDs”) made by CMS and Local Coverage Determinations
(“LCDs”) made by carriers. The Secretary adopts NCDs to exclude certain items and
services from coverage on a national level that are not “reasonable and necessary” under
the agency’s interpretations of the Act. See 42 U.S.C. § 1395ff(1)(B). These
determinations are binding on all Medicare contractors nationwide. When no NCD
applies to a claim, Medicare contractors must still apply the “reasonable and necessary”
limitations in LCDs in determining whether to pay a claim and in what amount.
Part B coverage of DME is limited to items 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); 42 C.F.R. § 411.15(k)(1).
Although “reasonable and necessary” is not defined in the Act, Congress has vested final
authority in the Secretary to determine what items or services are “reasonable and
necessary.” See 42 U.S.C. § 1395ff(a); Heckler, 466 U.S. at 617. Consistent with this
authority, the Secretary has promulgated regulations relating to the “reasonable and
necessary” requirement. CMS has also issued NCDs specifying conditions for Medicare
coverage of certain items and services. Finally, carriers have also issued LCDs and
policy guidance to address local coverage issues. With respect to DME, the scope of
services eligible for Medicare payment is extremely limited. A DME supplier is required
by 42 U.S.C. § 1395l(e) to furnish information as may be necessary to support payments
under Medicare Part B. This means that upon request, DME suppliers must obtain
medical documentation and provide it to the carrier in order to demonstrate compliance
with the “reasonable and necessary” requirement of the Act.
E.
The Medicare Appeals Process
If a Medicare supplier disagrees with a carrier’s post-payment audit, the supplier
must present a claim through the designated administrative appeals process and exhaust
available administrative remedies. 42 U.S.C. § 1395u(b)(3)(C); 42 U.S.C. § 1395ff(b)
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 10-9453 CAS (AJWx)
Date
May 1, 2012
Title
A & K MEDICAL SUPPLIES v. KATHLEEN SEBELIUS.
(incorporating by reference 42 U.S.C. § 405(b)); see also, 42 C.F.R. § 405.801 et seq.
(describing the administrative appeals process for Part B). Once this administrative
process is exhausted, judicial review of the Secretary’s “final decision” is available as
provided in 42 U.S.C. § 405(g) (incorporated by reference in 42 U.S.C.
§ 1395ff(b)(1)(A)).
III.
FACTUAL AND PROCEDURAL BACKGROUND
A&K is a supplier of durable medical equipment such as wheelchairs, strollers, and
crutches. It provides this equipment to Medicare beneficiaries upon prescriptions from
licensed medical practitioners. See A.R. at 48. It submitted to Noridian Administrative
Services (“Noridian”), a Medicare carrier, claims for DME provided to 34 Medicare
beneficiaries for services rendered between October 24, 2005 and October 7, 2006. Id.
Noridian initially paid these claims in full. Id. After completing a post-payment audit,
however, Noridian determined that there was an overpayment on these claims. Id.
Noridian sent a notice of overpayment to A&K on May 26, 2008. A.R. at 487–516.
A&K requested a reconsideration of the overpayment findings. A.R. at 411–54. In
response, Noridian issued redetermination decisions adverse to A&K on each of the 34
claims. A.R. at 167–409. A&K then submitted a request for reconsideration to River
Trust Solutions, a DME Qualified Independent Contractor (“QIC”). A.R. at 114–19. The
QIC affirmed Noridian’s decisions. Id.
On October 20, 2009, the Office of Medicare Hearings and Appeals (“OMHA”)
received A&K’s request for a hearing before an Administrative Law Judge (“ALJ”),
contesting the QIC’s decision. A.R. at 112. The ALJ conducted a hearing; and in a
decision issued on April 9, 2010, determined that Medicare would not cover the items,
that the overpayment was properly issued, and that A&K was liable for the overpayment.
A.R. at 47–60. In so finding, the ALJ relied on signed declarations from each of the
doctors listed as dispensing physicians on the DME prescriptions stating that they had not
written or authorized the prescriptions, as well as on A&K’s failure to present valid
medical documentation supporting the beneficiaries’ need for the DME at issue. A.R. at
57, 59.
The MAC received a request for review of the ALJ’s decision on June 25, 2010.
A.R. at 23. On October 6, 2010, the MAC dismissed this request as untimely and noted
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 10-9453 CAS (AJWx)
Date
May 1, 2012
Title
A & K MEDICAL SUPPLIES v. KATHLEEN SEBELIUS.
there was not good cause to extend the time for filing. A.R. at 18–20. On October 19,
2010, the MAC received a letter from A&K requesting that it vacate its dismissal on the
basis that A&K had good cause for the untimely filing. A.R. at 10. The MAC responded
that it had denied A&K’s request for review because A&K had failed to offer any
explanation for the delay. A.R. at 8. A&K then submitted another letter to the MAC,
requesting a telephonic hearing regarding its request to vacate the dismissal of its claim.
A.R. at 3. The MAC denied A&K’s request for an oral hearing and restated that its
October 6, 2010 dismissal was binding and not subject to further review. A.R. at 1–2
(citing 42 C.F.R. § 405.1116). A&K now seeks review of the MAC’s decision, asking
the Court to overrule the dismissal and remand the matter to the MAC for a decision on
the merits.
IV.
LEGAL STANDARD
The Social Security Act expressly limits judicial review of agency actions to
situations in which a party has obtained a “final decision” from the agency. See 42
U.S.C. § 405(g); 42 U.S.C. § 1395ff(b)(1)(A) (incorporating § 405(g) by reference and
applying it to Medicare claims).
On review, the Secretary’s findings “as to any fact, if supported by substantial
evidence, shall be conclusive . . . ” See 42 U.S.C. § 405(g). The Court must affirm the
findings of the Secretary “if they are supported by ‘substantial evidence’ and if the proper
legal standards were applied.” Mayes v. Masanari, 276 F.3d 453, 458–59 (9th Cir. 2001).
“‘Substantial evidence’ is more than a mere scintilla but less than a preponderance; it is
such relevant evidence as a reasonable mind might accept as adequate to support a
conclusion.” Id. at 459 (internal quotation and citation omitted). In applying the
substantial evidence standard, “a reviewing court may not substitute its own judgment for
that of the agency.” Memorial, Inc. v. Harris, 655 F.2d 905, 912 (9th Cir. 1980) (citing
Citizens to Improve Overton Park v. Volpe, 401 U.S. 402, 416 (1971)). “Substantial
evidence exists if there is ‘such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.’ A finding supported by substantial evidence must be
affirmed by a reviewing court even if it is possible to draw two inconsistent conclusions
from the evidence.” Id. (quoting Consolo v. Federal Mar. Comm’n, 383 U.S. 607, 620
(1996)).
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 10-9453 CAS (AJWx)
Date
May 1, 2012
Title
A & K MEDICAL SUPPLIES v. KATHLEEN SEBELIUS.
Under the Administrative Procedure Act, the reviewing court must affirm the
agency’s determination unless it is “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with the law.” 5 U.S.C. § 706(2)(A). “A decision is
arbitrary and capricious if the agency ‘has relied on factors which Congress has not
intended it to consider, entirely failed to consider an important aspect of the problem,
offered an explanation for its decision that runs counter to the evidence before the
agency, or is so implausible that it could not be ascribed to a difference in view or the
product of agency expertise.’” Motor Vehicle Mfr.’s Ass’n v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 43 (1983)).
V.
DISCUSSION
A&K argues that its request for review was timely. Pl. Opening Brf. at 3. In
support of this argument, A&K points to 42 C.F.R. 405.1102(a)(1) which states that “[a]
party to [an] ALJ hearing may request a MAC review if the party files a written request
for a MAC review within 60 calendar days after receipt of the ALJ’s decision or
dismissal.” A&K asserts that even though the ALJ rendered his decision on April 9,
2010, A&K did not receive the decision until April 29, 2010.2 Therefore, A&K maintains
that it had until June 28, 2010 to file its request for review, and consequently that its June
25, 2010 request was timely.
The Secretary argues that the MAC’s dismissal of A&K’s request for review is not
a “final decision” and thus is not subject to judicial review. Def. Opening Brf. at 8–9.
Even if the MAC’s dismissal is a “final decision,” the Secretary argues that it should be
upheld because it was not arbitrary and capricious. Id. at 9–12.
2
42 C.F.R. 405.1102(a)(b) states that “[f]or purposes of this section, the date of
receipt of the ALJ’s decision or dismissal is presumed to be 5 calendar days after the date
of the notice of decision or dismissal, unless there is evidence to the contrary.” Because
the ALJ rendered his decision on April 9, 2010, A&K would ordinarily be presumed to
have received it no later than April 14, 2010. However, A&K asserts that actually
received the decision by facsimile on April 29, 2010. A&K also asserts that it sent a
letter to the ALJ “explaining the situation” and “stating that it would require the full 60
days to file the Request for Review.”
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 10-9453 CAS (AJWx)
Date
May 1, 2012
Title
A & K MEDICAL SUPPLIES v. KATHLEEN SEBELIUS.
The Court agrees with the Secretary that the MAC’s dismissal of A&K’s request
for review is not a “final decision” over which the Court would have jurisdiction. The
Ninth Circuit has held that agency decisions “to refrain from petitions for review are not
final decisions subject to review in federal court.” Matlock v. Sullivan, 908 F.2d 492,
493 (9th Cir. 1990) (affirming district court’s dismissal of action where the plaintiff
sought review of an agency decision refusing to consider an untimely petition for
review).3 The Ninth Circuit explained that a “‘final decision’ refers to a final decision on
the merits,” and that a decision whether or not to allow an untimely request for review is
not a decision on the merits, but rather a discretionary decision. Id. at 494; see also
Bacon v. Sullivan, 969 F.2d 1517 (3d Cir. 1992); Harper v. Sec’y of Health & Human
Servs., 978 F.2d 260, 262 (6th Cir. 1992); Harper v. Bowen, 813 F.2d 737, 742 (5th Cir.
1987); Adams v. Heckler, 799 F.2d 131, 133 (4th Cir. 1986).
As in Matlock, A&K requests that the Court overrule an agency’s dismissal of a
request for decision based on timeliness. Just as in Matlock, this attempt necessarily fails
because the MAC’s decision was not a final decision on the merits, and therefore is not
subject to judicial review.
Even if the MAC’s dismissal of A&K’s request were a “final decision,” the Court
would nevertheless affirm the MAC’s dismissal because this decision was not arbitrary or
capricious. The applicable regulations require that a request for review must be filed
within 60 days from the date notice of the ALJ’s decision was received. 42 C.F.R. §
405.1102(a). The date of receipt of the notice is presumed to be five days after the date
of such notice unless a reasonable showing to the contrary is made. Id. The regulations
also provide that the MAC will dismiss a request for review when the provider DME
provider fails to file a request within the stated period of time and the MAC has not
extended the time period for filing. 42 C.F.R. § 405.1114. The time period will be
extended if good cause is shown. 42 C.F.R. § 405.1102(b). A&K’s request for review
3
Although Matlock is a social security case, it applies here because the Medicare
Act applies 42 U.S.C. § 405(g), the provision of the Social Security Act related to judicial
review. See Heckler, 466 U.S. at 605 (“Judicial review of claims arising under the
Medicare Act is available only after the Secretary renders a ‘final decision’ on the claim,
in the same manner as is provided in 42 U.S.C. § 405(g) for old age and disability claims
arising under Title II of the Social Security Act.”).
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 10-9453 CAS (AJWx)
Date
May 1, 2012
Title
A & K MEDICAL SUPPLIES v. KATHLEEN SEBELIUS.
did not offer any explanation for its late filing. Rather, it was not until the MAC denied
the request did A&K advise the MAC that it did not receive the ALJ decision until April
29, 2010, and that it believed it had until June 28, 2010 to file the request for review.4
The MAC’s decision to dismiss the request for review as untimely was therefore
reasonable, consistent with the applicable regulations, and not arbitrary or capricious.
Applying the substantial deference standard, the Court therefore upholds the MAC’s
decision.
VI.
CONCLUSION
In accordance with the foregoing, the Court finds for the Secretary. The Court
directs the Secretary to submit within ten (10) days proposed findings of fact and
conclusions of law that are consistent with this order. The Secretary is further directed to
submit a courtesy copy to the Court.
IT IS SO ORDERED.
00:00
CMJ
4
Although A&K asserts that it sent a letter to the ALJ hearing office stating that it
“considered [its] deadline to file for review by the Medicare Appeals Council to be 60
days from [April 29, 2010,” A&K does not explain why: (1) it did not address this issue
at all in its request for review by the MAC; or (2) why it wrote to the ALJ’s hearing
office, but not the MAC, the body that would be considering its request.
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