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From Health Law Daily, August 8, 2014

Lack of jurisdiction prevents court from ‘straddling the donut hole’

By Harold M. Bishop, JD

A lack of subject matter jurisdiction has prevented federal court review of a Medicare Part D beneficiary’s class action claim regarding payment for prescription drugs that straddle two different coverage stages of the Part D program, the Initial Coverage Stage and the Coverage Gap Stage, colloquially known as the Part D “donut hole.” While, as a regulated party, the beneficiary had standing to challenge CMS’ method for resolving these straddle claims, the court lacked jurisdiction because the amount in controversy for judicial review did not meet the threshold amount of $1400. The court would not let the beneficiary aggregate claims of the putative class to reach the threshold amount, nor did it feel that the beneficiary would reach that amount himself before “donut hole” closes in 2020 (Epstein v Burwell, August 5, 2014, King, G).

Part D program. Under Medicare Part D, each time a Part D enrollee purchases a drug, he is responsible for paying either a fixed-dollar amount (copayment) or a percentage of the cost (coinsurance). The amount of an enrollee’s payment depends on which of three coverage stages he is in. When the enrollee’s total prescription costs for the year are below what is known as the “initial coverage limit,” he is in the Initial Coverage Stage. During this stage, the enrollee and the plan sponsor share the cost of prescription drugs, with the enrollee typically paying 25 percent of the prescription costs. The enrollee enters the Catastrophic Coverage Stage when his total prescription costs exceed the “annual out-of-pocket threshold.” During this final stage, the enrollee pays very little of his prescription costs. However, between these two stages is a gap in insurance coverage known as the Part D “donut hole.” When the enrollee is in this Coverage Gap Stage or “donut hole,” he must pay 100 percent of his prescription costs. This case involved Part D beneficiary’s challenge to the methodology used by CMS to administer Part D prescription drug purchases that straddle two different coverage stages.

Background. On December 17, 2010, Stanley H. Epstein (Epstein) purchased a Part D covered prescription drug called Actonel®. At the time of the purchase, he had incurred $2,746.67 in prescription drug costs in 2010, meaning he was $83.33 below the initial coverage limit of $2,830. However, because the Actonel cost $334.92, the purchase pushed Epstein into the donut hole. During the Initial Coverage Stage, Epstein’s copay for the Actonel was $187.50. If his entire Actonel purchase had been made during the Initial Coverage Stage, Humana’s (the Part D sponsor) share of the costs would have been $147.42 ($334.92 – $187.50 = $147.42). Epstein contended that Humana should have paid this $147.42 for his straddle claim because he was still in the Initial Coverage Stage when he made the purchase. Humana concluded that because Epstein’s $187.50 copay for the Actonel had pushed him into the donut hole, he was not entitled to any benefits. This is known as the “Copay-First Approach” to straddle claims.

After Epstein exhausted his administrative remedies, he filed this class action challenging CMS’ policy of resolving straddle claims by adding the enrollee’s copay for a prescription drug to the enrollee’s cumulative drug costs before determining whether the enrollee is in the Initial Coverage Stage or the donut hole. The government sought dismissal of Epstein’s complaint because of lack of standing and a failure to meet the Medicare statute’s amount in controversy requirement for judicial review.

Standing. The court found that because the Medicare Appeals Council’s (MAC) final decision endorsing the Copay-First Approach impacted Epstein’s ongoing personal rights under the Medicare statute, Epstein had a sufficient personal stake to appeal the MAC decision and pursue declaratory and injunctive relief. As such, Epstein had standing to challenge the CMS’ method for resolving straddle claims.

Amount in controversy. In 2013, when Epstein filed his complaint, the amount in controversy threshold was $1400 for judicial review. Epstein did not dispute that the claim he pursued through the administrative appeals process was valued at $147. He contended, however, that he satisfied the $1,400 amount in controversy requirement becauseMedicare permits him to aggregate his claim with those of putative class members; and, alternatively, his individual claim for declaratory and injunctive relief is worth more than $1,400 because he will have a straddle claim worth approximately $116 every year for the rest of his life.

The court found that Epstein did not aggregate during the administrative process because he did could not satisfy the aggregation criteria. In fact, the MAC expressly determined that the record lacked any indication that multiple appellants had requested aggregation and therefore concluded that Epstein was the only party to the matter. Because Epstein aggregation was not allowed during the administrative review process, the court found that the putative class members’ claims may not be used reach the amount in controversy threshold for judicial review.

The court also found that even if $116 is a fair, non-speculative annual valuation of Epstein’s future straddle claims, the statutory closing of the donut hole by 2020 will only allow him an additional six years to aggregate his claims.As such, these claims would only add up to $696, less than half the amount of the $1400 amount in controversy required. Accordingly, the court found that Epstein’s claims did not meet the statutorily-prescribed jurisdictional amount and it therefore lacked subject matter jurisdiction under the Medicare Act.

The case number is CV 13-8728-GHK (CWx).

Attorneys: Eric J. Benink (Krause Kalfayan Benink and Slavens LLP) for Stanley H. Epstein. Caroline Lewis Wolverton, United States Department of Justice, for Sylvia Mathews Burwell.

MainStory: TopStory PartDNews CMSNews ClaimsAppealsNews CopayNews HealthReformNews PrescriptionDrugNews CoverageNews

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