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From Health Law Daily, June 25, 2014

Medicare power wheelchair supplier allowed to file in Federal Claims court

By Harold M. Bishop, JD

The U.S. Court of Federal Claims has refused to dismiss a breach of contract action brought by an approved Medicare supplier when its contract was terminated by Congressional legislation. The Federal Claims court found that the Congressional legislation could not take away its jurisdiction under the Tucker Act to hear a contractual dispute brought against the United States government, even though CMS promulgated a regulation to implement the legislation and offered partial payment to the supplier under the terminated contract.The Federal Claims court, however, did dismiss a second breach of contract claim for damages because the supplier failed to complete the administrative review process prior to seeking judicial review (B&H Medical, LLC v The United States, June 23, 2014, Campbell-Smith, P).

Background. Effective July 1, 2008, B&H Medical, LLC (B&H) contracted with CMS to provide diabetic supplies in nine different metropolitan areas. Thereafter, on July 15, 2008, Congress passed legislation terminating all contracts, including B&H’s, that had been issued under what was known as Round 1 of HHS’s plan to redefine the way in which it purchased durable medical equipment through the Medicare program (42 U.S.C. Sec. 1395w-3). Section 1395w-3, titled Competitive Acquisition of Certain Items and Services, and also known as Section 154 of the 2008 Medicare Improvements for Patients and Providers Act (MIPPA) (P.L. 110-275), included a provision at Sec. 1395w-3(a)(1)(D)(i) withdrawing the right to administrative or judicial review with regard to the termination of the contracts.

HHS then promulgated a regulation at 42 C.F.R. Sec. 414.425 in which it established an administrative process through which it would pay specified damages to terminated suppliers. The regulation provided at Sec. 414.425(f)(2)(vi) that CMS would make the determination regarding which of the claimed damages were compensable, and provided that CMS’ “determination [would be] final and not subject to administrative or judicial review.”

B&H submitted a damages claim through the CMS administrative process in February 2010, and CMS offered B&H partial payment on its claim in April 2012, which B&H refused as inadequate. B&H then brought suit against the United States alleging two counts of breach of contract. In Count I, B&H alleged that the government’s termination of its contract to supply diabetic supplies to Medicare recipients resulted in a breach of contract under competitive bidding. In Count II, B&H made a further claim for breach of contract arising out of a denial of payment after a routine audit in which HHS disallowed certain power wheelchair sales B&H made to Medicare recipients. HHS moved for dismissal for lack of subject matter jurisdiction (Federal Rules of Civil Procedure (FRCP) 12(b)(1)) and failure to state a claim upon which relief can be granted (FRCP 12(b)(6)). HHS’ motion was granted as to Count II and denied as to Count I.

Count I. In its motion to dismiss B&H’s breach of contract claim under competitive bidding based on lack of jurisdiction, HHS acknowledged that the Federal Circuit has held that the Federal Claims court has jurisdiction over the breach of contract claim alleged here. However, HHS claimed that the jurisdiction did not extend to the claim of a supplier when CMS has offered a partial payment through its administrative process.

In response, B&H asserted that HHS has no authority to limit the court’s jurisdiction through its rulemaking powers and a federal court owes no deference to an agency’s interpretation of the court’s subject matter jurisdiction.

The court held that although HHS possesses the expertise to administer the Medicare program generally, it is without the expertise to determine a federal court’s subject matter jurisdiction. Therefore, consistent with the Federal Circuit’s guidance, and that of numerous other circuits, the court refused to defer to HHS’ regulatory interpretation defining the court’s subject matter jurisdiction. As such, HHS’ motion to dismiss Count I for lack of jurisdiction was denied.

HHS’ alternative motion to dismiss Count I based on failure to state a claim upon which relief can be granted was also denied. HHS asserted that because CMS should be granted deference, its determination was final and the court has no authority to review the damages award to B&H.The court found that HHS’ interpretation of Sec. 414.425(f)(2)(iv), which would prevent an aggrieved supplier who has been offered a settlement from bringing a separate action for additional damages to be more of an effort to advance its litigating position, rather than reflective of a fair and considered judgment. As such, the court found that HHS was not entitled to deference in its regulatory interpretation. The court then reviewed the regulation itself and found that it could not be read to bar B&H’s claim. The court found that the regulatory language barring “judicial review” flies in the face of the Tucker Act (28 U.S.C. Sec. 1491(a) (2012)), which gives the court limited jurisdiction to hear “any claim against the United States founded…upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States.” As such, the court denied HHS’ motion to dismiss Count I based on a failure to state a claim upon which relief can be granted.

Count II. As to B&H’s breach of contract claim for denial of $31,393 in payments for ten power wheelchairs after a routine audit by a CMS contractor, HHS again moved to dismiss for lack of jurisdiction. The court found that Federal Circuit case law is clear that the Federal Claims court has no Tucker Act jurisdiction to review a reimbursement dispute under the Medicare Act. B&H did not dispute the court’s lack of jurisdiction, but instead said that it added Count II due to the “mandatory joinder of claims in federal court” under Rule 18(a) of the Rules of the U.S. Court of Federal Claims. The court disagreed with B&H, finding that nothing in Rule 18(a) could give the Federal Claims court jurisdiction when Congress has given the federal district courts jurisdiction to conduct judicial review of administrative decisions (42 U.S.C. Sec. 1395ff(b)(2)(C)(iii)).

The court also considered whether it should transfer B&H’s Count II to federal district court. The court found that the appellate process provides for four levels of administrative appeal prior to judicial review in federal district court.The levels are: (1) redetermination by a CMS contractor; (2) reconsideration by a Qualified Independent Contractor; (3) a hearing before an Administrative Law Judge; and (4) review by the Medicare Appeals Council.B&H only completed the first two levels of administrative review. As such, the court declined to transfer B&H’s Count II to a federal district court.

The case number is 13-088C.

Attorneys: Stephen Michael Ryan (Stephen M. Ryan, PLLC) for B&H Medical, LLC. Gregg M. Schwind, U.S. Department of Justice, for the United States.

Companies: B&H Medical, LLC; United States

MainStory: TopStory DMENews CMSNews AuditNews PaymentNews PartBNews ClaimsAppealsNews CtFedClaimsNews

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