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From Health Law Daily, September 4, 2013

Summary judgment denied as equipment supplier provided sufficient facts to support allegations of a regulatory taking

By Anthony H. Nguyen, JD

A federal claims judge denied a government motion for summary judgment in a Fifth Amendment takings action (AAA Pharmacy, Inc. v United States, August 30, 2013, Williams, M). A supplier had claimed that by revoking and failing to timely reinstate its Medicare billing privileges, the federal government had effected a taking of its business. The supplier alleged that the revocation hearing appeal process over a three-month period had resulted in loss of business, causing it to go out of business. The court held that the supplier had provided sufficient facts to support allegations of a regulatory taking and denied the government’s motion.

Background. AAA Pharmacy (AAA), a defunct business, had previously operated in Oklahoma as a licensed pharmacy and durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) supplier. The bulk of AAA’s business was with Medicare beneficiaries via a physical location and through the mail.

In September 2005, a National Supplier Clearinghouse (NSC) fraud analyst sent AAA an official notice of its findings, detailing potential violations of numerous DMEPOS supplier standards, including failure to provide a current copy of its license to operate, failure to provide a handicap-accessible physical facility, and making unsolicited marketing calls to Medicare beneficiaries. AAA was given 21 days to provide NSC with information to verify compliance.

The NSC claimed that several weeks passed with no documentation from AAA; in turn, the NSC requested and obtained CMS approval to revoke AAA’s supplier number. The revocation notice was issued on December 15, 2005, advising AAA that its billing number would be revoked within 15 days, by December 30, 2005, because AA had not demonstrated full compliance. The notice indicated that AAA had 90 days from the postmark to request a hearing.

AAA sent a request for appeal of the revocation on December 27, 2005, followed by a second request on December 29, 2005, via overnight mail. NSC revoked AAA’s supplier billing number on the same date. Upon receipt of the second letter, NSC interpreted the letter to be a corrective action plan. NSC “ordered” a site visit and noted that AAA had until February 28, 2006, to provide additional information. After conducting the site visit, NSC advised AAA on February 22, 2006, that it would not reinstate AAA’s provider number for failure to comply with standards. AAA had 90 days to file a hearing request.

AAA requested a hearing on March 2, 2006, and NSC replied on March 6, 2006, that it had received the request for a hearing, noting that the appeal had to be complete by March 21, 2006. However, the NSC did not refer the matter to a hearing officer until March 20, 2006, and the hearing officer was unable to schedule a hearing until March 24, 2006.

The officer conducting the hearing issued a decision that AAA was in compliance with all the standards at the time of the revocation. The officer recommended retroactive reinstatement of the supplier billing number. Although NSC reinstated the supplier number, AAA alleged that NSC withheld money owed to AAA from prior submitted claims and that the original revocation had caused it to lose business and close.

Takings. In determining whether a particular governmental action constitutes a taking, courts employ a two-part test: (1) whether the plaintiff had identified a cognizable and valid property interest that was taken and (2) whether the governmental action amounted to a compensable taking of the property interest. In its complaint, AAA alleged it had a property interest in its business which was taken as a result of NSC’s failure to comply with regulations governing the revocation hearing.

The government argued that delays of several years have not supported takings liability, and as such, the alleged delay of three months regarding AAA could not constitute an extraordinary delay. The court agreed that only extraordinary delays gave rise to takings liability. However, the court also held that it could not conclude whether AAA’s circumstances were a “typical” case or whether the delay could be deemed extraordinary in the context of the applicable regulatory scheme.

The court noted that there were genuine issues of material fact concerning the delay. Records from both AAA and NSC were unclear on when AAA requested a revocation hearing and when the appeal process should have been completed. Moreover, AAA alleged that statements made by the NSC were tantamount to bad faith on the part of the government. Thus, AAA alleged facts that could possibly support its allegations of a regulatory taking. The motion for summary judgment was denied.

The case number is 11-877C.

Attorneys: Mark S. Kennedy (Kennedy Attorneys & Counselors at Law) for AAA Pharmacy, Inc.

Companies: AAA Pharmacy, Inc.

MainStory: TopStory CoPNews DMENews CMSNews ProviderNews CtFedClaimsNews

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