Gordian Medical, Inc. v. Kathleen Sebelius

Filing 66

MINUTES (IN CHAMBERS) Re Bench Trial #61 by Judge Christina A. Snyder: The Court finds for 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)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.

Present: The Honorable

Date

March 9, 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 May 25, 2010, plaintiff Gordian Medical, Inc. filed suit against Kathleen
Sebelius, in her official capacity as Secretary of the Department of Health and Human
Services (“defendant” or the “Secretary”). Plaintiff filed a first amended complaint
(“FAC”) on January 14, 2011. Plaintiff seeks judicial review of a final decision by the
Secretary, through the Medicare Appeals Council (“MAC”), to deny plaintiff’s claims for
Medicare reimbursement for composite dressings plaintiff provides to Medicare
beneficiaries.
On October 3, 2011, plaintiff filed its opening trial brief. On October 31, 2011, the
Secretary filed her opening trial brief and opposition to plaintiff’s opening trial brief.1 On
November 28, 2011, plaintiff filed its opposition to the Secretary’s opening trial brief and
1

Contemporaneously with her opening trial brief and opposition to plaintiff’s
opening trial brief, the Secretary filed objections to extra-record evidence offered by
plaintiff. Specifically, the Secretary objects to evidence offered to advance plaintiff’s
argument that the Secretary improperly invalidated the Healthcare Common Procedure
Coding System (“HCPCS”) billing codes at issue in this case. For the reasons stated
below, the Court finds that plaintiff did not pursue this argument through the proper
administrative channels. As a result, there is no need to “inquire outside the
administrative record . . . to explain the agency’s action” because the record “includes
everything that was before the agency pertaining to the merits of the decision.” Animal
Defense Council v. Hodel, 840 F.2d 1432, 1436 (9th Cir. 1988), as amended, 867 F.2d
1244 (1989). Therefore, the Court sustains the Secretary’s objections.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Date

March 9, 2012

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.

reply to the Secretary’s opposition. On December 12, 2011, the Secretary filed her reply
to plaintiff’s opposition. On January 6, 2012, the Court held a bench trial at which the
Court requested supplemental briefing from each party.2 The parties each filed
supplemental briefs on January 13, 2012, and replied on January 20, 2012. After
considering the arguments set forth by both parties, the Court finds and concludes as
follows.
II.

BACKGROUND

Plaintiff is a Medicare enrolled supplier of wound care supplies, including nonbordered composite dressings. FAC ¶¶ 7–8. Plaintiff’s dressings are eligible for federal
reimbursement under Part B of the Medicare Act, 42 U.S.C. §§ 1395j–1395w-4. FAC ¶
11. To obtain reimbursement, Medicare suppliers submit claims to a Durable Medical
Equipment Medicare Administrative Contractor (“DME-MAC”), that are agents of the
Centers for Medicare & Medicaid Services (“CMS”). FAC ¶ 15. The United States is
divided into four geographic jurisdictions (“A” through “D”), each of which is assigned a
DME-MAC. Id. During the relevant time period, the Statistical Analysis Durable
Medical Equipment Regional Carrier (“SADMERC”) – a CMS agent and contractor –
offered guidance to Medicare suppliers on the proper billing codes for covered supplies.
FAC ¶¶ 19–20. In December 2004 and April 2006, the SADMERC assigned billing
codes to plaintiff’s composite dressings, qualifying those dressings for Medicare
reimbursement. FAC ¶ 25.
Beginning in 2004, DME-MACs began denying a high percentage of plaintiff’s
reimbursement claims based on a purported lack of medical necessity. FAC ¶ 27.
Almost all of the DME-MACs denials were reversed on appeal by Administrative Law
Judges (“ALJs”). Id. Plaintiff alleges that the DME-MACs, faced with the prospect of
continuing reversals in the administrative appeals process, devised a strategy that would
allow them to deny plaintiff’s claims while shielding their decisions from administrative

2

Specifically, the Court ordered the parties to address whether a durable medical
equipment supplier could administratively appeal the agency’s instruction that claims for
composite surgical dressings without adhesive borders should be billed under three
HCPCS Level II codes, which differed from the three HCPCS codes that plaintiff used in
this case.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Date

March 9, 2012

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.

review. FAC ¶ 29. Plaintiff alleges that Medicare program contractors published a
“Policy Article” unilaterally changing the definition of “composite dressings” to require,
without medical justification, that the dressings have a physical adhesive border. FAC ¶¶
30–33. Thereafter, Medicare contractors invalidated the billing codes that applied to
plaintiff’s dressings, and stopped reimbursing claims under the old codes in a manner that
precluded further administrative review. FAC ¶¶ 34–54. Plaintiff alleges that these
changes were contrary to established procedures for revising definitions and changing
billing codes. FAC ¶¶ 30–49. As a result, plaintiff claims to have been denied
reimbursement totaling $4,928,189.95. FAC ¶ 50.
In response to these actions, on February 25, 2008, plaintiff filed suit against the
Secretary in the United States District Court for the District of Columbia in Am. Med.
Tech. v. Johnson, 598 F. Supp. 2d 78, 83 (D.D.C. 2009).3 FAC ¶ 55. On February 25,
2009, the court dismissed plaintiff’s lawsuit for lack of subject matter jurisdiction due to
the Medicare statute’s jurisdictional exclusivity and exhaustion requirements. Am. Med.
Tech. v. Johnson, 598 F. Supp. 2d at 83. The court determined that plaintiff could have
obtained administrative review under 42 C.F.R. § 405.924(b)(12) by “submitt[ing] claims
for reimbursement using the new codes rather than the old ones.”4 Id. at 82. The court
held that 42 C.F.R. § 405.926(c), which precludes appeals of “[a]ny issue regarding the
computations of the payment amount of program reimbursement of general applicability .
. . such as the establishment of a fee schedule,” would not bar judicial review because
plaintiff would be challenging the approach the Medicare contractors used in invalidating
the old codes and issuing the new ones. Id. at 83.
Thereafter, plaintiff availed itself of the administrative appeals process and sought
administrative review of its claims for non-bordered composite dressings by filing certain
claims using the new codes, and additional claims using the original codes. FAC ¶ 59.
Plaintiff alleges that its entire universe of claims for composite dressings are at various
stages of administrative appeal. Id. The claims for non-bordered composite dressings

3

Plaintiff was then referred to by the name of its predecessor, American Medical
Technologies, Inc. FAC ¶ 7.
4

42 C.F.R. § 405.924(b)(12) provides that any issue “having a present or potential
effect on the amount of benefits to be paid” may be appealed.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Date

March 9, 2012

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.

that are the subject of the Secretary’s final decision and that are the subject of this case
were filed using the original codes for non-bordered composite dressings. FAC ¶ 60.
Specifically, plaintiff used the original billing codes for dressings supplied to nine
patient-beneficiaries during the three-month period between December 2007 and
February 2008. Administrative Record (“AR”) 11.
Reimbursement for the claims at issue was originally denied by a Medicare
contractor. Id. Plaintiff requested reconsideration of the denials by the Qualified
Independent Contractor (“QIC”). FAC ¶ 61. The QIC also denied Medicare coverage of
these claims. Id. Plaintiff then sought review by an ALJ, who ultimately concluded that
the claims were not covered by Medicare. FAC ¶ 62. The ALJ did not address the
validity, reasonableness or enforceability of the revised definition of “composite
dressing” or the changed billing codes. Id. Plaintiff appealed to the final level in the
administrative appeals process by seeking review in the Medicare Appeals Council
(“MAC”). FAC ¶ 63. The MAC held that “[n]either an ALJ nor the Council have the
authority to review . . . the [Medicare contractors’] invalidation of [billing] codes, or any
CMS action or inaction with respect to coding issues.” AR 6. Accordingly, the MAC
held that plaintiff’s claims for non-bordered composite dressings billed under the original
codes were not covered items under Medicare. AR 7.
Plaintiff then filed this suit seeking relief under the Medicare statute and the
Administrative Procedure Act (“APA”), 5 U.S.C. §§ 551 et seq. and 701 et seq.
III.

LEGAL STANDARD

Subject matter jurisdiction over plaintiff’s challenge to the Secretary’s final
decision is based upon the Medicare statute, 42 U.S.C. § 1395ff(b)(1)(A), which
authorizes judicial review “as provided in [42 U.S.C. § ] 405(g).” 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
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Date

March 9, 2012

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.

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)).
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)).
IV.

DISCUSSION
A.

Scope of this Review

The Court first considers whether subject matter jurisdiction in this case extends
beyond the MAC’s final decision concerning plaintiffs’ claims as to nine beneficiaries
during the three-month period between December 2007 and February 2008.
According to plaintiff, its “entire universe of claims” are at issue in this action. Pl.
Op. Brf. at 11 n. 8. Plaintiff further argues that because it submitted evidence beyond the
claims for the nine beneficiaries analyzed by the ALJ, the Court has jurisdiction over all
of plaintiff’s claims. Pl. Opp’n Brf. at 2.
The Secretary responds that plaintiffs allegations of subject matter jurisdiction over
all of its claims are not supportable given that the MAC’s final decision was limited to
the claims of only nine patient-beneficiaries during the period between December 2007
and February 2008. Def. Op. Brf. at 9 (citing A.R. at 3–11). According to the Secretary,
except for the claims specifically addressed by the MAC’s final decision, plaintiff’s
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Date

March 9, 2012

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.

request for relief for the remainder of the universe of its claims exceeds the narrow scope
of the Court’s jurisdiction pursuant to § 405(g). Id.
The Medicare Statute provides for “judicial review of the Secretary’s final decision
. . . as is provided in section 405(g) of this title.” 42 U.S.C. § 1395ff(b)(1)(A). The
Ninth Circuit has held that “[f]ederal courts have jurisdiction over provider
reimbursement disputes only to the extent provided by 42 U.S.C. § 1395oo(f)(1).”
Anaheim Mem’l Hosp. v. Shalala, 130 F.3d 845, 853 (9th Cir. 1997). See also Rhode
Island Hosp. v. Califano, 585 F.2d 1153, 1158 (1st Cir. 1978) (noting that § 1395oo(f) is
the “functional equivalent of § 405(g)). Accordingly, a party can secure judicial review
of a particular claim under the Medicare statute only if there is a final agency decision on
the matter in question. Importantly, the “final decision” requirement in 42 U.S.C.
§ 405(g) is a “statutorily developed jurisdictional prerequisite,” not “simply a
codification of the judicially developed doctrine of exhaustion.” Weinberger v. Salfi, 422
U.S. 749, 766 (1975). As the Ninth Circuit has explained, the exclusive jurisdictional
prerequisites of the Medicare statute consist of two requirements: “a nonwaivable
requirement that ‘a claim for benefits shall have been presented to the Secretary;’” and a
final decision or exhaustion requirement, which “a district court cannot waive . . . for
equitable or other policy reasons.” Queen of Angels/Hollywood Presbyterian Medical
Ctr. v. Shalala, 65 F.3d 1472, 1482 (9th Cir. 1995).
In this case, the Court’s jurisdiction pursuant to § 405(g) does not extend beyond
the claims of the nine beneficiaries which were finally denied by the MAC in its March
24, 2010 decision.5 See, e.g., Heckler v. Ringer, 466 U.S. at 610 (finding no jurisdiction
under § 405(g)); Pacific Coast Med. Enter. v. Harris, 633 F.2d 123, 137–38 (9th Cir.
1980) (no § 1395oo(f) jurisdiction); Western Med. Enter. v. Heckler, 783 F.2d 1376,
1380 (9th Cir. 1986) (same).

5

Because plaintiff alleges that most of its claims are still pending in the
administrative appeals process, FAC ¶ 59, it cannot be said that the Secretary has in any
sense “waived further exhaustion” as to whether those claims satisfy the applicable
coverage requirements. Heckler v. Ringer, 466 U.S. 602, 618 (1984).
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.
B.

Date

March 9, 2012

Whether the MAC Should have Decided Issues Regarding HCPCS
Coding Procedures

According to plaintiff, the Secretary abused her discretion by failing to adhere to
Congressional mandates and her own public notice and comment procedures regarding
the revisions of HCPCS codes. Pl. Op. Brf. at 16–22. Plaintiff argues that the ALJ and
MAC erroneously ignored plaintiff’s procedural objections because of the mistaken belief
that those objections could be heard in the Local Coverage Determination (“LCD”)
appeals process. Pl. Opp’n Brf. at 4 (citing A.R. 9).
In opposition, the Secretary argues that plaintiff’s focus on the LCD is misplaced
because the MAC’s final denial of coverage was not based on the LCD but was instead
based on a July 2007 HCPCS Quarterly Update. Def. Reply Brf. at 6. The Secretary
further contends that insofar as plaintiff wished to challenge the procedure by which the
HCPCS Quarterly Update invalidated the original billing codes, the proper avenue was
for plaintiff to file its claims under the new codes and then challenge the rate at which
they were paid. Rep. Tr. Of Proceedings Jan. 6, 2012, at 18:24–19:6.
In its supplemental brief, plaintiff argues that the changes made to the HCPCS
codes through the July 2007 Quarterly Update cannot be reviewed under Health and
Human Services’ administrative appeal process. According to plaintiff, regardless of
whether it files claims under the old codes or the new codes, plaintiff cannot raise
procedural challenges as to the Secretary’s various policy statements through the
administrative claims appeal process. Pl. Post Trial Brf. at 2. Further, plaintiff argues
that no right of administrative appeal would have existed for claims paid under the new
codes because those would have been paid as fully favorable claims at the administrative
level. Id. at 3. In such case, plaintiff argues that the only issue that it could appeal would
be the amount of payment received. Plaintiff maintains that this is significant because
Health and Human Services’ regulations preclude challenge to “payment amounts or
methodologies” in administrative claim appeals. Id. at 4 (citing 42 C.F.R. §
426.325(b)(7); 20 C.F.R. § 404.946 (“The issues before the administrative law judge
include all the issues brought out in the initial, reconsidered, or revised determination that
were not decided entirely in your favor.”)).
In her supplemental brief, the Secretary argues that plaintiff’s challenge to the
HCPCS billing instruction could have been raised as “part and parcel” of a
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Date

March 9, 2012

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.

reimbursement appeal. Def. Post Trial Brf. at 1. In support of this argument, the
Secretary notes that the Medicare statute allows for full administrative review of both the
Medicare contractor’s “‘initial determination of the amount of benefits available,’” and
“‘[a]ny other initial determination . . . that payment may not be made.’” Id. (quoting 42
U.S.C. § 1395ff(a)(1)(B), (C), (b)(1)(A)). According to the Secretary, plaintiff could also
appeal an initial determination concerning whether items or services furnished “‘are
covered’” and “‘[a]ny other issues having a present or potential effect on the amount of
benefits to be paid under Part A or Part B.’” Id. at 1–2 (quoting 42 C.F.R.
§ 405.924(b)(1), (12)). Further, the Secretary maintains that had plaintiff used the new
HCPCS codes, plaintiff could have argued that it had been underpaid because the fee
schedule amounts for those codes are less than those for the original codes. Id. at 4.
The Court finds that plaintiff could have challenged the procedure by which the
original HCPCS codes were invalidated by bringing its claims under the new codes, and
therefore that the MAC’s determination that it could not reach plaintiff’s procedural
arguments was not arbitrary and capricious.6 In American Medical Technologies, 598
F.Supp.2d at 82, plaintiff’s predecessor-in-interest contested the Secretary’s assertion that
it could have submitted claims for reimbursement using the new HCPCS codes rather
than the olds codes, and that 42 C.F.R. § 405.924(b)(12) provided “a vehicle for
administrative appeal” of the HCPCS billing instructions. The court rejected the
supplier’s “counter[,] that the Secretary’s proposal is unworkable.” Specifically, the
court held:
If plaintiff were to appeal from an initial determination using the new billing codes,
however, it would not be raising an ‘issue regarding the computation of payment
amount.” Rather, plaintiff would be raising an issue regarding the approach the

6

It is irrelevant that plaintiff could not challenge the MAC’s denial of coverage
through the LCD appeals process. This is so because the MAC’s final denial of coverage
was not based on an LCD but was instead based on the July 2007 HCPCS Quarterly
Update. A.R. 7. While the MAC also discussed the Medicare contractor’s LCD for
Surgical Dressings and its interpreting Policy Article, it did so solely in response to
plaintiff’s complaints about the “reconsideration” of its claims by the QIC and the
ensuing rejection of plaintiff’s claims by the ALJ. A.R. 8–9. The MAC’s statements
about the LCD and Policy Article were therefore unnecessary to its decision.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Date

March 9, 2012

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.
contractors used in invalidating the old codes and issuing the new ones. Hence, the
Court is persuaded that . . . § 405.924(b)(12) would provide plaintiff with a vehicle
for administrative review and moreover, review would not be barred by §
405.926(c).

Id. at 83 (emphasis in original).
The reasoning of American Medical Technologies applies equally to this case.
Here, plaintiff ignored the agency’s directive to use the new HCPCS billing codes, and
instead billed under the superseded codes it preferred. Had plaintiff billed using the new
codes and then argued that it was underpaid, the MAC could have decided the merits of
plaintiff’s challenge to the agency’s billing instructions. Because plaintiff did not do so,
the Court finds that the MAC did not act arbitrarily and capriciously by concluding that it
lacked the authority to review the procedures by which the HCPCS codes were adopted.
The regulations upon which plaintiff relies do not compel a contrary result. While
42 C.F.R. § 426.325(b)(4), (12) does in some circumstances remove from review
“contractor bulletin articles, education materials, website frequently asked questions” and
“any other policy that is not an LCD or NCD[,]” plaintiff overlooks the regulation’s
caveat that such review only is precluded “under this part.” 42 C.F.R. § 426.325(b). The
“part” referred to is Part 426 of Title 42 of the Code of Federal Regulations, which
provides for administrative and judicial review of facial challenges to the lawfulness of a
national coverage determination (“NCD”) or LCD. Id. § 426.100. This case does not
involve an NCD or a facial challenge to an LCD. Instead, plaintiff’s administrative
appeal was based exclusively on the review provisions for individual benefit claims.
Therefore, the Court agrees with the Secretary that the provisions of § 426 concerning
appeals of NCDs and LCDs are inapplicable. Plaintiff’s reliance on 42 C.F.R. §
426.325(b)(7) is misplaced for the same reason. Finally, 20 C.F.R. § 404.946 is also
inapposite. That provision is part 20 C.F.R § 404(J), which governs appeals of claims for
Social Security retirement and disability benefits, and is inapplicable to this case for two
reasons. First, for Medicare purposes 20 C.F.R. § 404(J) applies only to initial
determinations and redeterminations by the Social Security Administration as to whether
a person is entitled to Medicare benefits. ALJ hearings on Medicare entitlement issues
are governed instead by 42 C.F.R. § 405.904. Second, this case involves only issues of
Medicare coverage and payment for the Part B benefit claims of a supplier; there are no
issues concerning any person’s entitlement to Medicare benefits.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.
C.

Date

March 9, 2012

Whether the Secretary’s Denial of Coverage Was Supported by
Substantial Evidence

The Court finds that the Secretary’s decision to deny coverage was supported by
substantial evidence, and therefore must be affirmed. Mayes, 276 F.3d at 458–59.
Plaintiff argues that the Secretary committed “clear error” by confusing Policy
Articles with Local Coverage Determinations. Pl. Op. Brf. At 13. According to plaintiff,
the ALJ’s confusion of Policy Article A24114 with an LCD was critical because the ALJ
specifically declined to review certain issues because plaintiff had failed to pursue an
administrative remedy through the LCD appeals process. Id. (citing A.R. 206). Plaintiff
contends that the applicable LCD at the time the ALJ made his determination provided
that the original codes were still valid for non-bordered composite dressings, and
therefore that there was nothing in the LCD for plaintiff to challenge through the LCD
process. Id.
In opposition, the Secretary argues that the MAC did not rely upon a Policy
Article, but instead properly relied upon CMS’ July 2007 HCPCS Quarterly Update,
which provides that composite dressing claims billed under the applicable “HCPCS codes
are non-covered by Medicare, effective July 1, 2007.” Def. Op. Brf. at 11 (citing CMS
Transmittal 1388 at 5). According to the Secretary, the MAC found that the dates of
service for the claims at issue were “well within the range of dates of service to be denied
coverage specified in the HCPCS Quarterly Update.” Id. (quoting A.R. 7).
The Court agrees with the Secretary that the MAC did not base its decision on a
Policy Article or LCD, but instead based the denial of coverage on the July 2007 HCPCS
Quarterly Update. See A.R. 7. The Quarterly Update provides that composite dressing
claims are non-covered by Medicare. Accordingly, the MAC’s decision that the surgical
dressings for nine beneficiaries that plaintiff billed under the original codes were not
covered items under Medicare is supported by substantial evidence in the administrative
record. In this respect, any error by the ALJ or the MAC regarding the effect of Policy
Article A24114 has no bearing on this case. See Yassini v. Crosland, 618 F.2d 1356,
1362 (9th Cir. 1980) (holding that a “hypertechnical” violation is not grounds to
invalidate an agency action).

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 10-3933CAS (FFMx)

Title

GORDIAN MEDICAL, INC. v. KATHLEEN SEBELIUS, ETC.

V.

Date

March 9, 2012

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

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