Key Medical Supply, Inc. v. Sebelius et al

Filing 17

ORDER. 1. Key Medical Supply, Inc.'s Motion for Temporary Restraining Order (Doc. No. 2 ) is respectfully DENIED. 2. Consistent with the Court's remarks off the bench at the hearing on this matter, the Court's Calendar Clerk will contact the parties to set a status conference that will focus on scheduling and discovery issues.(Written Opinion). Signed by Judge Donovan W. Frank on 3/30/2012. (BJS)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Key Medical Supply, Inc.,
a Minnesota Corporation,

Civil No. 12-752 (DWF/JJG)

Plaintiff,
v.

ORDER

Kathleen Sebelius, Secretary of the
United States Department of Health and
Human Services, in her official capacity;
and Marilyn Tavenner, Acting Administrator
of the Centers for Medicare and Medicaid
Services, in her official capacity,
Defendants.

Samuel D. Orbovich, Esq., and Lousene M. Hoppe, Esq., Fredrikson & Byron, PA, counsel
for Plaintiffs.
Friedrich A. P. Seikert, Assistant United States Attorney, United States Attorney’s Office,
counsel for Defendants.

INTRODUCTION
This matter is before the Court on a Motion for Temporary Restraining Order
brought by Plaintiff Key Medical Supply, Inc. (Doc. No. 2.) For the reasons stated on
the record at the hearing on this matter, as well as the reasons set forth below, the Court
denies Plaintiff’s motion.

BACKGROUND
The facts and legal issues involved in this case are complex, as evidenced by
Plaintiff’s 223-paragraph Complaint. (Doc. No. 1.) For purposes of this motion, the
Court only briefly summarizes the relevant facts and issues involved. Plaintiff is a vendor
of medical supplies and equipment, including enteral nutritional supplies. (Compl. ¶¶ 11,
12.) Enteral nutrition refers to “tube feeding.” In particular, Plaintiff supplies
Low-Profile Enteral Gastric Tubes, which are tubes that are custom-sized to fit each user’s
body. 1 (Compl. ¶ 57.) Plaintiff provides equipment and supplies to patients who reside
in their homes and are covered by insurance plans, including Medicare and Medicaid, and
the Minnesota Home & Community Based Waiver Program. (Id. ¶¶ 12, 13.) A
substantial percentage of Plaintiff’s clientele are persons with developmental and other
disabilities. 2 (Id. ¶ 15.)
Defendant Kathleen Sebelius is the Secretary of the United States Department of
Health and Human Services. (Id. ¶ 18.) In that capacity, Defendant Sebelius is charged
with the responsibility to administer and oversee the Medicare and Medicaid programs.
(Id.) Defendant Sebelius administers the Medicare and Medicaid programs through the

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Conventional tubes have long and protruding external tubes, which Plaintiff alleges
are clinically inappropriate for some patients. (Compl. ¶¶ 51, 52.) Plaintiff’s counsel
demonstrated the relevant Low-Profile Enteral Gastric Tubes at oral argument.

2

Plaintiff’s counsel stated at oral argument that Plaintiff has approximately 5,000
clients. According to the Complaint, more than 80% of those clients are persons with
developmental and other disabilities. (Id. ¶ 15.)
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Centers for Medicare and Medicaid Services (“CMS”). (Id.) Defendant Marilyn
Tavenner is the Acting Administrator of CMS. (Id. ¶ 19.)
In this action, Plaintiff alleges that Defendants are implementing a Medicare
Competitive Bidding Program in a way that is inconsistent with their governing enabling
legislation, the Medicare Prescription Drug Improvement Act of 2003, 42 U.S.C.
§ 1395w-3 (the “MMA”), and that Defendants’ current and historic fee for Low-Profile
Enteral Gastric Tubes, supplies, and nutritional formula is incompatible with Defendants’
Competitive Bidding Program, such that no bona fide bid for these items is possible. (Id.
¶¶ 5, 6.) As a result, Plaintiff asserts that Defendants’ actions will end Plaintiff’s
enteral-related Medicare business and its ability to provide Low-Profile Enteral Gastric
Tubes and related supplies for its clients with developmental and other disabilities. 3 (Id.
¶ 8.) Plaintiff also alleges that its deadline to submit a bid to the Medicare Competitive
Bidding Program is March 30, 2012. (Id. ¶ 16.)

3

Plaintiff asserts that Medicare will pay $35.39 for each Low-Profile Enteral Tube,
but that the approved amount is about 500%-937% below Plaintiff’s acquisition price for
those products. (Doc. No. 6, Reinhart Decl. ¶¶ 7-8.) Plaintiff also asserts that Medicare
will not pay additional amounts for the extension tubes needed to deliver the nutritional
formula through the tubes and limits the number of reimbursable tubes to one tube every
three months. (Doc. No. 4 at 7; Doc. No. 5, Anderson Decl. ¶ 12-14.)
By comparison, Plaintiff submits that the Minnesota Department of Human
Services (“DHS”) authorizes a higher reimbursement rate for these same Low-Profile
Enteral Tubes. In particular, Plaintiff asserts that Medicaid will pay $138.60 to $530.29
for items that Medicare will pay only $35.39, and recognizes that some persons may need
up to two tubes per month. (Doc. No. 4 at 7.)
3

In its Complaint, Plaintiff asserts the following causes of action: Counts One and
Two—Violation of the Administrative Procedures Act, 5 U.S.C. §§ 701-606; Count
Three—Violation of United States Constitution Taking Clause; Count Four—Violation of
the United States Constitution Equal Protection Clause; Count Five—Violation of the
United States Constitution Due Process Clause. (Doc. No. 1.) For purposes of the
present motion, Plaintiff seeks an order: enjoining Defendants from implementing the
Medicare Competitive Bidding Program for all Enteral Nutrients, Equipment and Supplies;
enjoining Defendants from accepting bids for such Enteral Nutrients, Equipment and
Supplies; and enjoining Defendants from extending their Competitive Bidding Program to
persons who are dually-eligible for both Medicare and Medicaid.
Defendants oppose Plaintiff’s motion. Defendants point out that Congress enacted
the MMA in an effort to combat waste, fraud, and abuse. Defendants also point out that as
part of the MMA, Congress enacted the Medicare Competitive Bidding Program for
durable medical equipment, prosthetics, orthotics, and supplies (“DMEPOS”). Further,
Defendants submit evidence, via the declaration of Michael P. Keane, the Director of the
Division of Durable Medical Equipment, Prosthetics, Orthotics, and Supplies
(“DMEPOS”) Competitive Bidding in the CMS, that Round 1 of the DMEPOS
Competitive Bidding Program took place in 2009, and contracts were awarded and became
effective in November 2010 and January 2011, respectively. (Doc. No. 12, Keane Decl.
¶ 4.) In addition, Defendants submit evidence that the following timeline for Round 2 of
the DMEPOS Competitive Bidding Program is in effect:
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11/30/2011
The Centers for Medicare & Medicaid Services (CMS) announces bidding
timeline, begins bidder education program
12/5/2011
Registration for user IDs and passwords begins
12/22/2011
Authorized Officials are strongly encouraged to register no later than this
date
1/30/2012
CMS opens 60-day bid window for Round 2 and National Mail-order
Competitions
2/9/2012
Registration closes
2/29/2012
Covered Document Review Date for bidders to submit financial documents
3/30/2012
60-day bid window closes
Fall 2012
CMS announces single payment amounts, begins contracting process
Spring 2013
CMS begins supplier, referral agent, and beneficiary education campaign
July 1, 2013
Implementation of Medicare DMEPOS Competitive Bidding Program
Round 2 and National Mail-order Competition contracts and prices
(Doc. No. 13, Siekert Decl. ¶ 3, Ex. A.) CMS announced the second round of competitive
bidding on August 19, 2011 via a posting on its website, through its listserv, and via a press
release. (Keane Decl. ¶ 7.) On November 30, 2011, CMS announced that the bidding
window for the second round would close on March 30, 2012. (Id. ¶ 9.)
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DISCUSSION
Under Eighth Circuit precedent, a temporary restraining order may be granted only
if the moving party can demonstrate: (1) a likelihood of success on the merits; (2) that the
movant will suffer irreparable harm absent the restraining order; (3) that the balance of
harms favors the movant; and (4) that the public interest favors the movant. See
Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981); S.B. McLaughlin
& Co., Ltd. v. Tudor Oaks Condominium Project, 877 F.2d 707, 708 (8th Cir. 1989). In
each case, the factors must be balanced to determine whether they tilt toward or away from
granting injunctive relief. See West Pub. Co. v. Mead Data Cent., Inc., 799 F.2d 1219,
1222 (8th Cir. 1986). The party requesting the injunctive relief bears the “complete
burden” of proving all of the factors listed above. Gelco Corp. v. Coniston Partners, 811
F.2d 414, 418 (8th Cir. 1987).
As a threshold matter, the Court determines that Plaintiff has not demonstrated that
it will suffer irreparable harm absent an order prohibiting Defendants from closing the
bidding period for Enteral Equipment and Supplies on Friday, March 30, 2012. Plaintiff
claims that the status quo will change when the bidding window closes on March 30, 2012
because the only bid allowed for Low-Profile Enteral Gastric Tubes will be $35.39 or less,4
and that any bid (submitted by Plaintiff or any other party) will not be bona fide because

4

Plaintiff also submits that the only bids allowed for the specialty nutritional
formulas are priced below their available acquisition price.
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the relevant products cannot be supplied for that price. 5 Plaintiff asserts that before it
submits such a bid, it is required to certify that its bid is bona fide and that it, and others,
will be bound by their non-bona fide bids going forward. Defendants, however, assert
that if Plaintiff is correct, and some systemic problem exists for Round 2 DMEPOS
Competitive Bidding, then competitive bidding will necessarily fail for this segment, and
CMS would not enter into contracts and the fee schedule currently in place would remain
for those items. (Keane Decl. ¶ 11.) Defendants also represented at oral argument that
they will “do a searching inquiry” of their client regarding the situation in Minnesota as
alleged by Plaintiff. Defendants further maintain that the Court will have ample
opportunity in the ordinary course of litigation to resolve these issues, particularly because
the suppliers will not be reimbursed under Round 2 DMEPOS Competitive Bidding until
July 1, 2013. 6

5

A bid may be determined to not be a bona fide bid because the payment is too low to
be sustainable. (Keane Decl. ¶ 11.)

6

The Court notes that Plaintiff’s present motion is complicated by the fact that the
parties have entirely different descriptions of the status quo, and both concede that one
party must, necessarily, be entirely incorrect in its description. Plaintiff claims that:
[T]he status quo of this convoluted, inter-dependent system of dual coverage
by Medicare and Medicaid has enabled Plaintiff [] to supply dually-eligible
persons with developmental and other disabilities with Low-Profile Enteral
Tubes, equipment, and supplies for over fourteen years. If Medicaid
funding were eliminated, and [Plaintiff] or other vendors were forced to rely
solely on Medicare funding to pay for Low-Profile Enteral supplies and
nutritional items, these products would vanish from the disabled marketplace
because vendors cannot financially sustain providing items that initially cost
over $100 to $330 for a flat fee of $35.39.
(Footnote Continued on Next Page)
7

Considering Defendants’ representation that the current fee schedule for the
relevant products will remain in place in the event that a systemic problem does exist for
Round 2 DMEPOS Competitive Bidding, the Court concludes that an injunction is not
warranted. The Court is satisfied that it will have the opportunity to address and resolve
the merits of Plaintiffs’ claims in the ordinary course of litigation. To this end, the Court
respectfully directs the parties to agree to an expedited schedule to bring summary
judgment motions. 7
Finally, the Court notes that the evidence submitted by Defendants suggests that
Plaintiff knew that CMS intended to include Low-Profile Gastric Enteral Access feeding
tubes, supplies, and specialty nutrition formula in Round 2 DMEPOS Competitive Bidding
and about the corresponding fee schedule reimbursement rates for such items since August
2011. Yet, Plaintiff delayed in initiating this lawsuit until days before the March 30

(Footnote Continued From Previous Page)
(Doc. No. 4 at 8.) Defendants, on the other hand, claim that CMS is monitoring contract
performance under the first round of competitive bidding, and that to date it is unaware of
any access problems or adverse health outcomes as a result of competitive bidding for
enteral nutrition products, including to Medicare beneficiaries who are also eligible for
Medicaid. (Doc. No. 11 at 6; Keane Decl. ¶ 6.) Nor are Defendants aware of any
complaints from beneficiaries, suppliers, or States, regarding enteral nutrition products to
those beneficiaries who are eligible for both Medicare and Medicaid. (Keane Decl. ¶ 6.)
7

Not surprisingly, the parties also have very different positions on the effect that an
injunction would have at this point in the litigation. Plaintiff asserts that the injunction
could apply only to a small piece of Defendants’ competitive bidding program in
Minnesota; Defendants assert that an injunction would shut down the entire program
nation-wide. At this point in the litigation, the Court has insufficient evidence to fairly
consider the balance of harm.
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deadline that Plaintiff asserts will alter the status quo. Although Plaintiff’s delay is not the
sole reason for the Court’s denial of Plaintiff’s motion today, this delay alone would be a
sufficient reason to deny Plaintiff’s present motion. Hubbard Feeds, Inc. v. Animal Feed
Supplement, Inc., 182 F.3d 598, 603 (8th Cir. 1999). Having considered the relevant
Dataphase factors, the Court denies Plaintiff’s motion.
ORDER
Based on the files, records, and proceedings herein, and for the reasons stated
above, IT IS ORDERED that:
1.

Key Medical Supply, Inc.’s Motion for Temporary Restraining Order (Doc.

No. [2]) is respectfully DENIED.
2.

Consistent with the Court’s remarks off the bench at the hearing on this

matter, the Court’s Calendar Clerk will contact the parties to set a status conference that
will focus on scheduling and discovery issues.

Dated: March 30, 2012

s/Donovan W. Frank
DONOVAN W. FRANK
United States District Judge

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