Key Medical Supply, Inc. v. Sebelius et al

Filing 85

MEMORANDUM OPINION AND ORDER. 1. Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction (Doc. No. 29 ) is GRANTED. 2. Plaintiff's Verified Complaint for Declaratory Judgment and Injunctive Relief (Doc. No. 1 ) is DISMISSED WITH PREJUDICE. 3. Defendants' Motion for Summary Judgment Based on the Administrative Record (Doc. No. 29 ) is DENIED AS MOOT. 4. Plaintiff's Second Motion for Temporary Restraining Order (Doc. No. 70 ) is DENIED AS MOOT.(Written Opinion). Signed by Judge Donovan W. Frank on 3/19/2013. (BJS)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Key Medical Supply, Inc.,
a Minnesota Corporation,

Civil No. 12-752 (DWF/JJG)

Plaintiff,
v.

MEMORANDUM
OPINION AND 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. Siekert, Assistant United States Attorney, United States Attorney’s
Office; Clifford Lee Reeves, II, Esq., and Gregory Dworkowitz, Esq., United States
Department of Justice, counsel for Defendants.

INTRODUCTION
This matter is before the Court on Defendants’ Motion to Dismiss for Lack of
Subject Matter Jurisdiction, or in the Alternative, Motion for Summary Judgment Based
on the Administrative Record (Doc. No. 29) and Plaintiff’s Second Motion for
Temporary Restraining Order (Doc. No. 70). As stated in the Court’s February 26, 2013

Order, and for the reasons set forth below, the Court grants Defendants’ motion to
dismiss and denies the remaining motions as moot.
BACKGROUND
I.

Factual Allegations
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 (Id. ¶ 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. (Id. ¶ 15.)
Defendant Kathleen Sebelius is the Secretary of the United States Department of
Health and Human Services (the “Secretary”). (Id. ¶ 18.) In that capacity, the Secretary
is charged with the responsibility to administer and oversee the Medicare and Medicaid
programs. (Id.) The Secretary administers the Medicare and Medicaid programs through
the Centers for Medicare and Medicaid Services (“CMS”). (Id.) Defendant Marilyn
Tavenner is the Acting Administrator of CMS. (Id. ¶ 19.)

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Conventional tubes have long and protruding external tubes, which Plaintiff
alleges are clinically inappropriate for some patients. (Compl. ¶¶ 51, 52.)

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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 feeding tubes and
related supplies for its clients with developmental and other disabilities. 2 (Id. ¶ 8.)
In its Complaint, Plaintiff asserts the following causes of action: Counts One and
Two—Violations of the Administrative Procedures Act, 5 U.S.C. §§ 701-606; Count
Three—Violation of United States Constitution Takings Clause; Count Four—Violation
of the United States Constitution Equal Protection Clause; Count Five—Violation of the
United States Constitution Due Process Clause. (Id. ¶¶ 141-203.)

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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. 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. (Id. ¶ 16.)
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II.

Procedural History
In March of 2012, the Court heard a motion for a temporary restraining order, in

which Plaintiff sought to enjoin Defendants from implementing the Medicare competitive
bidding program for all Enteral Nutrients, Equipment and Supplies. (Doc. No. 2.) The
Court denied the motion. (Doc. No. 17.) Plaintiff has now brought a second motion for a
temporary restraining order, which seeks to enjoin Defendants from awarding or
finalizing contracts to providers of Durable Medical Equipment, Prosthetics, Orthotics
and Supplies (“DMEPOS”) in the Twin Cities competitive bidding area. (Doc. No. 70.)
Defendants have represented that they “will not finalize or sign any contracts to supply
DMEPOS under the second round of the competitive bidding program prior to March 20,
2013.” (Doc. No. 81.)
Also before the Court is Defendants’ motion to dismiss for lack of subject matter
jurisdiction. (Doc. No. 29.) In the alternative, Defendants seek summary judgment based
on the administrative record. (Id.)
The Court issued a short order on February 26, 2013, granting Defendants’ motion
to dismiss and denying the motion for summary judgment and Plaintiff’s temporary
restraining order as moot. (Doc. No. 84.) The Court explains its reasoning below.
DISCUSSION
I.

Legal Standard
Federal Rule of Civil Procedure 12(b)(1) is the proper vehicle by which to seek

dismissal of a claim for lack of federal subject matter jurisdiction. Fed. R. Civ. P.
12(b)(1). A motion to dismiss for lack of subject matter jurisdiction may challenge a
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plaintiff’s complaint either on its face or on the factual truthfulness of its averments.
Osborn v. United States, 918 F.2d 724, 729 n.6 (8th Cir. 1990). When a defendant brings
a facial challenge—a challenge that, even if truthful, the facts alleged in a claim are
insufficient to establish jurisdiction—a court reviews the pleadings alone, and the
non-moving party receives the same protections as it would defending against a motion
brought pursuant to Rule 12(b)(6). Id. In a factual challenge to jurisdiction, the court
may consider matters outside the pleadings and the non-moving party does not benefit
from the safeguards of Rule 12(b)(6). Id.
II.

Motion to Dismiss
Plaintiff seeks review, pursuant to the Administrative Procedures Act (“APA”), of

Defendants’ decision to set a maximum allowable bid for low-profile enteral tubes at
$35.39. Plaintiff alleges that, because the acquisition cost for low-profile enteral tubes is
always greater than $35.39, no bona fide bid for such items is possible under Defendants’
competitive bidding program. (Compl. ¶¶ 6, 91, 132.) Plaintiff further claims that CMS
exceeded its enabling legislation by expanding the Medicare competitive bidding process
to include dually eligible Medicaid recipients, thereby depriving those individuals of their
statutory right to free choice of Medicaid vendor. Plaintiff argues that the competitive
bidding program extends beyond the confines of Medicare and thus eliminates Plaintiff’s
Medicaid business. All of Plaintiff’s claims, at their core, derive from Plaintiff’s
dissatisfaction with the way in which Defendants came to set the Medicare
reimbursement amount for low-profile items by failing to consider their therapeutic

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advantages and lumping them together with conventional enteral items. (See id.
¶¶ 144-48.)
Defendants argue that Plaintiff’s claims must be dismissed because the Court lacks
subject matter jurisdiction over this dispute. In particular, Defendants contend that
Plaintiff’s claims are barred by the MMA. See 42 U.S.C. § 1395w-3(b)(11). 3
In determining whether a statute precludes judicial review, a court “must heed the
APA’s basic presumption of judicial review,” which “will not be cut off unless there is
persuasive reason to believe that such was the purpose of Congress.” Tex. Alliance for
Home Care Servs. v. Sebilius, 681 F.3d 402, 408 (D.C. Cir. 2012) (internal quotations
omitted). “The presumption favoring judicial review of administrative action,” however,
“may be overcome by specific language or specific legislative history that is a reliable
indicator of congressional intent.” Block v. Cmty. Nutrition Inst., 467 U.S. 340, 349
(1984). Here, the APA’s presumption of reviewability is overcome by the specific and
emphatic statutory language prohibiting judicial review of the competitive bidding
process. See Tex. Alliance, 681 F.3d at 408.
The MMA provides, in pertinent part:
There shall be no administrative or judicial review under section 1395ff of
this title, section 1395oo of this title, or otherwise, of—
(A) the establishment of payment amounts under paragraph (5);
(B) the awarding of contracts under this section;

3

To the extent Plaintiff claims that the MMA is unconstitutional as applied to
Plaintiff in violation of Plaintiff’s right to due process, the Court concludes this argument
lacks merit. See, e.g., Am. Soc’y of Cataract & Refractive Surgery v. Thompson, 279
F.3d 447, 454-55 (7th Cir. 2002).
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(C) the designation of competitive acquisition areas under subsection
(a)(1)(A) of this section;
(D) the phased-in implementation under subsection (a)(1)(B) of this
section;
(E) the selection of items and services for competitive acquisition under
subsection (a)(2) of this section;
(F) the bidding structure and number of contractors selected under this
section; or
(G) the implementation of the special rule described in paragraph (10).
42 U.S.C. § 1395w-3(b)(11).
As stated by the D.C. Circuit, “[t]he mandate that there be ‘no administrative or
judicial review’ under the two cited statutes ‘or otherwise’ unequivocally precludes
review of the Secretary’s actions addressing the seven aspects of the competitive bidding
program enumerated in subsections (b)(11)(A)-(G).” Tex. Alliance, 681 F.3d at 409. The
statutory language of 42 U.S.C. § 1395w-3(b)(11) expressly immunizes the articulated
subjects from review and manifests Congress’s intent to carry out the competitive bidding
process “without risk of litigation blocking the execution of the program.” Id. “If a
no-review provision shields particular types of administrative action, a court may not
inquire whether a challenged agency decision is arbitrary, capricious, or procedurally
defective, but it must determine whether the challenged agency action is of the sort
shielded from review.” Amgen, Inc. v. Smith, 357 F.3d 103, 113 (D.C. Cir. 2004).
Here, judicial review of Plaintiff’s claims is expressly precluded by statute.
Several of the enumerated subject areas of 42 U.S.C. § 1395w-3(b)(11) encompass the
Secretary’s decisions at issue in this lawsuit. Specifically, subsections (A) and (E)
prohibit judicial review of “the establishment of payment amounts” and “the selection of
items and services for competitive acquisition.” 42 U.S.C. § 1395w-3(b)(11)(A) and (E).
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Plaintiff disputes the inclusion of low-profile enteral tubes in the DMEPOS bidding
process as well as the maximum bid amount set by Defendants. To the extent Plaintiff
seeks to alter the bidding process and the award of contracts, such challenges implicate
subsections (B) and (F) of the statute. Id. § 1395w-3(b)(11)(B) and (F). Importantly, all
of Plaintiff’s assertions regarding the Medicare competitive bidding program are
derivative of such prohibited challenges. Consequently, Plaintiff’s claims are insulated
from judicial review.
To the extent Plaintiff contends that Defendants exceeded their enabling
legislation and statutory authority, the Court remarks that this issue was a close one. The
Court echoes Plaintiff’s concern that Defendants’ inclusion of dually eligible Medicaid
recipients in the Medicare competitive bidding process may, in effect, deprive those
individuals of their statutory right to free choice of Medicaid vendor. Still, dually eligible
beneficiaries constitute a subset of Medicare beneficiaries, and the Medicare statute does
not differentiate between dually eligible beneficiaries and other beneficiaries with respect
to covered providers and services. 4 (See Doc. No. 53 at 7-9.) Unfortunately, insofar as
DMEPOS are concerned, it appears that Congress may not have contemplated the unjust
result of its legislation, with which individuals with developmental and other disabilities

4

As articulated by Defendants, because Medicaid is the payer of last resort,
Medicare will necessarily absorb some or all of the cost of DMEPOS for dually eligible
individuals. (Doc. No. 53 at 2, 9.)

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in need of low-profile feeding tubes are now faced. (See generally Doc. No. 84.) 5
Admittedly, the issue of whether Defendants exceeded their enabling legislation and
statutory authority was a close call; the Court concludes, however, that the conduct at
issue does not rise to such a level.
While the Court finds the allegations in the Complaint highly disconcerting, the
Court lacks the subject matter jurisdiction required in order for it to adjudicate Plaintiff’s
claims on the merits. Defendants’ motion to dismiss is thus properly granted. 6
CONCLUSION
As described in its February 26, 2013 Order, while the Court’s decision is
supported by law, the Court is deeply concerned about the unjust consequences of its
ruling—particularly its effect on those with developmental and other disabilities. The
Court reiterates here the clear need for low-profile enteral feeding tubes on the part of
those individuals.

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As the Court emphasized in its February 26, 2013 Order, the record “indicates a
seeming indifference on the part of Defendants to the fact that individuals with
developmental and intellectual disabilities, as well as other disabilities, have a clear need
for low profile products because conventional feeding tubes with their long, protruding,
external tubing carry a greater risk of accidental removal or dislodgement.” (Doc. No. 84
at 5.)
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Defendants also assert that they are entitled to summary judgment based on the
administrative record. Specifically, Defendants contend that the Secretary’s decision to
include enteral nutrition products in the DMEPOS competitive bidding process was
reasonable. Because the Court lacks subject matter jurisdiction to adjudicate Plaintiff’s
claims, the Court does not reach Defendants’ other arguments.
For the same reason, the Court does not reach the merits of Plaintiff’s second
motion for a temporary restraining order.
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ORDER
Based upon the foregoing, IT IS HEREBY ORDERED that:
1.

Defendants’ Motion to Dismiss for Lack of Subject Matter Jurisdiction

(Doc. No. [29]) is GRANTED.
2.

Plaintiff’s Verified Complaint for Declaratory Judgment and Injunctive

Relief (Doc. No. [1]) is DISMISSED WITH PREJUDICE.
3.

Defendants’ Motion for Summary Judgment Based on the Administrative

Record (Doc. No. [29]) is DENIED AS MOOT.
4.

Plaintiff’s Second Motion for Temporary Restraining Order (Doc. No. [70])

is DENIED AS MOOT.
LET JUDGMENT BE ENTERED ACCORDINGLY.

Dated: March 19, 2013

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

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