True Health Diagnostics, LLC v. Azar

392 F. Supp. 3d 656
District Court, E.D. Texas·Decided July 22, 2019·No. CIVIL ACTION NO. 9:19-CV-00110-MJT·Published·Cited by 4 cases

Opinion

Michael J. Truncale, United States District Judge

Defendants Alex M. Azar, II, the Secretary of the United States department of Health and Human Services, and Seema Verma, Administrator for the Centers for Medicare and Medicaid Services (collectively, "CMS") move to dismiss the complaint filed by Plaintiff True Health Diagnostics, LLC ("THD") for lack of subject-matter jurisdiction and failure to state a claim upon which relief may be granted. [Dkt. 9]. THD did not file a response to CMS's Motion, and its response time has lapsed. Local Rule CV-7(e). Although THD did not file a separate response to CMS's Motion to Dismiss, THD did address the subject-matter jurisdiction issues in several pleadings and orally during the July 17, 2019 show cause hearing regarding its Motion for Preliminary Injunction. Based on the relevant filings, evidence, and applicable law, CMS's Motion to Dismiss is GRANTED.

I. FACTUAL AND PROCEDURAL BACKGROUND

THD provides nationwide diagnostic services, consisting primarily of blood and urine testing, for Medicare beneficiaries. THD provides such services by (1) testing samples from physicians in their lab in either Frisco, Texas, or Richmond, Virginia; or (2) managing outpatient labs in *660hospitals partnered with THD. Most of THD's 400 employees are lab technicians and billers. Approximately 20% of all THD patients are currently Medicare patients, and 30% of THD revenue is from CMS [Dkt. #3-2, ¶ 4]. Private providers supply the remaining 70% of revenue.

A. 2017 and 2019 CMS Payment Suspensions

On May 25, 2017, CMS suspended 100% of THD's Medicare payments, without prior notice, based on "credible allegations of fraud" pursuant to 42 C.F.R. § 405.372(a)(4). [Dkt. 2, ¶ 34]. THD submitted a rebuttal statement on June 5, 2017 [Dkt. 2, ¶ 41], but CMS refused to lift the suspension [Dkt. 2, ¶ 46]. Approximately a month later on June 23, 2017, CMS reduced the suspension to 35% (the "2017 Suspension"). [Dkt. 2, ¶ 49].

On June 11, 2019, while the 2017 Suspension was in place, CMS implemented a second suspension of Medicare payments based on "recent credible allegations of fraud" (the "2019 Suspension"). [Dkt. 2, ¶ 58]. THD submitted its rebuttal statement concerning the 2019 suspension on June 25, 2019. [Dkt. 3-3]. On July 2, 2019, THD brought suit against CMS for the 2017 and 2019 Suspensions. Specifically, THD alleges five causes of action for CMS's actions: (1) violation of procedural due process; (2) violation of substantive due process; (3) violation of the Administrative Procedure Act; (4) mandamus; and (5) declaratory judgment. [Dkt. 2].

Subsequently, on July 5, 2019, CMS moved to dismiss the case based on Federal Rule of Civil Procedure 12(b)(1), lack of subject-matter jurisdiction, and 12(b)(6), failure to state a claim for which relief may be granted. [Dkt. 9]. On the same date, CMS issued an overpayment determination concerning the 2017 Suspension. [Dkt. 9 at 7].

B. The Administrative Process for Medicare Claims

Medicare is the federal medical insurance program for the aged and disabled. 42 U.S.C. § 1395 et seq. A provider's participation in the Medicare program is completely voluntary. See 42 C.F.R. § 489.10. The Secretary for the Department of Health and Human Services ("HHS") operates Medicare through CMS, which in turn hires contractors to perform administrative functions on CMS's behalf. 42 U.S.C. § 1395u.

Medicare is a pay-first system. That is, once a Medicare provider submits claims for payment-without any records, documents, or proof that the services were provided or that the services meet Medicare requirements-CMS, through its contractors, automatically pays those claims within a couple of weeks after submission. CMS can suspend payments, "in whole or in part," when it determines "a credible allegation of fraud exists against a provider or supplier." 42 C.F.R. § 405.371(a)(2). In cases of suspected fraud, CMS need not issue a notice to the supplier prior to suspension. 42 C.F.R. § 405.372(a)(4).

When CMS suspends a provider or supplier's payments, it must provide the suspended entity an opportunity to submit a rebuttal statement as to why CMS should end the suspension. 42 C.F.R. §§ 405.373(a)(2) ; 405.374. CMS must then respond to the rebuttal within 15 days with a "notification of determination" that contain "specific findings on the conditions upon which the suspension is initiated, continued, or removed and an explanatory statement of the determination." 42 C.F.R. § 405.375(b)(2). This determination is not appealable and "is not an initial determination" within the Medicare Act administrative process. Id. Cf. 42 C.F.R. § 405.924 *661(listing actions that are considered initial determinations).

Once CMS determines that there has been an overpayment, it sends an overpayment determination and demand letter to the provider or supplier. This initial overpayment determination triggers the multi-step administrative appeals process for a provider or supplier to follow if it is dissatisfied with the initial overpayment determination. 42 C.F.R. § 405.904

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True Health Diagnostics, LLC v. Azar, 392 F. Supp. 3d 656 (E.D. Tex. 2019).

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