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KGV Easy Leasing Corp. v. Sebelius

August 4, 2009


The opinion of the court was delivered by: Dale S. Fischer United States District Judge


This matter having come on for hearing on June 16, 2009, and the Court having considered the pleadings, memoranda of points and authorities, administrative record, and the oral argument at the hearing, it finds as follows:


A. Statutory and Regulatory Background

1. The Medicare Act, established under Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq., pays for covered medical care provided to eligible aged and disabled persons. During the time at issue, the statute consisted of three main parts.

2. Part B provides supplementary medical insurance for covered medical services, such as diagnostic testing, or covered medical supplies, such as durable medical equipment (DME), prosthetics and orthotics. See 42 U.S.C. §§ 1395j to 1395w-4, 42 C.F.R. Part 410.

3. This case involves Part B of the Medicare Act because at all relevant times, Plaintiff KGV was designated by Medicare as an Independent Diagnostic Testing Facility or "IDTF." An IDTF is an entity independent of a hospital or physician's office in which diagnostic tests are performed by licensed, certified non-physician personnel under appropriate physician supervision. 42 C.F.R. § 410.33(a). The purpose of IDTFs is to furnish tests; such entities do not directly use the test results to treat a beneficiary. See 62 Fed. Reg. 59048, 59070-74 (October 31, 1997).

4. In administering Part B, Medicare acts through private fiscal agents called carriers. 42 U.S.C. § 1395u; 42 C.F.R. Part 421, Subparts A and C, and 42 C.F.R. § 421.5(b). Carriers are private entities who contract with the Secretary of the U.S. Department of Health and Human Services (the "Secretary") and perform a variety of functions. These functions include making coverage determinations in accordance with the Medicare Act, applicable regulations, Medicare Part B Supplier Manual, or other agency guidance; determining reimbursement rates and allowable payments; conducting audits of the claims submitted for payment; and rejecting or adjusting payment requests. On receipt of a claim for services rendered, the carrier pays the Medicare beneficiary on the basis of an itemized bill or pays the Medicare supplier on the basis of an assignment of benefits executed by the beneficiary. 42 U.S.C. § 1395u(b)(3)(B). These carrier functions are prescribed by regulation. 42 C.F.R. § 421.200.

5. As with private medical insurance programs, Medicare has conditions and limitations on the coverage of services and items. For Part B, the statute and implementing regulations set forth these conditions, exclude certain services and items from coverage, and otherwise specify various limitations. 42 U.S.C. §§ 1395k, 1395l, 1395x(s); see also 42 U.S.C. § 1395y(a)(2)-(16); 42 C.F.R. § 411.15(a)-(j).

6. For Medicare to cover an item or service, the services rendered must be reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member. 42 U.S.C.§ 1395y(a)(1)(A).

7. Medicare payment cannot be made unless the party seeking payment furnishes the Secretary with the information he or she may require to substantiate medical necessity. 42 U.S.C. § 1395l(e); 42 C.F.R. § 424.5(a)(6). Congress has given the Secretary the authority to prescribe the regulations for determining entitlement to benefits under part A or part B. 42 U.S.C. § 1395ff(a).

8. The medical documentation requirements that IDTFs must meet to be eligible for reimbursement for services to Medicare beneficiaries are published at 42 C.F.R. § 410.33.

9. The Medicare Act also provides for a waiver of liability for a supplier when the supplier "did not know, and could not reasonably have been expected to know, that payment would not be made for such services." 42 U.S.C. § 1395pp(a). The Act allows recovery by a supplier whenever it is determined that the supplier is "without fault" in incurring the denial of payment. 42 U.S.C. § 1395gg(b)(1).

10. A Medicare supplier dissatisfied with a reimbursement decision by the carrier must present its claim through the designated administrative appeals process and exhaust the administrative remedies available to it. 42 U.S.C. § 1395ff(b) (incorporating by reference 42 U.S.C. § 405(b)); see also, 42 C.F.R. ...

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