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Gordian Medical, Inc. v. Kathleen Sebelius

March 9, 2012




Present: The Honorable CHRISTINA A. SNYDER


Deputy Clerk Court Reporter / Recorder Tape No. Attorneys Present for Plaintiffs: Attorneys Present for Defendants:

Not Present Not Present

Proceedings: (In Chambers:) Bench Trial


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.*fn1 On November 28, 2011, plaintiff filed its opposition to the Secretary's opening trial brief and 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.*fn2 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.


Plaintiff is a Medicare enrolled supplier of wound care supplies, including non-bordered 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 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).*fn3 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."*fn4 Id. at 82. The court held that 42 C.F.R. ยง 405.926(c), which precludes appeals of "[a]ny issue regarding the computations of the payment amount of program reimbursement of general applicability . . ...

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