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Gordian Medical, Inc. v. Kathleen Sebelius

March 9, 2012


ANDRE BIROTTE JR. United States Attorney LEON W. WEIDMAN Assistant United States Attorney Chief, Civil Division RUSSELL W. CHITTENDEN Assistant United States Attorney California State Bar Number: 112613 Room 7516, Federal Building 300 North Los Angeles Street Los Angeles, California 90012 Telephone: (213) 894-2444 Facsimile: (213) 894-7819 Email: Attorneys for Defendant Kathleen Sebelius, Secretary of Department of Health & Human Services


TRIAL DATE: November 8, 2011

TIME: 9:30 a.m.

PLACE: Courtroom of the Honorable Christina A. Snyder

This action under 42 U.S.C. § 1395ff(b)(1)(a) for judicial review of a final decision by Kathleen Sebelius, Secretary of Health and Human Services (the "Secretary") came on regularly for trial on November 8, 2011. The Court makes the following findings of fact and conclusions of law:



A. The Medicare Program

1. The Medicare program, established under Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395ggg, pays for medical care provided to eligible aged and disabled persons. Part A of Medicare generally authorizes payment for covered inpatient hospital care and related services, 42 U.S.C. §§ 1395c to 1395i-5, 42 C.F.R. Part 409. This case involves Part B of Medicare which provides supplementary medical insurance for covered medical services, such as physician services and covered medical supplies, such as durable medical equipment ("DME"). 42 U.S.C. §§ 1395k(a)(1), 1395m(j)(5), 1395x(s)(1), (2)(A), (6), (8), & (9), 42 C.F.R. Part 410 (scope of Part B benefits). The surgical dressings at issue here are considered DME.

2. The Medicare program is administered by the Centers for Medicare & Medicaid Services ("CMS"). CMS acts through private fiscal agents called Medicare Administrative Contractors to administer Medicare Part B. 42 U.S.C. § 1395u; 42 C.F.R. § 421.200. Contractors' functions include making coverage determinations in accordance with the Medicare Act, applicable regulations, the Medicare Part B Supplier Manual, and other agency guidelines. Upon receiving a claim for payment, a contractor determines whether the services are medically necessary and reasonable and meet other Medicare requirements and are, therefore, covered. 42 U.S.C. § 1395y(a). If these criteria are satisfied, the contractor reimburses the Medicare supplier from the Medicare Trust Fund based upon an assignment of benefits executed by the beneficiary. 42 U.S.C. § 1395u(b)(3)(B); 42 C.F.R. § 421.200.

3. DME claims are administered by four regional DME Medicare Administrative Contractors ("DME MACs"). 42 U.S.C. §§ 1395m(a)(12), 1395kk-1; 42 C.F.R. §§ 421.210(b), 421.404(c)(2). Items of DME must be furnished "incident to a physician's service," or by a "supplier" that possesses both a valid Medicare supplier number and DME "billing privileges." 42 U.S.C. §§ 1395m(j)(1), 1395x(d); 42 C.F.R. § 424.57. A DME supplier must submit a timely electronic claim to the Medicare contractor. 42 C.F.R. §§ 424.32(d), 424.44

4. Medicare Part B resembles "a private medical insurance program that is subsidized in major part by the federal government." Schweiker v. McClure, 456 U.S. 188, 190 (1982). As with private medical insurance programs, there are conditions and limitations upon the coverage of services and items. The statute and implementing regulations set forth coverage conditions (42 U.S.C. §§ 1395k, 1395l, 1395x(s)) and exclude certain services and items from coverage under Part B. See also 42 U.S.C. § 1395y(a)(2)-(16); 42 C.F.R. § 411.15(a)-(j).

5. Two important coverage limitations apply to the coverage of all Medicare items or services, including the services at issue in this case. First, 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. Second, Medicare payment cannot be made unless the party seeking payment furnishes the Secretary with the information required to substantiate medical necessity. 42 U.S.C. § 1395l(e); 42 C.F.R. § 424.5(a)(6).

6. Congress has given the Secretary the authority to issue regulations for determining entitlement to benefits under Medicare Part B. 42 U.S.C. § 1395ff(a). The Secretary has broad authority to explicate the "not reasonable and necessary" coverage exclusion and other coverage provisions in case-specific adjudications through generally applicable rules that may be established by notice and comment rulemaking, or by means of less formal guidance. See Heckler v. Ringer, 466 U.S. 602, 617 (1984).

7. A Medicare contractor may issue a "local coverage determination" ("LCD"), which is the contractor's determination as to whether a particular item or service is covered within the contractor's own limited jurisdiction. Id. ยง 1395ff(f)(2)(B). Absent a governing LCD, the contractor applies the "not reasonable and necessary" coverage exclusion and other coverage criteria to the factual circumstances of an individual claim for benefits. 68 Fed. Reg. 63692, 63693 (Sept. 26, ...

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