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Gordian Medical, Inc v. Kathleen Sebelius

April 4, 2012



PLACE: Courtroom of the Honorable Christina A. Snyder

This action under 42 U.S.C. §§ 405(g), 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 January 6, 2012. The Court makes the following findings of fact and conclusions of law:



A. The Medicare Program

1. The Medicare statute, 42 U.S.C. § 1395 et seq., sets forth a federal health insurance program for the elderly and disabled. This cases arises under Part B, which is a voluntary program subsidized by enrollee premiums and appropriated monies. Id. §§ 1395j, 1395o, 1395r, 1395t. Part B provides reimbursement for covered "medical and other health services," which include physician services and some durable medical equipment ("DME"), prosthetics, orthotics, and supplies (collectively, "DMEPOS"). Id. §§ 1395k(a)(1), 1395m(j)(5), 1395x(s)(1), (2)(A), (6), (8), & (9). As pertinent here, certain surgical dressings are among the medical supplies that potentially qualify for Part B coverage. Id. §§ 1395m(j)(5)(D), 1395x(s)(5); 42 C.F.R. § 410.36(a)(1).

2. The statute bars payment for all items and services that "are not 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). The Secretary has broad authority to explicate the "not reasonable and necessary" coverage exclusion and other coverage provisions in case-specific adjudications or through generally applicable rules that may be established by notice and comment rulemaking or in less formal guidance. Heckler v. Ringer, 466 U.S. 602, 617 (1984); Maximum Comfort, Inc. v. Sec'y of Health and Human Servs., 512 F.3d 1081, 1084 (9th Cir. 2007).

3. The Secretary, through the Centers for Medicare & Medicaid Services ("CMS"), contracts with private insurance companies to administer the Part B claims process. 42 U.S.C. §§ 1395u, 1395kk-1. DMEPOS benefit claims are administered by four DME Medicare Administrative Contractors ("DME MACs") (formerly known as DME Regional Carriers or "DMERCs"). Id. §§ 1395m(a)(12), 1395kk-1; 42 C.F.R. §§ 421.200, 421.210(b), 421.404(c)(2).

4. Medical supplies and other items of DMEPOS must be furnished "incident to a physician's service" or by a "supplier" that possesses both a valid Medicare supplier number and "billing privileges." 42 U.S.C. §§ 1395m(j)(1), 1395x(d); 42 C.F.R. § 424.57. The supplier's claim must include the appropriate billing code from the Healthcare Common Procedure Coding System ("HCPCS") Level II codes. 45 C.F.R. §§ 162.1000(a), 162.1002(b)(3). See also id. §§ 160.103, 162.100.

5. If a Medicare beneficiary or any assignee of the individual's benefit claim is dissatisfied with a reimbursement determination, the statute and regulations afford several levels of administrative review and, potentially, judicial review. 42 U.S.C. § 1395ff; 42 C.F.R. Part 405, Subpart I. Upon receipt of a claim for payment, the Medicare contractor issues an "initial determination" addressing whether the item or service is covered and meets all other payment requirements, and, if so, the amount deemed owing. 42 U.S.C. § 1395ff(a)(1); 42 C.F.R. § 405.920. If the claimant is dissatisfied with the initial determination, a "redetermination" may be requested by the same contractor. 42 U.S.C. § 1395ff(a)(3); 42 C.F.R. § 405.940. Next, if the claimant is not satisfied with the contractor's redetermination, a "reconsideration" may be requested by a "qualified independent contractor" ("QIC"). 42 U.S.C. § 1395ff(b)(1)(A) & (C); 42 C.F.R. § 405.960. A still dissatisfied claimant may then request a hearing, "as provided in [42 U.S.C. § ] 405(b)," before an administrative law judge ("ALJ"). 42 U.S.C. § 1395ff(b)(1)(A), (E) & (d)(1); 42 C.F.R. § 405.1002.

The ALJ's decision may be reviewed by the Medicare Appeals Council ("MAC") of the Departmental Appeals Board. 42 U.S.C. § 1395ff(d)(2); 42 C.F.R. § 405.1100.

6. If dissatisfied after the above administrative appeals process, as here, the claimant may also seek judicial review, "as provided in [42 U.S.C. § ] 405(g)," of the final agency decision of the ALJ or the MAC. 42 U.S.C. § 1395ff(b)(1)(A), (E); 42 C.F.R. § 405.1136.*fn1

B. The Claims at Issue

7. Plaintiff Gordian Medical, Inc. ("Gordian") is a Medicare enrolled supplier of wound care supplies, including non-bordered composite dressings. (Gordian's Complaint [Dkt. 1] ("Compl.") at ¶¶ 7, 8; Defendant's Answer to Complaint [Dkt. 17] ("Answer") at ¶¶ 7, 8.) Gordian is the successor-in-interest to another Medicare supplier, American Medical Technologies, Inc. (Compl. at ¶ 7.)

8. Medicare coverage of surgical dressings was addressed in the Medicare contractor's Local Coverage Determination (LCD) for Surgical Dressings L11449. In September 2006, the contractor issued a Bulletin Article notifying Medicare suppliers of a revision to the definition of "composite dressings," which was effective October 1, 2006. Under the revised definition, the requisite "bacterial barrier" for a composite dressing must encompass the entire dressing pad including an adhesive border. The Bulletin Article further provided that the HCPCS Level II codes for composite dressings without adhesive borders, A6200, A6201, and A6202, were invalid for purposes of Medicare claims submission. The Bulletin Article also provided ...

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