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Hindley v. Department of Health & Human Services

United States District Court, N.D. California

April 19, 2017



          MARIA-ELENA JAMES, United States Magistrate Judge


         Pending before the Court are Plaintiff Julie Hindley fdba Sonoma Prosthetic Eyes' ("Plaintiff") Motion for Summary Judgment (Pl.'s Mot., Dkt. No. 57[1]) and Defendants'[2] Cross-Motion for Summary Judgment (Defs.' Mot., Dkt. No. 63). Having considered the parties' positions, the relevant legal authority, and the Administrative Record ("AR") in this case, the Court GRANTS Defendants' Motion and DENIES Plaintiff's Motion for the following reasons.


         A. The Medicare Program and DMEPOS Suppliers

          The Medicare Act, 42 U.S.C. § 1395 et seq., creates a federal health insurance program for persons over age sixty-five and certain disabled persons. The Secretary is responsible for the administration of Medicare and has broad authority to "make and publish such rules and regulations . . . as may be necessary to the efficient administration" of the Medicare program. 42 U.S.C. § 1302(a). The Secretary administers Medicare through CMS, an agency within the U.S. Department of Health and Human Services. 46 Fed. Reg. 56911 (Nov. 19, 1981); Fox Ins. Co. v. Ctrs. for Medicare & Medicaid Servs., 715 F.3d 1211, 1214 (9th Cir. 2013). CMS contracts with NSC, a division of Palmetto GBA. Defs.' Statement of Facts ("Defs.' SOF") ¶ 60.

         Part B of the Medicare Act establishes "a voluntary insurance program to provide medical insurance benefits . . . for aged and disabled individuals who elect to enroll under such program, to be financed from premium payments by enrollees together with contributions from funds appropriated by the Federal Government." 42 U.S.C. § 1395j. As is relevant here, Part B provides reimbursement for Medicare-covered durable medical equipment, prosthetics, orthotics, and supplies ("DMEPOS"). 42 U.S.C. §§ 1395k(a)(2)(I), 1395m. To receive Medicare reimbursement, a DMEPOS supplier must receive a supplier number issued by the Secretary. 42 U.S.C. § 1395m(j)(1). "A [DMEPOS] supplier may not obtain a supplier number unless . . . the supplier meets revised standards prescribed by the Secretary[.]" 42 U.S.C. § 1395m(j)(1)(B). The DMEPOS supplier standards are set forth in 42 C.F.R. § 424.57(c).[3] NSC subcontracts with Overland Solutions, Inc. ("Overland Solutions") to perform on-site inspections of DMEPOS suppliers to ensure compliance with these requirements. Defs.' SOF ¶ 108.

         B. Revocation of Plaintiff's DMEPOS Supplier Number

         Plaintiff is the former sole proprietor of Sonoma Prosthetic Eyes ("Sonoma"). Fifth Am. Compl. ("FAC"), Dkt. No. 51. On August 30, 2013, NSC approved Plaintiff as a DMEPOS supplier. AR 116; see AR 111. Plaintiff's Medicare supplier enrollment application lists Sonoma Prosthetic Eyes' business hours as "9-5 M-Sat./By appointment only." AR 119.

         At 10:30 a.m. on October 1 and at 1:00 p.m. October 4, 2013, an Overland Solutions inspector attempted to conduct onsite visits of Sonoma Prosthetic Eyes. Defs.' SOF ¶¶ 109-10; AR 114 (Site Verification Survey Form). On both attempts, the inspector went to the door, noted it was locked, and knocked twice; however, no one answered and the inspector noted the lights were off. AR 114. The inspector took six photographs of the building's exterior, including its entrance and signage. AR 115. The inspector noted that the business hours were not posted. AR 114.

         On October 28, 2013, NSC, on behalf of CMS, notified Plaintiff by letter that it was revoking her DMEPOS supplier number. AR 101-03; see also Defs.' SOF ¶ 1. The letter noted Plaintiff was not in compliance with the supplier standards set forth in 42 C.F.R. § 424.57(c)(7) and was considered to be in violation of 42 C.F.R. §§ 424.535(a)(5)(ii) and 424.57(c). AR 101-02. This conclusion was based solely on the unsuccessful October 1 and 4, 2013 site visits. Id. As a result, Plaintiff was barred from re-enrolling in the Medicare program for two years. AR 101. The letter further stated Plaintiff could make a written request for a reconsideration hearing before a hearing officer ("HO") within 60 days. AR 102.

         C. Proceedings before the Medicare Hearing Officer

         On November 8 and 29 and December 23, 2013, Plaintiff made written requests for a reconsideration hearing. AR 94-95, 110; see Defs.' SOF ¶ 4. In a letter dated November 29, 2013, Medicare HO Colleen Jais acknowledged receipt of Plaintiff's request for reconsideration and stated she would make "a new and independent decision based on the evidence in the case file and on any additional evidence that [Plaintiff] would like to submit." AR 104. HO Jais provided instructions on how Plaintiff could submit additional documentation. See Id. HO Jais reached an unfavorable decision on December 24, 2013. AR 105-09. Specifically, HO Jais found that "Sonoma Prosthetic Eyes ha[d] not shown compliance with supplier standard 7"[4] and "ha[d] not provided evidence to show they have complied with the standard for which they were non-compliant." AR 108. As such, HO Jais concluded Plaintiff "cannot be granted access to the Medicare Trust Fund by way of a Medicare supplier number." AR 108. HO Jais informed Plaintiff that Plaintiff could appeal the decision before an administrative law judge ("ALJ") of the Department of Health and Human Services Departmental Appeals Board. Id. 108-09.

         D. ALJ Proceedings

         On August 7, 2014, Plaintiff timely requested a review by an ALJ. AR 18. On August 25, 2014, ALJ Steven T. Kessel issued an Acknowledgment and Pre-Hearing Order ("Pre-Hearing Order"). AR 33-38. The Pre-Hearing Order required the parties to submit pre-hearing briefs addressing the issues of law and fact. AR 35. It further provided that Plaintiff and CMS could offer and cross-examine witnesses, written direct testimony, and exhibits. AR 35-38. Both Plaintiff and CMS filed briefs and each submitted six exhibits. AR 43-49 (CMS' brief), 55-64 (Pl.'s brief), 91-104 (Pl.'s exhibits), 105-31 (CMS' exhibits). CMS submitted with its brief the Site Verification Survey Form and six black and white reproductions of photographs taken of Sonoma Prosthetic Eyes. AR 114-15. Plaintiff submitted six documents, and no photographs. AR 91-104; see AR 54.

         On November 12, 2014, the ALJ upheld CMS' revocation of Plaintiff's Medicare enrollment. See AR 1-6. As neither Plaintiff nor CMS identified any witnesses or offered written direct testimony, the ALJ elected not to conduct an in-person hearing. AR 2. The ALJ concluded the "facts plainly establish[ed] grounds for revoking Petitioner's enrollment for noncompliance with the requirements of 42 C.F.R. § 424.57(c)(7)." Id. The ALJ found "[Plaintiff] was obligated to post its hours of operation and . . . to be accessible during whatever hours it posted. It failed in both respects based on the facts offered by CMS." Id. The ALJ also found that the effective date of revocation was November 12, 2013, fifteen days after Petitioner was sent notice of the revocation. AR 6.

         E. Proceedings before the Appellate Division of the Departmental Appeals Board

          On November 27, 2014, Plaintiff requested the Appellate Division of the Departmental Appeals Board ("DAB") review the ALJ's decision. AR 67-71. CMS opposed Plaintiff's request on December 22, 2014. AR 76-82. On December 30, 2014, Plaintiff filed a reply. AR 83-88.

         The DAB issued its decision on March 3, 2015. AR 7-17. It affirmed "the ALJ's conclusion that CMS lawfully revoked Sonoma's billing privileges." AR 7. The DAB held "that the record established that Sonoma did not have its hours of operation posted when the NSC inspector attempted to visit on October 1 and 4, 2013 and, therefore, that CMS was authorized to revoke Sonoma's DMEPOS supplier billing privileges based on its noncompliance with section 424.57(c)(7)(i)(D)." AR 10. However, the DAB reversed the ALJ's finding that the effective date of the revocation was November 12, 2013. AR 15. The DAB instead determined that the effective date of revocation was November 27, 2013, thirty days after the date of notice of revocation. Id.

         F. The Instant Proceedings

         Plaintiff initiated this action on May 1, 2015. See Compl., Dkt. No. 1. She filed her First Amended Complaint on August 13, 2015, and her Second Amended Complaint ("SAC") on October 1, 2015. See First Am. Compl., Dkt. No. 8; SAC, Dkt. No. 18. On December 15, 2015, the Court dismissed the SAC for lack of subject matter jurisdiction. SAC Order, Dkt. No. 35. Although Plaintiff asserted jurisdiction under 42 U.S.C. § 405(g) and 28 U.S.C. §§ 1331, 1332, and 1346 (SAC ¶¶ 8, 12, 14), the Court found Plaintiff's claims arise under the Medicare Act (SAC Order at 10-15). As such, the Court held that "42 U.S.C. § 405(g) is . . . [her] sole avenue for judicial review[, ]" and that § 405(g) does not permit monetary damages. Id. at 8-9, 15. Plaintiff sought only monetary damages; she did not seek review of the Secretary's decision. See SAC; SAC Order at 6 (noting "Plaintiff has recast the SAC as a complaint for damages"). As "Plaintiff ha[d] failed to request any relief that falls within the limited waiver of sovereign immunity conferred by § 405(g), the Court reject[ed] Plaintiff's attempt to rely upon § 405(g) as a basis for subject matter jurisdiction for her claims that go beyond the scope of administrative review." SAC Order at 10. The Court accordingly dismissed the SAC for lack of subject matter jurisdiction. Id. at 15.

         On January 5, 2016, Plaintiff filed her Third Amended Complaint ("TAC"). Dkt. No. 36. In her TAC, Plaintiff did not assert jurisdiction under 42 U.S.C. § 405(g), but rather invoked 28 U.S.C. § 1331 for the same due process claims which she previously alleged in the SAC. See TAC at 7. The Court dismissed the TAC, noting that "28 U.S.C. § 1331[ ]was explicitly rejected [as a basis for jurisdiction] in the Court's prior order dismissing Plaintiff's SAC[.]" TAC Order at 4, Dkt. No. 42; see Id. at 5 ("[T]he Court previously ruled § 1331 cannot confer subject matter jurisdiction over [Plaintiff's] claims.").

         On March 3, 3016, Plaintiff filed her Fourth Amended Complaint (Dkt. No. 43), which she subsequently sought to amend (Dkt. No. 46). The Court permitted the amendment (Dkt. No. 50), and, on April 15, 2016, Plaintiff filed the operative Fifth Amended Complaint (FAC, Dkt. No. 51). Plaintiff brings the FAC pursuant to 42 U.S.C. § 405(g) and-despite the Court's previous Orders-28 U.S.C. § 1331. FAC ¶¶ 2-7. The FAC appears to assert a Fifth Amendment procedural due process violation and a request for judicial review of the DAB's decision. See Id. at 2 (section heading "STATEMENT OF FACTS AND CLAIM") & ¶¶ 17-109. Plaintiff also- again, despite the Court's prior rulings-requests $900, 000 in economic and compensatory damages and $1.6 million in punitive damages. Id. at 19-20.


         This Court has jurisdiction to review final decisions of the Secretary pursuant to 42 U.S.C. §§ 1395cc(h)(1)(A) and 405(g). The ALJ's decision must be affirmed if the findings are "supported by substantial evidence and if the [ALJ] applied the correct legal standards." Holohan v. Massanari, 246 F.3d 1195, 1201 (9th Cir. 2001) (citation omitted). "Substantial evidence means more than a scintilla but less than a preponderance" of evidence that "a reasonable person might accept as adequate to support a conclusion." Thomas v. Barnhart, 278 F.3d 947, 954 (9th Cir. 2002) (quoting Flaten v. Sec'y of Health & Human Servs., 44 F.3d 1453, 1457 (9th Cir. 1995)). The court must consider the administrative record as a whole, weighing the evidence that both supports and detracts from the ALJ's conclusion. McAllister v. Sullivan, 888 F.2d 599, 602 (9th Cir. 1989). However, "where the evidence is susceptible to more than one rational interpretation, " the court must uphold the ALJ's decision. Magallanes v. Bowen, 881 F.2d 747, 750 (9th Cir. 1989). Determinations of credibility, resolution of conflicts in medical testimony, and all other ambiguities are to be resolved by the ALJ. Id.

         Additionally, the harmless error rule applies where substantial evidence otherwise supports the ALJ's decision. Curry v. Sullivan, 925 F.2d 1127, 1131 (9th Cir. 1990). A court may not reverse an ALJ's decision on account of an error that is harmless. Molina v. Astrue, 674 F.3d 1104, 1111 (9th Cir. 2012) (citing Stout v. Comm'r, Soc. Sec. Admin., 454 F.3d 1050, 1055-56 (9th Cir. 2006)). "'[T]he burden of showing that an error is harmful normally falls ...

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