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January 17, 1991

OTIS R. BOWEN, Secretary, Department of Health and Human Services, et al., Defendants

The opinion of the court was delivered by: SPORKIN


 This case is now before the Court after a protracted series of proceedings. The plaintiffs filed suit in 1988 seeking to prevent the Health Care Financing Association ("HCFA") from lowering reimbursement rates for certain services covered by Medicare. On December 22, 1988, this Court issued a preliminary order enjoining the rate reduction. The Court of Appeals subsequently vacated the preliminary injunction after Congress passed a law that rendered the injunction moot. The sole issue remaining before the Court is the disposition of a $ 750,000 surety bond posted by plaintiff Home Intensive Care, Inc. ("HIC") in connection with the preliminary injunction. Because the injunction was not erroneously granted, and in any event because the balance of equitable factors favors the plaintiffs, the bond will be returned to HIC.

 I. Background

 Plaintiffs in this case are individual patients suffering from end stage renal disease, the National Kidney Patients Association, which represents such patients, and HIC, a company that provides at-home renal dialysis treatments to such patients. End stage renal disease -- the permanent breakdown of the kidneys' disposal function -- is invariably fatal unless the patient receives regular renal dialysis treatments. To help defray the enormous expense of dialysis, Congress in 1972 extended Medicare Part B coverage to dialysis treatments. See 42 U.S.C. § 1395rr. Medicare Part B is administered by HCFA, which is part of the Department of Health and Human Services ("HHS"). HCFA is authorized, however, to contract with private insurers to actually perform reimbursement services. Under 42 C.F.R. § 405.502(a)(7), these private carriers are authorized to reduce a provider's requested reimbursement if it is "inherently unreasonable." Defendants are the Secretary of HHS, the Administrator of HCFA, and one of these private carriers.

 The Medicare statute provides two methods for calculating the reimbursement rate for dialysis treatments. Method I is used for treatments in clinics or hospitals. Under Method I, HCFA establishes a "composite rate" based on the average regional cost of dialysis treatments for patients receiving care in clinics. See 42 U.S.C. § 1395rr(b)(3). All clinics within each region receive reimbursement at this composite Method I rate.

 Method II is used for dialysis treatments administered in the patient's home. See 42 U.S.C. §§ 1395rr(b)(7). At the time this suit was initiated, Method II called for reimbursement to individual home dialysis patients of the "reasonable" cost of purchasing dialysis equipment and supplies. Historically, Method II provided benefits more generous than those available under Method I.

 Most end stage renal disease patients receive dialysis treatments at clinics, which are reimbursed according to Method I. Home dialysis, accompanied by the higher Method II reimbursement rate, has traditionally been provided only to patients with extraordinary medical necessity. In 1985, HIC began to provide home dialysis on a routine commercial basis. While the home treatments provided by HIC were more costly than clinic-based dialysis, HIC was able to use the higher Method II payments to pay for medical technicians and equipment, and still earn a profit. HIC's system became an immediate success. At an evidentiary hearing on plaintiffs' motion for a preliminary injunction, plaintiffs introduced overwhelming evidence that home dialysis is less risky and less disruptive for patients than treatment in clinics, and that home dialysis enables patients to lead more productive lives.

 Nonetheless, HCFA disapproved of the HIC system, taking the position that home dialysis is too costly and should be reserved for extraordinary cases. To reduce costs, HCFA issued Transmittal 1237 to Medicare carriers. Transmittal 1237 in effect limited reimbursements for home dialysis treatments to the Method I level, unless special medical circumstances mandated home dialysis. HCFA's stated rationale for this limitation was that all dialysis charges above the Method I level were unreasonable.

 Plaintiffs instituted this action to challenge HCFA's issuance of Transmittal 1237 and the carriers' implementation of it. They argued that Transmittal 1237 was arbitrary and capricious, that it was contrary to the Medicare statute, that its issuance suffered from procedural defects, and that the carriers lacked authority to implement it. After an extended evidentiary hearing, this Court on December 22, 1988, entered a preliminary injunction prohibiting HCFA and the carriers "from reducing the rate of reimbursement under Medicare, Part B, Method II for Home Hemodialysis." Upon the defendants' motion, the Court required HIC to post a surety bond in the amount of $ 1,000.

 Defendants appealed both the preliminary injunction and the bond. In a one-page, per curiam order dated December 8, 1989, the Court of Appeals held that the HIC bond was "'insufficient to protect [its] adversary from loss in the event that future proceedings prove that the injunction issued wrongfully'" (quoting Edgar v. Mite Corp., 457 U.S. 624, 649, 73 L. Ed. 2d 269, 102 S. Ct. 2629 (1982) (Stevens, J., concurring)). On remand from the Court of Appeals, this Court set HIC's bond at $ 750,000.

 While defendants' appeal of the preliminary injunction was pending before the Court of Appeals, Congress enacted the Omnibus Budget Reconciliation Act of 1989 ("OBRA"), Pub. L. No. 101-239. Section 6203(b)(1) of this statute amended 42 U.S.C. § 1395rr(b)(7) to provide that Medicare reimbursement for home dialysis treatments "may not exceed the amount . . . of the median payment that would have been made under the formula for hospital-based facilities." This provision reduced Method II payments to the Method I level. Congress effected by statute precisely what HCFA had sought to accomplish with its Transmittal 1237. Subsequently, the Court of Appeals dismissed defendants' appeal as moot, vacated the preliminary injunction, and remanded the case to this Court. National Kidney Patients Association v. Sullivan, 284 U.S. App. D.C. 86, 902 F.2d 51 (D.C. Cir. 1990).

 II. Mootness

 Plaintiffs' complaint is now moot. The enactment of OBRA obviated Transmittal 1237. Plaintiffs' challenge to Transmittal 1237 no longer presents this Court with anything to decide. Plaintiffs' objections to the reimbursement schedule effected by Transmittal 1237 were based on statutory and procedural grounds. Because Congress passed a statute that in effect enacted Transmittal 1237 into law, these objections are no longer tenable. Congress' action has precluded plaintiffs from obtaining the relief they originally sought. Plaintiffs themselves concede that they have no basis upon which to request any future relief. See Memorandum of ...

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