The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge
MEMORANDUM OPINION GRANTING THE DEFENDANTS'MOTION TO DISMISS; DEFERRING RULING ON PLAINTIFFS'MOTION TO STRIKE; FINDING AS MOOT PLAINTIFFS'MOTION FOR PRELIMINARY INJUNCTION
The court today considers whether to dismiss a complaint filed by two plaintiffs (Carolina Medical Sales, Inc. and Americare Health Systems) in the business of selling diabetic supplies through mail order to Medicare patients against defendants Michael Leavitt (Secretary of the United States Department of Health and Humans Services ("HHS")) and Leslie Norwalk (Acting Administrator of HHS's Centers for Medicare and Medicaid Services ("CMS")). The four-count complaint alleges that the defendants violated the Administrative Procedure Act ("APA"), 5 U.S.C. § 706 and § 553, and the Medicare Prescription Drug Improvement and Modernization Act of 2003 ("MMA"), 42 U.S.C. § 1395hh, by singling out mail-order diabetic supplies as an item and service for competitive bidding without first conducting notice-and-comment rulemaking and without possessing the necessary statutory authority to distinguish items and services based on delivery method. The defendants urge the court to dismiss the complaint on the grounds that the MMA precludes judicial review, the issue is not ripe, the plaintiffs lack standing, and the plaintiffs fail to state a claim for relief as the decision is committed to agency discretion and was procedurally lawful. The plaintiffs insist that the court possesses subject-matter jurisdiction and that dismissal for failure to state a claim is premature. Because the court concludes that the MMA insulates the Secretary's decision from judicial review, the court grants the defendants' motion to dismiss and dismisses the plaintiffs' complaint. Because the complaint does not survive the motion to dismiss, the court also denies as moot the plaintiffs' pending motion for a preliminary injunction.
Title XVIII of the Social Security Act, commonly known as Medicare, 42 U.S.C. §§ 1395 et seq., establishes a national program of health insurance for the elderly and disabled. In 2003, Congress amended Medicare Part B (the supplementary medical insurance program covering healthcare services such as physical visits; outpatient diagnostic tests; and durable medical equipment, prosthetics, orthotics and supplies ("DMEPOS")) to require the HHS Secretary to replace the current fee-schedule pricing system with a competitive bidding program by which businesses would compete for contracts to supply DMEPOS items and services to Medicare beneficiaries. 42 U.S.C. § 1395w-3.
On May 1, 2006, CMS solicited comments for a proposed rule published in the Federal Register to implement a bidding program for certain DMEPOS items. 71 Fed. Reg. 25654. On April 10, 2007, CMS issued a final rule establishing bidding programs in ten metropolitan areas. 72 Fed. Reg. 17992. The final rule stated that the Secretary would designate "the items that are included in a competitive bidding program through program instructions or by other means." 42 C.F.R. § 414.406(d). Subsequently, the Secretary identified mail-order diabetic supplies as such an item on an agency website. Compl. ¶ 39. To participate in the bidding program, mail-order diabetes suppliers must meet certain accreditation and quality standards and submit a competitively priced bid to furnish an item or service. 42 C.F.R. § 414.412(a). After contracts are awarded to winning suppliers, Medicare beneficiaries can only obtain supplies from an entity that has entered into a contract with HHS. 42 U.S.C. § 1395w-3(b)(6)(A)(i)-(ii). Thus, the program distinguishes between mail-order diabetic suppliers and store-front diabetic suppliers, who are not yet included in the program.
On May 15, 2007, CMS issued a request for bids for the first round of the bidding program. Compl. ¶ 46. The bidding window closed on September 25, 2007. Defs.' Mot. to Dismiss at 6; Pls.' Mot. for Prelim. Inj., Ex. A ("Lachat Decl.") ¶ 28. Plaintiff Carolina Medical Supplies did not submit a bid, allegedly because the process "was exceptionally confusing" and because its sole managing employee underwent surgery. Lachat Decl. ¶ 28. Plaintiff Americare Health Systems did submit a bid but was ultimately not awarded a contract. Pls.' Mot. for Prelim. Inj. at 7. On July 1, 2008, sales under the program will commence, at which time the plaintiffs, having not won contracts with HHS, will be excluded from selling mail-order diabetic supplies to Medicare beneficiaries. Id. at 1.
The plaintiffs filed this complaint on July 20, 2007. Counts 1 and 2 allege that the defendants' promulgation of the final rule and selection of mail-order diabetic supplies as an item for competitive bidding exceeds their statutory authority under § 706 of the APA and § 1395hh of the MMA, respectively. Compl. ¶¶ 54, 58. Count 3 claims that the defendants failed to follow notice-and-comment procedures in promulgating the final rule. Id. ¶ 63. Count 4, a request for mandamus relief, reiterates Count 3, seeking an order for the defendants to follow notice-and-comment rulemaking. Id. ¶ 68. On January 11, 2008, the defendants filed a motion to dismiss. Briefing continued with the plaintiffs' opposition but did not conclude with the defendants' reply, as the plaintiffs filed a motion to strike the defendants' reply. A final round of opposition and reply followed. And, on June 3, 2008, the plaintiffs filed a motion for a preliminary injunction to forestall the implementation of the competitive bidding program scheduled to commence on July 1, 2008. With that concluded, the court turns to the motion to dismiss and the motion to strike.
A. The Court Defers from Ruling on the Plaintiffs' Motion to Strike
The plaintiffs object to a number of arguments and evidence in the defendants' reply brief. In their opening brief the defendants suggest that "if Plaintiffs failed to submit a comment about HHS's proposal to consider delivery mode in implementing a competitive bidding program, they have waived their right to challenge HHS's determination." Pls.' Mot. to Strike at 1 (quoting Defs.' Mot. to Dismiss at 23). The defendants, inappropriately according to the plaintiffs, elaborated on this argument in their reply, submitting two exhibits purporting to demonstrate that the plaintiffs received adequate notice of the defendants' consideration of delivery mode in the proposed rule. Id. at 2. The two exhibits are a letter from Apria Healthcare commenting on the proposed rule and the declaration of Joel Kaiser that HHS received no comments on the rule from the plaintiffs. Defs.' Reply, Attachs. A, B. The plaintiffs urge the court to ignore the exhibits and waiver argument on the grounds that they raise new issues for the first time in the reply and introduce matters outside the pleadings and therefore non-cognizable in a Rule 12(b)(6) motion to dismiss. Id. Alternatively, they request leave to file a sur-reply. Id. at 3.
The defendants respond that, as an initial matter, motions to strike address only pleadings, not briefs, motions or exhibits. Defs.' Opp'n to Mot. to Strike at 1. The defendants also insist that their opening brief put the plaintiffs on notice that they were raising a waiver argument. Though the argument was phrased hypothetically, it included a citation with an explanatory parenthetical supporting the legal proposition. Id. at 3. The defendants further maintain that the exhibits were not attached to argue an issue of fact but merely to rebut the plaintiffs' argument that the final rule was not a "logical outgrowth" of the proposed rule. Id. at 4. Moreover, because the defendants have sought dismissal under Rule 12(b)(1) for subject-matter jurisdiction in addition to Rule 12(b)(6), the court may look beyond the pleadings to resolve disputed jurisdictional facts. Id. at 5. In reply, the plaintiffs contend that the content of the attached documents do not support the defendants' position, but they have not had an opportunity to argue this point sufficiently. Pls.' Strike Reply at ...