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American Association for Homecare v. Leavitt

June 30, 2008


The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge

Document No. 5



The court today considers, for the second time in as many weeks*fn1 , whether to stay a Medicare competitive bidding program for medical supplies scheduled to commence on July 1, 2008. The plaintiffs, American Association for Homecare (an advocacy and counseling organization representing U.S. healthcare businesses supplying medical items and services to Medicare beneficiaries) and Ace Drug (one such member business), accuse the defendants, Michael Leavitt (Secretary of the United States Department of Health and Humans Services ("HHS")) and Kerry Weems (Acting Administrator of HHS's Centers for Medicare and Medicaid Services ("CMS")) of failing to promulgate specific financial standards as provided for in the Medicare Prescription Drug Improvement and Modernization Act of 2003 ("MMA"), 42 U.S.C. § 1395w-3(b)(2)(A)(ii), as well as failing to define (in a procedurally lawful manner) what type of business constitutes a "small supplier" of Medicare items and services, in violation of the MMA, the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, and the Small Business Act, 15 U.S.C. § § 631 et seq. They seek a preliminary injunction to halt the initiation of the program which will exclude the plaintiffs from providing Medicare items and services to beneficiaries and receiving reimbursements absent an existing contract with CMS won through the competitive bidding process and until the next round of bidding. Because the court concludes that the plaintiffs are unable to demonstrate an irreparable injury, it denies the request for the extraordinary remedy of 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. In addition to cost-saving, Congress articulated its concerns for ensuring the financial integrity of bidders and the continued participation of small suppliers. Thus, it mandated that, as a prerequisite to awarding a contract, the Secretary must find that "[t]he entity meets applicable financial standards specified by the Secretary, taking into account the needs of small providers." Id. § 1395w-3(b)(2)(A)(ii). Congress further ordered the Secretary to "take appropriate steps to ensure that small suppliers of items and services have an opportunity to be considered for participation in the program." Id. § 1395w-3(b)(6)(D).

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. 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).

The plaintiffs' complaint contests two parts of the final rule. First, the plaintiffs take issue with the Secretary's failure to identify and disclose specific financial standards for assessing the eligibility of suppliers to submit bids and be awarded contracts. Compl. ¶¶ 63-78 (Count 1). Although the defendants received industry comments recommending advance specification of financial standards, the final rule provides only that each supplier must submit along with its bid certain financial documentation. 42 C.F.R. § 414.414(d); 72 Fed. Reg. 17992-01 at 18,088.

Second, the plaintiffs object to the manner in which the Secretary defined what type of businesses qualify as small suppliers. Compl. ¶¶ 79-96 (Count 2). In its proposed rule, CMS proposed using the Small Business Administration's ("SBA") definition of "small business" to evaluate whether a DMEPOS supplier qualifies as a "small supplier." 72 Fed. Reg. at 18,056; 71 Fed. Reg. at 25,695. To be considered "small," the SBA standard requires business engaged in renting home health equipment to earn no more than $6.5 million in total annual receipts. 13 C.F.R. § 121.201 (NAICS code 532291); 72 Fed. Reg. at 18,056. CMS's final rule, however, classified a small supplier as an entity receiving less than $3.5 million in annual receipts. 72 Fed. Reg. at 18,071. CMS also included, for the first time, in the final rule a provision allocating 30 % of contracts to small suppliers. Id. at 18,058. Neither of these changes were subjected to notice and comment.

On May 15, 2007, CMS issued a request for bids for the first round of the bidding program. Pls.' Mot., Ex. 16. On May 25, 2007, CMS released a series of financial ratios that it would apply to the financial documents submitted with bids, but those ratios did not include specific figures or values. Id., Ex. 18. The bidding window closed on September 25, 2007. Id., Ex. 16. In May 2008, the government announced the winning bidders for each product category in the bidding program. Id., Ex. 20. On July 1, 2008, sales under the program will commence, at which time the plaintiffs will be excluded from DMEPOS items and services to Medicare beneficiaries for which they have not been awarded a contract from CMS until the next round of bidding. 42 U.S.C. § 1395w-3(b)(3)(B).

On June 9, 2008, the plaintiffs simultaneously filed their complaint and motion for a preliminary injunction to enjoin the implementation of the bidding program on July 1, 2008. The defendants filed their opposition on June 25, 2008, and the court permitted the plaintiffs to file a reply no later than June 26, 2008. With briefing hot off the printers, the court now turns to the plaintiffs' motion.


A. Legal Standard for Injunctive Relief

This court may issue interim injunctive relief only when the ...

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