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Arriva Medical LLC v. United States Department of Health and Human Services

United States District Court, District of Columbia

March 9, 2017



          JAMES E. BOASBERG United States District Judge

         As first-year law students learn, where a medical provider informs others that the infirm are dead when they are actually alive, it can lead to tort liability for emotional distress. This case reveals that the opposite type of mix-up can have consequences as well. Here, Plaintiff Arriva Medical LLC had a contract with the federal Medicare program to provide diabetic-testing supplies to individuals nationwide. In October 2016, however, Defendant Department of Health and Human Service's Centers for Medicare and Medicaid Services (CMS) informed Arriva that over a 5-year period the company had billed for 211 beneficiaries who were in fact already deceased. CMS then revoked the company's billing privileges and notified it that its Medicare-supplier contract would hence be terminated. Plaintiff responded by filing this suit against HHS and certain officials, asserting that it was entitled to a hearing before those debarments went into effect.

         Arriva now moves for a preliminary injunction, claiming that the company may not survive absent prompt action from the Court. The Government opposes such relief, arguing that the company has neither exhausted Medicare's various administrative appeals nor demonstrated a likelihood of success on the merits or irreparable harm. As the Court agrees with the last two points, it will deny Plaintiff's Motion.

         I. Background

         Established by the Medicare Act, 42 U.S.C. § 1395 et seq., federal Medicare funds a broad array of healthcare for elderly or disabled persons. Functionally, it does so by reimbursing companies that provide services or supplies to those individuals. See Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 2 (D.C. Cir. 2011). The Centers for Medicare and Medicaid Services, a component of HHS, administers the program. See Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275 (2006).

         In the Medicare landscape, Arriva primarily serves as a supplier of diabetic-testing equipment, notably strips that patients insert into a glucometer to determine blood-glucose levels. See ECF No. 12 (Complaint), ¶¶ 36-38. For the past seven years, its particular corner has been the mail-order market, where it has captured roughly half of the total diabetes-equipment consumer base and serves as the only supplier of two prevalent models of blood-glucose testing meters and their associated strips. See Pl. Mot., Exh. A (Declaration of Claudio Araujo), ¶ 26. Because of Plaintiff's niche, many of its customers tend to hail from rural areas where access to healthcare is relatively limited. See Compl., ¶ 39. To translate for the numerically inclined, Arriva serves approximately 500, 000 Medicare beneficiaries, roughly ___ of whom reside in rural zip codes. See Araujo Decl., Exh. 7 (2016 Zip Code Mix). The company, in turn, depends on Medicare reimbursements for over ___ of its business. See Araujo Decl., ¶ 20.

         Arriva did not stumble into the Medicare market. In the heavily regulated Medicare system, would-be suppliers must first apply with CMS to obtain billing privileges so that they can charge Medicare for sending supplies. See 42 C.F.R. § 424.57(b), (c). CMS then runs a competitive-bidding program where suppliers bid for the right to sell equipment to beneficiaries. See, e.g., Araujo Decl., Exh. 5 (2014 National Mail-Order Recompete). For those companies that win, CMS contracts with them so that beneficiaries must order equipment from those suppliers. See Compl., ¶ 26. A condition of these contracts is that companies, like Arriva, must also maintain their Medicare billing privileges. See Araujo Decl., Exh. 1 (2013 National MailOrder Contract) at 6; id., Exh. 2 (2016 National Mail-Order Contract) at 1-2.

         That takes us to this case. On October 5, 2016, CMS's Provider Enrollment & Oversight Group (PEOG) wrote to Arriva that CMS would be revoking the company's billing privileges in thirty days (November 4, 2016) and barring it from reenrolling for a period of three years. See Araujo Decl., Exh. 10 (October 5, 2016, Revocation Letter from PEOG to Arriva) at 1. The Group specified that Plaintiff was not in compliance with a particular federal regulation:

(a) Reasons for revocation. CMS may revoke a currently enrolled provider or supplier's Medicare billing privileges and any corresponding provider agreement or supplier agreement for the following reasons:
. . .
(8) Abuse of billing privileges. Abuse of billing privileges includes either of the following:
(i) The provider or supplier submits a claim or claims for services that could not have been furnished to a specific individual on the date of service. These instances include but are not limited to the following situations:
(A) Where the beneficiary is deceased.

42 C.F.R. § 424.535. A data review of claims submitted between April 2011 and April 2016 revealed that the company had billed Medicare for items provided to 211 beneficiaries who, according to the Social Security Administration's rolls, were already deceased. See Revocation Letter at 1. As evidence, PEOG attached a 47-person sample of the claims data. Id.; see Compl., ¶ 45. Plaintiff, for its part, was at least generally aware that these checks were taking place, especially since it had in the past refunded Medicare for faulty billing. See Compl., ¶ 52; see also ECF No. 23 (Transcript of PI Hearing) at 14:14-17 (“I'm sure that there is a sense that there are audits that happen, but we were not aware that there had been any concern raised about the alleged billing of deceased beneficiaries.”).

         The letter then informed Arriva that it could “request a reconsideration before a hearing officer, ” which would be “an independent review . . . conducted by a person not involved in the initial determination.” Revocation Letter at 2. The reconsideration request would need to state Arriva's basis for disagreeing with the revocation and attach any additional evidence that the company chose to provide for the purposes of Medicare's administrative proceedings. Id.

         On October 28, 2016, Plaintiff asked PEOG to reconsider, submitting explanations and medical documentation for the sample-data individuals - e.g., that the 211 billing errors constituted only roughly .1% of the total number of beneficiaries who died in that period. See Compl., Exh. 1 (November 2, 2016, Reconsideration Letter from PEOG to Arriva) at 2-3.

         Five days later, on November 2, the Group wrote back that it would affirm its original decision. Id. PEOG first summarized Arriva's arguments. Id. at 3; see Araujo Decl., Exh. 8 (2012-2016 Deceased Beneficiaries Chart) (listing over deceased beneficiaries over five years). The decision then reasoned that: on 9 occasions, Arriva realized that a beneficiary was deceased but processed the order anyway; for 13 claims, it made no contact with the beneficiary within 14 days of the shipping date (as Medicare guidance requires); and for an unspecified number of claims, PEOG did not find credible the company's allegations that beneficiaries' caregivers placed orders inadvertently. See Reconsideration Letter at 3; see also Medicare Program Integrity Manual (MPIM), § 4.26.1 (“Contact with the beneficiary or designee regarding refills shall take place no sooner than 14 calendar days prior to the delivery/shipping date.”) (chapters available at manuals/internet-only-manuals-ioms-items/cms019033.html). PEOG last found it irrelevant that CMS did not reimburse Arriva for these mistaken claims or that the company had already refunded Medicare, as those facts did not bear on whether or not Plaintiff had billed for deceased beneficiaries. See Reconsideration Letter at 3-4.

         If Arriva objected, PEOG wrote, its recourse was to seek a hearing before an HHS administrative-law judge and then, if necessary, with the agency's Departmental Appeals Board (DAB). Id. at 4-5; see 42 C.F.R. §§ 498.40-.95. Should it ultimately prevail, Medicare regulations would retroactively reimburse it for any “unpaid claims for services furnished during the overturned period.” Id. § 424.545(a)(2).

         After that adverse decision, the revocation went into effect as scheduled, and CMS informed affected beneficiaries that “Medicare won't pay [Arriva] for diabetes testing supplies that [it] delivers to your home.” Araujo Decl., Exh. 11 (November 7, 2016, Letter from CMS). In other words, customers would need to switch mail-order suppliers or visit their “local pharmacy or storefront supplier” if Arriva left the program. Id. (informing customers how to switch).

         Distressed by these actions, Plaintiff arranged a meeting with several CMS officials at HHS's D.C. headquarters on November 23, 2016. See Araujo Decl., ¶ 18. That get-together included: CMS's Principal Deputy Administrator and Chief Medical Officer; the Directors of PEOG, the Center for Program Integrity, the Investigations and Audits Group, the Chronic Care Policy Group; and several Deputy Directors as well as a representative from the Division of Compliance and Appeals. Id. Arriva then “walked through a prepared slide presentation” regarding its case, after which the Director of the Center for Program Integrity “committed to reviewing Arriva's concerns and getting back to Arriva leadership within 10 days.” Id.

         Ten days passed without a word, and on December 6, 2016, a separate CMS contractor wrote Arriva that the agency was also terminating (effective January 20, 2017) the company's National Mail-Order Contract. See Araujo Decl., Exh. 13 (December 6, 2016, Termination Letter from Palmetto GBA to Arriva). Because Plaintiff no longer maintained billing privileges - given the prior PEOG actions - it had breached various provisions of its Medicare contract by not having an active billing number. Id. at 1-2. The contractor noted that to challenge this contract termination Arriva could either submit a corrective-action plan or request a hearing before an independent hearing officer. Id. at 2 (citing 42 C.F.R. § 414.423(c), (f)).

         By December 20, 2016, Arriva received a follow-up from the in-person meeting with CMS officials: The agency told Plaintiff by email that it would not modify its decision. See Compl., ¶ 65; Pl. Mot. at 13. A week later, on December 27, Arriva sought ALJ review of the PEOG decision. See Compl., ¶ 65. A day after that, on December 28, Plaintiff filed the instant suit along with an Application for a Temporary Restraining Order, see ECF No. 4, claiming that both the Due Process Clause and Administrative Procedure Act guaranteed it a hearing before CMS revoked billing privileges or terminated contracts. Id., ¶¶ 84-95. Two days later, Defendant told Arriva that, “upon the particular facts and circumstances here, CMS is willing to defer the effectuation of the contract termination until such date as the [DAB] renders the final agency decision on Plaintiff's revocation.” Def. Mot. at 10.

         At the subsequent TRO hearing on January 4, 2017, the Court denied Plaintiff's Application, but allowed it to more fully brief the issues in a preliminary-injunction motion. See ECF No. 24 (Transcript of TRO Hearing) at 43:20-44:11. Now ripe are the Government's Motion to Dismiss on jurisdictional grounds and Arriva's Motion for a Preliminary Injunction.

         II. Legal Standard

         A. Rule 12(b)(1)

         When a defendant brings a Rule 12(b)(1) motion to dismiss, the plaintiff must establish that the Court indeed has subject-matter jurisdiction to hear its claims. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992); U.S. Ecology, Inc. v. Dep't of Interior, 231 F.3d 20, 24 (D.C. Cir. 2000). “Because subject-matter jurisdiction focuses on the court's power to hear the plaintiff's claim, a Rule 12(b)(1) motion imposes on the court an affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority.” Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F.Supp.2d 9, 13 (D.D.C. 2001). In policing its jurisdictional borders, the Court must scrutinize the complaint, treating its factual allegations as true and granting the plaintiff the benefit of all reasonable inferences that can be drawn from those facts. See Jerome Stevens Pharms., Inc. v. FDA, 402 F.3d 1249, 1253 (D.C. Cir. 2005). The Court need not rely “on the complaint standing alone, ” however, but may also look to undisputed facts in the record or resolve disputed ones. See Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992).

         B. Preliminary Injunction

         “A preliminary injunction is an extraordinary remedy never awarded as of right.” Winter v. NRDC, 555 U.S. 7, 24 (2008). A party seeking preliminary relief must make a “clear showing that four factors, taken together, warrant relief: likely success on the merits, likely irreparable harm in the absence of preliminary relief, a balance of the equities in its favor, and accord with the public interest.” League of Women Voters of United States v. Newby, 838 F.3d 1, 6 (D.C. Cir. 2016) (quoting Pursuing America's Greatness v. FEC, 831 F.3d 500, 505 (D.C. Cir. 2016)).

         Before the Supreme Court's decision in Winter, 555 U.S. 7, courts weighed these factors on a “sliding scale, ” allowing “an unusually strong showing on one of the factors” to overcome a weaker showing on another factor. Davis v. PGBC, 571 F.3d 1288, 1291-92 (D.C. Cir. 2009); see Davenport v. Int'l Bhd. of Teamsters, 166 F.3d 356, 360-61 (D.C. Cir. 1999). This Circuit has hinted, though not held, that Winter - which overturned the Ninth Circuit's “possibility of irreparable harm” standard - establishes that “likelihood of irreparable harm” and “likelihood of success” are “‘independent, free-standing requirement[s].'” Sherley v. Sebelius, 644 F.3d 388, 392-93 (D.C. Cir. 2011) (quoting Davis, 571 F.3d at 1296 (Kavanaugh, J., concurring)). Unresolved, too, is the related question of “whether, in cases where the other three factors strongly favor issuing an injunction, a plaintiff need only raise a ‘serious legal question' on the merits.” Aamer v. Obama, 742 F.3d 1023, 1043 (D.C. Cir. 2014); see Wash. Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 844 (D.C. Cir. 1977). Courts have also observed possible “tension in the case law regarding the showing required on the merits.” Pursuing America's Greatness, 831 F.3d at 505 n.1 (comparing Winter's “likely” success with the D.C. Circuit's “substantial likelihood” standard); see, e.g., Sherley, 644 F.3d at 398 (using “more likely than not to succeed”); Davis, 571 F.3d at 1295 (suggesting “high likelihood of success”); Del. & Hudson Ry. v. United Transp. Union, 450 F.2d 603, 619 (D.C. Cir. 1971) (equating “substantial likelihood” with “reasonable probability”); Wheelabrator Corp. v. Chafee, 455 F.2d 1306, 1317 (D.C. Cir. 1971) (requiring “considered judgment of a probability of success”).

         Regardless of the extent to which showings of irreparable harm and success on the merits can be diminished, some fundamentals of the four-factor test bear reiterating. Because “the basis of injunctive relief has always been irreparable harm, ” Chaplaincy of Full Gospel Churches v. England, 454 F.3d 290, 297 (D.C. Cir. 2006), a plaintiff must, at minimum, “demonstrate that irreparable injury is likely in the absence of an injunction, ” not just that injury is a “possibility.” Winter, 555 U.S. at 21; see Davis, 571 F.3d at 1292. Before and after Winter, similarly, this Circuit has maintained its standard that a plaintiff may obtain relief after demonstrating a “substantial likelihood” of success. Pursuing America's Greatness, 831 F.3d at 505. Where the plaintiff can show neither harm nor success, it is plain that no relief is warranted. See Standing Rock Sioux Tribe v. U.S. Army Corps of Eng'rs, No. 16-1534, 2016 WL 4734356, at *17 (D.D.C. Sept. 9, 2016); see also Ark. Dairy Co-op Ass'n, Inc. v. USDA, 573 F.3d 815, 832 (D.C. Cir. 2009) (denying injunction when plaintiff shows “no likelihood of success”).

         III. Analysis

         The focal dispute is whether Arriva should be able to bypass Medicare's appeals pipeline, both to bring suit without exhausting that process and then to preemptively halt the revocation of its billing privileges so that it can obtain additional pre-deprivation process first. These two issues - one involving jurisdiction and the other injunctive relief - are at the heart of the competing Motions here. More specifically, Defendant argues that Plaintiff must first exhaust Medicare's serpentine appeals process before entering federal court, while Arriva invokes an exception to that jurisdictional bar and next contends that the Court should enjoin CMS from acting without certain additional pre-revocation procedural safeguards. The Court walks through these dual issues separately.

         A. Jurisdiction

         The Government's opening salvo is that the Court may not yet even hear Arriva's claims, as the company has not finished its ALJ review, let alone the DAB appeal that follows. While the regulatory scheme indeed restricts courts' ...

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