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Alcresta Therapeutics, Inc. v. Azar

United States District Court, District of Columbia

June 15, 2018

ALEX M. AZAR II, Secretary of Health and Human Services, Defendant.



         Plaintiff Alcresta Therapeutics, Inc. (“Alcresta”) is a pharmaceutical company that manufactures a medical device called Relizorb. Plaintiff Jonathan Flath is a cystic fibrosis patient who used Relizorb for three months. The Department of Health and Human Services (“Defendant”) establishes billing codes for use in the healthcare industry. Plaintiffs filed this lawsuit against the Secretary of Health and Human Services, challenging Defendant's denial of a permanent unique billing code for Relizorb. Three weeks after Plaintiffs filed, they moved for a preliminary injunction that would provide them with a number of forms of relief, including a temporary unique billing code for Relizorb. See ECF No. 8 (“PI Mot.” or “Motion”). To demonstrate that they are suffering irreparable harm, Plaintiffs point to Alcresta's lost profits and to the negative effect on Flath's health that they assert will result from his inability to procure Relizorb, both of which they attribute to Defendant's failure to assign it a unique billing code.

         Neither plaintiff, however, has demonstrated irreparable harm that would be addressed by the injunctive relief sought. Under the law in this Circuit, Alcresta's lost profits on Relizorb, without more information on the impact of those losses on its overall financial health, simply do not establish irreparable harm. Flath's claim of irreparable harm fails for slightly different reasons. First, his alleged harm was not caused by Defendant's decision to deny Alcresta a permanent unique billing code for Relizorb. Instead, his inability to obtain and use Relizorb is the result of a longstanding decision by Defendant (the administrator of Medicare) to provide reimbursement for enteral nutritional therapies in a manner that covers at best only a fraction of Relizorb's list price, irrespective of the billing codes these products are assigned. Second, the relief Flath requests (including the injunctive relief) is not likely to change this reimbursement decision, thereby redressing his alleged harm, as events during the pendency of this litigation bear out. In fact, after Plaintiffs filed their Motion, Defendant provided Relizorb a temporary unique billing code, but that did not facilitate a corresponding change in its reimbursement status under Medicare. In sum, there is a fundamental disconnect between Flath's alleged harm and the injunctive relief he seeks. As a result, he has failed to establish that the relief will remedy his alleged harm. For similar reasons, Flath has also failed to show a substantial likelihood that he has standing, which is necessary to establish a likelihood of success on the merits.

         Plaintiffs' ultimate aim does not appear to be to obtain a unique billing code for Relizorb, but to get insurers-including Medicare-to provide full reimbursement for it. But the proper vehicle to challenge Medicare reimbursement determinations is the Medicare Act, 42 U.S.C. § 1395 et seq., which requires plaintiffs to exhaust their remedies before seeking relief in this Court.

         Therefore, for the reasons set forth below, Plaintiffs' Motion, ECF No. 8, will be denied.[1]

         I. Background

         A. Statutory and Regulatory Background

         1. National Uniform Codes

         The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), Pub. L. No. 104-191, 110 Stat. 1936, required Defendant to establish a nationwide, standard coding system to address the difficulties posed by the lack of uniformity in healthcare billing. See 42 U.S.C. § 1320d-2(c)(1); HIPAA § 261, 110 Stat. at 2021. One of the standard coding systems Defendant adopted in response is known as the Healthcare Common Procedure Coding System (“HCPCS”). See 45 C.F.R. § 162.1002; Def.'s Opp. at 2. The Centers for Medicare and Medicaid Services (“CMS”), a component of Defendant, oversees this system. 42 C.F.R. § 414.40(a). HCPCS has two levels of billing codes. See Def.'s Opp. at 3. Level II codes include those for durable medical equipment (“DME”), such as prosthetics, orthotics, and supplies that are used outside a physician's office. Pls.' PI Br. at 3. Relizorb is categorized as DME by CMS regulation. Pls.' PI Br. at 3 n.2; see also Def.'s Opp. at 16. These billing codes are used by various insurance carriers, including commercial insurers, state Medicaid programs, and Medicare contractors. Def.'s Opp. at 3; Pls.' PI Br. at 3. They are aimed at promoting administrative efficiency, but, as the HCPCS Code Book states, assignment of a billing code does not suggest that a product will be reimbursed. See ECF No. 12-1 at 3 (“Inclusion or exclusion of a procedure, supply, product or service does not imply any health insurance coverage or reimbursement policy.”).

         2. The HCPCS Workgroup

         In 2000, Congress passed the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (“BIPA”), Pub. L. 106-554, App. F, 114 Stat. 2763A-463. In it, Congress directed Defendant to establish procedures for public consultation on coding and payment determinations for new DME. See BIPA § 531(b), 114 Stat. at 2763A-547. To do so, Defendant adopted regulations that, among other things, created the HCPCS Workgroup (the “Workgroup”). See 66 Fed. Reg. 58, 743, 58, 744 (Nov. 23, 2001).

         The Workgroup is responsible for initially assessing applications for new Level II billing codes. It is comprised of federal employees (including CMS employees), federal contractors, and state government employees. Wilson Supp. Decl. ¶ 3(1), at 2. It also used to include a representative of the insurance industry. Id. ¶ 3(2), at 6.

         Applications for new Level II billing codes, which are due in January of a given year, are assessed annually. Id. ¶ 3(4), at 8. The Workgroup makes its preliminary coding determinations in the spring. Id. at 9. Afterward, the Workgroup hosts public meetings at which applicants and the public can provide feedback on its preliminary determinations. Id. Following the public meetings, the Workgroup reconvenes to reconsider all the applications in light of the feedback received. Id. CMS publishes its final coding decisions on or around November 1 each year. Id. In Plaintiffs' telling, CMS simply “rubber-stamps” the Workgroup's recommendations. Pls.' PI Br. at 33. Defendant, by contrast, asserts that it makes its own independent determinations. Wilson Supp. Decl. ¶ 3(7), at 12-13.

         In addition to evaluating applications for billing codes through the annual application process, the Workgroup also issues billing codes through the HCPCS quarterly update process. Pls.' PI Br. at 7. The quarterly update process allows temporary billing codes to be issued by CMS on its own initiative when there is an “urgent national program operating need[].” Id.

         3. Medicare Coverage for Enteral Nutritional Therapy

         Medicare, an insurance provider administered by Defendant that uses HCPCS billing codes, has a specific regulatory framework that governs how it provides reimbursement for enteral nutritional therapy products (i.e., products that deliver nutrients directly to the stomach), such as Relizorb. See Wilson Decl. According to a declaration from the Director of the Chronic Care Policy Group within the Center for Medicare, under these payment rules, “Medicare pays an all-inclusive daily allowance that pays for all necessary enteral nutrition supplies.” Id. ¶ 8. These rules, which have been in place “at least 35 years, ” mean that “[e]ven though a code may be added to the HCPCS to identify a specific individual enteral nutrition supply, the existence of a new code identifying an individual enteral supply does not mean that the supply would qualify for additional Medicare payment beyond the all-inclusive payment.” Id. ¶ 9. Thus, “both before and after the establishment of a new code for an individual enteral supply, Medicare pays an all-inclusive payment for all enteral nutrition supplies.” Id. ¶ 11.

         B. Factual Background

         Alcresta is a pharmaceutical company that creates and sells “enzyme-based products designed to address nutritional challenges faced by medically fragile persons.” Am. Compl. ¶ 14. One of their products, Relizorb, is a device that contains a digestive enzyme that enhances the ability of an individual to absorb nutrients during enteral feeding. Id. ¶ 2.

         Over the last few years, Alcresta has attempted to obtain a Level II billing code for Relizorb, in the hope that doing so will increase the likelihood that insurers will fully reimburse the product. In 2016, the Workgroup preliminarily (and, in Plaintiffs' view, erroneously) concluded that Relizorb was adequately described by billing codes B4034, B4035, and B4036, meaning that it did not require a unique code. Pls.' PI Br. at 9. In its final determination for 2016, CMS reached the same conclusion, but for a different reason: it stated that there was no “national program operating need” for Relizorb to have its own billing code. Id. In 2017, Alcresta reapplied and, again, the Workgroup preliminarily determined that Relizorb was adequately described by billing codes B4034, B4035, and B4036. Id. In its final determination, CMS again denied approval of a unique code, concluding that code B4035 adequately covered Relizorb. Id. at 15.[2] In light of these repeated denials, Alcresta filed another application for the 2018 cycle. Pls.' PI Br. at 16.

         Alcresta alleges that it is suffering financial harm because Relizorb does not have a unique billing code. Specifically, according to a declaration from its Chief Commercial Officer (“CCO”), the code assigned to Relizorb, B4035, causes Alcresta to lose money in two ways. First, once a claim has been submitted on behalf of a patient under a given billing code, another claim may not be submitted for that patient under that code in the same time frame. Gamgort Decl. ¶ 6. Thus, if a claim for a month's supply of Relizorb is submitted under code B4035, it will not be reimbursed if a claim for any other product (e.g., an enteral feeding tubing or another inert enteral feeding kit item) has been submitted under the same code for the same patient that month. Id. Medicare has denied reimbursement claims for Relizorb on this basis. Id. Second, even when payments for Relizorb have been made under code B4035, they are at the per diem rate authorized for inert enteral feeding kit supplies, approximately $5-$10, not Relizorb's list price of $53. Id. ¶ 7. As a result, Alcresta's CCO estimates that the company lost approximately $15.3 million in revenue in 2017-and expects even greater losses this year-which he alleges is “due to the lack of insurance coverage associated with the denial of a unique code for Relizorb.” Id. ¶ 22.

         Flath is a patient who has cystic fibrosis, and as a result he suffers from fat malabsorption. Am. Compl. ¶ 4. He was recently provided Relizorb for three months, and he states, in a filing made under seal, that switching from other enteral feeding products to Relizorb significantly improved his health. Flath Decl. ¶¶ 32-39, 41-43. Flath cannot afford to pay for Relizorb out of pocket. Id. ¶ 43. In February 2018, Flath was informed by the supplier of Relizorb that he would not be able to continue to receive it because, while he is eligible for Medicare and Medicaid, they do not provide full reimbursement for it. Id. ¶¶ 40, 43; Gamgort Decl. ¶ 7. As Flath understands it, his supplier cannot bill Medicare for Relizorb “due to a coding issue, and therefore a claim to Medicaid is not an option.” Flath Decl. ¶ 43.

         C. Procedural Background

         On February 2, 2018, Plaintiffs filed their original complaint in this matter. See ECF No. 1. More than three weeks later, on February 27, 2018, Plaintiffs filed an amended complaint, Am. Compl., and a Motion for Preliminary Injunction, PI Mot. In their Amended Complaint, Plaintiffs bring four counts under the Administrative Procedure Act, 5 U.S.C. § 551 et seq. See Am. Compl. ¶¶ 121-122. They are that: (1) Defendant's decision on Alcresta's 2017 application was not supported by substantial evidence; (2) it was arbitrary and capricious; (3) criteria used in the Workgroup's decisionmaking process should have been approved through notice and comment procedures; and (4) the Workgroup is subject to the Federal Advisory Committee Act (“FACA”), 5 U.S.C. App. 2 § 1 et seq., which Defendant violated by failing to open Workgroup meetings to the public and delegating agency decisionmaking to the Workgroup. See Am. Compl. ΒΆΒΆ 123-171. Plaintiffs seek a variety of forms of relief, including: declaring some of Defendant's past actions concerning Relizorb's billing code invalid; ...

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