United States District Court, District of Columbia
ALCRESTA THERAPEUTICS, INC. et al., Plaintiffs,
ALEX M. AZAR II, Secretary of Health and Human Services, Defendant.
TIMOTHY J. KELLY UNITED STATES DISTRICT JUDGE
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.
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.
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.
for the reasons set forth below, Plaintiffs' Motion, ECF
No. 8, will be denied.
Statutory and Regulatory Background
National Uniform Codes
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.”).
The HCPCS Workgroup
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).
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.
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.
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.
Medicare Coverage for Enteral Nutritional Therapy
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.
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.
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
In light of these repeated denials, Alcresta filed another
application for the 2018 cycle. Pls.' PI Br. at 16.
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.
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.
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. ¶¶ 123-171. Plaintiffs seek
a variety of forms of relief, including: declaring some of
Defendant's past actions concerning Relizorb's
billing code invalid; ...