Henry v. Azar

518 F.Supp.3d 520

James HENRY, et al., Plaintiffs,

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

Civil Action No. 20-1144 (CKK)

United States District Court, District of Columbia.

Signed February 8, 2021

Stephanie Ann Webster, Ropes & Gray LLP, Washington, DC, for Plaintiffs.

Johnny Hillary Walker, III, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendant.

MEMORANDUM OPINION

COLLEEN KOLLAR-KOTELLY, United States District Judge

This case involves a dispute over the appropriate reimbursement payment for a medical device called Relizorb under Part B of the Medicare Act. See 42 U.S.C. § 1395k(a)(2)(B). Plaintiff Alcresta Therapeutics, Inc. ("Alcresta") is the manufacturer of Relizorb, and Plaintiff James Henry is a Medicare beneficiary who uses Relizorb to improve his lung function and address his malnourishment. See Compl. ¶¶ 5–6. Together, Alcresta and Mr. Henry (collectively, "Plaintiffs"), have filed a motion for summary judgment against the Secretary of Health and Human Services ("HHS"), asking the Court to invalidate the agency's Medicare payment determination for Relizorb. See ECF No. 8. In turn, the Secretary has filed a motion to dismiss Plaintiffs’ claims for lack of subject-matter jurisdiction, as well as a cross-motion for summary judgment. See ECF No. 13.

Upon consideration of the briefing, the relevant authorities, and the record as a whole,¹ the Court concludes that it does not possess subject-matter jurisdiction over Plaintiffs’ claims. Accordingly, it will GRANT the Secretary's motion and DISMISS Plaintiffs’ claims WITHOUT PREJUDICE . Because this Court lack's subject-matter jurisdiction, it will also DENY Plaintiffs’ motion for summary judgment WITHOUT PREJUDICE .

I. BACKGROUND

Plaintiff Alcresta is the exclusive manufacturer of Relizorb, which "is a small, single use cartridge that connects in-line between the feeding pump and the patient as part of the enteral feeding pump tubing set-up." Compl. ¶ 33. Relizorb "mimics normal pancreatic function by breaking down fats in formula used for enteral tube feeding—i.e. , delivery of nourishment directly to a patient's gastrointestinal tract—by exposing the formula to a special digestive enzyme immediately before it enters the body." Id. In this way, Relizorb "facilitates absorption of essential fats in patients suffering from severe fat malabsorption resulting from pancreatic insufficiency associated with cystic fibrosis and other serious pancreatic conditions." Id. ¶ 32. Alcresta maintains that there is no comparable "product currently available that breaks down fats throughout a full enteral feeding session." Id. ¶ 34. The Food and Drug Administration ("FDA") cleared Relizorb for prescription use in 2015. See id. ¶¶ 31, 34.

Medicare Part B offers coverage for prosthetic devices used for enteral nutrition therapy, such as Alcresta, where they are medically necessary for enrolled beneficiaries. See 42 U.S.C. §§ 1395k(a)(2)(B), 1395k(a)(2)(I) ; 42 C.F.R. § 421.210(b)(2) ; disc. infra at 10. Accordingly, after Relizorb's FDA clearance in 2015, Alcresta applied with the Centers for Medicare & Medicaid Services ("CMS") for a unique Medicare billing code for Relizorb. See Compl. ¶ 35. Initially, CMS determined that Relizorb did not require a separate Medicare billing code, because preexisting codes for other enteral nutrition supply kits adequately covered Relizorb. See id. ¶ 36. But Alcresta disputed this determination, see id. ¶¶ 35–50, and in December 2018, CMS ultimately issued a unique Medicare billing code for Relizorb, see id. ¶ 51. At this point, Relizorb became a newly-coded product that was not yet on Medicare's national fee schedule for enteral nutrition therapy. See id. ¶ 52; Pub. L. No. 105-33 § 4315. As such, CMS directed Medicare contractors processing payment claims for the newly-coded Relizorb to determine reimbursement payments " ‘in accordance with the gap-filling methodology in section 60.3 of Chapter 23 of the Medicare Claims Processing Manual.’ " Compl. ¶ 52 (quoting Technical Direction Letter (TDL-190132) at 2 (Dec. 20, 2018)).

Plaintiff James Henry is a cystic fibrosis patient enrolled under Medicare Part B, who uses Medicare coverage of Relizorb to obtain the device for his medical treatment. Compl. ¶ 53. In 2019, Mr. Henry's Medicare supplier submitted a Medicare claim on his behalf for 60 cartridges of Relizorb that had been prescribed by Mr. Henry's physician. See id. ¶ 54. In this Medicare claim, Mr. Henry sought a total reimbursement of $9,898.20 for the 60 cartridges of Relizorb, a rate of $164.97 per cartridge. Id. On October 31, 2019, however, the first-level Medicare contractor approved a payment of $2,025.07 for the 60 Relizorb cartridges, a rate of only $33.75 per cartridge. See id. ¶ 55: AR at 314. Mr. Henry requested a redetermination from the Medicare contractor, arguing that the contractor's payment determination for Relizorb rested on an erroneous application of the Medicare gap-filling methodology. See Compl. ¶ 56; AR at 92, 105–14. On January 7, 2020, however, the contractor upheld its original payment determination. See AR at 308–09.

Pursuant to the Medicare administrative appeals process, see 42 U.S.C. § 1395ff(c), Mr. Henry then requested that a "qualified independent contractor" ("QIC") reconsider the payment determination for Relizorb made by the first-level Medicare contractor, see AR at 305–06. But on February 18, 2020, the QIC dismissed Mr. Henry's claim, concluding that the first-level contractor's payment determination for Relizorb was not an "initial determination" under the Medicare Act and, therefore, could not be appealed. AR at 69 (citing 42 C.F.R. § 405.926(c) ). Mr. Henry subsequently requested that an administrative law judge ("ALJ") within HHS review the QIC's dismissal. See AR at 2–4. The ALJ, however, dismissed Mr. Henry's request to review the QIC's dismissal order on March 30, 2020, also concluding that the contractor's payment determination was not an "initial determination." See AR at 4. Following the ALJ's dismissal, Mr. Henry and Alcresta jointly filed a complaint before this Court on May 1, 2020. See generally Compl., ECF No. 1.

In their complaint, Mr. Henry and Alcresta assert four claims, each aimed at invalidating the Medicare contractor's payment determination for Relizorb. See id. ¶ 2. In Count I, Plaintiffs allege that the Relizorb payment determination was "contrary to law" and specifically violated the Medicare gap-filling requirements applicable to newly-coded products like Relizorb. See id. ¶¶ 82–89. In Count II, Plaintiffs similarly allege that the Medicare contractor's payment determination for Relizorb was "arbitrary and capricious because it started from an unreasonable assessment of reasonable charges and approached gap-filling payment[s] for Relizorb differently than for other products, and without explanation for the departure." Id. ¶ 91 (citing 5 U.S.C. § 706(2)(A) ). In Count III, Plaintiffs argue that the contractor's "payment determination is also unsupported by substantial evidence and should be set aside as unlawful" for that separate reason. Compl. ¶ 98. Finally, in Count IV, Plaintiffs allege that the contractor's underpayment for Relizorb constituted an "amendment" to a preexisting Medicare standard, known as a "national coverage determination" ("NCD"), which requires Medicare coverage for enteral nutrition therapy. See id. ¶ 102. Specifically, Plaintiffs allege that this functional NCD "amendment" was invalid because the agency failed to adhere to the requisite notice and comment procedures applicable to such a regulatory change. See id. ¶ 102–03; Azar v. Allina , ––– U.S. ––––, 139 S. Ct. 1804, 1808–09, 204 L.Ed.2d 139 (2019). For relief, Mr. Henry and Alcresta ask the Court to "set aside the invalid payment determination and direct the agency to require its contractor to apply properly the gap-filling methodology set forth in the Medicare statute and rules." Compl., Relief Requested, at ¶ (d).

Plaintiffs have now filed for summary judgment, relying upon the administrative record and requesting relief from the agency's Relizorb payment determination as a matter of law. See Pls.’ Mot. at 1–2. In response, however, the Secretary has filed a cross-motion for summary judgment and a motion to dismiss Plaintiffs’ claims for lack of subject matter jurisdiction. See Gov't Mot. at 15–24. The parties have now fully briefed these motions and filed the administrative record before the Court. See LCvR 7(n). Consequently, the parties’ pending motions are ripe for the Court's review.

II. LEGAL STANDARD

A court must dismiss a case pursuant to Federal Rule of Civil Procedure 12(b)(1) when it lacks subject-matter jurisdiction. In determining whether there is jurisdiction, the Court may "consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Coal. for Underground Expansion v. Mineta , 333 F.3d 193, 198 (D.C. Cir. 2003) (internal quotation marks omitted) (quoting Herbert v. Nat'l Acad. of Scis. , 974 F.2d 192, 197 (D.C. Cir. 1992) ); see also Jerome Stevens Pharm., Inc. v. Food & Drug Admin. , 402 F.3d 1249, 1253 (D.C. Cir. 2005) ("[T]he district court may consider materials outside the pleadings in deciding whether to grant a motion to dismiss for lack of jurisdiction.")

In reviewing a motion to dismiss pursuant to Rule 12(b)(1), courts must accept as true all factual allegations in the complaint and construe the complaint liberally, granting plaintiff the benefit of all inferences that can be drawn from the facts alleged. See Settles v. U.S. Parole Comm'n , 429 F.3d 1098, 1106 (D.C. Cir. 2005) ("At the motion to dismiss stage, counseled complaints as well as pro se complaints, are to be construed with sufficient liberality to afford all possible inferences favorable to the pleader on allegations of fact."); ...