Tex. Alliance for Home Care Servs. v. Sebelius

681 F.3d 402

401 U.S.App.D.C. 71

TEXAS ALLIANCE FOR HOME CARE SERVICES and Dallas Oxygen Corporation, Appellants

v.Kathleen SEBELIUS, in her official capacity as Secretary, United States Department of Health and Human Services, and Marilyn Tavenner, in her official capacity as Acting Administrator, Centers for Medicare and Medicaid Services, Appellees.

No. 11–5265.

United States Court of Appeals, District of Columbia Circuit.

Argued April 18, 2012.

Decided June 1, 2012.

Rehearing En Banc Denied July 30, 2012.

Appeal from the United States District Court for the District of Columbia (No. 1:10–cv–00747).

William G. Kelly Jr. argued the cause for the appellants. Brendan J. Klaproth was on brief.

Sharon Swingle, Attorney, United States Department of Justice, argued the cause for the appellees. Tony West, Assistant Attorney General, Ronald C. Machen, Jr., United States Attorney, and Michael S. Raab, Attorney, were on brief. R. Craig Lawrence, Assistant United States Attorney, entered an appearance.

Before: HENDERSON, TATEL and KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Circuit Judge HENDERSON.

KAREN LeCRAFT HENDERSON, Circuit Judge:

The Texas Alliance for Home Care Services, a trade association representing suppliers of durable medical equipment,¹ prosthetics, orthotics and supplies (DMEPOS), and the Dallas Oxygen Corporation, an individual DMEPOS supplier, (collectively, Suppliers) appeal the district court's dismissal of their action against the Secretary of the United States Department of Health and Human Services (Secretary) and the Administrator of the Centers for Medicare and Medicaid Services (CMS).² The Suppliers challenge a regulation addressing the “applicable financial standards” that a DMEPOS supplier must meet to be eligible for a Medicare contract under the competitive bidding process established in 42 U.S.C. § 1395w–3 (DMEPOS Statute). The district court dismissed the complaint on three grounds: (1) it is precluded by subsection (b)(11) of the DMEPOS Statute, 42 U.S.C. § 1395w–3(b)(11); (2) the Suppliers lack constitutional standing and (3) the regulation is authorized and otherwise valid. Texas Alliance for Home Care Servs. v. Sebelius, 811 F.Supp.2d 76 (D.D.C.2011). Because we agree that subsection (b)(11) expressly precludes judicial review of the challenged regulation, we affirm the district court's dismissal on this ground. ³

I.

In 1965, the Congress enacted the Medicare Act as Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq., to establish a federally funded health insurance program for the elderly and disabled. Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 506, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994). The Medicare Act authorizes the Secretary to issue regulations “defining reimbursable costs and otherwise giving content to the broad outlines of the Medicare statute.” Id. at 506–07, 114 S.Ct. 2381 (citing 42 U.S.C. § 1395x(v)(1)(A)).

Before 2003, Medicare reimbursed the cost of DMEPOS pursuant to a fixed fee schedule for each class of covered items. In 1997, the Congress authorized the Secretary to conduct up to five demonstration projects to test competitive bidding (in lieu of the fixed schedules) to price and award contracts for Medicare Part B services, including the provision of DMEPOS.⁴ Balanced Budget Act of 1997, Pub.L. No. 105–33, § 4319, 111 Stat. 251, 392 (codified at 42 U.S.C. § 1395w–3 (1998)). The subsequent demonstration projects, conducted in Polk County, Florida and San Antonio, Texas, proved successful; competitive bidding significantly reduced DMEPOS costs, while maintaining quality standards and beneficiary satisfaction. SeeH.R.Rep. No. 108–178(II), at 192 (July 15, 2003). Accordingly, in 2003, the Congress instituted a competitive bidding process for DMEPOS purchases by enacting the DMEPOS Statute as part of the Medicare Prescription Drug, Improvement, and Modernization Act, Pub.L. No. 108–173, title III, § 302(b)(1), 117 Stat. 2224 (2003) (codified in relevant part at 42 U.S.C. § 1395w–3, as amended). The DMEPOS Statute directed the Secretary to “establish and implement programs under which competitive acquisition areas are established throughout the United States for contract award purposes for the furnishing ... of competitively priced items and services.” 42 U.S.C. § 1395w–3(a)(1)(A) (2004). The Secretary was to implement the programs in three phases, beginning in 2007 with the 10 largest metropolitan areas in the United States. Id. § 1395w–3 (a)(1)(B)(i)(I).⁵

Under the DMEPOS Statute, no payment may be made for a covered item unless the contractor submits a bid “to furnish an item or service for a particular price and time period that includes, where appropriate, any services that are attendant to the furnishing of the item or service” and the Secretary awards a contract to the supplier for such item or service. Id. § 1395w–3(b)(6)(A)-(B). In addition, the Secretary “may not award a contract to any entity under the competition conducted in a competitive acquisition area ... to furnish such items or services unless the Secretary finds,” inter alia, 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).⁶ The Secretary is further directed to form a “Program Advisory and Oversight Committee” (PAOC) to “provide advice” on several enumerated functions, including the “establishment of financial standards for purposes of subsection (b)(2)(A)(ii).” Id. § 1395w–3(c)(A)(i)–(iii).

In August 2004, the Secretary published in the Federal Register a notice of a public meeting of PAOC on October 6, 2004 “to consider issues related to competitive bidding for DMEPOS items and to furnish advice to the Secretary regarding these issues.” Medicare Program; Public Meeting of the Program Advisory and Oversight Committee (PAOC) for Quality Standards and Competitive Acquisition of Certain [DMEPOS], 69 Fed.Reg. 52,723, 52,723 (Aug. 27, 2004). The notice solicited written comments “addressing topics discussed at the meeting” to be submitted no later than October 13, 2004. Id. During the October 6, 2004 meeting and two subsequent ones, CMS presented to the public and to PAOC material on topics that included the “[f]inancial capabilities of bidding suppliers” before publishing a proposed DMEPOS rule in May 2006. Medicare Program; Competitive Acquisition for Certain [DMEPOS] and Other Issues, 71 Fed.Reg. 25,654, 25,658 (May 1, 2006).

The proposed DMEPOS rule included the following provision regarding financial standards:

(d) Financial standards. All suppliers must meet the applicable financial standards specified in the request for bids.

71 Fed.Reg. at 25,700 (emphasis added). The proposed rule's preamble elaborated:

[A]s part of the bid selection process, the [Request for Bids] will identify the specific information we will require to evaluate suppliers, which may include: a supplier's bank reference that reports general financial condition, credit history, insurance documentation, business capacity and line of credit to successfully fulfill the contract, net worth, and solvency. We welcome comments on the financial standards, in particular the most appropriate documents that will support these standards.

We found that in the demonstration, general financial condition, adequate financial ratios, positive credit history, adequate insurance documentation, adequate business capacity and line of credit, net worth, and solvency, were important considerations for evaluating financial stability.

As we develop our methodology for financial standards, we will further consider which individual measures should be required so that we can obtain as much information as possible while minimizing the burden on bidding suppliers and the bid evaluation process.

Id. at 25,675. In addition, the preamble announced that CMS had created a website “specifically for the public to have access to all PAOC presentations, minutes, and updates for the Medicare DMEPOS Competitive Bidding Program.” Id. at 25,658.

The Secretary published the final rule in April 2007. Medicare Program; Competitive Acquisition for Certain [DMEPOS] and Other Issues, 72 Fed.Reg. 17,992 (Apr. 10, 2007). Its financial standards provision stated:

(d) Financial standards. Each supplier must submit along with its bid the applicable financial documentation specified in the request for bids.Id. at 18,088 (42 C.F.R. § 414.414(d) (2008)). The final rule's preamble, responding to comments, clarified the proposed rule in two respects. First, it explained that “in order to obtain a sufficient amount of information about each supplier while minimizing the burden on both bidding suppliers and the bid evaluation process,” CMS intended to require for the initial round of competition that suppliers submit only “certain schedules from their tax returns, a copy of the 10K filing report from the immediate 3 years ... [,] certain specified financial statement reports, such as cash flow statements, and a copy of their current credit report.” Id. at 18,037. These documents, the preamble explained, would enable CMS to “determine financial ratios, such as a supplier's debt-to-equity ratio, and credit worthiness” and, from those determinations, “to assess a supplier's financial viability.” Id. Second, the preamble explained that CMS planned to “review [ ] all financial information in the aggregate and [ ] not [ ] bas[e its] decision on one ratio but rather overall financial soundness.” Id. at 18,038. On March 22, 2007, CMS posted on the DMEPOS website the ten financial ratios it intended to use, along with a supplier's credit history, in evaluating the supplier's financial health.⁷ After evaluating the bids, CMS awarded over 329 contracts to implement the program beginning July 1, 2008.

Meanwhile, the Ways and Means Committee of the United States House of Representatives convened a hearing on the bidding process culminating...