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ADVANCED MED. TECHS. v. SHALALA

July 11, 1997

ADVANCED MEDICAL TECHNOLOGIES, INC., and JEM TECH HEALTH SERVICES, Plaintiffs,
v.
DONNA SHALALA, Secretary, et al., Defendants. HEALTH SYSTEM CARE, INC., Plaintiff, v. DONNA SHALALA, Secretary, et al., Defendants.



The opinion of the court was delivered by: SIMANDLE

 SIMANDLE, District Judge:

 I. Background

 Plaintiffs in these two related cases have petitioned for a preliminary injunction against defendants, the parties responsible for the administration of the Medicare laws. Plaintiffs claim that defendants have engaged in improper practices, resulting in the denial of payment to plaintiffs for the provision of medical supplies to Medicare beneficiaries.

 The plaintiffs in these two related cases are Advanced Medical Technology, Inc. and Jem Tech Health Services, Inc. (in Civil Action 96-5473), and Health System Care, Inc. (in Civil Action 96-5474) (collectively referred to as "plaintiffs"). These are independent medical supply companies which provide medical supplies to beneficiaries under the Medicare Act (Title XVIII of the Social Security Act, as amended, 42 U.S.C. § § 1395, et seq.) upon the instructions of physicians. As suppliers of durable medical equipment ("DME"), plaintiffs may apply for reimbursement from the Medicare Program, administered by the Health Care Finance Administration ("HCFA"). The HCFA, in turn, has contracted with entities such as defendants Blue Shield of South Carolina and its subsidiary, Palmetto Government Benefits Administrators ("Blue Cross" and "Palmetto") to process and decide the claims of the suppliers and beneficiaries. Such regional carriers, referred to as Durable Medical Equipment Regional Carriers ("DMERCs"), are congressionally authorized by 42 U.S.C. § 1395u (generally) and § 1395m(a)(12) (with respect to durable medical equipment).

 Plaintiffs are suppliers of urological supplies and surgical dressings. Medicare Part B pays for urological supplies as part of the benefit for "prosthetics." 42 U.S.C. §§ 1395k(a)(2)(I), 13951(a)(1), 1395m(h), & 1395x(s)(8). Medicare pays for such supplies if a beneficiary has permanent urinary incontinence, and must use a catheter or external collection device. 42 C.F.R. § 410.36(a)(2); Medicare Carrier's Manual ("MCM") § 2130, reprinted in CCH Medicare and Medicaid Guide, P 3152. The benefit does not include such supplies as adult diapers or rubber sheets. MCM § 2130. Similarly, Medicare Part B pays for surgical dressings in specific circumstances, spelled out in the statute and regulations, 42 U.S.C. §§ 13951(a)(1), 1395m(i), 1395x(s)(5); 42 C.F.R. §§ 410.10(g), 410.36(a)(1), and in any event such dressings are "limited to primary and secondary dressings required for the treatment of a wound caused by, or treated by, a surgical procedure," MCM § 2079, reprinted in CCH Medicare and Medical Guide, P 3140.

 Plaintiffs allege that their claims for payment for devices they have supplied have been wrongfully denied, delayed or mismanaged by defendants, and that defendants are wrongfully seeking to recoup certain funds previously paid to plaintiffs upon claims. Plaintiffs allege that the defendants are applying secret policies and are acting on a random and arbitrary manner which makes it impossible for plaintiffs to remain in business. Plaintiffs challenge certain documentation requirements imposed to verify medical necessity and to assure that the devices have been received and used by the beneficiary.

 Plaintiffs seek an order from the court requiring the Secretary of Health and Human Services to properly administer the Medicare program for durable medical equipment; to eliminate alleged systemwide bias against DME suppliers; to institute prompt, fair review of claims; and to provide meaningful information and records to support rejections of claims. Plaintiffs' complaints contain assertions of jurisdiction under 28 U.S.C. §§ 1331 and 1361.

 In response to plaintiffs' application for preliminary injunction, defendants raised the issue of whether this court has jurisdiction to hear plaintiffs' claims, arguing that plaintiffs have failed to exhaust their administrative remedies, and asserting that plaintiffs' claims have not been pursued to a final decision for purposes of judicial review. After conducting a telephone conference with counsel for the parties, this court determined that a hearing on the threshold issues of jurisdiction and exhaustion would be appropriate. The parties submitted supplemental information as to these issues and oral argument was held on February 13, 1997. *fn1"

 II. Discussion

 A. Jurisdiction under 28 U.S.C. § 1331 -- Exhaustion of Administrative Remedies

 Defendants argue that this court does not have jurisdiction to entertain plaintiffs' application for a preliminary injunction under 28 U.S.C. § 1331 because plaintiffs have failed to exhaust their administrative remedies. Judicial review of final decisions of the Secretary denying Medicare claims is available upon exhaustion of remedies under 42 U.S.C. § 1395u(b)(3)(C) and 42 C.F.R. §§ 405.801 -- 405.872 (1996).

 The limited authority granted by Congress to the federal courts to review Medicare reimbursement decisions is stated in 42 U.S.C. § 1395ff(b)(1), which states in relevant part:

 
Any individual dissatisfied with any determination under subsection (a) [pertaining to entitlement to and amount of Medicare benefits] of this section as to . . .
 
(C) the amount of benefits under part A or part B of this subchapter (including a determination where the amount is determined to be zero) . . .
 
shall be entitled to a hearing thereon by the Secretary to the same extent as is provided in section 405(b) of [Title 42] and to judicial review of the Secretary's final decision after such hearing as is provided in Section 405(g) of [Title 42] . . ...

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