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Nicole Medical Equipment & Supply, Inc v. Tricenturion

March 28, 2011


The opinion of the court was delivered by: Rufe, J.


Plaintiff Nicole Medical Equipment & Supply, Inc. ("Nicole Medical"), a durable medical equipment ("DME") supplier, has filed suit against TriCenturion, Inc. a Program Safeguard Contractor for the Centers for Medicaid and Medicare Services ("CMS"), and against NHIC Corp., a Medicare insurance carrier. Plaintiff claims that Defendants wrongfully found Plaintiff had been overpaid for certain Medicare claims, withheld payments to Plaintiff to recoup those overpayments, and thus caused severe financial damage to Plaintiff, resulting in the closure of its business. Specifically, Plaintiff alleges the following state law claims: negligence in re-opening previously paid claims, trespass (against TriCenturion only), unjust enrichment, intentional interference with contractual relations, malicious prosecution (against TriCenturion only), and extreme and outrageous conduct. Plaintiff also alleges one federal law claim: breach of statutory duty of care under 42 U.S.C. §1320c-6(b). Defendants have filed a motion to dismiss all claims on the grounds that: 1) Plaintiff has not named and served the proper defendant--the Secretary of Health and Human Services for the United States of America ("Secretary"); 2) the Court lacks subject matter jurisdiction over Plaintiff's claims because Plaintiff has not exhausted its administrative remedies; and 3) Defendants, as Medicare contractors acting on behalf of the United States, are entitled to sovereign immunity from common law tort actions. For the reasons set forth below, the Court finds it does not have subject matter jurisdiction over Plaintiff's claims, and, as an alternative basis for dismissal, finds that sovereign immunity bars all claims. Introduction and Factual Background

Defendant TriCenturion is a Medicare Program Safeguard Contractor (PSC) which, pursuant to its contract with Medicare, performs program integrity tasks such as fraud and overpayment investigations on behalf of the Secretary. Defendant NHIC is the Medicare carrier for DME in Medicare Region A. Plaintiff is a provider of DME in Region A. On May 20, 2002, TriCenturion performed an unannounced audit of Plaintiff's business records. It found evidence of an overpayment for motorized wheelchairs and medical beds. Although the United States Attorney did not find evidence of fraud, TriCenturion continued to believe that Plaintiff had improperly billed Medicare for some DME. Based on extrapolation from a sample, TriCenturion calculated an estimated amount of overpayment, and instructed the regional carrier to institute a 100% offset against other payments due to Plaintiff under Medicare. HealthNow, the Region A DME carrier prior to NHIC, initially instituted the 100% offset, but then reversed its position and stopped the recoupment. When NHIC succeeded HealthNow, TriCenturion instructed NHIC to re-institute the offset, which NHIC did in July 2006. By January 2007, this allegedly forced Plaintiff to terminate all business operations.

Plaintiff appealed the overpayment calculation and offset, and received a fully favorable opinion from the administrative law judge in February 2007. This opinion was upheld by the Medicare Appeals Council. *fn1 Although Plaintiff was successful in the administrative appeals process, it alleges that the actions of Defendants caused Plaintiff to become insolvent and unable to continue business operations. Therefore, Plaintiff initiated this tort action against Defendants. Having already been awarded the payment of money improperly withheld by Defendants, in this suit, Plaintiff is not seeking reimbursement for the DME it provided to Medicare beneficiaries, but rather damages for collateral injuries caused by Defendants' investigation and determination of overpayment, and their recoupment of that overpayment.

Plaintiff invokes the Court's diversity jurisdiction under 28 U.S.C. § 1332, as it is diverse from both Defendants and the amount in controversy exceeds $75,000.00.

Standard of Review

Federal Rule of Civil Procedure 12(b)(1) provides that a court may dismiss a complaint for lack of subject matter jurisdiction. Plaintiff has the burden of establishing subject matter jurisdiction. *fn2 A court evaluating a facial challenge to jurisdiction must rely solely on the pleadings, accept the allegations in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. *fn3 A court evaluating a factual challenge to jurisdiction (meaning Defendants dispute the existence of certain jurisdictional facts alleged by Plaintiffs), the Court is "free to weigh the evidence and satisfy itself as to the existence of its power to hear the case." *fn4

Dismissal of a complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted is appropriate where a plaintiff's "plain statement" does not possess enough substance to show that plaintiff is entitled to relief. *fn5 In determining whether a motion to dismiss is appropriate the court must consider those facts alleged in the complaint, accepting the allegations as true and drawing all logical inferences in favor of the non-moving party. *fn6 Courts are not bound to accept as true legal conclusions couched as factual allegations. *fn7 Something more than a mere possibility of a claim must be alleged; the plaintiff must allege "enough facts to state a claim for relief that is plausible on its face." *fn8 The Complaint must set forth direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory. *fn9 The court has no duty to "conjure up unpleaded facts that might turn a frivolous action. . . into a substantial one." *fn10


1. Real Party in Interest

Defendant argues that plaintiff has failed to name and effect service on the proper party defendant in this case: the Secretary of Health and Human Services for the United States. *fn11 The Secretary is the federal official responsible for administering the Medicare program, and is authorized by the Medicare Act to enter into contractual agreements with private entities (such as Defendants) for the performance of statutory and regulatory responsibilities. *fn12 Medicare contractors act as agents working on behalf of the Secretary. Thus, Defendants argue, the Secretary is the real party in interest to this suit. In support, they cite the indemnity provision of the Medicare regulations, which reads:

Intermediaries and carriers act on behalf of CMS in carrying out certain administrative responsibilities that the law imposes. Accordingly, their agreements and contracts contain clauses for indemnification with respect to actions taken on behalf of CMS and CMS is the real party of interest in any litigation involving the administration of the program. *fn13

Despite this indemnity clause, it is proper for the Plaintiff to sue the carriers directly, without also naming the Secretary. *fn14 The Court finds that the interests of the United States and the Secretary are properly protected by the Department of Justice, which has entered an appearance and is providing representation for both Defendants. *fn15 ...

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