Cleveland Lawsuit Seeks Injunction to Delay Competitive Bidding

CLEVELAND–The industry’s fierce battle to delay
competitive bidding took on extra firepower last week when
attorneys requested an injunction that would delay the July 1
implementation of the CMS project.

“We are making a request to the court to enjoin
implementation of [competitive bidding],” said Michael J.
Jordan, attorney for Cleveland-based Walter & Haverfield LLP,
which is handling the case backed by Last Chance for Patient
Choice, a non-profit entity created by Waterloo, Iowa-based VGM
Group to fight competitive bidding.

He noted that the basis for the request is CMS’ failure to
comply with the public notice and comment provisions contained in
the Administrative Procedure Act (APA), the Medicare Modernization
Act (MMA) and the Regulatory Flexibility Act (RFA).

“We believe the changes between the proposed rule and the
final rule are significantly changed. We believe [the final rule]
should have been opened to public comment,” Jordan said,
adding the motion for a preliminary injunction includes a request
for a hearing in early June so that it can be ruled on by July 1,
the implementation date for round one.

“It‘s in the lap of the court whether [the
injunction] is issued or not,” said Jordan.
“We’re optimistic that [Judge Patricia A. Gaughan] will
hold a hearing or that there will be other action by the court.
We’ve asked for a decision by July 1.”

The request for an injunction came in the form of an amended
complaint to a lawsuit initially filed by the firm in December on
behalf of a single plaintiff, Premier Medical Supplies. The suit
alleges that competitive bidding violates the RFA, which
“requires all agencies to carefully scrutinize ways to
minimize the economic impact on small entities.”

The amended complaint, which was filed May 12, includes three
additional plaintiffs: Medic Home Health Care LLC, Cornerstone
Medical Services Midwest LLC, and Carested Inc. Two beneficiaries,
Kit Shinkle and Laszlo Nagy, are also listed as plaintiffs in the
suit, which names as defendants Department of Health and Human
Services Secretary Michael O. Leavitt and CMS acting Administrator
Kerry Weems.

Jim Walsh, legal counsel and president of VGM, said expansion of
the Cleveland suit “is a direct result of what we experienced
in the bid process. It became clear that the bid process itself was
badly botched, to the point that people who had legitimate rights
to be considered were not considered at all.”

That botched process has resulted in more plaintiffs in the
suit, according to Walsh.

“Providers became more willing to step up and be named
once they understood that CMS was not going to give them a fair
chance to stay in the business,” Walsh said.

“In our view, [the lawsuit] has been strengthened by more
plaintiffs,” said Jordan. “We also have more background
and more claims.”

Key to the amended complaint are instances in which there are
significant differences between the competitive bidding proposed
and final rules. Jordan cited the following issues:

–A change in the “small supplier” definition from
$6.5 million in total annual receipts as defined by the Small
Business Administration to $3.5 million in total annual
receipts;
–Prohibition in the final rule of “any entities other than
small suppliers” participating in networks; and
–Prohibition in the final rule of small suppliers consolidating
billing functions within a network.

According to the amended complaint, “the reclassification
of the definition of ‘small supplier’ in the final
competitive bidding rule violates the Administrative Procedures Act
… because it was implemented without compliance with the
notice and comment provisions for rulemaking under the
APA.”

The complaint argues that “comments should have been
solicited to evaluate the impact upon suppliers with receipts
between $3.5 million and $6.5 million. Comments should have been
solicited to assess the impact upon network formation by
eliminating all entities with receipts in excess of $3.5 million
from participating networks.”

As well, according to the complaint, “there should have
been an opportunity for notice and comment upon imposing the new
requirement that each member of a network must separately submit
its own Medicare claims … By requiring each member of a
network to process and submit its own Medicare claims, a
substantial benefit of network formation is eviscerated.”

In what Jordan believes to be the first legal challenge to
CMS’ bid award process, the amended complaint also seeks
redress for the home medical equipment providers named in the
suit–Carested, Cornerstone and Medic–whose bids were
disqualified. (Premier did not submit a bid, according to the
complaint, “because as a small supplier it was not
financially feasible for it to achieve the required accreditation
and expend the significant time and financial resources required to
prepare a bid submission.”)

“There were issues raised about the types of
documentation,” explained Jordan. “Our clients’
documentation was submitted and they were disqualified because [the
CBIC] said it wasn’t submitted. We’ve asked the court
to review these specific bidding situations involving our
clients.”

Jordan said the providers asked for reviews by the CBIC; the
disqualifications were not reversed.

“The result is that plaintiffs will suffer significant
loss of clientele and revenue due to their inability to provide
DMEPOS to Medicare beneficiaries,” the complaint says, adding
that Carested will lose 90 percent of its clientele if it loses its
Medicare contract supplier status; Medic will lose 30 percent of
its client base, as well as non-Medicare business from one of its
biggest suppliers amounting to 150 to 200 orders a week; and
Cornerstone will lose 70 percent of its overall revenue in
Cleveland alone and 50 percent in Cincinnati.

The amended complaint asks that the defendants “be
required to implement a meaningful review process for
disqualification decisions” and that they “be required
to reevaluate the application and disqualification status of
plaintiffs Medic, Cornerstone and Carested.”

The amended complaint also challenges beneficiary access to
service under competitive bidding. It notes that Laszlo Nagy is a
quadriplegic who uses “a highly specialized custom power
wheelchair.” Nagy’s provider has cared for him since
2002 and “goes to his home to custom fit the chair to his
needs,” according to the complaint. Since Nagy obtained his
new chair five months ago, the provider has visited him four times
to customize the chair, the complaint says.

However, that provider was rejected as a supplier of power
wheelchairs under competitive bidding. “Thus [Nagy] no longer
has the choice to work with the supplier with whom he has an
established relationship and from whom he received the specialized,
individualized care necessitated by his medical condition.

“In addition,” the complaint continues,
“because the Medicare competitive bidding scheme values low
price point over all else, Nagy is imminently facing a likely lack
of service from the supplier with whom he is forced to deal and
complete alienation from the services upon which he has highly
depended.”

Because CMS has not as yet released the names of the approved
providers, the complaint notes, Nagy doesn’t even know who
his new provider will be.

The complaint requests that “good-faith studies” be
conducted on the impact that the MMA will have on beneficiaries and
the provision of new technologies, as well as on “providers
who service particular racial or cultural needs.”

The Cleveland suit is the second backed by VGM and its Last
Chance for Patient Choice. The first suit, filed in June 2007 in
Dallas by Amarillo, Texas-based Brown & Fortunato, challenged
the constitutionality of competitive bidding but was dismissed on
the grounds that the case was not “ripe”–that is, that
bids had not yet been awarded or denied so there was nothing to
adjudicate.

“The Dallas suit will be re-filed with new grounds and
perhaps some new parties as plaintiff,” Walsh said. “It
will be slightly different from Cleveland, allowing each of the
attorney teams to pursue what they think will work best but all
working towards the same end … an order stopping the
program.”

Walsh said VGM would continue legislative efforts to get
competitive bidding halted. “We felt that even though legal
actions are expensive, we had to move ahead on all fronts,”
he said.