Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 1 of 14 FILED 2014 Dec-29 PM 03:34 U.S. DISTRICT COURT N.D. OF ALABAMA IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA NORTHEASTERN DIVISION ALABAMA PAIN CENTER, LLC v. Plaintiff, CENTERS FOR MEDICARE AND MEDICAID SERVICES, THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, and SYLVIA BURWELL, in her official capacity as SECRETARY FOR THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, Defendants. CIVIL ACTION NO. COMPLAINT FOR DECLARATORY JUDGMENT Alabama Pain Center, LLC (hereinafter "Plaintiff" or "APC" brings this action seeking declaratory relief related to an improper administrative rule issued by a federal agency and alleges as follows: NATURE OF ACTION 1. The Medicare Program is a federally funded program enacted pursuant to Subchapter XVIII of the Social Security Act which provides a subsidized health insurance program for the aged and disabled. 2. The Centers for Medicare and Medicaid Services ("CMS" performs a number of functions to implement and operate the Medicare Program. As part of its authority, CMS has delegated to Cahaba Government Benefit Administrators, LLC ("Cahaba" certain responsibilities, including the determination of Medicare payment amounts for compounded 22337379 v6
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 2 of 14 drugs provided by physician practices, such as APC. Under the Medicare Program, Cahaba is referred to as a "Medicare Administrative Contractor" or "Contractor". 3. Beginning in 2008, APC sought guidance from Cahaba regarding the billing and pricing of APC's compounded drugs provided to Medicare beneficiaries. After consulting CMS, Cahaba instructed APC on how to bill for compounded drugs and Cahaba established a payment rate for the compounded drugs consistent with Cahaba's instruction and the authority given to Cahaba by CMS. Since 2008, APC relied on and followed Cahaba's guidance and instructions and Cahaba paid APC according to the payment rate established and approved by Cahaba. On July 22, 2013, Cahaba confirmed in writing that APC's billing practices and procedures for compounded drugs were proper and in accordance with CMS guidelines. In Cahaba's own words it "reviewed the circumstances surrounding this provider [APC] and it was determined that proper procedures were followed at the request of CMS." 4. On or about September 18, 2014, CMS issued a letter directing that only APC's (and no other compounding pharmacy's compounded drug claims paid by Cahaba be retroactively "re-priced" using a new, unpublicized approach that CMS refers to as the "distributor invoice approach" (the "Re-pricing Letter". Consequently, despite specifically approving APC's prior pricing, APC's claims for compounded drugs for dates of service November 1, 2009 to April 25, 2013 were retroactively re-priced and, as a result, Cahaba notified APC that it allegedly owes the Medicare Program $25,076,225.38 in overpayments. The calculation of the alleged overpayment stemmed from a review of only sixty (60 of APC's claims. Based on the review of those 60 claims, it was alleged that an actual overpayment of $758,201.97 existed. The actual overpayment was then statistically extrapolated, without specific chart or documentation review, to thousands of claims expanding over 3.5 years. It is this 22337379 v6 2
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 3 of 14 statistical extrapolation, without further documentation or medical necessity review, that resulted in the alleged overpayment. 5. CMS issued a substantive rule in the guise of a letter establishing a new, retroactive payment method applying only to APC's (and no other compounding pharmacy's compounded drug claims. The Re-pricing Letter directly contravenes the authority vested in Cahaba to determine pricing for APC's compounded drugs and is contrary to the specific direction and authority that CMS provided to Cahaba in 2008. 6. If the Re-pricing Letter is allowed to stand, the alleged overpayment will force APC out of business. As a result, thousands of patients who depend on APC will be without medical care 7. In this lawsuit APC seeks a declaratory judgment invalidating the Re-pricing Letter because among other things: (1 the Re-pricing Letter constitutes illegal rulemaking in violation of the federal Administrative Procedure Act; (2 the Re-pricing Letter constitutes retroactive rulemaking which cannot be enforced against APC; (3 the requirements imposed by the Re-pricing Letter are unconstitutional in that they impose an arbitrary, compounded drug fee schedule on APC and no other healthcare provider of compounded drugs; and (4 the Re-pricing Letter constitutes a violation of the Constitutional provision on ex post facto laws. JURISDICTION AND VENUE 8. This Court has jurisdiction over this action and the parties thereto pursuant to 28 U.S.C. 1331. 9. The relief requested is authorized by 5 U.S.C. 702 (Administrative Procedure Act; 28 U.S.C. 2201 (Declaratory Judgment Act. APC has a right to bring this action pursuant to the judicial-review provision of the Administrative Procedure Act, 5 U.S.C. 702. 10. Venue is proper in this district pursuant to 28 U.S. C. 1391(e. 22337379 v6 3
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 4 of 14 PARTIES 11. Plaintiff is a healthcare provider with its principal office in Huntsville, Alabama. More than half of APC's patients are Medicare patients whose services are reimbursed by the Medicare Program. 12. Defendant CMS is a federal agency within the Department of Health and Human Services. CMS's headquarters are located at 7500 Security Boulevard, Baltimore, Maryland 21244. CMS is an "agency" within the meaning of 5 U.S.C. 551(1 and 701(b(1. 13. Defendant Department of Health and Human Services ("HHS" is an executive department of the United States. HHS is the parent agency of CMS, and accordingly oversees the regulatory actions complained of herein. HHS's headquarters are located at 200 Independence Avenue, SW, Washington, District of Columbia 20201. HHS is an "agency" within the meaning of 5 U.S.C. 551(1 and 701(b(1. 14. Defendant Sylvia Burwell is the Secretary of HHS ("Secretary". Congress has assigned certain responsibilities to the Secretary related to the Medicare Program that are pertinent in this case. Even though the Secretary has delegated certain responsibilities to CMS, the Secretary retains ultimate statutory responsibility for the regulatory actions complained of herein. The Secretary's business address is 200 Independence Avenue, SW, Washington, District of Columbia 20201. The Secretary is sued in her official capacity only. STATEMENT OF FACTS 15. APC is a physician practice that treats thousands of patients with significant chronic pain issues, including over 300 patients with implanted pain pumps. When medically appropriate, APC prepares in-house customized mixtures of compounded drugs for use in its patients' implanted pain pumps. 22337379 v6 4
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 5 of 14 16. Pain pumps filled with compounded drugs to treat chronic pain are prevalent and have been shown to have positive and effective results. Compounding drugs on-site allows APC to offer patient-specific prescriptions which ensures efficacy, quality control and coordination of patient care. 17. With regard to billing the Medicare Program for compounded drugs, some of the ingredient drugs have specific Medicare "J" billing codes and corresponding per unit Medicare reimbursement rates. However, some frequently used ingredient drugs, e.g., Sufenta and Bupivicaine, are not classified and do not have a specific Medicare reimbursement rate. Accordingly, these drugs are identified by the Healthcare Common Procedure Coding System (HCPCS J3490 (unclassified drugs. 18. When APC began compounding drugs in-house for use in implanted pain pumps there were no applicable Medicare regulations or guidelines regarding billing procedures and reimbursement rates for J3490 (unclassified drugs. 19. Beginning in 2008, and continuing thereafter on a regular basis during the next five (5 years, APC received guidance from Cahaba regarding billing and claim submission for J3490 compounded drugs. Cahaba provided this guidance under its authority as a Medicare Administrative Contractor for CMS. 20. Specifically, in early 2008, APC held the first of several conference calls with Cahaba representatives to discuss billing Medicare for J3490 compounded drugs used in implanted pain pumps. During the calls, APC described how it compounded patient-specific drugs for implanted pain pumps from bulk ingredient drugs and explained the methods used to set its unit charges. APC explained that since it compounds on-site rather than purchasing compounded drugs from an external pharmacy, there are no "patient-specific" invoices, and the 22337379 v6 5
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 6 of 14 only invoice available is from the manufacturer for the bulk ingredient drugs. Thus, any amount entered on a Medicare claim is APC's charge, and not the cost of the raw ingredients reflected on the external manufacture's invoices. APC explicitly and repeatedly explained to Cahaba that its charges do not reflect its costs for the bulk, raw ingredients. 21. After a full and complete disclosure of APC's compounding process and standard charges, Cahaba instructed APC on how to bill for APC's compounded drugs and established a payment methodology. 22. APC relied on and consistently followed Cahaba's guidance. Cahaba processed APC's J3490 compounded drug claims manually, thereby assuring that each claim would be reviewed for accuracy and compliance. At times, Cahaba also reviewed APC's manufacturer invoices for bulk ingredient drugs. 23. For over five years, Cahaba paid APC for compounded drugs in accordance with the payment rates set by Cahaba. 24. Effective June 1, 2013, Cahaba published a Local Coverage Article for the Submission of Claims for Compounded Medications for Infusion Pumps for Treatment of Chronic Intractable Pain (A52161 (the "LCA". For the first time, the LCA established written guidance regarding the submission of claims for J3490 compounded drugs for implanted pain pumps, and established a new fee schedule for the payment of such claims submitted after June 1, 2013. In the LCA, Cahaba states that "[c]ompounded drugs are contractor priced." In other words, Cahaba, not CMS, sets the payment rate for compounded drugs used in implanted pain pumps. Through this LCA, Cahaba changed the method for pricing compounded medications and APC complied with the LCA accordingly. 22337379 v6 6
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 7 of 14 25. On July 22, 2013, Cahaba sent Senator Jeff Sessions a letter confirming APC's compliant billing practices and procedures with respect to J3490 compounded drugs: Cahaba, as the fiscal intermediary and contractor for the Centers of Medicare and Medicare [Medicaid] Services (CMS received guidance on the processing of these [APC's] claims from CMS. Cahaba worked directly with Mr. Mike Taylor with CMS. Alabama Pain Center faxed Cahaba invoice information. Cahaba reviewed this information and determined the price for the services billed and released and paid the claims according to CMS instructions. We continued to work with this provider to begin placing their invoice information in the note fields of the claims where their claims would cease to be developed. Earlier this year, Cahaba was contacted by Advance Med [AdvanceMed] regarding this same provider and issue. At that time, Cahaba reviewed the circumstances surrounding this provider and it was determined that proper procedures were followed at the request of CMS. Information was sent to Mr. Eric Branson at Advance Med in February of 2013. A true and correct copy of the letter to Senator Sessions is attached as Exhibit A. 26. Notwithstanding being informed by Cahaba (CMS' authorized contractor that APC was in compliance with relevant CMS billing and payment requirements, AdvanceMed Corporation ("AdvanceMed", a Zone Program Integrity Contractor under contract with CMS, began an investigation into APC's billing practices and payments for compounded drugs. 27. Through its investigation, AdvanceMed concluded that APC's compounded drugs were medically appropriate, but alleged that Cahaba had overpaid for the drugs for dates of service November 1, 2009 to April 25, 2013. The overpayment determination wholly disregarded Cahaba's authority to determine payment amounts for compounded drugs. Instead, AdvanceMed retroactively re-priced APC's claims for compounded drugs previously paid by Cahaba based on the lower fee schedule contained in the June 1, 2013 LCA. 28. On August 14, 2014, Cahaba issued to APC an overpayment demand letter based on AdvanceMed's findings ("First Overpayment Demand". The alleged overpayment amount sought from APC was $24,009,356.64. The calculation of the alleged overpayment stemmed 22337379 v6 7
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 8 of 14 from a review of only fifty-nine (59 of APC's claims. Based on the review of those 59 claims, it was alleged that an actual overpayment of $788,863.70 existed. The actual overpayment was then statistically extrapolated, without specific chart or documentation review, to thousands of claims expanding over 3.5 years. It is this statistical extrapolation, without further documentation or medical necessity review, that resulted in the First Overpayment Demand. 29. At great expense, APC appealed the First Overpayment Demand pursuant to 42 C.F.R. 405.940 through 405.958 and the Medicare Claims Processing Manual, Pub. 100-04, Chapter 29, Section 310 arguing, among other things, that the LCA could not be applied retroactively to claims prior to the LCA's effective date of June 1, 2013. 30. While the appeal was pending, AdvanceMed received the Re-pricing Letter from CMS instructing AdvanceMed to abandon its retroactive application of the LCA and instead "reprice" APC's compounded drug claims retroactively using an entirely new and unpublicized approach that CMS referred to as the "distributor invoice approach". According to CMS, the distributor invoice approach requires that APC's compounded drugs be re-priced to reflect the price paid for the drugs/compounded ingredients for the applicable dose, plus other "reasonable costs associated with [APC's] preparation of a sterile drug product." The Re-pricing Letter does not define other "reasonable costs." AdvanceMed notified APC of the new CMS directive by letter dated September 24, 2014 and in the letter states "once this process of re-pricing according to CMS directive has been completed" a new overpayment finding will be issued (emphasis added. A true and correct copy of the September 24, 2014 AdvanceMed letter is attached as Exhibit B. 22337379 v6 8
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 9 of 14 31. Based on the Re-pricing Letter, AdvanceMed rescinded its initial overpayment findings and therefore Cahaba withdrew its First Overpayment Demand resulting in the dismissal of APC's appeal. 32. After re-pricing APC's claims for dates of service November 1, 2009 to April 25, 2013 according to the new distributor invoice approach mandated in the Re-pricing Letter, AdvanceMed issued a second overpayment determination on November 26, 2014 ("Second Overpayment Determination". A true and correct copy of the Second Overpayment Determination is attached as Exhibit C. On December 3, 2014, based on an extrapolation of claims data, Cahaba issued to APC a new overpayment demand in the amount of $25,076,225.38 ("Second Overpayment Demand". A true and correct copy of the Second Overpayment Demand is attached as Exhibit D. 1 33. As established by CMS, Cahaba, not CMS, has the authority to determine the price to be paid for APC's compounded drugs. First, in the Re-pricing Letter CMS confirms that "MACs [i.e., Medicare Administrative Contractors such as Cahaba] perform pricing for compounded drugs and that MACs may use different procedures for these activities." Second, in the Medicare Claims Processing Manual, Pub. 100-04, Chapter 17, 20.1.2, CMS states that "pricing for compounded drugs is performed by the local contractor" (i.e., Cahaba. Third in the LCA, Cahaba states, "[c]ompounded drugs are contractor priced." Finally, in the July 2013 letter to Senator Sessions, Cahaba states that "[t]he pricing for compounded drugs is at the discretion of the contractor." These four statements, along with the practice and pattern of conduct by Cahaba since 2008, confirm an established agency practice that Cahaba determines pricing for APC's compounded drugs. 1 Any portion of the Second Overpayment Demand containing a patient's protected health information has been redacted. 22337379 v6 9
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 10 of 14 34. The Re-pricing Letter unilaterally and arbitrarily directs that both AdvanceMed and Cahaba apply the distributor invoice approach retroactively to APC's compounded drug claims. Accordingly, CMS is acting in violation of an established agency practice of allowing Cahaba to determine pricing for APC's compounded drugs by reversing course and applying such action retroactively. The Unconstitutional ex post facto change has a punitive intent and impact on APC. 35. By its very terms, the Re-pricing Letter imposes substantive, legal requirements on AdvanceMed and Cahaba, which have been followed by AdvanceMed and Cahaba to the detriment of APC, thereby resulting in the issuance of the Second Overpayment Demand to APC. 36. APC has suffered a legal wrong and is adversely affected or aggrieved by the requirements set forth in the Re-pricing Letter within the meaning of 5 U.S.C. 702: a. The Re-pricing Letter directs AdvanceMed and Cahaba to implement a new pricing rule in contravention of the authority vested in Cahaba to determine pricing for compounded drugs; and b. The Re-pricing Letter directs AdvanceMed and Cahaba to implement a new pricing rule and to apply the new rule only to APC and no other healthcare provider of compounded drugs; and c. The Re-pricing Letter directs AdvanceMed and Cahaba to implement a new pricing rule and to apply the new rule retroactively to APC's compounded drug claims previously paid by Cahaba at the Cahaba approved fee schedule. 22337379 v6 10
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 11 of 14 CAUSES OF ACTION COUNT I: THE RE-PRICING LETTER IS INVALID BECAUSE CMS DID NOT ENGAGE IN NOTICE-AND-COMMENT RULEMAKING AND CONSTITUTES AN EX POST FACTO CHANGE IN THE LAW U.S.C. 704. 37. APC repeats and realleges paragraphs 1-36. 38. The Re-pricing Letter constitutes a "final agency action" within the meaning of 5 39. Pursuant to 5 U.S.C. 706(2(D, a reviewing court shall hold unlawful and set aside agency action found to be "without observance of procedure required by law." 40. The Re-pricing Letter is a substantive rule because it serves to significantly change an established agency policy regarding the pricing of APC's compounded drug claims. 41. Because the Re-pricing Letter is a substantive rule, prior notice-and-comment rulemaking was required by 5 U.S.C. 553. 42. Because the Re-pricing Letter was not subjected to notice-and-comment rulemaking prior to its issuance, the Re-pricing Letter is invalid and must be set aside. 43. The CMS actions constitute an unconstitutional ex post facto change of the law with a punitive intent and impact. The changes attempt to remove Cahaba's pricing authority and also retroactively re-price claims previously approved. COUNT TWO: THE RE-PRICING LETTER IS INVALID BECAUSE IT VIOLATES THE RULE AGAINST RETROACTIVE RULEMAKING U.S.C. 704. 44. APC repeats and realleges paragraphs 1-43. 45. The Re-pricing Letter constitutes a "final agency action" within the meaning of 5 22337379 v6 11
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 12 of 14 46. Pursuant to 5 U.S.C. 706(2(A, a reviewing court shall hold unlawful and set aside agency action found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance in law." 47. CMS may not promulgate a retroactive rule absent express congressional authorization. 48. A rule is retroactive "[i]f the new rule is 'substantively inconsistent' with a prior agency practice and attaches new legal consequences to events completed before its enactment...." Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 14 (D.C. Cir. 2011 (quoting Arkema Inc. v. EPA, 618 F.3d 1, 7 (D.C.Cir.2010. 49. The Re-pricing Letter is substantively inconsistent with the prior established Medicare policy and practice that pricing for compounded drugs is determined by the local Medicare contractor, in this matter Cahaba. 50. The Re-pricing Letter effectively removes authority from Cahaba to determine pricing of APC's compounded drugs and instead dictates that pricing should be done according to the distributor invoice method announced in the Re-pricing Letter. 51. The Re-pricing Letter retroactively attaches new legal consequences to events completed before its enactment by requiring AdvanceMed and Cahaba to re-price APC's claims that were submitted and paid prior to the Re-pricing Letter resulting in a demand to APC to pay back a significant amount to the Medicare Program. 52. The Re-pricing Letter only applies to APC and not to other similarly situated healthcare providers who submit claims to the Medicare Program for compounded drugs and therefore the Re-pricing Letter is arbitrary, capricious, an abuse of discretion and in violation of law. 22337379 v6 12
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 13 of 14 53. Because the Re-pricing Letter changes an established agency practice and attaches new legal consequences to events completed before its enactment it must be set aside pursuant to 5 U.S.C. 706(2(A. PRAYER FOR RELIEF WHEREFORE, APC prays that this Court: A. Provide for expeditious proceedings in this action; B. Hold unlawful and set aside the Re-pricing Letter; C. Award APC its costs and reasonable attorney's fees incurred in this action; and D. Award such other relief as the Court may deem just and proper. /s/ James A. Hoover Victor L. Hayslip (HAY019 James A. Hoover (HOO022 Attorneys for APC Alabama Pain Center, LLC OF COUNSEL: BURR & FORMAN LLP 420 20th Street North, Ste. 3400 Birmingham, Alabama 35203 Telephone: (205 251-3000 Facsimile: (205 458-5100 Email: vhayslip@burr.com jhoover@burr.com 22337379 v6 13
Case 5:14-cv-02476-AKK Document 1 Filed 12/29/14 Page 14 of 14 DEFENDANTS TO BE SERVED VIA CERTIFIED MAIL Centers For Medicare And Medicaid Services 7500 Security Boulevard Baltimore, Maryland 21244 Department Of Health And Human Services 200 Independence Avenue SW Washington, DC 20201 Sylvia Burwell, in her official capacity as Secretary for The United States Department of Health and Human Services 200 Independence Avenue SW Washington, DC 20201 United States of America Joyce W. Vance, United States Attorney for the Northern District of Alabama 1801 4th Avenue North Birmingham, Alabama 35203 United States of America Eric H. Holder, Jr., Attorney General of the United States U.S. Department of Justice 950 Pennsylvania Avenue, NW Washington, DC 20530-0001 22337379 v6 14