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International Rehabilitative Sciences Inc. v. Burwell

United States District Court, W.D. Washington, Tacoma

February 13, 2015

INTERNATIONAL REHABILITATIVE SCIENCES INC, a Washington corporation, d/b/a RS Medical, Plaintiff,
v.
SYLVIA M. BURWELL, in her official capacity as Secretary, United States Department of Health and Human Services, Defendant.

MEMORANDUM OPINION AND ORDER

BARBARA J. ROTHSTEIN, District Judge.

I. INTRODUCTION

Before the Court is the motion for summary judgment filed by Plaintiff International Rehabilitative Sciences Inc. (hereinafter RS Medical) and the motion for partial summary judgment filed by Defendant Sylvia M. Burwell, in her official capacity as Secretary of the United States Department of Health and Human Services (the Secretary). Upon consideration of the parties' arguments, the relevant case law, and the entire record, the Court grants Defendant's Partial Motion for Summary Judgment[1] [139] and denies Plaintiff's Motion for Summary Judgment [140].

II. PROCEDURAL BACKGROUND

Plaintiff, RS Medical, filed the instant case on July 14, 2008, challenging four decisions by the Medicare Appeals Council (hereinafter MAC) denying coverage by Medicare of the BIO-1000 device. On July 28, 2009, the United States District Court for the Western District of Washington entered summary judgment for Plaintiff and against the Secretary, concluding that the Secretary's final denials of coverage were arbitrary and capricious and not supported by substantial evidence. Int'l Rehab. Scis, Inc. v. Sebelius, 737 F.Supp.2d 1281, 1287-93 (W.D. Wash. 2010). Given its ruling, the District Court did not reach the issues raised by Plaintiff in the instant motion as to whether Plaintiff could shift its liability, specifically, whether Plaintiff knew or had a reason to know that the BIO-1000 would not be covered by Medicare, and whether Plaintiff gave adequate notice to the beneficiaries that the BIO-1000 would probably not be covered by Medicare. Id. See 42 U.S.C. § 1395pp; 42 C.F.R. § 411.400(a) (limited liability statutes).

On appeal, the Ninth Circuit reversed the District Court's grant of summary judgment for Plaintiff. The Ninth Circuit concluded that the Secretary's coverage denials for the BIO-1000 were supported by substantial evidence and were not arbitrary and capricious. Int'l Rehab. Scis, Inc. v. Sebelius, 688 F.3d 994, 999-1004 (9th Cir. 2012). The Ninth Circuit remanded the limitation on liability issues. Id. at 1004.

In 2010, the limitation on liability issues were raised by the manufacturer of the BIO-1000, [2] BioniCare, in a similar case brought before the United States District Court for the District of Maryland. Almy v. Sebelius, 749 F.Supp.2d 315, 319 (D. Md. 2010). In Almy, the District Court concluded that "Plaintiff could not receive shelter from liability under 42 U.S.C. § 1395pp" because Plaintiff was on notice that the claims would be denied due to the prior negative decisions by Medicare contractors, [3] and because Plaintiff provided notices to the beneficiaries that the device probably would not be covered by Medicare. Almy, 749 F.Supp.2d at 335. In addition, the Almy Court upheld the Secretary's decision that Plaintiff provided "generic advance notices" to the beneficiaries, which did not enable the beneficiaries to make an educated decision whether to accept or reject the device, and, therefore, Plaintiff could not shift the liability of non-coverage to the beneficiaries. Id. at 334-35. The Fourth Circuit affirmed. Almy v. Sebelius, 679 F.3d 297 (4th Cir. 2012).

Presently before the Court are two questions: 1) whether Plaintiff knew or had a reason to know that the BIO-1000 would not be covered by Medicare; and 2) whether Plaintiff provided the beneficiaries with adequate notice that the BIO-1000 would not be covered by Medicare, and, therefore, shifted the liability to the beneficiaries.

III. FACTUAL BACKGROUND

RS Medical, a supplier of durable medical equipment under the Medicare program, distributes the BIO-1000, a device that delivers electronic impulses to the knee joint and is used by individuals with osteoarthritis of the knee. (AR 19, 017-18; 20, 515). In July 1997, the original manufacturer of the BIO-1000, Murray Electronics, sought clearance from the Food and Drug Administration (FDA) to market the device based on its substantial equivalence to a transcutaneous electric nerve stimulator (TENS) device, and the FDA cleared the BIO-1000 on this basis. (AR 20, 513-15). BioniCare Technologies, Inc. (BioniCare) eventually took over manufacture of the BIO-1000, obtained similar clearance from the FDA, and began submitting claims for coverage to Medicare contractors. (AR 20, 499-506).

In 2004, BioniCare submitted about 1200 claims to Medicare and commercial contractors, almost all of which were denied. (AR 19, 135). In 2005, BioniCare submitted 1700 claims, most of which were also denied. (AR 19, 137).

In February 2005, Plaintiff RS Medical contracted with BioniCare to sell the device. (AR 19, 138). BioniCare advised RS Medical of the difficulties that BioniCare had with Medicare and that Medicare was not paying claims for the BIO-1000. (AR 19137-38). RS Medical began submitting reimbursement claims to Medicare in July, 2005. (AR 20903). RS Medical billed Medicare $4, 425 for a single-knee device and $5, 100 for a dual-knee device. (AR 19, 133-34). During the same period, the TENS device, which was comparable to the BIO-1000, cost $800. Int'l Rehab., 688 F.3d at 998. In 2005, Plaintiff received denials of coverage on the basis that "[t]he currently published studies in the medical literature do not clearly document the effectiveness of the BIO-1000 in healing osteoarthritis of the knee." (Def.'s M. for Partial Summ. J. at 12). In April 2006, in order to obtain coverage of the device, Plaintiff submitted a letter to the Center for Medicare and Medicaid Services from Senators Arlen Specter and Rick Santorum, which stated that "only one Medicare claim [had been] paid since introduction of the product in 2003." (AR 20, 902). A similar letter was submitted in December 2005 from Senator Patty Murray and three other Senators, stating that "many commercial insurers and workers' compensation systems are paying for the device, but that CMS is not." (AR 20, 899). In 2006, many claims for coverage of the BIO-1000 were granted coverage "at [the] lower levels of the process, " without reaching the MAC. Int'l Rehab., 688 F.3d at 998. When the claims at issue finally reached the MAC through the administrative appeal process, all of them were denied. (AR 89-91, 97, 100, 102, 106-10, 114-15, 117, 119-20, 123; AR 19, 239; AR 19, 986).

In the four decisions of the MAC at issue in this case, the MAC concluded that there was not enough evidence to establish that "the BIO-1000 was reasonable and necessary' for treatment." Int'l Rehab., 688 F.3d at 998; (AR 48-126; AR 19, 228-239; AR 20, 008-028). RS Medical had provided evidence that the device was reasonable and necessary in the form of studies conducted by the manufacturer of the BIO-1000, BioniCare, showing that the device was effective at alleviating pain. Int'l Rehab., 688 F.3d at 998 (AR 19, 235). RS Medical also had provided evidence in the form of studies showing that the BIO-1000 "was effective at regenerating cartilage in rabbits and cows." Int'l Rehab., 688 F.3d at 998-99; (AR 38-39). The MAC rejected both types of evidence, finding that the studies that purported to demonstrate pain alleviation were conducted by the party with a financial interest in the device, and that the studies that purported to show the regeneration of cartilage were not conducted on humans. Int'l Rehab., 688 F.3d at 998-99; (AR 13-14, 38-39).

If at any level of review it is found that the device is not reasonable and necessary, the Secretary will nevertheless pay the claim if the supplier did not know and had no reason to know that the item would not be covered by Medicare. 42 U.S.C. § 1395pp. 42 C.F.R. §411.400(a) provides that Medicare will pay for the device that was found not reasonable and necessary if "[n]either the beneficiary nor the provider, practitioner, or supplier knew, or could reasonably have been expected to know, that the services were excluded from coverage." The MAC refused to limit RS Medical's liability of the denied claims because it concluded that "RS Medical knew or had reason to know that Medicare would not cover the device' because its efficacy had not been established in the requisite peer-reviewed literature' and because the record does not indicate general acceptance of the device by the medical community.'" Id. at 999.

Finally, the MAC refused to allocate the financial risk to the beneficiaries in most of the claims at issue in this case because it concluded that "most of the advance beneficiary notices provided by RS Medical were generic and thus insufficient to shift ...


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