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September 11, 2002


The opinion of the court was delivered by: Spatt, District Judge.


On April 13, 2001, Jeffrey M. Roberts ("Jeffrey Roberts"), Daniel J. Roberts ("Daniel Roberts") (collectively, "the Roberts"), and County Ambulance Service, Inc. ("County Ambulance") (collectively, the "plaintiffs") commenced this action by filing a complaint alleging that Tommy G. Thompson, Secretary of the United States Department of Health and Human Services ("HHS" or a "defendant") and Empire Medicare Services ("Empire" or a "defendant") (collectively, the "defendants") improperly recalculated the amount of a Medicare overpayment to County Medical Supply & Ambulance Service, Inc. ("County Medical") following the decision of an Administrative Law Judge ("ALJ") regarding that overpayment. The plaintiffs ask this Court to issue a writ of mandamus directing the defendants to: (1) abide by the decisions of the Administrative Law Judge ("ALJ"); (2) adhere and follow their own rules and regulations; (3) return all Medicare funds improperly recouped "less the $4,920.46 as determined by the ALJ"; and (4) refund all Medicaid funds that were held by the New York State Department of Health ("DOH") at the defendants' request. Presently before the Court is a motion by the defendants to dismiss the complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure ("Fed.R.Civ.P.") on the ground that the Court lacks subject matter jurisdiction over the action.


At the outset, the Court notes that when deciding a motion to dismiss for lack of subject matter jurisdiction, it "must accept all material factual allegations in the complaint." Shipping Financial Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998). In addition, the Court may consider materials outside the pleadings, such as affidavits and testimony, to resolve disputed jurisdictional fact issues. See Robinson v. Government of Malaysia, 269 F.3d 133, 141-42 (2d Cir. 2001); Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). Accordingly, the following factual allegations are taken from the complaint and exhibits attached thereto; the Declaration of Jean Stone ("decl."), the Program Integrity Senior Specialist for the Centers for Medicare and Medicaid Services, submitted in support of the defendants' motion to dismiss the complaint and the exhibits attached to the declaration: and the Medicare statute and regulations.

A. The Statutory and Regulatory Framework

Medicare, the federal medical insurance program for the aged and disabled, is governed by Title XVIII of the Social Security Act (the "Act"), 42 U.S.C. § 1395-1395gg. The Centers for Medicare & Medicaid Services ("CMS"), formerly the Health Care Financial Administration ("HCFA"). see Fed. Reg. 35437 (July 5, 2001). is responsible for administering the Medicare Program. Part A of the Medicare Program ("Hospital Insurance Benefits") authorizes payment for primary institutional care, including hospitals, skilled nursing facilities, and home health care. See 42 U.S.C. § 1395c et seq. Part B of the Medicare Program ("Supplementary Medical Insurance") authorizes payment for various medical and other health services and supplies, including outpatient services. See 42 U.S.C. § 1395j, et seq. This case involves Part B of the Medicare Program because the services at issue are outpatient ambulance services provided to non-hospitalized beneficiaries.

HHS contracts with private insurance carriers to perform various functions necessary for the efficient administration of Part B of the Medicare Program. See 42 U.S.C. § 1395u. These functions include determining whether claimed services are medically necessary, calculating the amounts of any Part B payments due, and paying claims out of the Medicare Trust Funds. See 42 U.S.C. § 1395u(a)(1): 42 C.F.R. Part 405, Subpart E; 42 C.F.R. Part 414; 42 C.F.R. § 421.5, 421.200. Empire is the carrier responsible for processing and paying the Part B claims at issue in this case.

Due to the large number of Medicare claims submitted annually to carriers, "it is virtually impossible to examine each bill . . . in sufficient detail to assure before payment in every case that only medically necessary services have been provided." HCFA Ruling 86-1. Therefore, Section 1842(a) of the Social Security Act, 42 U.S.C. § 1395u(a), authorizes carriers to conduct post-payment audits of providers' records to ensure that proper payments have been made. If, following an audit, a carrier determines that an overpayment has been made, the carrier may offset or recoup Medicare payments from the provider. See 42 C.F.R. § 405.371 (a)(2). An "offset" is "[t]he recovery by Medicare of a non-Medicare debt by reducing present or future Medicare payments and applying the amount withheld to the indebtedness." 42 C.F.R. § 405.370. A "recoupment" is "[t]he recovery by Medicare of any outstanding Medicare debt by reducing present or future Medicare payments and applying the amount withheld to the indebtedness." 42 C.F.R. § 405.370.

B. The Overpayment Determination

County Medical, which is not a party to this action, was an ambulance company that operated in New York and was owned by Leonard Roberts and Ephraim Goldberg. County Medical was dissolved in 1991.

County Ambulance, which is a plaintiff in this case, is an ambulance company that operates in New York and is owned by Leonard Roberts and Ephraim Goldberg. Daniel Roberts and Jeffrey Roberts are the president and vice-president, respectively, of County Ambulance and effectively operate and manage the company. Following the dissolution of County Medical in 1991, County Ambulance billed Medicare using County Medical's provider number for services rendered by County Ambulance. Neither County Medical nor County Ambulance informed Empire or CMS that County Medical had dissolved and that County Ambulance was using County Medical's provider number.

In a letter dated August 7, 1995, Empire notified County Medical that it had performed an audit of the County Medical claims that were processed between October 1, 1991, and December 30, 1994. Empire advised County Medical that it had identified a tentative overpayment in the amount of $2,622,516. Empire stated that the purpose of the audit was to determine the medical necessity of the ambulance services billed and to commence recovery actions on payments it determined were inappropriate.

Empire said that it had used specific scientific sampling techniques, commonly referred to as stratified variable random sampling, to determine the overpayment and explained how those techniques were applied to County Medical's claims. Empire stated that it had stratified the universe of finalized claims processed between October 1, 1991 and December 30, 1994 into four strata, one for each year of the processed claims reviewed. Out of the universe of 16,293 paid claims, for which Medicare had paid the sum of $3,354,624.33, Empire selected a statistically valid stratified random sample of 377 claims for review, which were also stratified according to the year the claims were processed. These 377 claims contained 820 paid services.

Empire requested the Pre-Hospital Care Reports ("PCRs") for each of the 377 claims in the sample and reviewed the PCRs to determine if the services reported in them were covered, medically necessary, and payable. Empire concluded that of the 377 claims containing 820 paid services, 77.7% of the sampled services, or 637 services, lacked "medical necessity". Empire also found that 4.6% of the sampled services, or 38 services, did not have the PCRs needed to determine whether the services rendered were medically necessary. Empire therefore disallowed these services on the basis that they lacked the proper documentation. Empire determined that only 17.7% of the services within the sample of claims, or 145 services were allowable.

Empire informed County Medical that the company could submit documentation it thought might affect Empire's final determination of an overpayment. County Medical submitted additional paperwork, and in a letter dated April 3, 1996, Empire informed County Medical that it had revised the original overpayment amount to the sum of $2,049,506. Empire informed County Medical that the company could submit additional comments that it believed should be taken into consideration and that might affect Empire's final overpayment determination.

In a letter dated April 30, 1996, Jeffrey M. Roberts requested a carrier fair hearing regarding the overpayment. Responding in a letter dated July 9, 1996, Empire provided County Medical with its final determination that County Medical had received an overpayment in the sum of $1,882,170. Empire stated that this determination was based on a stratified variable random sampling technique, explained the technique, and attached documents and spreadsheets that demonstrated how the technique was applied to each of the 377 claims. Empire advised County Medical that if full payment was not received within 30 days, the amount due to Empire would be offset against future benefits due County Medical under the Medicare Program. Empire informed County Medical that if the company believed that an offset should not be put into effect, the company should notify Empire within 15 days.

Empire also acknowledged Jeffrey Roberts' April 30, 1996 letter and stated that "this constitutes a formal request for a fair hearing and your file has been forwarded to our Fair Hearing Department for handling."

C. Recoupment of the County Medical Overpayment Against County Ambulance

While the parties pursued their administrative remedies regarding the final overpayment determination, CMS attempted to recoup the overpayment from County Medical. In connection with its recoupment efforts, CMS began an investigation into County Medical in January 1997. During this investigation, CMS discovered that County Medical had dissolved in ...

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