The opinion of the court was delivered by: Spatt, District Judge.
MEMORANDUM OF DECISION AND ORDER
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
in support of the defendants' motion to dismiss the complaint and the
exhibits attached to the declaration: and the Medicare statute and
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
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.
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
C. Recoupment of the County Medical Overpayment Against County
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 ...