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Anghel v. Sebelius

United States District Court, E.D. New York

December 13, 2012

Marcia-Lucia ANGHEL, M.D., Plaintiff,
Kathleen SEBELIUS, in her capacity as Secretary of Health and Human Services, Defendant.

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The Burney Law Firm, LLC, by: Nathaniel E. Burney, Esq., of Counsel, New York, NY, for the Plaintiff.

Loretta E. Lynch, United States Attorney, Eastern District of New York, by: Robert W. Schumacher, II, Assistant United States Attorney, Central Islip, NY, for the Defendant.


SPATT, District Judge.

The Plaintiff Maria-Lucia Anghel M.D. (" the Plaintiff" or " Dr. Anghel" ), is a board-certified physician in anesthesiology and pain management and a Medicare supplier. The Plaintiff commenced this action for review of a final decision by the Medicare Appeals Council (" MAC" ), which upheld the ruling of United States Administrative Law Judge (" ALJ" ) Jimmy R. Barkalow. (ALJ Appeal No. 1-422212900; MAC Docket No. M-10-110.) The Plaintiff's complaint alleges that she was incorrectly found to have received overpayment from Medicare for the calendar year of 2004 because: (1) the Medicare Contractor's overpayment calculations were improper and not supported by substantial evidence; (2) the ALJ abused his discretion and violated her due process rights by making an evidentiary ruling excluding Dr. Anghel's evidence without notice; and (3) Dr. Anghel exercised reasonable care and was without fault.

Presently before the Court are cross-motions for judgment on the pleadings, pursuant to Federal Rule of Civil Procedure 12(c) (" Fed.R.Civ.P. 12(c)" or " Rule 12(c)" ). This Court has jurisdiction pursuant to 42 U.S.C. § 405(g) to review the Secretary's final decision. For the reasons set forth below, the Plaintiff's motion for judgment on the pleadings is denied and the Defendant's cross-motion for judgment on the pleadings is granted.


The following facts are derived from the extensive administrative record preceding this appeal, the pleadings, and the parties' submissions on the motions.

A. Factual Background

Dr. Anghel is a board-certified physician in anesthesiology and pain management, and operates the Interventional Pain Management Center in East Meadow, New York. (Plaintiff's Memorandum of Law (" Pl's Memorandum" ) at 3, ¶¶ 1-3.) Since 1989, Dr. Anghel built her practice serving mostly elderly Medicare patients with chronic conditions. In 2004, Dr. Anghel

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added physical therapy services to her practice, which were performed by other specialists. Dr. Anghel has been a resident of Oceanside, New York, and at all relevant times conducted business in East Meadow, New York. (Complaint at 1, ¶ 4.)

Beginning in late 2004, private Medicare carriers determined that Dr. Anghel received overpayment from Medicare for the 2004 calendar year. That finding was properly challenged administratively, and ended with a decision issued by the MAC, which represents a final decision by the Secretary of the United States Department of Health and Human Services, Kathleen Sebelius (" the Defendant" or " the Secretary" ). This is the determination for which the Plaintiff now seeks judicial review.

B. The Statutory and Regulatory Framework

Before the Court proceeds to review the particular circumstances involved in this appeal, it is necessary to explore the relevant statutory and regulatory framework.

1. Medicare Statutory Background

Medicare, the federal medical insurance program for the aged and disabled, is governed by Title XVIII of the Social Security Act (the " Act" ), codified at 42 U.S.C. §§ 1395-1395gg. The Centers for Medicare & Medicaid Services (" CMS" ) of the United States Department of Health and Human Services (" HHS" ) is responsible for administering the Medicare Program. Medicare consists of four basic parts, Parts A through D. Part A of the Medicare Program (" Part A" ) 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 (" Part B" ) 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 services provided to non-hospitalized beneficiaries.

The Secretary of HHS, presently Sebelius, contracts with private insurance companies (" 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.

2. Overpayment Determinations and the Medicare Appeals Process

The Medicare statute provides that the Secretary may not provide reimbursement for " items or services ... not reasonable and necessary for the diagnosis or treatment of illness or injury." State of N.Y. on Behalf of Bodnar v. Sec'y of Health & Human Servs., 903 F.2d 122, 124 (2d Cir.1990); 42 U.S.C. § 1395y(a)(1)(A) (Supp. V 1987). The Secretary may take into account " not only what kind of services were provided, but also where those services were provided" in determining whether services rendered are " not reasonable and necessary." Id. at 125.

However, 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.

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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. Medicare carriers are considered " indispensable components of the governmental program and are in a unique position to combat the drain on public resources caused by fraudulent claims." Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 73 (2d Cir.1998) (citing United States v. Erika, Inc., 456 U.S. 201, 203, 208 n. 11, 102 S.Ct. 1650, 72 L.Ed.2d 12 (1982) (discussing efficiency of private insurance companies paying Medicare claims given the volume of such claims)). See Group Health Inc. v. Blue Cross Assn., 739 F.Supp. 921, 933 (S.D.N.Y.1990) (" HHS and the Secretary rely heavily on the participation of fiscal intermediaries, who possess accounting and health care expertise, in order to efficiently administer the [Medicare] program." ). The Secretary has developed guidance to Carriers in conducting statistical sampling for use in estimating overpayments, contained in the Medicare Program Integrity Manual (" MPIM" ).

In conducting a post-payment audit, the Carriers may first request a probe sample of billings from a physician, in order to determine whether there is a likelihood of overpayment by Medicare. In the present action, the initial probe sample was conducted by National Government Services (" NGS" ).

Following a probe sample, a Carrier may then request a statistically valid random sample (" SVRS" ) from the physician. The SVRS is then extrapolated to the physician's total billing, in order to provide a reasonable approximation of the total overpayment when the quantity of billing is overly abundant. 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. In this case, after NGS conducted the probe review and possible overpayment by Medicare was determined, the case was subsequently referred to PSC Medicare Eastern Benefit Integrity Support Center (" Eastern Benefit" ) which conducted the further investigation and the SVRS.

After a determination of overpayment by a Carrier, a physician, such as Dr. Anghel, is entitled to an administrative appeal process. 42 U.S.C.A. § 1395ff. First, if dissatisfied with the initial overpayment determination, a physician may request a redetermination by the Carrier. Second, if the physician is again dissatisfied following the Carrier's redetermination, they may then request an additional reconsideration by a qualified independent contractor (" QIC" ). In this case the QIC was First Coast Services (" First Coast Services" ). (ALJ Appeal No. 1-422212900; Transcript (" Tr." ) at 298, ¶ 3.)

Third, if dissatisfied with the decision of the QIC, a physician may request a hearing before an ALJ. Fourth, the ALJ's decision is subject to review by the MAC of the Departmental Appeals Board (" DAB" ), which represents the final decision by the Secretary of HHS. Finally, after pursuing all the aforementioned administrative hurdles, as in the present case, the MAC's decision is subject to judicial review, pursuant to 42 U.S.C. § 405(g).

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3. Medicare Coverage at Issue

Next, the Court will specifically explore the disputed coverage that forms the core of the present appeal. The services largely at issue are physical therapy services, which are governed by 42 U.S.C. § 1395x(p), 42 C.F.R. 410.59-.60, Chapter 15 of the Medicare Benefit Policy Manual (" MBPM" ) entitled " Covered Medical and Other Health Services" . Therapy services are a covered benefit in §§ 1861(g), 1861(p), and 1861( ll ) of the Act. However, in order for a service to be covered, it must have a benefit category in the statute, it must not be excluded, and it must be reasonable and necessary. Of importance, the services must relate directly and specifically to a written treatment plan that is established, either orally or written, before treatment is begun. Under the federal regulations, the plan must contain, at minimum, the following information: diagnoses; long term treatment goals; and the type, amount, duration and frequency of therapy services. See 42 C.F.R. §§ 424.24 and 410.61.

C. Administrative and Procedural History

In accordance with the administrative procedure defined above, and required for a proper appeal of a determination of overpayment by a Carrier, the Court will now address the administrative and procedural background with respect to Dr. Anghel's present suit.

1. Probe Sample: Initial Overpayment Determination

In late 2004, Dr. Anghel was contacted by a Medicare Contractor, National Government Services (" NGS" ), who determined that there might be an " aberrant pattern" in the Plaintiff's billing practice. (Def's Memorandum of Law in Support of Cross-Motion (" Def's Memorandum" ) at 6, ¶ 1; Pl's Memorandum at 4, ¶ 2.) The Contractor requested records pertaining to a sample of 40 claims for services that had been provided to six patients during February and March 2004. The Plaintiff asserts that she telephoned NGS to inform them that they had " applied the wrong standard" and erroneously compared her practice's billings with the expected billings of an internal medicine practice instead of an interventional medicine practice, and thus the " aberrant pattern" had a legitimate explanation. (Pl's Memorandum at 4, ¶ 2.) Nevertheless, NGS conducted a probe review, or sample of potential problem claims (" Probe Sample" ), to validate the hypothesized potential overpayment. (Def. Memorandum at 6, ¶ 1.) The Probe Sample reviewed approximately 285 records relating to physical therapy for the time period between February 1, 2004 and March 31, 2004, and denied 151 services as " not medically necessary." (Tr. 664-65; Pl's Memorandum at 4, ¶ 2; 5, ¶ 5.) The Probe Sample found the overpayment to be $5,805.96. (Def's Memorandum at 6, ¶ 2.)

In the present appeal, the Plaintiff raises several issues with regard to this initial probe sample. First, she alleges that there is no evidence that the Contractor documented its reasons for selecting Dr. Anghel's services for a probe review. Second, she claims that the services contained in the probe sample were coded correctly, and thus should have been found to be covered by Medicare. Third, she argues that the 151 denied services were incorrectly assessed, because the Contractor compared the claims in the probe sample with those of providers in a different specialty— namely, an internal medicine practice instead of an interventional medicine practice.

2. Statistically Valid Random Sample and Extrapolation

Following the Probe Sample, NGS referred the case to another Medicare Contractor,

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PSC Medicare Eastern Benefit Integrity Support Center (" Eastern Benefit" ), who requested a larger sample of services from Dr. Anghel's practice in 2004 to perform a " statistically valid random sample" (" SVRS" ). (Tr. at 1389-93; Pl's Memorandum at 5, ¶ 7.) The SVRS consisted of 466 services lines and 853 total services for 37 patients during the calendar year of 2004. (Def's Memorandum at 27, ¶ 1, Table; Pl's Memorandum at 6, ¶ 1.) As stated above, the SVRS is utilized when a claim-by-claim review of all the services is not possible. (Tr. at 624.)

After extrapolating from this SVRS, Eastern Benefit determined the overpayment for the year 2004 to be $298,069.94, and ultimately demanded the reduced figure of $288,504.69. (Tr. at 655; Pl's Memorandum at 7, ¶ 5.) In addition to reviewing the designated services in the SVRS, Eastern Benefit reviewed Dr. Anghel's other ancillary services on the claims (" Ancillary Services" ) which included codes: 97001, 97035, 99213, 99243, G001, J1040, and J2400. (Tr. at 654.) Eastern Benefit determined the overpayment for these Ancillary Services to be $670.36. Id. On December 21, 2007, Dr. Anghel was notified of this determination, and a formal demand for repayment was issued by NGS on January 8, 2008. (Def's Memorandum at 11, ¶ 4; Pl's Memorandum at 8, ¶¶ 1-2.)

Because one of Dr. Anghel's primary contentions relies on the validity of the SVRS analysis and extrapolation in determining overpayment, the Court finds it significant to provide a brief overview of the analysis applied in the SVRS. ( See Tr. at 652.) In conducting the SVRS, Eastern Benefit applied the methodology contained in CMS's guidelines to perform the statistical sampling. (Def's Memorandum at 6, ¶ 3.) Key steps include defining the universe under review; selecting the sample; determining the designated overpayment in the sample; and estimating the overpayment in the universe. (Tr. at 652.)

A universe is a set of claims that meet certain criteria. Eastern Benefit obtained the SVRS universe from a Provider Utilization Report obtained through the affiliated Contractor, Empire Medicare Services, to define the particular parameters for services in 2004. (Tr. at 624.) After defining the universe, the next step involved creating a sampling frame, or listing, of the claim numbers in the universe. By applying the relevant parameters, Eastern Benefit determined that there were 1,042 claims that comprised the sampling frame for the SVRS, which included 12,494 allowed services. (Tr. at 653.) Once the sample frame was determined, a group of claims was randomly selected from the universe. In other words, it was from the universe of 1,402 claims from which the SVRS sample was chosen. In this case, 95 claims from the sample frame were utilized as the SVRS sample, which included 853 services. The size of the sample was calculated based upon the number of claims in the universe and a 90% confidence level.

Once this randomized sample was generated, Eastern Benefit reviewed the medical records and supporting documentation of the 95 claims, and determined the appropriateness and overpayment of claims to be $20,192.16. (Tr. at 653.) Based on the sample findings, Eastern Benefit estimated the total overpayment in the universe through extrapolation. Ultimately, the review calculated a total overpayment of $298,069.94 in the universe of 1,042 claims, which stemmed from the sample of 95 randomly selected claims. (Tr. at 655.)

In the present appeal, the Plaintiff raises several issues with this statistical analysis. First, she once again argues that the ...

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