AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF by sparkunder20

VIEWS: 19 PAGES: 33

									                             IN THE UNITED STATES DISTRICT COURT
                              FOR THE NORTHERN DISTRICT OF OHIO
                                       EASTERN DIVISION

Premier Medical Supplies, Inc, Medic Home           )    CASE NO. 1:07-CV-3809
Health Care LLC, Cornerstone Medical                )
Services Midwest LLC, Carested, Inc., Kit           )    JUDGE PATRICIA A. GAUGHAN
Shinkle, and Laszlo Nagy,                           )
                                                    )
                                                    )    AMENDED COMPLAINT FOR
                                Plaintiffs,         )    INJUNCTIVE AND DECLARATORY
                                                    )    RELIEF
     v.                                             )
                                                    )
Michael O. Leavitt, Secretary of the                )
Department of Health and Human Services,            )
in his official capacity,                           )
                                                    )
     and                                            )
                                                    )
Kerry Weems, Acting Administrator of the            )
Centers for Medicare and Medicaid                   )
Services, in his official capacity,                 )
                                                    )
                                Defendants.         )
                                                    )

           Now come the Plaintiffs, by and through counsel, and for the Amended Complaint in this

matter, state as follows:

I.         APPLICABLE STATUTES, JURISDICTION AND VENUE

                        1.     This Honorable Court has jurisdiction of this cause pursuant to 28

                 U.S.C. § 1331 (Federal Question), as this action involves a determination of rights

                 and remedies of the Plaintiffs under the equal protection and due process clauses of

                 the United States Constitution. Further, this Court has jurisdiction pursuant to the

                 Regulatory Flexibility Act, 5 U.S.C. § 601 et seq. (“the RFA”), and Sections

                 302(b)(6)(D) and 902 of the Medicare Modernization Act, codified at 42 U.S.C. §

                 1395(hh)(a), and under the Administrative Procedures Act, 5 U.S.C. §§ 701-706 (“the


{00624670 - 1}
        APA”), as this cause involves issues of agency compliance with the requirements of

        these statutes. Jurisdiction is also proper under 28 U.S.C. §§ 1343, 1346 (United

        States as Defendant), 1361 (Mandamus), 1367, 2201 (Injunctive Relief), 2202

        (Declaratory Relief), and 42 U.S.C. §§ 1983 and 1988. Finally, this cause is asserted

        against agents of the United States government acting in their official capacity, as

        Defendants.

                2.     Pursuant to 28 U.S.C. § 1391(b), (e), venue is proper in this judicial

        district where a substantial part of the events of omissions giving rise to the suit have

        occurred and will continue to occur. Further, the Plaintiffs reside or do business in

        this judicial district. To the extent that 42 U.S.C. § 405(h) applies as a jurisdictional

        bar to any claim, the Illinois Council exception applies because there is no review at

        all through the agency. (See Shalala v. Ill. Council on Long Term Care, Inc., 529

        U.S. 1, 19 (2000); American Lithotripsy Society v. Thompson, 215 F.Supp. 2d 23, 29

        (D.D.C. 2002)).

II.   PARTIES

                3.     Plaintiffs incorporate and restate each and every allegation set forth

        above as if the same were fully rewritten.

                4.     Plaintiff Premier Medical Supplies, Inc., (“Premier”) is an Ohio

        corporation that is licensed in Ohio as a Home Medical Equipment facility and is

        enrolled as a Medicare durable medical equipment and supply company. Plaintiff

        Premier is a “small supplier” as defined in the Final Competitive Bidding Rule

        promulgated by the Centers for Medicare and Medicaid Services. Plaintiff Premier




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did not submit a bid to furnish certain durable medical equipment, prosthetics,

orthotics and supplies (“DMEPOS”) pursuant to the Final Competitive Bidding Rule.

       5.     Plaintiff Medic Home Health Care LLC (“Medic”) is an Ohio limited

liability company that is licensed in Ohio as a Home Medical Equipment facility and

is enrolled as a Medicare durable medical equipment and supply company. Plaintiff

Medic is a “small supplier” as defined in the Final Competitive Bidding Rule

promulgated by the Centers for Medicare and Medicaid Services. Plaintiff Medic

submitted a bid to furnish certain DMEPOS products pursuant to the Final

Competitive Bidding Rule and was informed that its bid was disqualified and non-

winning on or after March 21, 2008.

       6.     Plaintiff Cornerstone Medical Services Midwest LLC (“Cornerstone”)

is an Ohio limited liability company that is licensed in Ohio as a Home Medical

Equipment facility and is enrolled as a Medicare durable medical equipment and

supply company. Plaintiff Cornerstone submitted a bid to furnish certain DMEPOS

products pursuant to the Final Competitive Bidding Rule and its bid was disqualified

and non-winning on or after March 21, 2008.

       7.     Plaintiff Carested, Inc., (“Carested”) is an Ohio corporation that is

licensed in Ohio as a Home Medical Equipment facility and is enrolled as a Medicare

durable medical equipment and supply company.        Plaintiff Carested is a “small

supplier” as defined in the Final Competitive Bidding Rule promulgated by the

Centers for Medicare and Medicaid Services. Plaintiff Carested submitted a bid to

furnish certain DMEPOS products pursuant to the Final Competitive Bidding Rule

and its bid was disqualified and non-winning on or after March 21, 2008.



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                 8.      Plaintiff Laszlo Nagy resides in Cuyahoga County, Ohio, and is a

         Medicare beneficiary.      Plaintiff Nagy is a regular recipient of durable medical

         equipment and attendant services from a Medicare durable medical equipment and

         supply company.

                 9.      Plaintiff Kit F. Shinkle resides in Cuyahoga County, Ohio, and is a

         Medicare beneficiary. Plaintiff Shinkle is a regular recipient of durable medical

         equipment and attendant services from a Medicare durable medical equipment and

         supply company.

                 10.     Defendant, Michael O. Leavitt is Secretary of the United States

         Department of Health and Human Services (“HHS”) and is sued in his official

         capacity (“the Secretary”).

                 11.     Defendant, Kerry Weems, is the Acting Administrator of the Centers

         for Medicare and Medicaid Services (“CMS”), the HHS agency which administers

         the program for health insurance for the aged created under Title XVII of the Social

         Security Act, 42 U.S.C. § 1395-1395ggg (“the Medicare program”) and is sued in his

         official capacity.

III.   BACKGROUND FACTS

                 12.     Plaintiffs incorporate and restate each and every allegation set forth

         above as if the same were fully rewritten.

                 13.     The Durable Medical Equipment and Supplies (“DME”) industry and

         Medicare payment policy are intertwined, as one-half of the average DME supplier’s

         revenue comes from Medicare. 71 Fed. Reg. 25695.




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         14.        DME suppliers provide patients with supplies and medical equipment

such as:

               a.      oxygen supplies and equipment;

               b.      hospital beds and related accessories;

               c.      walkers, standard and complex power wheelchairs, scooters, and
                       related accessories;

               d.      enteral nutrients, equipment and supplies;

               e.      diabetic testing supplies;

               f.      continuous positive airway pressure (CPAP) devices, respiratory
                       assist devices; and

               g.      negative pressure wound therapy pumps and related supplies.

         15.        Elderly Americans comprise approximately 85% of Medicare

beneficiaries and, accordingly, are much more likely to require such durable medical

equipment and supplies.

         16.        Currently, DME suppliers consist of large and small entities which

compete with each other, although 90 percent of suppliers are small suppliers. 71

Fed. Reg. 25695 (May 1, 2006). HHS recognizes the size differential existing among

the DME suppliers that compose the DME industry. 64 Fed. Reg. 36369 (July 6,

1999).

         17.        According to the Centers for Medicare and Medicaid Services (CMS),

there were 287,511 Medicare beneficiaries in the Cleveland MSA served by 325

suppliers in 2005, or 884 beneficiaries per supplier on average.

         18.        Section 302 of the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003 (“MMA”) directs the Secretary to implement in 10

metropolitan markets a Medicare competitive bidding scheme in 2007 which would

apply to certain durable medical equipment and supplies covered by Medicare.

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       19.     The government is initially implementing the competitive bidding

program in ten (10) large      metropolitan statistical area (MSAs), including the

Cleveland-Elyria-Mentor, Ohio MSA. Suppliers desiring to furnish certain DMEPOS

to Medicare beneficiaries in the Cleveland area were required to register to bid by

August 27, 2007 and to submit a bid to CMS by September 25, 2007.

       20.     The competitive bidding program will fundamentally change the way

that CMS pays for DMEPOS under the Medicare program by utilizing bids submitted

by DME suppliers to establish Medicare payment amounts.

       21.     The winning bidders in the competitive acquisition scheme are those

bidders selected by the government who are: a) the lowest bidders and b) who can

provide and service DME items and services throughout an entire metropolitan

statistical area in which the bidder has submitted a bid. With respect to the winning

bidders, the government will determine the winning bid and set that figure as the

price which may legally be charged to Medicare beneficiaries for the item.

       22.     Industry and governmental estimates are that up to one-half of DME

suppliers will not be winning bidders. Indeed, according to data released by CMS,

out of the three hundred twenty-five (325) suppliers believed to be currently serving

the Cleveland MSA, only one hundred twelve (112) contracts have been offered to

suppliers in Round One of the Competitive Bidding Program. (See Exhibit A).

       23.     DME suppliers who are not winning bidders will be excluded from

furnishing bid items to Medicare beneficiaries unless a limited grandfathering

provision applies.




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               24.      The threat of harm to Medicare beneficiaries and DME suppliers is

        imminent and an actual and justiciable controversy exists, as the CMS has already

        notified suppliers of the status of their bids; is scheduled to announce the winning

        suppliers for the first round of bidding sometime in May, 2008; and will fully

        implement the program sometime in July, 2008.

IV.   FLAWED NOTIFICATION OF CONTRACT STATUS AND IMPROPER
      PRECLUSION OF MEANINGFUL REVIEW.

               25.      Plaintiffs incorporate and restate each and every paragraph above as if

        the same were fully rewritten.

               26.      On March 21, 2008, CMS notified all round one bidders of their

        contract status, which CMS delineated into three categories:             successful bids,

        unsuccessful but qualified bids, and non-winning bids.

               27.      Providers with successful bids were required to notify CMS by April

        3, 2008, of the acceptance of the bid.

               28.      According to CMS, 1,005 unique entities submitted bids in Round One

        of the bidding program.       Of those 1,005 unique entities, 630 had their bids

        disqualified.   Disqualification was based on alleged deficiencies with the bid

        submission, such as failing to enclose required financial information.

               29.      The bids submitted by Plaintiffs Carested, Medic and Cornerstone

        were all disqualified for an alleged failure to include financial information or to

        otherwise not comply with bid submission requirements. Specifically, Carested was

        disqualified for not including a balance sheet, despite the fact that Carested in fact did

        include the item in its bid submission.        Medic was first informed that it was

        disqualified for failing to submit any financials documents, which is not the case, and


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then informed that it was disqualified because it did not submit its credit score, which

is also untrue. Similarly, Cornerstone was disqualified for allegedly not furnishing

the appropriate tax documentation, although it did in fact do so.

       30.     Thus, Plaintiffs Medic, Cornerstone and Carested have been

wrongfully disqualified based on inaccurate information and/or wrongfully claimed

technical violations of the bid submission requirements.

       31.     Plaintiffs Medic, Cornerstone and Carested have participated in the

alleged review process for disqualified bids provided by CMS through its

Competitive Bidding Implementation Contractor (“CBIC”); however, to date, CBIC

has not reversed the disqualification of Plaintiff Medic, Cornerstone, or Carested.

       32.     There is no mechanism offered by CMS or its agent CBIC to challenge

the decision of CBIC. Therefore, Plaintiffs Medic, Cornerstone and Carested are

afforded no meaningful right to challenge or review any disqualification decisions by

CMS and/or its agent CBIC.

       33.     This lack of meaningful review or mechanism to challenge

disqualification decisions substantially impairs Plaintiffs Medic, Cornerstone and

Carested’s ability to ensure they were given fair and accurate consideration in the

bidding process.

       34.     In addition, the harm that Plaintiffs Medic, Cornerstone and Carested

will suffer because of their wrongful disqualification is severe. Because their bids

were disqualified, Plaintiffs are prevented from receiving Medicare reimbursement

for the supply of DMEPOS in the Cleveland MSA.




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       35.     The result is that Plaintiffs will suffer a significant loss of clientele and

revenue due to their inability to provide DMEPOS to Medicare beneficiaries.

       36.     Indeed, Plaintiff Carested, a durable medical equipment supply

company for over 27 years, will be wholly prevented from providing products to its

Medicare beneficiary clients, which constitutes 90% of Carested’s clients. Plaintiff

Carested will suffer irreparable injury if it is forced to lose 90% of its clientele based

upon being a non-contract supplier of DMEPOS under the Medicare Competitive

Bidding Program.

       37.     Similarly, Plaintiff Medic will lose approximately 30% of its client

base because of its inability to participate in the Medicare program for DMEPOS.

Plaintiff Medic also is poised to lose significant revenue from its non-Medicare

business because one of its biggest clients—a hospital—has expressed that it will no

longer order from Medic since it cannot provide supplies to both Medicare and non-

Medicare patients. This will result in the loss of 150 to 200 orders a week for Medic

and be in addition to the loss of its Medicare business.

       38.     Plaintiff Cornerstone also stands to lose a significant amount of

revenue if it is excluded from participation in the Medicare DMEPOS program. In

Cleveland alone, it will lose approximately 70% of its overall revenue. In Cincinnati,

where Cornerstone also submitted a bid to supply DMEPOS, it will stand to lose

approximately 50% of its revenue. In total, Cornerstone is at risk of losing $2 million

dollars annually if it is excluded from participation in the Medicare DMEPOS

program.




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               39.    Plaintiff Premier has already been damaged by Defendants because it

       has been prevented from participation in the Competitive Bidding Program due to the

       Program’s onerous submission requirements. Plaintiff Premier was unable to submit

       a bid because as a small supplier it was not financially feasible for it to achieve the

       required accreditation and expend the significant time and financial resources

       required to prepare a bid submission. Thus, Premier has been effectively precluded

       from participation in the Competitive Bidding Program despite the RFA’s mandate

       that small suppliers such as Premier be protected.

               40.    Plaintiff Premier will continue to suffer damage by its exclusion in the

       Competitive Bidding Program as it will be unable to continue its supply of DMEPOS

       to Medicare beneficiaries which comprise approximately 10 to 15% of its current

       clientele.

V.   SMALL SUPPLIER CONCERNS

               41.    Plaintiffs incorporate and restate each and every paragraph above as if

       the same were fully rewritten.

               42.    Small suppliers provide a hands-on, valuable service component and

       improve access and convenience for elderly and infirm Medicare beneficiaries by

       increasing the supply of storefront capabilities throughout the community.

               43.    Indeed, according to a 2001 HHS report, 41 percent of Medicare

       beneficiaries state that proximity of a DME supplier to their residence was a factor in

       their selection of a supplier, and 14 percent of Medicare beneficiaries chose their

       supplier because it was the only supplier providing a particular item in their area.




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HHS Office of Inspector General, Balance Billing for Medicare Equipment and

Supplies, OEI-07-99-00510 at 9 (January 2001).

       44.     A particular obstacle for small DME suppliers is a bid eligibility

requirement specifying that each bidder, if it wishes to bid on a particular product, is

required to bid on all products in that category regardless of their product mix and to

service the entire geographic area regardless of where their existing business and

patients are located.

       45.     Because smaller DME suppliers lack the economies of scale to lower

prices and the physical size to cover an entire metropolitan statistical area, the system

structured by Defendants is inherently biased toward large DME suppliers.

Moreover, there is no provision in the competitive bidding rule that prevents a

national chain from engaging in predatory pricing, that is, using Medicare profits

from geographic areas outside the competitive bidding area to subsidize below cost

bidding in Cleveland.

       46.     The fixed cost per unit for large DME providers is lower than smaller

companies, and larger providers will accordingly be able to submit lower bids than

smaller companies.

       47.     Further, small durable medical equipment suppliers often do not and

cannot cover an entire metropolitan area.

       48.     The effect of MMA is, therefore, to exclude small DME suppliers

from the marketplace, place an unreasonable burden on the elderly, and artificially

consolidate the DME market in the hands of national chains or large companies.




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       49.     Congress was concerned with small DME suppliers being wiped out

by larger national chains and thus under “Protection of Small Suppliers” in MMA §

302(b)(6)(D), Congress directed the Secretary, in developing the bidding procedures

and in awarding contracts, to take “appropriate steps to ensure that small suppliers of

items and services have an opportunity to be considered for participation in the

program.”

       50.     Further, the Regulatory Flexibility Act (“RFA”) 5 U.S.C. § 601 et seq.

requires all agencies to carefully scrutinize ways to minimize the economic impact on

small entities. Under the RFA, final agency rules must contain a “final regulatory

flexibility analysis” or FRFA which must include

   a description of the steps the agency has taken to minimize the significant
   economic impact on small entities consistent with the stated objectives of
   applicable statutes, including a statement of the factual, policy, and legal reasons
   for selecting the alternative adopted in the final rule and why each one of the
   other significant alternatives to the rule considered by the agency which affect the
   impact on small entities was rejected.

5 U.S.C. § 604(a)(5).

       51.     The Centers for Medicare and Medicaid Services (CMS) published a

proposed rule for the Competitive Acquisition for Certain Durable Medical

Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) (“the Proposed

Competitive Bidding Rule”) on May 1, 2006. 71 Fed. Reg. 25654.

       52.     The Proposed Competitive Bidding Rule provided a limited

opportunity for small suppliers to band together through networks to furnish all of the

items included in a product category throughout the competitive bidding area, reduce

bidding costs and attain favorable economies. 71 Fed. Reg. at 25695. This provision




                                    12
ostensibly would provide important assistance to small suppliers to ensure both

geographic scope and product depth in meeting the bid eligibility requirements.

       53.     Section 601(3) of the RFA defines a “small business” as meaning a

“small business concern under Section 3 of the Small Business Act.” The Small

Business Administration (SBA) has developed industry size eligibility standards

defined by rule. The SBA size standard for a small supplier in the home health

equipment rental business is $6.5M in total annual receipts. 13 C.F.R. § 121.201

(NAICS code 532291). See also 72 Fed. Reg. 18056.

       54.     In the initial regulatory flexibility analysis for the Proposed

Competitive Bidding Rule, CMS defined a small supplier consistent with the SBA

definition for a home health equipment rental company as DME suppliers with less

than $3M in Medicare revenue based on the assumption that for a $6M supplier, 50

percent of revenue comes from Medicare. 71 Fed. Reg. at 25695.

       55.     More than three years after passage of the MMA, CMS announced on

April 5, 2007, that it needed additional time to publish a final rule “due to the

extensive comments received (over 2,000) . . . and the extremely complex policy and

legal issues which require extensive consultation and analysis.” 72 Fed. Reg. 16794

(April 5, 2007 notice).

       56.     The following week CMS published a final rule effective June 11,

2007. 72 Fed. Reg. 17992 (April 10, 2007). In the final rule, CMS re-classified a

small supplier as having less than $3.5M in annual receipts, including Medicare and

non-Medicare receipts. 72 Fed. Reg. 17992, 18071. This reclassification occurred




                                    13
without CMS affording the public its rights to notice and comment under the rule-

making requirements of the Administrative Procedures Act, 5 U.S.C. §553.

       57.     The Final Competitive Bidding Rule severely restricts the usefulness

of networks by limiting network participation to small suppliers defined by the $3.5M

threshold and also prohibits small suppliers from consolidating billing functions

within a network. 42 C.F.R. § 414.418.

       58.     The Final Competitive Bidding Rule includes a target set aside for

small suppliers under this restrictive definition. The small supplier set aside does not

reduce estimated Medicare program savings because these small suppliers must agree

to accept the winning bid amount to stay in the Medicare program. However, the

small supplier participation is to be determined by multiplying 30 percent times the

number of qualified suppliers whose bids are deemed by CMS to be winning bids.

       59.     This means that if five national companies are determined to be the

winning low bidders for a product category, only two small suppliers may be invited

to stay in the Medicare program.

       60.     To date, information published by CMS indicates that only one

hundred twelve (112) contracts have been offered in the Cleveland-Elyria-Mentor

CBA. (See Exhibit A). In publishing this information, CMS has stressed that the

amount of contracts offered does not constitute the number of contracts that will

actually be awarded.

       61.     The amount of contracts offered by CMS is a reduction of nearly 65%

of the three hundred twenty-five (325) DMEPOS suppliers currently serving the

Cleveland area. Moreover, as the so called ‘set aside’ would protect only 30% of the



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suppliers at most, and even assuming the unlikely event that 100% of the contracts

offered are actually awarded, only 34 small suppliers would be protected in the

Cleveland area. This is a trivial number given Congressional intentions to protect

small suppliers in an industry comprised of 70% of small suppliers.

       62.     The Final Competitive Bidding Rule violates the Regulatory

Flexibility Act because HHS failed to adequately address the specific considerations

for small businesses.

       63.     The RFA requires an agency to give explicit consideration to less

onerous options and address significant alternatives with respect to minimizing the

impact upon small entities.

       64.     The HHS “Guidance on Proper Consideration of Small Entities in

Rulemakings of the U.S. HHS” states that as part of its considerations of alternatives,

CMS should explain why alternatives that are rejected are inferior to the option

selected.

       65.     The Secretary published a final regulatory flexibility analysis

(“FRFA”) regarding the final Competitive Bidding Rule but that FRFA failed to

include the necessary statements and rationale for selecting the alternative in the final

rule, why alternatives to minimize the economic impact on small entities were

rejected in the final rule, and why the rejected alternatives are inferior to those

selected.

       66.     CMS did not pursue alternatives to the competitive bidding scheme

that would have minimized the significant economic impact on small entities.




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        67.     Specifically, in the final rule CMS did not sufficiently consider

exempting small suppliers from the rule and simply allowing small suppliers to

provide items and services at the winning bid amount or explain why that alternative

is inferior to the restrictive set aside option it selected.

        68.     The set aside for small suppliers is not an appropriate step to ensure

that small suppliers may participate in the Medicare program. Here, Defendants have

not made a reasonable, good faith effort to carry out the mandate of the RFA.

        69.     Under the Small Business Regulatory Enforcement Fairness Act of

1996, Congress provided that a small business that is adversely affected by final

agency action is entitled to judicial review of agency compliance with the RFA. See 5

U.S.C. § 611(a)(1).

        70.       In addition, the reclassification of the definition of “small supplier” in

the Final Competitive Bidding Rule violates the Administrative Procedures Act, 5

U.S.C. § 553, because it was implemented without compliance with the notice and

comment provisions for rulemaking under the APA.

        71.     On December 12, 2007, the U.S. Representatives Jason Altmire and

Louie Gohmert, Chair and Ranking Minority Member of the House Committee on

Small Business, wrote to the U.S. Small Business Administration to express their

significant concerns over the implementation of the final rule on competitive bidding

for DMEPOS, stating:

    It is imperative that Advocacy conduct a timely review of the
    available facts, including a comprehensive economic analysis in
    advance of any final implementation of the CMS DME
    competitive bidding rule. A rushed or flawed implementation
    process has the potential to severely if not irreparably damage
    thousands of small businesses….Most notably, stakeholders


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           [argue] that CMS failed to appreciate and analyze the
           economically burdensome nature of this regulation on small
           suppliers and that the rule will force many of the 116,500
           individual DME suppliers out of business.

        In said letter, Representatives Altmire and Gohmert requested that the      U.S. Small

        Business Administration “intervene with Centers for Medicare & Medicaid Services

        (CMS) to delay implementation of the final rule on competitive bidding for

        DMEPOS until the Office of Advocacy can sufficiently assess the economic impact

        of the rule on small businesses.” A copy of the letter is attached as Exhibit B.

VI.   BLACK BOX CONCERNS

               72.     Plaintiffs incorporate and restate each and every paragraph above as if

        the same were fully rewritten.

               73.     All suppliers, no matter their size are affected by the arbitrary and

        capricious nature of the bid process and the lack of transparency in the “black box”

        between the CMS bidding system and its decision to contract with “winning

        suppliers.”

               74.     CMS has repeatedly revised the bid deadlines following well-

        publicized problems encountered by suppliers in the bid submission process. During

        this critical bid preparation period, CMS has provided conflicting, confusing and

        incorrect guidance to bidders, including whether bidders may subcontract with other

        suppliers to bid, the criteria for networking as a small supplier, whether and how

        CMS will throw out bids it deems “unreasonable,” and whether any subjective factors

        will be taken into consideration when contracting with the “winning bidders.”

               75.     In addition, Section 902 of the Medicare Modernization Act imposes

        certain restrictions on how the Secretary of Health and Human Services publishes


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final rules, including limits on new matters in final rules. Under Section 902(b) of the

Medicare Modernization Act, provisions that are not a “logical outgrowth” of the

proposed rule must be treated as proposed rules subject to public comment and

publication before being final.

       76.     The APA provides that: “(a) persons suffering legal wrong because of

agency action, or adversely affected or aggrieved by agency action within the

meaning of the relevant statute, is entitled to judicial relief thereof.” 5 U.S.C. § 702.

In an APA suit, the reviewing court shall “hold unlawful and set aside agency actions,

findings, and conclusions found to be (A) arbitrary, capricious, and abuse of

discretion, or otherwise not in accordance with law; (B) contrary to constitutional

right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, authority,

or limitations, or short of statutory right; [or] (D) without observance of procedure

required by law...” 5 U.S.C. § 706(2).

       77.     Plaintiffs have no means of obtaining relief through HHS or CMS.

       78.     The MMA § 302(b)(10) and § 414.424 of the Competitive Bidding

rule purport to preclude certain types of administrative and judicial review regarding

certain features of the competitive acquisition scheme. Specifically, the rule states

that the payment amounts, awarding of contracts, designation of competitive bid areas

and products, bidding structure and number of contractors selected, and a claim that

Medicare denies based on CMS’ determination that the item was not authorized under

the Competitive Bidding rule cannot be appealed.

       79.     This alleged preclusion does not operate to bar Plaintiffs’ claims in

this lawsuit because Plaintiffs’ claims fall outside of the items precluded for review.



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         In the alternative, this alleged preclusion is contrary to law as it would constitute “no

         review at all.”

                80.        The consequence of the Competitive Bidding Rule to Plaintiff

         suppliers is severe--as one-half or more of suppliers may be wiped out if the Medicare

         competitive bidding scheme is allowed to go forward. To any supplier, losing one-

         half of their revenue is a likely business’ death knell.

                81.        CMS’ interpretation of the MMA ignores the Congressional mandate

         to protect small suppliers and is arbitrary, capricious, and invidiously discriminatory

         to all suppliers in violation of the Administrative Procedure Act.

VII.   MEDICARE BENEFICIARY CONCERNS

                82.        Plaintiffs incorporate and restate each and every paragraph above as if

         the same were fully rewritten.

                83.        Medicare beneficiaries will be damaged in several ways if the MMA is

         implemented as it currently exists, including but not limited to the following:

                      a.      Medicare beneficiaries who are ill and require home medical
                              equipment and supplies will no longer be able to purchase supplies
                              from the supplier with whom they have an established relationship
                              and will be cut off from receiving their medication and necessary
                              equipment from their usual suppliers; and

                      b.      The ability to obtain newer technology in a timely fashion and
                              without unnecessary confusion will be impaired.

                84.        Defendants failed to conduct research to determine if there are racial

         or cultural factors which influence services provided by current small businesses to

         minority Medicare beneficiaries, which services would be disrupted or destroyed by

         the competitive bidding program.

                85.        Under the Final Competitive Bidding Rule, the price of a product and

         related services is the almost exclusive consideration used to determine which

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businesses may participate in Medicare. Ultimately, those who bid to provide durable

medical equipment to Medicare beneficiaries will be selected based upon their ability

to make the lowest bid and to service all of the product category items within an

entire metropolitan area.

       86.     The exclusion of small DME suppliers and high-quality providers

from the marketplace poses imminent harm to Medicare beneficiaries, including the

beneficiary Plaintiffs in this lawsuit, whose individualized medical needs are unlikely

to be met by large, low bidders that do not provide the same complement of service

and convenience.

       87.     The competitive bidding program provides no assurance that the

quality care once enjoyed by Medicare beneficiaries will continue. Because low bid

price will determine who can sell DME, there is no requirement that the quality of the

goods and services, or even medically necessary minimum standards, be comparable

to those suppliers which had been selected by Medicare beneficiaries before

enactment of the MMA.

       88.     In addition, Section 302(b)(2)(iv) of the MMA prohibits the Secretary

from awarding any competitive bidding contracts to any entity unless the Secretary

finds that access of individuals to a choice of multiple suppliers is maintained. The

Final Competitive Bidding Rule fails to assure beneficiary access to a choice of

multiple suppliers in violation of Section 302(b)(2)(iv) of the MMA.

       89.     The competitive acquisition scheme also creates two separate classes.

Medicare beneficiaries in those metropolitan areas compelled to use the low bid

system must cope with DME suppliers whose sole virtue is their cheap product. In



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        contrast, non-Medicare beneficiaries may continue to enjoy the true benefits of

        working with DME suppliers concerned with not only price, but quality and service.

        Individualized healthcare needs of Medicare beneficiaries are ignored by the MMA

        and the Final Competitive Bidding Rule.

                90.     In this case, Plaintiff Shinkle and Nagy will suffer harm as they will be

        precluded from using the supplier of their choice for all of their needs and will have

        less choice in suppliers able to meet their individualized medical needs which

        threatens their health and welfare.

VIII. CLAIMS FOR RELIEF

     Claim 1 — Equal Protection

                91.     Plaintiffs incorporate and restate each and every paragraph above as if

        the same were fully rewritten.

                92.     Under the Equal Protection Clause of the United States Constitution, a

        classification must be reasonable, not arbitrary, and founded upon a difference which

        has a fair and substantial relation to the object of the legislation, so that all persons

        similarly situated will be treated alike.

                93.     Section 302 of the MMA discriminates against some Medicare

        beneficiaries, including the Plaintiff beneficiaries, and favors the non-Medicare

        patients.

                94.     The MMA thus creates two separate classes with no rational basis for

        the distinction that is created; the distinction is not rational and is arbitrary.

                95.     The competitive acquisition or competitive bidding provision of the

        MMA is a status-based enactment which lacks any relationship to legitimate state



                                               21
   interests, and the difference classes created – Medicare beneficiaries and non-

   Medicare patients – bear no fair or substantial relationship to the goal of the Medicare

   legislation.

           96.    Indeed, the low bid mechanism fashioned by the MMA compels

   Medicare beneficiaries to purchase the cheapest products and the attendant low level

   of service, which means that the competitive acquisition scheme is exactly contrary to

   the underlying purpose of the entire Medicare program: the assurance that the elderly

   as the most needy and disadvantaged members of society receive quality medical

   care.

           97.    Further, the MMA did not consider “cultural diversity” as a factor

   when developing a “formula driven approach.”

           98.    No research was done upon the Medicare beneficiary population in

   Cleveland, Cuyahoga County, Elyria, or Mentor, Ohio to determine whether current

   small DME providers cater to the specific cultural or racial needs of that population.

Claim 2 — Due Process

           99.    Plaintiffs incorporate and restate each and every paragraph above as if

   the same were fully rewritten.

           100.   While the MMA bars administrative review, there is no bar preventing

   Plaintiffs from challenging the constitutionality of the statute in this Court.

           101.   Pursuant to the Due Process Clause, Medicare beneficiaries have a

   property interest in their benefit program.

           102.   By narrowing the choice of providers, the MMA ignores the property

   interest of Medicare beneficiaries; such beneficiaries, including Plaintiffs, are left



                                         22
only with the choice between successful low bidders with no assurance that quality

products and quality service will be available for the disabled, the elderly, or

otherwise disadvantaged Medicare beneficiaries.

          103.   Medicare beneficiaries will suffer imminent harm and irreparable

injury and, because the MMA will deny their required specialized care, have been

denied their substantive due process rights.

          104.   Plaintiffs have no adequate remedy at law. For individuals such as

Plaintiff Nagy and Plaintiff Shinkle, the Final Competitive Bidding Rule and Section

302 of the MMA imminently threatens their ability to receive adequate durable

medical equipment and individualized service. Damages cannot be calculated and

even if, arguendo, damages could be calculated, effective relief for the Plaintiffs

cannot be obtained.

          105.   Plaintiffs’ case is substantially likely to succeed on the merits.

          106.   The injuries faced by the Plaintiffs outweigh any injury that would be

sustained by the Defendants. The Plaintiffs will suffer imminent harm to their ability

to receive adequate durable medical equipment and individualized service and care so

as to remain self-sufficient.      These injuries outweigh any injury that would be

sustained by the Defendants as a result of the Court granting the requested injunctive

relief.

          107.   Section 302 of the MMA and the Final Competitive Bidding Rule are

contrary to the public interest because they will force small businesses from the

market for providing durable medical equipment, reduce Medicare beneficiaries’

ability to choose the most appropriate durable medical equipment suppliers, and



                                       23
   reduce the quality of service and equipment within the DME industry. Accordingly,

   the granting of an injunction would not adversely affect public policy or the public

   interest.

Claim 3 — Regulatory Flexibility Act

            108.   Plaintiffs incorporate and restate each and every paragraph above as if

   the same were fully rewritten.

            109.   The Regulatory Flexibility Act (“RFA”), codified at 5 U.S.C. §

   604(a)(5), requires an agency to review: “. . . with scrutiny the steps it has taken to

   minimize the significant economic impact on small entities . . . including a statement

   of the actual policy, and legal reasons for selecting the alternative adopted in the final

   rule.”

            110.   The Defendants have failed to make a reasonable, good faith effort to

   carry out the mandate of the RFA.

            111.   As a result, the Plaintiff Suppliers risk being shut out of the Medicare

   program with no avenue for administrative redress.

Claim 4 — Section 302 of the MMA

            112.   Plaintiffs incorporate and restate each and every paragraph above as if

   the same were fully rewritten.

            113.   Defendants failed to reasonably evaluate the impact of the competitive

   bidding scheme upon the ability of bidding suppliers to meet the needs of Medicare

   beneficiaries to obtain quality and maintain access to home medical equipment items

   and services, or choose from among viable small suppliers in the Cleveland area.




                                        24
          114.    Instead, Plaintiffs plan to implement a “monitoring and complaint

   system,” at some unknown time in the future to identify whether Medicare

   beneficiaries are receiving suitable levels of quality and access, 72 Fed. Reg. 18061.

          115.    Medicare beneficiaries who use smaller providers will no longer be

   able to purchase supplies from their current supplier and will be cut off from their

   current source of medication and necessary treatment.

          116.    The Defendants failed to conduct any statistical analysis of the impact

   of the MMA. 72 Fed. Reg. 18008.

          117.    The Defendants response was that they do “. . . not believe that the fact

   beneficiaries will have to find new suppliers will result in inconvenience,” but there

   was no statistical analysis of the impact of the MMA. 72 Fed. Reg. 18008.

          118.    Defendants suggested they would conduct an “outreach program” to

   mitigate the damage caused by the abrupt need to change suppliers for Medicare

   beneficiaries, but the offer to track and report problems with quality and access

   caused by competitive bidding is not a reasonable, good faith effort to avoid such

   damage in the first place.

          119.    Medicare beneficiaries’ ability to obtain DME and access their choice

   of suppliers in the area under § 302(b)(2)(A)(iv) will be inhibited or prevented by

   implementation of the MMA.

Claim 5 — Section 902 of the MMA

          120.    Plaintiffs incorporate and restate each and every paragraph above as if

   the same were fully rewritten.




                                       25
          121.    Section 902 of the Medicare Modernization Act requires that when

   HHS publishes a final rule that includes provisions which are not a “logical

   outgrowth” of the proposed rule, it must treat those provisions as proposed rules

   subject to public comment and publication before being adopted as a final rule.

          122.    The change in the definition of small supplier from $6.0M to $3.5M in

   revenues, the restrictions in network participation for small suppliers, and the limited

   set aside for small supplier participation were not reasonably foreseeable nor a logical

   outgrowth of the proposed rule and therefore subject to notice and comment

   rulemaking before being adopted in final form as a result of the Congressional

   mandate to ensure that small suppliers may participate in the competitive bidding

   program.

          123.    The change in definition of small supplier is inconsistent with the

   administrative structure established in § 302(b)(6)(D) of the MMA.

Claim 6 — Administrative Procedure Act

          124.    Plaintiffs incorporate and restate each and every paragraph above as if

   the same were fully rewritten.

          125.    The Competitive Bidding Rule and/or the procedures and regulations

   promulgated under the Rule are arbitrary, capricious, contrary to law, and an abuse of

   agency discretion in violation of the APA, 5 U.S.C. § 706(2)(A).

          126.    The Competitive Bidding Rule and/or the procedures and regulations

   promulgated under the Rule are contrary to constitutional right, power and privilege

   in violation of the APA, 5 U.S.C. § 706(2)(B).




                                       26
       127.    The Competitive Bidding Rule and/or the procedures and regulations

promulgated under the Rule exceed the statutory jurisdiction in violation of the APA,

5 U.S.C. § 706(2)(C).

       128.    The Competitive Bidding Rule and/or the procedures and regulations

promulgated under the Rule are without observance of procedure required by law in

violation of 5 U.S.C. § 706(2)(D).

       129.    The disqualification of the bids submitted by Plaintiffs Medic,

Cornerstone and Carested based upon the inaccurate premise that they failed to

submit required documentation and the absence of a meaningful review process for

the disqualification decisions are (A) arbitrary, capricious, and abuse of discretion, or

otherwise not in accordance with law; (B) contrary to constitutional right, power,

privilege, or immunity; (C) in excess of statutory jurisdiction, authority, or

limitations, or short of statutory right; [or] (D) without observance of procedure

required by law. 5 U.S.C. § 706(2).

       130.    The reclassification of the definition of small supplier to one who has

less than 3.5 million in total annual revenue (both Medicare and non-Medicare

receipts) is a violation of the APA as it was implemented without the notice and

comment period specifically required by the APA.

       131.    Such agency action is actionable pursuant to the APA.

       132.    Defendants’ violations of the APA have caused the Plaintiffs

irreparable injury for which there is no other adequate remedy at law.

       133.    The Plaintiffs are entitled to declaratory judgment that the Competitive

Bidding Rule and/or the procedures and regulations promulgated under the Rule are



                                      27
           (a) arbitrary, capricious, contrary to law, and an abuse of agency discretion, (b)

           contrary to constitutional right, power and privilege, (c) exceeds the statutory

           jurisdiction, and (d) without observance of procedure required by law, all in violation

           of the APA.

       Claim 7—Procedural Due Process

                   134.    Plaintiffs incorporate and restate each and every paragraph above as if

           the same were fully rewritten.

                   135.    Plaintiffs Medic, Cornerstone and Carested have a property and/or

           liberty interest in the award of a contract under the Competitive Bidding Rule.

                   136.    CMS has abused its discretion in failing to award contracts to

           Plaintiffs Medic, Cornerstone and Carested based upon inaccurate information and/or

           alleged minor technical violations of the submission requirements.

                   137.    The denial of any meaningful review or challenge to contract status

           determinations deprives Plaintiffs Medic, Cornerstone and Carested of their

           constitutional rights to procedural due process, with said deprivation resulting in

           significant, irreparable harm to the Plaintiffs.

IX.    REQUEST FOR RELIEF

       Accordingly, Plaintiffs incorporate by reference all allegations contained in the preceding

paragraphs, and respectfully request that Defendant be cited to appear, and that upon hearing,

Plaintiffs have the following relief:

                   1.      A declaration by the Court that Section 302 of the MMA and the

           implementation of Section 302 of the MMA violate the Equal Protection Clause of

           the United States Constitution;



                                                 28
       2.        A declaration by the Court that Section 302 of the MMA and the

implementation of Section 302 of the MMA violates the Due Process Clause of the

United States Constitution;

       3.        A declaration by the Court that Section 302 of the MMA and the

implementation of the MMA violates the RFA;

       4.        A declaration by the Court that Section 302 of the MMA and the

implementation of the MMA violates the Administrative Procedures Act;

       5.        A declaration by the Court that Section 302 of the MMA and the

implementation of the MMA violates MMA Section 902;

       6.        A declaration that the abuse of discretion by CMS in the awarding of

contracts and the failure to provide any meaningful challenge to award decisions

violates the Due Process Clause of the United States Constitution;

       7.        A preliminary and permanent injunction ordering the Defendants, their

agents, assigns, and all persons acting in concert or participating with them to:

            a.      Cease the implementation of the competitive acquisition scheme,
                    including without limitation the award of contracts to successful,
                    qualified bidders and the exclusion of disqualified, unsuccessful
                    but qualified, and/or non-winning bidders, under Section 302 of
                    the MMA and the Final Competitive Bidding Rule and award the
                    Plaintiffs all appropriate injunctive relief;

            b.      Be enjoined from future implementation of such scheme;

            c.      Be required to implement a meaningful review process for
                    disqualification decisions;

            d.      Be required to reevaluate the application and disqualification status
                    of Plaintiffs Medic, Cornerstone and Carested;

            e.      Be required under the RFA to make a reasonable, good faith effort
                    to carry out the mandate of the RFA by conducting good faith
                    studies of the impact that implementation of the MMA will have
                    upon Medicare beneficiaries, the provision of new technologies to
                    beneficiaries, and the impact of the MMA upon providers who
                    service particular racial or cultural needs.

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      f.      Be required to comply with the mandates of the APA and afford
              the public its rights to notice and comment on the reclassification
              of the definition of “small supplier.”

8.         Costs of suit;

9.         All appropriate attorney’s fees through the time of trial; and

10.        Such other and further relief to which Plaintiffs may be entitled.

                              Respectfully submitted,



                              /S/ Michael J. Jordan
                              Michael J. Jordan (Reg. No. 0026873)
                              Email: mjordan@walterhav.com
                              Direct Dial: 216-928-2922

                              Amy Leopard (Reg. No. 0066743)
                              Email: aleopard@walterhav.com
                              Direct Dial: 216-928-2889

                              Susan E. Keating Anderson (Reg. No. 0075456)
                              Email: sanderson@walterhav.com
                              Direct Dial: 216-928-2936

                              WALTER & HAVERFIELD LLP
                              The Tower at Erieview
                              1301 E. Ninth Street
                              Suite 3500
                              Cleveland, Ohio 44114-1821
                              Phone: 216-781-1212 / Fax: 216-575-0911

                              Attorneys for Plaintiffs




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