Opinion
CIVIL 06-1128 (CCC).
May 12, 2006
MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION
I. Background
This case involves the bid of a Medicare Advantage organization related to Medicare's new Part D (prescription drug) which starts with the 2006 benefit year. Plaintiff Red Medica de Puerto Rico, Inc., is a domestic health plan, for profit corporation, and alleges that it is a qualified Medicare Advantage Organization-Prescription Drug (MA-PD) organization. It filed a complaint on February 1, 2006 seeking mandamus, declaratory and injunctive relief against the defendants, United States Secretary of Health and Human Services, and the Administrator of the Center for Medicare and Medicaid Services. Plaintiff asserts jurisdiction under 28 U.S.C. §§ 1331 and 1361 because it seeks a declaration of rights under federal statutes and regulations and injunctive relief under the court's mandamus powers. Plaintiff seeks a speedy hearing since other qualified Medicare Advantage Organizations contracted by the Center for Medicare and Medicare Services (CMS) began on October 1, 2005 and started operations under the contract on January 1, 2006. Furthermore, CMS will close the open enrollment period on May 25, 2006. Plaintiff argues that as a direct result of violation of its own applicable regulations, CMS has denied Red Medica's application for a contract as a Medicare Advantage Organization which in turn has prevented Red Medica to begin enrollment of Medicare Advantage eligible participants. It further argues that every day that passes affects Red Medica's ability to participate and compete in this market and to participate as a health plan under the Medicare Advantage Program, enacted through section 4001 of the Balanced Budget Act of 1997, Pub.L. No. 105-33, 111 Stat. 251 and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub.L. No. 108-173, 117 Stat. 2066, 42 U.S.C. § 1395w-et seq. (2003) and the Social Security Act.
The defendants agree partially with this statement and agree only that plaintiff is a qualified Medicare Advantage Organization.
Red Medica alleges that on March 22, 2005, it submitted an application to CMS in order to be qualified by the agency as a Medicare Advantage Organization to offer a benefit plan as a Medicare Advantage Organization-Prescription Drug health plan and begin operations for contract year beginning in 2006. Red Medica alleges that it submitted all necessary documentation and information. (Docket No. 1, Complaint, at 5, ¶ 5.) By letter dated November 21, 2005, Patricia P. Smith, Director, Medicare Advantage Group, notified Red Medica that it was qualified to be a Medicare Advantage Organization, a conclusion which allegedly came after an irregular evaluation process. (Docket No. 1, Complaint, at 4, ¶¶ 6-7.) On June 6, 2005, CMS had notified a contract determination denying Red Medica's application. That determination was reversed by a CMS hearing officer on July 14, 2005. (Id. ¶ 7.) The favorable decision led to CMS establishing a new time line to complete the submission of documents and information as well as the evaluation of Red Medica's application. Red Medica submitted the documents and information requested. (Id. ¶ 8.)
On September 10, 2005, Mr. Gary Bailey sent an electronic message to Red Medica notifying that CMS had finished review of all Red Medica's materials and bid for 2006. Red Medica was then granted until November 15, 2005, the first day of the Medicare Advantage Program open enrollment period, to demonstrate successfully that it meets the network adequacy and bid requirements and enter into a contract with CMS. (Id. at 4-5, ¶ 9.) However, in relation to the bid, Mr. Bailey informed that the CMS Office of the Actuary (OACT) had determined that it could not recommend approval of Red Medica's bid. The determination was made notwithstanding Red Medica's former consulting actuary, José Pérez, had been engaged with the firm of Lewis Ellis and the OACT to complete and correct Red Medica's bid materials. On September 10, 2005, Mr. Pérez received a request for additional information from Lewis Ellis. The effort was futile since OACT had arguably already made a determination regarding Red Medica's bid. (Id. ¶ 10.) During the second half of October, 2005, Red Medica's consulting actuary, Tracy Aumiller, engaged the CMS Office of the Actuary in order to satisfy the requirements. (Id. ¶ 11.)
On October 27, 2005, a meeting between Red Medica and CMS officials took place at CMS' central office to discuss all outstanding issues including the bid. Contrary to the clear language of the regulations (in relation to the bid) it was stated that no changes would be allowed to the assumptions included in the bid. (Id. ¶ 12.) Specifically it was stated that if changes were allowed to the bid assumptions Red Medica could be taking advantage of information made public by other plans and the national averages calculated by CMS. (Id. at 6, ¶ 13.) At the October 27 meeting, Red Medica officials asked as to the negotiation process required under the regulations, but were informed that the deadline for the negotiation process had passed and the meeting was the negotiation process required by the regulations. Plaintiff believes these statements to be incorrect and contrary to the applicable regulations. (Id. ¶ 14.) Additional information was also requested of Red Medica in support of the bid. (Id. ¶ 15.) On November 3, 2005, Red Medica's consulting actuary produced the information requested by OACT. The information included a description of information obtained by Red Medica's former consulting actuary José Pérez from Red Medica's pharmacy benefit manager. (Id. ¶ 16.)
On or about November 7, 2005, Red Medica's consulting actuary, Tracey Aumiller, proposed to Mr. Paul Spitalnic, CMS/OACT, to consider a correction to Red Medica's pricing assumptions, especially average charges per script, combined with reductions in profit/loss or administration, if the underlying bid remained virtually unchanged. This would satisfy the OACT's alleged concern about fairness and Red Medica's allegedly taking advantage of market knowledge since Red Medica would not change the numbers in the original bid. The request was repeated by Red Medica's consulting actuary to Mr. Spitalnic via e-mail on November 10, 2005. The proposal was arguably clearly within the limits established by applicable regulations. No response to the e-mail was received. (Id. at 6-7, ¶¶ 17, 18.) On the same day, November 10, 2005, Richard Foster, Chief Actuary, OACT, informed Abby Block, Director, Center for Beneficiary Choices, of the rejection of Red Medica's bid. (Id. at 7, ¶ 19.)
Plaintiff alleges that the arbitrary action from the CMS OACT office clearly reveals that the decision to reject Red Medica's bid had already been made when Red Medica made the proposals of November 3 and 7, that such arbitrary action was made behind closed doors even though Red Medica still had time, under the regulations and the time line established by CMS, to satisfy any outstanding issues, that is, it had until November 15, 2005. (Id. ¶ 20.) Red Medica was notified of the November 10 decision of the CMS/OACT office regarding its bid on November 21, 2005, thus denying Red Medica an opportunity to clarify the error committed by the agency within the time line given by CMS. (Id. ¶ 21.) In the November 21, 2005 letter CMS determined that Red Medica is qualified to be a Medicare Advantage Organization but allegedly arbitrarily, and in violation of the clear mandates of the applicable laws and regulations, CMS determined that Red Medica's bid for Part D of the program was unacceptable. (Id. ¶ 22.) The decision regarding plaintiff's bid was made on or before November 10, 2005, per the memorandum from Richard Foster to Abby Block, which was attached to the November 21, 2005 letter. (Id. at 8, ¶ 23.)
In the November 10, 2005 memorandum it was stated that the issues described "cannot be remedied by Red Medica without the introduction of new bid material, which would be developed subsequent to the bid deadline of June 6, 2005, and which would be inconsistent with [the] original bid development. To prevent an unfair competitive advantage, CMS has consistently denied any plan's request to introduce new bid factors after the June 6, 2005 deadline." Plaintiff argues that such conclusion has no basis in the applicable regulations. (Id. ¶ 24.)
On November 30, 2005, Red Medica submitted a request for reconsideration to CMS Director of Medicare Advantage Group, Ms. Patricia P. Smith, based upon the following:
A. The contract determination was contrary to 42 CFR 422.256 since Red Medica was denied the review and negotiation process provided for in the regulation.
B. CMS contract determination was made also in violation of 5 USC 552(a)(1), because CMS applied alleged regulations requirements in order to deny Red Medica a contract that had not been published in the Federal Register.
C. The notice of contract determination is legally insufficient inasmuch as it does not provide notice of the applicable procedure for administrative and/or judicial review. [C]ontrary to 42 CFR 422.644(b)(2), the notice states that Red Medica do[es] not have the right to administrative review, when Section 422.644(b)(2) specifically requires that such notice be given and Sections 422.648 and 422.650 grant such right.
(Docket No. 1, Complaint, at 8-9, ¶ 25.)
Plaintiff seeks an order from the court to the United States Department of Health and Human Services and CMS to grant Red Medica the review and negotiation process required by 42 C.F.R. § 422.256. Plaintiff also seeks an order to the United States Department of Health and Human Services and CMS to discontinue its practice against 5 U.S.C. § 552(a)(1) by preventing the organizations to modify their bid assumptions during the negotiation process. Plaintiff also seeks an order to the United States Department of Health and Human Services and CMS to issue a notice of contract determination that complies with the notice of the applicable procedure for administrative and/or judicial review.
The Medicare statute is divided into parts. Part A provides medical insurance coverage for institutional services. See 42 U.S.C. §§ 1395c, 1395d. Part B is a voluntary supplemental medical insurance program covering physician's services, outpatient hospital care, and certain services not covered by Part A. See United States v. Lahey Clinic Hosp., Inc., 399 F.3d 1, 4 (1st Cir.),cert. denied, 126 S. Ct. 339 (2005). Under Part A and B, a Medicare beneficiary who visits a Medicare participating health care provider and obtains a covered medical service is eligible to have Medicare reimburse the provider for furnishing the service. See 42 U.S.C. §§ 1395d(a), 1395k(a). The Balanced Budget Act of 1997, Pub.L. No. 105-33, 111 Stat. 251, 426-32 (1995) added Part C to the Medicare statute. Part C, known as Medicare+Choice increased beneficiary choice by authorizing Medicare beneficiaries to obtain covered Medicare services through health maintenance organizations, preferred provider organization plans, and other managed care arrangements offered by private health insurers. See 42 U.S.C. § 1395w-21 to 1395w-29.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub.L. No. 108-173, 117 Stat. 2066, 42 U.S.C. § 1395w-101 to 1395w-152 (2003), or MMA, took Medicare+Choice to a competitive bidding system which required submission of bids and annual contracting. The Medicare program was changed by amending the Medicare statute to add a new Part D which establishes a comprehensive program for Medicare coverage of prescription drugs. See 42 U.S.C. § 1395w-4 et seq. These benefits would be provided by organizations under contract to CMS, either as prescription drug plans or in conjunction with the offering of a Medicare Advantage plan (MA-PD). By law, the organizations which offer Medicare Advantage coordinated plans must also offer prescription drug benefits in the coordinated care plan's entire service area. See 42 U.S.C. § 1395 w-21(a)(1)(A).
To participate in the Medicare Advantage-Prescription Drug (MA-PD) plan, an entity must file an application demonstrating that it qualifies as a Medicare Advantage organization and submit a bid to participate in Part D of the program. If CMS determines that the entity does not qualify as a Medicare Advantage organization, or does qualify but its planned bid for Part D is unacceptable, the entity cannot contract with CMS to offer the MA-PD plan.
In this case, CMS determined that Red Medica was qualified to be a Medicare Advantage organization. This alone does not authorize CMS to contract since the bid negotiation and approval process is separate from the entity's qualifying. See 42 C.F.R. § 422.501(c)(2); 42 C.F.R. § 423.502(c)(2).
On the other hand, the Secretary contends that plaintiff is not entitled to a writ of mandamus requiring CMS to provide an administrative review process regarding the denial of the negotiation process, the denial by CMS to consider timely submitted information, and the denial of plaintiff's right to submit new bid information. It is argued that mandamus relief would be inappropriate because plaintiff cannot establish a clear entitlement to the relief sought nor the existence of a clear duty on the part of the Secretary to take the action which is sought. While plaintiff argues that 42 C.F.R. § 422.644(b) contemplates administrative review of CMS determinations regarding plaintiff's Part D bid, the defendants conclude that CMS' rejection of Red Medica's Part D bid and denial of a 2006 contract are not subject to administrative review. See 42 C.F.R. § 422.501(c)(2) ; 42 C.F.R. § 423.502(c)(2).
The notice specifies —
(1) The reasons for the determination; and
(2) The MA organization's right to request reconsideration.
Title 42 C.F.R. § 422.644(b).
A CMS determination that an entity is qualified to act as an MA organization is distinct from the bid negotiation that occurs under subpart F of this part and such negotiation is not subject to the appeals provisions included in subpart N of this part.
Title 42 C.F.R. § 422.501(c)(2).
A CMS determination that an entity is qualified to act as a Part D plan sponsor is distinct from the bid negotiations that occur under subpart F of part 423 and such negotiations are not subject to the appeals provisions included in subpart N of this part.
Title 42 C.F.R. § 423.502(c)(2).
II. Facts
On August 26, 2005, as part of a bid review process, and after the initial review of the MA-PD plan, plaintiff was requested to provide additional information related to worksheets it had submitted in support of its bid, such as a summary of pricing assumptions and methodology used in developing the manual rates, why the costs per script for retail generic and retail preferred brand was higher than the costs per script for mail order, and to explain and substantiate numerous calculations. (Tr. at 8-9, 17-18.) Three days later, plaintiff's actuary, Mr. Pérez, notified CMS that they had uploaded a wrong Part D bidding file which was a non-finished work in process. (Tr. at 10.) He was notified that the price bidding tool (PBT) he was submitting should have been completed on or before June 6, 2005. (Tr. at 13-14, 16, 19.) The issues and shortcomings related to the PBT were a cause of major concern for CMS in August and September, 2005. (Tr. at 43, 44-45, 46-48, 52-53, 54, 115-17.) Mr. Pérez informed changes in the PBT file on August 31, 2005 (Tr. at 56, 57-60), and changes were later added on September 8, 2005. (Tr. at 62, 63-68.) A new version of the Part D bid file was also sent to CMS/OACT on September 8, 2005. (Tr. at 69-73, 74-83.) Explanations were sought by CMS' actuary regarding items on Worksheets 3 and 6, and non-pharmacy expenses, on that same date. (Tr. at 158-59.)On September 10, 2005, plaintiff was notified that it had failed to meet the network adequacy requirement for all thirteen municipalities requested, in accordance with 42 C.F.R. § 422.112. Red Medica had failed to demonstrate that it meets the financial adequacy requirements at 42 C.F.R. § 422.502(f)(1). Some of the MA and PD actuarial assumptions supporting the bid (H5757-001) were determined to be out of compliance with statute and bid instructions, and thus CMS' Office of the Actuary was not able to recommend approval of the submission. (Tr. at 201.) Plaintiff was notified that because of the strict publication deadlines, if it did not submit the required materials by September 13, 2005, Red Medica would not be listed in the 2006 Medicare You handbook for the product applied for under its H number. (Tr. at 201-02.) On September 14 and 15, 2005, Mr. Pérez submitted a supporting file for the new bidding file under analysis, including a copy of the new bidding file with a gain/loss adjustment on Worksheet 3. (Tr. at 120, 137.) Shortcomings to this submission were pointed out to Mr. Pérez on September 15, 2005, including reference to shortcomings in information provided on the worksheets. (Tr. at 153.) On September 16, 2005, Mr. Pérez was asked to provide CMS with sufficient substantiating documentation for the OACT to reasonably conclude that the bid submitted by Red Medica in the third week of August 2005 was prepared using assumptions and work completed on or before June 6, 2005. It was understood that Mr. Pérez might have difficulties producing any bid material lost in his server malfunction (Tr. 189-90, 194, 195-97), but he was informed that CMS would accept dated e-mails and paper communication exchanged between Red Medica, the plan sponsor, and other parties throughout the development of the Part D bid. The CMS/OACT then informed Mr. Pérez that it would use the information provided to date the development of the first bid that Red Medica successfully uploaded in the third week of August, 2005. (Tr. at 167-69.) On September 21, 2005, Red Medica, through José M. González, provided the information requested, relating the difficulties it had had in the unsuccessful June 6, 2005 upload. (Tr. at 168.)
On September 26, 2005, Red Medica was notified that after review, the OACT had determined that the bid was not acceptable and not eligible for further consideration in the bid desk review process because it was incomplete, based upon an unreasonable set of assumptions, and was not developed in accord with CMS instructions for completing the price bidding tool (PBT). Red Medica was also notified that it had not provided any substantiation for the underlying assumptions in the bid as required by CMS. (Tr. at 198, 209, 219, 243, 251.) Upon receiving this information, Red Medica immediately replied asking for a detailed basis for the determination, including copies of all documents related to the bid desk review process, the portions of the bid that were incomplete, the basis for the conclusion that the assumptions for Red Medica's bid was unreasonable, a list of CMS instructions that were not followed for the completion of the price bidding tool, and confirmation to the effect that the substantiation for the underlying assumptions for the bid was never received by the office. (Tr. at 199-200). Plaintiff was informed on October 5, 2005 that CMS would consider pertinent materials, again with the caveat that the additional documentation had to support the original bid assumption and could not incorporate additional assumptions developed after June 6, 2005. (Tr. at 210.) Red Medica affirmed that it would not change the assumptions of the original bid and would seek that the decision to disapprove the bid be reconsidered. (Tr. at 213.) On October 10, 2005, Red Medica submitted documentation, including a revised bid, hoping to comply with the CMS regulations. (Tr. at 216, 221-31.)
On October 18, 2005, plaintiff was informed by CMS/OACT that a review of the additional documentation reflected many changes, including changes to the underlying assumptions, specifically the number of member months, the number of scripts, the projected allowed costs, the average costs, the average cost per script and the cost distribution by claim interval, all changed from prior bid pricing tools submitted. (Tr. at 232-36, 255.) While willing to consider additional documents that support the original bid, CMS/OACT would not change its determination that the original bid was incomplete based upon an unreasonable set of assumptions, and which was not developed in accord with CMS instructions. On October 21, 2005, changes were explained to CMS/OACT which were being made in hopes of finalizing the bid. (Tr. at 252, 267.)
Plaintiff submitted further documentation on November 3, 2005. (Tr. at 317.) On November 10, 2005, plaintiff's actuary Tracey Aumiller confirmed having asked CMS/OACT to consider a correction to pricing assumptions, specifically, average charges per script, combined with reductions in profit/loss or administration, if the underlying bid remained virtually unchanged. This would maintain fairness in that Red Medica would not be changing its bid to take advantage of market knowledge. (Tr. at 310.) Also on November 10, 2005, CMS determined that the bid H5757 plan 001 was not acceptable for contract 2006 because the bid is based upon an unreasonable set of assumptions, and the plan, Red Medica, has not been able to provide substantiating documentation of the assumptions used in preparing the Part D bid. Red Medica asked for a final determination on November 15, 2005 as it had cured all of the deficiencies. On November 21, 2005, Red Medica was informed that its bid was unacceptable, and a copy of the November 10, 2005 determination was attached to the notification. On November 30, 2005, plaintiff asked for a reconsideration of the contract determination, considering that the determination was improper because plaintiff was not allowed to modify the bid as provided in 42 C.F.R. § 422.256. Plaintiff considered that it was denied the negotiation process that the regulation dictates. Plaintiff informed CMS/OACT that it had the discretion to set aside its decision and allow plaintiff to modify the bid and move forward. Thus there would be no reason to continue with the administrative review process and CMS would have no obstacle in granting a contract to Red Medica for 2006. Otherwise plaintiff asked for a hearing under 42 C.F.R. § 422.662.
III. Mandamus Jurisdiction
The Secretary alleges that this court can not assert mandamus jurisdiction under 28 U.S.C. § 1361. Indeed, the exercise of such jurisdiction appears to be precluded by 42 U.S.C. § 405(h) of Title II of the Social Security Act, which was incorporated into the Medicare program by 42 U.S.C. § 1395ii. Section 405(h) relating to the finality of the Secretary's decisions, states, in pertinent part:
Title 42 U.S.C. § 1395ii reads thus:
The provisions of sections 406 and 416(j) of this title, and of subsections (a), (d), (e), (h), (i), (j), (k), and (l) of section 405 of this title, shall also apply with respect to this subchapter to the same extent as they are applicable with respect to subchapter II of this chapter, except that, in applying such provisions with respect to this subchapter, any reference therein to the Commissioner of Social Security Administration shall be considered a reference to the Secretary or the Department of Health and Human Services, respectively.
No finding of fact or decision of the Commissioner of Social Security shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Commissioner of Social Security, or any officer or employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under this subchapter.
Title 42 U.S.C. § 405(h) (Supp. 2005).
Section 405(h) explicitly precludes jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1346, but does not mention the mandamus statute, 28 U.S.C. § 1361. The Supreme Court of the United States has interpreted this section as precluding judicial review of determinations of claims for benefits arising under the Social Security Act, except as explicitly provided by statute.Weinberger v. Salfi, 422 U.S. 749, 757-62 (1975). However, the Court has explicitly declined to decide whether the third sentence of 42 U.S.C. § 405(h) bars mandamus jurisdiction over claims arising under the Social Security Act. Heckler v. Ringer, 466 U.S. 602, 616-17 (1984). See Califano v. Yamasaki, 442 U.S. 682, 698 (1979); Norton v. Mathews, 427 U.S. 524, 529-31 (1976);Mathews v. Eldrigde, 424 U.S. 319, 332 n. 12 (1976).
Various circuits have held that section 405(h) does not preclude mandamus jurisdiction in appropriate circumstances involving disability benefit determinations. Monger v. Bowen, 817 F.2d 15, 17 n. 2 (4th Cir. 1987) (citing Ganem v. Heckler, 746 F.2d 844, 850 (D.C. Cir. 1984); Ellis v. Blum, 643 F.2d 68, 78 (2nd Cir. 1981)). See Your Home Visiting Nurse Servs., Inc. v. Sec'y of Health Human Servs., 132 F.3d 1135, 1141 (6th Cir. 1997) (courts have held mandamus jurisdiction exists over challenges to Secretary's procedural rules). For example, the Court of Appeals for the Second Circuit has held that despite section 405(h)'s sweeping language, district courts have mandamus jurisdiction under the Social Security Act in circumstances when the writ properly would issue. City of New York v. Heckler, 742 F.2d 729, 739 (2nd Cir. 1984) (citing Dietsch v. Schweiker, 700 F.2d 865, 867-68 (2nd Cir. 1983); Ellis v. Blum, 643 F.2d at 780-82). See also Mental Health Ass'n of Minn. v. Heckler, 720 F.2d 965, 971 n. 17 (8th Cir. 1985). The courts of appeal which have explicitly decided this issue have held that section 1361 "provides jurisdiction to review otherwise unreviewable procedural issues not related to the merits of a claim for benefits." Dietsch v. Schweiker, 700 F.2d at 868.
Even though the Fourth Circuit acknowledged that various circuits have held that section 405(h) does not preclude mandamus jurisdiction, in Monger it did not settle the issue whether mandamus jurisdiction is precluded in Medicare cases.
In Ganem v. Heckler, the Court of Appeals for the D.C. Circuit held that section 405(h) does not preclude the exercise of mandamus jurisdiction because the fact that Congress could have withdrawn the remedy expressly but did not do so is an indication of the congressional intent to preserve that remedy. Ganem v. Heckler, 746 F.2d at 852. The D.C. Circuit indicated that "there is now unfractured consensus in the Court of Appeals that have considered the question that mandamus remains available under the [Social Security] Act in appropriate circumstances. . . ." Ganem v. Heckler, 746 F.2d at 850. The Court of Appeals for the Seventh Circuit has held that it agrees with the other circuits which have concluded that "Congress's failure to express disapproval of the use of mandamus jurisdiction in Social Security cases when it amended other jurisdictional provisions is evidence that Congress intended to preserve mandamus jurisdiction for claims that are procedural in nature under the Social Security Act." Burnett v. Bowen, 830 F.2d 731, 738 (7th Cir. 1987) ("§ 405(h) does not bar mandamus jurisdiction over procedural claims under the Social Security Act") ("§ 405(h) presents no obstacle to mandamus jurisdiction" when claim is "essentially procedural in nature." Belles v. Schweiker, 720 F.2d 509, 512 (8th Cir. 1983)).
The weight of authorities has concluded that mandamus jurisdiction under section 1361 is available in Social Security cases when the claim involves a challenge to the procedures used in administering Social Security benefits but unrelated to the merits. Since section 405(h) has been incorporated by reference into the Medicare Act, Title II of the Social Security Act and the jurisprudence discussing it serve as a template for the review of Medicare claims. See Abbey v. Sullivan, 978 F.2d 37, 43 (2nd Cir. 1992). Since it has been interpreted that despite the existence of section 405(h), there is mandamus jurisdiction pursuant to 28 U.S.C. § 1361 in Social Security cases, it can be presumed that its specific incorporation into the Medicare statute did not change this result with regard to cases brought under the Medicare statute. Good Samaritan Hosp. Reg'l Med. Ctr. v. Shalala, 894 F. Supp. 683, 695 (S.D.N.Y. 1995) (citing Abbey v. Sullivan, 978 F.2d at 43). If I apply the same reasoning that the courts of appeals have used for Social Security cases, I could conclude that section 405(h) does not bar mandamus jurisdiction in Medicare case, either.
However, the Supreme Court has declined to resolve the question of whether section 405(h) precludes mandamus jurisdiction in Medicare cases, because it has held that even if mandamus jurisdiction was available, its exercise would have been inappropriate. Heckler v. Ringer, 466 U.S. at 616. In the same manner, the Second Circuit in Anderson v. Bowen, 881 F.2d 1, 5 (2nd Cir. 1989), held that even accepting arguendo that mandamus jurisdiction could be invoked to permit judicial review of a Medicare Part B determination, its exercise was inappropriate. Similarly, in Hadley Mem'l Hosp., Inc. v. Schweiker, 689 F.2d 905, 912 (10th Cir. 1982), the Tenth Circuit stated that since the issuance of a mandamus was inappropriate, it did not have to decide whether section 405(h) barred mandamus jurisdiction in a claim by a provider of services under Medicare.
In Cervoni v. Sec'y of Health, Educ. Welfare, 581 F.2d 1010, 1019 (1st Cir. 1978), a Social Security case decided prior toHeckler v. Ringer, the First Circuit indicated that "[s]ubstantial question exists . . . regarding the extent to which section 405(h) bars mandamus jurisdiction." However, the First Circuit Court of Appeals has not ruled on the availability of mandamus jurisdiction in Medicare Part B cases. While plaintiff may invoke mandamus jurisdiction to permit judicial review of an administrative claim in general, in relation to a determination about Part D, this court does not have jurisdiction to grant plaintiff a writ of mandamus given the circumstances of the present case. I explain.
IV. Propriety of the Issuance of a Writ of Mandamus
The federal mandamus statute is codified at 28 U.S.C. § 1361. The statute provides:
The district courts shall have original jurisdiction of any action in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff.
Title 28 U.S.C. § 1361.
The Supreme Court has stated that a writ of mandamus is appropriate only when the defendant owes plaintiff a clear nondiscretionary duty and all other avenues of relief have been exhausted. Heckler v. Ringer, 466 U.S. at 616-17 (citing Kerr v. United States District Court, 426 U.S. 394, 402-03 (1976));Eveland v. Director of C.I.A., 843 F.2d 46, 50 (1st Cir. 1988);Harmon Cove Condo. Ass'n, Inc. v. Marsh, 815 F.2d 949, 951 (3rd Cir. 1987). It has indicated that "[t]he extraordinary remedy of mandamus under 28 U.S.C. § 1361 will issue only to compel the performance of a `clear nondiscretionary duty.'" Pittston Coal Group v. Sebben, 488 U.S. 105, 121 (1988) (citing Heckler v. Ringer, 466 U.S. at 616); see Maldonado Guzmán v. Comm'n of Soc. Sec., 182 F. Supp. 2d 216, 219 (D.P.R. 2002).
The Court of Appeals for the First Circuit has held that such an extraordinary remedy is "available only under exceptional circumstances of clear illegality." Cervoni v. Sec'y of Health, Educ. Welfare, 581 F.2d at 1019.See Ass'n of Am. Med. Coll. v. Califano, 569 F.2d 101, 110-11 n. 80 (D.C. Cir. 1977) (mandamus employed only under exceptional circumstances, for courts will intervene to disturb determinations of administrative officials only in clear cases of illegality). "Subject to some exceptions, an applicant for the writ of mandamus normally `must show both that there is a clear entitlement to the relief requested, and that irreparable harm will likely occur if the writ is withheld.' In re United States, 158 F.3d 26, 30 (1st Cir. 1998) (internal quotation marks omitted) (quoting In re Cargill, Inc., 66 F.3d 1256, 1260 (1st Cir. 1995)). . . ." In re United States, 441 F.3d 44, 56 (1st Cir. 2006).
The stringent prerequisites for the issuance of a writ of mandamus are: "(1) a clear right in the plaintiff to the relief sought; (2) a plainly defined and peremptory duty on the part of the defendant to do the act in question; and (3) no other adequate remedy available." Cervoni v. Sec'y of Health, Educ. Welfare, 581 F.2d at 1019 (citing Lovallo v. Froehlke, 468 F.2d 340, 343 (2nd Cir. 1972)). See Mayburg v. Sec'y of Health Human Servs., 740 F.2d 100, 107-08 (1st Cir. 1984); Hadley Mem'l Hosp., Inc. v. Schweiker, 689 F.2d at 912; Falzarano v. United States, 607 F.2d 506, 513 (1st Cir. 1979) ("Only when the duty is clear and unmistakable is the extraordinary remedy of mandamus appropriate."). Thus, a writ of mandamus may not be issued in this case unless the plaintiff has a right to have the act performed, the defendant is under a ministerial and clearly defined duty to perform said act, and the plaintiff has exhausted all other avenues of relief. Heckler v. Ringer, 466 U.S. at 616-17. Plaintiff's claim does not meet these three requisites.
Plaintiff was aware that the bidding process under Part D began on June 6, 2005, according to law and ended two months later. (Tr. at 272.) Due to server difficulties, plaintiff could not submit the Part D bid on time, but rather in the third week of August, 2005. CMS reviewed Red Medica's August bid submission and supporting documentation of the bid. Plaintiff was made aware that additional documentation would be considered to support the original bid submission but that such documentation had to be in support of the original bid and could not incorporate additional assumptions developed after June 6, 2005. The bid would be considered if Red Medica could provide additional materials to support the bid which showed that the assumptions used were consistent with the assumptions of June 6, 2005. (Tr. at 207, 300.) Plaintiff was aware that CMS had found that in comparing the bid pricing tool in more recent communication to bids previously submitted, there were many changes, including changes to the underlying assumptions, such as the number of member months, number of scripts, projected allowed costs, average cost per scripts and the cost distribution by claim interval all changed from the prior bid pricing tools submitted. (Tr. at 267, 268, 270.) But more importantly, it is clear that throughout the period when the Part D bid was being considered and Red Medica was being asked to submit additional documentation, and was in fact submitting additional documentation, CMS/OACT would weigh and review the submissions and attempt to reach a favorable solution to plaintiff. Ultimately, CMS/OACT determined that notwithstanding the attempt on the part of plaintiff, and plaintiff's actuaries, and notwithstanding CMS's apparent willingness to assist plaintiff in complying with the regulations, that did not happen. Plaintiff sought further review of the bid and that review was rejected because the process had to come to an end, a decision which in no way can be considered arbitrary. It is clear that CMS/OACT was constantly willing to work with plaintiff in order to understand how the bid numbers were reached. CMS/OACT finally determined that plaintiff was unable to provide and explain the required support. Plaintiff insists that it has a right to continue the bid review and negotiation process under 42 C.F.R. § 422.256 (2006) and stresses that CMS has not offered it a review and negotiation process as to the Part D bid. However it is clear from a reading of the applicable regulation that plaintiff cannot require further negotiation. The regulation reads as pertinent as follows:
Authority. Subject to the paragraphs (a)(2), (d), and (e) of this section, CMS has the authority to review the aggregate bid amounts submitted under § 422.252 and conduct negotiations with MA organizations regarding these bids (including the supplemental benefits) and the proportions of the aggregate bid attributable to basic benefits, supplemental benefits, and prescription drug benefits.
Title 42 C.F.R. § 422.256(a) (2005).
Negotiation process. The negotiation process may include the resubmission of information to allow MA organizations to modify their initial bid submissions to account for the outcome of CMS' regional benchmark calculations required under § 422.258(c) and the outcome of CMS' calculation of the national average monthly bid amount required under section 1860D-13(a)(4) of the Act.
Title 42 C.F.R. § 422.256(c) (2005).
A clear reading of the pertinent regulations reflects the discretionary nature of the Secretary's authority to negotiate with bidders, authority which provides for allowing resubmission of information to allow bidders to modify initial bid submission for certain purposes. This does not result in an entitlement. While modification of initial bid submissions can be made for purposes of accounting for the outcome of CMS' regional benchmark calculations required under section 422.258(c) and the outcome of CMS' calculation of the national average monthly bid amount required under section 1860D-13(a)(4) of the Act, the MA organizations are not entitled to modify initial bid assumptions to correct problems with the bid. Nowhere does the regulation allow plaintiff bidder to change assumptions in the bid for any reason, as intimated by plaintiff. (Docket No. 1, Complaint, at 5, ¶ 12.) The baseline always remains June 6, 2005. To qualify for mandamus relief, plaintiff must show a clear nondiscretionary duty to provide an administrative review process for the issues related to the bid negotiation. That clear nondiscretionary duty does not exist. Finally, the bid negotiation process is not subject to administrative review. See 42 C.F.R. § 422.501(c)(2); 42 C.F.R. § 423.502(c)(2). Again, a clear reading of the cited regulations reflects that there is no administrative review of CMS determinations regarding the Part D bid.
Title 42 C.F.R. § 422.641 states:
Contract determinations:
This subpart establishes the procedures for making and reviewing the following contract determinations:
(a) A determination that an entity is not qualified to enter into a contract with CMS under Part C of Title XVIII of the Act.
(b) A determination to terminate a contract with an MA organization in accordance with § 422.510(a).
(c) A determination not to authorize a renewal of a contract with an MA organization in accordance with § 422.506(b).
Plaintiff argues that the notice of contract determination is legally insufficient inasmuch as it does not provide notice of the applicable procedure for administrative and/or judicial review. It argues that contrary to 42 C.F.R. § 422.644(b)(2), the notice states that Red Medica does not have the right to administrative review, when section 422.644(b)(2) specifically requires that such notice be given and sections 422.648 and 422.650 grant such right. However, it is clear that Part D is not referred to in 42 C.F.R. § 422.641, and is specifically excluded, by the mentioning of Part C. Thus, the regulation excludes such review under Part D. Specifically, 42 C.F.R. § 422.501(c)(2) states: "A CMS determination that an entity is qualified to act as an MA organization is distinct from the bid negotiation that occurs under subpart F of this part and such negotiation is not subject to the appeals provisions included in subpart N of this part." Subpart N concerns Medicare Contract Determinations and Appeals. Admittedly, Red Medica qualifies as an MA organization. A clear reading of the regulations reflects that such qualification is distinct from the bid negotiation.
V. Administrative Procedure Act
The standard of review under the Administrative Procedure Act provides that agency action, findings, and conclusions can be set aside only if they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law[,]" Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 413-14 (1971),abrogated on other grounds by Califano v. Sanders, 430 U.S. 99 (1977), or "unsupported by substantial evidence in a case . . . reviewed on the record of an agency hearing provided by statute. . . ." Id. at 414 n. 30. Under the arbitrary and capricious standard, an agency action may be invalidated only if it is not rational or not based on a consideration of relevant factors. F.C.C. v. Nat'l Citizens Comm. for Broad., 436 U.S. 775, 803 (1978) (citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. at 413-16). Under the substantial evidence rule, review is also narrow. Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Consol. Edison Co. of New York v. NLRB, 305 U.S. 197, 229 (1938), cited in Richardson v. Perales, 402 U.S. 389, 401 (1971); Consolo v. Fed. Maritime Comm'n, 383 U.S. 607, 619-20 (1966); Visiting Nurse Ass'n Gregoria Auffant, Inc. v. Tommy G. Thompson, No. 04-2721, slip op. at 6 (1st Cir. May 8, 2006). "It is well settled that in such cases courts should afford considerable respect to the agency's interpretation of its own regulations. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566, 100 S.Ct. 790, 797, 63 L.Ed.2d 22 (1980). Generally, such an interpretation is of controlling weight, unless the reviewing court determines that it is plainly erroneous or inconsistent with the regulation. Udall v. Tallman, 380 U.S. 1, 16-17, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965); Bowles v. Seminole Rock Co., 325 U.S. 410, 413-14, 65 S.Ct. 1215, 1217, 89 L.Ed. 1700 (1945)." Cheshire Hosp. v. New Hampshire-Vermont Hospitalization Serv., 689 F.2d 1112, 1117 (1st Cir. 1982) (footnote omitted). "In such an area `(m)atters of accounting, unless they "be the expression of a whim rather than an exercise of judgment," are for the agency.'" Id. (quoting Hosp. San Jorge v. Sec'y of Health, Educ. Welfare, 616 F.2d 580, 589 (1st Cir. 1980) (Campbell, J. concurring) (quoting Am. Tel. Tel. Co. v. United States, 299 U.S. 232, 237 (1936)). Under this standard, the Secretary's interpretation of his own regulations is entitled to controlling weight, as long as it reasonably comports with the language and purpose of the regulation, Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994), particularly where "the regulation concerns `a complex and highly technical regulatory program. . . .'" Id. (quoting Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 697 (1991)); Visiting Nurse Ass'n Gregoria Auffant, Inc. v. Tommy G. Thompson, No. 04-2721, slip op. at 14. Plaintiff argues that CMS' contract determination was made in violation of 5 U.S.C. § 552(a)(1) because CMS applied alleged regulations requirements in order to deny Red Medica a contract that had not been published in the Federal Register. Plaintiff received a 42-page instruction booklet for completing the Medicare Prescription drug plan bid form for contract year 2006. Those instructions are dated March 30, 2005. It is clear that CMS did not deny Red Medica a contract as such, but rather determined that it qualified as an MA organization but that its planned bid for Part D was unacceptable, thus precluding CMS to contract with plaintiff CMS for it to offer the MA-PD plan. Title 42 C.F.R. § 422.641 focuses on certain contract determinations, such as that an entity is not qualified to enter into a contract with CMS under Part C of Title XVIII of the Act. This does not apply here. It also refers to the termination of a contract with an MA organization in accordance with section 422.510(a), which does not apply since an existing contract was not terminated. Finally, it refers to a determination not to authorize a renewal of a contract with an MA organization in accordance with section 422.506(b), which also does not apply because CMS has not refused to renew a contract. Rather CMS/OACT found that the Part D bid submission by Red Medica for contract year 2006 was not acceptable on actuarial grounds. Indeed, CMS is expecting plaintiff to submit a Plan D bid for contract year 2007.
Again, under the APA, the agency action, findings and conclusions can be set aside only if they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2); see Visiting Nurse Ass'n Gregoria Auffant, Inc. v. Tommy G. Thompson, No. 04-2721, slip op. at 6. In determining that the bid was not acceptable, the OACT noted that such bid was based upon an unreasonable set of assumptions, and that the plan, Red Medica de Puerto Rico, Inc., was not able to provide substantiating documentation of the assumptions used in preparing the Part D bid. The chief actuary then explained the lack of adequate justification. For example, it was determined that certain underlying assumptions were unreasonable absent adequate justification. As an example, the bid included an average cost of only $45 per brand-name prescription, $23 per generic prescription, and a generic utilization rate of 77%. Plaintiff was explained that together these assumptions result in an overall cost per prescription of only $30. OACT explained that it had worked with plaintiff to get an understanding of the development of the bid, including the source of data supporting the key assumptions and bid factors. While the plan's current actuary stated that the original bid relied on data from a specific pharmacy benefit management company, and that he would seek to confirm this data, he was not able to do so and indicated that corrected bid pricing factors would increase the pharmacy expense of the plan. Since CMS/OACT determined that the significant issues raised could not be remedied by Red Medica without the introduction of new bid material which would be developed subsequent to the bid deadline of June 6, 2005, and which would be inconsistent with their original bid development, CMS/OACT determined that the Part D submission was not acceptable on actuarial grounds. A review of the administrative record as a whole, and without focusing on any one particular event as dispositive, reveals that the negative determination was not the product of arbitrary or capricious action, and not contrary to law.
V. Conclusion
Plaintiff has not met the stringent prerequisites for the issuance of a writ of mandamus because they have not made a showing that the Secretary owes it a clear nondiscretionary duty to continue the negotiation and review process. The Secretary does not have a ministerial duty to grant plaintiff the relief sought. There is no basis for the exercise of mandamus jurisdiction. Concomitantly there is no right to declaratory or injunctive relief since the Administrative Procedure Act has not been violated and the Commissioner has, in accordance with regulatory authority, concluded the adjudicatory process as required within the regulatory scheme.
Consequently, I recommend that the request for mandamus, declaratory and injunctive relief be denied and that this action be dismissed.
Under the provisions of Rule 72(d), Local Rules, District of Puerto Rico, any party who objects to this report and recommendation must file a written objection thereto with the Clerk of this Court within ten (10) days of the party's receipt of this report and recommendation. The written objections must specifically identify the portion of the recommendation, or report to which objection is made and the basis for such objections. Failure to comply with this rule precludes further appellate review. See Thomas v. Arn, 474 U.S. 140, 155 (1985);Davet v. Maccorone, 973 F.2d 22, 30-31 (1st Cir. 1992); Paterson-Leitch Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985 (1st Cir. 1988); Borden v. Sec'y of Health Human Servs., 836 F.2d 4, 6 (1st Cir. 1987);Scott v. Schweiker, 702 F.2d 13, 14 (1st Cir. 1983); United States v. Vega, 678 F.2d 376, 378-79 (1st Cir. 1982); Park Motor Mart, Inc. v. Ford Motor Co., 616 F.2d 603 (1st Cir. 1980).