Quest Diagnostics Incorporated

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United States District Court, N.D. Illinois, Eastern DivisionJan 16, 2001
No. 99 C 6122. (N.D. Ill. Jan. 16, 2001)

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No. 99 C 6122.

January 16, 2001.


Plaintiff Leonard Clemons has brought suit against Quest Diagnostics, Inc., alleging that Quest has violated Medicare law by billing Medicare Part B program beneficiaries for amounts to which Quest is not entitled under the terms of the program. Because the Medicare Act provisions on which Clemons relies are inapplicable to the facts alleged in his complaint, Clemons has failed to establish that this court has subject-matter jurisdiction over this case. Quest's motion to dismiss is granted.


According to Clemons, Quest is one of the largest clinical laboratory testing companies in the United States, offering a broad range of testing services used by physicians in the detection, diagnosis, evaluation, monitoring and treatment of diseases and other medical conditions. Quest's customers include physician practices, managed care organizations, hospitals, employers, institutions and other independent clinical laboratories. Quest has a network of 14 regional laboratories in the United States, along with approximately 140 smaller laboratories and 800 patient service centers. Quest processes over 50 million orders for testing each year.

Quest performed testing services for Clemons' late wife, Angeline Clemons, on February 2 and September 19, 1997. Quest directly billed her $70.20 on each occasion, even though United Healthcare, on behalf of the federal government, determined that the approved charge was only $29.53. Because the bills were sent to Angeline Clemons directly, Medicare never received the bills for the balance of the services rendered. Quest, directly and through a collection agency, sent several letters to Clemons and his wife requesting payment and threatening legal action if the balance was not paid. Eventually, in order to preserve his credit, Clemons paid $70.20 to Quest. Clemons contends that Quest is not entitled to this money, and has unsuccessfully sought a refund from the company.

The Medicare Part B program is administered by the Health Care Financing Administration, which contracts with insurance carriers to process claims and issue benefits on behalf of the federal government.

Besides bringing a claim in his own right, Clemons also brings the action on behalf of a class made up of all persons in the Medicare Part B program who were billed by Quest for amounts in excess of those permitted under the program. Clemons limits the class to those who were billed on or after a date five years prior to the filing of his suit.

Clemons' complaint is made up of four counts. First, Clemons alleges that Quest violated 42 U.S.C. § 1395u(b)(18) by billing for the services at issue, and is obligated to refund to Clemons and the class members the amounts improperly collected. Second, Clemons alleges that Quest violated the Illinois Consumer Fraud Act, 815 ILCS 505/2, by billing and collecting amounts to which it is not entitled. Third, Clemons alleges that Quest was unjustly enriched by its illegal billing and collection, and that Quest's retention of the improperly collected amounts wrongfully confers a benefit on it. Fourth, Clemons alleges that Quest breached the terms of its contracts by billing and collecting amounts not payable under the Medicare Act.

Quest's motion to dismiss has two components. First, Quest contends that this court lacks subject-matter jurisdiction over the Medicare Act violation set forth in the first count of Clemons' complaint. In support of this contention, Quest argues that Clemons' allegations do not fall within the scope of 42 U.S.C. § 1395u(b)(18) — the Medicare Act provision allegedly violated — and that, in any event, there is no private right of action under § 1395u(b)(18). The second component of Quest's motion to dismiss targets Clemons' three state-law claims.

According to Quest, the court should decline to exercise supplemental jurisdiction over those claims because it lacks subject-matter jurisdiction over the Medicare Act claim.


A motion to dismiss tests the sufficiency of the complaint, not the merits of the suit. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). Because Quest's challenge to Clemons' state-law claims only becomes relevant if the court finds that it lacks jurisdiction over Clemons' Medicare Act claim, the court will address the Medicare Act claim first.

The existence of federal question jurisdiction must be determined from the face of the complaint. Turner/Ozanne v. Hyman/Power, 111 F.3d 1312, 1316 (7th Cir. 1997) (citing Bell v. Hood, 327 U.S. 678, 680-82 (1946)). Clemons has the burden of making a prima facie showing that jurisdiction is proper. See Didzerekis v. Stewart, 41 F. Supp.2d 840, 844 (N.D. Ill. 1999). There are two types of challenges to jurisdiction which may be made: first, an assertion that the complaint's allegations are insufficient to demonstrate the existence of jurisdiction; and second, a challenge to the truth of the jurisdictional facts alleged in the complaint. Freiburger v. Emery Air Charter, Inc., 795 F. Supp. 253, 256 (N.D. Ill. 1992). In the first type of challenge — which is the one presented here — the standard applied under Rule 12(b)(1) is similar to the standard applied under Rule 12(b)(6). See id. The court must take all of Clemons' allegations as true and must view them, along with all reasonable inferences drawn from them, in the light most favorable to Clemons. See id. at 257.

Medicare is a health insurance program providing benefits for individuals age 65 or older, as well as certain other individuals who come within its terms. See 42 U.S.C. § 1395c, 1395j. Medicare Part A provides automatic protection to those eligible against the costs of hospital, related post-hospital, home health services, and hospice care. See id. §§ 1395c-1395i. Medicare Part B is a supplemental, voluntary program that provides protection against the costs of certain medical services not covered under Part A. See id. §§ 1395j to 1395w-4. Part B is financed by a combination of government funding and premiums paid by its beneficiaries. See id. § 1395j. Physicians providing services to Part B beneficiaries must submit a claim form to the government for payment. See id. § 1395w-4(g)(4)(A). The amounts that they may recover are limited by established fee schedules. See id. § 1395w-4(g)(2)(C), (D).

It is Quest's alleged disregard for the Medicare-imposed payment constraints that serves as the basis for Clemons' suit. Clemons alleges that by billing and collecting for the full amount of his wife's tests — rather than seeking only the Medicare-approved amount — Quest violated § 1395u(b)(18) of the Medicare Part B provisions. The paragraph provides that:

(A) Payment for any service furnished by a practitioner described in subparagraph (C) and for which payment may be made under this part on a reasonable charge or fee schedule basis may only be made under this part on an assignment-related basis.
(B) A practitioner described in subparagraph (C) or other person may not bill (or collect any amount from) the individual or another person for any service described in subparagraph (A), except for deductible and coinsurance amounts applicable under this part. No person is liable for payment of any amounts billed for such a service in violation of the previous sentence. If a practitioner or other person knowingly and willfully bills (or collects an amount) for such a service in violation of such sentence, the Secretary may apply sanctions against the practitioner or other person in the same manner as the Secretary may apply sanctions against a physician in accordance with subsection (j)(2) of this section in the same manner as such section applies with respect to a physician. Paragraph (4) of subsection (j) of this section shall apply in this subparagraph in the same manner as such paragraph applies to such section.
(C) A practitioner described in this subparagraph is any of the following:
(i) A physician assistant, nurse practitioner, or clinical nurse specialist (as defined in section 1395x(aa)(5) of this title).
(ii) A certified registered nurse anesthetist (as defined in section 1395x(bb)(2) of this title).
(iii) A certified nurse-midwife (as defined in section 1395x(gg)(2) of this title).
(iv) A clinical social worker (as defined in section 1395x(hh)(1) of this title).
(v) A clinical psychologist (as defined by the Secretary for purposes of section 1395x(ii) of this title).
(D) For purposes of this paragraph, a service furnished by a practitioner described in subparagraph (C) includes any services and supplies furnished as incident to the service as would otherwise be covered under this part if furnished by a physician or as incident to a physician's service.

Id. § 1395u(b)(18).

The initial question is whether this paragraph is even applicable to Clemons' allegations. Subparagraph (B) limits the paragraph's applicability to the services described in subparagraph (A), which by its terms applies only to services furnished by a practitioner described in subparagraph (C). Because Quest does not fall within any of the practitioner categories listed in subparagraph (C), Quest contends that the paragraph does not apply to it, and Clemons' Medicare Act claim fails on its face. Clemons insists that Quest has overlooked subparagraph (D), which provides that the paragraph also covers services furnished "incident to" the services listed in subparagraph (C). In his surreply brief, Clemons argues that "[t]he service that Quest provided — testing plaintiff's wife's blood — was incident to the service being provided by the plaintiff's wife's nurse and/or doctor." (Pl.'s Surrep. at 2)

Thus, beneath the statutory maze of cross-references, the inquiry boils down to one question: based on the allegations in Clemons' complaint, were the testing services furnished by Quest to Clemons' wife "incident to" a service performed by a practitioner listed in subparagraph (C)? For two reasons, the court believes that the answer is no.

First, Clemons has not alleged that his wife's blood was drawn by a practitioner listed in subparagraph (C). In his surreply brief, Clemons merely argues that her blood was drawn "most likely by `a physician assistant, nurse practitioner, or clinical nurse specialist.'" (Id. at 2) In order to carry his burden of establishing this court's subject-matter jurisdiction, Clemons must plead each fact on which jurisdiction is based. See, e.g., Leclaire Courts Resident Mgmt. Corp. v. Chicago Housing Auth., 945 F. Supp. 1107, 1109 (N.D. Ill. 1996) ("A party who invokes the jurisdiction of a federal court . . . must allege all facts necessary to give the court jurisdiction of the subject matter.").

Second, Clemons' conclusory assertion that the testing of blood is "incident to" the drawing of blood ignores the statutory context in which the language is found. In the context of subparagraph (D), "incident to" does not, as Clemons' argument implies, hinge on whether one service logically follows a service described in subparagraph (C). Rather, it focuses on whether one service should be treated as part of a service described in subparagraph (C) for purposes of Medicare compensation. Subparagraph (D) provides that the "services and supplies" in question must be related to the covered service in such a way that it "would otherwise be covered under this part if furnished by a physician or as incident to a physician's service." 42 U.S.C. § 1395u (b)(18)(D).

In Downtown Med. Ctr./Comprehensive Health Care Clinic v. Bowen, 944 F.2d 756, 759 (10th Cir. 1991), the Tenth Circuit provided further insight into the meaning of "incident to" in holding that, under Medicare, physicians could not bill for services of non-physicians who were not in their employ even if the non-physicians furnished their services under orders from the physicians. The court's analysis focused on the meaning of "incident to," and addressed the Medicare Act's general definition of "medical and other health services" as including, among other things, "services and supplies . . . furnished as an incident to a physician's professional service, of kinds which are commonly furnished in physicians' offices and are commonly either rendered without charge or included in the physicians' bills." 42 U.S.C. § 1395x(s)(2)(A).

In construing "incident to," the Downtown Med. Ctr. court looked to the Medicare Carrier's Manual (MCM), which provides that a non-physician's services must meet two requirements to be "incident to" a physician's services. First, the non-physician must render the services under the direct supervision of the physician. Second, the non-physician must be an employee of the physician. Id. at 768 (citing MCM § 2050.1). The court noted that the MCM also provides that "services furnished by auxiliary personnel who are not employees of the physician are not covered as `incident to' the physician's professional service, even if furnished under order of the physician and included in the physician's bill." Id. (citing MCM § 2050.2).

Given the language of subparagraph (D) as a whole, the applicability of the phrase "incident to" in the context of subparagraph (C) practitioners must be determined by the same substantive standard as is used to determine the applicability of the phrase in the context of physicians under the Medicare Act. At the very least, it cannot be determined under a less stringent standard, as Clemons' position would require.

In light of the Downtown Med. Ctr. court's explanation of "incident to," § 1395u(b)(18) does not apply to the allegations set forth in Clemons' complaint. Quest is not an employee of the clinic at which Clemons' wife's blood was drawn, nor was Quest directly supervised by anyone at the clinic. According to Clemons, Quest is a large, independent network of testing laboratories. Each patient specimen sent to Quest for testing is accompanied by an order form completed by a physician. The order form indicates the tests to be performed and the party to be billed. There are no allegations suggesting that Quest's testing services are "incident to" a subparagraph (C) practitioner's services.

In his surreply brief, Clemons raises a second potential Medicare Act violation by Quest. Clemons alleges that Quest's billing practices violated § 1395w-4(g)(1) of the Medicare Act, which provides that:

(A) In general

In the case of a nonparticipating physician or nonparticipating supplier or other person (as defined in section 1395u(i)(2) of this title) who does not accept payment on an assignment-related basis for a physician's service furnished with respect to an individual enrolled under this part, the following rules apply:

(i) Application of limiting charge

No person may bill or collect an actual charge for the service in excess of the limiting charge described in paragraph (2) for such service.

(ii) No liability for excess charges

No person is liable for payment of any amounts billed for the service in excess of such limiting charge.

. . . .

(iv) If such a physician, supplier, or other person collects an actual charge for a service in violation of clause (i), the physician, supplier, or other person shall provide on a timely basis a refund to the individual charged in the amount by which the amount collected exceeded the limiting charge for the service. The amount of such a refund shall be reduced to the extent the individual has an outstanding balance owed by the individual to the physician.

§ 1395w-4(g)(1).

By its terms, this provision is inapplicable to Quest. Section 1395u(i)(2) defines "nonparticipating supplier or other person" as "a supplier or other person (excluding a provider of services) that is not a participating physician or supplier (as defined in subsection (h)(1) of this section)." Section 1395u(h)(1), in turn, defines "participating physician or supplier" as a "physician or supplier (excluding any provider of services) who, before the beginning of any year beginning with 1984, enters into an agreement with the Secretary which provides that such physician or supplier will accept payment under [Part B] on an assignment-related basis for all items and services furnished to individuals enrolled under this part during such year."

Clemons alleges that "Quest was a `participating provider' under the Medicare program." (Compl. ¶ 15) Accordingly, Clemons can state no cause of action under § 1395w-4(g), which applies only to nonparticipating physicians, suppliers, and other persons.

Both Medicare Act provisions on which Clemons purports to base Count 1 — § 1395u(b)(18) and § 1395w-4(g) — are inapplicable to the facts alleged in his complaint. As noted above, Clemons bears the burden of establishing this court's jurisdiction over the subject matter of his suit. Because he has failed to allege facts that come within the Medicare Act provisions on which he relies to establish jurisdiction, Quest's motion to dismiss Count 1 is granted. The court need not — and does not — determine whether a private right of action may be implied under the terms of § 1395u(b)(18)(B).

Quest argues that the court should decline to exercise supplemental jurisdiction over Clemons' remaining claims — all of which are based on state law. Under 28 U.S.C. § 1367(c)(3), the court "may decline to exercise supplemental jurisdiction over a claim" if it "has dismissed all claims over which it has original jurisdiction." Because the court has dismissed the only federal-law claim in Clemons' complaint, and because that dismissal comes early in the litigation, the court declines to exercise supplemental jurisdiction over the state-law claims. See Kennedy v. Schoenberg, Fisher Newman, Ltd., 140 F.3d 716, 727 (7th Cir.), cert. denied, 525 U.S. 870 (1998).

In response, Clemons does not contend that supplemental jurisdiction remains appropriate in the absence of Count 1. Rather, Clemons contends that this court has original jurisdiction over the state-law claims pursuant to 28 U.S.C. § 1331 because his right to relief turns on a substantial question of federal law. Specifically, Clemons alleges that "interpretation and application of § 1395u is necessary for resolution of each of counts II through IV." (Pl.'s Resp. at 10)

As discussed above, the only paragraph of § 1395u relied on by Clemons does not apply to the facts alleged in Clemons' complaint. Thus, to the extent that the resolution of the state-law claims turns on an interpretation of § 1395u, those claims are non-starters, at least under the facts currently alleged. If there are other Medicare Act provisions on which the state-law claims can be based, then Clemons should identify those provisions in an amended complaint. At least for now, the court need not determine whether Clemons' reliance on Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1 (1983), is well-placed. Until Clemons has set forth a legitimate federal question on which the state-law claims turn, he has failed to establish subject-matter jurisdiction under 28 U.S.C. § 1331.


Because the above analysis is dispositive of Quest's motion to dismiss, the court does not reach the other arguments raised therein. The motion to dismiss is granted.