Health Law Daily Suppliers may proceed with breach of contract claims against federal government
Wednesday, March 29, 2017

Suppliers may proceed with breach of contract claims against federal government

By Kayla R. Bryant, J.D.

Durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) companies may pursue a breach of contract suit against the federal government following the termination of their DMEPOS Competitive Acquisition Program (DMEPOS CAP) contracts. The U.S. Court of Federal Claims found that Congress did not strip subject matter jurisdiction from the court when enacting the Medicare Improvements for Patients and Providers Act (MIPPA) (P.L. 110-275) (Florida Home Medical Supply, Inc. v. U.S., March 28, 2017, Campbell-Smith, P).

CAP and MIPPA. Under the DMEPOS CAP, suppliers would compete for contracts to provide equipment for geographic areas at set prices. CMS entered into contracts with about 300 suppliers in its initial round in June 2008, including the 14 suppliers included in this consolidated action. One month later, MIPPA was enacted. A subclause of MIPPA terminated all of the DMEPOS CAP contracts and provided that damages would be payable from the Federal Supplementary Medical Insurance Trust Fund, and stated, "Nothing in subclause (I) shall be construed to provide an independent cause of action or right to administrative or judicial review with regard to the termination provided under such subclause" (42 U.S.C. §1395w-3(a)(1)(D)(i)).

Claims process and judicial review. CMS created an administrative claims process for the affected suppliers. Three of the 14 suppliers in this case proceeded through this process. Two were denied compensation and one received partial payment. The rest chose to file directly before the Court of Federal Claims alleging breach of contract. The federal government argued that the court lacked subject matter jurisdiction, pointing to the relevant subclause as evidence that Congress intended for CMS to establish an administrative process as the exclusive remedy for pursuing damages.

In outlining its reasoning for denying the U.S.’s motion to dismiss, the court relied heavily upon a similar case in which the Federal Circuit decided that MIPPA "left untrammeled" the Court of Federal Claims’ subject matter jurisdiction over these breach of contract claims. This court addressed two questions that it found left open by the Federal Circuit: (1) can a supplier that received partial recovery file suit for other damages?; and (2) is a supplier obliged to exhaust administrative remedies before filing suit?"

The court found that the CMS administrative process is not the only remedy available to the suppliers. MIPPA erased the CAP process and gave the HHS Secretary the opportunity to enter into new arrangements, but did not show Congress’s "unambiguous intention" to remove the rights and remedies established in the prior contracts. The government further argued that the MIPPA subclause precluded judicial review of an administrative decision, and that any supplier receiving partial payment (or no payment) cannot appeal a final CMS administrative decision. The court found that the cases filed by suppliers that had previously pursued the administrative process were breach of contract claims like those filed by any other aggrieved party, not administrative appeals. Finally, the court found that MIPPA did not expressly mention an administrative remedy, and CMS’ regulation states that a supplier "may" file a claim for damages (42 C.F.R. section 414.425(a)(1)). The court denied the U.S.’s motion to dismiss and will consider the pending motions for summary judgment.

The case is No. 14-596 C.

Attorneys: Jerry Stouck (Greenberg Traurig, LLP) for Florida Home Medical Supply, Inc. David M. Kerr, U.S. Department of Justice, for the United States of America.

Companies: Florida Home Medical Supply, Inc.; United States of America

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