Six years and five levels of appeal after the Department of Health and Human Services (HHS) first determined that Senator Robert Menendez’s (D-NJ) close friend and major contributor, Dr. Salomon Melgen, owed $8.9 million for overbilling Medicare in 2007 and 2008, the initial determination held up.
Remarkable as it may seem, Melgen’s medical practice, incorporated as Vitreo-Retinal Consultants of the Palm Beaches (Florida), may face additional Medicare overbilling charges covering the period from January 2009 to June 2013 that could reach many millions of dollars more.
Though a staggering number, the scale of Melgen’s practice is extraordinary.
In 2012 alone, for instance, Melgen’s Vitreo-Retinal Consultants received $21 million in Medicare reimbursements, more than any other doctor in the entire United States.
And for much, if not all, of the four and a half years from January 2009 to June 2013, Melgen followed the same multi-dosing and billing practice in his use of Lucentis, an expensive drug used in the treatment of macular degeneration, as he did during 2007 and 2008.
Melgen’s troubles with HHS began after the Medicare contractor assigned to supervise his account initiated an audit of his billing and medical practices for 2007 and 2008.
After that audit, the Medicare contractor determined in February 2009 that Melgen’s Vitreo-Retinal Consultants owed $8.9 million for an outlandish billing practice.
For the two-year period covered by the audit (2007 and 2008), Melgen purchased 2 milligram vials of Lucentis from manufacturer Genentech for $2,000 each, and, rather than extract a single 0.5 miligram dose of the expensive liquid to treat a single patient from each vial, Melgen extracted three 0.5 milligram doses from each vial and delivered doses to three different patients. (In some cases he actually extracted four 0.5 milligram doses from a 2 milligram vial, but on average over thousands of patients he extracted three). This violates standard medical policy, which is to use a fresh vial for each patient and discard any extra Lucentis.
Still, had Melgen combined this multi-dosing medical practice with a standard HHS approved “average sales price” accounting practice of billing at cost plus 6 percent, he would not have run afoul of HHS. Using his multi-dosing practice, Melgen should have billed Medicare $707 for each dose of Lucentis delivered to his patient (cost of Lucentis per patient of $667 plus six percent).
For each vial used, then, Melgen should have billed Medicare $2,120, leaving him with a $120 markup on the Lucentis used.
But Melgen did something highly unusual and clearly not allowed.
For each vial used, Melgen actually billed Medicare $6,360, leaving him with a $4,360 markup on the Lucentis used.
By Breitbart News’s calculations, Melgen purchased 2,100 vials of Lucentis during the two-year period from January 1, 2007 to December 31, 2008, which he used to deliver 6,300 patient doses.
As Melgen’s attorneys admitted in court documents filed in 2014: “[i]n 2007, SafeGuard Services LLC, the Zone Program Integrity Contractor (‘ZPIC’) for Plaintiff’s [Vitreo-Retinal Consultants –‘VRC’] region, undertook a review of VRC’s claims for Lucentis. . . Accordingly, [in February 2009] the ZPIC held that payments for two-thirds of VRC’s Lucentis administrations constituted recoverable overpayments.”
In other words, Melgen was paid the full $13.5 million he billed Medicare for his delivery of 6,300 patient doses of Lucentis during 2007 and 2008, but was only entitled to be paid $4.6 million. The difference–$8.9 million–was the amount he overbilled.
As the Department of Justice argued subsequently:
Plaintiff [Vitreo-Retinal Consultants] repeatedly notes that, if it had administered Lucentis as directed, “it would have been entitled to the exact same payment” from Medicare. . . Maybe so. But it would not have collected a $9 million windfall — at taxpayer expense — by seeking “reimbursement” for 3 to 4 times its actual cost for the drug. And it would not have subjected its own patients to an increased risk of infection solely for the sake of profit.
In 2009, shortly after the initial determination he had overbilled Medicare by $8.9 million, Melgen hired the high-powered Washington-based law firm Arnold & Porter to represent him during the lengthy appeal process. During the first four levels of appeal, Arnold & Porter partner Alan Reider, an expert in administrative law, represented Melgen.
Later that same year, Melgen lost his first level of appeal, when his request for redetermination by the medical contractor was denied.
Melgen, who was still receiving high levels of Medicare reimbursement for his medical practice for services rendered to patients from January 2009 and beyond, began repaying the $8.9 million he had overbilled, a repayment process he completed in 2011.
In 2010, Melgen lost his second level of appeal when he requested reconsideration by a qualified independent contractor.
In 2011, Melgen lost his third level of appeal when an Administrative Law Judge ruled in favor of HHS’s overpayment determination.
While his fourth level of appeal–a request for review by the Medicare Appeals Council-—was still pending in 2012, Melgen apparently decided to call in political favors with Senator Menendez and then-Majority Leader Senator Harry Reid (D-NV) to pressure Secretary of HHS Kathleen Sebelius to influence the Medicare Appeals Councils review.
In the organizational structure of HHS, the Medicare Appeals Council (MAC) is located in the Department of Appeals Board (DAB), within the Office of the Secretary. The Chairman of the DAB, Constance Tobias, is also a member of the Medicare Appeals Council, which includes other attorneys, staffers, and administrative law judges employed within the DAB.
By law, rule, and precedent, any review of an Administrative Law Judge’s decision conducted by the MAC is supposed to be conducted entirely independent of political pressure.
HHS has established policies and procedures to prevent any Secretary of HHS from unduly influencing the MAC decision making process. In theory, since Tobias, the head of the MAC, reports directly to the Secretary, an unscrupulous person holding that office could attempt to unduly influence that decision in response to outside political pressure.
In Washington, however, political pressure is the name of the game. Senator Robert Menendez and Senator Harry Reid are master practitioners of that dark art. But in applying political pressure on Secretary Sebelius in 2012 to improperly influence the outcome of the MAC review, both Reid and Menendez may have stepped over the line in the application of that pressure from merely questionable actions to outright criminal conduct.
Along the way, they have brought the conduct of Menendez staffer Michael Barnard and Arnold & Porter attorney Alan Reider in the direct line of questioning by the federal grand jury investigating Menendez’s conduct.
As Breitbart News reported, Menendez met with Centers for Medicare and Medicaid Services (CMS) Administrator Marilyn Tavenner on June 7, 2012. Tavenner, who left that position in February 2015, has not responded to Breitbart News’s inquiries as to the topic of that meeting, and Menendez claims it was only to discuss legislative matters. But the Department of Justice alleges it was to specifically pressure Tavenner to intervene in the MAC’s pending review of Melgen’s appeal of the $8.9 million overbilling determination.
When called before the federal grand jury investigating Menendez in November 2014, Menendez aide Barnard refused to answer any questions about his direct email communications with Melgen’s attorney, Reider, immediately before and after this meeting.
It is unclear whether the grand jury asked Reider to appear before it to answer questions about these email exchanges. Breitbart News has asked both Barnard and Reider for comment but received no response.
On June 8, 2012, Melgen’s Vitreo-Retinal Consultants contributed $300,000 to the Senate Majority PAC, a Super PAC closely linked to Reid. That number would grow to $700,000 by October 2012.
Additional email exchanges between attorney Reider and Menendez staffer Barnard soon ensued. When asked questions about these emails by the grand jury, Barnard refused to answer them.
Reid soon began pressuring HHS Secretary Sebelius to meet with him and Senator Menendez in his offices “to discuss the Melgen billing matter,” as Sebelius told Politco last week.
After consulting with HHS counsel, Sebelius agreed to meet with Menendez and Reid. The meeting took place in Reid’s Capitol Hill office on August 2, 2012.
According to documents filed in federal court, immediately preceding the meeting, Menendez’s Chief of Staff Danny O’Brien asked Menendez if Melgen had been informed that the meeting was about to take place.
As Sebelius tells it, during the meeting Senator Menendez grilled her and Jonathan Blum, the Deputy Administrator for CMS, also in attendance, about the details of the $8.9 million Medicare overbilling determination against his close friend Melgen, and made the case that HHS had treated him unfairly.
To her credit, Sebelius refused to cave to Menendez’s pressure and apparently told him she would not interfere in the pending review by the MAC.
It’s unknown whether Reid or Menendez disclosed to Sebelius that the company whose billing dispute was at the time under review by the MAC (Melgen’s Vitreo-Retinal Consultants) had recently contributed $300,000 to the Super PAC closely affiliated with Reid.
After the meeting, Mendez staffer Barnard and Melgen attorney Reider once again exchanged emails. Barnard refused to answer questions posed by the grand jury about these emails as well.
The contents of those email exchanges are likely to be of great interest to the grand jury. Did, for instance, Reider provide specific details of the case pending before the MAC to Barnard, for use in what amounted to an extralegal proceeding inside Senator Reid’s office that day?
If so, did all the parties in that communication chain–Reider, Barnard, Menendez, and Reid–act lawfully?
Surprisingly, the grand jury investigating Menendez has apparently not asked any of the actual participants in the August 2, 2012 meeting–Sebelius, Reid, Menendez, and Blum–to come before it and offer testimony as to what was actually discussed that day.
Ten months later, in June 2013, the MAC finally issued its findings, upholding the Administrative Law Judge’s decision that the $8.9 million Medicare overbilling determination against Melgen’s Vitreo-Retinal Consultants for the time period 2007 and 2008 was correct.
In August 2013 lawyers from the Florida based law firm Kobre & Kim and the Washington, D.C. based Arnold & Porter initiated the fifth level of appeal on Melgen’s behalf in the $8.9 million Medicare overbilling determination when it filed a lawsuit against HHS in the Federal District Court for the Southern District of Florida.
On September 30, 2014, Federal District Judge Marcia Cooke granted the Department of Justice’s motion for summary judgment, deciding that the Department of HHS had properly determined that Melgen overbilled Medicare by $8.9 million in 2007 and 2008 and closed the case.
Undaunted, Melgen and his attorneys filed an appeal of the decision with the Court of Appeals for the 11th Circuit Court on November 26, 2014, where the matter remains pending. In effect, having failed at five levels of appeal, Melgen is taking his case to a sixth level.
The federal grand jury investigating investigating Menendez is reported to be within weeks of returning a bill of indictment against him on corruption charges.
However, Reid’s equally egregious, and potentially criminal, conduct of attempting to unduly influence the Secretary of HHS to interfere with an independent judicial administrative review of the substantial financial business interests of a doctor who donated $700,000 to a Super PAC closely affiliated with him remains, for the moment, completely devoid of scrutiny from what may well be the most highly politicized Department of Justice in American history.