370 N.C. 443
N.C.2018Background
- Eight North Carolina medical provider practices sued DHHS and CSC after NCTracks (the State's new MMIS developed by CSC) went live on July 1, 2013, causing thousands of software errors and delayed/incorrect/unpaid Medicaid reimbursements.
- Plaintiffs alleged negligence and unfair/deceptive acts against CSC and breach of contract plus a takings claim against DHHS; they sought class relief and monetary damages.
- Plaintiffs filed a class action in superior court instead of pursuing administrative appeals after receiving Remittance Statements that indicated adverse determinations.
- DHHS and CSC moved to dismiss for lack of subject-matter jurisdiction, arguing plaintiffs failed to exhaust administrative remedies under the Administrative Procedure Act (APA) and applicable DHHS rules.
- The trial court dismissed for lack of jurisdiction; the Court of Appeals reversed, finding unresolved questions about whether DHHS issued required written final agency decisions and that administrative review might be futile.
- The Supreme Court held plaintiffs had not exhausted administrative remedies, rejected plaintiffs’ futility/inadequacy showing, and reversed the Court of Appeals, allowing plaintiffs to pursue administrative appeals (given conceded notice/tolling issues).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs were required to exhaust APA administrative remedies before suing for denied Medicaid reimbursements | Exhaustion not required because DHHS failed to provide the written "final notification" that triggers administrative review, and notice was defective | APA and DHHS rules provide reconsideration and contested-case procedures; plaintiffs received Remittance Statements and must pursue those remedies first | Plaintiffs must exhaust available administrative remedies before judicial review; dismissal for lack of jurisdiction was proper |
| Whether available administrative remedies were futile or inadequate to obtain plaintiffs’ requested relief | Administrative process would be futile and inadequate given volume of errors and inability of DHHS to resolve claims; some damages (business losses, time-value) are not recoverable administratively | Futility not shown; scope or size of claim does not excuse exhaustion; administrative process can address reimbursement disputes and procedural defects can be raised in contested case | Futility not established; plaintiffs failed to meet burden to show remedies were useless or inadequate |
| Whether claims against CSC are independent of DHHS such that exhaustion is unnecessary | CSC claims are separate tort/contract claims independent of DHHS reimbursement decisions | CSC and DHHS actions are intertwined; resolution of DHHS reimbursement decisions affects CSC liability and damages | Claims against CSC are sufficiently entwined with DHHS matters that administrative exhaustion remains necessary or intertwined defenses justify dismissal at this stage |
| Whether defective or absent written notice tolled or excused exhaustion/time limits | Absence/defect of final written notice meant plaintiffs could not reasonably pursue administrative remedies | Remittance Statements triggered remedies; statutory/regulatory procedures exist (reconsideration, contested case), and tolling issues do not excuse exhaustion | Court recognized notice confusion but noted State conceded statute-of-limitations/tolling; nonetheless plaintiffs must pursue administrative remedies (they may do so given tolling) |
Key Cases Cited
- Empire Power Co. v. N.C. Dep't of Env't, Health & Nat. Res., 337 N.C. 569 (1994) (judicial review generally available only after exhaustion of administrative remedies)
- Presnell v. Pell, 298 N.C. 715 (1979) (failure to exhaust administrative remedies may deprive court of subject-matter jurisdiction)
- Vass v. Bd. of Trs. of the Teachers' & State Emps.' Comprehensive Major Med. Plan, 324 N.C. 402 (1989) (exhaustion prerequisite to judicial review)
- Davidson County v. City of High Point, 321 N.C. 252 (1987) (excuse from exhaustion where party was unaware of issue and could not reasonably have appealed)
- Lloyd v. Babb, 296 N.C. 416 (1979) (breadth or number of claims does not automatically excuse exhaustion)
- Jackson ex rel. Jackson v. N.C. Dep't of Human Resources Div. of Mental Health, Dev. Disabilities & Substance Abuse Servs., 131 N.C. App. 179 (1998) (seeking unavailable monetary relief does not necessarily excuse exhaustion when primary issues fall within agency purview)
- Bailey v. State, 330 N.C. 227 (1991) (discussion of futility standard; exhaustion is excused only when pursuing administrative remedies is useless as a legal or practical matter)
- Snuggs v. Stanly Cty. Dep't of Pub. Health, 310 N.C. 739 (1984) (party claiming futility must allege both inadequacy and futility of administrative remedies)