Sensory Neurostimulation, Inc. v. Alex Azar, II, 977 F.3d 969

Background

Sensory NeuroStimulation, Inc. (Sensory) sells "Relaxis," a prescription leg massager for Restless Leg Syndrome, and sought Medicare coverage (a national coverage determination, NCD) for the device.
CMS informally and the California Medicare Administrative Contractor (Noridian) determined Relaxis is a "personal comfort item" and therefore not covered; Sensory’s formal NCD request received an adverse letter and no binding NCD.
Sensory sued HHS in federal court seeking coverage, but the government moved to dismiss under Federal Rule 12(b)(1) arguing 42 U.S.C. § 405(h) bars federal-question jurisdiction because the claim "arises under" the Medicare statute and Sensory failed to exhaust administrative remedies.
The district court dismissed without prejudice, holding (1) the claim arises under Medicare so § 405(h) applies, (2) Sensory had not satisfied exhaustion or obtained waiver, and (3) the Michigan Academy exception ("no review at all") did not apply because proxies (beneficiaries or aggrieved parties) can pursue administrative review.
On appeal the Ninth Circuit affirmed: Sensory’s suit arises under Medicare; § 405(g) did not supply jurisdiction because there was no final decision and exhaustion was not waivable; and applying § 405(h) would not yield "no review at all" because suppliers can recruit beneficiaries/"aggrieved parties" to use the administrative channel.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the claim "arises under" Medicare so § 405(h) bars § 1331 jurisdiction	Sensory: its suit challenges CMS policy and seeks coverage but is a third-party action distinct from beneficiaries’ benefit claims	HHS: the suit seeks nationwide coverage and is "inextricably intertwined" with Medicare benefit determinations, so § 405(h) applies	Court: Claim arises under Medicare; § 405(h) applies
Whether § 405(g) provides jurisdiction (final decision/presentment/exhaustion)	Sensory: it has presented the issue to CMS and should be able to sue under § 405(g)	HHS: Sensory lacks a "final decision" because it has not exhausted administrative remedies and presentment is inadequate	Court: No § 405(g) jurisdiction—no final decision; exhaustion not waived
Whether exhaustion may be waived (Johnson criteria: collaterality, irreparability, futility)	Sensory: waiver appropriate because administrative channels are effectively closed to suppliers	HHS: exhaustion serves agency expertise and record-building; remedies are available via proxies so waiver not warranted	Court: Waiver denied—futility not shown; exhaustion required
Whether the Michigan Academy exception ("no review at all") applies	Sensory: exception applies because suppliers cannot themselves be "aggrieved parties" and lack an administrative path	HHS: other parties (beneficiaries or aggrieved parties) can pursue the same review, so some administrative and judicial review remains available	Court: Exception does not apply; proxies can pursue administrative channels, so denying Sensory direct suit does not produce "no review at all"

Key Cases Cited

Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1 (2000) (clarifies § 405(h) channeling and the "no review at all" inquiry)
Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667 (1986) (establishes exception when channeling would bar all judicial review)
Weinberger v. Salfi, 422 U.S. 749 (1975) (applies § 405(h) in Social Security/benefits context)
Heckler v. Ringer, 466 U.S. 602 (1984) (holds declaratory relief suits can "arise under" Medicare and be subject to channeling)
McNary v. Haitian Refugee Ctr., 498 U.S. 479 (1991) (addresses inquiry into when channeling becomes complete preclusion)
Haro v. Sebelius, 747 F.3d 1099 (9th Cir. 2014) (Ninth Circuit recognizing narrow Michigan Academy exception where no administrative path exists)
P.R. Ass'n of Physical Med. & Rehab., Inc. v. United States, 521 F.3d 46 (1st Cir. 2008) (third-party provider suit held to arise under Medicare and subject to channeling)