COUNCIL FOR UROLOGICAL INTERESTS, Aрpellant v. Kathleen SEBELIUS, in her official capacity as Secretary of the Department of Health and Human Services, and United States of America, Appellees.
No. 11-5030.
United States Court of Appeals, District of Columbia Circuit.
Argued Oct. 14, 2011. Decided Dec. 23, 2011.
668 F.3d 704
Jeffrey Clair, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief were Tony West, Assistant Attorney General, Ronald C. Machen Jr., U.S. Attorney, and Michael S. Raab, Attorney. R. Craig Lawrence, Assistant U.S. Attorney, entered an appearance.
Before: SENTELLE, Chief Judge, TATEL and BROWN, Circuit Judges.
Opinion for the Court filed by Circuit Judge TATEL.
Although the Medicare Act provides for judicial review of reimbursement decisions, it requires that claimants first exhaust their administrative remedies. In Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 17, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000), the Supreme Court recognized an exception to this requirement for cases where its application “would not lead to a channeling of review through the agency, but would mean no review at all.” Id. at 17, 120 S.Ct. 1084. In this case, an association of doctor-owned equipment providers challenges regulations issued by the Secretary of Health and Human Services (HHS) that effectively prevent its mеmbers from obtaining Medicare reimbursement for their services. For the reasons set forth in this opinion, we conclude that under the particular circumstances of this case, the Illinois Council exception applies and the association may invoke the district court‘s general federal question jurisdiction without first seeking administrative review under the Medicare Act.
I.
The HHS Secretary issued the challenged regulations under a statute known as the Stark law,
The Stark law directly affects the members of appellant Council for Urological Interests—physician-owned joint ventures formed to purchase specialized equipment for urologic laser surgery. These joint ventures typically operate “under arrangement” with hospitals, that is, under a contract in which the urologist-owned venture provides the laser equipment and related services, while the hospital provides space for the procedure and compensates the venture for the equipment and services provided. Although Medicare reimburses urologists directly for their professional services, it рays full “technical fees” for equipment and nonprofessional services only to hospitals. Appellant‘s Br. 7. So in a typical joint venture arrangement, the hospital bills Medicare for the technical fee for each surgical procedure performed and then passes on a pre-negotiated portion of that fee to the joint venture on a per-procedure basis.
The Secretary initially approved these arrangements as consistent with the Stark law. In 2008, however, the Secretary reconsidered the issue and promulgated new regulations prohibiting most suсh arrangements. Under the 2008 regulations, urologists who have a financial interest in a joint venture may no longer refer patients to the venture for laser services, even if the services are provided under arrangement with a hospital. See
After the new regulations were issued but before they became effective, the Council filed suit in the United States District Court for the District of Columbia, invoking the court‘s general federal question jurisdiction pursuant to
Responding to the government‘s motion, the Council acknowledged that direct judicial review is normally unavailable for Medicare Act challenges, but claimed that
II.
The Supreme Court has long understood section 405(h) as a “channeling” requirement that “reaches beyond ordinary administrative law principles of ‘ripeness’ and ‘exhaustion of administrative remedies.‘” Ill. Council, 529 U.S. at 12-13, 120 S.Ct. 1084 (citing Weinberger v. Salfi, 422 U.S. 749, 757, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975)). Because section 405(h), as incorporated by section 1395ii, applies to any case in which the Medicare Act supplies “both the standing and the substantive basis” for the claim, it has the effect of “‘channeling’ ... virtually all legal attacks through the agency.” Id.
That said, the Supreme Court has also held that section 405(h)‘s “channeling requirement” is not absolute. In Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 106 S.Ct. 2133, 90 L.Ed.2d 623 (1986), the Court considered a challenge, brought under section 1331, to regulations governing the method for calculating benefits under Medicare Part B. Because at that time the Medicare Act provided no avenue, either administrative or judicial, for challenging the validity of Part B regulations, applying section 405(h) would have meant “no review at all of substantial statutory and constitutional challenges” to those regulаtions. Id. at 680, 106 S.Ct. 2133. Proceeding from “the strong presumption that Congress intends judicial review of administrative action,” id. at 670, 106 S.Ct. 2133, the Court found it “implausible to think [that Congress] intended that there be no forum to adjudicate statutory and constitutional challenges to regulations promulgated by the Secretary,” id. at 678, 106 S.Ct. 2133. Accordingly, finding no “clear and convincing evidence” to overcome the strong presumption favoring judicial review, id. at 681, 106 S.Ct. 2133 (internal quotation marks omitted), the Court rejected the government‘s view that “whatever specific procedures [Congress] provided for judicial review of final action by the Secretary wеre exclusive,” id. at 679, 106 S.Ct. 2133, and held the challenge to the Secretary‘s regulations cognizable under section 1331, id. at 680, 106 S.Ct. 2133.
The Supreme Court fleshed out the scope of the Michigan Academy exception
This Circuit‘s approach to the Illinois Council inquiry is best illustrated by American Chiropractic Association, Inc. v. Leavitt, 431 F.3d 812 (D.C.Cir.2005). In that case, an association of chiropractors brought suit under section 1331 to challenge Medicare reimbursement regulations. In order to determine whether section 405(h) applied, and guided by the Supreme Court‘s warning that mere inconvenience is no reason for invoking the Illinois Council exception, we carefully considered the various ways through which the association‘s claim could be brought before the agency. Ultimately, because we determined that at least some chiropractors—though not all—could obtain administrative review of the challenged regulations, we found the Illinois Council exception inapplicable. Id. at 817-18.
The case before us presents a somewhat different situation, one not clearly addressed by existing case law. Illinois Council and Michigan Academy make clear that section 405(h) is inapplicable where the Medicare Act offers no avenue for review of a particular category of statutory or constitutional claims. But here other parties—specifically, the hospitals with which the Council‘s members had contracted—could challenge the 2008 regulations through Medicare Act channels. American Chiropractic, in turn, suggests that section 405(h) applies so long as Medicare Act review of a claim is available to some, though perhaps not all, of a class of affected parties. But here, as the government acknowledges, a whole category of affected parties—that is, joint ventures providing laser surgery equipment and services—has no way to obtain review through Medicare Act channels. This case, then, presents the following question: How does section 405(h) apply when the Medicare Act provides an avenue for administrative and judicial review of a particular claim (the challenge to the 2008 regulations), but not by the category of affected parties who wish to bring it (the Council)? Before addressing that question, however, we must consider an antecedent matter, namely, the government‘s argument that the failure of anything in the Medicare Act to provide administrative remediеs for non-Medicare providers, such as the Council and its members, reflects congressional intent to limit the right of judicial review to Medicare providers, i.e., hospitals.
III.
As directed by the Supreme Court in Michigan Academy, “[w]e begin with the strong presumption that Congress intends judicial review of administrative action” and that “judicial review of a final
Critical to our analysis, the Supreme Court has understood section 405(h) as having only channeling force, not, as the government would have it, foreclosing force. See Ill. Council, 529 U.S. at 19, 120 S.Ct. 1084 (characterizing section 405(h) as “a channeling requirement, not a foreclosure provision of ‘amount dеterminations’ or anything else,” and drawing a distinction “between a total preclusion of review and postponement of review” (emphasis added)); Mich. Acad., 476 U.S. at 680, 106 S.Ct. 2133 (finding no evidence of congressional intent to foreclose statutory and constitutional challenges to Medicare regulations). Indeed, in Michigan Academy, the Court rejected an implied preclusion argument very similar to the one the government makes here—that “by failing to authorize [review of Medicare Part B determinations] while simultaneously authorizing administrative and judicial review [of Part A determinations]” and by “expressly preclud[ing] all administrative or judiciаl review not otherwise provided in that statute,” the Medicare Act foreclosed review of the challenged regulation. 476 U.S. at 673, 106 S.Ct. 2133. Invoking the strong presumption favoring judicial review, the Court declined to interpret the statute‘s “total silence about review” of Part B regulations, coupled with section 405(h)‘s jurisdictional bar, as an implied preclusion of judicial review. See Ill. Council, 529 U.S. at 16-17, 120 S.Ct. 1084 (describing Michigan Academy); Mich. Acad., 476 U.S. at 675-76, 678-81, 106 S.Ct. 2133.
The government argues that this case differs from Michigan Academy where “limiting appeal rights to those conferred by Medicare‘s remedial scheme would result in ‘no forum to adjudicate statutory and constitutional challenges to regulations promulgated by the Secretary.‘” Appellees’ Br. 45 (quoting Mich. Acad., 476 U.S. at 678, 106 S.Ct. 2133). According to the government, “[t]hat is not the case here. Hospitals, the parties directly affected by Stark law limitations on hospital reimbursement, indisputably have the right to challenge the pertinent regulations through Medicare‘s jurisdictional scheme, thereby providing the administrative and judicial fora deemed lacking in Michigan Academy.” Appellees’ Br. 45. In support of its argument, the government relies on
In our view, however, this case is different from Block. There, ordinary consumers possessing only a general interest in a reliable, low-cost supply of milk sought section 1331 review of milk market orders regulating payments between dairy producers and processors, see id. at 344, 352 & n. 3, 104 S.Ct. 2450. Here, Council members, unlike the consumers in Block, are directly targeted by the regulations they challenge. The 2008 regulations redefine the status of urologist-owned joint ventures, see
In Block, moreover, the statute at issue “contemplate[d] a cooperative venture among the Secretary [of Agriculture], handlers, and producers,” and nowhere provided for participation by consumers. 467 U.S. at 346, 104 S.Ct. 2450. The milk market оrders set minimum prices that handlers (dairy product processors) were required to pay to producers for milk products, id. at 341-42, 104 S.Ct. 2450, and the statute provided a mechanism for handlers and producers, but not ordinary consumers, to participate in the adoption of market orders, to enter into agreements with each other and the Secretary, and to obtain administrative and judicial review of the Secretary‘s orders, id. at 346, 104 S.Ct. 2450. Here, the statute is not so exclusive. Although the Council and its members may not bill Medicare directly, they are free to participate in rulemakings, and the Act contemplates their participation in the Medicare system (although now, of course, the challenged regulations largely forbid such participation). Indeed, under those regulations, Council members are deemed to “furnish[]” designated health services,
True, the Suрreme Court has described the Medicare Act‘s review provisions as “precisely drawn.” United States v. Erika, Inc., 456 U.S. 201, 208, 102 S.Ct. 1650, 72 L.Ed.2d 12 (1982). But the Court has
In reaсhing this conclusion, we acknowledge that it may seem anomalous to require providers to go through administrative review channels while permitting non-providers to seek immediate review in federal court. But that is a consequence of the fundamental principle lying at the heart of this case—that “judicial review of a final agency action by an aggrieved person will not be cut off unless there is persuasive reason to believe that such was the purpose of Congress.” Id. at 670, 106 S.Ct. 2133 (internal quotation marks omitted). In any event, this “two-tiered system” of review is not as “nonsensical” as the government wоuld have us believe, Appellees’ Br. 46-47. As the government itself points out, id. at 33 n.6, a provider bringing a pure legal challenge to the validity of a regulation may invoke the Medicare Act‘s provisions for expedited judicial review, in which case a provider may also obtain prompt access to the federal courts. See
IV.
Having determined that the Medicare Act imposes no absolute bar to the Council‘s challenge, we return to the issue identified at the outset—whether section 405(h)‘s channeling requirement applies to the Council‘s claims.
We start from the premise that, as emphasized in American Chiropractic, the Illinois Council exception is not intended to allow section 1331 federal question jurisdiction in every case where section 405(h) would prevent a particular individual or entity from seeking judicial review. See Ill. Council, 529 U.S. at 23-24, 120 S.Ct. 1084 (“[W]e do not hold that an individual party could circumvent § 1395ii‘s channeling requirement simply because that party shows ... added inconvenience or cost in an isolated, particular case. Rather, the question is whether, as applied generally to those covered by a particular statutory provision, hardship likely found in many cases turns what
For its part, the government contends that our precedent requires no showing that a third party capable of exhausting the plaintiff‘s claims has adequate incentive to do so or has any specific legal relationship to that plaintiff. According to the government, because “the Illinois Council exception turns solely on whether a claim can be heard, not whether a particular party can be heard,” Appellees’ Br. 23, our inquiry ends—and section 405(h) applies—once we determinе that some party, somewhere, could bring the Council‘s claims before HHS. As the government sees it, we need not, indeed may not, consider whether that party is likely to do so as a practical matter.
Although we agree that the Illinois Council exception is primarily concerned with whether a particular claim can be heard through Medicare Act channels, we see nothing in the case law requiring us to disregard factors that speak to a potential proxy‘s willingness and ability to pursue the plaintiff‘s claim. To the contrary, the Illinois Council inquiry is fundamentally a practical one. The exception applies “not only when administrative regulations foreclose judicial review, but also when roadblocks practically cut off any avenue to federal court.” Am. Chiropractic, 431 F.3d at 816; see also Ill. Council, 529 U.S. at 21-22, 120 S.Ct. 1084 (suggesting that section 405(h) does not apply in cases where “as applied generally to those covered by a particular statutory provision, hardship likely found in many cases” amounts to the “practical equivalent of a total denial of judicial review” (internal quotation marks omitted)). In cases where the only entities able to invoke Medicare Act review are highly unlikely to do so, their unwillingness to pursue a Medicare Act claim poses a serious “practical roadblock” to judicial review.
This conclusion flows from several unique characteristics of the hospitals’ relationship to the Council and to the challenged regulations. To begin with, the Council alleged in its complaint that the hospitals had no incentive to challenge the 2008 regulations. Compl. ¶ 82. Hospitals, the Council contended, “resent[ed] the notion of doctors having control over the purchase of medical equipment, which they view as a hospital prerogative,” id. ¶ 22, and the regulations presented an opportunity “for hospitals to reassert control over the procurement of lasers and other urological medical equipment,” id. ¶ 82. According to the Council, the regulations also allowed hospitals to purchase expensive laser equipment from urologist joint ventures at “fire-sale prices,” id. ¶ 75, while hospitals choosing not to acquire their own equipment could simply contract with non-urologist-owned ventures instead, thus suffering no material financial harm, id. ¶¶ 72, 82. Although the government points to allegations in the complaint that might indicate different incentives, such as the suggestion that only urologist-owned ventures have been willing to invest in new technology, see, e.g., Compl. ¶¶ 78-79, it has failed to counter the Council‘s allegations with, for instance, affidavits from hosрitals attesting to their incentives or intent to pursue an administrative challenge. See Coal. for Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C.Cir.2003) (noting that courts may consider materials outside the pleadings in ruling on a 12(b)(1) motion to dismiss for lack of subject matter jurisdiction). Taking the Council‘s allegations as true and drawing all reasonable inferences in its favor, as we must at this stage, City of Harper Woods Emps.’ Retirement Sys. v. Olver, 589 F.3d 1292, 1298 (D.C.Cir.2009), we believe that the complaint demonstrates, at the very least, that hospitals have little incentive to pursue the Council‘s challenge to the regulations. Indeed, history confirms the Council‘s contentions. In the three years since the Secretary announced the regulations, not one of the 5,795 hospitals in the United States has brought an administrative challenge to those regulations. Appellant‘s Reply Br. 23 (citing Am. Hosp. Ass‘n, Fast Facts on U.S. Hospitals (2010), available at http://www.aha.org/aha/resource-center/Statistics-and-Studies/fast-facts.html). Finally, unlike the chiropractors in American Chiropractic, who could “mount an administrative challenge” by becoming assignees of their patients’ claims, 431 F.3d at 817, here all parties agree that Council members have no way of becoming the assignee of a hospital‘s claim. Nor do they possess some other relationship with the hospitals that would assure us that thе hospitals share their interest in challenging the 2008 regulations. Although the joint ventures have a contractual relationship with hospitals, this in itself provides no assurance of shared interests, for many hospitals have terminated their contracts with Council members and, pursuant to their contracts, have done so without penalty. Compl. ¶ 74; Appellant‘s Br. 48.
Taken together, the allegations in the Council‘s complaint, the fact that not one hospital has challenged the regulations despite having had three years to do so, and the absence of any relationship between
V.
We reverse the district court‘s dismissal for lack of subject matter jurisdiction and remand for further proceedings consistent with this opinion.
So ordered.
