ILLINOIS INSURANCE GUARANTY FUND v. XAVIER BECERRA, Secretary of Health and Human Services, et al.
No. 21-1942
United States Court of Appeals For the Seventh Circuit
ARGUED DECEMBER 3, 2021 — DECIDED MAY 6, 2022
HAMILTON, Circuit Judge. Plaintiff-appellant Illinois Insurance Guaranty Fund is the state-created insolvency insurer for member insurance companies in Illinois. When a member insurer becomes insolvent, the Fund steps in to pay covered claims. In the case of an insolvent health insurer, many claims are for patients who are eligible for both Medicare benefits
In this case, the Illinois Fund sued the federal government seeking a determination that it is not subject to reporting requirements under section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007,
To help the government recoup these conditional payments, section 111 imposes reporting requirements on health insurers so that the government can identify the primary plan responsible for payment. See
I. Factual and Legal Background
The Fund‘s case centers on the interaction between different provisions of the Medicare Act designed to allow the government to recoup medical expenses it has paid conditionally. We begin by introducing the Fund, the Medicare Secondary Payer Act, and section 111 reporting. Also, because this suit was in part a reaction to a similar suit involving the California insolvency insurer, this section closes with a discussion of the
A. The Illinois Fund
The plaintiff Fund is a nonprofit, unincorporated legal entity created by the Illinois legislature to manage consequences for claimants and policyholders when an Illinois insurance company becomes insolvent. See
The Fund pays for its activities by levying assessments on Illinois insurance companies. See
B. Medicare as a Secondary Payer
Medicare is the familiar federal health insurance program for the elderly and people with disabilities. See
Medicare originally provided primary health coverage even when an insurer such as a group health plan or a liability insurer might also have been responsible for paying the cost of a beneficiary‘s care, with limited exceptions. See Social Security Amendments of 1965,
The Medicare Secondary Payer Act bars Medicare from paying for a beneficiary‘s health care when payment has already been made by a primary plan but also when such a payment could reasonably be expected.
Medicare contractors can recoup a conditional payment owed to CMS by sending the primary plan an initial determination explaining the reimbursement due.
Under
C. Medicare‘s Section 111 Reporting Requirements
To seek reimbursement from a private insurer, however, CMS needs to know that the insurer might provide coverage for the Medicare patient. In 2007, Congress amended the statute to require primary plans to file reports with information about claimants entitled to Medicare benefits. See
In 2012, Congress amended section 111 to give CMS discretion to impose a penalty of up to $1,000 per day for violations. The statute requires CMS to issue regulations specifying how these sanctions would be implemented. See Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act of 2012,
In response to comments on the advance notice of proposed rulemaking, CMS noted that it expected the final rule to fit within the existing structure for appeals of civil monetary penalties assessed by the Department of Health and Human Services. 85 Fed. Reg. at 8795–96, citing
D. The California CIGA Litigation
The California counterpart of the Illinois Fund, the California Insurance Guarantee Association, known as CIGA, sued CMS in 2015 to challenge whether it was obliged to reimburse Medicare for payments advanced by the government when the primary insurer had become insolvent. CIGA argued that it was not a “primary plan” with obligations to
The California district court found that the insurance plans administered by CIGA were primary plans subject to reimbursement demands from CMS. California Insurance Guarantee Ass‘n, 940 F.3d at 1066. On appeal, the Ninth Circuit reversed and agreed with CIGA that it was not a primary plan and was not obliged to reimburse CMS for conditional payments. Id. at 1071.
In March 2020, CIGA asked the government whether the Ninth Circuit‘s determination that it was not a primary plan meant that CIGA was also not required to file reports under section 111. The Director of CMS‘s Office of Financial Management replied that CIGA no longer had section 111 reporting obligations for payments made on behalf of insolvent California members.
E. Procedural History
Shortly after CMS told CIGA it was off the hook for section 111 reporting, the Illinois Fund asked the government whether the logic of the Ninth Circuit‘s holding in CIGA
The Fund then filed this suit in the district court against the Secretary of Health and Human Services, the Department, and CMS. The Fund seeks a declaratory judgment determining (i) that the Fund is not a primary plan or an applicable plan subject to section 111 reporting; (ii) that CMS‘s August 2020 letter is a final agency action under the Administrative Procedure Act that should be set aside as arbitrary and capricious; and (iii) that the Fund was not required to go through any existing administrative process to obtain relief.
Defendants moved to dismiss for lack of standing and lack of subject-matter jurisdiction. The district court granted the motion, finding no Article III standing, no federal-question jurisdiction, and no subject-matter jurisdiction under
A. Exhaustion of Administrative Remedies
We review de novo the issues of law presented by a dismissal of a complaint for lack of subject-matter jurisdiction under
Federal courts have long applied the general rule that a plaintiff must exhaust available administrative remedies before seeking judicial review. See Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50–51 & n.9 (1938) (compiling cases). The exhaustion requirement protects the authority of administrative agencies and promotes judicial efficiency. Woodford v. Ngo, 548 U.S. 81, 89 (2006). Even when no statutory provision requires exhaustion, courts apply the doctrine prudentially. 4 Charles H. Koch, Jr. & Richard Murphy, Administrative Law and Practice § 12:21 (3d ed.). This prudential requirement can be overcome in some cases of futility and other exceptions. Id. Congress has codified administrative exhaustion as a requirement for judicial review under many regulatory
In programs like Medicare, governed by the judicial review provisions of the Social Security Act, the Act imposes a strong administrative exhaustion requirement in
Section 405(h)‘s jurisdictional bar extends beyond “ordinary administrative law principles of ‘ripeness’ and ‘exhaustion of administrative remedies.‘” Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 12 (2000). Courts consistently hold that § 405(h) bars judicial review of Medicare claims made by plaintiffs who fail to exhaust available administrative remedies as required by § 405(g). See, e.g., Ancillary Affiliated Health Services, Inc. v. Shalala, 165 F.3d 1069, 1070–71 (7th Cir. 1999); Homewood Professional Care Center, Ltd. v. Heckler, 764 F.2d 1242, 1253 (7th Cir. 1985). Section 405(g) is the only statutory source of jurisdiction for most Medicare claims.
The Supreme Court has recognized a narrow exception to the exhaustion requirement so as to allow federal-question jurisdiction for judicial review apart from § 405(g) when there is simply no other method for a plan or individual to obtain relief under the Medicare Act. The Fund has not persuaded us that it can fit this case into that narrow exception, however. Because the Fund‘s failure to exhaust administrative remedies
B. Case Law on the Jurisdictional Bar of § 405(h)
By its terms, § 405(h) bars federal-question jurisdiction under
Courts have not been entirely consistent in how they refer to the prerequisites for obtaining jurisdiction under § 405(g) and may refer to it simply as an “exhaustion” requirement unless presentment is specifically at issue. See, e.g., Illinois Council, 529 U.S. at 15 (noting that plaintiff failed to present its claim to the agency and therefore could not establish jurisdiction under § 405(g)); Ancillary Affiliated, 165 F.3d at 1070 (referring to § 405(g) as an “exhaustion requirement“); Martin, 63 F.3d at 503 (accepting district court‘s conclusion that the “nonwaivable presentment prerequisite” of § 405(g) was met); see also Salfi, 422 U.S. at 765–66 (discussing presentment as part of process of exhausting remedies before Eldridge drew this distinction).
This distinction between presentment and exhaustion of remedies makes no difference here, however, because CMS has not waived the exhaustion defense. When the government invokes the defense, we enforce the exhaustion requirement. Even styling a claim arising under the Medicare Act as a constitutional challenge does not ordinarily permit a plaintiff to forgo exhausting administrative remedies. E.g., Ancillary Affiliated, 165 F.3d at 1070, citing Homewood Professional Care Center, 764 F.2d at 1253.
Still, the Fund sees daylight for this case because the Supreme Court has left open a narrow path where a party can show that enforcement of the exhaustion requirement would make judicial review truly impossible. The Court recognized this path in Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 680–81 (1986), in which it considered an attack on the validity of a regulation implementing Medicare Part B. Medicare Part A provides insurance for hospital and other inpatient care,
Michigan Academy distinguished the doctors’ challenge to the validity of the regulatory methodology used to determine amounts payable under Part B from challenges to the amount determinations themselves. Michigan Academy, 476 U.S. at 675-76. Challenges to amount determinations under Part B were “quite minor matters,” and the Court accepted Congress‘s intent to delegate them to private carriers. Id. at 680 (citation omitted). The Court rejected, however, the Secretary‘s contention that the Act provided “no [judicial] review at all” for the doctors’ statutory and constitutional challenges to the method of determining benefits under Part B. Id. The Court found a lack of “clear and convincing evidence” needed
A few years later in Illinois Council, the Supreme Court made clear that the Michigan Academy exception remains narrow and will be construed strictly. The Court expressly rejected the suggestion that a party could circumvent the exhaustion requirement “simply because that party shows that postponement would mean added inconvenience or cost in an isolated, particular case.” 529 U.S. at 22. The Court applied a practical and realistic standard, but it insisted on a showing that “hardships likely found in many cases [would turn] what appears to be simply a channeling requirement into complete preclusion of judicial review.” Id. at 22–23 (emphasis in original), citing McNary v. Haitian Refugee Center, Inc., 498 U.S. 479, 496–97 (1991).
C. Judicial Review Not Completely Foreclosed by § 405(h)
The Fund‘s claims here arise under the Medicare Act within the meaning of § 405(h). See Ancillary Affiliated, 165 F.3d at 1070; see also Salfi, 422 U.S. at 760–61. To obtain judicial review via the typical path under § 405(g), the Fund would need to have (i) presented its claim to the Secretary; and (ii) exhausted administrative remedies or secured a waiver. Eldridge, 424 U.S. at 328. Here, the Fund has not exhausted administrative remedies, and CMS has not agreed to waive exhaustion. As a result, we have no need to consider whether the Fund‘s letter to CMS satisfied the presentment
The crux of the Fund‘s argument for avoiding § 405(h)‘s jurisdictional bar is that CMS has not yet issued a final rule providing a mechanism for directly challenging section 111 reporting requirements. According to the Fund, this means that applying § 405(h) would completely preclude judicial review. The argument has some appeal, but a closer look shows that the Fund could challenge its obligations to file reports under section 111 by arguing that it is not a “primary plan” during administrative review of a specific demand for reimbursement by Medicare.
As noted above, section 111 divides primary plans into two categories with different reporting requirements. The term “primary plan” means (i) a group health plan or large group health plan, and (ii) a workers’ compensation law or plan, an automobile or liability insurance policy or plan, including a self-insured plan, and no-fault insurance.
More immediately, “applicable plan” means liability insurance (including self-insurance), no-fault insurance, and workers’ compensation laws or plans.
The Fund claims there is currently no way to challenge directly its reporting obligations under section 111 so that application of § 405(h) would totally bar judicial review of its claim. But the Fund can challenge a demand for reimbursement of a conditional payment made by Medicare through the four-step appeals process described above. See generally
If the Fund remained dissatisfied with the outcome, it could obtain judicial review of the question under § 405(g) after exhausting administrative remedies or (perhaps) obtaining an agreement from CMS to waive the requirement of further exhaustion. A determination in any of these administrative or judicial proceedings that the Fund is not a primary plan would clarify that the Fund has no reporting obligations under section 111. Nor does it matter that the adjudicator in a particular step of the administrative process may not be able or willing to answer whether the Fund is a primary plan: “The fact that the agency might not provide a hearing for that particular contention, or may lack the power to provide one is beside the point because it is the ‘action’ arising under the
The relevant statutory provisions reveal that a determination that the Fund is not a primary plan would necessarily mean that it has no section 111 reporting obligations. While applying § 405(h) to foreclose federal-question jurisdiction might cause delay and inconvenience, it would not amount to a “complete preclusion of judicial review.” 529 U.S. at 23. Accordingly, the Michigan Academy exception for such complete preclusion is not available to the Fund here.4
Our decision does not conflict with the Ninth Circuit‘s decision in California Insurance Guarantee Association, 940 F.3d 1061. The Ninth Circuit determined that the California insolvency insurer was not a primary plan and was not subject to demands for repayment under the Medicare Secondary Payer Act. Id. at 1071. Those issues are not presented in this appeal. The Ninth Circuit found, without elaboration, that the district
In contrast, the jurisdictional bar of § 405(h) controls the Illinois Fund‘s claim because it can use the appeals process for Medicare demands for repayment to challenge its status as a primary plan. Success in such an appeal would show that the Fund has no section 111 reporting obligations. Because the potential exception to the administrative channeling requirements of § 405(g) and (h) discussed in Michigan Academy and elaborated upon in Illinois Council is not met here, there is no federal-question jurisdiction over this case.
We respect the Fund‘s desire to avoid the risk of breaking the law and incurring penalties, but the ongoing burden of complying with section 111‘s requirements does not entitle the Fund to evade the Medicare Act‘s channeling requirements. The Fund cannot obtain judicial review of its claim unless it first exhausts administrative remedies via § 405(g). We AFFIRM the district court‘s dismissal for lack of subject-matter jurisdiction.