This appeal concerns a class action by Medicare beneficiaries, and their assignees, who claim they are entitled to be reimbursed for medical expenses known as “anesthesia modifiers.”
The named Plaintiff-Appellant-Cross-Ap-pellees (“Plaintiffs”) include 38 Medicare beneficiaries and 16 physicians who have accepted assignment of Medicare claims from their patients. Plaintiffs appeal from an order and judgment of the United States District Court, Southern District of New York (John S. Martin, Jr., Judge), which granted relief in favor of a limited class of plaintiffs. They contend that the district court erred in defining the plaintiff class too narrowly, excluding persons whose Medicare claims had been denied and were no longer pending or amenable to timely suit on January 21, 1994. We find no error in the district court’s order of class certification.
Defendant-Appellee-Cross-Appellants are the Secretary of the United States Department of Health and Human Services and her agents (hereafter “the Government”).
Background
Medicare carriers determine reimbursement under Medicare Part B
Plaintiffs sought administrative review of the carriers’ denials. On review, some of the Administrative Law Judges (ALJs) who heard the claims — including ALJ Kenneth G. Levin — reversed the carriers’ decisions and awarded modifier reimbursements to the claimants whose cases they heard. Another ALJ, Michael P. Friedman, upheld the carriers’ denials. Plaintiffs appealed ALJ Friedman’s denials to the Social Security Administration’s Appeals Council. Beginning on January 21, 1994, the Appeals Council ordered that more than two-thirds of the cases involving anesthesia modifiers be remanded to “an Administrative Law Judge” for two reasons: (1) evidence relied upon by the ALJ below was missing from the administrative record on appeal, and (2) further testimony about predominant billing practices was deemed necessary. The remanded eases appear to have been randomly assigned to ALJ Levin.
Upon remand, ALJ Levin ruled in favor of the Plaintiffs on the claims that were before him, awarding benefits for anesthesia modifiers. He did so without taking any further testimony regarding predominant billing practices, consistent with his previous determination that billing separately for the modifiers was the predominant practice.
Plaintiffs filed this lawsuit on January 21, 1994 — coincidentally, the same day that the remands to ALJ Levin began. The Government moved to dismiss the suit for failure to exhaust administrative remedies. Plaintiffs cross-moved for class certification and judgment on the pleadings. At an unrecorded oral argument on February 17, 1995, Judge Martin apparently suggested that the Appeals Council be given three months to decide whether anesthesia modifier claims were reimbursable. On March 13, 1995, the Government informed the court that the Appeals Council would take final action, and the Council apparently began to process cases to meet the three-month deadline. The Government also informed Judge Martin on March 13th that ALJ Levin had awarded Plaintiffs reimbursement for the modifiers; that in granting this relief, ALJ Levin had seen no need to consider further evidence; and that the evidence missing from the administrative record had been found.
Beginning on May 2, 1995, the Appeals Council began to issue final decisions ordering reimbursement for anesthesia modifier claims. On May 11, 1995, before the expiration of the three months during which the Appeals Council was to resolve the anesthesia modifier issue, Judge Martin (who had not been notified that the Appeals Council had begun issuing final rulings awarding anesthesia modifier reimbursements) issued a memorandum opinion. In relevant part, it denied the Government’s motion to dismiss for failure to exhaust, holding that Plaintiffs were excused from exhaustion because of futility and irreparable harm. According to the judge’s opinion, exhaustion would be futile because the Appeals Council was remanding modifier claims to ALJ Levin, instead of ruling itself, even though it knew that ALJ Levin would grant Plaintiffs the relief they sought. Judge Martin concluded that a two-tiered bifurcated system had developed whereby only claimants who pursued an unnecessarily extended administrative process obtained the modifier reimbursement. “[T]he agency,” he maintained, “has demonstrated no inclination to correct its own errors.” He found irreparable harm in the fact that Plaintiffs were “elderly beneficiaries in relatively poor health” for whom “time [was] a precious commodity” (quotation omitted). On June 6, 1995, the court certified a limited class, the scope of which Plaintiffs now appeal.
On June 16,1995, the Government brought the Appeals Council’s decision to the district court’s attention and noted that the decision assured Plaintiffs all the relief on the merits that they had sought. Accordingly, the Government “consent[ed] to judgment with respect to all remaining valid unpaid anesthesia modifier claims ...” of the named Plaintiffs and members of the class certified by the court. A stipulation was entered between the parties, with each side reserving their right to appeal, and the court entered judgment.
Discussion
A. Exhaustion
Under 42 U.S.C. § 405(g), a federal court may review a Medicare determination such as this only where a claimant has obtained a final agency decision. Denial of relief by the Appeals Council is a final decision of the Secretary, which may be appealed to the district court (if the aggregate amount in controversy is $1000 or more). See 42 U.S.C. §§ 405(g), 1395ff(b)(1)(C) and (b)(2)(B). The Appeals Council had not ruled when Plaintiffs commenced this action in the district court. Therefore, as Judge Martin properly noted, the action could proceed only if the court found it proper to excuse the exhaustion requirement.
As we have noted, “[e]xhaustion is the rule, waiver the exception.” Abbey v. Sullivan,
The factors courts have cited to excuse failure to exhaust are: (1) that the claim is collateral to a demand for benefits; (2) that exhaustion would be futile; and (3) that plaintiffs would suffer irreparable harm if required to exhaust administrative remedies. Id. at 44; see also Bowen v. City of New York,
First, the issue Plaintiffs raise in their suit is not collateral to their demand for Medicare benefits. The gravamen of their complaint was that the Government wrongly denied them benefits. The issue in suit is identical to the administrative demand. By their suits Plaintiffs are challenging the lawfulness of the denial, and not seeking relief other than that sought in the administrative proceeding.
Plaintiffs were not challenging the validity of agency regulations, but challenging the application of regulations to them. As we have noted, “[t]he policies favoring exhaustion are most strongly implicated by actions [such as the one at bar] challenging the application of concededly valid regulations.” Abbey,
Second, the record in no way suggests that agency review would have been futile. The contrary is shown by the fact that before Judge Martin concluded, in his order of May 11, 1995, that exhaustion would be futile, the
Third, we believe it was error to conclude across the board that irreparable harm would result from enforcing the exhaustion requirement. Although it is true that some of the claimants are sick or elderly persons who might have suffered harm by waiting for reimbursement, the majority of the claims at issue were to compensate anesthesiologists for undercompensation.
We continue to believe that courts should be flexible in determining whether exhaustion should be excused. Abbey,
The district court found this case to be similar to Jones v. Califano,
When the administrative process becomes bifurcated, as when independent administrative judges interpret statutes in adjudicated cases that may not technically bind the Secretary, care must be taken lest certain needy beneficiaries, because of the limitations of poverty or ignorance, fail to receive the full amount of benefits to which they are entitled. Thus, we find it appropriate to imply a waiver of the exhaustion requirement when, as in this case, there is a stalemate defying judicial review.
Id. at 20. We also noted that this unusual holding was “limit[ed] ... to the combination of circumstances” of that case. Id. at 21.
The case at bar is not one in which the agency is refusing to follow its own final rulings. While there was unfortunate delay in the processing of Plaintiffs’ claims, it was not a matter of administrative intransigence, such as we found in Jones.
Finally, Plaintiffs urge us to abandon the three factor test of Abbey, in favor of a new rule that the exhaustion requirement is auto
Because we find no adequate basis for dispensing with the exhaustion requirement, we vacate the judgment of the district court insofar as it granted coverage for anesthesia modifiers charges, and we remand the case to the district court.
B. Equitable Tolling and Class Certification
Plaintiffs contend the district court certified the plaintiff class too narrowly. They argue that all beneficiaries whose modifier claims were denied by insurance carriers between January 20, 1987, and March 1, 1989, were entitled to be part of the class that received modifier reimbursement pursuant to the parties’ stipulation, regardless whether they preserved their claims by appealing. They rely on Jones,
The district court properly rejected this argument. Much of Plaintiffs’ argument relies on their view that the Appeals Council’s remand was “a mere sham and pretext,” Plaintiffs’ Reply Br. at 21, and that the appeals process here had become hopelessly bifurcated, as in Jones. As discussed above, we reject this view.
Moreover, equitable tolling for all beneficiaries is not warranted under City of New York and Dixon, in which there was evidence of (1) systematic misapplication of the law, Dixon,
Accordingly, we find no error in the district court’s ruling that January 21,1994, was the proper cut-off date for including class members because that was when Plaintiffs filed their class action, which independently tolls the statute of limitations, see Crown, Cork & Seal Co. v. Parker,
We find no error in the district court’s order of class certification. The portion of the judgment dealing with claims for reimbursement of anesthesia modifiers is vacated. The case is remanded for such further proceedings as may be appropriate.
Notes
. In addition to the Secretary of Health and Human Services, defendants include the Administrator of the Health Care Financing Administration (HCFA), and two insurance carriers — Empire Blue Cross and Blue Shield and Group Health Incorporated- — that process claims in the New York area under contract with the HCFA. Because the carriers are authorized agents of the HCFA and, more broadly, the Department of Health and Human Services, see 42 U.S.C. § 1395u(a), the Secretary is the real party in interest here, see 42 C.F.R. § 421.5(b).
. Part B is a voluntary, federally subsidized program of supplementary medical insurance for the elderly and disabled that generally reimburses participants or their health care providers eighty percent of the reasonable charge for services. See 42 U.S.C. § 1395j to 1395w-4.
. Claims seeking other types of reimbursement were dismissed by the district court and have not been appealed. Therefore, where we refer throughout this opinion to Plaintiffs’ “claims” and the district court’s "order,” we are addressing only the anesthesia modifier reimbursement claims and only the portion of Judge Martin’s order that dealt with those claims.
. As the Government notes, each named Plaintiff appears now to have received the relief he or she sought, either from the administrative process or by being included in the certified class below. Thus, Plaintiffs appear to be appealing on behalf of unnamed potential class members whom they believe the district court erroneously excluded from its certified class. We note that “the termination of a class representative's claim does not
. The 16 anesthesiologist plaintiffs were seeking compensation for 118 claims of patients who had assigned their Medicare reimbursement rights to their doctors. The 38 patient Plaintiffs were seeking compensation only for their individual claims.
. Nor do plaintiffs make a convincing argument that the Appeals Council's remand to ALJ Levin was made in a bad faith attempt to avoid establishing an agency-wide policy. The Council found remand necessary because some of the administrative record was missing on appeal and because further factual development was neces-saiy; the legitimacy of these justifications is not undermined by the fact that the record was later made complete or that AU Levin saw no need for further factfinding.
.In an addendum to their reply brief, Plaintiffs submit new evidence suggesting that the alleged Joues-like bifurcation of the administrative process occurred as early as 1992. We are not inclined to consider such evidence, since it was not presented to the district court. See, e.g., Singleton v. Wulff,
. As noted above, our order refers only to the portion of the district court's judgment that dealt with claims for anesthesia modifier reimbursement.
It may be that no disputed issues remain to be adjudicated in the district court, other than the contours of the class. The Government apparently consented in the district court to pay all valid unpaid claims for anesthesia modifiers. It may be therefore that defendants have conceded the correctness of the Plaintiffs’ position on the merits and adopted it as the position of the agency. We cannot tell. Remand is nonetheless required by our adjudication of the exhaustion question.
. The government argues that the class certification was too broad in that it included claimants over whom the district court did not have jurisdiction because they had not exhausted their administrative remedies at the time the action was brought. Indeed, the government may be arguing that this was true of the entire class. In view of the fact that circumstances will have changed substantially by the time the case returns to the district court, and that many class members may have exhausted their administra-