Council for Urological Interests v. Sebelius

668 F.3d 704

COUNCIL FOR UROLOGICAL INTERESTS, Appellant

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.

Appeal from the United States District Court for the District of Columbia (No. 1:09–cv–00546).Elizabeth Petrela Papez argued the cause for appellant. With her on the briefs were Thomas L. Mills and Michael T. Morley.

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.

TATEL, Circuit Judge:

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., 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.” 529 U.S. 1, 17, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000). 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 members 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, 42 U.S.C. § 1395nn. Congress enacted that statute to address perceived overutilization of services by physicians who stood to profit by referring patients to facilities or entities in which they had a financial interest. United States ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 95 (3d Cir.2009). In its current form, the Stark law provides that if a physician has a financial relationship with an entity that “furnish[es]” certain “designated health services,” the physician “may not make a referral to the entity for the furnishing of designated health services for which payment otherwise may be made” under the Medicare Act, and the entity “may not present or cause to be presented a claim ... or bill to any individual, third party payor, or other entity for designated health services furnished pursuant to” such a referral. 42 U.S.C. § 1395nn(a)(1).

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 pays 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 such 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 42 C.F.R. § 411.351 (defining an entity “furnishing [designated health services]” to include “the person or entity that has performed services that are billed as [designated health services]”); 42 U.S.C. § 1395nn(a)(1)(A) (prohibiting referrals by physicians who have a financial relationship with the entity “furnishing” the designated health services). The regulations also prohibit per-procedure leases with physician-owned equipment suppliers. 42 C.F.R. § 411.357(b)(4)(ii)(B).

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 28 U.S.C. § 1331, and alleging that the 2008 regulations exceeded the Secretary's statutory authority. The government moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, arguing that section 405(h) of the Social Security Act, incorporated into the Medicare Act through 42 U.S.C. § 1395ii, precluded federal question jurisdiction over the Council's claims. Under section 405(h), “[n]o action against the United States, the [Secretary of Health and Human Services], or any officer or employee thereof shall be brought under section 1331 ... of title 28 to recover on any claim arising under” the Medicare Act. 42 U.S.C. § 405(h); see also 42 U.S.C. § 1395ii. Instead, such claims must be “channeled” through the agency's administrative procedures. Ill. Council, 529 U.S. at 12, 120 S.Ct. 1084. After exhausting those procedures, the claimant can seek judicial review pursuant to the Medicare Act, which contains its own jurisdictional provision separate from section 1331's grant of general federal question jurisdiction. See 42 U.S.C. § 1395ff(a)(1)(C), (b), (d); 42 U.S.C. § 405(b), (g)-(h).

Responding to the government's motion, the Council acknowledged that direct judicial review is normally unavailable for Medicare Act challenges, but claimed that it had no choice but to seek immediate judicial review pursuant to section 1331. Specifically, because only Medicare “providers” may seek administrative review of the reimbursement decision at issue in this case, and because neither the Council nor its members qualify as “providers,” the Council argued—and the government agreed—that it had no direct means of channeling its claims through the agency before seeking judicial review under the Medicare Act. Compl. ¶ 80. Thus barred from seeking Medicare Act review, the Council argued that section 405(h) could not likewise bar section 1331 jurisdiction; otherwise, the Council would have no judicial remedy at all. The district court disagreed. Although recognizing that the Council and its members lacked access to Medicare Act review, the court concluded that no exception to the channeling requirement applied because the hospitals with which Council members had contracted, as Medicare “providers,” could challenge the 2008 regulation through the administrative process. See Council for Urological Interests v. Sebelius, 754 F.Supp.2d 78, 83–88 (D.D.C.2010). Accordingly, the district court dismissed the complaint for lack of subject matter jurisdiction—a decision we now review de novo. Nat'l Air Traffic Controllers Ass'n v. Fed. Serv. Impasses Panel, 606 F.3d 780, 786 (D.C.Cir.2010) (“We review de novo the district court's grant of a motion to dismiss for lack of subject matter jurisdiction.” (internal quotation marks omitted)).

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 regulations. 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 were 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...