NJ Univ Medicine v. Inspector Gen HHS ( 2003 )

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
10-17-2003
NJ Univ Medicine v. Inspector Gen HHS
Precedential or Non-Precedential: Precedential
Docket No. 03-1268
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PRECEDENTIAL
Filed October 17, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 03-1268
THE UNIVERSITY OF MEDICINE AND DENTISTRY OF
NEW JERSEY; THE COOPER HEALTH SYSTEM;
UNIVERSITY PHYSICIAN ASSOCIATES OF
NEW JERSEY, INC.
v.
DANA CORRIGAN, ACTING INSPECTOR GENERAL,
UNITED STATES DEPARTMENT OF HEALTH AND
HUMAN SERVICES*
The University of Medicine and Dentistry of New
Jersey; The Cooper Health System; University
Physician Associates of New Jersey, Inc.,
Appellants
*(Pursuant to Rule 43(c), F.R.A.P.)
On Appeal from the United States District Court
for the District of New Jersey
D.C. Civil Action No. 99-cv-05046
(Honorable Harold A. Ackerman)
Argued April 23, 2003
Before: SCIRICA, Chief Judge,** AMBRO and
WEIS, Circuit Judges
(Filed: October 17, 2003)
** Judge Scirica began his term as Chief Judge on May 4, 2003.
2
HERVÉ GOURAIGE, ESQUIRE
(ARGUED)
Epstein, Becker & Green
Gateway Two, 12th Floor
Newark, New Jersey 07102
GARY J. LESNESKI, ESQUIRE
Archer & Greiner
One Centennial Square
P.O. Box 3000
Haddonfield, New Jersey 08033
Attorneys for Appellants,
The University of Medicine and
Dentistry of New Jersey and
The Cooper Health System
KEVIN McNULTY, ESQUIRE
Gibbons, Del Deo, Dolan,
Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
Attorney for Appellant,
University Physician Associates of
New Jersey, Inc.
DOUGLAS HALLWARD-DRIEMEIER,
ESQUIRE (ARGUED)
MICHAEL S. RAAB, ESQUIRE
United States Department of Justice
Civil Division, Appellate Staff
601 D Street, N.W., Room 9147
Washington, D.C. 20530
SUSAN C. CASSELL, ESQUIRE
Office of United States Attorney
970 Broad Street, Room 700
Newark, New Jersey 07102
Attorneys for Appellee
3
OPINION OF THE COURT
SCIRICA, Chief Judge.
This is an action seeking an injunction against a planned
Medicare audit of New Jersey teaching hospitals by the
inspector general of the Department of Health and Human
Services. The District Court held that it did not have
standing to consider plaintiffs’ claims under the
Administrative Procedures Act, 5 U.S.C. § 704, and that
plaintiffs failed to state a due process claim. The District
Court also granted defendant’s motion to enforce
subpoenas related to the audit. We will affirm.
I.
A. Medicare Billing.
The underlying dispute in this case involves Medicare
billing at teaching hospitals. The parties differ on when
physicians could bill for work performed by interns and
residents under Health and Human Services regulations in
effect before July 1996. Plaintiffs contend defendant’s
planned audit of their billing records would use an
improper standard and should be enjoined.1
The Medicare program is the responsibility of the United
States Department of Health and Human Services. Within
the department, the program is administered by the
Centers for Medicare and Medicaid Services, the successor
to the Health Care Financing Administration. The
processing of bills submitted by the healthcare providers for
particular services rendered has been contracted out to
several insurance companies known as “carriers.” Because
1. Plaintiffs are the University of Medicine and Dentistry of New Jersey
and two corporations associated with it: the Cooper Health System, a
non-profit corporation that owns and operates a teaching hospital
affiliated with the university; and University Physician Associates of New
Jersey, Inc., a non-profit corporation that processes bills and Medicare
payments for university faculty members. The claims of all parties are
based on the proposed audit of the university’s teaching hospitals.
4
the carriers handle the billing and payment, they have
initial responsibility for ensuring compliance with the
statutes and regulations governing Medicare billing of
individually billable services.2
Medicare payments to healthcare providers fall under two
categories. Medicare Part A covers general hospital
expenses, including residents’ and interns’ salaries. Part B
covers payments made on a fee-for-service basis,
reimbursing direct care by physicians, among other
services. Consequently, at teaching hospitals, most services
performed by residents are covered under Part A, which
reimburses the hospitals for residents’ salaries, but does
not reimburse them on the basis of particular services they
provide. 42 U.S.C. § 1395x(b)(6). Physicians providing care
to patients, by contrast, are reimbursed under Part B based
on the service performed and in line with reimbursement
paid to physicians for services outside of teaching hospitals.
But this distinction is not so easily drawn. Physicians
can also bill Medicare for services in which residents and
interns participate, so long as the physician is sufficiently
involved in the provision of services. The appropriate
standard for determining when physicians may bill under
Part B for work performed by residents and interns is the
subject of the underlying dispute in this case.
In 1968, HHS promulgated regulations for Part B
reimbursement of services performed at teaching hospitals.
The regulations authorized payment to an “attending
physician” for services “of the same character, in terms of
the responsibilities to the patient that are assumed and
fulfilled, as the services he renders to his other paying
patients” if the physician “provides personal and
identifiable direction to interns or residents who are
participating in the care of his patient.” 20 C.F.R. § 405.521(1968). Notwithstanding, “[i]n the case of major surgical
procedures and other complex and dangerous procedures
2. Payments for other kinds of costs, i.e., not on a fee-for-service basis,
are made by “intermediaries”—private entities contracted by HHS for
processing payments under Medicare Part A. Like the carriers, their Part
B analogues, intermediaries have a certain amount of responsibility for
ensuring compliance with Medicare requirements. 42 U.S.C. § 1395h.
5
or situations, such personal and identifiable direction must
include supervision in person by the attending physician.”
Id.
In 1980, Congress amended the statute, largely adopting
the standard HHS stated in its regulations, but omitting the
specific references to surgery and other hazardous
procedures. The statute now provides that if a physician
“renders sufficient personal and identifiable physicians’
services to the patient to exercise full, personal control over
the management of the portion of the case for which the
payment is sought, [and] the services are of the same
character as the services the physician furnishes to
patients not entitled to benefits under this subchapter,” the
physician may bill for the services under Part B. 42 U.S.C.
§ 1395u(b)(7)(A)(i)(I).
HHS’s regulations were changed in 1992, but continued
to authorize payment to a teaching physician only when the
attending physician “furnishes personal and identifiable
direction to interns or residents who are participating in the
care of the patient.” 42 C.F.R. § 405.521(b)(1) (1992). And
the regulations continued to require that the physician
“personally supervise” the residents and interns in the case
of major surgery or other dangerous procedures.
Between 1992 and 1996, the Health Care Financing
Administration began to interpret the phrase “furnishes
personal and identifiable direction” as requiring the
physician to be physically present when and where the
resident or intern provides the billed service in order to be
eligible for Part B payment. This interpretation led to
widespread complaints from healthcare providers, many of
whom claimed that it amounted to a change in the
regulation. A physician could provide “personal and
identifiable direction,” it was claimed, without being
physically present when the resident performed the billed
care. The university contends that in response to these
comments, the Health Care Financing Administration
agreed to refrain from imposing such a requirement until
there was a new rule clarifying the agency’s position.
In December 1995, HHS adopted a new rule governing
physicians at teaching hospitals that took effect July 1,
6
1996. The rule now provides, “If a resident participates in
a service furnished in a teaching setting, physician fee
schedule payment is made only if a teaching physician is
present during the key portion of any service or procedure
for which payment is sought.” 42 C.F.R. § 415.170.
Because the carriers are initially responsible for enforcing
the billing standards, the carriers themselves often issue
clarifying instructions to the healthcare providers,
furnishing a source of information about Medicare billing
requirements in addition to the statute and regulations.
B. The Inspector General.
The Office of Inspector General of HHS, along with
inspector generalships for other federal administrative
agencies and departments, is governed by the Inspector
General Act of 1978, 5 U.S.C. App. 3.3 Offices of Inspector
General are designed to be “independent and objective
units” separate from their respective departments and
agencies. 5 U.S.C. App. 3 § 2. They are directed to “conduct
and supervise audits and investigations relating to the
programs and operations” of their respective agencies. Id.
Their primary task is to prevent fraud and abuse within
such programs and operations. The Office of Inspector
General of HHS is thus an independent office with a
primary function to investigate fraud and abuse within the
Medicare program.
The Inspector General Act grants inspectors general
broad discretion to determine which investigations and
audits are necessary to its mission, authorizing them “to
make such investigations and reports relating to the
administration of the programs and operations of the
applicable establishment as are, in the judgment of the
Inspector General, necessary or desirable.” 5 U.S.C. App. 3
§ 2.
3. The inspector general for HHS (then the Department of Health,
Education, and Welfare) was created by statute in 1976. Pub L. No. 94-
505. The Inspector General Act is similar in relevant respects to the
original statute.
7
C. The PATH Audits.
The HHS inspector general’s auditing of teaching
hospitals for overbilling began with an audit of the
University of Pennsylvania Health System’s Medicare billing
records from 1989 to 1994. The audit disclosed three
purported deficiencies in the University of Pennsylvania
Health System’s billing. First, the inspector general
reported a substantial amount of billing by physicians for
work performed by residents. Second, the audit revealed a
certain amount of “upcoding”—billing for procedures more
complex than were actually performed. And finally, the
inspector general contended that documentation was
inadequate for many of the billed items. The University of
Pennsylvania Health System paid $30 million to settle any
potential False Claims Act charges.
Following that audit, the inspector general (then June
Gibbs Brown) decided to expand the investigation to
determine if these practices were widespread. The result
was the Physicians at Teaching Hospitals (“PATH”)
initiative, under which the inspector general selected a
large number of teaching hospitals nationwide for audits
looking for the alleged problems discovered in the
University of Pennsylvania audit.
The PATH initiative was launched in 1996, the same year
the new HHS regulations expressly adopted a physical
presence requirement. PATH audits—including the one now
challenged—were directed at billing in the years before the
rule change. The operative rules for these audits, therefore,
are primarily the rules as amended in 1992, which spoke of
“personal and identifiable direction,” but did not expressly
state that a physician’s presence was required. 42 C.F.R.
§ 404.521(b)(1) (1992).
PATH audits are of two types. “PATH I” audits are those
performed by the Office of Inspector General at its expense.
A healthcare provider can choose, however, to hire an
independent auditor to perform the audit, reporting the
results to the inspector general. This is a “PATH II” audit.
A number of healthcare providers and medical
professional organizations objected to the initiative,
claiming the PATH audits amounted to retroactive
8
application of the 1996 rules. The inspector general
contended instead that the rules had always required the
physical presence of the physician for Part B payments,
even though it was not stated as clearly as under the new
rule.
HHS responded to the controversy by issuing the so-
called “Rabb letter.” Harriet Rabb, the general counsel of
HHS, issued a letter clarifying her views concerning the
PATH audits. Rabb, of course, worked for HHS, not the
independent Office of Inspector General. Accordingly, her
letter is not a policy statement from the Office of Inspector
General. Rather, it expressed Rabb’s understanding of the
standards the Office of Inspector General would apply in
determining when a PATH audit would be conducted.
In the letter, Rabb acknowledged that “the standards for
paying teaching physicians under Part B of Medicare have
not been consistently and clearly articulated by [the Health
Care Financing Administration, now the Centers for
Medicine and Medicaid Services] over a period of decades.”
Letter of Harriet S. Rabb, HHS General Counsel, at 4 (July
11, 1997). Nevertheless, Rabb concluded that the inspector
general’s interpretation, even if not clearly stated before
1996, was the correct one. Because of the ambiguity, Rabb
stated that clear statements by the carriers “would be
controlling.” Id. Thus, if the carriers had issued materials
clearly stating a physical presence requirement, the
providers would bound by it. Rabb concluded that many,
though not all, carriers had expressly stated that physical
presence was required for teaching physicians to receive
compensation under Medicare Part B.
Given this, Rabb stated her understanding that carrier
notification would be a necessary requirement for initiation
of a PATH audit: “[T]he OIG will undertake PATH audits
only where carriers, before December 30, 1992, issued clear
explanations” that Part B payments would be made only
“when the teaching physicians either personally furnished
services to Medicare beneficiaries or were physically present
when the services were furnished by interns or residents.”
Id. at 5. An audit would go forward only after the Office of
Inspector General had “obtained carrier materials showing
that clear instructions on the need for teaching physicians
9
to be physically present were given to the institutions or
physicians served by that carrier.” Id. at 5-6. If the Office of
Inspector General obtained such materials, a hospital
would “have the opportunity to show, as a matter of fact,
that it or the teaching physicians at the institution received
guidance from the carrier which the hospital views as
contradictory to the standard referenced above.” Id. at 6.
Importantly, the letter states, “The decision whether clear
guidance was given by carriers to teaching hospitals and
physicians will be made by OIG. That determination is,
necessarily, a fact bound one and will have to be made
particularly and in each instance.” Id.In short, Rabb—speaking on behalf of HHS, not the
inspector general—stated the Office of Inspector General
would begin a PATH audit only if it was convinced, after a
hospital had an opportunity to respond, that the hospital
had received clear instructions from its carrier of the
physical presence requirement.
D. This Case.
When the Office of Inspector General informed of its
intention to initiate a PATH audit, the University of
Medicine and Dentistry of New Jersey initially elected to
have a PATH II audit performed by an independent auditor
at its expense. But it never went forward with the audits
and instead filed this action to enjoin the audits.
The university contends the audits are unlawful for
several reasons. First, it argues the inspector general lacks
the power to conduct PATH audits, as they are properly the
function of HHS. It also argues the Office of Inspector
General did not comply with the terms of the Rabb letter,
concluding the University of Medicine and Dentistry was
auditable without its having received clear notice from its
carrier. And because it lacked prior notice of the standard
the Office of Inspector General intends to apply in its audit,
the university contends the initiation of the audits is
arbitrary and capricious and violates its due process rights.
Because of the university’s refusal to go forward with the
audit, the inspector general issued administrative
subpoenas for the relevant records. The university refused
10
to comply with the subpoenas. Consequently, the inspector
general filed a motion to enforce the subpoenas in the
District Court.
The District Court rejected the university’s claims,
primarily on the basis of its finding a lack of subject-matter
jurisdiction for lack of finality and ripeness. It also granted
the inspector general’s motion to enforce the administrative
subpoenas. The university appealed.
II.
The university’s challenge to the PATH audits comes to
us in two forms. First, because the university has resisted
the administrative subpoenas issued by the inspector
general, the inspector general brought an action seeking
enforcement of those subpoenas. The university appeals the
District Court’s order enforcing the subpoenas. Second, the
university seeks injunctive relief against the audits. Under
both sets of claims, the university seeks to block the
initiation of the PATH audits. But the audits themselves
would appear to be an early stage in an investigation that
may or may not lead to enforcement actions. Because of
this, the District Court determined that review of most of
the university’s claims was premature. As we discuss, we
hold that the District Court lacked jurisdiction to consider
these claims at this stage in the proceedings, but that it
had jurisdiction over the inspector general’s motion to
enforce the subpoenas.
A.
With respect to the subpoenas, the District Court found—
correctly—that it had jurisdiction to enforce the subpoenas.
Under the Inspector General Act, each inspector general “is
authorized . . . to require by subpena [sic] the production
of all . . . documentary evidence necessary in the
performance of the functions assigned by this Act, which
subpena, in the case of contumacy or refusal to obey, shall
be enforceable by order of any appropriate United States
district court.” 5 U.S.C. app. § 6(a)(4); see also 28 U.S.C.
§ 1345 (“[T]he district courts shall have original jurisdiction
of all civil actions, suits or proceedings commenced by the
11
United States, or by any agency or officer thereof expressly
authorized to sue by Act of Congress.”).
Although orders enforcing, or refusing to quash,
subpoenas issued in the trial context are ordinarily not
considered final orders subject to appeal (unless a
contempt order is entered, which is itself a final order
subject to appeal), orders enforcing administrative
subpoenas are subject to appellate review. “These orders
are considered ‘final’ for purposes of 28 U.S.C. § 1291because there is no ongoing judicial proceeding that would
be delayed by an appeal.” In re Subpoena Duces Tecum, 228
F.3d 341, 345-46 (4th Cir. 2000); see also FDIC v. Wentz,
55 F.3d 905 (3d Cir. 1995) (reviewing order enforcing
administrative subpoena); NLRB v. Frazier, 966 F.2d 812,
815 (3d Cir. 1992) (reviewing quashal). “[W]e will affirm an
order enforcing an agency’s subpoena unless we conclude
that the district court has abused its discretion.” Wentz, 55
F.3d at 908.
B.
As the Supreme Court has said of the Federal Trade
Commission and Internal Revenue Service, an agency
ordinarily “can investigate merely on suspicion that the law
is being violated, or even just because it wants assurance
that it is not.” United States v. Powell, 379 U.S. 48, 57
(1964) (IRS); United States v. Morton Salt Co., 338 U.S. 632,
642-643 (1950) (FTC); see also Wentz, 55 F.3d at 908(FDIC). The power to effectively investigate HHS and the
participants in the Medicare program is fundamental to the
HHS inspector general’s mission. Cf. Fed. Maritime Comm’n
v. Port of Seattle, 521 F.2d 431 (9th Cir. 1975) (“It is beyond
cavil that the very backbone of an administrative agency’s
effectiveness in carrying out the congressionally mandated
duties of industry regulation is the rapid exercise of the
power to investigate the activities of the entities over which
it has jurisdiction and the right under the appropriate
conditions to have district courts enforce its subpoenas.”).
In the ordinary course, judicial proceedings are appropriate
only after the investigation has led to enforcement, because
“[j]udicial supervision of agency decisions to investigate
might hopelessly entangle the courts in areas that would
12
prove to be unmanageable and would certainly throw great
amounts of sand into the gears of the administrative
process.” SEC v. Wheeling-Pittsburgh Steel Corp., 648 F.2d
118, 127 n.12 (3d Cir. 1981) (quoting Dresser Industries,
Inc. v. United States, 596 F.2d 1231, 1235 n.1 (5th Cir.
1979)).
For these reasons, judicial review of administrative
subpoenas is “strictly limited.” FTC v. Texaco, 555 F.2d
862, 871-72 (D.C. Cir. 1997) (en banc). “The ultimate
inquiry . . . is whether the enforcement of the
administrative subpoena would constitute an abuse of the
court’s process.” Wheeling-Pittsburgh, 648 F.2d at 125. A
district court should enforce a subpoena if the agency can
show “that the investigation will be conducted pursuant to
a legitimate purpose, that the inquiry is relevant, that the
information demanded is not already within the agency’s
possession, and that the administrative steps required by
the statute have been followed. The demand for information
must not be unreasonably broad or burdensome.” Wentz,
55 F.3d at 908 (citing Powell, 379 U.S. at 57-58; Morton
Salt, 338 U.S. at 652).
C.
The University of Medicine and Dentistry of New Jersey
contends the subpoenas were not “issued pursuant to a
legitimate purpose” because the inspector general lacks the
authority to conduct PATH audits in the absence of
evidence of fraud or abuse. And the university avers that
the inspector general admitted to them that she had no
evidence of Medicare fraud at the university hospitals.
As noted, the Inspector General Act creates Offices of
Inspector General “to prevent and detect fraud and abuse
in . . . programs and operations” of their respective
departments and agencies. 5 U.S.C. App. 3 § 2. To
accomplish these ends, the statute specifically authorizes
inspectors general “to conduct and supervise audits and
investigations relating to [these] programs and operations.”
Id. Furthermore, the Act grants inspectors general a degree
of discretion in determining when such audits and
investigations are appropriate: “In addition to the authority
13
otherwise provided by this Act, each Inspector General, in
carrying out the provisions of the Act, is authorized . . . to
make such investigations and reports relating to the
administration of the programs and operations of the
applicable establishments as are, in the judgment of the
Inspector General, necessary or desirable.” Id. § 6, 6(a)(2).
Here, the inspector general determined that the PATH
audits are necessary or desirable for the purposes of
preventing and detecting fraud and abuse in teaching
hospitals’ Medicare Part B billing. Accordingly, at first
blush, the PATH audits would seem to fall comfortably
within the Inspector General Act’s broad grant of authority.
That authority is subject to certain limitations, however.
Section 9 of the Act contains a restriction on the ability of
the inspectors general to perform program operating
responsibilities.4 The Act permits the transfer of
departmental functions that the head of the agency “may
determine are properly related to the functions of the Office
[of Inspector General] and would, if so transferred, further
the purposes of this Act.” The Act specifically provides,
however, that no such transfer shall include “program
operating responsibilities.” 5 U.S.C. App. 3 § 9.
The hospitals rely on this section in attempting to
establish a distinction between “routine compliance audits”
and “fraud investigations.” The administration of the
Medicare program is the responsibility of HHS (carried out
by the Centers for Medicare and Medicaid Services, an
agency within HHS). HHS’s direct role with respect to Part
B payments at teaching hospitals, however, is one of
oversight. Most of the direct interaction with the healthcare
providers is done by the carriers, who process the bills
submitted by the healthcare providers. The carriers are
responsible for ensuring, in the first instance, that the bills
they receive comply with the statutory and regulatory
requirements of the Medicare program, subject to the
oversight of the Centers for Medicare and Medicaid
Services. Indeed, 42 U.S.C. § 1395u(a) provides that “the
Secretary shall to the extent possible enter into . . .
contracts [to] . . . make such audits of the records of
4. The 1976 Act contained a similar limitation.
14
providers of services as may be necessary to assure that
proper payments are made under this part.” Thus, HHS,
through the carriers, is statutorily responsible for routine
compliance audits, which are core “program operating
responsibilities,” according to the university. And because
the PATH audits are routine compliance audits, the
university contends the authority to conduct them cannot
be transferred to the inspector general unless it is acting on
a specific allegation of fraud or abuse.
The university does not challenge the inspector general’s
authority to investigate healthcare providers directly under
the right circumstances. While a primary purpose of the
inspectors general is to investigate the operations of their
federal departments internally, they are charged with
preventing fraud and abuse in the programs of their
departments as well. The providers are participants in the
Medicare program, and through that program they receive
federal funds. Thus, they are not merely regulated by HHS,
they are part of the Medicare program. As such, they are
within the range of legitimate targets of the inspector
general’s efforts “to prevent and detect fraud and abuse” in
the Medicare program. Cf. Inspector Gen. of the U.S. Dept.
of Agric. v. Glenn, 122 F.3d 1007, 1011 (11th Cir. 1997)
(“While we agree that the [Inspector General Act]’s main
function is to detect abuse within agencies themselves, the
IGA’s legislative history indicates that Inspectors General
are permitted and expected to investigate public
involvement with the programs in certain situations.”). The
university concedes this, but contends the inspector
general’s authority to investigate healthcare providers
arises only after the inspector general has received a
referral from a carrier, or is otherwise responding to a
specific allegation of fraud.
If the carriers uncover any evidence that gives rise to a
suspicion of fraud on the part of healthcare providers, they
are directed to refer the case to the Office of Inspector
General for a fraud investigation. Medicare Program
Integrity Manual, ch. 3 § 10.1. (“Carriers . . . have a duty to
identify cases of suspected fraud and to make referrals of
all such cases to the OIG, regardless of dollar thresholds or
subject matter.”). But in the absence of a specific allegation
15
of fraud, according to the university, an audit is simply a
routine matter of ensuring compliance with the regulations,
a responsibility central to the basic mission of HHS itself.
HHS directs and oversees the carriers’ routine auditing of
healthcare providers. And because this is routine work
performed by HHS (through the carriers), permitting the
inspector general to perform such functions would amount
to a transfer of “program operating responsibilities.”
At bottom, the university contends the inspector general
cannot perform such audits because HHS can and does5
perform those audits in the ordinary course of business.
But we see no basis for concluding that the inspector
general’s authority cannot overlap with that of the
department. As the Court of Appeals for the Fifth Circuit
stated, “Section 9(a)(2) prohibits the transfer of ‘program
operating responsibilities,’ and not the duplication of
functions or the copying of techniques. No transfer of
operating responsibility occurs and the IG’s independence
and objectivity is not compromised when the IG mimics or
adapts agency investigatory methods or functions in the
course of an independent audit or investigation.” Winters
Ranch Partnership v. Viadero, 123 F.3d 327, 334 (5th Cir.
1997). The inspector general’s mandate to prevent and
detect fraud and abuse is not limited by HHS’s—or its
agents’—own efforts to prevent and detect fraud and abuse.
If the department fails to perform a function that is
within its responsibilities, and the inspector general takes
on those responsibilities, then it may be correct to speak of
“transfer” of program operating responsibilities. See, e.g.,
id. at 334; Burlington N. R.R. Co. v. Office of Inspector
General, R.R. Retirement Bd., 983 F.2d 631 (5th Cir. 1993)
(finding impermissible transfer of authority where the
inspector general audited railroad employers for tax
compliance when the board had declined to do so). For in
such a case, the department might be said to be abdicating
5. HHS itself does not appear to perform any compliance audits.
According to plaintiffs, these are the responsibility of the carriers, acting
as contractors for the department. We need not determine what effect, if
any, the fact that these audits are not, strictly speaking, functions of the
department itself may have on the analysis.
16
its own responsibilities, which is arguably one of the
concerns animating § 9(a)(2)’s prohibition on transfers of
program operating responsibilities. But this is not a
concern here.
Furthermore, that HHS can and does perform routine
compliance audits does not necessarily make them
“program operating responsibilities.” Routine compliance
audits, routine as they be, are nonetheless investigatory in
nature, and are directed at enforcing the rules under which
the providers operate. They need not be seen as part of the
“operation” of the Medicare program. In any event, the
statute contemplates the transfer of any duties that may
assist the inspector general in its mission, so long as they
are not “program operating responsibilities.” Presumably,
this would include a range of responsibilities the
department might perform, that do not constitute program
operating responsibilities. Thus, the fact that the
department can and does perform some of these tasks
would not alone prevent their transfer to the Office of
Inspector General.
The university relies on a seemingly contrary decision
reached by the Court of Appeals for the District of
Columbia Circuit. In Truckers United for Safety v. Mead,
251 F.3d 183 (D.C. Cir. 2001), the court held the Office of
Inspector General for the Department of Transportation had
overstepped its statutory authority when it engaged in a
joint operation with the Office of Motor Carriers (an office
within DOT) to investigate trucking records. The program
was designed “to create a greater deterrence to motor
carrier violations of the Federal Motor Carrier Safety
Regulations.” Id. at 187. The inspector general subpoenaed
a variety of records seeking, inter alia, to uncover
falsification of hours of service logs.
The court viewed the investigation “as part of enforcing
motor carrier safety regulations—a role which is central to
the basic operations of the agency.” Id. at 189. On the
court’s view, the inspector general was not engaged in an
audit investigation, rather, he “merely lent his search and
seizure authority to standard OMC enforcement
investigations.” Id. The court concluded that the “actions of
the IG were ultra vires.” Id. at 190.
17
Here, by contrast, there is no suggestion that the PATH
audits are aimed at anything other than the inspector
general’s (admittedly broad) view of what constitutes fraud
and abuse in the Medicare program. The inspector general
is charged with preventing and detecting, by audit and
investigation, fraud and abuse in the Medicare program.
There is no statutory basis for imposing an additional
requirement that the inspector general begin such an audit
or investigation only after she has received a referral or
other allegation of fraud. And this is especially true given
the broad discretion the inspector general enjoys when
determining audits and investigations are appropriate.
D.
In sum, the PATH audits are of a kind that is squarely
within the broad authority of the inspector general to audit
providers for the purpose of preventing fraud and abuse
within the Medicare program. The PATH audits do not
represent a “transfer” of “program operating
responsibilities.” The important issue here is not whether
the inspector general is doing something that HHS itself (or
its agents) might also do, but whether the PATH audits are
within the authority granted the inspector general by the
Inspector General Act. For the reasons discussed, we hold
that they are.
There is no dispute that the subpoenas at issue are
relevant to the inspector general’s purpose, that the
inspector general lacks the information it seeks, that
statutory procedures have been followed, or that the
demand for information is not unreasonably broad or
burdensome. See Wentz, 55 F.3d at 908. Consequently, the
subpoenas are lawful and we will affirm the District Court’s
order to enforce them.
III.
In addition to opposing the inspector general’s motion to
enforce its subpoenas, the University of Medicine and
Dentistry of New Jersey seeks to enjoin the PATH audits for
several reasons. The District Court declined to consider the
18
merits of these claims, deciding it lacked jurisdiction over
these claims. We agree.
The District Court found a lack of jurisdiction on two
related grounds. First, it held it lacked jurisdiction to
review the agency action under the Administrative
Procedures Act, 5 U.S.C. § 704, because the decision to
initiate the audit was not “final.” It also concluded, for
similar reasons, that the case was not sufficiently “ripe” at
this point to permit judicial review.
Ripeness and finality in this context are closely related.
Finality is an element in the test for ripeness. Nat’l Park
Hospitality Assoc. v. Dept. of the Interior, 123 S. Ct. 2026,
2032 (2003); Abbott Labs. v. Gardner, 387 U.S. 136, 149
(1967). And as we have noted, “the Court’s treatment of the
finality issue has involved an inquiry into the broader
question of whether a given action is ripe for judicial
review.” CEC Energy Co. v. Public Serv. Comm’n, 891 F.2d
1107, 1110 (3d Cir. 1989). We will address finality within
the context of an assessment of ripeness.
A.
Determining whether a dispute over agency action is ripe
involves a two-part inquiry. We must assess “(1) the fitness
of the issues for judicial decision and (2) the hardship to
the parties of withholding court consideration.” Nat’l Park
Hospitality Assoc., 123 S. Ct. at 2030; Abbott Labs., 387
U.S. at 149. The fitness question, in turn, requires an
assessment of whether the issues presented are “purely
legal,” whether the agency action is final for purposes of
section 10 of the Administrative Procedures Act,6 and
whether “further factual development would ‘significantly
advance our ability to deal with the legal issues
presented.’ ” Nat’l Park Hospitality Assoc., 123 S. Ct. at
2028 (quoting Duke Power Co. v. Caroline Envtl. Study
Group, Inc., 438 U.S. 59 (1978)); Abbott Labs., 387 U.S. at
149.
6. Under section 10(c) of the Administrative Procedures Act, federal
courts have jurisdiction to review “final agency action for which there is
no other adequate remedy,” 5 U.S.C. § 704, unless the action “is
committed to agency discretion by law.” § 701(a)(2).
19
While there are some factual disputes in this case, the
main issue—whether the inspector general has the
authority to initiate audits of the providers under the
announced standard—is primarily legal. Further factual
development does not seem necessary to resolve these
issues. But we believe the case is not sufficiently “fit” for
judicial review, because the action of the inspector general
was not a final one for these purposes.
No matter how decisive the inspector general’s
determination to initiate a PATH audit of the University of
Medicine and Dentistry of New Jersey under its stated
standard was, it was only a decision to initiate an
investigation of the university’s prior billing practices.
Neither the university nor the other plaintiffs has been
charged with fraud, nor has any kind of enforcement
proceeding commenced. The hospitals are required neither
to change their billing practices nor pay a penalty for past
practices. All they are required to do is to cooperate with
the audit—an audit the Office of Inspector General would
perform at its expense if the university so chose.
Courts should hesitate to scrutinize decisions to initiate
administrative audits and investigations for the same
reasons they accord administrative entities broad leeway in
issuing subpoenas. Subpoenas in this context are part of
an investigation or audit, taken after the decision to
investigate has been made, where there is a reason to
believe the target of the subpoena may not cooperate
without a legal requirement. It would be anomalous to
demand a greater showing for the initiation of an
investigation than is required for the issuance of
subpoenas.
“An investigation, even one conducted with an eye to
enforcement, is quintessentially non-final as a form of
agency action.” Assoc. of Am. Med. Colls. v. United States,
217 F.3d 770, 781 (9th Cir. 2000). In the ordinary course,
an investigation is the beginning of a process that may or
may not lead to an ultimate enforcement action. The
decision to investigate is normally seen as a preliminary
step—non-final by definition—leading toward the possibility
of a “final action” in the form of an enforcement or other
action. That path is highly uncertain. Here, as in most
20
actions, the possibility that no enforcement action may be
taken is real for several reasons, not least of which is that
the inspector general may change her mind on one or more
issues along the way. “Judicial intervention into the agency
process denies the agency an opportunity to correct its own
mistakes and to apply its expertise.” FTC v. Standard Oil
Co., 449 U.S. 232, 242 (1980).
B.
The university nevertheless contends that the initiation of
the PATH audits is a final decision under the standards
announced by the Supreme Court and this court. Even if
the decision to initiate the audits is not deemed final, the
hospitals argue the decision to employ a standard
incorporating a physical-presence requirement was itself
“final action” subject to judicial review.
We have listed several factors relevant to an assessment
of finality in the administrative context, the most important
of which for these purposes are “whether the decision
represents the agency’s definitive position on the question,”
“whether the decision has the status of law with the
expectation of immediate compliance,” and “whether the
decision has immediate impact on the day-to-day
operations of the party seeking review.”7 CEC Energy, 891
F.2d at 1110 (citing Standard Oil, 449 U.S. at 239-40; Solar
Turbines, Inc. v. Seif, 879 F.2d 1073,1080 (3d Cir. 1989).
7. In CEC Energy, we provided the following list of relevant factors:
1) whether the decision represents the agency’s definitive position on
the question; 2) whether the decision has the status of law with the
expectation of immediate compliance; 3) whether the decision has
immediate impact on the day-to-day operations of the party seeking
review; 4) whether the decision involves a pure question of law that
does not require further factual development; and 5) whether
immediate judicial review would speed enforcement of the relevant
act.
891 F.2d at 1110.
We recognize the decision involves a pure question of law that may not
require further factual development. We have doubts that immediate
judicial review would speed enforcement, but would reach the same
result even if we concluded it might.
21
The decision to initiate the PATH audit represents a
“definitive position” of the inspector general only in the
narrowest sense. The decision is not likely to be reopened,
but it is a decision only to investigate, which is by nature
a preliminary one. It is the initiation of a process designed
to make a determination as to plaintiffs’ potential fraud and
abuse in the Medicare program. Intermediate decisions
made in the course of determining what position will
ultimately be taken are not “determinative” in the
appropriate sense. As the Court of Appeals for the Ninth
Circuit stated:
[O]n the facts before this court it is an open question
whether the PATH audits will actually result in findings
of abuse or fraud. . . . OIG could still modify its rather
draconian view of the Act’s requirements for Part B
billing, and, for any number of reasons, the PATH
audits may not reveal significant violations. Even if
violations are found there are a panoply of
administrative and judicial remedies open to the
Secretary and DOJ, at least some of which we might be
without jurisdiction review under 42 U.S.C. § 405(h)
and [Shalala v. ]Illinois Council [on Long Term Care,
Inc., 529 U.S. 1, (2000)].
Assoc. of Am. Med. Colls., 217 F.3d at 781.
The University of Medicine and Dentistry of New Jersey
also contends the decision to initiate the audits “has the
status of law with the expectation of immediate
compliance,” and “has immediate impact on the day-to-day
operations of the party seeking review.” CEC Energy, 891
F.2d at 1110. Instead of focusing on potential enforcement
measures, the university contends the burdens of
compliance with the audits themselves constitute the
relevant effects. The university avers the decision requires
that they immediately comply with the audits—a disruptive
process it alleges would detract from providing healthcare
and would cost over one million dollars.8
8. This figure appears to be based on an assessment of a PATH II audit,
which would be performed by a third party at the university’s expense.
A PATH I audit, which the university could have chosen, would be
performed by the Office of Inspector General at its cost. Accordingly, it
appears the university could choose a course substantially less costly
than the one it selected.
22
These burdens, however, are not the kind of burdens that
support a finding of finality. In Standard Oil, the Supreme
Court held the FTC’s issuance of a complaint was not a
final order in the face of a similar contention. The Court
noted that the only legal effect of filing the complaint on
defendant was the requirement that it participate in the
proceeding by responding to the charges against it. The
Court stated, “Although this burden certainly is
substantial, it is different in kind and legal effect from the
burdens attending what heretofore has been considered to
be a final action.” 449 U.S. at 242. The Court noted that
“the expense and annoyance of litigation is part of the
social burden of living under government.” Id. at 244. There
is no basis for treating the expense and annoyance of
administrative audits and investigations any differently. See
CEC Energy, 891 F.2d at 1110 (following Standard Oil and
stating that the obligation to respond to the FTC’s inquiries,
even if substantial, is not a basis for finding finality). And
because the audit at issue here is directed only at past
conduct, the only effects plaintiffs will encounter are related
to their participation in the investigatory process and
actions that might be taken as a result—there is no direct
effect on plaintiffs’ “primary conduct.” See Nat’l Park
Hospitality Assoc., 123 S. Ct. at 2031; Toilet Goods Assn.,
Inc. v. Gardner, 387 U.S. 158, 164 (1967).
We are cognizant of the special responsibilities entrusted
to healthcare providers and the obstacles they face. The
economics of healthcare are at a precarious juncture.
Placing additional burdens—financial and otherwise—on
already taxed hospitals may have serious consequences for
access to healthcare, either by increasing its cost or by
diminishing its availability. It is to be hoped that a decision
to initiate a PATH audit will be made only after
consideration of these consequences. But these
considerations are, in the first instance, ones for the
inspector general, who has been charged with uncovering
fraud and has been given the authority to determine when
audits are appropriate to that end.
Focusing not on the decision to initiate the audit, but to
initiate the audit under a particular standard, the lack of
finality is even more clear. For it seems unlikely that the
23
choice of which standard would be applied in assessing the
billing data compiled would have a significant effect on the
university during the audit. The relevant costs would seem
to be associated with collecting the data, not applying any
particular standard in interpreting it. The only apparent
effect from that choice would come if and when it resulted
in a conclusion about plaintiffs’ compliance with the
applicable standards. And as we have seen, we are not now
in a position to assess what might or might not happen at
the end of this process.
C.
For the foregoing reasons, the present dispute is not
sufficiently “fit” for review at this time. Nor have the
hospitals shown sufficient “hardship” to support a
determination that the case is ripe for judicial
consideration. Again, the only significant hardships
resulting from the challenged decision are those related to
compliance with a request for information reasonably
directed at a legitimate purpose of the inspector general.
This is a cost that plaintiffs—recipients of Medicare funding
—must face as a “burden of living under government.”
Standard Oil, 449 U.S. at 244.
While the hospitals have raised profoundly serious
questions about the wisdom and fairness of the PATH
audits, the audits are within the broad authority of the
inspector general, and any challenges are properly made
when they have led to action against the hospitals and their
employees, if any. Accordingly, we will affirm the judgment
of the District Court.
24
AMBRO, Circuit Judge, Concurring:
The majority decides (1) generally that the Inspector
General (“IG”) of the federal Department of Health and
Human Services (“HHS”) has the authority to issue
subpoenas in furtherance of an audit of appellants’
teaching hospitals in determining compliance with certain
Medicare requirements, and (2) specifically that the District
Court lacks jurisdiction to enjoin the audit at issue here
because the IG’s decision merely to investigate by issuing
subpoenas was neither final nor ripe for review. I agree as
to (1) and concur in the result as to (2).
At the outset is a paradox. If there is no jurisdiction to
consider appellants’ attempt to block the Medicare audit,
how does jurisdiction exist to enforce subpoenas to turn
over documents for the audit? Stated conversely, if there is
jurisdiction to review the enforcement of administrative
subpoenas like those of the IG, should not jurisdiction also
exist to review whether an audit (which the subpoenas
attempt to implement) is allowed in appellants’ case?
The majority handles this conundrum deftly. The IG has
the power under the Inspector General Act of 1978 to
investigate fraud and abuse involving Medicare. Inherent
within its investigatory power is the authority to issue
subpoenas. But a subpoena to an entity operating within
the Medicare program merely begins an investigation
lacking both the finality and ripeness of an enforcement
action that may result from the investigation. Thus the
general authority for the IG to issue subpoenas is not, for
any particular entity, an action alleging noncompliance
with Medicare.
But rather than deciding that specific enforcement of the
IG’s auditing powers is not final nor ripe for review, I simply
would rely on 5 U.S.C. § 701(a)(2) of the Administrative
Procedures Act (“APA”), which exempts from judicial review
“agency action . . . committed to agency discretion by law.”
As § 6(a)(2) [5 U.S.C. app. 3, § 6(a)(2)] of the Inspector
General Act authorizes the IG “to make such investigations
. . . relating to the administration of the programs and
operations of [HHS] as are, in the judgment of the [IG],
25
necessary or desirable,” § 701(a)(2) applies. Cf. Webster v.
Doe, 486 U.S. 592, 600 (1988).
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit