Nichole Medical Equipment & Supply, Inc. v. Tricenturion, Inc. , 694 F.3d 340 ( 2012 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 11-2132
_____________
NICHOLE MEDICAL EQUIPMENT &
SUPPLY, INC.,
Appellant
v.
TRICENTURION, INC., formerly known as
TRICENTURION, LLC; NATIONAL HERITAGE
INSURANCE COMPANY, doing business as
NHIC CORP.
On appeal from the United States District Court
For the Eastern District of Pennsylvania
District Court No. 2:10-cv-00389
District Judge: The Honorable Cynthia M. Rufe
Argued on April 20, 2012
Before: MCKEE, Chief Judge, SLOVITER,
Circuit Judge, and O’CONNOR, Associate
Justice (Ret.) *
(Filed: September 13, 2012)
*
Hon. Sandra Day O’Connor, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
1
David M. Hollar, (Argued) Esq.
Villari, Brandes & Kline,
8 Tower Bridge, Suite 400
161 Washington Street
Conshohocken, PA 19428
Counsel for Appellant
Zane David Memeger, Esq.
United States Attorney
Office of United States Attorney
615 Chestnut Street
Suite 1250
Philadelphia, PA 19106
Margaret L. Hutchinson, Esq.
Chief, Civil Division
Office of United States Attorney
615 Chestnut Street
Suite 1250
Philadelphia, PA 19106
David A. Degnan, Esq. (Argued)
Assistant United States Attorney
Office of United States Attorney
615 Chestnut Street
Suite 1250
Philadelphia, PA 19106
Counsel for Appellees
2
_______________
OPINION
_______________
MCKEE, Chief Judge.
Nichole Medical Equipment and Supply Company (“Nichole
Medical”) appeals the district court’s dismissal of an action that Nichole
Medical brought to recover damages for various state and federal claims.
The district court dismissed the suit for lack of subject matter jurisdiction
and because Nichole Medical had not stated a claim for which relief could
be granted. For reasons that follow, we agree. We also agree that all of
Nichole Medical’s claims arise under the Medicare Act and that the
Defendants/Appellees are therefore immune from suit as officers or
employees of the Secretary of the Department of Health and Human
Services. Accordingly, we will affirm the district court’s dismissal of the
complaint.
I. Statutory and Regulatory Background
This suit originates from relationships that were created under the
Medicare Act, 42 U.S.C. § 1395 et seq., (“Act”). The Act is administered
through private organizations that contract with the Secretary of the
Department of Health and Human Services. * 30 FED. PROC. §71:746.
Pursuant to statutory provisions in effect prior to October 1, 2005,
Medicare Part B was administered by organizations known as “carriers.” †
Id. Carriers entered into contracts with the Centers for Medicare and
Medicaid Services (“CMS”). The obligations undertaken by carriers under
those contracts include paying for items Medicare suppliers provide to
Medicare beneficiaries, adjusting any incorrect payments, and recovering
overpayments when the carrier concludes an overpayment was made for a
covered Medicare benefit. 42 C.F.R. §§ 421.100, 421.200; see also 30 Fed.
Proc. §§ 71:747, 71:754.
*
The U.S. Department of Health and Human Services (“DHHS”), through the Secretary,
exercises its authority to administer Medicare through the Centers for Medicare and
Medicaid Services. Arkansas Dept. of Health and Human Services v. Ahlborn, 547 U.S.
268, 275 (2006).
†
Medicare Part B (Medical Insurance) covers ambulance, physician, laboratory, durable
medical supplies and other non-institutional services. 3 Health L. Prac. Guide §45:24
(2011).
3
As a result of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, the obligations previously imposed on carriers
are now undertaken by Medicare Administrative Contractors (“MACS”).
See Medicare Prescription Drug, Improvement, and Modernization Act of
2003, Pub. L. No. 108-173,§911(e), 117 Stat. 2066, 2256 (2003). ‡ MACS
enter into contracts with CMS to perform various duties pursuant to 42
U.S.C. §1395kk-1. 42 U.S.C. §1395kk-1; see also 42 C.F.R. §421.401.
Those duties include assisting in the administration of the Medicare
Integrity Program. 42 U.S.C. §1395kk-1; see also, 30 Fed. Proc. §71:746.
Pursuant to the Medicare Integrity Program, entities known as
“Program Safeguard Contractors” (“PSCs”) contract with CMS to perform
various program integrity tasks to “safeguard” Medicare payments on
behalf of the Secretary. See 42 U.S.C. §1395ddd(a). PSCs responsibilities
include reviewing Medicare payments for potential fraud and ensuring that
amounts billed under the Medicare program are appropriate and supported
by proper documentation. See 42 U.S.C. §1395ddd(b).
This auditing obligation thus requires MACs and PCSs to determine
if amounts paid under Medicare “are reasonable and necessary in
accordance with Medicare coverage policies and program instructions.” 42
C.F.R. §421.500. In discharging this obligation, CMS or a Medicare
contractor can suspend payments under the Act in whole or in part “if CMS
or the Medicare contractor possesses reliable information that an
overpayment existed or that the payments to be made may not be correct,
although additional information may be needed for a determination.” § 42
C.F.R. §405.371(a)(1) (emphasis added). A Medicare contractor is also
authorized to offset or recoup Medicare payments, in whole or in part, if it
is “determined that the provider or supplier to whom payments are to be
made has been overpaid.” 42 C.F.R. §405.371(a)(3) (emphasis added).
‡
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
amended the guidelines under which Medicare claims were processed and, in doing so,
changed the terms identifying administering organizations. See Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, sec. 911(e),
117 Stat. 2066, 2256 (2003); see also MacKenzie Medical Supply, Inc. v. Leavitt, 506
F.3d 341, 344 n.1 (4th Cir. 2007) (“Pursuant to §911 of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, . . . with an effective date of October 1,
2005, most of the carrier responsibilities have been transferred to entities now labeled
medicare administrative contractors.”).
§
A Medicare contractor includes, but is not limited to, a carrier, a MAC and/or a PSC.
42 C.F.R. §405.370.
4
At all times relevant to our inquiry, Nichole Medical was a durable
medical equipment supplier, ** National Heritage Insurance Company
(“NHIC”) was a carrier and/or a MAC †† and TriCenturion was a PSC. See
42 U.S.C. §1395u.
II. Factual Background
This dispute arises from an audit TriCenturion conducted of Nichole
Medical’s in the course of TriCenturion discharging its obligations under
the Act as a PSC. After examining records obtained from Nichole
Medical’s office, TriCenturion concluded that Nichole Medical “might” be
improperly billing Medicare for medical equipment such as the motorized
wheelchairs and hospital beds that Nichole Medical provided to Medicare
beneficiaries. TriCenturion’s examination of Nichole Medical’s records
also caused TriCenturion to conclude that Nichole Medical had received
overpayments from Medicare. Id. at p. 00007, ¶26. ‡‡ TriCenturion also
concluded that Nichole Medical had not maintained sufficient medical
records to establish the reasonableness and/or medical necessity of some of
the medical equipment it had supplied to Medicare beneficiaries. Id. at
00037.
Accordingly, TriCenturion directed Nichole Medical’s prior carrier,
HealthNow, to withhold payments to Nichole Medical in an effort to recoup
the amount that TriCenturion believed had been overpaid to Nicole
**
In its simplest form, a durable medical equipment supplier provides items such as
hospital beds, wheel chairs, etc., to Medicare beneficiaries following the receipt of a
medical prescription for that particular item. See United States. v. Isiwele, 635 F.3d 196,
198 (5th Cir. 2011). After providing the equipment to the Medicare beneficiary,
Medicare reimburses the supplier for the medical equipment it provided to fill the
prescription. See id.
††
Nichole Medical alleged that NHIC is a “carrier” which Appellees appear to insinuate
is an improper distinction. See Appellees Brief, p. 4 n. 1. However, the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 was not effective until
October 1, 2005, and the transition from carriers to MACs occurred between October 1,
2005, and October 1, 2011. See 42 C.F.R. §421.400(a). The conduct underlying
Nichole Medical’s complaint begins as early as 2002.
‡‡
Nichole Medical asserts that this was TriCenturion’s attempt to “bootstrap” its claims
of inappropriate billing to a then-pending action filed by United States against Nichole
Medical for fraudulent billing with regard to incontinence products. Id. at 00006, ¶25.
Nichole Medical alleges that a settlement agreement reached in that action permitted
Nichole Medical to continue business with Medicare so long as it successfully paid the
settlement payment.
5
Medical. Id. at 00007, ¶27. TriCenturion determined the offset amount by
calculating the actual overpayment of several specific claims. It then used
those claims as a representative sampling of Nichole Medical’s claims and
extrapolated an overpayment amount for all of Nichole Medical’s relevant
claims from that sample. Id. at 00019.
In addition to the offset, TriCenturion also informed the Attorney
General’s Office that Nichole Medical had improperly requested
reimbursement for certain medical devices delivered to Medicare
beneficiaries to fill their prescriptions. TriCenturion persisted in its belief
that payments had been improperly made to Nichole Medical even after the
Attorney General found no evidence of fraud and refused to prosecute. Id.
at 00006, ¶23.
For reasons that remain unclear, but presumably because the
Attorney General refused to prosecute, HealthNow stopped withholding
payments to Nichole Medical and did not attempt to recoup any further
payments. Id. at 00066. However, after NHIC succeeded HealthNow,
TriCenturion instructed NHIC to re-institute the offset. Id. According to
Nichole Medical, reinstituting the offset eventually forced it out of
business. Id. Nevertheless, after it went out of business, Nichole Medical
pursued an appeal of TriCenturion’s determination that it (Nichole
Medical) had been overpaid. §§
The administrative law judge who was handling that appeal
subsequently determined that Nichole Medical was entitled to
reimbursement on some of the appealed claims for which payment had
been withheld or offset, but not all such claims. *** Id. at 00035. The ALJ
§§
That procedure is allowed under the Act.
***
TriCenturion’s post-payment audit of 39 randomly-selected claims resulted in a
finding that benefits were improperly paid to Nichole Medical for the sale of 19
motorized wheelchairs and the rental of 20 hospital beds. Id. at 00035-6. TriCenturion
calculated an actual overpayment amount of $98,501.47. Id. Additionally, using these
39 claims against the universe of 467 claims, TriCenturion applied a statistical
methodology to obtain an extrapolated overpayment amount totaling $485,374.54. Id.
When TriCenturion and NHIC reinstituted the withholding of benefits to offset this
overpayment, Nichole Medical appealed arguing that those 39 claims were
inappropriately re-opened and that the extrapolated overpayment amount was improper.
Id. at 00007, ¶33. The ALJ reviewed separately each individual claim and the sampling
process. Id. at 00038-56. When reviewing each individual claim, the ALJ made a
6
also ruled that TriCenturion had failed to: (i) provide proper notice of the
post-payment audit; (ii) establish new evidence justifying the post-payment
audit; and (iii) fully explain the methodology used for the statistical
sampling that resulted in the determination that Nichole Medical had been
overpaid or improperly paid under the Act. Id. at 00035-55. The ALJ
found that the extrapolated amount determined by examining the 39 claims
that were sampled had no legal force because it was impossible to
recalculate the sampling. Id. at 00054-6. †††
The Medicare Appeals Council (“Council”) reviewed the ALJ’s
decision and found that the ALJ had erred in determining which of the 39
claims was properly paid because all 39 claims had been reopened and
reviewed improperly. Id. at 00018-25.
After the Council entered that ruling, Nichole Medical filed this suit
against TriCenturion and NHIC alleging that TriCenturion had wrongfully
withheld Medicare payments owed to Nichole Medical for equipment it had
supplied to Medicare beneficiaries and that that caused Nichole Medical’s
insolvency. Id. at 00007. Nichole Medical also claimed that
“TriCenturion conducted an unannounced, unauthorized and illegal search
and seizure of Nichole Medical’s Medicare records” when it audited
Nichole Medical’s cost reports and records. ‡‡‡ Appx., p. 00006, ¶21.
favorable ruling on 2 wheelchairs and 15 beds but the ALJ found the remaining claims
were improperly paid to Nichole Medical, thus, resulting in overpayment. Id. at 00035.
†††
The ALJ held “the extrapolated overpayment, which resulted from the statistical
process in this case, is nullius juris, not because the statistical methodology was flawed or
invalid but because the process, which the regulations require the government to follow,
were [sic] not followed, thereby denying [Nichole Medical] the benefit of the law and
regulations. In addition, this decision declines to uphold the statistical extrapolation
because the contractor failed to explain fully the methodology that was applied, and
therefore this decision cannot meet its responsibility to recalculate a new extrapolated
amount.” Id. at 00051.
‡‡‡
As noted by the administrative law judge, “Medicare rules do not contemplate the
exclusion of improperly obtained evidence in the fashion of the constitutional exclusion
of evidence in criminal proceedings. When the evidence comes into the record by
whatever means, it may be considered.” Appx., p. 00038. The administrative law judge
did not decide the issue but acknowledged “a fair argument can be made that [Appellees]
committed no regulatory violations when it sought additional documentation from
whatever source possible.” Id.
7
According to Nichole Medical’s allegations, it was forced into
insolvency because TriCenturion “developed and implemented a business
pattern and practice of ignoring and failing to follow statutory and
regulatory guidelines and procedures with regard to its audit activities.” Id.
at 00009, ¶¶37, 40. Nichole Medical asked the district court to award
compensation “including, but not limited to, past and future damages of an
economic nature, including: attorneys fees, costs, loss of sales, loss of
revenue, loss of profits, and other expenses.” Id. at ¶43. Nichole Medical
bases its claim for damages on various state law torts and breach of the
statutory duty of care pursuant to 42 U.S.C. §1320c-6(b). §§§ Id. at 00065.
The district court granted a motion to dismiss based on Nichole
Medical’s failure to exhaust its claims before the ALJ and the Council as
required by the Act. Id. at 00070-77. Alternatively, the district court
concluded that the complaint should be dismissed because the challenged
conduct was within the scope of TriCenturion’s and NHIC’s official duties
under the Act and that they were therefore immune from suit under the
Medicare Act. **** Id. at 00070-77.
This appeal followed.
III. Discussion
A. Jurisdiction
1. Judicial Review under the Act.
42 U.S.C. §405(h) is incorporated into the Act pursuant to 42 U.S.C.
§1395ii. Section 405(h) provides
[t]he findings and decision of the [Secretary] after a hearing
shall be binding upon all individuals who were parties to such
hearing. No findings of fact or decision of the [Secretary]
§§§
The alleged torts include: negligence; unjust enrichment; intentional interference with
contractual relations; extreme and outrageous conduct; malicious prosecution; and
trespass (the last two claims were asserted against TriCenturion only).
****
TriCenturion and NHIC were and continue to be represented by the United States
Department of Justice as a result of their Medicare contracts. See 28 U.S.C. §517 (“The
Solicitor General, or any officer of the Department of Justice, may be sent by the
Attorney General to any State or district in the United States to attend to the interests of
the United States in a suit pending in a court of the United States, or in a court of a State,
or to attend to any other interest of the United States.”).
8
shall be reviewed by any person, tribunal, or governmental
agency except as herein provided. No action against the
United States, the [Secretary], or any officer or employee
thereof shall be brought under section 1331 or 1346 of Title
28 to recover on any claim arising under this subchapter.
Id. (emphasis added). Section 405(h) thus limits judicial review of claims
“arising under” the Act. See Midland Psychiatric Assocs., Inc. v. United
States, 145 F.3d 1000, 1002-3 (8th Cir. 1998). In Midland Psychiatric
Association, Inc., the Eighth Circuit explained: “the last four words of
§405(h)’s second sentence—‘except as herein provided’—refer to the rest
of 42 U.S.C. §405, particularly §405(g) . . . .” Id. (internal citations
omitted). Section 405(g) provides that
[a]ny individual, after any final decision of the Commissioner
[is] . . . made after a hearing to which he was a party,
irrespective of the amount in controversy, may obtain a
review of such decision by a civil action commenced within
sixty days after the mailing to him of notice of such decision .
. . . The court shall have power to enter, upon the pleadings
and transcript of the record, a judgment affirming, modifying,
or reversing the decision of the Commissioner of Social
Security, with or without remanding the cause for a rehearing.
Id. at §405(g) (emphasis added). “Section 405(h) purports to make
exclusive the judicial review method set forth in §405(g).” Shalala v.
Illinois Council on Long Term Care, Inc., 529 U.S. 1, 10 (2000). We have
previously explained that: “there is no judicial review of final agency action
under the district court’s federal question jurisdiction [under the Act].”
Fanning v. United States, 346 F.3d 386, 402 (3d Cir. 2003).
Nichole Medical argues that Congress only intended §405(h) to bar
federal jurisdiction of suits under 28 U.S.C. §§1331 and 1346 and,
therefore, its suit against TriCenturion and NHIC was improperly dismissed
because the court had diversity jurisdiction under 42 U.S.C. §1332.
When it was originally enacted, however, §405(h) barred virtually
all grants of jurisdiction under Title 28. Subsequent “technical corrections”
were made in 1976, which resulted in the current wording of that section.
We agree that the language may at first appear to bar only jurisdiction
under §§1331 or 1346 of Title 28. However, it is clear that the changes
enacted in 1976 were intended only as “technical corrections” and they
9
were therefore not intended to make any substantive change in the statute.
See Bodimetric Health Services, Inc. v. Aetna Life & Casualty, 903 F.2d
480, 488 (7th Cir. 1990). Accordingly, we hold that §405(h) continues to
bar virtually all grants of jurisdiction under Title 28.
In Bodimetric, the Seventh Circuit explained: “In this section,
Congress clearly expressed its intent not to alter the substantive scope of
section 405(h). Because the previous version of section 405(h) precluded
judicial review of diversity actions, so too must newly revised section
405(h) bar these actions. Any other interpretation would contravene
section 2664(b) by ‘changing or affecting a right, liability, status, or
interpretation’ of section 405(h) that existed before the Technical
Corrections were enacted.” 903 F.2d. at 489 (quoting Griffin v. Oceanic
Contractors, Inc., 458 U.S. 564, 571 (1982)). Similarly, in Midland
Psychiatric Association, the Court of Appeals for the Eighth Circuit found
“the jurisdictional bar imposed by sentence three of §405(h) extends to
claims based on diversity of citizenship” because “[w]hen Congress revised
sentence three, it labeled the amendment a technical correction, and at the
same time made clear that no substantive change in the law was intended.”
145 F.3d at 1004.
We therefore agree with the district court’s conclusion that Nichole
Medical’s attempt to rely on the court’s diversity jurisdiction by filing
under §1332 is barred by §405(h) if those claims “arise under” the
Medicare Act. Congress clearly prohibited federal courts from exercising
subject matter jurisdiction or diversity jurisdiction over claims arising
under the Act.
2. Nichole Medical’s Claims Arise “under the Act.”
We exercise plenary review over the district court’s dismissal of a
complaint for lack of subject matter jurisdiction. Gould Electronics Inc. v.
United States, 220 F.3d 169, 176 (3d Cir. 2000). In reviewing a facial
attack to the court’s jurisdiction, “courts must only consider the allegations
of the complaint and documents referenced therein and attached thereto, in
the light most favorable to the plaintiff.” Id. Moreover, Nichole Medical
carries the burden of convincing us that Congress has not barred federal
courts from exercising subject matter jurisdiction over this suit.
Nichole Medical’s claims for damages are supported by allegations
that the defendants: (i) wrongfully entered Nichole Medical’s premises to
review its records; (ii) improperly withheld payments to offset purported
overpayments; and (iii) unnecessarily informed the CMS of their concerns
10
with Nichole Medical’s billing practices. Appellant’s Brief, pp. 10-16.
Despite those allegations and their relationship to Medicare, Nichole
Medical argues that its claims do not arise under the Act because it is not
asking a court to determine “whether Medicare should pay the claims as
submitted, how much should be paid, or whether the [Appellees’] conduct
was illegal, wrongful or improper” and “at bottom [it is] not seeking to
recover benefits” but rather it is seeking damages arising from Appellees’
“unlawful” conduct. †††† Id. Of course, that argument totally ignores the
underlying reality that all of the actions complained of are squarely rooted
in, and arise from, the relationship between the parties. That relationship is
firmly rooted in the Act and certainly arises from it.
In attempting to argue the contrary proposition, Nichole Medical
relies on Ardary v. Aetna Health Plans of Southern California, Inc., 98 F.3d
496 (9th Cir. 1996), wherein the Court of Appeals for the Ninth Circuit
found state law claims did not arise under the Act because, at bottom, they
were not seeking to recover benefits. See Appellant’s Brief, pp. 15-16.
However, that case involved a wrongful death action and the court merely
concluded that the Act did not preclude the heirs of a deceased Medicare
beneficiary from bringing state law claims for wrongful death against a
private Medicare provider. See Ardary, 98 F.3d at 498. The plaintiffs
there were seeking compensatory and punitive damages on the grounds that
the Medicare provider improperly denied emergency medical services and
misrepresented its managed care plan. Id.
Moreover, the Court of Appeals for the Ninth Circuit subsequently
clarified the limited nature of the holding in Ardary by explaining that it
“does not extend beyond patients and torts committed in the sale or
provision of medical services.” Kaiser v. Blue Cross of Cal., 347 F.3d
1107, 1113 (9th Cir. 2003). That is simply not this case.
The Supreme Court has defined claims that “arise under” the Act as
claims that are “inextricably intertwined” with a claim for benefits or
claims where “both the standing and the substantive basis for presentation”
is the Act. Shalala, 529 U.S. at 12. A claim is “inextricably intertwined” if
it does not involve issues separate from the party’s claim that it is entitled
††††
Nichole Medical’s allegations that the Appellees’ conduct was unlawful, alone, are
entirely insufficient to survive a motion to dismiss. See Ashcroft v. Iqbal, 129 S. Ct.
1937, 1949 (2009) (“The plausibility standard . . . asks for more than a sheer possibility
that a defendant has acted unlawfully. . . . threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.”); see also Fowler v.
UPMC Shadyside, 578, F.3d 203, 210-11 (3d Cir. 2009) (“The District Court must accept
all the complaint’s well-pleaded facts as true, but may disregard any legal conclusions.”).
11
to benefits and/or if those claims are not completely separate from its
substantive claim to benefits. See Cathedral Rock of North College v.
Shalala, 223 F.3d 354, 363 (6th Cir. 2000).
A claim can arise under the Medicare Act even if the substantive
relief sought is not permitted by the Act. See Heckler v. Ringer, 466 U.S.
602, 623 (1984). As the Ninth Circuit explained in Kaiser, “[t]he fact that
[Appellant] seek[s] damages beyond the reimbursement payments available
under Medicare does not exclude the possibility that [its] case arises under
Medicare. Simply put, the type of remedy sought is not strongly probative
of whether a claim falls under §405(h).” 347 F.3d at 1112.
Bodimetric Health Services, Inc. v. Aetna Life & Casualty is
illustrative of this point and “on all fours” with Nichole Medical’s attempt
to argue that its claims do not “arise under” the Act. There, a Medicare
intermediary refused to pay certain claims and, as a result, Bodimetric went
out of business. Bodimetric, 903 F.2d 480, 482-83 (7th Cir. 1990).
Bodimetric sued the intermediary for fraud, fraudulent concealment, breach
of contractual relationship, tortious breach of the implied covenant of good
faith and fair dealing and intentional harm to property interest. Id. The
Court of Appeals for the Seventh Circuit rejected Bodimetric’s assertion
that its tort claims did not arise under the Act. The court explained: a
“party cannot avoid the Medicare Act’s jurisdictional bar simply by styling
its attack as a claim for collateral damages instead of a challenge to the
underlying denial of benefits.” Id. at 487 (“If litigants who have been
denied benefits could routinely obtain judicial review of these decisions by
recharacterizing their claims under state and federal causes of action, the
Medicare Act’s goal of limited judicial review for a substantial number of
claims would be severely undermined.”). We agree.
Here, based on its own recitation of facts, it is clear that Nichole
Medical’s action is, at bottom, nothing more than an argument that it was
entitled to payments under the Medicare program, those payments were
delayed or denied, and Nichole Medical suffered damages as a result.
Thus, these claims are not only “inextricably intertwined” with Nichole
Medical’s claim for benefits, they derive from (and are firmly rooted in) the
Act. See, e.g. Midland Psychiatric Assocs., Inc., 145 F.3d at 1005 (finding
a tortious interference claim to be “inextricably intertwined” with a
Medicare benefits determination because “[a]t bottom, [Appellant] is
claiming [the Medicare carrier] should have paid for its services.”);
Bodimetric, 903 F.2d at 486 (“[Appellant’s] grievance is, at bottom, a
challenge to [the intermediary’s] approach to processing claims. Judicial
review of such a challenge seems to be foreclosed.”); Fanning, 346 F.3d at
400 (It is “apparent that both the standing and the substantive basis for the
12
claim . . . are rooted in, and derived from, the Medicare Act” when the
claim was wholly dependent on whether the parties qualified as a primary
plan as defined by the Act).
3. Judicial Review of Nichole Medical’s Claims
Nichole Medical concedes that it did not raise the tort and contract
claims that this suit is based on during its Medicare appeals process. ‡‡‡‡ To
obtain judicial review under §405(g), however, Nichole Medical “must
have complied with (1) a nonwaivable requirement of presentation of any
claim to the Secretary, and (2) a requirement of exhaustion of
administrative review, which the Secretary may waive.” Cathedral Rock,
223 F.3d at 359 (emphasis added); see also Ringer, 466 U.S. at 617 (“[T]he
exhaustion requirement of §405(g) consists of a nonwaivable requirement
that a ‘claim for benefits shall have been presented to the Secretary’ and a
waivable requirement that the administrative remedies prescribed by the
Secretary be pursued fully by the claimant.”) (internal citations omitted).
“‘[A]ll aspects of [Nichole Medical’s] claim for benefits should be
channeled first into the administrative process which Congress provided for
the determination of claims for benefits.’” Fanning, 346 F.3d at 395
(quoting Ringer, 466 U.S. at 614).
Moreover, Nichole Medical is not exempt from this exhaustion
requirement simply because the claims arising under the Act are not within
the jurisdiction of the Secretary. See Salfi, 422 U.S. at 765 (“Plainly [the
purposes for exhaustion] have been served once the Secretary has satisfied
himself that the only issue is the constitutionality of a statutory
requirement, a matter which is beyond his jurisdiction to determine, and
that the claim is neither otherwise invalid nor cognizable under a different
section of the Act.”). §§§§
‡‡‡‡
Nichole Medical avers that (i) it exhausted all claims that it was required to under the
Act; and (ii) there is no administrative procedure to obtain review of state law claims for
damages. Appellant’s Brief, pp. 10-16. Additionally, Nichole Medical argues that the
“scope of the administrative proceedings was limited to a determination on claims for
benefits, i.e., whether benefits should be paid, and if so, in what amount” and, therefore,
it was not required to exhaust its claims. Id. at 9-10.
§§§§
See, e.g. Kaiser, 347 F.3d at 1115 (“And, while the administrative action may in
some sense be futile for [Appellant] (if the administrative process cannot provide the
damages the [Appellant] seek[s]), the administrative exhaustion of [Appellant’s] claims
would still serve the purposes of exhaustion and not be futile in the context of the
system.”); Shalala, 529 U.S. at 24 (“At a minimum, however, the matter must be
presented to the agency prior to review in a federal court.”); Id. at 23 (“After the action
13
To conclude otherwise would allow any party to avoid the Act’s
administrative procedures for reviewing the Secretary’s determinations
simply by restyling their argument as something different. See Cathedral
Rock, 223 F.3d at 363. Accordingly, Nichole Medical improperly advances
an action based on unexhausted claims that “arise under” the Act. See
Kaiser, 347 F.3d at 1116 n.4 (9th Cir. 2003) (“[A]ll inextricably
intertwined claims must first be raised in an administrative process. In that
process, the agency, with the benefit of its experience and expertise, can
resolve whatever issues it can, limiting the number of issues before judicial
review (and limiting review on those issues according to the appropriate
standard of deference).”).
Without a final agency decision on Nichole Medical’s claims, the
district court lacks jurisdiction to review this action. See 42 U.S.C.
§405(h). Because §§1331 and 1332 jurisdiction is barred and the
prerequisites of §405(g) have not been satisfied, the district court properly
determined that it was without subject matter jurisdiction to entertain
Nichole Medical’s state law claims.
B. Official Immunity for Medicare Contractors
In the alternative, the district court also dismissed Nichole Medical’s
action for failing to state a claim for which relief may be granted because it
found TriCenturion and NHIC were entitled to official immunity. Our
review of the district court’s grant of a motion to dismiss for failure to state
a claim is plenary. Morse v. Lower Merion School Dist., 132 F.3d 902, 906
(3d Cir. 1997). “In considering whether a complaint should have been
dismissed for failure to state a claim upon which relief can be granted, [this
Court] must consider only those facts alleged in the complaint and accept
all of the allegations as true.” ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859
(3d Cir. 1994).
A Rule 12(b)(6) motion should be granted when it appears to a
certainty that no relief can be granted under any set of facts which could be
has been [channeled through the agency], the court will consider the contention when it
later reviews the action. And a court reviewing an agency determination under §405(g)
has adequate authority to resolve any statutory or constitutional content that the agency
does not, or cannot, decide . . . .”); Kaiser, 347 F.3d at 1116 n.4 (The agency “may make
a determination that it is without authority to decide and grant the . . . right to obtain
judicial review. . . . Such determinations would satisfy presentment and exhaustion, and
permit [courts] to hear claims [inextricably intertwined with claims arising under the Act]
. . .”).
14
proved. Morse, 132 F.3d at 906. Though Nichole Medical’s complaint
need not set forth detailed allegations, it must provide the grounds for its
entitlement to relief which requires more than labels, conclusions and a
formulaic recitation of the elements of a cause of action. See Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 555 (2007).
On appeal, TriCenturion and NHIC assert that, “as Medicare
contractors—acting on behalf of the Secretary and performing functions
under their contract with CMS—and because the complaint alleges only
state-law tort claims, [Appellees] are entitled to official immunity.”
Appellees’ Brief, p. 17. Nichole Medical argues that “government
contractors who engage in illegal conduct have no claim to immunity” and,
therefore, official immunity should not be extended to Appellees. *****
Appellant’s Brief, pp. 18-22.
Nichole Medical’s argument is unpersuasive. TriCenturion and
NHIC, as Medicare contractors, are entitled to immunity for discretionary
conduct that falls within the outer perimeter of their official duties.
Westfall v. Erwin, 484 U.S. 292, 300 (1988); see also 42 C.F.R. §421.5(b)
(Medicare contractors “act on behalf of the CMS in carrying out certain
administrative responsibilities that the law imposes”); Midland Psychiatric
Association., 145 F.3d at 1003-4 (Medicare contractors are government
agents because they are “[u]nder contract with the Secretary of Health and
Human Services, [and] do the work of the Government on the Secretary’s
behalf.”).
Under the Act, Appellees had discretion to suspend payments to
recoup monies they believed had been overpaid to suppliers. See 42 C.F.R.
§405.371. Appellees were discharging that discretionary duty when they
withheld benefits to recoup the perceived overpayments to Nichole
Medical. See id. Since Nichole Medical is seeking damages purportedly
*****
Putting aside the fact that an agency should be permitted, in the first instance, to
determine whether its agents acted outside of their statutory authority, the plain language
of the implementing regulations provides Appellees with the authority to withhold
payments to entities furnishing services or items under the Act. See 42 C.F.R. §405.371.
Appellees were authorized to suspend payments when they possessed reliable
information that an overpayment had been made to Nichole Medical even if additional
information was needed for a final determination. See id. at (a)(1). Appellees were also
authorized to offset or recoup Medicare payments if they determined that Nichole
Medical had been overpaid. See id. at (a)(3). The substance of Appellees’ findings which
prompted the withholdings was never found to be insufficient. In fact, though his inquiry
was found improper on appeal, the ALJ found that 22 of the 39 claims were improperly
paid and actually did result in overpayments made to Nichole Medical.
15
arising from the exercise of Appellees’ discretion to withhold benefits they
are seeking damages for the exercise of discretion that is easily within the
outer perimeter of Appellees’ official duties. See id.
Accordingly, the district court properly found that Appellees are
entitled to immunity and dismissed Nichole Medical’s complaint. See
Bodimetric, 903 F.2d at 488 (“Congress apparently did not differentiate
between the respective abilities of public and private agencies to serve as
fiscal intermediaries, 42 U.S.C. §1395h(a), we see no reason to allow
claimants to proceed against private agencies when they clearly cannot
proceed against federal agencies.”).
IV. CONCLUSION
For the forgoing reasons, we conclude that the district court properly
granted Appellees motions under Fed R. Civ P. 12(b)(1) and (6) and we
will therefore affirm its decision.
16