Association of American Physicians & Surgeons, Inc. v. Sebelius , 901 F. Supp. 2d 19 ( 2012 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
ASSOCIATION OF AMERICAN )
PHYSICIANS & SURGEONS, INC., et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 10-0499 (ABJ)
)
KATHLEEN G. SEBELIUS, Secretary )
Of Health & Human Services, et al., )
)
Defendants. )
____________________________________)
MEMORANDUM OPINION
Plaintiffs Association of American Physicians & Surgeons, Inc. (“AAPS”) and Alliance
for Natural Health USA (“ANH-USA”), bring this case challenging several unrelated
government actions, each of which could have been challenged in a distinct and separate case.
The challenged government actions are:
Three sections of the Social Security Program Operations Manual System (“POMS”),
POMS HI 00801.002; POMS HI 00801.034; POMS GN 00206.020, which state that any
individual who receives social security benefits is automatically entitled to Medicare Part
A benefits;
The employer and individual insurance mandate sections of the Patient Protection and
Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010) (codified as amended in
scattered titles of U.S. Code) (“ACA”);
Provisions of a Center for Medicare and Medicaid Services (“CMS”) manual and
accompanying change requests, Change Requests 6417, 6421 (“CR6417/6421”), as well
as a Department of Health and Human Services (“HHS”) Interim Final Rule with
Comment Period, 75 Fed. Reg. 24,437 (May 5, 2010) (“IFR”), that require physicians
and other eligible professionals to obtain a National Provider Identifier (“NPI”) and an
HHS-approved enrollment or opt-out record in the electronic Provider Enrollment, Chain,
and Ownership System (“PECOS”), in order to make covered referrals under Medicare
Part B; and
Alleged violations by Secretary of HHS Kathleen G. Sebelius and Commissioner of
Social Security Administration Michael J. Astrue of their fiduciary and equitable duties
to the American people by allowing Medicare and Social Security, respectively, to face
insolvency.
Defendant filed a motion to dismiss for lack of subject matter jurisdiction under Federal
Rule of Civil Procedure 12(b)(1), and for failure to state a claim upon which relief can be granted
under Rule 12(b)(6). See Defs.’ Mot. to Dismiss [Dkt. # 32] (“Defs.’ Mot.”). After filing the
motion to dismiss, defendants moved to stay this case pending decisions in two cases before the
D.C. Circuit, and later, one case before the United States Supreme Court, which raised claims
identical to the first two counts of plaintiffs’ complaint. See Defs.’ Mot. to Stay Summ. J.
Briefing and Discovery [Dkt. # 33]. The Court granted the motion to stay. See Minute Entry
(Nov. 8, 2011).
Decisions in all of the relevant appeals have now been issued. In Hall v. Sebelius, 667
F.3d 1293 (D.C. Cir. 2012), the D.C. Circuit upheld the POMS provisions that are challenged in
this case as consistent with the Social Security Act, 42 U.S.C. § 426(a). In National Federation
of Independent Business v. Sebelius, 132 S. Ct. 2566 (2012) (“NFIB”), the Supreme Court upheld
the individual mandate provision of the ACA as a valid exercise of Congress’s taxing powers.
Accordingly, the stay on this action has been lifted, and defendants’ motion to dismiss is
ripe for decision. The parties have filed supplemental memoranda addressing whether the recent
decisions require the dismissal of any counts and, notwithstanding the Supreme Court’s
determination, plaintiffs soldier on. In light of the original pleadings in this case, the
supplemental pleadings, and the recent controlling decisions from the D.C. Circuit and the
United States Supreme Court, this Court will grant defendants’ motion to dismiss because
plaintiffs lack standing to bring some of their claims, and the others fail to state a claim upon
which relief can be granted.
2
FACTUAL BACKGROUND
Plaintiffs AAPS and ANH-USA are both associations whose members include medical
caregivers, employers, owners and managers of medical businesses, and consumers of
healthcare. Second Am. Compl. [Dkt. # 26] (“Compl.”) ¶¶ 3–4, 13–14. AAPS was founded “to
preserve the practice of private medicine, ethical medicine, and the patient-physician
relationship.” Id. ¶ 3. ANH-USA seeks “to promote sustainable health and freedom of choice in
healthcare” and to promote an “integrative” approach to preventative medicine that incorporates
food, dietary supplements, and lifestyle changes. Id. ¶ 4.
On September 13, 2010, plaintiffs filed the six-count second amended complaint
(“complaint”) in this action on behalf of their members. See Compl. ¶¶ 13–34. Count I alleges
that the issuance of the three POMS provisions, which state that any individual who receives
social security benefits is automatically entitled to Medicare Part A benefits, was arbitrary,
capricious, an abuse of discretion, without observance of notice-and-comment rulemaking
procedure required by law, not otherwise in accordance with the law, and in excess of statutory
authority. Id. ¶¶ 90–93. Counts II and III allege that both the employer and individual insurance
mandate provisions of the ACA contravene the United States Constitution. Id. ¶¶ 94–99. Count
IV alleges that CR6417/6421 and HHS’s Interim Final Rule with Comment Period, 75 Fed. Reg.
at 24437, which require medical professionals who decide to opt out of Medicare but wish to
make referrals under Medicare Part B to obtain an NPI and an approved enrollment record or a
valid opt-out record in the PECOS, are arbitrary, capricious, an abuse of discretion, without
observance of the notice-and-comment rulemaking procedure required by law, not otherwise in
accordance with the law, and in excess of statutory authority. Id. ¶¶ 100–05. Finally, Counts V
3
and VI allege that defendants Sebelius and Astrue violated their fiduciary and equitable duties.
Id. ¶¶ 106–117. The complaint requests declaratory and equitable relief. Id. ¶ 118.
STANDARD OF REVIEW
In evaluating a motion to dismiss under either Rule 12(b)(1) or 12(b)(6), the Court must
“treat the complaint’s factual allegations as true . . . and must grant plaintiff ‘the benefit of all
inferences that can be derived from the facts alleged.’” Sparrow v. United Air Lines, Inc., 216
F.3d 1111, 1113 (D.C. Cir. 2000), quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir.
1979) (citations omitted). Nevertheless, the Court need not accept inferences drawn by the
plaintiff if those inferences are unsupported by facts alleged in the complaint, nor must the Court
accept plaintiff’s legal conclusions. Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002).
I. Subject Matter Jurisdiction
Under Rule 12(b)(1), the plaintiff bears the burden of establishing jurisdiction by a
preponderance of the evidence. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992);
Shekoyan v. Sibly Int’l Corp., 217 F. Supp. 2d 59, 63 (D.D.C. 2002). Federal courts are courts of
limited jurisdiction and the law presumes that “a cause lies outside this limited jurisdiction.”
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); see also Gen. Motors
Corp. v. Envtl. Prot. Agency, 363 F.3d 442, 448 (D.C. Cir. 2004) (“As a court of limited
jurisdiction, we begin, and end, with examination of our jurisdiction.”). Because “subject-matter
jurisdiction is an ‘Art[icle] III as well as a statutory requirement . . . no action of the parties can
confer subject-matter jurisdiction upon a federal court.’” Akinseye v. District of Columbia, 339
F.3d 970, 971 (D.C. Cir. 2003), quoting Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de
Guinee, 456 U.S. 694, 702 (1982) (second alteration in original).
4
When considering a motion to dismiss for lack of jurisdiction, unlike when deciding a
motion to dismiss under Rule 12(b)(6), the court “is not limited to the allegations of the
complaint.” Hohri v. United States, 782 F.2d 227, 241 (D.C. Cir. 1986), vacated on other
grounds, 482 U.S. 64 (1987). Rather, a court “may consider such materials outside the pleadings
as it deems appropriate to resolve the question of whether it has jurisdiction to hear the case.”
Scolaro v. D.C. Bd. of Elections & Ethics, 104 F. Supp. 2d 18, 22 (D.D.C. 2000), citing Herbert
v. Nat’l Acad. of Sciences, 974 F.2d 192, 197 (D.C. Cir. 1992); see also Jerome Stevens Pharms.,
Inc. v. FDA, 402 F.3d 1249, 1253 (D.C. Cir. 2005).
II. Failure to State a Claim
“To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted); see also Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when the pleaded factual
content “allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Iqbal, 556 U.S. at 678. “The plausibility standard is not akin to a
‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted
unlawfully.” Id. “[W]here the well-pleaded facts do not permit the court to infer more than the
mere possibility of misconduct, the complaint has alleged – but it has not ‘show[n]’ – ‘that the
pleader is entitled to relief.’” Id. at 679, quoting Fed. R. Civ. Pro. 8(a)(2). A pleading must offer
more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of
action,” and “the tenet that a court must accept as true all of the allegations contained in a
complaint is inapplicable to legal conclusions.” Id. at 678, quoting Twombly, 550 U.S. at 555.
In ruling upon a motion to dismiss, a court may ordinarily consider only “the facts alleged in the
5
complaint, documents attached as exhibits or incorporated by reference in the complaint, and
matters about which the Court may take judicial notice.” Gustave-Schmidt v. Chao, 226 F. Supp.
2d 191, 196 (D.D.C. 2002) (citations omitted).
ANALYSIS
I. Plaintiffs lack standing to assert Count I.
Count I of the complaint challenges three provisions of the POMS which affirm that any
individual who receives Social Security benefits is automatically entitled to Medicare Part A
benefits. There is now binding precedent from the D.C. Circuit upholding these provisions as a
valid exercise of agency authority, Hall, 667 F.3d at 1293, so plaintiffs cannot succeed on this
claim. However, because plaintiffs argue that they have raised a challenge that was not
addressed by the D.C. Circuit – a procedural challenge – the Court will first address plaintiffs’
standing.
A. Statutory Background
The federal Medicare program was established by Title XVIII of the Social Security Act
of 1935 to provide health insurance to the elderly and disabled. Amgen Inc. v. Smith, 357 F.3d
103, 105 (D.C. Cir. 2004). Part A of the Medicare program provides insurance coverage for
hospital services, home health care, and hospice services. See id., citing 42 U.S.C. § 1395c. Part
B is a voluntary program that provides supplemental coverage for other types of care, including
physician services. See id. at 106, citing 42 U.S.C. §§ 1395j, 1395k; United Seniors Ass’n v.
Shalala, 182 F.3d 965, 967 (D.C. Cir. 1999). By statute, every individual who has attained age
65 and is entitled to Social Security benefits, is also “entitled to hospital insurance benefits”
through Medicare Part A. Hall, 667 F.3d at 1294–95, citing 42 U.S.C. § 426(a). However, any
individual who is entitled to Medicare Part A benefits may choose to decline them. Id. at 1295,
6
citing Medicare Claims Processing Manual, ch. 1, § 50.1.5 (2011). Furthermore, an individual
may avoid entitlement to Medicare Part A altogether by choosing not to file an application for
Social Security benefits, 42 U.S.C. § 426(a), or by withdrawing a previously submitted
application, 20 C.F.R. § 404.640 (2012).
The POMS is a Social Security Administration (“SSA”) handbook designed for internal
use by SSA employees in processing claims. See Hall v. Sebelius, 770 F. Supp. 2d 61, 66
(D.D.C. 2011), aff’d by Hall, 667 F.3d at 1293. The three POMS provisions challenged here
explain the interrelationship between Social Security retirement benefits and Medicare Part A
benefits:
POMS HI 00801.002, titled “Waiver of Hospital Insurance Entitlement by Monthly
Beneficiary,” states that a person who is entitled to monthly Social Security benefits may
not “waive” Medicare Part A entitlement, but may avoid such entitlement by
withdrawing her application for monthly Social Security retirement benefits, which
requires repaying all benefits received. POMS HI 00801.002, available at
https://secure.ssa.gov/apps10/poms.nsf/lnx/0600801002.
POMS HI 00801.034, titled “Withdrawal Considerations,” explains how an individual
who is entitled to Social Security retirement benefits may withdraw from Medicare Part
A, in accordance with POMS HI 00801.002. POMS HI 00801.034, available at
https://secure.ssa.gov/poms.nsf/lnx/0600801034.
POMS GN 00206.020, titled “Withdrawal Considerations When Hospital Insurance is
Involved,” similarly explains the process for withdrawing from Medicare Part A. It
states, in relevant part: “[A] claimant who is entitled to monthly [Social Security
retirement] benefits cannot withdraw [from Medicare Part A] coverage only since
7
entitlement to [Medicare Part A] is based on entitlement to monthly [Social Security
retirement] benefits (see HI 00801.002).” POMS GN 00206.020, available at
https://secure.ssa.gov/apps10/poms.nsf/links/0200206020.
B. Plaintiffs fail to allege a sufficient injury in fact.
“The defect of standing is a defect in subject-matter jurisdiction.” Haase v. Session, 835
F.2d 902, 906 (D.C. Cir. 1987). In order to establish constitutional standing, a plaintiff must
demonstrate that a case or controversy exists by showing (1) that he has suffered an “injury in
fact” that is “concrete and particularized” and “actual or imminent, not conjectural or
hypothetical”; (2) that the injury is “fairly traceable” to the challenged action of the defendant;
and (3) that it is likely, as opposed to merely speculative, that the injury will be redressed by a
favorable decision. Ariz. Christian Sch. Tuition Org. v. Winn, 131 S. Ct. 1436, 1442 (2011),
quoting Lujan, 504 U.S. at 560; see also Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., 528
U.S. 167, 180–81 (2000). Standing is a claim-specific inquiry. DaimlerChrysler Corp. v. Cuno,
547 U.S. 332, 352 (2006). In addition to the limitations on standing imposed by the
Constitution, the Court’s jurisdiction is also restricted by “judicially self-imposed” prudential
limitations on standing. United Food and Commercial Workers Union Local 751 v. Brown
Group, Inc., 517 U.S. 544, 551 (1996). These limitations are “founded in concern about the
proper – and properly limited – role of the courts in a democratic society.” Warth v. Seldin, 422
U.S. 490, 498 (1975).
In this case, plaintiffs are two associations that do not claim that they have suffered
injuries as entities, but instead claim that their members have suffered injuries. Compl. ¶¶ 13–
35. Under the associational standing doctrine, “an organization may sue to redress its members’
injuries, even without a showing of injury to the association itself” because “the association and
8
its members are in every practical sense identical.” United Food and Commercial Workers
Union Local 751, 517 U.S. at 552 (citations and internal quotation marks omitted). To qualify
for associational standing, a plaintiff must satisfy a three-prong test: (a) the organization’s
members would otherwise have standing to sue in their own right; (b) the interests it seeks to
protect are germane to the organization’s purpose; and (c) neither the claim asserted nor the
relief requested requires the participation of individual members in the lawsuit. Id. at 553.
In Summers v. Island Earth Institute, the Supreme Court held that a plaintiff association
must specifically identify members who have suffered the requisite harm in order to satisfy the
standing requirement. 555 U.S. 488, 499 (2009). The Court rejected a statistical probability
standard, opting instead for a standard that requires a showing that one or more of the
association’s members would be “directly affected by the alleged illegal activity.” Id. at 497–98.
Since Summers, however, several Courts have found that a plaintiff need not identify the
affected members by name at the pleading stage. See, e.g., Bldg. & Constr. Trades Council of
Buffalo, N.Y. & Vicinity v. Downtown Dev., Inc., 448 F.3d 138, 145 (2d Cir. 2006); Hancock Cty.
Bd. of Supervisors v. Ruhr, No. 11-60446, 2012 WL 3792129, at *6 n.5 (5th Cir. Aug. 31, 2012);
Perez v. Texas, No. 11-CA-360-OLG-JES-XR, 2011 WL 9160142, at *9 (W.D. Tex. Sept. 2,
2011). Although those decisions are not binding on this Court, the Court finds them persuasive.
“[E]ach element of Article III standing ‘must be supported in the same way as any other matter
on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence
required at the successive stages of the litigation.’” Bennet v. Spear, 520 U.S. 154, 167–68
(1997), quoting Lujan, 504 U.S. at 561. At the pleading stage, the Court presumes that general
allegations encompass the specific facts necessary to support the claim, id., so the plaintiff need
not identify an affected member by name.
9
As to Count I, the complaint alleges that some AAPS and ANH-USA members who are
retired would like to cease participating in Medicare Part A, without losing their entitlement to
Social Security retirement benefits. Compl. ¶ 16. It also alleges that AAPS and ANH-USA
physician members who have opted out of Medicare are harmed by the “compelled
participation” of their patients in Medicare Part A. Compl. ¶ 17. It claims that “compelled
participation” makes it more difficult for patients to retain doctors who do not participate in
Medicare than doctors who do, and that puts doctors who choose not to participate in Medicare
at a competitive disadvantage. 1 Compl. ¶ 17.
Plaintiffs’ claims overstate the impact of the POMS provisions. First of all, the internal
handbook does not create or eliminate any legal entitlements; it simply states what they are under
existing law. And second, plaintiffs are not harmed by the statutory sections the POMS
describes: they merely provide that an individual who receives Social Security retirement
benefits is automatically entitled to Medicare Part A benefits. Browning, 292 F.3d at 242(explaining that at the pleading stage, a court need not accept inferences drawn by the plaintiff if
those inferences are unsupported by facts alleged in the complaint, nor must the Court accept
plaintiff’s legal conclusions). The provisions do not declare that the recipient must participate in
Medicare Part A. In fact, any individual who is entitled to Medicare Part A may decline all of
the benefits the program provides. Hall, 667 F.3d at 1295, citing Medicare Claims Processing
1 Although plaintiffs also submit declarations from several of their members and
executives in support of standing, none of them identify any member who is injured by the
POMS provisions at issue, or provide any details about the nature of the injuries alleged in the
complaint.
In addition, plaintiffs’ opposition to the motion to dismiss further addresses their grounds
for standing, but it provides little assistance for the claim-by-claim assessment the Court is
required to make. See DaimlerChrysler Corp., 547 U.S. at 352. The opposition discusses the
types of injuries courts have recognized in general terms, but it does not connect the recognized
injuries to the claims in this case. See Pls.’ Opp. to Mot. to Dismiss [Dkt. # 38] (“Pls.’ Opp.”) at
7–20.
10
Manual, ch. 1, § 50.1.5. So there is nothing stopping plaintiffs’ members from ceasing their
participation in Medicare Part A, without losing their Social Security retirement benefits.
Moreover, plaintiffs do not show that their members suffer any injury by becoming
entitled to Medicare Part A. This factor distinguishes the instant case from Hall, in which the
D.C. Circuit found that the plaintiffs had standing to challenge the same POMS provisions
challenged here based on allegations of concrete harms they were suffering from mere
entitlement to Medicare Part A benefits. Id. The plaintiffs in Hall were individuals over 65
years old who received Social Security retirement benefits and thus were automatically entitled
to Medicare Part A benefits. Id. One of the plaintiffs submitted an affidavit in which he
declared that his legal entitlement to Medicare Part A benefits led his private insurance plan to
reduce coverage without a matching reduction in premium. Id. Another plaintiff declared that
his private insurance company stopped acting as his primary payer because of his entitlement to
Medicare Part A benefits. Id. Both showed that their private insurance coverage had been
curtailed as a direct result of their legal entitlement to Medicare Part A benefits and that they
could obtain additional coverage from their private insurance plans if allowed to disclaim their
legal entitlement to Medicare Part A benefits. Id. Unlike in Hall, AAPS and ANH-USA make
no showing that mere entitlement to Medicare Part A benefits will have any effect on their
retirement-age members. 2
2 In their opposition to the motion to dismiss, plaintiffs assert an additional theory of
injury: that when a patient becomes entitled to Medicare Part A, his physician must comply with
the Medicare “opt-out” procedures contained in 42 U.S.C. §1395a(b) in order to receive
compensation directly from the patient and outside of Medicare. Pls.’ Opp. at 60. This is not
supported by the statute. Medicare Part A does not cover physician services, so the opt-out
requirement only attaches when the physician sees a patient who is a Medicare Part B
beneficiary. 42 C.F.R. § 405.400 (defining “beneficiary” for purposes of this subpart as “an
individual who is enrolled in Part B of Medicare”); see also 42 U.S.C. § 1395a(b); see also
United Seniors Ass’n, 182 F.3d at 967.
11
Also unavailing is plaintiffs’ statement that the POMS provisions at issue disadvantage
AAPS and ANH-USA members who are physicians that do not accept Medicare Part A. Compl.
¶ 17. The injury claimed here is not economic, per se. Rather, plaintiffs rely on the competitor
standing doctrine, under which the mere exposure to competition may be a sufficient injury in-
fact if the challenged action “will almost surely cause [plaintiffs] to lose business.” El Paso
Natural Gas Co. v. FERC, 50 F.3d 23, 27 (D.C. Cir. 1995); see also Bristol-Myers Squibb Co. v.
Shalala, 91 F.3d 1493, 1499 (D.C. Cir. 1996). But the alleged harm to physicians is too
conjectural to satisfy the injury-in-fact requirement. The basis for the disadvantage, according to
plaintiffs, is that retired patients have greater difficulty retaining the AAPS and ANH-USA
member physicians because the POMS provisions “compel their participation in Medicare Part
A.” Compl. ¶ 17. Since the provisions challenged do not actually compel participation, see
Hall, 667 F.3d at 1295, the allegations in the complaint cannot support the inference that
plaintiffs’ member physicians are actually disadvantaged by the POMS provisions.
Even more damaging to plaintiffs’ argument: the POMS provisions at issue concern
Medicare Part A, which covers care provided by institutional health care providers, such as
hospitals. See United Seniors Ass’n, 182 F.3d at 967. Care provided by physicians is covered by
Medicare Part B. Id. So the inference that plaintiffs ask the Court to make – that a patient’s
entitlement to Medicare Part A will effect his choice of which physician to see – is unreasonable.
At the pleading stage, however, the Court is required to make only reasonable inferences in a
plaintiff’s favor. Iqbal, 556 U.S. at 678.
In sum, the chain of inferences that plaintiffs ask the Court make – (1) that patients who
are entitled to, but not forced to, participate in Medicare Part A have more difficulty retaining
cash-only physicians, despite the fact that Medicare Part A does not cover physician services,
12
and (2) that this exposes those physicians to more competition – is too speculative. See Grocery
Mfrs. Ass’n v. EPA, 693 F.3d 169, 175 (D.C Cir. 2012) (finding that a long chain of hypothetical
chain events fails as a showing of Article III standing).
In the alternative, plaintiffs argue that they are entitled to third-party standing on behalf
of the patients that their member physicians treat. Compl. ¶ 18. In other words, plaintiffs wish
to assert the rights of individuals who are two steps removed from them.
Ordinarily, a plaintiff may not assert the rights of third persons who are not parties to the
litigation. Singleton v. Wulff, 428 U.S. 106, 114 (1976). This is a prudential standing
requirement that the courts have adopted for two primary reasons:
First, the courts should not adjudicate such rights unnecessarily, and it
may be that in fact the holders of those rights either do not wish to assert
them, or will be able to enjoy them regardless of whether the in-court
litigant is successful or not. . . . Second, third parties themselves usually
will be the best proponents of their own rights.
Id. at 113–14 (citations omitted).
There are exceptions to this bar, including the one that plaintiffs assert here – where the
plaintiff has a particularly close relationship with the third-party and there is some genuine
obstacle to the third party’s assertion of its own right. Id. at 114–116. However, the Court need
not determine whether plaintiffs here fall within that exception because the prudential bar on
third-party standing does not waive the Constitutional standing requirements. Id. at 112. In
other words, in addition to showing that they fall within an exception to the prudential bar on
third-party standing, plaintiffs must also make a showing that at least one of their physician
members suffers an injury in fact that is fairly traceable to the challenged POMS provisions. As
the Court has already discussed, plaintiffs fail to meet that burden.
13
Finally, plaintiffs argue that their members have suffered procedural injury because they
were not afforded the opportunity to provide comments on the POMS provisions before they
were issued. Compl. ¶¶ 31–32. This argument too is flawed. The redressability and immediacy
requirements are relaxed for an individual who has been accorded a procedural right. See Lujan,
504 U.S. 572 n.7. Accordingly, standing might exist even if the right to comment likely would
not have succeeded in persuading the agency to change its mind. Nat’l Ass’n of Home Builders
v. EPA, 667 F.3d 6, 15 (D.C. Cir. 2011). However, “deprivation of a procedural right without
some concrete interest that is affected by the deprivation – a procedural right in vacuo – is
insufficient to create Article III standing.” Summers, 555 U.S. at 496. Since plaintiffs have not
alleged a substantive injury in fact that is fairly traceable to the challenged POMS provisions, the
alleged procedural injury is insufficient to confer standing on plaintiffs to assert Count I. Id.; see
also Fla. Audubon Soc’y v. Bentsen, 94 F.3d 658, 664 (D.C. Cir. 1996) (allegation of a
procedural injury does not waive the substantive injury in fact requirement). Accordingly, the
Court will dismiss Count I for lack of standing. 3
3 Even if the Court were to find that plaintiffs have standing to assert Count I, it would
dismiss the count on the merits, based on the D.C. Circuit’s recent binding decision in Hall, 667
F.3d at 1293. Hall squarely rejected a challenge to HHS’s authority to issue the POMS
provisions that are challenged in this case. Id. at 1294. The only claim asserted here that was
not directly rejected in Hall is that the POMS provisions are unlawful because they were
promulgated without the required notice-and-comment rulemaking procedure. However, since
the Circuit Court found that the automatic entitlement is required by the Medicare statute itself,
id., the Court would find the POMS provisions to be interpretive rules, which are not subject to
formal notice and comment. 5 U.S.C. § 553(b)(3)(A); see Fertilizer Inst. v. EPA, 935 F.2d 1303,
1307–08 (D.C. Cir. 1991), quoting Citizens to Save Spencer Cnty v. EPA, 600 F.2d 844, 876 &
n.153 (D.C. Cir. 1979) (“An interpretive rule simply states what the administrative agency thinks
the statute means, and only ‘reminds affected parties of existing duties.’”).
14
II. Counts II and III fail to state a claim upon which relief can be granted.
Counts II and III of the complaint, respectively, challenge the employer and individual
insurance mandate provisions of the ACA. ACA §§ 1501, 1511–1515. In light of the Supreme
Court’s decision in NFIB, the Court finds that these counts both fail to state a claim upon which
relief can be granted.
A. Statutory Background
1. ACA Employer Insurance Mandate
The ACA imposes requirements on, and offers incentives to, certain employers for
providing insurance to their employees. ACA §§ 1421, 1513. In general terms, certain small
employers are eligible for tax credits under the act if they provide contributions toward health
insurance coverage for their employees. Id. § 1421. Certain large employers are subject to an
“assessable payment” under the act if they fail to offer insurance coverage of at least a minimum
threshold level to full-time employees and their dependents. Id. § 1511–1513. This payment is
assessed through tax returns. Id. § 1513. Plaintiffs challenge the latter requirement. Compl. ¶¶
95–96. The mandate takes effect in 2014. Id. § 1513(d).
2. ACA Individual Insurance Mandate
The individual insurance mandate requires all Americans to maintain a minimum level of
health insurance coverage or pay an assessable penalty through their tax returns. ACA §§ 1501,
10106. Congress expressly found that by “significantly reducing the number of the uninsured,
the requirement, together with the other provisions of this Act, will lower health insurance
premiums.” Id. §§ 1501(a)(2)(F), 10106(a). Like the employer insurance mandate, the
individual mandate takes effect in 2014. Id. § 1501(d).
15
B. Plaintiffs have standing to bring their claims under Counts II and III.
The complaint alleges that plaintiffs’ members include businesses with more than fifty
full-time employees who are subject to the employer insurance mandate. Compl. ¶ 19. It alleges
that if these employers continue their current employee coverage practices, they will be subject
to the assessment of a penalty under the ACA. Id. Furthermore, the complaint claims that “[t]he
addition of these major new costs in 2014 and subsequent years has reduced the value of these
businesses today. Removing those new costs would restore the lost value.” Id. Although
plaintiffs do not identify any particular member that has suffered a reduction in value, the
allegations in their complaint are sufficient to satisfy the requirements of Constitutional and
prudential standing at the motion to dismiss stage.
Plaintiffs also raise several theories of injury resulting from the individual insurance
mandate. First, the complaint alleges that the ACA will injure AAPS and ANH-USA member
physicians who do not accept medical insurance because it will cause patients to pay more
money for insurance premiums or penalties, thereby decreasing the resources those patients can
devote to healthcare expenditures out of pocket. Compl. ¶ 20; DuBeau Decl., Ex. 2 to Pls.’ Opp.
¶ 8. This in turn will disadvantage physicians that accept only cash for their services. Compl.
¶ 20; DuBeau Decl., Ex. 2 to Pls.’ Opp. ¶ 8. The complaint goes on to allege that the insurance
mandates will render the “cash practice” business model of AAPS and ANH-USA members
economically non-viable, putting those members out of business or causing them to have to
invest in a different business model. Compl. ¶ 21.
Separately, some of the declarations that plaintiffs attach to their opposition to the motion
to dismiss assert that the declarants, who are members of AAPS and ANH-USA, are consumers
of medical services that are and will imminently be injured by the individual insurance mandate.
16
See Christman Decl., Ex. 1 to Pls.’ Opp. ¶¶ 6–9; Orient Decl., Ex. 5 to Pls.’ Opp. ¶¶ 18–21;
Smith Decl., Ex. 6 to Pls.’ Opp. ¶¶ 11–15. 4 The Smith declaration asserts that Mr. Smith, an
AAPS member, retains high deductible insurance for himself and his children; he does not
qualify for Medicare, Medicaid, or Social Security and will not qualify in or before 2014; and he
will be harmed financially if compelled to purchase health care insurance coverage under the
APA or to pay a penalty. Smith Decl. ¶¶ 11–15. The Christman Declaration asserts that Mr.
Christman, an AAPS member, does not have health insurance for himself, his wife, or his
children; he does not qualify for Medicare, Medicaid, or Social Security and does not expect to
qualify in or before 2014; and he will be harmed financially if compelled to purchase health care
coverage or pay penalties under the ACA. Christman Decl. ¶¶ 6–9.
There is a question whether at the time the complaint was filed, the alleged injuries were
too hypothetical to satisfy the imminence requirement because the individual mandate provision
does not take effect until 2014. Mem. in Support of Defs.’ Mot. to Dismiss (“Defs.’ Mem.”)
[Dkt. # 32] at 25–26; see Davis v. FEC, 554 U.S. 724, 734 (2008) (“T[]he standing inquiry [is]
focused on whether the party invoking jurisdiction had the requisite stake in the outcome when
4 Plaintiffs do not assert that any member of ANH-USA suffers this type of injury. The
DuBeau declaration asserts that the membership of ANH-USA generally opposes the individual
insurance mandate under the APA, but does not cite the economic harms it imposes as one of the
bases for this general opposition. DuBeau Decl. ¶¶ 5–7. General opposition to a government
action is not sufficient injury in fact to confer standing. Nonetheless, the Court will reach the
merits of this Count based on the injury shown to AAPS members. See Mountain States Legal
Found. v. Glickman, 92 F.3d 1228, 1232 (D.C. Cir. 1996) (If standing can be shown for at least
one plaintiff, the Court “need not consider the standing of the other plaintiffs to raise that
claim.”).
17
the suit was filed.”). 5 Another court in this district addressed the same question in Mead v.
Holder, 766 F. Supp. 2d 16, 25 (D.D.C. 2011), aff’d on other grounds, NFIB, 132 S. Ct. at 2566.
The court found that the plaintiffs’ claims of future injury resulting from the individual insurance
mandate provision of the ACA were imminent enough to satisfy the injury in fact standing
requirement. Id. at 25. The Court reasoned that there was a substantial probability that the
plaintiffs would be adversely affected, given the finality of the act, the fact that it will take effect
at a definite point in time, and the high likelihood that the plaintiffs will qualify as individuals
subject to the requirement. Id. Following that reasoning, the Court has grounds to find that
plaintiffs’ alleged injuries are imminent enough to satisfy the injury in fact requirement. The
Court also finds that these harms are fairly traceable to the acts of defendants and redressable by
an order enjoining enforcement of the individual mandate provision. In addition, the
requirements of associational standing are met because the interests that plaintiffs seek to protect
here are germane to both associations’ purposes, and neither the claims asserted nor the relief
requested requires the participation of individual members in the lawsuit.
C. Counts II and III are ripe for decision.
“[I]f a threatened injury is sufficiently ‘imminent’ to establish standing, the constitutional
requirements of the ripeness doctrine will necessarily be satisfied. At that point, only the
prudential justiciability concerns of ripeness can act to bar consideration of the claim.” Nat’l
Treasury Employees Union v. United States, 101 F.3d 1423, 1428 (D.C. Cir. 1996). The
balancing test for prudential ripeness requires the Court to balance the “fitness of the issues for
5 Indeed in NFIB, 132 S. Ct. at 2566, decided by the Supreme Court on the merits, the
plaintiffs alleged that they were suffering actual harm at the time the complaint was filed. See
Florida ex rel. Bondi v. U.S. Dept. of Health and Human Servs., 780 F. Supp. 2d 1256 (N.D. Fla.
2011), overturned on other grounds by NFIB, 132 S. Ct. at 2566. There is no such allegation
here.
18
judicial decision” and the “hardship to the parties of withholding [its] consideration.” Abbott
Labs. v. Gardner, 387 U.S. 136, 149 (1967), abrogated on other grounds by Califano v. Sanders,
430 U.S. 99 (1977).
The fitness of the issue for judicial decision depends on whether there are “contingent
future events that may not occur as anticipated, or indeed may not occur at all.” Thomas v.
Union Carbide Agric. Prods. Co., 473 U.S. 568, 580–81 (2012) (internal citation and quotation
marks omitted). As noted above, there is some risk that circumstances could change between the
time this complaint was filed and the 2014 deadline when the individual mandate provision takes
effect. However, for the reasons already given, the Court finds that this risk is not so great as to
render this issue unfit for judicial decision. This is supported by the fact that the Supreme Court
has already considered Congress’s authority to enact the mandate in NFIB. As to the hardship to
the parties of the Court’s withholding consideration of these issues, “absent institutional interests
favoring the postponement of review, a [plaintiff] need not show that delay would impose
individual hardship to show ripeness.” Sabre, Inc. v. Dep’t of Transp., 429 F.3d 1113, 1120
(D.C. Cir. 2005). Again, since the Supreme Court has already taken up the constitutionality of
this particular provision, the Court can find no institutional interest in postponing review here.
Although plaintiffs have not identified any actual hardship that postponement of review would
cause their members, it can infer that individuals who will be affected by this provision will need
to start preparing in advance of the date it actually takes effect, see Mead, 766 F. Supp. 2d at 27,
so the issue is sufficiently ripe for decision.
D. Counts II and III fail to state a claim upon which relief can be granted.
In NFIB, the Supreme Court unequivocally held that review of the individual insurance
mandate provision of the ACA is not barred by the Anti-Injunction Act and that Congress had
19
the authority to enact it under its Article I, Section 8 power to “lay and collect Taxes.” 132 S. Ct.
at 2583–84, 2594–2600. The Court also found that this tax is not a capitation or direct tax, but is
a type of tax permitted by the Constitution. Id. at 2598–2600. While the Court did not address
the employer insurance mandate that plaintiffs challenge here under Count III, the similar
manner in which the penalties are assessed under the individual and employer mandate
provisions compels this Court to treat the two provisions alike for purposes of the constitutional
inquiry. Accordingly, the Court will uphold both provisions.
Refusing to concede that the Supreme Court’s decision definitively establishes the
constitutionality of the mandate provisions, plaintiffs have now submitted a supplemental brief,
which argues that the provisions, construed as imposing taxes, violate the Origination Clause,
U.S. Const. art. 1, § 7, cl. 1. Pls.’ First Supplemental Br. at 4–8. The Court declines to address
this argument since plaintiffs waived it by failing to assert it in their complaint or opposition to
the motion to dismiss, even though defendants argued in their motion to dismiss that the
20
provisions are justified under Congress’s taxation power. 6 Cf. Iweala v. Operational Techs.
Servs., Inc., 634 F. Supp. 2d 73, 80 (D.D.C. 2009) (“It is well understood in this Circuit that
when a plaintiff files an opposition to a motion to dismiss addressing only certain arguments
raised by the defendant, a court may treat those arguments that the plaintiff failed to address as
conceded.”).
6 The Court will also dismiss any Tenth Amendment claims that might have been asserted
in the complaint for the same reason.
The language under Counts II and III is incredibly broad, and could be read to encompass
any Constitutional challenge to the mandate provisions. Compl. ¶¶ 95–96, 98–99 (“Nothing in
Article I or elsewhere in the U.S. Constitution authorizes the federal government to [impose the
employer or individual mandate requirements],” and “[f]or the foregoing reasons, [the mandate
provisions are] in excess of authority granted by law, not in accordance with the law, and ultra
vires.”). However, the complaint also makes express allegations about particular powers
accorded by the Constitution that do not support the individual mandate, and particular
provisions of the Constitution that the individual mandate allegedly violates. See id. ¶¶ 51–54,
66–71. The Origination Clause is not one of them. See, e.g., id. ¶ 69 (alleging that “[i]f a tax,
the penalties associated with [the ACA’s] insurance mandates are either an un-apportioned
capitation or direct tax or a non-uniform excise tax, all of which violate Article I, sections 2 and
9 of the Constitution,” but not alleging that they violate the Origination Clause). Moreover, as
stated above, plaintiffs make no mention of the Origination Clause argument in their opposition
to the motion to dismiss.
In their supplemental briefs, plaintiffs also assert – for the first time – that their complaint
challenges the mandate provisions both facially and as applied to the plaintiffs in this case. The
Court has reviewed the complaint extensively, and finds no as-applied challenge. See generally
Compl. ¶¶ 94–99. Moreover, plaintiffs do not mention an as-applied challenge in their
opposition to the motion to dismiss. The first time they raise this argument is in the
supplemental brief they submitted after the Court lifted the stay. See Pls.’ First Supplemental Br.
at 4, 8; see also Pls.’ Supplemental Br. in Resp. to the Ct.’s Minute Order Dated Oct. 3, 2012,
[Dkt. # 57] at 1–2. However, even if the Court were to find that the complaint asserts an as-
applied challenge to the mandate provisions, the Court would find that the complaint fails to
allege sufficient facts to state a claim under Federal Rule of Civil Procedure 12(b)(6) for the
same reasons that it fails to state a facial claim.
21
Plaintiffs also argue that the mandate provisions violate the Takings Clause of the Fifth
Amendment. 7 Compl. ¶¶ 53, 68; Pls.’ Opp. at 49–53. They claim that the provision authorizes
the government to take property from some individuals (some portion of the ACA-mandated
premium or penalty) and transfer it to others by subsidizing the ACA’s lowered premiums for
those with pre-existing conditions and other conditions that previously elevated their insurance
rates. Pls.’ Opp. at 49. This is an argument that lacks any vitality in light of the Supreme
Court’s decision upholding the individual mandate as a tax; if the government were prohibited
from using tax money for the benefit of the American people, or if it was required to give the
money back, its taxation powers would be useless.
Under Supreme Court precedent, the Due Process Clause of the Constitution should not
be read to limit the taxing power, with the possible rare exception for cases where “the act
complained of was so arbitrary as to constrain to the conclusion that it was not the exertion of
taxation, but a confiscation of property.” Brushaber v. Union Pac. R.R. Co., 240 U.S. 1, 24
(1916). 8 That is not the case here. As the Supreme Court held in NFIB, the mandate provisions
impose taxes on those who choose not to invest in comprehensive insurance. This is neither
arbitrary, nor a confiscation of property.
7 The Court notes that it has jurisdiction to consider the takings claim despite the fact that
plaintiffs have not sought compensation in the Court of Federal Claims under the Tucker Act, 28
U.S.C. § 1491, because the relief that plaintiffs seek is declaratory and equitable, not
compensatory. See E. Enters. v. Apfel, 524 U.S. 498, 521–22 (1998); Duke Power Co. v.
Carolina Envtl. Study Grp., Inc., 438 U.S. 59, 71 n.15 (1978).
8 The complaint also alleges that the mandates violate the Due Process Clause as
compelled contracts and undue burdens on privacy and liberty. Compl. ¶¶ 53, 68. However, like
the Origination Clause argument, plaintiffs do not raise these arguments in their opposition to the
motion to dismiss, so the Court treats them as waived. Even if the Court were to consider these
claims, it would dismiss them for the same reason it dismisses the Fifth Amendment takings
argument.
22
Finally, to the extent the complaint claims that the mandates violate the Equal Protection
Clause of the Fifth Amendment, Compl. ¶¶ 53, 68; see Pls.’ Opp. at 53–54, the Court finds this
argument unavailing as well. “[L]egislatures have especially broad latitude in creating
classifications and distinctions in tax statutes.” Armour v. City of Indianapolis, 132 S. Ct. 2073,
2080 (2012) (internal citation and quotation marks omitted). Since the classification drawn by
the mandate provisions does not involve a “fundamental right” or a “suspect classification,” the
provisions will be upheld if “there is any reasonably conceivable state of facts that could provide
a rational basis for the classification.” FCC v. Beach Commc’ns, Inc., 508 U.S. 307, 313 (1993).
The burden rests with plaintiffs to “negative every conceivable basis which might support [the
provisions].” Armour, 132 S. Ct. at 2080–81 (internal citation and quotation marks omitted).
Here, Congress could rationally distinguish between individuals with high-deductible,
catastrophic risk policies or no insurance on the one hand, and individuals with lower deductible,
higher coverage plans on the other. Congress had a rational interest in providing incentives for
individuals to purchase comprehensive health insurance in order to lower premium prices and to
increase the number of covered individuals. See ACA §§ 1501(a)(2)(F), 10106(a). Imposing a
tax on individuals who choose not to purchase qualifying insurance plans is a rational way to
introduce that incentive structure. The same logic holds for the employer insurance mandate.
Since plaintiffs cannot show that the individual or employer mandates were issued in
violation of the United States Constitution, the Court will dismiss Counts II and III of the
complaint.
23
III. Parts of Count IV are barred for lack of standing and the rest fails to state a
claim upon which relief can be granted.
Plaintiffs next challenge an Interim Final Rule with Comment Period, 75 Fed. Reg. at
24,437, and two change requests that accompany the CMS Manual System (Change Requests
6417 and 6421).
A. Statutory and Regulatory Background
Physicians are free to choose whether to accept patients who are Medicare Part B
beneficiaries. If a physician chooses to treat a patient who receives Medicare Part B benefits, the
physician may opt to enroll in Medicare, submit a claim, and obtain payment according to the
Medicare fee schedule. 42 U.S.C. §§ 1395cc, 1395n, 1395w-4. This option requires the
physician to submit an enrollment application, as explained below. 42 C.F.R. §§ 424.505,
424.510 (2012). Alternatively, the physician may enter into a private contract with the patient
whereby the patient compensates the physician out of pocket. 42 U.S.C. § 1395a(b); 42 C.F.R. §
405.405. This latter option allows the physician to circumvent Medicare fee limitations. See
United Seniors Ass’n, Inc. v. Shalala, 182 F.3d 965, 967–68 (D.C. Cir. 1999). To do this, the
physician must opt out of Medicare for a two-year period by submitting a supporting affidavit
and entering into a written contract with the patient that meets certain statutory criteria. 42
C.F.R. §§ 405.405– 405.520; see also United Seniors Ass’n, Inc., 182 F.3d at 966–68.
Medicare Part B also covers certain medical items or services, but only when they are
referred by an eligible medical professional. See 42 U.S.C. §§ 1395k, 1395x(s). Even a
physician who has opted out of Medicare Part B may still be able to refer medical items or
services for a patient in a way that allows the patient to use his Medicare Part B benefits. The
IFR and change requests to HHS’s internal claims processing manual that plaintiffs challenge
here set out the steps such a physician must take in order to refer under Medicare Part B.
24
The requirements are better understood within the larger context of the administration of
the Medicare program in general. Public and private insurance companies identify physicians by
unique provider numbers. And in 1996, the Health Insurance Portability and Accountability Act,
42 U.S.C. § 201 et seq. (“HIPAA”), standardized the provider number system. The regulations
implementing HIPAA adopted the National Provider Identifier (“NPI”) as the universally
recognized identifier. 45 C.F.R. § 162.406 (2012). A physician may obtain a free NPI by
submitting an application, in paper or online, containing basic information about herself, her
practice, and her specialty. NPI Application/Update Form, CMS-10114 (Nov. 2008), available
at http://www.cms.gov/cmsforms/downloads/CMS10114.pdf. Under the implementing
regulations, HIPAA Administrative Simplification: Standard Unique Health Identifier for Health
Care Providers, 69 Fed. Reg. 3434-01 (Jan. 23, 2004) (codified at 45 C.F.R. Pt. 162), all
physicians who engage in standard electronic transactions, such as submitting electronic claims
to insurers, are required to obtain an NPI and to use it on all standard transactions where the NPI
is required. 45 C.F.R. § 162.410(a). In addition, insurers – including Medicare – are required to
use the NPI as the identifier for health care providers on all standard electronic transactions that
require a health care provider identifier, 45 C.F.R. §§ 162.406(b)(1), 162.412(a), and are
permitted to use the NPI for any other lawful purpose, 45 C.F.R. 162.406(b)(2).
In 2006, the Medicare program established more stringent enrollment requirements.
Medicare Program; Requirements for Providers and Suppliers to Establish and Maintain
Medicare Enrollment, 71 Fed. Reg. 20754, 20754–55 (Apr. 21, 2006) (codified at 42 C.F.R. Pts.
420, 424, 489, 498). Under the new requirements, any physician who has not opted out of
Medicare is required to submit an enrollment application (paper or electronic) containing her
NPI in order to obtain Medicare billing privileges. 42 C.F.R. §§ 424.505, 424.510; see also 75
25
Fed. Reg. at 24440. Those physicians must also recertify the accuracy of their enrollment
information every five years. 42 C.F.R. § 424.515. The information from the enrollment
applications is stored in an electronic data repository that has existed since 2003, called the
Provider Enrollment, Chain, and Ownership System (“PECOS”). Cf. 42 C.F.R. § 424.505,
424.510, 424.515. The affidavits of physicians who validly opt out of Medicare are also stored
in the PECOS. 75 Fed. Reg. at 24440.
In 2008, the Medicare program began requiring all enrolled physicians to have an NPI.
Id. It also began requiring that all Medicare claims submitted by any enrolled health care
provider must contain the NPI of that provider as well as the NPIs any other providers or
suppliers whose identification on the claim is required, such as ordering and referring providers.
Id.
The agency actions at issue here are the CMS Manual System along with two change
requests (Change Request 6417 and 6421), and a Final Interim Rule with Comment Period, 75
Fed. Reg. at 24,437. The change requests were issued by HHS in 2009. The changes expand the
automated claim editing verification process. They ensure that the claim for any billed service
that requires an ordering or referring provider will be paid only if the NPI for the ordering or
referring provider is on the claim, the provider is on the national PECOS file, and the NPI on the
claim matches the NPI in the PECOS file for that provider. Change Request 6421, CMS Manual
System, Pub. 100-20, Transmittal 643, Attachment at 1–2 (Feb. 26, 2010).
Later, the ACA amended the Medicare Act in ways that essentially ratified the existing
regulatory scheme. It requires the Secretary of HHS to promulgate a regulation that requires, in
relevant part, that no later than January 1, 2011, all physicians and suppliers that qualify for an
NPI must include their NPI on applications to enroll in Medicare and all claims for payment
26
submitted under Medicare. ACA § 6402(a). It also expressly authorizes the Secretary of HHS
to require any physician who orders certain items, such as home health services and durable
medical equipment, to be enrolled in Medicare in order for the claim for that item to be paid. Id.
§ 6405(a). Finally, it authorized the Secretary to extend this requirement to “all other categories
of items or services . . . that are ordered, prescribed, or referred” by an eligible professional. Id.
§ 6405(c).
On May 5, 2010, the Secretary of HHS implemented these ACA provisions by issuing the
IFR challenged under Count IV. 75 Fed. Reg. at 24437. The IFR announced that any physician
enrolling in Medicare must report an NPI, and any physician who enrolled in Medicare before
obtaining an NPI must update her enrollment by submitting her NPI, unless the physician has
validly opted out of the Medicare program. 42 C.F.R. 424.506(b). Second, it announced that
any provider or supplier who submits a claim to Medicare must include its NPI and the NPIs of
any other providers or suppliers “required to be identified.” Id. § 424.506(c)(1). Third, in order
to receive payment of claims for Part B items or services, (1) the billing supplier must submit a
claim that contains the legal name and NPI of the referring or ordering physician, and (2) the
ordering or referring physician must have an approved enrollment record or a valid opt-out
record in the PECOS. Id. § 424.507(a)(1)–(2). The requirements for payment of claims for
home health services are similar. Id. § 424.507(b).
B. Plaintiffs lack standing to bring parts of Count IV.
Defendants assert that plaintiffs lack standing to bring the claims set out in Count IV.
The complaint alleges that AAPS and ANH-USA member physicians will be
economically injured if they decline to enroll in or opt out of Medicare because they will lose
significant numbers of patients and be put at an economic disadvantage as compared to other
27
competing physicians. Compl. ¶ 25–27. Moreover, the complaint alleges that enrolling in or
completing the Medicare opt-out procedures causes them injury because the “up-front and
ongoing paperwork and monitoring” imposes “non-trivial costs.” Id. ¶ 26. Although the Court
has serious doubts about the extent of the costs that obtaining an NPI and PECOS record impose
– particularly because HHS provides NPIs free of charge once a valid application has been
submitted – the Court finds these allegations sufficient to meet the injury-in-fact requirement at
the pleading stage under the standard outlined above. See United States v. Students Challenging
Regulatory Agency Procedures, 412 U.S. 669, 689 n.14 (1973) (“[An] identifiable trifle is
enough [injury] for standing.”).
Defendants next challenge the redressability of plaintiffs’ claims. They argue that the
relief plaintiffs seek is not likely to redress their alleged injuries because the requirements that
they claim are injuring them were established by rules that existed before the change requests
and IFR were issued, and they were ratified by the ACA. Defs.’ Mem. at 65–66; Reply in
Support of Defs.’ Mot. to Dismiss (“Defs.’ Reply”) [Dkt. # 45] at 33. In other words, even if the
Court were to strike down the Interim Final Rule and change requests, plaintiffs would continue
to suffer the same alleged injuries.
At the outset, the Court emphasizes that the only agency actions challenged under Count
IV are the two change requests and the IFR. Compl. ¶ 105. So the Court looks to whether these
two agency actions add any new requirements that were not imposed by existing statutes, rules,
and regulations. According to the complaint, the requirements that allegedly cause plaintiffs’
injuries are: (1) that “non-medicare providers” must comply with the statutory opt-out
procedures before treating and obtaining outside payment from Medicare beneficiaries; (2) that
ordering and referring physicians must obtain a record in PECOS (either to enroll in Medicare or
28
to opt-out); and (3) that ordering and referring physicians must obtain an NPI. Compl. ¶¶ 2(g)–
(h), 59–61, 101–04. The Court addresses each theory separately.
First, plaintiffs allege that nothing in Medicare or any other provision of law requires
“non-Medicare providers” to comply with the statutory opt-out requirement before treating and
obtaining payment from Medicare-eligible beneficiaries outside the Medicare system. 9 Compl. ¶
104. This allegation suffers from a causation problem. The Medicare statute itself requires
physicians who treat Medicare beneficiaries, but receive compensation from those patients
outside of Medicare, to comply with the opt-out requirements. 42 U.S.C. § 1395a(b). Although
the complaint classifies physicians who refer under Medicare Part B as “non-Medicare
providers,” these physicians are actually just the type of providers to whom that requirement
applies: they treat Medicare beneficiaries, but require payment outside of Medicare.
Accordingly, any injuries to referring physicians that result from the opt-out requirement are
caused by statutes and regulations that pre-date the agency actions plaintiffs’ challenge. These
are not redressable by the relief plaintiffs’ seek, so the Court finds that plaintiffs lack standing to
challenge the change requests and interim final rule on this basis. See Atlantic Urological
Associates, P.A. v. Leavitt, 549 F. Supp. 2d 20, 28 (finding that plaintiffs could not satisfy the
redressability prong of the standing analysis because their alleged injuries were caused by a
previously issued rule, not the rule they were challenging: “Since the Final Order did not change
anything for these Plaintiffs, invalidating it would not afford them any relief.”).
Second, plaintiffs allege that HHS lacks the authority to require the filing of an
enrollment or opt out record in the PECOS as a prerequisite to referring items or services under
9 Plaintiffs identify the statutory safe harbor provision as 42 U.S.C. § 1395(b). Compl.
¶ 103. However, that section of the code does not exist, so the Court will assume plaintiffs
intended to refer to the opt-out requirements under 42 U.S.C. § 1395a(b).
29
Medicare. Compl. ¶ 102. To the extent this claim is simply a restatement of the first claim, the
Court similarly finds plaintiffs lack standing to bring it. However, this claim appears to be
challenging the requirement that referring physicians must obtain a PECOS record. Defendants
point out that since 2003, the submission of either an enrollment application or an opt-out
affidavit has automatically generated a record in PECOS. See 75 Fed. Reg. at 24440. Moreover,
under pre-existing regulations, all physicians that refer under Medicare Part B are required to
either update their enrollment information every five years, 42 C.F.R. § 424.515, or to comply
with the opt-out procedures every two years, 42 U.S.C. § 1395a(b). So, under pre-existing
regulations, it is inevitable that all referring physicians will be required to obtain a PECOS
record. Accordingly, neither the challenged change requests or IFR actually cause the alleged
injuries that result from that requirement, so the Court has no jurisdiction to review it.
Third, plaintiffs allege that “[n]othing in [the ACA] authorizes HHS to require non-
Medicare providers to obtain an NPI, outside a specific action by that provider that
independently requires an NPI (e.g., HIPAA transactions).” Compl. ¶ 104. The Court construes
this as a challenge to the requirement that referring physicians must obtain an NPI. 10 Although
the HIPAA regulations first required the NPI of the referring physicians to be identified on
Medicare claims, it appears that this requirement may not have had any enforcement mechanism
until the introduction of the two challenged change requests. 11 Under the change requests,
10 None of the challenged agency actions require a physician who never treats Medicare
beneficiaries to obtain an NPI. Plaintiffs do not allege otherwise.
11 Indeed, the Notification for Change Request 6417 notes that its implementation
invalidates the previous version of the CMS, as amended by Change Request 6093, which
allowed the billing provider to use her own NPI to identify the ordering or referring physician if
the NPI of the ordering or referring physician could not be determined. Change Request 6417,
Attachment at 2. Under Change Request 6417, the ordering or referring physician’s NPI must be
identified on the claim in order for the claim to be paid by Medicare. Id.
30
Medicare will actually deny any claim that is submitted without the NPI of the referring
physicians. So the Court will find that at this stage of the litigation, plaintiffs do have standing to
challenge the portion of the change requests and IFR that require referring physicians to obtain
an NPI.
Finally, plaintiffs allege that “with respect to its PECOS-related requirements,” the
change requests and interim final rule were issued in violation of the APA’s notice-and-comment
rulemaking requirement. Compl. ¶ 101. The phrase “PECOS-related requirements” is vague,
and plaintiffs’ opposition to the motion to dismiss sheds no additional light on its meaning, but in
the interest of giving plaintiffs the benefit of all inferences in their favor, the Court construes it to
encompass the requirements that physicians who refer under Medicare Part B either obtain an
enrollment or opt out record in the PECOS, and that all claims for referred items and services
contain the NPI of the referring physician.
This challenge is based on a procedural injury. As noted above, the redressability
component of standing is relaxed where the alleged injury is procedural, so the plaintiff need not
show that better procedures would have led to a different substantive result. Nat’l Ass’n of Home
Builders, 667 F.3d at 15. However, “though the plaintiff in a procedural-injury case is relieved
of having to show that proper procedures would have caused the agency to take a different
substantive action, the plaintiff must still show that the agency action was the cause of some
redressable injury to the plaintiff.” Renal Physicians Ass’n v. U.S. Dept. of Health and Human
Servs., 489 F.3d 1267, 1279 (D.C. Cir. 2007). So whether plaintiffs have standing to assert these
procedural claims depends upon whether the relief sought is likely to change plaintiffs’ position.
Based on the causation problems described above, the Court finds that plaintiffs have standing to
assert only the following claims: that the portions of the change requests and IFR requiring
31
referring physicians to obtain an NPI: (1) exceed statutory authority, and (2) were promulgated
without the necessary notice and comment rulemaking. The Court will address these two claims
on the merits.
C. The remainder of Count IV fails to state a claim upon which relief can be granted.
The Court will begin with the change requests, since those were issued before the
challenged IFR.
1. Defendants had the substantive authority to issue the change requests.
Defendants clearly had the statutory authority to introduce the change requests. For over
a decade, the Social Security Act, as amended, has required suppliers of Medicare Part B items
or services to identify the referring physician by name and unique physician identification
number. 42 U.S.C. § 1395l(q)(1). Under HIPAA, the NPI became the standard identification
number. Id. § 1320d-2; see also 45 C.F.R. 162.406. Furthermore, the Social Security Act, as
amended, delegates general authority to the Secretary of HHS to prescribe regulations for the
efficient administration of the Medicare program. Id. §§ 1302, 1395hh. Existing HHS
regulations require insurers, including Medicare, to use the NPI for standard electronic
transactions, such as processing claims in electronic form, 45 C.F.R. §§ 162.406(b)(1),
162.412(a), and permit insurers to use the NPI for any other lawful purpose, id. § 162.406(b)(2).
Indeed, by 2008, Medicare required that all paper and electronic Medicare claims contain an NPI
for any secondary provider, such as the ordering or referring provider. Change Request 6093,
CMS Manual System, Pub. 100-08, Transmittal 270, Manual Instruction at 1–2 (Oct. 15, 2008).
Moreover, the ACA ratifies this requirement: it authorizes the Secretary of HHS to require any
physician who orders or refers under Part B to be enrolled in Medicare, ACA §§ 5405(b), (c),
and it requires that all physicians “include their [NPI] on all applications to enroll.” Id.
32
§ 6402(a). In their Supplemental Brief on Hall and NFIB, plaintiffs appear to acknowledge that
the ACA, if upheld, ratifies the referring physician NPI requirement. Pls.’ Supplemental Br. on
Hall v. Sebelius and NFIB v. Sebelius (“Pls.’ First Supplemental Br.”) [Dkt. # 55] at 10 (arguing
that if the ACA is invalidated, defendants lack authority for the agency actions challenged in
Count IV, but “even if [the ACA] could survive and provide substantive authority, Count IV’s
procedural claims would remain unsettled.”).
Accordingly, it was well within defendants’ authority, and not arbitrary and capricious, to
change the automated claims verification process for to check the NPI for the referring physician
as reported on the claim against the NPI in that physician’s PECOS record.
2. Defendants observed the procedure required by law in issuing the change
requests.
Plaintiffs’ procedural challenge also fails. Final agency actions give rise to notice and
comment obligations, with exceptions. One recognized exception is for “rules of agency
organization, procedure, or practice.” 5 U.S.C. § 553(b)(3)(A). To determine whether a rule
falls under this exemption, courts ask whether it “encodes a substantive value judgment.” Public
Citizen v. Dep’t of State, 276 F.3d 634, 640 (D.C. Cir. 2002) (internal citation and quotation
marks omitted). A judgment about “what mechanics and processes are most efficient” is not a
substantive value judgment under this standard. Id. (internal citation and quotation marks
omitted). The change requests at issue here do not encode any substantive value judgment, but
simply dictate the verification processes that HHS will use to ensure that claims for referred
items or services were validly referred by a qualified physician. The change requests make no
distinction between claims on the basis of subject matter. See id. (finding that a State
Department policy of declining to search for documents produced after the date of the requester’s
letter encoded no “substantive value judgment” because it applied to all FOIA requests and made
33
no distinction on the basis of subject matter). Accordingly, the Court finds the change requests
to be valid.
3. The Court will not invalidate the challenged portions of the interim final
rule.
Having concluded that the change requests are valid, the Court need not assess the
validity of the portions of the IFR at issue because those portions just replicate the requirements
imposed by the change requests and the HIPAA implementing regulations. In other words, even
if this Court were to invalidate the challenged portions of the interim final rule, that would not
redress plaintiffs’ alleged injuries. Nonetheless, the Court notes that the statutes and regulations
discussed above, including the ACA, supply ample authority for the IFR provisions at issue.
Moreover, the agency did not violate the APA by declining to subject the rule to formal notice-
and-comment rulemaking because the rule falls under the section 553(b)(3)(B) exemption, which
applies “when the agency for good cause finds (and incorporates the finding and a brief
statement of reasons therefor in the rules issued) that notice and public procedure thereon are
impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C. § 553(b)(3)(B); see 75
Fed. Reg. at 24445. The interim final rule includes a finding that notice-and-comment
rulemaking was unnecessary for the portions of the rule at issue here because they do not “add
any new burdens for Medicare or Medicaid providers and suppliers.” 75 Fed. Reg. at 24445–46.
This is sufficient good cause for foregoing notice and comment rulemaking since the reassertion
of a preexisting requirement is insignificant and inconsequential. Cf. Mack Trucks, Inc. v. EPA,
682 F.3d 87, 94 (D.C. Cir. 2012) (“[The unnecessary] prong of the good cause inquiry is
confined to those situations in which the administrative rule is a routine determination,
insignificant in nature and impact, and inconsequential to the industry and to the public.”)
(internal quotation marks and citation omitted).
34
II. Plaintiffs lack standing to assert Counts V and VI.
Finally, plaintiffs claim that defendants Sebelius and Astrue have violated their fiduciary
and equitable duties to the American people by allowing the Medicare and Social Security
programs to face insolvency, Compl. ¶¶ 106–117, 118(A)(xii), and the complaint demands an
honest accounting of both programs, Compl. ¶¶ 118(B)(vi), (vii). Plaintiffs, however, fail to
identify any actual or imminent injury that is sufficiently concrete and particularized. Rather,
this challenge rests on a generalized grievance about the unforeseeable future of Medicare and
Social Security.
“[A] plaintiff raising only a generally available grievance about government – claiming
only harm to his and every citizen’s interest in proper application of the Constitution and laws,
and seeking relief that no more directly and tangibly benefits him than it does the public at large
– does not state an Article III case or controversy.” Lujan, 504 U.S. at 573–74. Plaintiffs argue
that their claim is particularized because their members “obviously have a financial interest in
the solvency of the programs that provide benefits to them” and that “[p]laintiffs’ physician
members have an interest in the solvency of Medicare on behalf of Medicare-eligible patients . . .
even if those physicians do not themselves use Medicare.” Pls.’ Opp. at 66 n.34. But the
financial interest of their members is no stronger than the financial interest of all Americans who
will reach the age of Social Security and Medicare eligibility. Moreover, the problem here is not
just that the alleged harm at issue is widely shared, but that it is too abstract and indefinite in
nature to satisfy the concrete and particularized requirement. Cf. FEC v. Akins, 524 U.S. 11, 34
(1998) (Explaining that in the cases the Supreme Court has found to present “generalized
35
grievances” that do not satisfy the standing requirements, “the harm at issue is not only widely
shared, but is also of an abstract and indefinite nature.”). 12
CONCLUSION
Because plaintiffs have no standing to assert the claims under Counts I, V, VI and
portions of Count IV, and because Counts II and III and the remainder of Count IV fail to state a
claim upon which relief can be granted, the Court will grant defendants’ motion to dismiss this
action in full. A separate order will issue.
AMY BERMAN JACKSON
United States District Judge
DATE: October 31, 2012
12 Even if the Court were to find that plaintiffs have standing to bring these claims, it would
have to conclude that the complaint fails to state a claim upon which relief can be granted. The
complaint asserts that both Medicare and Social Security “face[] insolvency because of federal
mismanagement.” Compl. ¶¶ 107, 113. This is a conclusory assertion that the Court need not
accept without a pleaded factual basis. See Iqbal, 556 U.S. at 678. Yet the complaint contains
no facts to support the conclusions that Medicare and Social Security “face insolvency” or that
defendants Sebelius and Astrue have mismanaged the programs. The only relevant factual
allegations are: (1) Sebelius has “stated that [the ACA] . . . would reduce the federal deficit,
when she knows that the opposite is true in reality” and (2) Astrue “knows that [ACA’s] budget
scoring would redirect in excess of $50 billion from Social Security, but has not taken any
appropriate action to protect Social Security from [the ACA].” Compl. ¶¶ 109, 115. These
allegations, even accepted as true, do not show that the two defendants have mismanaged the
programs, or that there is any legal basis to subject executive branch officials to suit in this Court
on a breach of fiduciary duty theory. The first allegation merely challenges the truthfulness of a
general statement Sebelius made. The second allegation is too vague to satisfy the test set out in
Iqbal.
36