Blue Valley Hosp., Inc. v. Azar

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS March 27, 2019
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
BLUE VALLEY HOSPITAL, INC.,
Plaintiff - Appellant,
v. No. 18-3117
ALEX M. AZAR, II, in his official
capacity as Secretary, United States
Department of Health and Human Services;
SEEMA VERMA, Administrator for the
Center of Medicare and Medicaid Services;
JEFF HINSON, Regional Administrator for
(Region 7) the Center for Medicare and
Medicaid Services,
Defendants - Appellees.
_________________________________
Appeal from the United States District Court
for the District of Kansas
(D.C. No. 2:18-CV-02176-JAR-GLR)
_________________________________
Curtis L. Tideman (Andrew J. Ricke with him on the briefs), Lathrop Gage LLP,
Overland Park, Kansas, for Plaintiff-Appellant.
Robin R. Anderson, Assistant United States Attorney (Stephen R. McAllister, United
States Attorney, and Christopher Allman, Assistant United States Attorney, with her on
the brief), Office of the United States Attorney, Kansas City, Kansas, for Defendants-
Appellees.
_________________________________
Before LUCERO, HARTZ, and CARSON, Circuit Judges.
_________________________________
LUCERO, Circuit Judge.
_________________________________
Blue Valley Hospital, Inc., (“BVH”) appeals the district court’s dismissal of its
action for lack of subject matter jurisdiction. On April 11, 2018, the Department of
Health and Human Services (“HHS”) and the Centers for Medicare and Medicaid
Services (“CMS”) terminated BVH’s Medicare certification. The next day, BVH
sought an administrative appeal before the HHS Departmental Appeals Board and
brought this action. In this action, BVH seeks an injunction to stay the termination of
its Medicare certification and provider contracts pending its administrative appeal.
In effect, the injunction would provide BVH a pre-termination hearing. The district
court dismissed, holding the Medicare Act requires BVH exhaust its administrative
appeals before subject matter jurisdiction vests in the district court.
BVH acknowledges that it did not exhaust administrative appeals with the
Secretary of HHS prior to bringing this action, but argues: (1) the district court had
federal question jurisdiction arising from BVH’s constitutional due process claim; (2)
BVH’s due process claim presents a colorable and collateral constitutional claim for
which jurisdictional exhaustion requirements are waived under Mathews v. Eldridge,
424 U.S. 319 (1976); and (3) the exhaustion requirements foreclose the possibility of
any judicial review and thus cannot deny jurisdiction under Bowen v. Michigan
Academy of Family Physicians, 476 U.S. 667 (1986). We disagree. Exercising
jurisdiction under 28 U.S.C. § 1291, we affirm.
2
I
BVH is an acute care hospital in Overland Park, Kansas, that provides a range
of medical services, specializing in bariatric surgery and intervention services. CMS
certified BVH as a hospital provider under the Medicare and Medicaid programs
from 2015 until April 11, 2018.1
For a treatment facility to retain hospital classification under the Medicare and
Medicaid programs the facility must be “primarily engaged” in providing care to
“inpatients.” 42 U.S.C. § 1395x(e)(1). Hospital classification allows BVH to receive
payment through the Medicare and Medicaid programs for treatment it provides. 42
C.F.R. § 488.3(a)(1). To ensure healthcare providers comply with the statutory and
regulatory Conditions of Participation in the programs, CMS conducts surveys
through state survey agencies. 42 C.F.R. §§ 488.20(b), 488.26(c).
These surveys identify a facility’s failures to meet certain participation
requirements under the Medicare Act, termed deficiencies. 42 C.F.R. § 488.301. If a
facility’s deficiencies are serious or extensive enough, CMS may determine it is not
in compliance with the Conditions of Participation. See 42 C.F.R. § 482.11. And if a
facility is in violation of the Conditions of Participation, the Secretary may deny that
facility further payments under the Medicare Act by terminating its provider
1
The termination of BVH’s provider agreement precludes BVH from receiving
payment under both the Medicare and Medicaid programs. See 42 C.F.R.
§ 488.330(b)(1) (explaining a certificate of compliance grants eligibility to
participate in Medicare and Medicaid for a dually participating facility).
3
agreement. 42 U.S.C. § 1395cc(b)(2). Following termination of a provider
agreement, a facility can avail itself of an appeal process that includes: (1) a hearing
before an Administrative Law Judge (“ALJ”) under 42 C.F.R. § 498.5(b); (2) review
of the ALJ decision by the HHS Departmental Appeals Board under 42 C.F.R.
§ 498.5(c); and (3) judicial review of the Departmental Appeals Board’s decision
under 42 C.F.R. § 498.5(c) and 42 U.S.C. § 405(g).
Pursuant to this regulatory framework, CMS, through the Kansas Department
of Health and Environment, conducted an unannounced onsite survey of BVH on
November 13 and 14, 2017. On February 2, 2018, CMS sent BVH a noncompliance
notice detailing the deficiencies the onsite survey uncovered. The notice states that
BVH did not meet the Conditions of Participation for hospitals because it was not
“primarily engaged” in providing “inpatient services.” Specifically, CMS analyzed
BVH’s historical data and determined that the facility did not meet either the two-
patient average daily census requirement or the two-night average length of stay
requirement. CMS had issued these criteria in an administrative guidance document,
“S&C Memo 17-44,” on September 6, 2017.
In the notice of noncompliance, CMS indicated it would terminate BVH’s
provider agreement on May 3, 2018, unless BVH presented a Plan of Correction to
resolve the observed deficiencies. BVH timely submitted a Plan of Correction on
February 12, 2018. In a termination notice dated March 27, 2018, CMS rejected the
proposal as aspirational and moved forward the termination date of BVH’s Medicare
4
and Medicaid provider agreement to April 11, 2018. CMS terminated BVH’s
provider agreement on that date.
The following day, BVH submitted a request for an expedited appeal to the
HHS Departmental Appeals Board. BVH also filed this action against the following
defendants: (1) the Secretary of HHS, Alex M. Azar, II; (2) the Administrator for
CMS, Seema Verma; and (3) the Regional Administrator for (Region 7) of CMS, Jeff
Hinson. BVH sought an injunction to prevent CMS from terminating its provider
agreement pending the administrative appeal process. Defendants moved to dismiss
the action for lack of subject matter jurisdiction, but agreed to postpone termination
to May 3, 2018, allowing BVH to continue to receive payment under the Medicare
and Medicaid programs until that date.
CMS conducted a second survey of BVH on April 22 to 25, 2018. On May 10,
2018, CMS issued a second statement of deficiencies summarizing that survey and
affirming its decision to terminate BVH’s Medicare and Medicaid provider
agreement because it was not primarily engaged in providing inpatient services. The
district court dismissed BVH’s action for lack of subject matter jurisdiction. BVH
timely appealed.
II
We review dismissals for lack of subject matter jurisdiction de novo. Niemi v.
Lasshofer, 770 F.3d 1331, 1344 (10th Cir. 2014). In reviewing an attack on the
sufficiency of a complaint’s allegations as to subject matter jurisdiction, we accept
5
the well-pled factual allegations in the complaint as true. Pueblo of Jemez v. United
States, 790 F.3d 1143, 1148 n.4 (10th Cir. 2015).
A
BVH argues its constitutional procedural due process claim vests the district
court with federal question jurisdiction pursuant to 28 U.S.C. § 1331. But BVH may
not avoid the administrative channeling provisions of 42 U.S.C. § 405(g) and (h)
merely by couching its claims in constitutional terms. Although that statute provides
limited judicial review “after any final decision of the [Secretary],” § 405(g), it
broadly states that “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,” § 405(h).2 So long as BVH’s
claim arises under the Medicare Act, the express language of § 405(h) thus negates
BVH’s assertion of § 1331 jurisdiction.
A claim arises under the Medicare Act if the claim derives “both . . . standing
and . . . substantive basis” from the Act, or if the claim is “inextricably intertwined
with [plaintiff’s] claim for benefits.” Heckler v. Ringer, 466 U.S. 602, 615, 624
2
The language of § 405 applies to claims arising under the Social Security
Act, but another statutory provision applies § 405 to cases arising under the Medicare
Act “to the same extent” that it applies in cases arising under the Social Security Act,
“except that, in applying such provisions with respect to this subchapter, any
reference therein to the Commissioner of Social Security or the Social Security
Administration shall be considered a reference to the Secretary or Department of
Health and Human Services, respectively.” 42 U.S.C. § 1395ii.
6
(1984) (quotation omitted). BVH’s claim arises under the Medicare Act because it
derives standing and substantive basis from the Act’s provisions allowing: (1) CMS
to terminate a provider agreement, 42 U.S.C. § 1395cc(b)(2); and (2) a terminated
provider to seek review of that decision, 42 U.S.C. § 1395cc(h)(1)(A). Although
BVH advances procedural due process claims that arise under the Constitution, “it is
. . . fruitless to argue that this action does not also arise under the [Act]” because the
Act “provides both the standing and the substantive basis for the presentation of their
constitutional contentions.” Weinberger v. Salfi, 422 U.S. 749, 760-61 (1975)
(emphasis added). In Salfi, the Court rejected an argument that the plaintiff “could
bring his constitutional challenge to a Social Security Act provision in federal court
pursuant to § 1331 because the claim was arising under the Constitution, not the
[Act].” Ringer, 466 U.S. at 622 (quotation omitted). Because we hold that BVH’s
action constitutes “a claim arising under” the Medicare Act, the administrative
channeling requirement in § 405(h) precludes federal question jurisdiction pursuant
to § 1331.
BVH nonetheless contends the administrative exhaustion requirements apply
only to challenges to the Secretary’s final termination decisions, not to claims for
injunctive relief seeking additional process.3 But the “sweeping and direct” language
3
To this end, BVH misquotes § 405(g), incorrectly asserting that it allows for
judicial review “of any final decision,” rather than “after any final decision.”
(emphases added). The implication that only challenges to final decisions need be
administratively channeled is plainly incorrect. The statute makes clear that a final
decision is a condition precedent to judicial review of any claim arising under the
Act.
7
of § 405(h) refutes BVH’s reading of the statute. Salfi, 422 U.S. at 757. Because it
broadly states “[n]o action . . . shall be brought to recover on any claim arising under
the Medicare Act,” § 405(h) (emphasis added), that language alone disposes of
BVH’s attempt to proceed under § 1331.
Moreover, the Supreme Court has concluded that the type of relief sought is
irrelevant to plaintiffs’ efforts to avoid § 405’s administrative channeling
requirements. Ringer, 466 U.S. at 622 (“[W]e explicitly hold that our conclusion that
the claims of [plaintiffs] are barred by § 405(h) is in no way affected by the fact that
those [plaintiffs] did not seek an award of benefits,” and instead sought injunctive
relief); Salfi, 422 U.S. at 762 (explaining the reach of § 405(h) “is not limited to
decisions of the Secretary on issues of law or fact” but “[r]ather, it extends to any
‘action’”); see also Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 13-
14 (2000) (“[Salfi and Ringer] foreclose distinctions based upon . . . the ‘declaratory’
versus ‘injunctive’ nature of the relief sought . . . . There is no reason to distinguish
among [claims for money, claims for other benefits, claims of program eligibility,
and claims that contest a sanction or remedy] in terms of the language or in terms of
the purposes of § 405(h).”).
B
BVH also asserts jurisdiction pursuant to Mathews v. Eldridge, 424 U.S. 319
(1976). That case authorizes courts to reverse the Secretary’s determination that a
plaintiff has not yet obtained a final administrative decision for the purposes of
satisfying § 405’s exhaustion requirements under limited circumstances. Id. at 330-
8
331. We may do so only if “(1) the plaintiff asserts a colorable constitutional claim
that is collateral to the substantive issues of the administrative proceedings, (2)
exhaustion would result in irreparable harm, and (3) exhaustion would be futile.”
Harline v. Drug Enf’t Admin., 148 F.3d 1199, 1203 (10th Cir. 1998).4 “The plaintiff
bears the burden of establishing these elements.” Id. Because BVH establishes
neither a collateral nor colorable constitutional claim, we do not address the
remaining factors.
1
“For a claim to be collateral, it must not require the court to immerse itself in
the substance of the underlying Medicare claim or demand a factual determination as
to the application of the Medicare Act.” Family Rehab., Inc. v. Azar, 886 F.3d 496,
501 (5th Cir. 2018) (quotation omitted). The claim “must seek some form of relief
that would be unavailable through the administrative process,” rather than the
“substantive, permanent relief that the plaintiff seeks . . . through the agency appeals
process.” Id. at 501-02; see also Bowen v. City of New York, 476 U.S. 467, 483
(1986) (holding claims collateral because plaintiffs “neither sought nor were awarded
benefits . . . but rather challenged the Secretary’s failure to follow the application
regulations”).
4
BVH argues it need make only a colorable showing that full relief cannot be
granted at a post-deprivation hearing. But it is the constitutional claim that must be
colorable. See id. (“If the mere allegation of a denial of due process could suffice to
establish subject-matter jurisdiction, then every act of an agency would be
immediately judicially reviewable, undermining a statutory scheme which limits
judicial review”).
9
BVH argues its claims are collateral because, like the claim at issue in
Eldridge, they “sound only in constitutional or procedural law and request that
benefits be maintained temporarily until the agency follows the statutorily or
constitutionally required procedures.” Family Rehab., 886 F.3d at 503. But BVH
does not seek a general review of the constitutionality of the Medicare Act’s
termination procedures for healthcare providers.5 And BVH could not viably pursue
such a constitutional challenge because, as explained below, this court has rejected
the claim that due process requires a formal hearing prior to the termination of a
provider’s Medicare certification. Geriatrics, Inc. v. Harris, 640 F.2d 262, 265 (10th
Cir. 1981) (“There is . . . no statutory or constitutional requirement that a hearing be
conducted prior to the cessation of benefits.”).
Instead, BVH’s due process claim is based on its disagreement with the factual
determinations made by CMS and the manner in which CMS promulgated
administrative guidance governing compliance determinations. The arguments
supporting BVH’s due process claim are thus identical to the arguments BVH raises
5
The fact that BVH’s due process challenge does not dispute the sufficiency
of the process generally afforded to Medicare providers prior to termination
distinguishes this case from Family Rehabilitation. 866 F.3d at 496. In that case, the
provider’s claims “only require[d] the court to determine how much process is
required under the Constitution and federal law before recoupment,” and did “not
require the court to wade into the Medicare Act or regulations.” Id. at 503. BVH’s
due process claims, however, contest the content of CMS’ administrative guidelines
governing the finding that BVH is not a hospital, the retroactive application of those
guidelines to BVH, and the process by which CMS promulgated those guidelines.
Unlike plaintiff in Family Rehabilitation, BVH’s claims improperly require that this
court “immerse itself” in the substance of the underlying claim. Id. at 501.
10
in its administrative appeal to reverse the termination decision. The complaint
specifically challenges as “[m]ost noteworthy” the fact that “CMS’[] decision relies
primarily upon newly-issued criteria for determining whether a medical facility is
‘primarily engaged’ in providing inpatient services in order to qualify as a ‘hospital’
for Medicare purposes.” BVH’s constitutional claim requires that we assess in the
first instance whether the agency violated the process due to BVH through the
retroactive application of criteria promulgated as administrative guidance. Such an
assessment necessarily “require[s] the court to immerse itself in the substance of the
underlying Medicare claim” and make a factual determination about whether BVH
was in substantial compliance. Family Rehab., 886 F.3d at 501 (quotation omitted).
Other circuits have expressly rejected BVH’s assertion that constitutional
challenges requiring courts to assess the application of Medicare regulations to a
plaintiff are collateral. See Affiliated Prof’l Home Health Care Agency v. Shalala,
164 F.3d 282, 285-86 (5th Cir. 1999) (“[T]o fully address [the provider’s] claim that
their due process . . . rights were violated through the improper enforcement of
Medicare regulations, a court would necessarily have to immerse itself in those
regulations and make a factual determination as to whether [the provider] was
actually in compliance. Given the administrative nature of that inquiry, it cannot be
reasonably concluded that [the provider’s] claim is collateral.”). As the Supreme
Court has explained when distinguishing collateral from intertwined constitutional
claims, allegations of “mere deviation from the applicable regulations in [any]
particular administrative proceeding” are “fully correctable upon subsequent
11
administrative review,” and should not disturb the presumption that an agency
“should be given the opportunity to review application of those regulations to a
particular factual context.” Michigan Academy, 476 U.S. at 484-85. BVH’s
constitutional claims are not wholly collateral because they allege precisely such
“deviation from the applicable regulations.” Id. And the Secretary should determine
in the first instance whether the retroactive application of criteria promulgated as
administrative guidance was improper.
2
Even if BVH’s constitutional claims were entirely collateral, they are not
colorable. “A constitutional claim in this context is not colorable if it is immaterial
and made solely for the purpose of obtaining jurisdiction or . . . is wholly
insubstantial or frivolous.” Harline, 148 F.3d at 1203 (quotation omitted). This
circuit has “generously [] defined” colorable, Prairie Band of Potawatomi Indians v.
Pierce, 253 F.3d 1234, 1240 (10th Cir. 2001), but will deny jurisdiction if the claims
are “foreclosed by prior decisions,” Harline, 148 F.3d at 1203 (quoting Steel Co. v.
Citizens for a Better Env’t, 523 U.S. 83, 89 (1998)).
Our decision in Geriatrics, 640 F.2d at 262, forecloses BVH’s constitutional
claim requesting a hearing before an ALJ prior to the termination of its Medicare
provider agreement. In Geriatrics, which BVH neglects entirely, we held that
“[t]here is [] no statutory or constitutional requirement that a hearing be conducted
prior to the cessation of benefits” for providers such as BVH. Id. at 265 (explaining
providers are not the intended beneficiary of the Medicaid program, and so “[t]he
12
unfortunate reality that [the provider] will probably encounter difficulty operating at
capacity . . . [is] not of constitutional significance”). And BVH fails to distinguish
the provider’s claim for a pre-termination hearing that we rejected in Geriatrics from
the identical relief BVH seeks in this case.
Our holding in Geriatrics is consistent with those of our sibling circuits. See
Cathedral Rock of N. Coll. Hill, Inc. v. Shalala, 223 F.3d 354, 364 (6th Cir. 2000)
(“[W]e hold that [the Medicare and Medicaid provider] has not made a colorable
claim that it is entitled to a pre-termination hearing under the Due Process Clause.”);
Varandani v. Bowen, 824 F.2d 307, 310 (4th Cir. 1987) (declining to find a
“‘colorable’ procedural due process claim sufficient to establish jurisdiction” after
plaintiff provider requested and was denied a formal, pre-termination hearing); Ritter
v. Cohen, 797 F.2d 119, 123 (3d Cir. 1986) (declining to require additional process
because provider had an opportunity “to submit written reasons why he should not be
terminated from the program”); Northlake Cmty. Hosp. v. United States, 654 F.2d
1234, 1243 (7th Cir. 1981) (holding a Medicare provider’s “claim to a pre-
termination hearing does not rise even to the level of a colorable constitutional
claim”).
Geriatrics is also consistent with Supreme Court dicta suggesting that
providers losing their certification are not entitled to a pre-termination hearing. See
O’Bannon v. Town Court Nursing Ctr., 447 U.S. 773, 784 n.17 (1980). The “Court
in O’Bannon . . . makes it clear that the post-termination hearing provided under
Medicare regulations adequately meets a provider’s due process objections.”
13
Northlake, 654 F.2d at 1243. BVH thus fails to raise a colorable constitutional claim
and cannot claim jurisdiction pursuant to the Supreme Court’s decision in Mathews
v. Eldridge.6
C
Finally, BVH argues the federal courts have subject matter jurisdiction
pursuant to the exception to jurisdictional administrative exhaustion requirements
outlined in Michigan Academy. The Supreme Court has clarified that this exception
to the administrative channeling requirement in § 405(h) applies only if exhaustion
requirements “would not simply channel review through the agency, but would mean
no review all.” Ill. Council, 529 U.S. at 19. BVH contends that the economic
consequences of its loss of Medicare provider status would render it financially
6
The Supreme Court granted certiorari in Azar v. Allina Health Services, 139
S. Ct. 51 (Sept. 27, 2018), to decide whether the Medicare Act requires HHS to
conduct notice-and-comment rulemaking before issuing instructions to Medicare
contractors making payment determinations. This grant does not alter our conclusion
that BVH fails to present a colorable constitutional claim. Even if the Supreme Court
were to hold the Medicare Act requires notice-and-comment rulemaking, and thus
precludes the promulgation of new criteria in the form of administrative guidance as
HHS did in this case, such a holding would not disturb the circuit court’s previous
determinations that the Medicare Act does not entitle providers to a formal pre-
termination hearing.
Moreover, to the extent that Allina is relevant, BVH’s reliance upon Allina
only further demonstrates that its constitutional claim is not collateral to the
underlying administrative action. BVH’s Allina argument—that CMS denied BVH
due process by terminating its provider agreement pursuant to criteria issued through
administrative guidance rather than notice-and-comment rulemaking—is identical to
the argument it presumably will present in the post-termination hearing. And that
argument “require[s] the court to immerse itself in the substance of the underlying
Medicare claim.” Family Rehab., 886 F.3d at 502.
14
unable to pursue its administrative appeal, and thus foreclose the possibility of both
administrative and judicial review.
But the Supreme Court has declined to extend the Michigan Academy
exception to cases in which parties allege financial hardship forecloses further
review. See Ill. Council, 529 U.S. at 22 (“[W]e do not hold that an individual party
could circumvent [§ 405(h)’s] channeling requirement simply because that party
shows that postponement would mean added inconvenience or cost in an isolated,
particular case.”). The Court in Illinois Council recognized that “the ‘channeling’ of
virtually all legal attacks through the agency . . . comes at a price, namely,
occasionally individual, delay-related hardship,” but determined that Congress
deemed that price “justified” in crafting the Medicare Act. Id. at 13.
Moreover, this circuit has recognized a denial of review sufficiently absolute
to trigger the Michigan Academy exception only if there exist “no conceivable set of
circumstances that could have permitted Plaintiffs to challenge the validity of the
[administrative action] within the procedures provided by the agency.” Bartlett
Mem’l Med. Ctr., Inc. v. Thompson, 347 F.3d 828, 844 (10th Cir. 2003). Because
BVH’s administrative appeal “has been filed and is currently pending before an
ALJ,” BVH cannot establish the “total preclusion of review” necessary to avail itself
of the Michigan Academy exception. Ill. Council, 529 U.S. at 19 (noting the
“distinction that this Court has often drawn between a total preclusion of review and
postponement of review”).
III
15
For the foregoing reasons, we AFFIRM the district court’s dismissal of
BVH’s action for lack of subject matter jurisdiction.
16