North Carolina Insurance Guaranty Association v. Xavier Becerra

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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 21-2185
NORTH CAROLINA INSURANCE GUARANTY ASSOCIATION,
Plaintiff - Appellant,
v.
XAVIER BECERRA, in his official capacity as Secretary of the United States
Department of Health and Human Services; UNITED STATES DEPARTMENT
OF HEALTH AND HUMAN SERVICES; CENTER FOR MEDICARE AND
MEDICAID SERVICES,
Defendants - Appellees.
Appeal from the United States District Court for the Eastern District of North Carolina, at
Raleigh. Louise W. Flanagan, District Judge. (5:20-cv-00522-FL)
Argued: October 28, 2022 Decided: December 14, 2022
Before THACKER, and HEYTENS, Circuit Judges, and Lydia K. GRIGGSBY, United
States District Judge for the District of Maryland, sitting by designation.
Affirmed by published opinion. Judge Thacker wrote the opinion, in which Judge Heytens
and Judge Griggsby joined.
ARGUED: Christopher J. Blake, NELSON MULLINS RILEY & SCARBOROUGH
LLP, Raleigh, North Carolina, for Appellant. Neal Fowler, OFFICE OF THE UNITED
STATES ATTORNEY, Raleigh, North Carolina, for Appellees. ON BRIEF: Joseph W.
Eason, NELSON MULLINS RILEY & SCARBOROUGH LLP, Raleigh, North Carolina,
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for Appellant. Michael F. Easley, Jr., United States Attorney, OFFICE OF THE UNITED
STATES ATTORNEY, Raleigh, North Carolina, for Appellees.
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THACKER, Circuit Judge:
This case stems from a request by the North Carolina Insurance Guaranty
Association (“Appellant”) to the Center for Medicare and Medicaid Services (“CMS”)
seeking an advisory opinion about whether Appellant is required to reimburse Medicare
for certain medical bills that Medicare pays on behalf of insured individuals. CMS declined
to issue the requested opinion. Dissatisfied with this response, Appellant filed this action
against Alex M. Azar, II, in his official capacity as Secretary of the United States
Department of Health and Human Services (“HHS”), HHS, and CMS (collectively,
“Appellees”). 1
In this appeal, Appellant challenges the district court’s determination that Appellant
lacked standing to bring this action because it failed to plausibly allege that it suffered an
injury-in-fact. Additionally, Appellant challenges the district court’s conclusion that it did
not possess jurisdiction over the action because Appellant failed to exhaust its
administrative remedies.
For the reasons below, we affirm.
I.
A.
Appellant is a statutorily created association whose members consist of insurers
permitted to conduct business in North Carolina and to write insurance policies pursuant
1
Pursuant to Federal Rule of Civil Procedure 25(d), the district court substituted
Xavier Becerra, who is Alex M. Azar, II’s successor as the Secretary of HHS, as a party in
this litigation.
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to the Insurance Guaranty Association Act (the “Guaranty Act”), N.C. Gen. Stat. § 58-48-
1 et seq. Appellant does not issue insurance policies or collect premiums. Instead, this
association was created to “provide a limited form of protection to North Carolina
claimants and insureds that certain liability claims will be paid in the event of the
insolvency of a member insurer.” J.A. 8. 2 However, Appellant is obligated to step into the
shoes of an insolvent insurer only when the claimant asserts a covered claim.
The Medicare Secondary Payer Act (“MSPA”), 42 U.S.C. § 1395y(b), prohibits the
Government -- specifically CMS -- from footing the bill for an insured individual’s medical
care when payment could be made by a “primary plan.” Prior to the MSPA, Medicare paid
for services regardless of whether a private insurer was also responsible. See Netro v.
Greater Balt. Med. Ctr., Inc., 891 F.3d 522, 524 (4th Cir. 2018) (“Before the legislation
went into effect, Medicare would pay for all medical treatment within its ambit, even if a
private party such as an insurer was also responsible.”). Pursuant to the MSPA, “primary
plan” means:
a group health plan or large group health plan, to the extent that
clause (i) applies, and a workmen’s compensation law or plan,
an automobile or liability insurance policy or plan (including a
self-insured plan) or no fault insurance, to the extent that clause
(ii) applies. An entity that engages in a business, trade, or
profession shall be deemed to have a self-insured plan if it
carries its own risk (whether by a failure to obtain insurance,
or otherwise) in whole or in part.
2
Citations to the “J.A.” refer to the Joint Appendix filed by the parties in this appeal.
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42 U.S.C. § 1395y(b)(2)(A)(ii). This case centers on the issue of whether Appellant
qualifies as a “primary plan,” and, as such, may be required to reimburse Medicare for
medical bills that it pays on behalf of insured individuals.
To help Medicare keep track of expected reimbursements, in 2007, Congress added
reporting requirements via Section 111 of the Medicare, Medicaid, and State Children’s
Health Insurance Program Extension Act of 2007 (“Section 111”). Pub. L. No. 110-173,
§ 111, 121 Stat. 2492, 2497–500 (2007), codified at 42 U.S.C. § 1395y(b)(7)-(8). Section
111 requires primary plans to submit periodic reports to CMS identifying when they have
a responsibility to pay for the medical care of a Medicare beneficiary. In addition to this
reporting requirement, Section 111 also includes a penalty provision, which authorizes
CMS to impose a penalty of up to $1,000 per day for non-compliance.
On January 10, 2013, President Obama signed into law the Medicare IVIG Access
and Strengthening Medicare and Repaying Taxpayers Act of 2012 (the “SMART Act”).
SMART Act of 2012, Pub. L. No. 112-242, 126 Stat. 2374. The SMART Act included
several amendments to the MSPA, two of which are relevant here. First, the SMART Act
instructed the Secretary to begin rulemaking on the “practices for which sanctions will and
will not be imposed.” SMART Act § 203. However, nearly a decade later, a final rule
outlining the circumstances warranting Section 111 sanctions remains pending, and it is
unclear when this rule may become effective. In any event, CMS has indicated that if
enacted, the proposed rule would only be imposed prospectively. See Medicare Program;
Medicare Secondary Payer and Certain Civil Money Penalties, 85 Fed. Reg. 8,793(proposed Feb. 18, 2020).
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Second, the SMART Act required the Secretary to “promulgate regulations
establishing a right of appeal and appeal process,” SMART Act § 201, for plans when
Medicare pursues a Medicare Secondary Payer recovery claim directly from that plan. On
April 28, 2015, a final rule establishing an appeals process for insurers who want to
challenge Medicare’s request for repayment became effective. See Medicare Program;
Right of Appeal for Medicare Secondary Payer Determinations Relating to Liability
Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation
Laws and Plans, 80 Fed. Reg. 10,611 (Feb. 27, 2015) (codified in scattered sections of 42
C.F.R. § 405). This process includes four levels of review before such a challenge is
entitled to judicial review in federal district court.
First, the insurer may seek reconsideration of Medicare’s decision through a process
called “redetermination.” 42 C.F.R. § 405.940. “In conducting a redetermination, the
contractor [3] reviews the evidence and findings upon which the initial determination was
based, and any additional evidence the parties submit or the contractor obtains on its own.”
42 C.F.R. § 405.948. Second, if the insurer is dissatisfied with the result of the
3
According to CMS’s website, a Medicare Administrative Contractor (“MAC”) is
“a private health care insurer” who is “responsible for administering Medicare Part A and
Part B claims.” CMS, What is a MAC, https://www.cms.gov/Medicare/Medicare-
Contracting/Medicare-Administrative-Contractors/What-is-a-MAC (last visited Dec 1,
2022) (saved as ECF opinion attachment). Redeterminations are conducted by MAC
“personnel not involved in the initial claim determination.” CMS, First Level of Appeal,
https://www.cms.gov/Medicare/Appeals-and-Grievances/OrgMedFFSAppeals/Redetermi
nationbyaMedicareContractor (last visited Dec. 1, 2022) (saved as ECF opinion
attachment).
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redetermination, it can seek reconsideration of the contractor’s determination through a
separate qualified independent contractor. 42 C.F.R. § 405.960. At the reconsideration
stage, “a party should present evidence and allegations of fact or law related to the issue in
dispute and explain why it disagrees with the initial determination, including the
redetermination.” 42 C.F.R. § 405.966. Third, if the insurer is not satisfied with the
outcome of the reconsideration, it may request a hearing before an Administrative Law
Judge (“ALJ”). 42 C.F.R. § 405.1000. Fourth, if the insurer is not satisfied with the ALJ’s
decision, it can request that the Medicare Appeals Council (the “Council”) review that
decision. 42 C.F.R. § 405.1100. Only after the Council renders a decision can the insurer
seek review by the federal courts. 42 C.F.R. § 405.1136.
B.
On June 1, 2020, Appellant sent a letter to CMS (“Appellant’s Letter”), requesting
a written opinion stating that Appellant is not a primary plan within the meaning of the
MSPA, and, as a result, is not required to comply with the reporting requirements of Section
111. In support of this position, Appellant’s Letter cited the Ninth Circuit’s decision in
California Insurance Guarantee Ass’n v. Azar (CIGA), 940 F.3d 1061, 1063 (9th Cir.
2019), which held that the insurance association in that case was not a primary plan within
the meaning of the MSPA. After the CIGA decision, CMS provided a letter to the CIGA
plaintiff confirming that in accordance with the Ninth Circuit’s ruling, the CIGA plaintiff
was not required to comply with Section 111.
On August 12, 2020, CMS responded to Appellant’s Letter. In its response, CMS
declined to issue the requested opinion and further stated that it does not believe CIGA
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applies to Appellant. Thereafter, Appellant brought this action. In the complaint,
Appellant asserts the following three claims: (1) a declaratory judgment claim pursuant to
the Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a declaration that Appellant is
not a primary plan pursuant to the MSPA; (2) a claim pursuant to the Administrative
Procedure Act (“APA”), 5 U.S.C. § 500 et seq.; and (3) a claim seeking judicial review of
CMS’s response to Appellant’s Letter, pursuant to 42 U.S.C. § 405(g), as incorporated into
the Medicare Act 4 through 42 U.S.C. § 1395ii.
On January 29, 2021, Appellees moved to dismiss Appellant’s complaint on two
grounds. First, Appellees argued that Appellant did not have standing. Second, Appellees
maintained that even if Appellant had standing, dismissal was required because Appellant
did not establish a basis for the district court to conclude that it had federal question
jurisdiction over the action.
On September 21, 2021, the district court granted Appellees’ motion to dismiss.
The district court determined that Appellant lacked standing because it failed to sufficiently
allege an injury-in-fact, and even if Appellant did have standing, the court did not have
federal question jurisdiction over the action because Appellant failed to exhaust its
administrative remedies as required by the Medicare Act.
4
The Medicare Act, 42 U.S.C. § 1395 et seq., “establishes a federally subsidized
health insurance program for eligible aged and disabled persons.” MacKenzie Med. Supply,
Inc. v. Leavitt, 506 F.3d 341, 343 (4th Cir. 2007).
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Appellant timely filed its notice of appeal. 5
II.
“We review issues of subject matter jurisdiction de novo.” Nanni v. Aberdeen
Marketplace, Inc., 878 F.3d 447, 452 (4th Cir. 2017); see also Ali v. Hogan, 26 F.4th 587,
595 (4th Cir. 2022) (“We review de novo a district court’s dismissal of a complaint for
want of Article III standing to sue — and thus for lack of subject matter jurisdiction —
under Federal Rule of Civil Procedure 12(b)(1).”). “In determining
whether subject matter jurisdiction exists, [we are] not limited to the grounds relied on by
the district court, but rather may affirm on any grounds apparent from the record.”
Pornomo v. United States, 814 F.3d 681, 687 (4th Cir. 2016).
III.
Appellant argues that the district court erred by dismissing its complaint for two
reasons. First, Appellant asserts that it sufficiently alleged the injury-in-fact element of
Article III standing. Specifically, Appellant argues that the potential repayments to
Medicare, the potential penalties that could be imposed if it failed to comply with Section
111’s reporting requirements, and the burdens and expenses that it incurred constitute an
injury-in-fact. Second, Appellant contends that the district court had jurisdiction over the
5
Appellant does not reference the district court’s dismissal of its APA claim in this
appeal. Therefore, Appellant has forfeited any challenge to the district court’s dismissal
of that claim. See A Helping Hand, LLC v. Baltimore Cnty., 515 F.3d 356, 369 (4th Cir.
2008) (“It is a well settled rule that contentions not raised in the argument section of
the opening brief are abandoned.”).
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case because its claims for declaratory relief are not subject to 42 U.S.C. § 405(h)’s bar
against federal question jurisdiction.
Even assuming Appellant has standing, we conclude that the district court properly
determined that it did not have jurisdiction over this case because 42 U.S.C. § 405(h)
precludes federal question jurisdiction for claims against the United States or its agents if
such claims arise under the Medicare Act. See 42 U.S.C. § 405(h) (“No action against the
United States, the Commissioner of Social Security, 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.”); see also Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S.
1, 5 (2000) (explaining that § 405(h)’s bar against federal question jurisdiction is
incorporated into the Medicare Act through 42 U.S.C. § 1395ii).
In Illinois Council, the Supreme Court described § 1395ii’s incorporation of
§ 405(h) into the Medicare Act as a “channeling requirement,” 529 U.S. at 19, which
“demands the channeling of virtually all legal attacks through the agency.” Id. at 13(internal quotation marks omitted). However, there is one narrow exception to § 405(h)’s
channeling requirement. This exception stems from the Supreme Court’s decision in
Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 680 (1986), and allows
a plaintiff to escape the channeling requirement “where application of § 405(h) would not
simply channel review through the agency, but would mean no review at all.” Ill. Council,
529 U.S. at 19. At oral argument, Appellant conceded that the only possible basis for
subject matter jurisdiction in this case is the Medicare statute. See Oral Argument at 50:05–
50:57, N.C. Ins. Guar. Ass’n v. Becerra, No. 21-2185 (4th Cir. Oct. 28, 2022),
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http://www.ca4.uscourts.gov/oral-argument/listen-to-oral-arguments. Accordingly, there
is no dispute that unless the Michigan Academy exception applies, Appellant was required
to comply with § 405(h)’s channeling requirement.
In Illinois Council, the Supreme Court explained that the Michigan Academy
exception is limited to circumstances in which the application of the channeling
requirement would result in “a complete preclusion of review.” Ill. Council, 529 U.S. at
22–23 (emphasis in original). Here, Appellant maintains that the Michigan Academy
exception applies because its principal claim -- that it is not a primary plan -- cannot be
channeled through the administrative review process, and thus, requiring it to comply with
§ 405(h)’s channeling requirement would result in a complete preclusion of review.
The district court concluded, “The plain language of Illinois Council and § 405
preclude invocation of the court’s federal question jurisdiction in this instance.” N.C. Ins.
Guar. Ass’n v. Becerra, No. 5:20-cv-522, 2021 WL 4302243, at *9 (E.D.N.C. Sept. 21,
2021) (internal citation omitted). In rejecting Appellant’s argument that § 405(h) did not
apply to Appellant’s claims because they do not arise under the Medicare Act, the district
court noted that Appellant’s argument is “belied by its invocation, inter alia, of 42 U.S.C.
§ 1395ii as a jurisdictional basis, when that section specifically incorporates subsection (h)
of section 405.” Id. at *10 (alterations adopted and internal quotation marks omitted). The
district court also emphasized that there are policy reasons for rejecting Appellant’s
argument that its claims are not subject to § 405(h)’s channeling requirement, reasoning:
Recognizing plaintiff’s suggested exemption to § 405(h)
would create an impermissible and easily invoked loophole to
a process that the Supreme Court has described as demanding
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the ‘channeling’ of virtually all legal attacks through the
relevant agency, including disputes as to the application,
interpretation, or constitutionality of interrelated regulations or
statutory provisions.
Id. (alterations adopted and internal citations and quotation marks omitted). Finally, the
district court determined that Appellant cannot rely on the traditional exceptions to the
exhaustion requirement because Illinois Council explained that “the bar of § 405(h) reaches
beyond ordinary administrative law principles of ‘ripeness’ and ‘exhaustion of
administrative remedies’ and prevents application of ‘ripeness’ and ‘exhaustion’
exceptions.” Id. at *11 (internal citations and quotation marks omitted).
Significantly, Appellant’s position that its claim cannot be channeled through the
administrative process is belied by the fact that it is currently challenging its status as a
primary plan in at least one administrative appeal. See Appellees’ Br. at 33 n.6 (“[A]fter
filing its lawsuit, [Appellant] administratively appealed such MSP[A] reimbursement
demands and asserted in at least one appeal the very MSP[A] applicability arguments,
namely its status as a primary plan under MSP[A] requirements, it presented in its
complaint.”). 6 Indeed, Appellant’s 2022 Annual Report specifically references
Appellant’s participation in the MSPA administrative appeals process. See NCIGA,
2022 Annual Report, https://www.ncrb.org/Portals/3/nciga/annual%20reports/NCIGA%2
02022%20AR%20(web).pdf?ver=2022-10-18-150019-300 (last visited Dec. 1, 2022)
6
We take judicial notice of the existence of the administrative appeal as its existence
is a matter that “can be accurately and readily determined from sources whose accuracy
cannot be reasonably questioned.” Fed. R. Evid. 201(b).
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(saved as ECF opinion attachment). Appellant does not dispute the Government’s assertion
that it has presented the arguments that it raises here in its administrative appeal.
Accordingly, we conclude that the existence of the administrative appeal is fatal to
Appellant’s claim that it is completely precluded from seeking review of its argument that
it is not a primary plan through the administrative process.
Additionally, we agree with the district court that the ordinary exceptions to the
exhaustion requirement are inapplicable here, particularly in light of the Supreme Court’s
guidance in Illinois Council, which explained that § 405(h)’s “bar reaches beyond ordinary
administrative law principles of ‘ripeness’ and ‘exhaustion of administrative remedies’—
doctrines that normally require § 405(h) channeling a legal challenge through the agency—
by preventing the application of exceptions to those doctrines.” 529 U.S. at 2 (emphasis
supplied).
Lastly, we note that our decision is consistent with the Seventh Circuit’s recent
decision in Illinois Insurance Guaranty Fund (IIGF) v. Becerra, 33 F.4th 916 (7th Cir.
2022) and the Ninth Circuit’s decision in California Insurance Guarantee Ass’n v. Azar
(CIGA), 940 F.3d 1061 (9th Cir. 2019). The critical issue in both IIGF and CIGA was
whether a state-created insolvency insurance association is a primary plan, and, as such, is
subject to the requirements of the MSPA. In CIGA, the court answered that question in the
negative, holding that the insolvency insurer was not a primary plan under the MSPA but
rather “is an insolvency insurer of last resort.” 940 F.3d at 1063–64. Conversely, in IIGF,
the court determined that it did not have jurisdiction to weigh in on the matter because the
plaintiff in that case failed to exhaust its administrative remedies prior to seeking relief in
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federal court. 33 F.4th at 927. In reaching this conclusion, the IIGF court noted, “[w]hile
applying § 405(h) to foreclose federal-question jurisdiction might cause delay and
inconvenience, it would not amount to a complete preclusion of judicial review.” Id. at
926.
In explaining why its decision was not in conflict with CIGA, the IIGF court
emphasized that the administrative appeals process with respect to Medicare
reimbursement claims “was not finalized until after [the plaintiff in] CIGA filed suit, so the
initial determinations sent to [the plaintiff in] CIGA were deemed final agency actions
subject to judicial review.” IIGF, 33 F.4th at 926. This is so because the plaintiff in CIGA
filed suit in February 2015, but as we have explained, the appeals process did not become
effective until two months later, in April 2015. See Cal. Ins. Guar. Ass’n v. Burwell, 227
F. Supp. 3d 1101, 1117 (C.D. Cal. 2017) (“Shortly after [the plaintiff in CIGA] filed suit,
CMS created an administrative appeals process that every disputed reimbursement demand
must go through before judicial review.”). Leaving no doubt, the court in IIGF clarified,
“In contrast, the jurisdictional bar of § 405(h) controls the [plaintiff’s] claim because it can
use the appeals process for Medicare demands for repayment to challenge its status as a
primary plan.” 33 F.4th at 926–27. The same is true here.
IIGF is well-reasoned and persuasively highlights the distinction between cases
filed before and after the implementation of the appeals process for MSPA claims.
Applying the reasoning of IIGF here, we conclude that the district court properly dismissed
Appellant’s complaint because there is no dispute that Appellant did not pursue its
administrative remedies in this case, and, as a result, its claims are barred by § 405(h).
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IV.
For the reasons set forth herein, we affirm the district court’s dismissal of
Appellant’s complaint.
AFFIRMED
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