Desfosses v. Noridian Healthcare Solutions, LLC et al
Filing
25
MEMORANDUM DECISION AND ORDER granting without prejudice 20 Defendant's Motion to Dismiss. Signed by Judge Candy W. Dale. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjs)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
DANNY R. DESFOSSES,
Case No. 4:14-CV-00244-CWD
Plaintiff,
MEMORANDUM DECISION AND
ORDER
v.
NORIDIAN HEALTHCARE
SOLUTIONS, LLC; and NORIDIAN
ADMINISTRATIVE SERVICES, LLC;
Delaware Entities,
Defendants.
INTRODUCTION
Pending before the Court is Defendants’ Motion to Dismiss pursuant to Federal
Rule of Civil Procedure 12(b)(1). The matter is fully briefed and ripe for the Court's
consideration. Having fully reviewed the record herein, the Court finds the facts and legal
arguments are adequately represented in the briefs and record. In the interest of avoiding
delay, and because the Court conclusively finds that the decisional process would not be
significantly aided by oral argument, the motion will be decided on the record before the
Court. Dist. Idaho L. Rule 7.1.
MEMORANDUM DECISION AND ORDER - 1
FACTUAL AND PROCEDURAL BACKGROUND
Desfosses is a physical therapist practicing in Pocatello, Idaho. Since 1984,
Desfosses has been authorized by Medicare to submit claims for reimbursement for
providing physical therapy services. See United States v. DesFosses, 1:11-CR-00065EJL, Dkt. 63, ¶ III(B). 1 In 2011, Desfosses was indicted for multiple counts of fraud in
connection with a Medicare audit and claims. (Id., Dkt. 1, 20.) In September of 2011, he
pled guilty to one felony charge of alteration of a record. (Id., Dkt. 63, ¶ I(A), 65.) As
part of the plea agreement, Desfosses agreed that the elements of that crime included
knowingly altering or falsifying a record with intent to impede or influence an
investigation. (Id., Dkt. 63 ¶ III(A).)
On July 18, 2012, the Office of Inspector General, on behalf of the Department of
Health and Human Services, notified Desfosses that, as a result of his conviction, the
Department was considering “excluding you from participation in any capacity in the
Medicare, Medicaid, and all Federal health care programs as defined in section 1128B(f)
of the Social Security Act (Act). Section 1128(b)(2) of the Act (42 U.S.C. 1320a-7(b))
authorizes the imposition of this exclusion, which will be in addition to any sanction an
individual Federal or State agency may impose under its own authority.” (Dkt. 23-2.) The
letter further informed Desfosses he had 30 days from the date of the letter to submit any
information he wanted the OIG to consider before making a final determination regarding
the potential exclusion.
1
The Court takes judicial notice of its own records. Fed. R. Evid. 201(b).
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Desfosses submitted additional information regarding the program exclusion,
which was received by the OIG on August 20, 2012. (Dkt. 23-3.) After further review,
the OIG notified Desfosses on October 23, 2012, that it had determined “this action does
not meet the statutory requirements for an exclusion under the authority of section
1128(b)(2) of the Act. Therefore, we have closed our case file and anticipate no further
action on this matter at this time.” (Dkt. 23-4.)
Separately, on February 9, 2012, Noridian, as the Medicare Administrative
Contractor acting on behalf of Centers for Medicare and Medicaid (CMS), notified
Desfosses, that his enrollment as a Medicare Part B provider was revoked due to his
felony conviction and that he was barred from participating in the Medicare program for
three years due to his conviction. Walseth Decl., Ex. A. The February 9, 2012 letter
informed Desfosses that, if he was dissatisfied with the revocation of his Medicare
provider number, he could request an appeal of the revocation. Desfosses did not appeal
CMS’s February 9, 2012 revocation decision.
On July 8, 2013, after receiving the October 23, 2012 OIG letter, Desfosses
submitted an application to Noridian to enroll (or re-enroll) as a Medicare provider. (Dkt.
20-3.) Desfosses’s enrollment application disclosed his felony conviction in 2011 and
attached a copy of the October 23, 2012 OIG letter.
Noridian sent the application and OIG letter to CMS and asked for advice pursuant
to CMS protocol. CMS directed Noridian to deny the application for enrollment under 42
C.F.R. § 424.535(a)(3) because of the felony conviction. On August 21, 2013, Noridian
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issued a denial letter. (Dkt. 20-5.) The letter informed Desfosses he could request
reconsideration from Noridian within 60 calendar days from the date of the letter.
On September 11, 2013, Desfosses timely submitted a request for reconsideration
of the denial of his enrollment application. Desfosses contended he had been informed by
the OIG that his conviction did not meet the statutory requirements for exclusion under
section 1128(a) of the Social Security Act. Upon reconsideration, and pursuant to the
Medicare provider enrollment regulations, Noridan denied Desfosses’ enrollment
application by letter dated November 6, 2013. Noridian mentioned the OIG letter as
follows: “The decision not to put an exclusion on the provider by the Office of Inspector
General does not affect the decision to deny enrollment for a felony by Medicare.” The
letter informed Desfosses that, if he was dissatisfied with the decision, he could appeal to
an Administrative Law Judge, and set forth instructions for doing so.
Desfosses did not appeal CMS’s decision to deny his 2013 application for
enrollment. He filed his Complaint against Noridian in this Court on June 18, 2014.
Noridian asserts the Complaint must be dismissed because Desfosses failed to exhaust his
administrative remedies, resulting in lack of subject matter jurisdiction by the Court.
DISCUSSION
1.
Motion to Dismiss Standard
Federal Rule of Civil Procedure 12(b)(1) authorizes a motion to dismiss for lack of
subject matter jurisdiction. When a motion is made pursuant to Rule 12(b)(1), the
plaintiff has the burden of proving that the court has subject matter jurisdiction. Tosco
Corp. v. Cmtys. for a Better Env't, 236 F.3d 495, 499 (9th Cir. 2001), overruled on other
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grounds by Hertz Corp. v. Friend, 559 U .S. 77 (2010). A Rule 12(b)(1) jurisdictional
attack may be either facial or factual. White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000).
The attack will be a “facial” one where the defendant attacks the sufficiency of the
allegations supporting subject matter jurisdiction. See Thornhill Publ'g Co., Inc. v.
General Tel. & Elec. Corp., 594 F.2d 730, 733 (9th Cir. 1979). In a facial attack, the
complaint is challenged as failing to establish federal jurisdiction, even assuming all the
allegations are true and construing the complaint in the light most favorable to plaintiff.
See Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004); see also Love
v. United States, 915 F.2d 1242, 1245 (9th Cir.1988) (When considering a “facial” attack
made pursuant to Rule 12(b)(1), courts consider the allegations of the complaint to be
true and construe them in the light most favorable to the plaintiff.).
In contrast, in a factual attack, the challenger provides evidence that an alleged
fact is false, resulting in a lack of subject matter jurisdiction. Safe Air for Everyone, 373
F.3d at 1039. A “factual” attack challenges “the existence of subject matter jurisdiction in
fact.” Thornhill, 594 at 733. Here, Noridian has raised a factual attack to subject matter
jurisdiction by claiming Desfossses failed to exhaust his administrative remedies, and
provided affidavits to establish that fact.
In these circumstances, the allegations in the complaint are not presumed to be
true and “the district court is not restricted to the face of the pleadings, but may review
any evidence, such as affidavits and testimony, to resolve factual disputes concerning the
existence of jurisdiction.” McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988).
“Once the moving party has converted the motion to dismiss into a factual motion by
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presenting affidavits or other evidence properly brought before the court, the party
opposing the motion must furnish affidavits or other evidence necessary to satisfy its
burden of establishing subject matter jurisdiction.” 2 Savage v. Glendale Union High Sch.,
343 F.3d 1036, 1039 n. 2 (9th Cir. 2003).
When considering a factual attack on subject matter jurisdiction, “the district court
is ordinarily free to hear evidence regarding jurisdiction and to rule on that issue prior to
trial, resolving factual disputes where necessary.” Augustine v. United States, 704 F.2d
1074, 1077 (9th Cir. 1983) (citing Thornhill, 594 F.2d at 733). “[N]o presumptive
truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts
will not preclude the trial court from evaluating for itself the merits of jurisdictional
claims.” Thornhill, 594 F.2d at 733 (quoting Mortensen v. First Fed. Sav. & Loan Ass'n,
549 F.2d 884, 891 (3d Cir. 1977)).
Consistent with this authority, the Court has reviewed the declarations and exhibits
filed with Defendants’ Motion to Dismiss (Dkt. 20-2, 20-3), as well as the declaration of
counsel included with Plaintiff’s Response to Motion to Dismiss (Dkt. 23-1), in its
consideration of Defendants’ Motion to Dismiss pursuant to Rule 12(b)(1). As explained
more fully below, the Court will grant Defendants’ motion.
2.
Jurisdiction
Title XVIII of the Social Security Act, 79 Stat. 291, as amended, 42 U.S.C. §
1395, et seq., commonly known as the Medicare Act, establishes a federally subsidized
health insurance program to be administered by the Secretary. The Medicare statute
2
MEMORANDUM DECISION AND ORDER - 6
incorporates provisions of the Social Security Act which provide for an administrative
review process and exhaustion of that process. 42 U.S.C. § 1395ii. Section 1395ii
references the review process under 42 U.S.C. § 405(h), which in turn provides that “[n]o
findings of fact or decision of the [Secretary] shall be reviewed by any person, tribunal,
or government agency except as herein provide. 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, United States Code, to recovery on any claim under this subchapter.” 42
U.S.C. § 405(h).
Section 405(h) requires providers dissatisfied with Medicare decisions to proceed
through the administrative review process. Queen of Angels/Hollywood Presbyterian
Medical Center v. Shalala, 65 F.3d 1472, 1481 n.23 (9th Cir. 1995). Judicial review of
claims arising under the Medicare Act is available only after the Secretary renders a
“final decision” on the claim, in the same manner as is provided in 42 U.S.C. § 405(g) for
old age and disability claims arising under Title II of the Social Security Act. 42 U.S.C. §
1395ff(b)(1)(C); Heckler v. Ringer, 466 U.S. 602, 605 (1984). That is, Desfosses must
satisfy the presentment and exhaustion requirements under section 405(g) prior to
seeking judicial relief. Heckler, 466 U.S. at 605.
Title 42 U.S.C. § 405(g) provides in part as follows:
Any individual, after any final decision of the Secretary made after a
hearing to which he was a party, irrespective of the amount in controversy,
may obtain a review of such decision by a civil action commenced within
sixty days after the mailing to him of notice of such decision or within such
further time as the Secretary may allow. Such action shall be brought in the
district court of the United States for the judicial district in which the
plaintiff resides, or has his principal place of business, or, if he does not
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reside or have his principal place of business within any such judicial
district, in the United States District Court for the District of Columbia....
The court shall have power to enter, upon the pleadings and transcript of
the record, a judgment affirming, modifying, or reversing the decision of
the Secretary, with or without remanding the cause for a rehearing. The
findings of the Secretary as to any fact, if supported by substantial
evidence, shall be conclusive.... The judgment of the court shall be final
except that it shall be subject to review in the same manner as a judgment
in other civil actions.
The doctrine of administrative exhaustion generally prevents federal courts from
entertaining actions based upon the Social Security Act when the claimant failed to
exhaust his administrative remedies. The reason is that “exhaustion is generally required
as a matter of preventing premature interference with agency processes, so that the
agency may function efficiently and so that it may have an opportunity to correct its own
errors, to afford the parties and the courts the benefit of its experience and expertise, and
to compile a record which is adequate for judicial review.” Weinberger v. Salfi, 422 U.S.
749, 765 (1976). Upon review, the Court is limited to reviewing the decision of the
agency, and determining whether to affirm, modify, or remand the decision back to the
agency. 28 U.S.C. § 405(g). Here, there has been no administrative proceeding before an
ALJ; thus, the Court lacks jurisdiction to review.
Desfosses argues that the OIG letter constitutes a “complete review” from which
he can appeal, and that further administrative proceedings are not required. Desfosses
contends also that the OIG’s letter regarding exclusion from the Medicare program
constitutes “administrative res judicata,” and that CMS and Noridian, as an agent of
CMS, cannot ignore the OIG decision. However, Desfosses appears to confuse the “no
exclusion” letter, which pertained to OIG’s October 2012 decision regarding his current
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ability to participate in and seek reimbursement from Medicare, with the wholly separate
determination by CMS in August of 2013 that, after CMS’s revocation decision in
February of 2012, Desfosses could not thereafter enroll in the Medicare program.
The regulations pertaining to denial of enrollment are exclusively the province of
CMS, not the OIG. 42 C.F.R. § 424.530(a) (providing reasons CMS may deny a
provider’s enrollment in the Medicare program). In other words, the decision not to
exclude from participation when a provider is currently participating is a separate process
overseen by a different decision-maker than the decisional process governing enrollment
in the program. 3 CMS, not OIG, has the exclusive authority to determine upon enrollment
whether a felony offense is detrimental to the best interests of the Medicare program. 42
C.F.R. § 424.530(a)(3). Here, CMS denied enrollment under 42 C.F.R. § 424.530(a)(3) in
August of 2013, after CMS had revoked Desfosses’s Medicare billing privileges in
February 2012 under 42 C.F.R. 424.535(a)(3). Desfosses was fully informed how to
appeal CMS’s enrollment decision, and he chose not to. By failing to exhaust his
administrative remedies with respect to CMS’s decision to deny enrollment, this Court
lacks jurisdiction.
Absent a full administrative hearing process, the Court lacks the ability to review
this matter. The Court lacks any hearing testimony, evidence submitted to the agency, or
agency decision to review. The Court therefore cannot exercise its limited statutory
authority under 42 U.S.C. § 405(g), because it has no agency decision rendered by CMS
3
Under 42 C.F.R. § 1001.1, the OIG has the ability to exclude a provider from participation in Medicare. This
assumes the provider is currently a participating provider. In contrast, only CMS or its contractor may deny or
revoke enrollment. 42 C.F.R. §§ 424.530, 424.535.
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to affirm, modify, or remand. The OIG letter does not constitute such a decision, because
it does not pertain to CMS’s decision denying Desfosses’ application for enrollment in
the Medicare program.
For res judicata, or claim preclusion, to apply, there must have been a prior
judicial proceeding that resulted in a final determination or judgment between the same
parties, involving the same subject matter and the same claim. Sadid v. Vailas, 936
F.Supp. 2d 1207, 1218 (D. Idaho Mar. 28, 2013). See also U.S. v. Liquidators of
European Federal Credit Bank, 630 F.3d 1139, 1152 n.8 (9th Cir. 2011) (for res judicata
to apply, an “important point…is that the district court issued a final judgment…”).
Desfosses applies the principles of res judicata incorrectly. There was neither a final
judgment from a court nor a final judgment as a result of an administrative proceeding.
Absent a final determination, the principles of claim preclusion do not apply.
To apply the principles of res judicata to an administrative proceeding, the
administrative decision must also have resolved disputed issues of fact, the process must
have given the parties an opportunity to litigate, and the agency must have acted in a
judicial capacity. Misischia v. Pirie, 60 F.3d 626, 629 (9th Cir. 1995). Here, the OIG
issued its letter without a hearing, without any administrative process, and there was no
quasi-judicial act. The OIG letter is not entitled to any preclusive effect.
Because the Court finds it lacks jurisdiction, the Court finds it unnecessary and not
appropriate to address Noridian’s additional arguments raised in its reply brief that it is
immune from suit and that CMS, not Noridian, is the real party in interest.
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CONCLUSION
For the reasons discussed above, the Court finds that Desfosses has not exhausted
his administrative remedies. As a result, the Court will order that Noridian’s Motion to
Dismiss be granted without prejudice.
ORDER
NOW THEREFORE IT IS HEREBY ORDERED:
1)
Defendants’ Motion to Dismiss (Dkt. 20) is GRANTED without prejudice.
March 16, 2015
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