Primesource Health Care Systems, Inc. v. Sebelius, Sec of US Dept of Health & Human Servs. et al

Filing 22

MEMORANDUM Opinion and Order. Defendants' Motion to Dismiss under Fed. R. Civ. P. 12(b) (1) (Dkt. No. 10) is granted. PrimeSource and the Defendants agree that Count I is moot. For Count II, PrimeSource can seek relief via the Medicare adminis trative review process. Because this administrative remedy is available, this court lacks subject matter jurisdiction even under its mandamus jurisdiction. Finally, because Count I is moot and the court lacks subject matter jurisdiction over Count II, there is no underlying claim for which the Court could grant PrimeSource's request for damages in Count III. Civil Case Terminated. Signed by the Honorable James F. Holderman on 7/9/2014. Notice mailed by judge's staff (ntf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PRIMESOURCE HEALTHCARE OF
OHIO, INC.,

)
)
)
Plaintiff,
)
)
v.
)
)
KATHLEEN SEBELIUS, SECRETARY )
OF HEALTH AND HUMAN SERVICES, )
and CGS ADMINISTRATORS, LLC,
)
)
Defendants.
)
)

No. 14 C 392

MEMORANDUM OPINION AND ORDER
JAMES F. HOLDERMAN, Judge:
On January 21, 2014, Plaintiff PrimeSource Healthcare of Ohio, Inc. (“PrimeSource”)
filed a three-count complaint (Dkt. No. 1, “Complaint” or “Compl.”) against Defendants
Kathleen Sebelius, in her role as Secretary of Health and Human Services (“the Secretary”), and
CGS Administrators, LLC (“CGS”) (collectively, “Defendants”).
PrimeSource seeks a writ of mandamus compelling the Defendants to: (1) produce
documents so it may begin the Medicare Appeals Process (Count I); (2) void six “prepayment
screens” imposed by Defendants (Count II); and (3) provide PrimeSource with the evidence used
as the basis for the prepayment screens (Count II). (Compl. ¶ 4.) PrimeSource also seeks
damages arising out of Defendants’ alleged continued violation of PrimeSource’s procedural due
process rights under the Constitution’s Fifth Amendment (Count III). (Id. ¶¶ 47-48.)
Defendants have moved to dismiss (Dkt. No. 10, “Defs.’ Mot.”) all three counts alleged
against them pursuant to Fed. R. Civ. P. 12(b)(1). For the reasons explained below, the

1 

Defendants’ motion is granted.
BACKGROUND
Under the Medicare Act, 42 U.S.C § 1395 et. seq., an individual entitled to payment of
Medicare benefit claims may assign this right to a physician. Id. §§ 1395u(b)(3)(B); 1395u(i)(1).
In turn, that physician may reassign those payment rights to a medical supplier or provider. Id. §
1395u(b)(6). Those seeking benefits under the Medicare Act are collectively referred to as
claimants. Id.
To administer paying Medicare claims, the Department of Health and Human Services
(“HHS”) contracts with companies that review, approve, and pay Medicare claims as the
Secretary’s agent (the “Contractor”). (Defs.’ Mot. at 2.) The Contractor is required to issue an
initial determination on a claim for benefits no later than 45 days after receiving the claim. 42
U.S.C. § 1395ff(a)(2)(A). Because of this narrow 45-day window between the filing of a claim
and a Contractor’s required determination, it is common for the Contractor to approve a claim
initially. (Compl. ¶ 17.) The Contractor can then review the claim in more detail after payment
in a post-payment review. (Id.)
If the Contractor discovers a claim should not have been paid in post-payment review, it
may seek to recoup that overpayment. (Id.) The Contractor does so by issuing overpayment
demand letters which set out what claims have been reviewed and disapproved. (Id.) These
mistaken claims may also form the basis of prepayment screens. (Id. ¶ 19.)
According to the Medicare Program Integrity Manual, CMS Pub. 100-08, a Contractor
may impose a prepayment screen on individual entities in the following circumstance. (Id. ¶ 1,
20 (citing Medicare Manual Ch. 3, §§ 3.2, 3.4).) After the Contractor conducts a series of postpayment reviews (an “Audit”), the Contractor discovers the claimant is submitting claims not

2 

supported by Medicare regulation. (Id.) A prepayment screen prohibits a claimant from
receiving any payment until each claim is reviewed and preapproved by the Contractor’s
reviewer. (Id. ¶ 20.)
Providers subject to prepayment review are required to submit supporting medical
documentation for each claim affected by the screen. 42 U.S.C. 1395l(e). This is to verify that
the services provided were appropriate, medically necessary, and not excessive. Id. The screen
remains in place until the Contractor lifts it. (Compl. ¶ 20.)
PrimeSource provides podiatric services to Ohio nursing home patients. (Id. ¶ 2.) These
patients have assigned their rights to payment of certain Medicare Part B benefits to six
physicians. (Id.) The physicians have in turn re-assigned their rights to PrimeSource. (Id.)
CGS is a Contractor for and duly-authorized agent of HHS. (Id. ¶ 3.) In this role, CGS reviews
Medicare claims on behalf of HHS, determining whether to pay them and the amount to be paid.
(Defs.’ Mot. at 1.)
PrimeSource claims that CGS, and by extension the Secretary, has violated numerous
Medicare regulations in processing the claims at issue in this suit. (Compl. ¶ 3.) Specifically,
PrimeSource claims that CGS has placed six prepayment screens upon PrimeSource, and its
affiliated physicians, without conducting the Audit required by Medicare regulations. (Id. ¶ 4b.)
Importantly to the case at bar, if a provider disagrees with the denial of a claim, the
Medicare Appeals Process (“MAP”) contains five specific, integrated phases by which a
claimant may challenge that denial. (Id. ¶ 15.) Those phases are: (1) a redetermination, by the
Contractor (utilizing staff that was not involved in making the initial claim determination); (2) a
reconsideration, by a qualified independent contractor; (3) a hearing, by an Administrative Law

3 

Judge; (4) an appeal, to the Medicare Appeals Council; and finally (5) judicial review, by a
District Court Judge. 42 U.S.C. § 1395ff; 42 CFR 405, subpt. I.
Beginning in July 2013, CGS began a post-payment review of services performed by
PrimeSource’s six physicians. (Compl. ¶ 23.) Because of the error rate and the total number of
purported overpayments Defendants discovered during the review, the Defendants informed
PrimeSource via letter that claims for certain services would be subject to a prepayment screen.
(Id. ¶ 23.) The above letter also indicated that if PrimeSource disagreed with the review’s
findings, it could appeal. (Id. ¶¶ 16, 23.) However, it also stated that PrimeSource could only
do so within 120 days of receiving a series of overpayment demand letters, which would lay out
the claims being rejected and could be used to begin the MAP. (Id.)
Although PrimeSource had not received the overpayment demand letters at the time of
filing its complaint (Id. ¶ 16.), it has since received them. (Dkt. No. 16, “Pl.’s Oppn.”, at 1.)
However, PrimeSource maintains it still has not received all the claim information examined
during Defendants’ Audit and used to justify imposing the prepayment screens against
PrimeSource (the “Probe Data”). (Id. at 1-6.) PrimeSource also alleges claims for services
outside of those CGS specified in its letter have been delayed by the prepayment screen and that
many more claims are being unduly delayed. (Compl. ¶¶ 33-34.)
PrimeSource, again, filed the Complaint in response, seeking a writ of mandamus to
compel the Defendants to: (1) produce documents so it may begin the Medicare Appeals Process
(Count I); (2) void six “prepayment screens” imposed by Defendants (Count II); and (3) provide
PrimeSource with the evidence used as the basis for the prepayment screens (Count II). (Compl.
¶ 4.) PrimeSource also seeks damages arising out of Defendants’ alleged continued violation of

4 

PrimeSource’s procedural due process rights under the Constitution’s Fifth Amendment (Count
III). (Id. ¶¶ 47-48.)
On April 9, 2014, Defendants subsequently filed their motion to dismiss for lack of
subject matter jurisdiction. Defendants argue that this court lacks mandamus jurisdiction,
because PrimeSource must first appeal the prepayment screen through the various MAP phases.
(Defs.’ Mot. at 6-9.) Defendants, additionally, claim that PrimeSource cannot state a claim for
damages against the Secretary, nor CGS. (Id. at 11.)
LEGAL STANDARD
12(b)(1) Standard
Motions to dismiss under Fed. R. Civ. P. 12(b)(1) are meant to test the sufficiency of the
complaint, not to decide the merits of the case. Weiler v. Household Fin. Corp., 101 F.3d 519,
524 n.1 (7th Cir. 1996). Rule 12(b)(1) requires dismissal of claims where a federal court lacks
subject matter jurisdiction. Jurisdiction is the “power to decide” and must be conferred upon the
federal court. In re Chi. Rock Island & Pacific R.R. Co., 794 F.2d 1182, 1188 (7th Cir. 1986).
In reviewing a Rule 12(b)(1) motion, the court may look beyond the complaint to other
evidence submitted by the parties to determine whether subject matter jurisdiction exists. See
United Transp. Union v. Gateway W. Ry. Co., 78 F.3d 1208, 1210 (7th Cir. 1996). A plaintiff
faced with a 12(b)(1) motion to dismiss bears the burden of establishing that the jurisdictional
requirements have been met. See Kontos v. U.S. Dep’t Labor, 826 F.2d 573, 576 (7th Cir. 1987).
ANALYSIS
I. Count I: Request for Mandamus to Provide Overpayment Demand Letters
As an initial matter, because Count I is moot, this court must dismiss Count I for lack of
jurisdiction. Defendants have provided the documents PrimeSource requests in Count I, and the

5 

parties agree Count I is moot. (Compl. ¶ 16; Pl.’s Oppn. at 1.)

Federal courts may adjudicate

only actual, ongoing cases or controversies. Lewis v. Cont’l Bank Corp., 494 U.S. 473, 477
(1990). As a result, Count I is dismissed.
II. Count II: Request for a Writ of Mandamus to Lift the Pre-Payment Screen of Claims
and Compel the Production of “Probe Data”
This court generally has mandamus jurisdiction under 28 U.S.C. § 1361 (“§ 1361”) over
procedural claims arising under the Medicare Act, 42 U.S.C. § 1395 et. seq. However, in this
case, the court does not have jurisdiction because PrimeSource has not, and cannot show, that it
has exhausted all other remedies available to it. Although the plaintiff points to case law that
appears to state otherwise, Seventh Circuit precedent conclusively demonstrates that
PrimeSource’s claim must proceed through the MAP phases, before this court may exercise
jurisdiction under § 1361.
A. The Mandamus Standard
The Federal Mandamus and Venue Act, 28 U.S.C. § 1361 et seq., provides that “district
courts shall have original jurisdiction of any action in the nature of mandamus to compel an
officer or employee of the United States or any agency thereof to perform a duty owed to the
plaintiff.” In the Seventh Circuit, the following three elements must be met in order to issue a
writ of mandamus: “(1) a clear right in the plaintiff to the relief sought; (2) a plainly defined and
peremptory duty on the part of the defendant to do the act in question; (3) no other adequate
remedy available.” Burnett v Bowen, 830 F.2d 731, 739 (7th Cir. 1987) (quoting Homewood
Prof’l Care Ctr., Ltd. v Heckler, 764 F.2d 1242, 1251 (7th Cir. 1985)). The Supreme Court has
placed particular emphasis on the third requirement, holding that “[t]he common-law writ of
mandamus, as codified in 28 U.S.C. § 1361, is intended to provide a remedy for a plaintiff only
if he has exhausted all other avenues of relief.” Heckler v. Ringer, 446 U.S. 602, 616 (1984)
6 

(dismissing a mandamus claim against the Secretary of HHS for the denial of Medicare
reimbursement for failing to exhaust administrative remedies).
Although 42 U.S.C. § 405(h) expressly precludes subject matter jurisdiction over claims
arising under the Social Security Act, 1 the Supreme Court has not foreclosed the availability of
federal mandamus jurisdiction. See, e.g., Heckler, 466 U.S. at 616 ([a]ssuming without deciding
that the third sentence of § 405(h) does not foreclose mandamus jurisdiction….). As a result of
the Supreme Court’s forbearance, a majority of circuits, including the Seventh Circuit, have
found that mandamus relief is available for Medicare claims, but only for those claims that are
procedural in nature. See, e.g., Michael Reese Hosp. and Medical Center v. Thompson, 427 F.3d
436, 441 (7th Cir. 2005); Burnett v. Bowen, 830 F.2d 731 (7th Cir. 1987).
However, because the Supreme Court has recognized that mandamus relief is only
available if a plaintiff “has exhausted all other avenues of relief”, claims for mandamus relief
arising under the Medicare Act must first proceed through the administrative steps of MAP.
Heckler, 446 U.S. at 616; Michael Reese Hosp., 427 F.3d at 441; Burnett, 830 F.2d at 740. Thus
a provider must channel virtually all legal attacks through the Medicare’s MAP process before it
may bring its claim for judicial review. Michael Reese Hosp., 427 F.3d at 441 (citing Shalala v.
Ill. Council on Long Term Care, Inc., 529 U.S. 1, 19 (2000)).
B. PrimeSource’s Complaint
Given the explanation above, the court agrees with PrimeSource that it does have
jurisdiction under the mandamus statute to hear procedural claims that arise under the Medicare

1

The Social Security Act at 42 U.S.C. § 405(h) provides that “no action against the United
States, the Commissioner of Social Security, or any officer or employee thereof shall be brought
under [28 U.S.C.] § 1331 … to recover on any claim arising under the Social Security Act.
7 

Act. However, before the court may exercise its mandamus jurisdiction, PrimeSource must
demonstrate it has exhausted all other remedies, specifically the administrative steps of MAP.
PrimeSource claims there is no way for it to seek relief from the allegedly illegitimate
prepayment screen that was implemented against it within MAP. (Pl.’s Oppn. at 10-11.) If true,
PrimeSource’s claim would fall within this court’s mandamus jurisdiction. Thus, the primary
question before the court is whether PrimeSource can seek relief for its claim via MAP. Seventh
Circuit precedent suggests PrimeSource can and must first seek administrative relief within
MAP.
C. Seventh Circuit Precedent and Northern District Persuasive Authority
The Seventh Circuit and courts in this district have repeatedly held that challenges to the
manner in which Medicare contractors apply Medicare regulations can, and must, be appealed
via MAP. See, e.g., Bodimetric Health Services, Inc. v. Aetna Life & Cas., 903 F.2d 480 (7th
Cir. 1990) (finding a claim for the misapplication of Medicare regulations outside its subject
matter jurisdiction for lack of exhaustion); Center for Dermatology and Skin Cancer, Ltd. v.
Sebelius, No. 13-4926, 2014 WL 1245257, at *3 (N.D. Ill. Mar. 26, 2014) (Aspen, J.) (same);
Columbus Park Nursing and Rehabilitation Center v. Sebelius, 940 F.Supp.2d 805, 814-18 (N.D.
Ill. 2013) (Feinerman, J.) (same).
In Bodimetric, the Seventh Circuit noted that in cases in which a Medicare regulation
itself deprived an entity of its right to due process, the federal courts had jurisdiction. 903 F.2d
at 485. However, the court held federal jurisdiction was lacking where the plaintiff merely
alleged that a Contractor had misapplied those regulations. Id.
The plaintiffs in Bodimetric, additionally, argued that the Court had jurisdiction over nonMedicare claims arising from the Medicare regulation misapplications, such as fraud, breach of

8 

contract, etc. Id. at 468. They argued that the court had jurisdiction because MAP did not
provide the ability to adjudicate such non-Medicare claims. Id. at 468. Unpersuaded, the
Seventh Circuit found that this did not prevent the plaintiffs from seeking relief within MAP,
where the underlying facts of the non-Medicare claims could be raised in the administrative
process. Id.
Because Bodimetric could seek review of the administrator’s denials through the MAP,
the court reasoned, an administrative law judge (“ALJ”) could provide relief via the reversal of
denied claims. Id. The court held it was not dispositive that the ALJ could consider
substantively different issues than a state or federal judge reviewing a tort or contract claim. Id.
The court further pointed out “that if litigants who have been denied benefits could routinely
obtain judicial review of these decisions by characterizing their claims under state and federal
causes of action, the Medicare Act’s goal of limited judicial review for a substantial number of
claims would be severely limited.” Id. (citations omitted).
The case at bar presents an analogous situation. Like the plaintiff in Bodimetric,
PrimeSource claims that Defendants have violated rights other than those granted by the
Medicare Act, specifically its constitutional right to due process. (Compl. ¶ 31.) Bodimetric
makes it clear, however, that these kind of claims can be brought within MAP to support
overturning a Contractor’s denial of claims. Thus, like the plaintiff in Bodimetric, PrimeSource
can and must bring its claim, including the alleged constitutional violations, through MAP first
before bringing a claim in this court.
In the well-reasoned Center for Dermatology opinion, former Chief Judge Marvin Aspen
also provides persuasive authority for this courts holding. There, the plaintiff sought mandamus
relief, claiming that the defendants had failed to process approximately 2,300 of his Medicare

9 

reimbursement claims. 2014 WL 1245257, at *1. Because plaintiff had not exhausted MAP for
any of his claims, the court held it did not have to consider whether the plaintiff had presented a
procedural claim, over which the court could exercise mandamus jurisdiction. Id. at *3. Having
found that the plaintiff had not met the exhaustion requirement of mandamus jurisdiction, the
court held it lacked subject matter jurisdiction. Id.
PrimeSource has claimed that Defendants violated PrimeSource’s due process rights, but
at bottom its request is one for the processing and payment of benefit claims as in Center for
Dermatology. (Compl. ¶¶ 28-36.) In such an instance, this court is persuaded by Center for
Dermatology’s well-reasoned holding that until a claim has been pursued completely through
MAP, it cannot meet the third element—the exhaustion of all other remedies—of mandamus
jurisdiction.
D. Availability of Administrative Relief: The Sixth Circuit
Farkas v. Blue Cross & Blue Shield of Michigan, 24 F.3d 853 (6th Cir. 1994) provides
additional, directly on-point persuasive authority that PrimeSource has an administrative remedy
precluding mandamus jurisdiction. In Farkas, the plaintiff physician alleged that he had been
placed on prepayment review in retaliation for filing suit against the Medicare contractor
reviewing his claims. Id. at 854. One of the primary questions before the Sixth Circuit was
whether or not Dr. Farkas had to exhaust the administrative phases of MAP. Id. at 859-860.
In finding against Dr. Farkas, the Sixth Circuit held that he could challenge the Medicare
contractor’s decision to place him on prepayment review within MAP. Id. at 860. The court
reasoned that Dr. Farkas could challenge the prepayment screen, by disputing Medicare claims
declined for failure to provide additional information required under the allegedly improper
prepayment screen. Id. at 860-61. While challenging the basis upon which these claims were

10 

denied, Dr. Farkas could challenge the validity of the prepayment screen itself and therefore get
relief. Id.
E. PrimeSource’s Rebuttals
PrimeSource nevertheless maintains that it has no other remedy but this lawsuit and that
this court has mandamus jurisdiction. To support its claim that MAP offers no possibility of
relief, PrimeSource points to Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757 (5th Cir.
2011). In Wolcott, the Fifth Circuit stated that the plaintiff had pled a claim upon which the
court could have compelled the defendant to remove plaintiff Wolcott from prepayment review.
Id. at 773. The claim at issue alleged that:
(1) the defendants had a clear nondiscretionary duty to remove Wolcott from
prepayment review after one year; (2) Wolcott has a clear right to be removed
from prepayment review denials and to receive a reversal for all claims denied on
prepayment review that were made after the allowed year; and (3) there is no
adequate remedy available to challenge the defendant’s action in keeping
Wolcott on prepayment review longer than legally allowed.
Id. (emphasis added).
Though on initial review Wolcott appears to support PrimeSource’s position, it is
sufficiently distinguishable from this case. This court, first, notes that the Fifth Circuit did not
explain why it believed that Wolcott had no adequate remedy within the administrative process.
Setting that issue aside, the portion of Wolcott that PrimeSource relies is also dicta. The Fifth
Circuit had already dismissed the relevant claim for mootness, because plaintiff had been taken
off prepayment review before reaching the court. Id. The Wolcott plaintiff, additionally, had a
stronger argument for exhaustion, because he had already successfully appealed a number of
claims through MAP. Id.
PrimeSource also complains at various points about continuing delays in having its
claims processed during the MAP proceedings. However, former Chief Judge Aspen has made it
11 

clear that suffering delay during Medicare claim processing is not equivalent to relief through
administrative review being impossible. Center for Dermatology, 2014 WL 1245257, at *3
(citing Heckler, 366 U.S. at 619 (“[a]lthough respondents would clearly prefer an immediate
appeal to the District Court . . . exhaustion of administrative remedies is in no sense futile.”)).
F. PrimeSource’s Request for Documents Within Count II
The court now turns quickly to PrimeSource’s request for a writ of mandamus to compel
additional documents on the Audit conducted prior to CGS’ imposing a prepayment screen.
Because the claim this document request rests upon must be brought through the MAP process,
this court is not the proper forum to dispute the Government’s production obligations. As laid
out in the Medicare Act itself:
Upon the filing of a complaint by an aggrieved party, such a[n] [initial]
determination shall be reviewed by an administrative law judge. The
administrative law judge—shall review the record and shall permit discovery
and the taking of evidence to evaluate the reasonableness of the [initial]
determination, if the administrative law judge determines that the record is
incomplete or lacks adequate information to support the validity of the
determination . . . .
42 U.S.C. § 1395ff(f)(2)(A) (emphasis added). Given that the Medicare Act contains an explicit
procedure where PrimeSource may seek its desired discovery in MAP, this court refrains from
interjecting itself into the potential administrative proceedings.
III. Count III: PrimeSource’s Request for Damages
Because Count III is moot, it must be dismissed for a lack of jurisdiction. Counts I and II
underlie Count III, and the former counts have been dismissed for mootness and a lack of subject
matter jurisdiction. Count III, consequently, is moot as it lacks an underlying basis. Federal
courts may adjudicate only actual, ongoing cases or controversies. Lewis, 494 U.S. at 477. As a
result, Count III is dismissed for lack of subject matter jurisdiction.

12 

CONCLUSION
For the reasons set above, Defendants’ Motion to Dismiss under Fed. R. Civ. P. 12(b) (1)
(Dkt. No. 10) is granted. PrimeSource and the Defendants agree that Count I is moot. For Count
II, PrimeSource can seek relief via the Medicare administrative review process. Because this
administrative remedy is available, this court lacks subject matter jurisdiction even under its
mandamus jurisdiction. Finally, because Count I is moot and the court lacks subject matter
jurisdiction over Count II, there is no underlying claim for which the Court could grant
PrimeSource’s request for damages in Count III. Civil Case Terminated.

ENTER:

________________________________
JAMES F. HOLDERMAN
United States District Judge
Date: July 9, 2014

13