Miller v. Burwell et al

Filing 49

MEMORANDUM OPINION AND ORDER Signed by the Honorable Robert M. Dow, Jr on 5/11/2015. Mailed notice(cdh, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

MORTON MILLER, M.D.,

)
)
Plaintiff,
)
)
v.
)
)
SYLVIA MATHEWS BURWELL, in her official )
capacity as Secretary of Health and Human
)
Services of the United States, TRUST
)
SOLUTIONS, LLC, WISCONSIN PHYSICIANS )
SERVICE INSURANCE, CORP., and C2C
)
SOLUTIONS, INC.,
)
)
Defendants.
)

Case No.: 14-cv-4245
Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER
Plaintiff, a former physician, brings statutory and constitutional challenges to Medicare’s
determination that it previously overpaid him and is therefore entitled to recoupment. Plaintiff
has initiated but not completed an administrative appeal of Medicare’s overpayment
determination. The Secretary moves to dismiss [35], arguing that the Court lacks subject matter
jurisdiction because Plaintiff has failed to exhaust his administrative remedies. For the reasons
stated below, the Court grants the Secretary’s motion and denies Plaintiff’s motion to strike [41]
the declaration attached to the Secretary’s motion.
I.

Background1
This action arises out of Medicare claims that Plaintiff filed while practicing medicine.

Medicare is a federally subsidized health insurance program for the aged and disabled. Relevant

1

In considering the Secretary’s motion to dismiss, the Court accepts as true all well-pleaded factual
allegations and draws reasonable inferences in Plaintiff’s favor. Shawnee Trail Conservancy v. U.S.
Dep’t of Agric., 222 F.3d 383, 385 (7th Cir. 2000).

here is Medicare Part B, a “supplementary medical insurance program for the aged and disabled”
that compensates physicians for services rendered. 42 U.S.C. § 1395j. The Centers for Medicare
& Medicaid Services (CMS) enter into contracts with private entities that perform various
Medicare Part B activities.

These contractors administer claim payment and overpayment

recovery within the following framework.
A.

Claim Payments and Overpayment Recovery

When a Medicare Part B supplier or provider submits a claim for payment, a contractor
makes an “initial determination” as to what Medicare will pay the supplier. To ensure accuracy
and detect fraud, a contractor may continue to investigate a claim and reopen an initial
determination that resulted in overpayment. See 42 C.F.R. § 405.980(a)(1). The Secretary’s
regulations require reopening to occur on the following timeframe in relevant part:
(1) Within 1 year from the date of the initial determination or redetermination for
any reason.
(2) Within 4 years from the date of the initial determination or redetermination for
good cause as defined in § 405.986.
(3) At any time if there exists reliable evidence as defined in § 405.902 that the
initial determination was procured by fraud or similar fault as defined in
§ 405.902.
42 C.F.R. § 405.980(b); see also 42 U.S.C. § 1395ff(b)(1)(G) (authorizing the Secretary to
promulgate regulations governing the reopening of an initial determination).
If CMS discovers an overpayment, it may offset or recoup it.

See 42 C.F.R.

§ 405.371(a)(3).2 Medicare, however, may not offset or recoup overpayments where a supplier
or provider is “without fault.”

42 U.S.C. § 1395gg(b).

2

Generally, there is a rebuttable

An offset is defined as the “recovery by Medicare of a non-Medicare debt by reducing present or future
Medicare payments and applying the amount withheld to the indebtedness.” 42 C.F.R. § 405.370(a).
Recoupment is defined as the “recovery by Medicare of any outstanding Medicare debt by reducing
present or future Medicare payments and applying the amount withheld to the indebtedness.” Id.

2

presumption that a supplier is “without fault” where an overpayment determination is made
“subsequent to the third year following the year in which notice was sent to such individual that
such amount had been paid.”3 42 U.S.C.A. § 1395gg (2003); see In re Nat’l Podiatric Network
First Coast Serv. Options, 2011 WL 7145430, at *4 (H.H.S. Oct. 26, 2011). For overpayments
made three years after the year of payment, “[o]rdinarily, the provider or beneficiary will be
considered without fault unless there is evidence to the contrary.”
Management Manual (MFMM), ch. 3 at § 80.

Medicare Financial

As the Department of Health and Human

Services’ Medicare Appeals Council has explained,
Section 1870(b) does not define the meaning of the term “without fault.”
However, a provider is without fault if it exercised reasonable care in billing and
accepting Medicare payment. MFMM, ch. 3, § 90. A provider has exercised
“reasonable care” when it “made full disclosure of all material facts” and “on the
basis of the information available to it, including, but not limited to, the Medicare
instructions and regulations, it had a reasonable basis for assuming that the
payment was correct, or, if it had reason to question the payment; it promptly
brought the question to the FI or carrier'’ attention.” A provider is considered not
“without fault” if, e.g., it billed, or Medicare paid, for services the provider should
have known were not covered. Id. at § 90.1.H. The MFMM explains that the
provider should have known about a policy or rule if the policy or rule is in the
provider manual or in the regulations. Id.
In re Nat’l Podiatric Network, 2011 WL 7145430, at *4.
B.

Administrative Appeals Process for Claims Denials

Suppliers or providers may appeal initial determinations of overpayment through four
levels of administrative review. First, a supplier may request that the contractor conduct an
independent “redetermination” of the initial adverse determination. 42 U.S.C. § 1395ff(a)(3); 42
C.F.R. §§ 405.960-978.

If the redetermination is unfavorable, the supplier may request

“reconsideration” by a Qualified Independent Contractor (QIC). 42 U.S.C. § 1395ff(b)(1)(A)
& (c); 42 C.F.R. §§ 405.960-978. If the QIC’s reconsideration is unfavorable (or untimely) and

3

In 2013, Congress extended the applicable period to five years. See 42 U.S.C.A. § 1395gg (2013).

3

the amount in controversy requirement is satisfied, the supplier may request a hearing before an
administrative law judge (ALJ). 42 U.S.C. § 1395ff(d); 42 C.F.R. §§ 405.1000-54. If the ALJ’s
decision is unfavorable (or untimely) and the amount in controversy requirement is satisfied, a
supplier may seek review with the Medicare Appeals Council (MAC). 42 U.S.C. § 1395ff(d)(2)
& (d)(3)(A); 42 C.F.R. §§ 405.1100-30.

The MAC decision is the final decision of the

Secretary. 42 C.F.R. § 405.1130. Once the MAC has issued a final decision (or failed to issue a
timely decision), the supplier may appeal to a district court. 42 U.S.C. § 405(g) (incorporated by
42 U.S.C. § 1395ff(b)(1)(A)); 42 U.S.C. § 1395ff(d)(3)(B); 42 C.F.R. §§ 405.1130, 405.1132(a).
C.

Medicare’s Recoupment Action

In late 2006, TrustSolutions—a Medicare contractor hired to identify fraud and abuse—
detected a pattern of what it believed to be suspicious billing from Plaintiff. As a part of its
audit, it requested a sample of various records from Plaintiff and found his responsive
documentation to be haphazard and incomplete. See [36] at 7, [36-1] at 2-3. A criminal
investigation and prosecution began, at which point TrustSolutions suspended its administrative
action. After the criminal matter was completed in 2012, TrustSolutions resumed the action. In
April 2012, it notified Plaintiff that it had identified an overpayment of approximately $1
million.

A month later, Wisconsin Physicians Service Insurance Corporation (WPS)—the

contractor that administers physician reimbursement in Illinois—issued an overpayment demand
for that same value and initiated recoupment. WPS stated that Medicare paid Plaintiff for
services that he should have known he was not entitled to and that he therefore was not “without
fault.” See 42 U.S.C. § 1395gg(b) & (c).
Plaintiff then initiated an administrative appeal.

WPS issued an unfavorable

redetermination based on two findings: that Plaintiff’s documentation was non-existent with

4

respect to some claims for payment and inadequate with respect to others. The QIC’s decision
on reconsideration was unfavorable for the same reasons. Plaintiff then requested a hearing
before an ALJ. At the hearing, he appears to have argued that the recoupment action was
unlawful insofar as it turned on non-existent documentation.4

More specifically, Plaintiff

contended (and continues to contend) that Medicare had not requested the relevant records until
it reopened his claims; he further alleges that by the time it reopened his claims, his duty to
maintain these records had expired under Illinois law, and, accordingly, he had discarded them.
In other words, Plaintiff appears to have argued that a recoupment action based on lack of
documentation is unlawful after the duty to maintain records has expired.5 Plaintiff further
alleges the following:
38. After hearing these arguments, Judge Bergen stated that he would not and
could not decide these questions since he lacked jurisdiction to do so, his role
being limited to whether Dr. Miller could establish that he had provided the
care on specific dates of service for the listed beneficiaries and adequately
documented the services billed. He specifically found that he was unable to
look at the propriety of the Recoupment Action, reopening the claims to seek
reimbursement.
39. Judge Bergen’s action, on information and belief, was based upon the position
of the HHS Secretary that actions reopening a claim under 42 C.F.R. §980.370
are final when made by the Secretary’s agents and may not be reconsidered
during the claim review process as described above.
Id. at ¶¶ 38-39. Plaintiff does not allege that the ALJ issued a final decision, nor does he allege
that he has completed the final step in the administrative appeals process: an appeal to the MAC.
In the meantime, the United States Treasury allegedly has begun to withhold amounts from
Plaintiff’s Social Security payments to recoup the alleged overpayments.
4

Plaintiff does not attach a transcript of the hearing, nor does he allege that the ALJ has issued a final
decision. Accordingly, the Court’s understanding of the arguments that Plaintiff presented before the ALJ
are based on his allegations, see [31] at ¶ 37, which the Secretary does not contest.

5

Plaintiff does not state the exact grounds of unlawfulness that he argued before the ALJ. See [31] at
¶ 37.

5

D.

This Action

Plaintiff subsequently brought this action, contending that the decision to reopen his
claims was untimely because it followed the expiration of his duty to maintain the requested
records.

He also challenges the constitutionality of 42 C.F.R. § 405.980 (the “Reopening

Regulation”), a review-insulating regulation under which a reopening decision “is binding and
not subject to appeal.” 42 C.F.R. § 405.980(a)(5). Specifically, Plaintiff argues that:
(1) the Reopening Regulation violates his procedural and substantive due
process rights especially as applied to him, because the Secretary’s contractor
has waited so long to effectuate the reopening that Dr. Miller has been
deprived of the means to defend himself against recoupment,
(2) the Reopening Regulation is unconstitutional since it allows the Secretary’s
contractor to expose providers like Dr. Miller to great expense and uncertainty
without a hearing and without any meaningful requirement to establish cause
for the reopening,
[46] at 5. Plaintiff also alleges that:
(3) the actions of the Secretary violate the APA’s prohibition against arbitrary and
egregious conduct, and
(4) the Secretary’s action in taking Dr. Miller’s social security payments violates
the Federal Debt Collection Improvement Act.
Id. Plaintiff asks the Court to find the recoupment action unconstitutional, to enjoin it, and to
prohibit further collection efforts or recoupment from Plaintiff’s Social Security payments. The
Secretary now moves to dismiss for failure to exhaust his administrative remedies.
II.

Legal Standard
Federal Rule of Civil Procedure 12(b)(1) requires dismissal of claims over which the

federal courts lack subject matter jurisdiction. There are two types of rule 12(b)(1) challenges—
factual and facial—and they have a “critical difference.” Apex Digital Inc. v. Sears, Roebuck &
Co., 572 F.3d 440, 443 (7th Cir. 2009).

When a defendant argues that “the plaintiffs’

complaints, even if true, were purportedly insufficient to establish injury-in-fact,” the challenge

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is a facial one. Id. at 443-44. “Facial challenges require only that the court look to the complaint
and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction.” Id. at 443.
Factual challenges, however, lie “where ‘the complaint is formally sufficient but the contention
is that there is in fact no subject matter jurisdiction.’” Id. (quoting United Phosphorus, Ltd. v.
Angus Chem. Co., 332 F.3d 942, 946 (7th Cir. 2003)). Courts may look beyond the complaint
only when a defendant brings a factual attack against jurisdiction. Id. at 443.
III.

Analysis
The Secretary argues that the Court facially lacks subject matter jurisdiction because

Plaintiff has failed to exhaust his administrative remedies. Plaintiff acknowledges that he has not
completed the four-step administrative review process, arguing that the Court nevertheless has
jurisdiction under the Medicare Act, 28 U.S.C. § 1331, and the Administrative Procedure Act.
For the reasons stated below, the Court concludes that it lacks jurisdiction under each statute.
A.

The Medicare Act and Federal Question Jurisdiction

The Seventh Circuit has explained the relationship between jurisdiction under the
Medicare Act, 42 U.S.C. § 405(h), and federal question jurisdiction, 28 U.S.C. § 1331 as
follows:
[g]eneral federal question jurisdiction is set forth in 28 U.S.C. § 1331, which
states that “district courts shall have original jurisdiction over all civil actions
arising under the Constitution, laws, or treaties of the United States,” but claims
under the Medicare Act must take a different route. 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 § 1331 . . . to recover on any claim arising under” the Social
Security Act. That provision was incorporated into the Medicare Act through 42
U.S.C. § 1395ii, and has been held to preclude federal question jurisdiction unless
the Medicare program’s administrative review process has been exhausted. In
Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 5 (2000), the
Supreme Court held that § 405(h), as incorporated by § 1395ii, bars federal
question jurisdiction under 28 U.S.C. § 1331, and requires parties to proceed
instead through the special review channel that the Medicare statutes create. Thus,
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a provider must channel virtually all legal attacks through the Medicare program’s
administrative review process before it may seek judicial review.
Michael Reese Hosp. & Med. Ctr. v. Thompson, 427 F.3d 436, 440-41 (7th Cir. 2005). Under
Bowen v. Michigan Academy, 476 U.S. 667 (1986), an exception exists where application of
§ 405(h) “would not simply channel review through the agency, but would mean no review at
all,” id. at 441 (citing Illinois Council, 529 U.S. at 19); this exception avoids the “serious
constitutional question” that would arise otherwise. Michigan Academy, 476 U.S. at 681 n.12
(citations and internal quotation marks omitted).
Assuming that § 405(h)’s exhaustion requirement does apply, it may be waived or
excused in certain circumstances. The Secretary may waive the exhaustion requirement if she
finds further review unwarranted because the internal needs of the agency are fulfilled or the
relief sought is beyond her power to confer. Mathews v. Eldridge, 424 U.S. 319, 330 (1976).
Where the Secretary declines to waive exhaustion, a court may override her decision and waive
the requirement itself if “a claimant’s interest in having a particular issue resolved promptly is so
great that deference to the agency’s judgment is inappropriate.” Id. Three factors from Eldridge
influence a court’s decision to find waiver: (1) whether the claim is collateral to a demand for
benefits; (2) whether exhaustion would be futile; and (3) whether a plaintiff would suffer
irreparable harm if required to move through the administrative procedure before obtaining
relief. Martin v. Shalala, 63 F.3d 497, 504 (7th Cir. 1995). At issue here is whether the
Michigan Academy exception applies and, if not, whether Plaintiff’s failure to exhaust is waived
based on application of the Eldridge factors.6

6

Plaintiff briefly argues that these issues only apply to his claims “arising under” the Medicare Act, see
§ 405(h) and that his DCIA claim does not arise under Act because it “does not have its standing and
substantive basis in the Medicare Act.” [46] at 17. “A claim ‘arises under’ the Medicare Act when both
the standing and the substantive basis for the presentation of the claims stem from the Medicare Act.”
Ancillary Affiliated Health Servs., Inc. v. Shalala, 165 F.3d 1069, 1070 (7th Cir. 1998) (citations and

8

1.

Michigan Academy Exception

Plaintiff argues that the Michigan Academy exception applies because application of
§ 405(h) here would mean “no review at all.” Michael Reese Hosp., 427 F.3d at 441. But
clearly some of Plaintiff’s challenges are subject to administrative review. Plaintiff already has
challenged (and presumably continues to challenge) a finding of overpayment on the merits,
providing documentation of at least some claims. On redetermination and reconsideration, the
contractor and the QIC have evaluated the merits of the overpayment determination in light of
this documentation, and the ALJ and MAC may consider these same issues on appeal. The ALJ
and MAC may also consider whether recoupment is barred even if Medicare did overpay
because Plaintiff is “without fault” within the meaning of 42 U.S.C. § 1395gg(b). See In re Nat’l
Podiatric Network, 2011 WL 7145430, at *4-*6; In the Case of Comprehensive Decubitus
Therapy, Inc., 2013 WL 8913132, at *4 (H.H.S. Sept. 6, 2013). Accordingly, application of the
exhaustion requirement does not preclude review of all of Plaintiff’s challenges to the
overpayment demand.
That said, Plaintiff is likely correct that some of his challenges cannot be reviewed in the
administrative context.

For example, the agency is unlikely to address his claim that the

reopening decision was untimely, as the Reopening Regulation provides that a contractor’s
decision to reopen a claim “is binding and not subject to appeal.” 42 C.F.R. § 405.980(a)(5).
The agency is also unlikely to address his constitutional challenge to the Reopening Regulation,
as it is well established that “[c]onstitutional questions obviously are unsuited to resolution in

internal quotation marks omitted). In other words, a claim “arises under” the Medicare Act where it is
“inextricably intertwined” with a claim for Medicare benefits. Heckler v. Ringer, 466 U.S. 602, 624
(1984). The DCIA claim is “inextricably intertwined” with the underlying claim for benefits (meaning
defense against recoupment). The debt would not exist but for the overpayment determination.

9

administrative hearing procedures.” Califano v. Sanders, 430 U.S. 99, 109 (1977); accord
Illinois Council, 529 U.S. at 24.
Accordingly, the question is whether the channeling requirement applies when
administrative review only can address some but not all of Plaintiff’s grounds for appeal. Illinois
Council explains that the exhaustion requirement applies even in these circumstances. There, a
group of nursing homes brought statutory and constitutional challenges to the validity of
Medicare regulations imposing sanctions or remedies on homes that violated certain substantive
standards. Id. at 2. Rather than channeling these claims through the administrative review
process, Illinois Council brought these claims directly in federal court. On appeal, the question
was whether exhaustion was required and whether the federal court therefore lacked subject
matter jurisdiction. Like Plaintiff here, Illinois Council argued that the exhaustion requirement
should not apply because “a host of procedural regulations unlawfully limit the extent to which
the agency itself [would] provide the administrative review channel leading to judicial review.”
Id. at 23. More specifically, it contended that regulations similar to the Reopening Regulation
insulated from review agency determinations regarding non-compliance with substantive
standards or which of the resulting penalties to impose. The Court found that the exhaustion
requirement nevertheless applied based on the following reasoning.
The Council’s members remain free . . . after following the special review route
that the statutes prescribe, to contest in court the lawfulness of any regulation or
statute upon which an agency determination depends. The fact that the agency
might not provide a hearing for that particular contention, or may lack the power
to provide one, see Sanders, 430 U.S., at 109 (“Constitutional questions obviously
are unsuited to resolution in administrative hearing procedures ...”); Salfi, 422
U.S., at 764 . . . is beside the point because it is the “action” arising under the
Medicare Act that must be channeled through the agency. See Salfi, supra, at 762.
After the action has been so channeled, the court will consider the contention
when it later reviews the action. And a court reviewing an agency determination
under § 405(g) has adequate authority to resolve any statutory or constitutional
contention that the agency does not, or cannot, decide, see Thunder Basin Coal,
10

510 U.S., at 215, and n. 20; Haitian Refugee Center, supra, at 494; Ringer, 466
U.S., at 617; Salfi, supra, at 762, including, where necessary, the authority to
develop an evidentiary record.
Illinois Council, 529 U.S. at 23-24. In finding that the exhaustion requirement applied, the
Supreme Court further reasoned that exhaustion would give the agency “the opportunity to
reconsider its policies, interpretations, and regulations in light of those challenges.” Id. It also
would allow an agency to resolve claims on non-constitutional grounds—reasoning that flows
from principles of constitutional avoidance. See Abbey v. Sullivan, 978 F.2d 37, 45 (2d Cir.
1992). The Supreme Court also emphasized that application of the exhaustion requirement was
constitutional because it would postpone rather than preclude review of certain contentions. See
Illinois Council, 529 U.S. at 19 (explaining that a strong presumption against preclusion of
review is not implicated by a provision postponing review). The same is true here. Based
Illinois Council, the Court finds that Plaintiff must administratively exhaust his claims before
coming to federal court.7
2.

Waiver of Administrative Exhaustion

Next, the Court considers whether to waive the exhaustion requirement based on the
Eldridge factors—that is, (1) whether the claim is collateral to a demand for benefits; (2) whether
exhaustion would be futile; and (3) whether a plaintiff would suffer irreparable harm if required
to move through the administrative procedure before obtaining relief. See Martin, 63 F.3d at 504
(citing Abbey v. Sullivan, 978 F.2d 37, 44 (2d Cir. 1992); Day v. Shalala, 23 F.3d 1052, 1059
(6th Cir. 1994). Application of these factors is “intensely practical,” and the decision whether to
7

Plaintiff urges the Court to conclude otherwise based on St. Francis Hosp. v. Sebelius, 874 F. Supp. 2d
127 (E.D.N.Y. 2012), and St. Francis Hosp. v. Sebelius, 2014 WL 3715117 (E.D.N.Y. July 23, 2014).
Although both opinions addressed constitutional challenges to the Reopening Regulation, neither
addresses the applicability of Michigan Academy exception. The first decision found that exhaustion was
required but then waived it based on application of the three Eldridge factors. By the time the court
decided the second opinion, the plaintiff had completed the administrative review process; the question
therefore was not whether an exception to the exhaustion requirement applied.

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waive is “not be made solely by mechanical application of the Eldridge factors but should also
be guided by the policies underlying the exhaustion requirement.” Bowen v. City of New York,
476 U.S. 467, 484 (1986) (citation and internal quotation marks omitted).

The policy

considerations of exhaustion are to “prevent[] 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.” Salfi, 422 U.S. at 765; accord Michael
Reese Hosp., 427 F.3d at 441.
a.

Collateral Claim

A claim may be collateral to a plaintiff’s demand for benefits (or in this case, Plaintiff’s
attack against recoupment) where (1) it facially challenges an agency policy and (2) the court’s
“holding regarding the validity of that policy stands independent of the ultimate merits of [a]
plaintiff’s claim for benefits.” Marcus v. Sullivan, 926 F.2d 604, 614 (7th Cir. 1991). In other
words, a claim is collateral where it doesn’t automatically increase benefits if successful. In
Marcus, for example, the Seventh Circuit addressed a claim that the Secretary violated the Social
Security Act by denying disability benefits without first assessing each claimant’s functional
capacities. The Seventh Circuit found that this claim was collateral because “[e]ven after the
new standard of eligibility is applied, some claimants will fail to qualify for disability benefits.”
Marcus v. Sullivan, 926 F.2d 604, 614 (7th Cir. 1991). In Day v. Shalala, 23 F.3d 1052 (6th Cir.
1994), the Sixth Circuit addressed a claim that the Ohio Bureau of Disability Determination
failed to comply with the Social Security Act and accompanying regulations by failing to obtain
proper medical assessments and consultative examinations from treating physicians, using
unpublished guidelines in the determination of claimants’ residual functional capacities, and

12

issuing inadequate notices of denial of benefits. The Sixth Circuit found the claim collateral
because “Plaintiffs do not seek to be found eligible for benefits in this action, but rather
challenge the procedure by which eligibility determinations were made by the BDD. . . [they]
would not automatically be entitled to receive benefits if they prevail, but only to receive ‘the
procedure they should have been accorded in the first place.’” Id. at 1059 (quoting City of New
York, 476 U.S. at 484 (1986)).

In contrast, where a plaintiff asks for relief that would

automatically increase benefits, the Seventh Circuit has found that challenge “part and parcel of
[a] claim for benefits.” Martin v. Shalala, 63 F.3d 497, 504 (7th Cir. 1995).
Here, the bulk of Plaintiff’s claims are non-collateral.

A favorable finding on his

challenges to the validity of the reopening decision and the overpayment determination, for
example, would only increase his benefits. The requested relief—to enjoin the recoupment
action and to direct the Secretary to cease collection and recoupment efforts—also would
increase his benefits. It is true that his constitutional challenge to the Reopening Regulation may
be collateral; if successful, it would grant him an opportunity to challenge the reopening decision
without guaranteeing any outcome on the merits. But taking an “intensely practical approach”
that emphasizes the “policies underlying the exhaustion requirement,” City of New York, 476
U.S. at 484, the Court finds this claim insufficient to justify waiver. As explained above,
requiring exhaustion as to the non-collateral claims before hearing his collateral claim will
prevent premature interference with agency processes and give Medicare a full opportunity to
review its own regulations, correct any of its own errors, and apply its expertise in compiling a
record adequate for judicial review. Salfi, 422 U.S. at 765; accord Michael Reese Hosp., 427
F.3d at 441. It may also create an opportunity to resolve certain issues on non-constitutional

13

grounds. See Abbey, 978 F.2d at 45. Accordingly, this factor weighs against waiving the
exhaustion requirement.
b.

Futility

The Court now turns to whether further administrative review of Plaintiff’s claims would
be futile. Plaintiff argues that exhaustion is futile because he cannot challenge the reopening
decision or the Reopening Regulation administratively; he can only challenge the merits of the
overpayment demand. More specifically, he contends that “[s]ince he does not have the records,
this is a burden he could never hope to carry,” arguing that the results of an administrative merits
determination is therefore an “inevitable[] decision against Dr. Miller.” Id. at 8, 9. Plaintiff also
argues that, based on MAC precedent, the MAC will inevitably find him ineligible for a “without
fault” finding under § 1395gg because he has no documentation substantiating the services
performed.
The Court is unpersuaded. In his amended complaint and response motion, Plaintiff
acknowledges that he does not lack documentation as to all of the underlying claims; he only
lacks documentation as to some of them. The redetermination and reconsideration decisions also
indicate that Plaintiff has presented some documentation to the agency; it found overpayment
based on nonexistent documentation of some claims for payment and inadequate documentation
in the case of other claims. The ALJ and MAC have yet to review this second finding of
inadequate documentation. Based on the limited facts before the Court, it appears conceivable
that they could reverse this finding as to some of the claims, potentially reducing the value of
overpayment. It is also conceivable that they could make a “no fault” determination as to some
of the overpayments. For these reasons, it would be premature to conclude that Plaintiff’s case
before the agency is factually hopeless.

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Moreover, even if the Court did find that Plaintiff’s facts made his defense against
overpayment weak on the merits, the Court still would not find futility. Futility exists “if there is
no reasonable prospect that the applicant could obtain any relief by pursuing them” because, for
example, an agency is jurisdictionally incompetent to address any of a plaintiff’s claims. Martin,
63 F.3d at 504. In other words, there is no reasonable prospect of relief where “the Secretary has
determined that the only issue to be resolved is a matter of constitutional law concededly beyond
his competence to decide.” Salfi, 422 U.S. at 767; accord Eldridge, 424 U.S. at 330. Plaintiff’s
argument for futility is distinguishable; it asserts that futility exists where a plaintiff is unlikely to
succeed on the merits because his facts are weak. But futility in the context of waiver doctrine
does not turn on the factual weakness of an individual claim. It turns on whether exhaustion
“would still serve the purposes of exhaustion and not be futile in the context of the system.”
Kaiser v. Blue Cross of California, 347 F.3d 1107, 1115 (9th Cir. 2003) (emphasis added).
Exhaustion here would not be futile within the context of the system. On the contrary, waiving
exhaustion for arguably factually weak claims like Plaintiff’s would contradict the policy
rationale of exhaustion. It would cause courts to preemptively evaluate the merits of every case
pre-exhaustion—and based on an undeveloped factual record. Waiver doctrine does not permit
such a judicial guessing game as to likelihood of success on the merits. Moreover, courts would
lose the benefit of the agencies’ expertise and deprive them of the opportunity to correct their
own errors. They would also create a two-track review process that channels strong claims
through the agency and weak cases through the courts—an outcome that has no support in the
Medicare Act. Administrative review of Plaintiff’s claim may be futile in some sense, but it is
not futile in the sense of the exhaustion doctrine. On the contrary, a more developed record
would serve the purposes of exhaustion by developing the factual record necessary to review the

15

agency’s findings as to overpayment and fault within the meaning of § 1395gg(b). Accordingly,
the Court does not find futility.
c.

Irreparable Harm

Irreparable harm exists where “deferment of judicial review until exhaustion of
administrative remedies would cause them injury that cannot be remedied by later payment of
the benefits requested.” Martin, 63 F.3d at 505. Courts find irreparable harm, for example,
where “because of [a plaintiff’s] physical condition and dependency upon the disability benefits,
an erroneous termination would damage him in a way not recompensable through retroactive
payments.” Eldridge, 424 U.S. at 331. Plaintiff does not indicate that he is physically dependent
on Social Security payments. Rather, he complains of the uncertainty and stress associated with
further delay. But such harm is not irreparable. As Illinois Council explained, the Medicare Act
prioritizes the benefits of exhaustion over “occasional individual, delay-related hardship. In the
context of a massive, complex health and safety program such as Medicare, embodied in
hundreds of pages of statutes and thousands of pages of often interrelated regulations, any of
which may become the subject of a legal challenge in any of several different courts, paying this
price may seem justified.” Illinois Council, 529 U.S. at 13. Plaintiff does not indicate that his
harm cannot be remedied monetarily. Accordingly, there is no basis to find irreparable harm.
Because the bulk of Plaintiff’s claims are non-collateral, because they are not futile, and
because Plaintiff will not suffer irreparable harm, the Court declines to waive the exhaustion
requirement.
B.

The APA

The amended complaint also alleges jurisdiction under the Administrative Procedure Act.
First, it alleges jurisdiction under 5 U.S.C. § 706(2)(A), which permits a court to “set aside

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agency action findings, and conclusions found to be * * * arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with the law.” But it has been “long held that this
provision is not an independent grant of subject-matter jurisdiction.” Your Home Visiting Nurse
Servs., Inc., 525 U.S. 449, 457-58 (1999). Second, it alleges jurisdiction under § 704, which
provides that “[a]gency action made reviewable by statute and final agency action for which
there is no other adequate remedy in a court are subject to judicial review.” This provision does
not apply because there is no “final agency action.” For the purposes of § 704, “any definitive
agency decision is considered ‘final,’ and therefore reviewable, unless the agency’s regulations
require exhaustion as a prerequisite to judicial review.” Shawnee Trail Conservancy v. U.S.
Dep’t of Agric., 222 F.3d 383, 388-89 (7th Cir. 2000). As explained above, the agency’s
regulations expressly require exhaustion, which is only complete upon the MAC’s review of the
ALJ’s decision. Accordingly, there is no jurisdiction under the APA.
C.

Dismissal as to All Defendants

Lastly, the Secretary argues that it is the sole proper defendant and that its arguments
apply to all defendants. See 42 U.S.C. § 1395kk-1(d)(4)(A) & 42 C.F.R. § 421.5(b) (stating
that the Secretary is the real party in interest for claims relating to claims processing by
Medicare Administrative Contractors); 42 U.S.C. §§ 1320c-6(b), 1395ddd(e) & 42 C.F.R.
§ 421.316(a) (limiting liability for Medicare Integrity Program contractors); 42 U.S.C.
§ 1395ff(c)(5) (limiting liability for Qualified Independent Contractors).
uncontested argument, the Court dismisses with respect to all Defendants.

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Based on this

D.

Plaintiff’s Motion to Strike

Plaintiff moves to strike the declaration of Karen Hurley attached to the Secretary’s
motion to dismiss. Because the declaration has been unnecessary to the Court’s assessment of the
jurisdictional issues addressed above, the Court denies Plaintiff’s motion [41] as moot.
IV.

Conclusion
For the foregoing reasons, the Court grants the Secretary’s motion to dismiss [35] and

denies Plaintiff’s motion to strike the declaration of Karen Hurley [41].

Dated: May 11, 2015

____________________________________
Robert M. Dow, Jr.
United States District Judge

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