AllCare Hospice, Inc. v. Sebelius

Filing 29

ORDER AND OPINION by Judge Frank H. Seay granting 14 Motion to Dismiss (case terminated) (dma, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF OKLAHOMA
ALLCARE HOSPICE, INC.
f/n/a COMFORTING CARE HOSPICE,
INC.,

)
)
)
)
Plaintiff, )
)
v.
)
)
KATHLEEN SEBELIUS, Secretary,
)
UNITED STATES DEPARTMENT of
)
HEALTH AND HUMAN SERVICES,
)
)
Defendant. )

CIV-11-365-FHS

ORDER AND OPINION
Before the court for its consideration is the Defendant’s
Motion to Dismiss and Brief in Support. (Doc. 14).

In the

motion to dismiss, the defendant seeks dismissal of the Complaint
arguing this court lacks jurisdiction.

Defendant also argues

even if the court were to find jurisdiction, many of the claims
brought by plaintiff fail to state a claim for relief. Plaintiff
responds by arguing the court has jurisdiction over this matter
and it has adequately stated a claim for relief on all counts.
Plaintiff is a provider of hospice services.

It provided

services to Medicare beneficiaries between 2003 and 2009.

For

each of these years, Allcare submitted cost reports to its fiscal
intermediary, Palmetto GBA (Palmetto), who was charged with
calculating the annual hospice cap.

In return for each year,

Palmetto sent Allcare a letter (a) reporting that Allcare had
exceeded the statutory cap on total annual Medicare payments, and
(b) demanding that Allcare begin repaying Palmetto for the

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excess.1 However, during the time-frame that Allcare was repaying
their debt to Palmetto other providers were challenging their
repayment determinations.

These providers attacked the validity

of the method the Secretary used to calculate a provider’s annual
hospice cap. By March 2011, multiple courts including one in this
district had rejected the Secretary’s method of calculation set
forth in 42 C.F.R. Sec. 418.309 (b)(1) as inconsistent with the
Medicare statute.

Zia Hospice, Inc. v. Sebelius, 793 F. Supp. 2d

1289, 1296 (D.N.M. 2011).
On July 21, 2011, after becoming aware of these rulings,
Allcare asked the Provider Reimbursement Board (Board) to review
all six repayment demands it had received from Palmetto.

Allcare

does not dispute this filing was made more than seven months
after Palmetto’s last demand letter to Allcare and years after
Palmetto’s earlier letters.

Conceding that it had missed the 180

day statutory deadline for appealing to the board, Allcare asked
the Board for a “good cause” extension under 42 C.F.R. Sec.
405.1836 to seek a belated hearing.
expedited judicial review.

Allcare also requested

Plaintiff hoped to argue in federal

court that Palmetto’s repayment demands had been computed using a
regulation, 42 C.F.R. Sec. 418.309 (b)(1) that contradicted with
the plain terms of 42 U.S.C. Sec. 1395f (i)(2)(A), a provision of
the Medicare Act.
On August 19, 2011, the Board found it lacked jurisdiction
over each of Allcare’s six appeals because they were not timely

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These demands were for fiscal years ending October 31,
2004, October 31, 2005, October 31, 2006, October 31, 2007,
October 31, 2008, and October 31, 2009. Palmetto issued its
payment determinations on June 1, 2007, April 4, 2007, May 8,
2008, April 1, 2009, February 2, 2010, and December 7, 2010,
respectively.
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filed.

Applying 42 C.F.R. Sec. 405.1836 the Board denied

Allcare’s request for a “good cause” extensions holding that (1)
good cause may be found only in extraordinary circumstances not
present here, and (2) a change in the law never constituted good
cause.

The Board also denied Allcare’s request for expedited

judicial review, holding that Board jurisdiction over an appeal
was a prerequisite to such review.
Plaintiff then filed this lawsuit and in Count One,
challenged the validity of 42 C.F.R. Sec. 418.309(b).

In Count

Two, Plaintiff contends such overstated repayment demands
constitute an unlawful taking in violation of the Fifth
Amendment. Count Three requests Declaratory relief and an
Injunction on Enforcement of an Unlawful regulation.

Count Four

asks this Court to exercise mandamus jurisdiction to compel
Palmetto to calculate new repayment demands using a correct
methodology.

Count Five also seeks review of the Board’s

judgment denying Plaintiff’s “good cause” extension under 42
C.F.R. Sec. 405.1836.

Finally, the plaintiff seeks to invalidate

the Secretary’s regulation, specifically, 42 C.F.R. Sec. 405.1842
(b)(2) requesting the expedited judicial review provision of the
Medicare Act.
Before the court can address the merits of plaintiff’s
Complaint, it must first determine whether it has jurisdiction.
Sabido Valdivia v. Gonzales, 423 F.3d 1144, 1147 (10th Cir.
2005).

Defendant has sought to dismiss Counts One, Two, Three,

and Five of the Complaint for lack of jurisdiction.

Allcare’s

Complaint cites four grounds for jurisdiction over these claims:
the Medicare statute specifically, 42 U.S.C. Sec. 1395oo(f)(1),
the federal question statute, 28 U.S.C. Sec. 1331, the APA, 5
U.S.C Sec. 702 and the Kyrne Doctrine, for actions agencies taken
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that are considered ultra vires.

The court will take each of

these in turn to determine if this court has jurisdiction.
I. Medicare Act
In Count Five of the Complaint, plaintiff asks this court to
set aside as arbitrary and capricious the Board’s denial of
Allcare’s requests for a good cause extension under 42 C.F.R.
Sec. 405.1836.

42 C.F.R. Sec. 405.1836(e)(4) provides that “a

finding by the Board....that the provider....did not demonstrate
good cause for extending the time for requesting a board hearing
is not subject to judicial review.”

The plain language of this

statute prohibits review of the Board’s decision to deny the
extension.
The Medicare statute includes a provision that a provider of
services “shall have the right to obtain judicial review of any
final decision of the Board.” 42 U.S.C. Sec. 1395oo(f)(1).
However, the court finds this is not the type of final decision
that is entitled to judicial review.

The court finds the phrase

“decision of the Board” is sufficiently ambiguous as to whether
it includes the Board’s denial of a good cause extension. As a
result, the court must utilize the procedure found in Cheveron
USA, Inc. v. National Resource Defense Council, 467 U.S. 837,
842-43 (1984) to determine if the Secretary has reasonably
interpreted that ambiguous phrase to exclude the Board’s denial
of a good cause extension to the 180 day appeal deadline.

The

Secretary has interpreted the phrase “decision of the Board” to
mean some, but not all decisions of the board.

42 C.F.R. Sec.

405.1877 (a)(3)(I) & (ii) specifies which decisions of the Board
are subject to judicial review and when such decisions are final.
First, it should be noted the Medicare Act itself does not
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provide for an extension to the 180 day time-frame but rather,
the extension is a creation of the Secretary.

Nothing in the

language of 42 U.S.C. Sec. 1395oo requires the Board to entertain
a provider’s late request for a hearing.

The Secretary

determined that Board denials of such extensions do not qualify
as the type of “final decision of the Board” subject to judicial
review under 42 U.S.C. Sec. 1395oo(f).

The court finds the

Secretary has reasonably interpreted the phrase “final decision
of the board.”
The reasonableness of this construction is confirmed by two
Supreme Court cases.

In Your Home Visiting Nurse Services, Inc.,

v. Shala, 525 U.S. 449 (1999), the court accorded deference to
the Secretary’s interpretation that a fiscal intermediary’s
decision not to reopen a payment determination is not subject to
Board or judicial review.

The court stated the Secretary’s

interpretation was “reasonable” Id. at 453.

The court relied on

the fact that “the right of a provider to seek reopening exists
Id. at 454.

only by grace of the Secretary.”

The extension to

the 180 day time-limit in the case at bar was also only by the
grace of the Secretary.

In Califano v. Sanders, 430 U.S. 99

(1977), the Court had similarly held the Social Security Act does
not authorize review of the Secretary’s decision not to reopen a
previously adjudicated claim of benefits, reasoning again that
“the opportunity to reopen a benefit adjudication was afforded
only by regulation and not by the Social Security Act itself.”
Id. at 108. These cases demonstrate that because of the Medicare
Act’s silence as to good cause extensions and the fact they are
created by the grace of the Secretary, the Secretary may construe
42 U.S.C.A. Sec. 1395oo(f) not to grant providers judicial review
of Board denials of such extensions.

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Finally, under 42 U.S.C. Sec 1395oo(f)(1), review of Board
decisions is governed exclusively by the standards in the APA.
See 42 U.S.C. Sec. 1395oo(f)(1).

5 U.S.C.A. Sec. 701 (a)(2) of

the APA precludes judicial review of agency action “committed to
agency discretion by law.”

5 U.S.C.A. Sec. 701 (a)(2). The Tenth

Circuit Court of Appeals has defined this exception to apply
“when a statute or regulation is drawn so that a court would have
no meaningful standard against which to judge the agency’s
exercise of discretion.” Colo. Envtl. Coal v. Wenker, 353 F.3d
1221, 1228 (10th Cir. 2004).
That regulation states that a “request for a Board
hearing....received after the applicable 180-day time
limit...must be dismissed by the Board, except that the Board may
extend the time limit upon a good cause showing by the provider.”
Sec. 405.1836(a).

The regulation then goes on to say that “the

Board may find good cause to extend the time limit only if the
provider....demonstrates...extraordinary circumstances beyond its
control....and the....request for an extension be
received..within a reasonable time.” Sec. 405.1836 (b).
The regulation provides no meaningful standard for
evaluating the reasonableness of the Board’s denial of a good
cause extension.

The Board’s authority to grant an extension is

drawn in strictly permissive terms: even if the provider
satisfies both preconditions for an extension and demonstrates
“good cause”, the Board “may”-not must- grant an extension.
405.1836 (a).

Sec.

The Secretary’s regulation provides no standard by

which to guide, let alone constrain, the Board’s ultimate
decision whether to extend the filing deadline once good cause is
shown. Lenox Hill Hospital v. Shala, 131 F. Supp. 2d 136, 142
(D.D.C. 2000)(holding that good cause extensions are committed to
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agency discretion by law.).

Thus, the court finds the decision

of no good cause shown to extend the 180 deadline was solely
within the agency’s discretion and not subject to judicial
review.

As a result, the court grants the motion to dismiss as

it relates to Count Five of Plaintiff’s Complaint.
In Plaintiff’s Complaint, Counts One, Two and Three all
challenge the validity of 42 C.F.R. Sec. 418.309 (b)(1).

This

provision was used to calculate the amount of each
overpayment/repayment demand.

However, this statute standing

alone is not enough to confer jurisdiction on this court.

The

statute does include a provision which allows providers “the
right to obtain judicial review of any final decision of the
Board.” 42 U.S.C. Sec. 1395oo(f)(1).

The only decision reached

by the board was that there was insufficient evidence of good
cause to justify the untimely filing of the requests.

The Board

never rendered a decision on the merits of the
overpayment/repayment issue.

Thus, since the Board never reached

the merits of this challenge, this court agrees it does not have
jurisdiction pursuant to 42 U.S.C. A. Sec. 1395oo(f)(1) to
consider those arguments now.

High Country Home Health, Inc. v.

Thompson, 359 F.3d 1307, 1315 (10th Cir. 2004)(“Given that the
only final decision by the Board is a dismissal for untimeliness,
we have no occasion to consider the merits of plaintiff’s
underlying complaints against the Intermediary”).

II.

Federal Question Jurisdiction

Allcare also alleges this court has federal question
jurisdiction over Counts One, Two, Three, and Five.

However, the

court finds that jurisdiction is not established under this
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provision either.

42 U.S.C.A. Sec. 405 (h) provides: “no action

against the United States, the Secretary, or any officer or
employee thereof shall be brought under section 1331...of title
28 to recover on any claim arising under this sub-chapter.” 42
U.S.C.A. Sec. 405 (h) is incorporated into the Medicare Act by 42
U.S.C. Sec. 1395ii.

It has been held that federal question

jurisdiction is barred when “both the standing and the
substantive basis for the presentation of the claims” is the
Medicare Act.

Heckler v. Ringer, 466 U.S. 602, 615 (1984).

In the case at bar, Count One, Two and Three challenges the
Secretary’s regulation to calculate a hospice provider’s annual
hospice cap.

Count Five contests the Board’s refusal to grant

Allcare a “good cause” extension to request a belated hearing
under Sec. 1395oo(a).

In order to review these claims, the court

would have to review and interpret the Medicare Act.

Thus, the

court finds since the Medicare Act provides the substantive basis
of the claims, federal question jurisdiction is precluded.
Heckler at 615.
Plaintiff has argued that Bowen v. Michigan Academy of
Family Physicians, would provide federal question jurisdiction.
Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667,
667-81 (1986). In Bowen, the court found that a federal court had
jurisdiction under 28 U.S.C. Sec. 1331 to review a challenge to
the validity of a Medicare regulation governing payments to
physicians under Part B of the Medicare program.

In a subsequent

case, the United States Supreme Court attempted to clarify the
ruling in the Bowen case by stating that Bowen only supports
review outside of the Medicare statute

“where application of

Sec. 405(h) would not simply channel review through the agency,
but would mean no review at all.” Shala v. Illinois Council on
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Long Term Care, 529 U.S. 1, 19 (2000).

Plaintiff argues that

Bowen provides an avenue for it to challenge the invalid
regulation of the defendant without exhausting the administrative
process.
The court finds the Bowen exception does not apply in the
case at bar.

Bowen only comes into play when there is absolutely

no avenue for review. The Medicare Act provides a clear avenue
for administrative and judicial review of the claims it now
presses in this Court.

42 U.S.C. A. Sec. 1395oo.

failed to take the designated avenue.

Allcare simply

Bowen does not extend to a

situation as presented in the instant case, where the plaintiff
has an avenue of review under the Medicare Statute but simply
failed to take it.
III.

Mandamus Jurisdiction

Plaintiff has also alleged this court has mandamus
jurisdiction in this case.

In Count Four of the Complaint,

plaintiff asserts this Court may compel the recalculation of
Palmetto’s repayment demands by the exercise of mandamus
jurisdiction under 28 U.S.C. Sec. 1361. A plaintiff is entitled
to mandamus relief only if he can establish “....he has exhausted
all other avenues of relief and only if the defendant owes him a
clear nondiscretionary duty.” Cordoba v. Massanari, 256 F.3d
1044, 1047 (10th Cir. 2001) and Heckler at 616.

The claim for

mandamus jurisdiction challenges Palmetto’s repayment
determinations.

The facts clearly reveal

Allcare could have

challenged the repayment decisions, but it failed to do so within
the allotted time-frame.
all other avenues.

Thus, plaintiff has failed to exhaust

The court finds that Allcare’s failure to

file a timely challenge bars it from mandamus jurisdiction.

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Hadley Memorial Hopsital, Inc. v. Schweiker, 689 F.2d 905, 912
(10th Cir. 1982).
IV.

Standing

In Count Six of Plaintiff’s Complaint it is asserted that
the Secretary’s regulation specifying the time in which the Board
must decide an expediated judicial review “EJR” request is
contrary to the Medicare Act.
42 U.S.C.A. Sec. 1395oo(f)(1) provides a mechanism for the
Board to grant EJR where it determines that is lacks the
authority to decide the legal issue presented in the provider’s
appeal.

The statute provides that “if a provider of services may

obtain a hearing under Sec. 1395ooo(a)” and has made such a
request, he “may file a request for a determination by the Board
of its authority to decide the question of law or regulations
relevant to the matters in controversy.” 42 U.S.C.A. Sec.
1395ooo(f)(1).

The statute further states the “Board shall

render such determination in writing within thirty days after the
Board receives the request.” 42 U.S.C.A. Sec. 1395oo(f)(1).
Failure to meet this deadline, moreover, means “the provider may
bring a civil action.” 42 U.S.C.A. Sec. 1395oo(f)(1).

To

implement this statutory directive, the Secretary enacted 42
C.F.R. Sec. 405.1842.

This provision was to clarify the thirty

day period referenced in the statute.

42 C.F.R. Sec. 405.1842

provides the thirty day time-frame does not begin to run until
after the Board determines that the requirements of 42 U.S.C.A.
Sec. 1395oo(a) are satisfied such that the Board had jurisdiction
over the appeal. 42 C.F.R. Sec 405.1842(b)(2).
Under Article III, federal courts have jurisdiction only to

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decide cases and controversies.

One essential and unchanging

part of the case or controversy requirements is the concept that
the plaintiff must have standing, which in turn, requires the
presence of three elements.
504 U.S. 555, 560 (1992).

Lujan v. Defendaers of Wildflife,

A party has standing to pursue a claim

in federal court only if: (1) it “suffered an injury in fact”-an
invasion of a legally protected interest which is (a) concrete
and particularized and (b) actual or imminent, not conjectural or
hypothetical, (2) that injury is “fairly traceable to the
challenged action of the defendant:” and (3) that injury is
likely to be “redressed by a favorable decision.” Id. at 560-561.
The court finds the plaintiff has not suffered the required
injury in fact.
42 U.S.C.A. Sec. 1395oo(f)(1) requires the Board to
determine both its jurisdiction over the provider’s appeal and
its authority over the legal questions at issue within thirty
days of a request for EJR. Allcare submitted its request for EJR
on July 21, 2011.

29 days later on August 18, 2011, the Board

issued its decision dismissing each of Allcare’s requests for
EJR. Therefore, even if the Secretary’s regulation unlawfully
allows the Board to take more than 30 days to resolve an EJR
request, the Board did not do so in this case.

Instead, the

Board issued a decision within the 30 day time-frame that Allcare
argues is required by statute. The court finds Allcare did not
suffer a cognizable injury as a result of the regulations
operation.

As a result, plaintiff has no standing to challenge

the validity of that regulation.
V.

Kyne Doctrine

Plaintiff in their Surreply to the Reply of the Defendant
argues for the first time that it was not required to exhaust
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administrative remedies because the actions of the defendant were
ultra vires.

Plaintiff argues that when the actions of agencies

are ultra vires the judicial branch is able to step in and reestablish the limits on authority.

Plaintiff argues that

judicial review is available pursuant to American School of
Magnetic Healing v. McAnnulty, 187 U.S. 94 (1902).

Plaintiff

also argues there is a strong presumption of judicial review of
agency actions taken in excess of delegated authority.

Leedon v.

Kyne, 358 U.S. 184, 190 (1958). The Kyne doctrine allows parties
to invoke federal question jurisdiction to seek judicial review
of agency action that is ultra vires.

The Kyne doctrine is of a

“very limited scope” and should be “invoked only in exceptional
circumstances”.

U.S. Department of the Interior v. Federal Labor

Relations Authority, 1 F.3d 1059, 1061 (10th Cir. 1993).
However, the court finds the Kyne exception inapplicable in this
lawsuit.
First, in order to invoke the Kyne exception the party must
show that denying judicial review would deprive them of no review
at all. Basically, a plaintiff must show it had no other means
within it’s control of obtaining judicial review.

Board of

Governors of Federal Reserve System v. McCorp Financial Inc., 502
U.S. 32, 43 (1991).

In the case at bar, plaintiff had an avenue

for judicial review. As discussed in detail above, plaintiff had
the option of appealing to the Board.

They simply failed to

timely pursue this option.
Second, the court agrees with the defendant the Kyne
doctrine is not applicable because in Kyne the court was dealing
with a violation of a clear and mandatory statutory prohibition
found in the enabling act.

In this lawsuit, the dispute centers

around the defendant’s interpretation of a provision of the
Medicare Act.

The plaintiff’s are not alleging that defendant
12

violated a clear statutory provision.

The dispute here is over

the defendant’s statutory interpretation of a provision of the
Medicare Act and its implementation of a regulation designed by
defendant. The regulation determined how repayments/overpayments
would be calculated.

A dispute over a statutory interpretation

does not suffice as a basis for invoking the Kyne exception.
Nebraska State Legislative Board v. Slater, 245 F.3d 656, 660
(8th Cir. 2001). (Under Kyne, review of an agency action
allegedly in excess of authority must not simply involve a
dispute over statutory interpretation.)
Finally, the court finds the Kyne exception is not
applicable here because of the express provision which clearly
precludes federal question jurisdiction.

42 U.S.C.A. Sec. 405

(h) explicitly and clearly precludes federal question
jurisdiction over “any claim arising under” the Medicare
Act—which plainly includes Allcare’s challenges to the hospice
cap regulation.

42 U.S.C. Sec. 405 (h).

A factor in the Kyne

decision was that fact that the Labor Relations Act, which was at
issue in that case, did not explicitly exclude judicial review of
the type of certification order at issue.
at 44.

McCorp Financial, Inc.

However, courts have found that where the statutory

scheme contains a clear and direct statement of Congress’s
preclusive intent the Kyne exception is not available.

Nyunt v.

Chairman, Broad Board of Governors, 589 F. 3d 445, 449 (D.C. Cir.
2009)(holding the Kyne exception does not apply where the
statutory preclusion of review is express.)

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The court has reviewed all the arguments made by the
plaintiff and finds it does not have jurisdiction over this
matter.

Therefore, the court grants the Defendant’s Motion to

Dismiss (Doc. #14).
IT IS SO ORDERED this 23rd day of October, 2012.

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