Sulphur Manor, Inc. v. Burwell et al

Filing 24

ORDER by Judge Ronald A. White granting defendant Sylvia Burwell's motion to dismiss for lack of subject matter jurisdiction ( 10 Motion to Dismiss for Lack of Jurisdiction) (lal, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
SULPHUR MANOR, INC. d/b/a
CALLAWAY NURSING HOME,

)
)
)
Plaintiff,
)
)
v.
)
)
SYLVIA BURWELL, in her official capacity )
as Secretary of Health and Human Services, )
United States Department of Health and
)
Human Services; and
)
NICO GOMEZ, in his official capacity
)
as Chief Executive Officer, Oklahoma
)
Health Care Authority,
)
)
Defendants.
)

Case No. CIV-15-250-RAW

ORDER
Before the court is the motion of the defendant Sylvia Burwell to dismiss for lack of
subject matter jurisdiction, pursuant to Rule 12(b)(1) F.R.Cv.P. On July 8, 2015, the court
granted a temporary restraining order. The verified complaint reflects the following
allegations by plaintiff: Plaintiff is a nursing facility in Sulphur, Oklahoma that provides care
to 72 residents. Approximately 52 of the residents are beneficiaries of the Medicaid
program1 and 3 of the residents are beneficiaries of the Medicare program.2 The Federal
Centers for Medicare and Medicaid Services (“CMS”) recently notified plaintiff that its

1

The Medicaid Act is a joint program funded by both the federal and state governments designed to
provide medical assistance to certain persons in need. Peak Medical Oklahoma No. 5, Inc. v. Sebelius, 2010
WL 4637511, *1 (N.D.Okla.2010)(hereafter Peak Medical).
2

The Medicare Act is a federal program designed to provide health insurance for aged and disabled
persons. Id.

Medicare and Medicaid provider agreements will be involuntarily terminated due to plaintiff
being cited for two deficiencies during a June 11, 2015 inspection survey.3 As a result of this
termination, plaintiff will stop receiving Medicare and Medicaid payments on July 8, 2015.
This will result in plaintiff going out of business and its residents will be forced to relocate.
Three residents presently receive Hospice benefits for end-of-life care.
A party invoking federal jurisdiction has the burden of proof on that issue because
federal courts are courts of limited jurisdiction. Penteco Corp. Ltd. P’ship-1985A v. Union
Gas Sys., Inc., 929 F.2d 1519, 1521 (10th Cir.1991). A 12(b)(1) motion takes two forms:
either a “facial” or a “factual” attack. Pueblo of Jemez v. United States, 2015 WL 3916572,
*27 n.4 (10th Cir.2015). In reviewing a factual attack, a party may go beyond allegations
contained in the complaint and challenge the facts upon which subject matter jurisdiction
depends. The court has wide discretion to allow affidavits, other documents and a limited
evidentiary hearing to resolve disputed jurisdictional facts. Id. The district court in Peak
Medical held that such a motion in the present context is a factual attack, because failure to
exhaust administrative remedies is a fact upon which subject matter jurisdiction depends.
Peak Medical, at *4.4
3

Plaintiff’s response (#18) to the motion states that the date of notification was June 22, 2015. It
further states that on July 10, 2015, CMS provided plaintiff notice that it was increasing the severity and
scope of the alleged deficiencies. In her motion, defendant Burwell also asserts previous deficiencies on
plaintiff’s part, which findings were not appealed. (#10 at 4-5).
4

In the case at bar, plaintiff concedes that it has not exhausted administrative remedies, but argues
that it is not required to do so. In this sense, there are no disputed jurisdictional facts, but rather a legal issue
to be resolved. Accordingly, the court will not hold a hearing. Nevertheless, the court is considering material
outside the pleadings and will treat the motion as a factual attack. Such consideration does not convert the
motion to a Rule 56 motion. Holt v. United States, 46 F.3d 1000, 1003 (10th Cir.1995).

2

Where the Secretary determines that a facility’s deficiencies pose “immediate
jeopardy” to residents’ health and safety, applicable law authorizes the Secretary to either
appoint temporary management over the facility or terminate the facility’s Medicare and
Medicaid agreement.5 THI of Kansas at Highland Park, LLC v. Sebelius, 2013 WL 4047570,
*2 (D.Kan.2013)(hereafter THI). Where a nursing facility’s participation in Medicare and
Medicaid will be terminated, federal law entitles the facility to an appeal process, involving
an ALJ, an Appeals Board and judicial review of the Board’s decision. Id.
Plaintiff filed an administrative appeal on July 2, 2015. The record does not reflect
that a hearing date has yet been provided. The general principle is as follows: “The Court
is not authorized to address claims arising under the Medicare and Medicaid Acts until after
the conclusion of an administrative review process.” Peak Medical, at *5.6 Plaintiff has
explicitly alleged that its claims arise under the Medicare and Medicaid Acts. (#3 at 4, ¶8).
Plaintiff, however, makes several arguments as to why the general principle should not apply.
First, it contends that 5 U.S.C. §705 (as opposed to 42 U.S.C. §405) controls and gives this
court jurisdiction under the Administrative Procedure Act (“APA”). Other courts have
rejected this argument. See Bayou Shores SNF, LLC v. Burwell, 2014 WL 4059900, *9-10

5

In the July 10, 2015 notice (attached to plaintiff’s response) CMS invoked “immediate jeopardy.”
The court notes, however, there is authority that a facility’s provider agreement may be terminated even
absent a finding of immediate jeopardy. See Blossom South, LLC v. Sebelius, 987 F.Supp.2d 289, 299-300
(W.D.N.Y.2013)(citing cases).
6

A provision of the Social Security Act, 42 U.S.C. §405(h), has been 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. See Shalala v. Illinois Council on Long Term
Care, Inc., 529 U.S. 1, 5 (2000).

3

(M.D.Fla.2014); Peak Medical at *8. See also Native Angels Home Health, Inc. v. Burwell,
2015 WL 3657417, *2 (E.D.N.C.2015)(As a general rule, neither constitutional claims nor
claims made under the APA are cognizable without first being submitted to the Secretary);
Eagle-Picher Indus., Inc. v. United States, 901 F.2d 1530, 1531 (10th Cir.1990)(The APA
does not create an independent basis of subject-matter jurisdiction). This court does so as
well.
Thus, 42 U.S.C. §405(h) controls. That section “demands the ‘channeling’ of virtually
all legal attacks through the agency.” Shalala v. Illinois Council on Long Term Care, Inc.,
529 U.S. 1, 13 (2000). Presentment of a claim to the agency is a jurisdictional prerequisite
to bringing a claim under the Act in federal court. Reed v. Heckler, 756 F.2d 779, 783 (10th
Cir.1985). Plaintiff has met this requirement by filing its administrative appeal. By contrast,
exhaustion is a waivable, non-jurisdictional requirement. Id. Plaintiff contends that the
exhaustion requirement should be waived under the reasoning of Mathews v. Eldridge, 424
U.S. 319 (1976). In that case, the Supreme Court held that exhaustion should be waived
when (1) the court finds that plaintiff’s claims are “entirely collateral” to his claim before the
ALJ and (2) the court finds that plaintiff raises at least a colorable constitutional claim and
that requiring it to wait for a post-deprivation hearing would cause it damage that could not
be repaired through a favorable determination by the Secretary. See THI at *7.
Plaintiff has asserted a due process claim in Count I of the complaint. The court in
THI held that to be “entirely collateral” the due process claim must be the only one presented.
Id. at *8 (“But for purposes of determining this issue of jurisdiction, the Court will assume
4

that Plaintiff’s oral statements at the hearing, withdrawing all claims but the claim for
injunctive relief, validly amended the pleading so that only a constitutional claim for
violation of its procedural due process rights remains”). Plaintiff in the case at bar has
presented claims in addition to the due process claims, and these claims do assert entitlement
to benefits and therefore are not “entirely collateral”. Even adopting the reasoning in THI,
however, the court will not require any sort of amendment to the complaint, because the court
finds the due process claim is foreclosed by Tenth Circuit precedent.
In Geriatrics, Inc. v. Harris, 640 F.2d 262 (10th Cir.1981), the court held that
Medicaid providers do not have a property right to continued enrollment as a qualified
provider. The court reversed a preliminary injunction granted by the district court on that
basis. Plaintiff argues that the holding in Geriatrics did not survive the enactment of §6501
of the Affordable Care Act, codified at 42 U.S.C. §1396a(a)(39). This section simply
provides that any individual or entity excluded under Medicare or a state Medicaid program
is also terminated automatically from Medicare and all state Medicaid programs.7
Accordingly, plaintiff’s argument is rejected because (1) this court is bound to follow Tenth
Circuit precedent and (2) this court agrees with the court in Bristol Health Care Investors,

7

In a supplemental exhibit (#23-1), plaintiff points to a page in the Federal Register which discusses
Section 6501. One paragraph states: “In addition, State Medicaid programs would terminate a provider only
after the provider had exhausted all available appeal rights in the Medicare program or in the State that
originally terminated the provider or the timeline for such appeal has expired.” This court finds (1) this
language does not appear in the statutory text and (2) 42 U.S.C. §1396r(h)(3)(B) appears to give the Secretary
the power to take immediate and unilateral action, such as termination of the facility’s participation under the
state Medicaid plan, upon a finding of “immediate jeopardy.” Such a finding was made in the July 10, 2015
notification (#18-1). The language in the Federal Register, assuming arguendo it is effective, would only
bind state officials, not federal officials.

5

LLC v. Emkes, 2013 WL 2403299 (E.D.Tenn.2013) that “[Section] 6501 has not[h]ing to do
with nursing home non-compliance with Medicare and Medicaid conditions of participation”
and does not require that such participation may only be terminated after exhaustion of
appeals. Id. at *10. See also THI at *9 (“The Court finds that Plaintiff does not assert a
colorable constitutional claim that it is entitled to a pre-termination hearing in this matter”).
Plaintiff cites Reed v. Heckler, 756 F.2d 779, 782-84 (10th Cir.1985) for the
proposition that exhaustion may be waived where there is a colorable constitutional claim
and a showing of irreparable injury. The court does find a showing of irreparable injury in
the assertion that plaintiff will go out of business upon termination of the provider
agreements (#3 at 2 ¶3), but for the reasons stated does not find a colorable constitutional
Plaintiff also cites Reed for its holding that collateral statutory as well as

claim.

constitutional claims may be a proper basis for waiver of the exhaustion requirement. Id. at
784-85. The statutory claim to which plaintiff refers, however, is its interpretation of §6501
of the Affordable Care Act. For the reasons stated in the preceding paragraph, the court does
not find that to be a colorable claim.8
The court also addresses an exception recognized by the Supreme Court. In Shalala
v. Illinois Council on Long Term Care, Inc., 529 U.S. 1 (2000), the Court interpreted Bowen
v. Michigan Academy of Family Physicians, 476 U.S. 667 (1986), as holding that §1331
federal question jurisdiction would exist if without it “application of §405(h) would not
8

“To determine whether a claim is ‘colorable,’ we ask whether it is ‘immaterial and made solely for
the purpose of obtaining jurisdiction or is wholly insubstantial and frivolous.’” Ocampo-Guaderrama v.
Holder, 501 Fed.Appx.795, 798 (10th Cir.2012)(citation omitted).

6

simply channel review through the agency, but would mean no review at all.” Illinois
Council, 529 U.S. at 19. If this court were writing on a blank slate, equating financial
collapse before the completion of appeal with “no review” would not seem illogical.
Recently, however, two district courts faced with this situation have found the exception
inapplicable.

In First Houston Health Care, L.L.C. v. Burwell, 2014 WL 7192315

(S.D.Tex.2014), the court noted “First Houston argues that as a practical matter it will
receive no review at all because its business will no longer be viable if its Medicare billing
privileges are revoked and its provider agreement is terminated.” Id. at *6. The court, citing
authority, held that financial hardship to a plaintiff in exhausting administrative remedies is
a “delay-related hardship” but does not mean plaintiff is entitled to “no review at all.” Id.
To the same effect is THI, where that court noted: “Plaintiff argues that as a practical matter
it is entitled to no review at all since its business will no longer be viable once the provider
agreements terminate,” but did not accept the argument. THI at *6.
Under existing authority, the court lacks jurisdiction to proceed, which is the issue
presented.9

9

On July 15, 2015, defendant Joel Nico Gomez (named as Nico Gomez in the complaint), filed his
own motion to dismiss (#19). Gomez is the Chief Executive Officer of the Oklahoma Health Care Authority.
Because the court finds that it lacks subject matter jurisdiction for the reasons advanced by defendant
Burwell, the court will dismiss defendant Gomez as well, although plaintiff had not yet responded.

7

It is the order of the court that the motion to dismiss (#10) is hereby GRANTED. This
action is dismissed without prejudice for lack of subject matter jurisdiction.

ORDERED THIS 20th DAY OF JULY, 2015.

8