Trostle et al v. Centers for Medicare and Medicaid Services
MEMORANDUM re dfts' MOTION to Dismiss 7 (Order to follow as separate docket entry)Signed by Honorable William W. Caldwell on 10/17/16. (ma)
UNITED STATES DISTRICT COURT FOR THE
MIDDLE DISTRICT OF PENNSYLVANIA
GLORIA L. TROSTLE, Individually and
as Administratrix of the ESTATE OF
DAVID A TROSTLE, deceased,
CENTERS FOR MEDICARE AND
: CASE NO. 1:16-CV-156
On January 29, 2016, Gloria L. Trostle, individually and as administratrix of
the estate of David A. Trostle (“Plaintiffs”), filed a complaint alleging that Defendant,
Centers for Medicare and Medicaid Services (“CMS”), unfairly and unjustly increased the
amount Mr. Trostle owed Medicare following the settlement of a tort liability lawsuit. (Doc.
1). Plaintiffs assert that CMS’s actions should be equitably estopped, that CMS would be
unjustly enriched if Plaintiffs were to pay the increased amount claimed ($53,295.14), that
CMS waived its right to the increased amount based on prior communications, and that
Plaintiffs’ complaint is an appeal from an administrative body. (Id. ¶¶ 24-46). CMS moved
to dismiss the complaint on multiple grounds under Federal Rule of Civil Procedure 12(b).
(Doc. 7). For the following reasons, the court will grant CMS’s motion and will dismiss
Plaintiffs’ claims with prejudice.
On July 8, 2011, Bloomfield Pharmacy (“Bloomfield”) incorrectly filled a
prescription for David Trostle, giving him Lithium Carbonate instead of his prescribed
Fosrenal. (Doc. 1 ¶ 6). As a result, Mr. Trostle fell seriously ill and was hospitalized for
lithium toxicity, spending sixty-six days in various medical facilities for treatment. (Id.
¶¶ 6-7). One of Mr. Trostle’s health insurers, Medicare, helped to cover a substantial
portion of the nearly $100,000 worth of medical expenses incurred for these medical and
rehabilitative treatments. (Id. ¶ 8).
Mr. Trostle brought a personal injury claim grounded in negligence against
Bloomfield, and reported this tort claim to CMS on March 28, 2013. (Doc. 1 at 12; Doc.
11-3). CMS, through its Medicare Secondary Payer Recovery Contractor (“MSPRC”),
initially asserted a lien of $725.17 against any recovery Mr. Trostle might obtain from his
personal injury claim. (Doc. 1 ¶ 9; Doc. 11-1 at 1). Approximately one year later, CMS
increased this lien amount to $1,212.32, and on May 22, 2014, informed Mr. Trostle and
his attorney of the increase. (Doc. 1 ¶ 11; Doc. 11-2 at 1, 7).
Believing that $1,212.32 was an accurate statement of the lien owed to
CMS, Mr. Trostle settled his personal injury claim with Bloomfield for $225,000 on July 9,
2014. (Doc. 1 ¶ 14; Doc. 11-5 at 2). After the settlement was consummated, Mr.
Trostle’s attorney notified CMS and offered to reimburse CMS the lien amount of
$1,212.32. (Doc. 1 ¶ 15; Doc. 11-5 at 2). On August 14, 2014, CMS informed Mr.
Trostle that the lien amount had increased to $53,295.14. (Id. ¶ 16; Doc. 11-4 at 1).
The following facts are taken from Plaintiffs’ complaint and documents attached thereto, as well as
from undisputed documentary evidence CMS appended to its motion to dismiss. Because the court
decides the instant motion to dismiss solely on subject matter jurisdiction, evidence regarding lack of
subject matter jurisdiction presented by CMS is properly considered. See infra Section III.
In a letter to CMS dated August 26, 2014, counsel for Mr. Trostle appealed
the lien determination of $53,295.14, claiming that Mr. Trostle had relied on the May 22,
2014 lien figure of $1,212.32 when he agreed to settle his personal injury claim for
$225,000, and therefore he did “not have a legal obligation to pay [CMS] $53,295.14.”
(Doc. 1 at 12; Doc. 11-5). On October 15, 2014, in what appears to be a stock denial
letter 2 (officially titled a “redetermination notice”), CMS denied Mr. Trostle’s appeal and
upheld its lien claim of $53,295.14. (Doc. 11-6 at 1). In this October 15, 2014
redetermination notice, CMS also explained that within 180 days of its decision, Mr.
Trostle could request a “reconsideration,” whereby a “new and impartial review” would be
performed by a Qualified Independent Contractor (“QIC”). (Id. at 1-2). The
redetermination notice further explained how to request a QIC reconsideration, and
included a blank request form. (Id. at 2, 4).
Mr. Trostle’s counsel requested QIC reconsideration by filling out the
request form, attaching a typewritten appeal, and sending the request to the appropriate
CMS contractor—Maximus Federal Services (“Maximus”). (Doc. 11-7). This request
was dated June 10, 2015, and marked by Maximus with a “received” date of June 22,
2015. (Id. at 1, 4).
On August 24, 2015, CMS, through Maximus, informed Mr. Trostle and his
attorney that because the request for QIC reconsideration had been received well after
the 180-day filing deadline (calculated by CMS as April 18, 2015), the request for QIC
reconsideration was dismissed pursuant to the relevant Code of Federal Regulations
provisions that govern the appeal process and timing. (Doc. 11-8 at 2). This August 24,
CMS’s October 15, 2014 redetermination notice to Mr. Trostle states, “In your appeal request you
stated that there are claims on the payment summary form unrelated to your case.” (Doc. 11-6 at 1).
Mr. Trostle’s initial appeal, however, makes no such claim. (See Doc. 11-5).
2015 CMS dismissal also included instructions on how to seek an extension for late filing
of a reconsideration request for good cause, or how to appeal a dismissal through an
Administrative Law Judge if a claimant believed the dismissal to be incorrect. (Id. at 2-3).
Neither appears to have been done.
At some point Mr. Trostle passed away, and Mrs. Trostle—both in her
individual capacity and as the administratrix of Mr. Trostle’s estate—filed the instant
complaint on January 29, 2016. CMS now moves to dismiss Plaintiffs’ claims pursuant
to Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), and 12(b)(6).
Standard of Review
When a Rule 12 motion is based on more than one ground, “the court should
consider the Rule 12(b)(1) challenge first, because if the court must dismiss the complaint
for lack of subject-matter jurisdiction, all other defenses and objections become moot.” In
re Corestates Trust Fee Litig., 837 F. Supp. 104, 105 (E.D. Pa. 1993), aff’d, 39 F.3d 61
(3d Cir. 1994). On a motion to dismiss for lack of subject matter jurisdiction, the plaintiff
ordinarily bears the burden of persuasion that jurisdiction exists. Gould Elecs., Inc. v.
United States, 220 F.3d 169, 178 (3d Cir. 2000).
A dismissal under Federal Rule of Civil Procedure 12(b)(1) is not a judgment
on the merits of a case; rather, it is a determination that the court lacks the power to hear
a case. Mortensen v. First Fed. Sav. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977). A
Rule 12(b)(1) motion may be treated in one of two ways: “either as a facial or a factual
challenge to the court’s subject matter jurisdiction.” John G. v. Northeastern Educ.
Intermediate Unit 19, 490 F. Supp. 2d 565, 575 (M.D. Pa. 2007) (citing Gould Elecs., Inc.,
220 F.3d at 178).
Should the motion be presented or construed as a facial attack, the court
may only consider “the allegations contained in the complaint,” exhibits attached thereto,
“matters of public record . . . , and ‘indisputably authentic’ documents which the plaintiff
has identified as a basis of his claims and which the defendant has attached as exhibits to
his motion to dismiss.” Id. (citation omitted). The facial attack “offers a safeguard to the
plaintiff similar to a 12(b)(6) motion; the allegations of the complaint are considered to be
true.” Mortensen, 549 F.2d at 891.
The second type of Rule 12(b)(1) motion—the factual attack—permits the
defendant to submit, and the court to consider, “evidence that controverts the plaintiff’s
allegations.” Gould Elecs., Inc., 220 F.3d at 178. If the motion factually challenges the
court’s subject matter jurisdiction, no presumption of truthfulness attaches to the
allegations in the plaintiff’s complaint, and the plaintiff bears the burden of establishing
jurisdiction. Mortensen, 549 F.2d at 891. In such a case, the plaintiff must be permitted to
respond to the defendant’s evidence with his or her own evidence supporting jurisdiction.
Id. Only when it is clear from the record that the plaintiff is unable to prove the existence
of subject matter jurisdiction may a court properly dismiss the claim pursuant to a Rule
12(b)(1) factual attack. Id.
In the instant case, CMS has submitted substantial evidence with its motion
to dismiss to establish that Plaintiffs have failed to exhaust their administrative remedies,
and that such failure is fatal to Plaintiffs’ ability to prove subject matter jurisdiction.
Accordingly, the court will treat CMS’s Rule 12(b)(1) motion to dismiss as a factual attack
on subject matter jurisdiction.
CMS asserts that this court does not have subject matter jurisdiction over
Plaintiffs’ claims for several interrelated reasons. First, CMS maintains that Congress has
provided for very limited federal judicial review (i.e., subject matter jurisdiction) over claims
“arising under” the Medicare Act, requiring a claimant to fully exhaust his administrative
remedies and receive a final decision from the Secretary of Health and Human Services
(“Secretary”) before taking his claim to the district court. (See Doc. 11 at 17-22). Second,
if a claim arises under the Medicare Act, Congress has specifically mandated that such a
claim cannot be brought in federal court under federal question jurisdiction, 28 U.S.C.
§ 1331. (Id. at 14-17). Finally, CMS insists that even if Plaintiffs’ equitable claims were
found not to arise under the Medicare Act, Plaintiffs have failed to show that the federal
government waived sovereign immunity to allow such claims to be brought against one of
its agencies. 3 (Id. at 12-14).
Plaintiffs counter that subject matter jurisdiction exists because the United
States has expressly waived sovereign immunity over final decisions of CMS under the
Medicare Act, and Mr. Trostle’s dismissal by Maximus operates as a “final decision.”
(Doc. 12 at 6-7). Alternatively, Plaintiffs maintain that because their equitable claims are
not “arising under” the Medicare Act but rather are grounded in contract law, subject
CMS asserts that Plaintiffs’ failure to establish waiver of sovereign immunity requires dismissal
pursuant to Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction. However,
whether sovereign immunity exists or, conversely, the United States has consented to be sued, is an
issue of subject matter jurisdiction, not personal jurisdiction. See United States v. Bein, 214 F.3d
408, 412 (3d Cir. 2000) (“It is a fundamental principle of sovereign immunity that federal courts do
not have jurisdiction over suits against the United States unless Congress, via a statute, expressly
and unequivocally waives the United States’ immunity to suit.”) (emphasis added) (citation omitted);
Richards v. United States, 176 F.3d 652, 654 (3d Cir. 1999) (“Sovereign immunity not only protects
the United States from liability, it deprives a court of subject matter jurisdiction over claims against
the United States.”) (citing United States v. Mitchell, 463 U.S. 206, 212 (1983)).
matter jurisdiction exists because Plaintiffs are suing “a federal governmental entity.” (Id.
at 7-9; Doc. 1 ¶ 2).
A. Plaintiffs’ Claims Arise Under the Medicare Act
In 42 U.S.C. § 405(g), Congress set out how claims or disputes regarding
Medicare may reach the federal district courts. Although the language concerns the
Social Security Act, it is made applicable to the Medicare Act via 42 U.S.C. § 1395ii. See
Heckler v. Ringer, 466 U.S. 602, 614 (1984); 42 U.S.C. § 1395ii. Section 405(g)
mandates that a claimant may only seek judicial review in the district court after he
receives a “final decision” from the Secretary of Health and Human Services. 42 U.S.C.
§ 405(g). “[A] final decision is rendered on a Medicare claim only after the individual
claimant has pressed his claim through all designated levels of administrative review.”
Heckler, 466 U.S. at 606.
When a claim or dispute arises under the Medicare Act, and the Secretary
makes a final decision, section 405(h) explicitly precludes review by “any person, tribunal,
or governmental agency” except as provided by section 405(g). 42 U.S.C. § 405(h).
Furthermore, section 405(h) explicitly bars the use of federal question jurisdiction—28
U.S.C. § 1331—for such “arising under” claims. Id. (“No action against the United States,
the [Secretary], or any officer or employee thereof shall be brought under section 1331 or
1346 of Title 28 to recover on any claim arising under this subchapter.” (emphasis
Therefore, whether a claimant is required to navigate the administrative
review process and obtain a final decision from the Secretary before seeking district court
review turns on whether his claim “aris[es] under” the Medicare Act. See St. Francis Med.
Ctr. v. Shalala, 32 F.3d 805, 809-10 (3d Cir. 1994). If the claim arises under the Medicare
Act, sections 405(g) and (h) set out the claimant’s “sole avenue for judicial review.”
Heckler, 466 U.S. at 614-15. If, however, the claim does not arise under the Act, it follows
that the claimant may pursue his claim in the district court so long as subject matter
jurisdiction exists and the other prerequisites for federal filing are met.
The Supreme Court of the United States has broadly interpreted the “arising
under” language of the Medicare Act. Id. at 615. A claim arises under the Medicare Act if
“both the standing and the substantive basis for the presentation” of the claim is the Act,
id., or if the claim is “inextricably intertwined” with a claim for benefits, id. at 614. In
assessing whether a claim falls into either of these categories, the court “must discount
any ‘creative pleading’ which may transform Medicare disputes into mere state law claims,
and painstakingly determine whether such claims are ultimately Medicare disputes.”
Reg’l Med. Transp., Inc. v. Highmark, Inc., 541 F. Supp. 2d 718, 728 (E.D. Pa. 2008)
(quoting Wilson v. Chestnut Hill Healthcare, No. 99-CV-1468, 2000 WL 204368, at *4
(E.D. Pa. Feb. 22, 2000)).
Plaintiffs contend that their claims do not arise under the Medicare Act, but
rather are grounded in contract law. Plaintiffs do not dispute that all of the conditional
payments made by Medicare and listed on its August 14, 2014 determination are properly
related to treatment for Mr. Trostle’s tort-claim injuries. They also do not dispute that the
final lien amount of $53,295.14—asserted by CMS shortly after learning of the personal
injury settlement—is an accurate figure for the extensive treatment Mr. Trostle received.
Rather, Plaintiffs’ equitable claims of unjust enrichment, estoppel, and waiver
are grounded on the theory that CMS failed to properly update its conditional payment
letters and its website portal to reflect the more accurate $53,295.14 lien amount. This
failure, Plaintiffs assert, led Mr. Trostle and his attorney to believe that only $1,212.32 was
owed to Medicare, causing them to rely on that mistaken belief when engaging in
settlement negotiations. Plaintiffs further allege that even though CMS was on notice
about the nature of Mr. Trostle’s tort claim and the dates of the related injuries, and had
nearly two years to adjust its conditional payment amount to accurately reflect the true
amount owed to Medicare, CMS failed to take appropriate action until after it learned of
Mr. Trostle’s $225,000 settlement.
Plaintiffs’ theory, while unique, fails to remove their claims from beneath the
broad umbrella of “arising under” the Medicare Act. Plaintiffs’ assertions, though styled as
state law equitable claims, essentially argue that CMS’s procedures and practices
regarding its conditional payment letters and website portal management were deficient
and unfair. Because such procedures and practices are part of the Medicare Act itself,
however, Plaintiffs’ claims necessarily arise under the Act.
The Medicare Secondary Payer (“MSP”) provisions, added to the Medicare
Act in 1980 to curb rising healthcare costs, allow Medicare (through CMS) to seek
reimbursement from a “primary payer” (or an entity that receives payment from a primary
payer) for “conditional” payments Medicare has made that should have been made by the
primary payer. Fanning v. United States, 346 F.3d 386, 388-89 (3d Cir. 2003); see also
42 U.S.C. § 1395y(b)(2)(B)(ii); 42 C.F.R. § 411.22. In particular, Medicare is authorized to
seek reimbursement from a person who received payment from a primary payer, such as
a beneficiary or attorney who received settlement funds from a tortfeasor or a tortfeasor’s
insurer. See 42 C.F.R. §§ 411.22(a), 411.24(g), 411.37.
The processes governing CMS’s notification to primary payers of conditional
payments, its subrogation rights, its recovery calculations when a settlement is involved,
and its MSP “Web portal” are fully set out in the Code of Federal Regulations. See 42
C.F.R. §§ 411.25, 411.26, 411.37, 411.39. Particularly relevant to the instant case is
section 411.39, which provides detailed rules for the MSP Web portal, whereby a plaintiff
or his attorney can create an account and access conditional payment information online.
Notably, subsection (c) of section 411.39 provides step-by-step instructions for obtaining a
final conditional payment amount through the web portal in the event that settlement is
imminent. See 42 C.F.R. § 411.39(c).
Plaintiffs’ claims, which challenge CMS’s procedures and policies regarding
conditional payment communication, settlement notification to CMS, and the MSP Web
portal, essentially challenge the Medicare Act and its corresponding regulations. As a
result, there is no question that the Medicare Act provides the standing and substantive
basis for Plaintiffs’ claims, Heckler, 466 U.S. at 614, and therefore such claims arise under
B. Plaintiffs Fatally Failed to Exhaust Their Administrative Remedies
Because Plaintiffs’ claims arise under the Medicare Act, Congress has
provided only one avenue for district court review: Plaintiffs must have exhausted their
administrative remedies and received a final decision from the Secretary. See 42 U.S.C.
§ 405(g); Heckler, 466 U.S. at 614-15. Because Plaintiffs failed to follow the course
mandated by Congress and detailed within the corresponding federal regulations, this
court is without the power to address the merits of Plaintiffs’ claims.
The administrative process for disputing a Medicare claim is clearly set out in
the Code of Federal Regulations. After CMS makes an initial determination, a beneficiary
who is “dissatisfied with the initial determination may request that the contractor perform a
redetermination if the requirements for obtaining a redetermination are met.” 42 C.F.R.
§ 405.904(a)(2). Requests for redeterminations must be filed within 120 calendar days
from the date that the beneficiary receives notice of the initial determination. Id.
§ 405.942(a). After the redetermination, if the beneficiary is still dissatisfied, he or she
may request a reconsideration of the claim by a Qualified Independent Contractor (“QIC”).
Id. § 405.904(a)(2). Requests for reconsiderations must be filed within 180 calendar days
from the date the beneficiary receives notice of the redetermination. Id. § 405.962(a).
Following the reconsideration, the beneficiary may request a hearing conducted by an
Administrative Law Judge (“ALJ”). Id. § 405.904(a)(2). Requests for an ALJ hearing must
be filed within 60 calendar days after the beneficiary receives notice of the QIC’s
reconsideration. Id. § 405.1014(b)(1). Should the beneficiary wish to appeal the decision
of the ALJ, he or she may request a review conducted by the Medicare Appeals Council
(“MAC”). Id. § 405.904(a)(2). The beneficiary must file a request for a MAC review within
60 calendar days after receipt of the ALJ’s decision or dismissal. Id. § 405.1102. It is only
after receiving a decision from the MAC that a dissatisfied beneficiary may file a complaint
in federal district court. Id. § 405.904(a)(2). In other words, after receiving a MAC
decision, the “claimant has pressed his claim through all designated levels of
administrative review” and has received a “final decision” from the Secretary that is
reviewable by a district court. Heckler, 466 U.S. at 606.
Plaintiffs argue that Mr. Trostle exhausted his administrative remedies
because, after he failed to timely request QIC reconsideration, his claim was dismissed
and CMS’s redetermination became binding. Plaintiffs contend, “At this time, the decision
from CMS became final because Plaintiffs had no further appeal options through the
administrative process.” (Doc. 12 at 1).
This argument is misguided, however, because Plaintiffs conflate “final”
decision with “binding” decision. If a claimant fails to follow the explicit administrative
process to appeal an unfavorable decision, that decision generally becomes binding. See,
e.g., 42 C.F.R. § 405.958 (“The redetermination is binding upon all parties unless . . . a
reconsideration is completed . . . .”). A “final” decision, on the other hand, “is rendered on
a Medicare claim only after the individual claimant has pressed his claim through all
designated levels of administrative review.” Heckler, 466 U.S. at 606 (emphasis added).
Under Plaintiffs’ reasoning, any missed deadline in the administrative review
process would create a “final” decision, thereby permitting district court review. If this
theory were correct, however, claimants could abort the carefully constructed
administrative review process whenever they pleased in order to take their claims directly
to the district court. Such a theory contravenes the express language of the Medicare Act
and its regulations, as well as the policy behind the administrative review process. See
Wilson ex rel. Estate of Wilson v. United States, 405 F.3d 1002, 1015 (Fed. Cir. 2005)
(explaining that to allow a claimant—who failed to properly exhaust her administrative
remedies—to bring an action in federal district court would “substantially . . . undercut
Congress’[s] carefully crafted scheme for administering the Medicare Act.” (citation and
internal quotation marks omitted)). Accordingly, the court rejects Plaintiffs’ argument.
The exhibits provided by Plaintiffs and CMS indisputably demonstrate that
Mr. Trostle failed to exhaust his administrative remedies. Mr. Trostle received an
unfavorable redetermination from CMS on October 15, 2014, but did not request
reconsideration until June 22, 2015, more than two months after such a request was due.
See 42 C.F.R. § 405.962(a). No extension for filing a late reconsideration request or ALJ
review of the dismissal appears to have been sought by Mr. Trostle or his attorney.
Consequently, CMS’s October 15, 2014 redetermination became binding upon all parties.
Id. § 405.958.
Due to Plaintiffs’ procedural default, they have not obtained—nor can they
obtain—a final decision from the Secretary that would allow them to bring an action in this
court. Thus, it is clear from the record that Plaintiffs have not, and cannot, prove the
existence of subject matter jurisdiction. Consequently, this court lacks the power to
entertain Plaintiffs’ claims. 4
Based on the foregoing analysis, this court is without subject matter
jurisdiction to entertain Plaintiffs’ claims of unjust enrichment (Count I), estoppel (Count 2),
and waiver (Count III), which are, in fact, claims arising under the Medicare Act.
Furthermore, Plaintiffs’ claim that the instant case is an appeal from an administrative
body (Count IV) also lacks subject matter jurisdiction because this case is not an appeal
from a final decision issued by the Secretary of Health and Human Services, as required
Because subject matter jurisdiction is lacking for all claims, there is no need to address CMS’s
motion to dismiss pursuant to Rule 12(b)(6).
Accordingly, CMS’s motion (Doc. 7) to dismiss pursuant to Federal Rule of
Civil Procedure 12(b)(1) must be granted. This dismissal will be with prejudice, as no
amendment to Plaintiffs’ complaint could infuse subject matter jurisdiction into any of
Plaintiffs’ claims. An appropriate order will follow.
/s/ William W. Caldwell
William W. Caldwell
United States District Judge
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