US District Court Holds that the Federal Government Must Exhaust Administrative Remedies Pursuant to 42 U.S.C. '405(h) Before It Can Sue Medicare Providers Under Common Law Causes of Action

42 U.S.C. 405(h) has always posed a virtual roadblock to any efforts by health care providers to sue Medicare to remedy incorrect fiscal intermediary payment decisions or to contest other aspects of Medicare payment policy. Section 405(h) as it applies to Medicare reads:

This section is made applicable to the Medicare Act via operation of 42 U.S.C. 1395ii.

Prior to 1972, the Medicare Act contained no administrative procedure for appealing fiscal intermediary Notice of Program Reimbursement ("NPR") determinations. In that year, the Medicare Act was amended to include 42 U.S.C. 1395oo. This provision directs dissatisfied providers to appeal adverse NPRs to a Provider Reimbursement Review Board for hearings within 180 days of having received notice of the fiscal intermediary's final decision.^[1]It is only after the Board renders its final decision that the provider can obtain judicial review of the NPR determination. 42 U.S.C. 1395oo(a). National Kidney Patients Association v. Sullivan, 958 F.2d 1127, 1137 (D.C. Cir. 1992); Chaves County Home Health Service, Inc. v. Sullivan, 931 F.2d 914 (D.C. Cir. 1991).

The Department of Justice ("DOJ") has maintained consistently in litigation that no provider can sue the Secretary of Health and Human Services ("HHS") or the United States regarding a coverage decision unless and until the provider has exhausted the dazzling range of administrative remedies enumerated in HHS's regulations. Confronted with the requirement to spend possibly years and untold resources in contesting NPR determinations within the HHS administrative hierarchy, or face DOJ's invocation of 405(h), frustrated providers often simply abandon any attempts to litigate the issue.

Section 405(h) has been invoked by DOJ in a wide variety of situations to stifle litigation challenges to HHS payment policies. For example, DOJ argued that litigation undertaken to test the propriety of the "Physicians at Teaching Hospitals" ("PATH") audit program, which eventually coerced millions of dollars out of teaching hospitals, was foreclosed by this provision. See, e.g., University of Medicine and Dentistry of New Jersey v. Corrigan, 347 F.3d 57, 66 (3d. Cir. 2003); Temple University of the Commonwealth System of Higher Education v. Brown, 2001 WL 185535 at *4 (E.D. Pa. Feb. 23, 2001).

Now, however, in a case of first-impression, the United States District Court for the District of Massachusetts has turned the tables on DOJ and ruled that the government itself, much like health care providers, is subject to the mandate of 405(h). United States v. University of Massachusetts Memorial Medical Center, 2003 WL 22988889 (D. Mass. Dec. 19, 2003) ("Univ. Mass.").^[2] That is to say, before DOJ can sue a provider to recover payments it considers inappropriate, it must itself first exhaust the extensive range of HHS administrative remedies. While, as discussed below, the district court decision specifically exempts actions brought by DOJ under the False Claims Act, 31 U.S.C. 3729-33 ("FCA"), from its holding, nonetheless the decision may impose a significant limitation on DOJ's efforts to utilize the FCA in health care fraud matters.

The Courts Decision

The decision grows out of a rather common situation. On the basis of a nationwide investigation of laboratory billing practices, DOJ concluded that the University of Massachusetts Memorial Medical Center (the University) had improperly received overpayments for services provided to Medicare beneficiaries. To recoup the purported overpayments, DOJ brought suit in the District of Massachusetts under common law causes of action for unjust enrichment and payment under mistake of fact, seeking various equitable remedies including an accounting, imposition of a constructive trust, and disgorgement. The University moved to dismiss the complaint on the basis of 405(h), alleging that the district court lacked subject matter jurisdiction to entertain the complaint since the government had not exhausted its administrative remedies.

In response, DOJ argued that 405(h) only applied to situations where a provider was seeking to institute action against the United States, not where DOJ was bringing an action to recoup reimbursement payments. Chief Judge Young rejected this contention. For the Court, the central issue in the litigation involved whether DOJ could impose its interpretation of Medicare regulations, since DOJ and not the Secretary had determined that inappropriate payments had been made to the University. The Supreme Court has made it clear that when a cause of action is "inextricably intertwined" with reimbursement determinations involving the Secretary's own expertise and experience, then 405(h) comes into play. Heckler v. Ringer, 466 U.S. 602, 614 (1984). As noted by the district court, "Because Section 405(h) has been interpreted to assure the Secretary 'greater opportunity to apply, interpret, or revise policies, regulations, or statutes,' the provision assumes special significance in the present action." Univ. Mass. at *2, quoting Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 13 (2000). ^[3]

Given that 405(h) controls, the Court next examined the language of the provision. It concluded that no element of 405(h) supported DOJ's position; in particular, nothing in the second sentence of 405(h) suggests that it applies only in situations where an action is brought against the United States. Id. at *3. Pointing to the Supreme Court's decision in Weinberger v. Salfi, 422 U.S. 749, 757 (1975), the district court rejected the argument that the express language of 405(h) should be narrowly construed. Moreover, to impose such a reading on the second sentence would seem to duplicate the express language of the final sentence of 405(h). In this regard, the critical language for the district court is that which is found in the second sentence of the section, and its plain meaning repudiates the government's position.

The district court rejected additional arguments put forward by the United States. For example, it found that the government's contention that it was unnecessary for DOJ to exhaust administrative remedies since it represented the Secretary was repudiated by DOJ's own admission that it, not the Secretary, had made the overpayment determinations. Univ. Mass. at *5. The court also rejected any comparison with various Medicare regulations (principally 42 C.F.R. 401.601 (c), (f)) that provide for DOJ collection of amounts referred to it by the Secretary. That analogy is defective since in those situations the Secretary, and not DOJ, has exercised his discretion to make the finding of liability.

Decision Not Applicable to FCA Actions

Chief Judge Young was most careful to carve out from the reach of his decision any actions initiated by the government under the FCA. In interpreting the reach of 405(h), the courts have recognized that the Secretary is deserving of a "heightened degree of deference" in interpreting the often impenetrable HHS reimbursement regulations. See, e.g., La Casa Del Convalenciente v. Sullivan, 965 F.2d 1175, 78 (1st Cir. 1992). In this case, e.g., the focus is on "misinterpretation of Medicare regulations," not fraud or falsity. Courts lack expertise in this area. Therefore, the Secretary's expertise controls. Id. at *2. However, the district court reasoned, this consideration is inapplicable to FCA cases, because judges do have superior experience in dealing with fraud and falsity issues. Therefore, there is no reason to justify allowing 405(h) to be applicable when the government is proceeding under the FCA.^[4]

Despite the court's effort to shield FCA actions from the reach of its decision, there will be a substantial impact on the way future DOJ and relators' FCA cases are brought. Typically, it is DOJ practice to require the inclusion in any FCA complaint of alternative common law causes of action as a backup should the FCA claim falter. Yet, those are the very causes of action the district court has held now are foreclosed in Medicare cases from being asserted without government compliance with 405(h). This holding is a particularly important development given that administrative claims for recoupment usually have a three-year statute of limitations reach, as contrasted with the much more generous provisions of the FCA which allow, under certain circumstances, as long as a ten-year period. See 31 U.S.C. 3732(a). It will be interesting to see how DOJ and the courts resolve this dilemma.

Conclusion

Make no mistake, 405(h) still stands as a stumbling block for Medicare providers seeking to challenge reimbursement decisions entered by fiscal intermediaries. What the decision currently does is to saddle that same millstone around the neck of the government as well. This holding should, hopefully, result in DOJ seeking more reasonable settlements as an alternative to running the risk of 405(h) preclusion in litigation.

^[1]The fiscal intermediary may also reopen the NPR pursuant to 42 C.F.R. 405.1885 under its discretionary or mandatory reopening authority. See, e.g., Bartlett Memorial Medical Center v. Thompson, 347 F.3d 828, 832 (10^th Cir. 2003).

^[2]A related decision was handed down in United States v. Idaho Falls Assocs. Ltd. Partnership, 81 F. Supp. 2d 1033, 1049 (D. Idaho 1999). There the district court held (in dictum) that 405(h) "does not merely apply to actions against the government to recover benefits under the Medicare Act" when rejecting defenses asserted by the providers in an action brought by the United States. See Univ. Mass. at *3.

^[3] Shalala remains the Supreme Court's most significant holding interpreting 405(h). The Court noted that 405(h) "reaches beyond ordinary administrative law principles of 'ripeness' and 'exhaustion of administrative remedies'" because those doctrines recognize exceptions which would permit early review. By contrast, 405(h) "demands the 'channeling' of virtually all legal attacks through the agency." While 405(h) can invoke hardship in individual cases, it is necessary "[i]n 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..." Id. at 13.

^[4] Judge Young here seems somewhat unrealistic in his assessment of FCA cases involving convoluted Medicare regulations and statutes. In order to successfully prosecute such actions, DOJ must, to a very great extent, master the very intricacies of Medicare law that the district court suggested were beyond the competency of mere judges and attorneys. On the other hand, as one court recognized, Medicare regulations are among the most completely impenetrable texts within human experience. Rehab. Assn v. Kozlowski, 42 F.3d 1444, 1450 (4^th Cir. 1994).