Opinion
Civil Action No. 5:03-CV-155-C
November 10, 2003
ORDER
On this date the Court considered the Motion to Dismiss filed September 2, 2003, by Defendants, Trailblazer Health Enterprises, LLC ("Trailblazer") and Tommy Thompson, Secretary of Health and Human Services (collectively "Defendants"). Plaintiffs, Southern Dynamics Therapy, Inc., d/b/a L-Tronics Therapy ("Southern Dynamics") and Melinda Vogler (collectively "Plaintiffs"), filed a Brief in Opposition to Defendants' Motion to Dismiss on October 17, 2003. After reviewing all the arguments, the Court GRANTS Defendants' Motion.
I. BACKGROUND
Southern Dynamics, as a provider of occupational therapy, physical therapy, and speech therapy, provided therapy, to patients covered by Medicare and/or Medicaid, through therapists in the three disciplines. The company was fully owned by Mindy Vogler. Trailblazer administers the payment of Medicare benefits in the State of Texas as a Medicare contractor.
Sometime in September of 1999, Trailblazer assigned a Medicare Part B group number to Southern Dynamics. Plaintiffs allege that at some point Trailblazer, after failing to pay on some of Southern Dynamics' submitted claims, instructed Southern Dynamics to utilize a "57" modifier to the submissions, which then resulted in denial of payments and allegations of fraud against Southern Dynamics.
Plaintiffs also allege that at some point all claims submitted by Southern Dynamics were earmarked for the review process. Plaintiffs contend that this was contrary to applicable regulations in that, by flagging all occupational and physical therapy codes, all of Southern Dynamics' claims were thus "illegally" reviewed.
Plaintiffs also allege that Trailblazer advised the use of both individual therapist numbers and a group number and, in doing so, caused the denial of claims.
In their Brief, Plaintiffs charge that Southern Dynamics has not been paid approximately $57,000.00 on 106 claims approved for payment by the Administrative Law Judge ("ALT"). Southern Dynamics also alleges that Trailblazer, at different times, told Southern Dynamics that it may not be paid on certain claims awarded by the ALJ and that certain awards may have been lost or misplaced.
Somewhere between 800 and 900 cases were also scheduled for review by the ALJ; however, those cases were "voluntarily withdrawn" and Southern Dynamics is now barred by limitations from filing requests for hearings. However, Defendants contend that the ALJ dismissed the 800-900 cases for lack of jurisdiction because the cases had not first been submitted for "carrier review process" a procedure required before the ALJ may obtain jurisdiction.
Plaintiffs earlier brought essentially this very case before United States Bankruptcy Judge Robert L. Jones in In re Southern Dynamics Therapy, Inc., Adv. No. 02-5017 (Bankr. N.D. Texas). Judge Jones found that all of Plaintiffs' claims "arose under" the Medicare Act and that Plaintiffs had failed to exhaust administrative remedies, and Judge Jones dismissed the case for lack of subject matter jurisdiction. Although Southern Dynamics did not appeal any ALJ decisions to the Medicare Appeals Council, at the time of Judge Jones's decision, Southern Dynamics was still in a position to exhaust its administrative remedies.
Plaintiffs allege constitutional rights violations, due process violations, equal protection violations, breach of contract/quantum meruit, negligence, tortious interference with business relationships, false representations, fraud, and improper methodology. Defendants seek to have the Complaint dismissed for lack of subject matter jurisdiction because Southern Dynamics has failed to meet the requirements for judicial review set out in the Social Security Act. Defendants also seek to have the Complaint dismissed for failure to state a claim upon which relief may be granted. Trailblazer also asserts official immunity, claiming that, as an intermediary and carrier, it was doing the work of the government and is therefore immune from tort liability.
II. STANDARDS
Rule 12(b)(1) Subject Matter Jurisdiction
Motions filed under Rule 12(b)(1) of the Federal Rules of Civil Procedure allow a party to challenge the subject matter jurisdiction of the district court to hear a case. FED. R. Civ. P. 12(b)(1). Lack of subject matter jurisdiction may be found in any one of three instances: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts. Ban-era-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996).
The burden of proof for a Rule 12(b)(1) motion to dismiss is on the party asserting jurisdiction. McDaniel v. United States, 899 F. Supp. 305, 307 (E.D. Tex. 1995). Accordingly, the plaintiff constantly bears the burden of proof that jurisdiction does in fact exist. Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980).
When a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits. Hitt v. City of Pasadena, 561 F.2d 606, 608 (5th Cir. 1977). This requirement prevents a court without jurisdiction from prematurely dismissing a case with prejudice. Id. The court's dismissal of a plaintiff's case because the court lacks subject matter jurisdiction is not a determination on the merits and does not prevent the plaintiff from pursuing a claim in a court that does have proper jurisdiction. Id.
In examining a Rule 12(b)(1) motion, the district court is empowered to consider matters of fact which may be in dispute. Williamson v. Tucker, 645 F.2d 404, 413 (1981). Ultimately, a motion to dismiss for lack of subject matter jurisdiction should be granted only if it appears certain that the plaintiff cannot prove any set of facts in support of his claim that would entitle plaintiff to relief. Home Builders Ass'n of Miss., Inc. v. City of Madison, Miss., 143 F.3d 1006, 1010 (5th Cir. 1998).
Rule 12(b)(6) Failure to State a Claim
Motions to dismiss for failure to state a claim are appropriate when a defendant attacks the complaint because it fails to state a legally cognizable claim. FED. R. Civ. P. 12(b)(6). The test for determining the sufficiency of a complaint under Rule 12(b)(6) was set out by the United States Supreme Court as follows: "[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). See also Grisham v. United States, 103 F.3d 24, 25-26 (5th Cir. 1997).
Subsumed within the rigorous standard of the Conley test is the requirement that the plaintiffs complaint be stated with enough clarity to enable a court or an opposing party to determine whether a claim is sufficiently alleged. Elliott v. Foufas, 867 F.2d 877, 880 (5th Cir. 1989). Further, "the plaintiffs complaint is to be construed in a light most favorable to the plaintiff, and the allegations contained therein are to be taken as true." Oppenheimer v. Prudential Sec., Inc., 94 F.3d 189, 194 (5th Cir. 1996). This is consistent with the well-established policy that the plaintiff be given every opportunity to state a claim. Hitt, 561 F.2d 606, 608 (5th Cir. 1977). In other words, a motion to dismiss an action for failure to state a claim "admits the facts alleged in the complaint, but challenges plaintiffs rights to relief based upon those facts." Tel-Phonic Servs., Inc. v. TBS Int'l, Inc., 975 F.2d 1134, 1137 (5th Cir. 1992). Finally, when considering a Rule 12(b)(6) motion to dismiss for failure to state a claim, the district court must examine the complaint to determine whether the allegations provide relief on any possible theory. Cinel v. Connick, 15 F.3d 1338, 1341 (5th Cir. 1994).
III. DISCUSSION
Medicare Claims Review Scheme
This Court finds Judge Kent's opinion in Marsaw v. Trailblazer Health Enterprises, Inc., 192 F. Supp.2d 737 (S.D. Tex. 2002), very insightful in describing the relevant scheme for
review of Medicare claims. In discussing the avenue for review under 42 U.S.C. § 405(g), that Court's summary is adopted herein.
Title 42 U.S.C. § 405(g) provides the sole avenue for judicial review of all claims "arising under" the Medicare Act. This fact is evidenced by the plain text of 42 U.S.C. § 405(h), which stipulates: "The findings and decision of the Secretary after such a hearing shall be binding upon all individuals who were parties to such a hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Secretary, or any officer or employee shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under this subchapter." Thus, as has been construed by the Supreme Court, the third and final sentence of § 405(h) precludes federal question jurisdiction over claims "arising under" the Medicare Act and instead renders § 405(g) as the exclusive remedy for any such claims.
Section 405(g) states in pertinent part that "[a]ny individual, after any final decision of the Secretary made after a hearing to which he was a party, irrespective of the amount in controversy, may obtain review of such decision by a civil action commenced within sixty days after the mailing to him of notice of such decision or within such further time as the Secretary may allow." The Supreme Court has interpreted § 405(g) to bar judicial review of any denial of a Medicare benefits claim until after a final decision has been issued by the Secretary following a hearing. In order to invoke jurisdiction under § 405(g), two conditions must be satisfied, one of which is nonwaivable, and the other of which is waivable. The nonwaivable element is that a claim be presented to the Secretary for review. This condition can never be waived because without presentment, no decision of any type can be rendered. The waivable element, and the one at issue here, is that a claimant must exhaust his administrative remedies.
Under the elaborate scheme established by Congress, a claimant in Plaintiffs' position exhausts its administrative remedies by employing a three-stage process. First, if the claimant is dissatisfied with the initial disposition of its Medicare claim, it may request reconsideration by the relevant Medicare carrier. If the Medicare carrier again denies the claim, the claimant may argue its case before an administrative law judge. If the administrative law judge similarly denies the claim, the claimant may then seek review by the Appeals Council. Finally, if the Appeals Council denies the claim and the claim exceeds $1,000, the claimant may pursue judicial review of the Secretary's decision in a federal district court. Typically, the power to determine when a claimant has exhausted its administrative remedies and a final decision has been rendered rests with the Secretary, since the Secretary bears the ultimate responsibility for the integrity of the administrative program. Despite this general rule, however, the Supreme Court has recognized that "cases may arise where a claimant's interest in having a particular issue resolved promptly is so great that deference to the agency's judgment is inappropriate." In particular, the Supreme Court has excepted the Secretary's judgment and permitted judicial review prior to the exhaustion of administrative remedies when the claim is "entirely collateral to [a] substantive claim of entitlement," or when the enforcement of the exhaustion requirement would result in irreparable injury to the claimant.Marsaw, 192 F. Supp.2d at 743-44 (citations and footnotes omitted).
Lack of Jurisdiction A. Exhaustion
The Social Security Act controls all claims "arising under" it, which are defined to include claims that are "inextricably intertwined" with benefit determinations. See Heckler v. Ringer, 466 U.S. 602, 622-24 (1984). In order to fall under the purview of the Act, the claims cannot be merely "collateral." The Fifth Circuit has determined that the issue of whether a plaintiffs claims are collateral for purposes of exhaustion depends on if a claim is unquestionably administrative in nature. Affiliated Professional Home Health Care Agency v. Shalala, 164 F.3d 282, 285 (5th Cir. 1999). If "a court would necessarily have to immerse itself in [Medicare] regulations and make a factual determination as to whether [a plaintiff] was actually in compliance[,]" then the claim is not collateral. See id.
This Court finds that Plaintiffs' claims clearly fall under the Social Security Act ("the Act"). Plaintiffs' entire case is premised upon the allegedly wrongful administration or denial of Medicare claims. All the allegations are "inextricably intertwined" with the administrative methodology of Trailblazer. This Court further finds that it would "necessarily have to immerse itself in Medicare regulations" to determine the issues of the underlying claims. Plaintiffs' claims are not "entirely collateral to a substantive claim of entitlement" and thus are not excluded from the exhaustion principles of the Act.
If the claims "arise under" the Act and are not collateral, this Court would not have jurisdiction unless Southern Dynamics has exhausted its administrative remedies. See Marsaw, 192 F. Supp.2d 737; Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 5 (2000). Thus, the Court must determine if Plaintiffs exhausted their administrative remedies before seeking judicial review because their claims do arise under the Act.
Plaintiffs contend that administrative remedies have been both "effectively exhausted" and that exhaustion would be "futile." See PL Br. pp. 5-7. "Effectively" completing a condition precedent to judicial review is not sufficient. Moreover, "futility" is not an exception to the condition requiring the exhaustion of administrative remedies. That issue has been previously decided in Marsaw:
Plaintiffs imply the existence of [an] exception to the administrative exhaustion requirement, specifically stating that the Supreme Court has waived the exhaustion requirement when "exhaustion would be futile." However, in both Eldridge and Bowen, the Supreme Court waived the exhaustion requirement on the explicit grounds that the constitutional challenges brought by claimants were "collateral" to the substantive claims for entitlement, and that irreparable injury would occur. While the Court agrees that the concept that further administrative review would be futile is implicit in these latter two justifications, it does not believe that the futility is an independent ground for rejecting the Secretary's judgment.Marsaw, 192 F. Supp.2d at 744 Fn. 8. This Court agrees that futility is not, in and of itself, an independent ground for waiving exhaustion of administrative remedies. Plaintiffs allege that because they were awarded sums of money under favorable ALJ decisions that were never paid, it would be futile to administratively exhaust all claims because Defendants will not pay. However, Plaintiffs admit that the Bankruptcy Court in this Division issued an Order Granting the United States' Motion for Relief from the Stay to Permit Setoff. This Order permitted the Secretary to set off payments awarded to Plaintiffs by the ALJ against federal tax liabilities owed by Plaintiffs.
Plaintiffs insist that Trailblazer has "misplaced" or "lost" approximately 900 claims files or refuses to send them to the ALJ. The Court finds, as did the Bankruptcy Court, that those claims were clearly dismissed on November 1, 2002, because the ALJ found that "carrier hearings" were absent on those claims. Thus the ALJ determined that a procedural requirement had not been met prior to bringing the claims before the ALJ. Dismissal on procedural grounds at the administrative stage deprives a district court of jurisdiction. Brandywine v. Sullivan, 959 F.2d 555, 562 (5th Cir. 1992). The Court finds that the ALJ's dismissal of the approximately 900 claims falls within the "dismissal on procedural grounds." As Defendants stated in their Brief, the administrative process was not completed because Southern Dynamics never appealed the decisions of the ALJ to the Medicare Appeals Council. "If a claimant fails to request review from the Council, then there is no final decision and, as a result, no judicial review in most cases." Sims v. Apfel, 530 U.S. 103, 107 (2000). "The ALJ's decision becomes the Secretary's final decision for purposes of judicial review unless that decision is subsequently reviewed" by the Appeals Council. Affiliated Professional Home Health Care Agency v. Shalala, 164 F.3d 282, 284-85 (5th Cir. 1999). However, "the provider may seek judicial review in federal district court only after it has exhausted all of [the] administrative remedies." Id. Plaintiffs never appealed to the Medicare Appeals Council, allowed the limitations period to run on their appeals, and thereby waived those claims. "[S]uch a claimant may not obtain judicial review because he has failed to exhaust administrative remedies." Sims, 530 U.S. at 107. The Fifth Circuit has "squarely held that the statutory time limits for filing petitions for review of agency actions "are jurisdictional in nature such that if the challenge is brought after the statutory time limit, [federal courts] are powerless to review the agency's action" and must dismiss for want of jurisdiction." Nutt v. Drug Enforcement Admin., 916 F.2d 202, 203 (5th Cir. 1990) (quoting Texas Mun. Power Agency v. Administrator of the United States Environmental Protection Agency, 799 F.2d 173, 174-76 (5th Cir. 1986)). Just as the Fifth Circuit determined in Nutt, "absent some tolling provision or other saving device," this Court finds that it has no choice but to dismiss because the limitations period ran before Plaintiffs sought appeal of lower administrative rulings to the Medicare Appeals Council.
Plaintiffs seem to allude that they were induced to withdraw the 800-900 disputed claims that were before the ALJ. However, no evidence was offered to back up this conclusory allegation.
As Defendants stated in their Brief, "Plaintiffs present no authority that would permit judicial review of these dismissed claims," and this Court finds no precedent on the issue. However, this Court has located precedent which states that the "deliberate flouting of administrative processes could weaken the effectiveness of an agency by encouraging people to ignore its procedures." McKart v. United States, 395 U.S. 185, 195 (1969). "[Exhaustion principles] apply to cases like the present one, where the administrative process is at an end and a party seeks judicial review of a decision that was not appealed through the administrative process." Id. at 194.
B. Immunity
As to Defendant Trailblazer's claims for immunity, this Court again turns to Judge Kent's decision in Marsaw, which incidentally dealt with the very Defendant before this Court, and adopts the pertinent portion discussing the issue regarding immunity of Medicare contractors.
At the outset, the Court notes that the doctrine of sovereign immunity shields the federal government and its agencies from suit, except where explicitly waived. Over the years, Congress has broadened the government's consent to be sued through the passage of various statutes such as 42 U.S.C. § 405(g), which covers actions arising under the Medicare Act. Additionally, the Fifth Circuit and other appellate courts have held that federal immunity attaches with equal force to Medicare carriers and intermediaries acting within the scope of their official duties. See, e.g., Peterson v. Weinberger, 508 F.2d 45, 51-52 (5th Cir. 1975) (applying federal immunity to Medicare fiscal intermediaries acting as agents of the United States); Midland Psychiatric Associates, Inc. v. United States, 145 F.3d 1000, 1004-05 (8th Cir. 1998) (justifying immunity for Medicare carriers and intermediaries in part because insurers "might well rethink their contracts with the Government if they had to make Medicare claims decisions under the threat of tort liability"); Bodimetric Health Services, Inc. v. Aetna Life Cas., 903 F.2d 480, 487-88 (7th Cir. 1990) (applying the Medicare Act's immunity provision to Medicare fiscal intermediaries because dissatisfied claimants should not be able to "avoid the preclusive effect of section 405(h) by simply bringing suit against the fiscal intermediary instead of the Secretary"). Although Plaintiffs attempt to argue that Trailblazer was acting outside the scope of its official duties in denying Plaintiffs' Medicare claims, therefore stripping it of its immunity protection, the Court is unpersuaded. The decision to pay or deny reimbursement claims rests squarely within the purview of Trailblazer's authority, as expressly delegated by the Secretary, and Trailblazer exercised its discretion in denying Plaintiffs' claims, as required under the Westfall doctrine. See Westfall v. Ervin, 484 U.S. 292, 296-97, 108 S.Ct. 580, 584, 98 L.Ed.2d 619 (1988) (holding federal officials absolutely immune from tort liability for discretionary conduct within the scope of their official duties), superseded by statute on other grounds. Accordingly, both Defendants are entitled to federal immunity.Marsaw, 192 F. Supp.2d at 743 n. 7. The Court finds that Plaintiffs' claims arise from Defendants' decisions to pay or deny reimbursements. Thus, Defendants were acting within the scope of official duties and are entitled to the same official immunity as officers or employees of the United States performing discretionary duties.
IV.
CONCLUSION
The claims made by Plaintiffs are covered by the Social Security Act. The Act precludes review of claims prior to exhaustion of administrative remedies. Therefore, this Court finds that Plaintiffs have failed to state a claim over which this Court may exercise its jurisdiction. Furthermore, Plaintiffs have failed to state a claim for which relief may be granted because Defendants are immune from suit in this circumstance. The Court herein GRANTS Defendants'
Motion to Dismiss. All relief not expressly granted is denied
SO ORDERED