finding that judicial waiver 9 of exhaustion was not appropriate where the appellant “lack[ed] an irreparable injury 10 because a future award of damages plus interest will make it whole”
How later courts described this case
- finding that judicial waiver 9 of exhaustion was not appropriate where the appellant “lack[ed] an irreparable injury 10 because a future award of damages plus interest will make it whole”
- holding that statements by the 20 plaintiff entity’s president that it sustained monetary losses, standing alone, are not 21 sufficient evidence that the plaintiff is threatened with extinction
Written by the judges who cited it.
The opinion
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8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
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11 SAN DIEGO COMPREHENSIVE PAIN Case No. 21-cv-01739-BAS-WVG
MANAGEMENT CENTER, INC., et al.,
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ORDER DISMISSING ACTION
Plaintiffs,
13 WITHOUT PREJUDICE FOR LACK
v. OF SUBJECT MATTER
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JURISDICTION
XAVIER BECERRA, et al.,
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Defendants.
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19 Plaintiffs are three group medical practices and a surgery center that treat patients
20 with chronic pain issues. Plaintiffs have received Medicare payments from the United
21 States Department of Health & Human Services (“HHS”) until September 2021, when
22 HHS suspended the Medicare payments. Plaintiffs moved for preliminary injunction
23 requiring Defendants to remove the suspension; pay any outstanding, new, and pending
24 claims; and provide notice of the reasons for the suspension. (ECF No. 7.)
25 Because Plaintiffs’ claims arise under Medicare, their sole avenue to seek judicial
26 review is through 42 U.S.C. § 405(g), which requires Plaintiffs to exhaust administrative
27 remedies or show that the exhaustion requirement should be judicially waived to establish
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1 statutory jurisdiction. Plaintiffs did neither. Therefore, the Court dismisses this action for
2 lack of subject matter jurisdiction.
3
4 I. BACKGROUND
5 Plaintiffs San Diego Comprehensive Pain Management Center, El Centro
6 Comprehensive Pain Management Center, Las Vegas Comprehensive Pain Management
7 Center, and Pacific Surgical Institute of Pain Management, Inc., are group medical
8 practices and a surgery center owned by David J. Smith, M.D. (Compl. ¶ 1; Pls.’ Mem.,
9 ECF No. 7-1 at 9.) Defendant Xavier Becerra is the Secretary of the United States
10 Department of Health and Human Services (“HHS”). An agency within HHS, the Centers
11 for Medicare and Medicaid Services (“CMS”), oversees the Medicare program and
12 contracts with a Medicare Unified Program Integrity Contractor (“UPIC”), who reviews,
13 investigates, and audits payments made on behalf of the federal government. Defendant
14 Qlarant Integrity Solutions, LLC is a UPIC. HHS also contracts with “fiscal
15 intermediaries,” also known as “Medicare Administrative Contractors” (“MAC”), to
16 administer, process, and pay valid claims to qualified providers.
17 Effective September 9, 2021, Plaintiffs’ Medicare payments have been suspended.
18 (Compl. ¶ 4.)
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20 A. Regulatory Background
21 Because Plaintiffs challenge the procedure by which their Medicare payments were
22 suspended, the Court provides a brief summary of the regulatory framework governing
23 suspensions of Medicare payments.
24 CMS may suspend payments to a Medicare provider “in whole or in part,” when
25 CMS determines that “a credible allegation of fraud exists against a provider or supplier.”
26 42 C.F.R. § 405.371(a)(2). In some cases, CMS may suspend payments without prior
27 notice to the service provider, but CMS must provide the provider with an opportunity to
28 submit a rebuttal statement in writing as to why the suspension should be removed. Id.
1 §§ 405.372(a)(3), (b)(2). Within fifteen days of the receipt of the rebuttal, CMS determines
2 whether the suspension should stay in effect or be removed. Id. § 405.375(a). That
3 determination is not “an initial determination and is not appealable.” Id. § 405.375(c).
4 If the agency determines that a suspension based on an allegation of fraud should
5 stay in effect, CMS reviews additional evidence as to whether an overpayment exists. Id.
6 § 405.372(c)(2)(i). “The rescission of the suspension and the issuance of a final
7 overpayment determination to the provider or supplier may be delayed until resolution of
8 the investigation.” Id. § 405.372(c)(2)(ii). “[A]ll suspensions of payment in accordance
9 with § 405.371(a)(2) will be temporary and will not continue after the resolution of an
10 investigation, unless a suspension is warranted because of reliable evidence of an
11 overpayment or that the payments to be made may not be correct[.]” Id. § 405.372.
12 If the agency determines that there was an overpayment and decides to recoup the
13 payments under 42 C.F.R. § 405.371(a)(3), the agency provides a written notice, and the
14 provider is given an opportunity for rebuttal in accordance with § 405.378. Such written
15 determination of overpayment and a written demand for payment constitutes a “final
16 determination.” Id. 405.378(c)(1). If the agency determines that the payment suspension
17 should be removed, the money withheld is first applied to reduce any determined
18 overpayment and then to reduce the provider’s any other obligation to the CMS or the
19 HHS. Id. § 405.372(e). Any excess is released to the provider.
20 A provider appealing an initial determination of overpayment must go through the
21 prescribed appeal process. First, a provider may request a redetermination by a MAC. 42
22 C.F.R. §§ 405.940, et seq. Second, the provider can appeal the redetermination to a
23 qualified independent contractor (“QIC”) for “reconsideration.” Id. §§ 405.960, et seq.
24 Third, the provider may appeal the reconsideration and request a hearing before an
25 administrative law judge (“ALJ”) at the Office of Medicare Hearings and Appeals
26 (“OMHA”). Id. §§ 405.1000, et seq. Fourth, the provider can appeal the ALJ’s decision
27 to the Medicare Appeals Council. Id. §§ 405.1100, et seq. The Appeals Council’s ruling
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1 is the final decision of the Secretary. Id. § 405.1130. The provider may then seek judicial
2 review by a federal district court. 42 U.S.C. § 405(g).
3 The provider may expedite the process to obtain the final decision from the
4 Secretary. An ALJ is required to “conduct and conclude a hearing . . . and render a decision
5 on such hearing by not later than the end of the 90-day period beginning on the date a
6 request for hearing has been timely filed.” 42 U.S.C. § 1395ff(d)(1)(A). “If an ALJ does
7 not render a decision within the 90-day period, a Medicare provider may move directly to
8 step four and escalate its claim to the Departmental Appeals Board (“DAB”), which
9 provides de novo review.” H. Babaali M.D. Med. Inc. v. Azar, 798 F. App’x 56, 57 (9th
10 Cir. 2019) (citing 42 U.S.C. § 1395ff(d)(2)(B), (3)(A)). Subsequently, if the DAB does
11 not process the appeal within 180 days, the provider may seek review in federal district
12 court. Id. (citing 42 U.S.C. § 1395ff(d)(2)(A), (3)(B); 58 42 C.F.R. §§ 405.1100,
13 405.1132(a)).
14 If, as a result of the appeal, the determination against the provider is reversed, “the
15 Secretary [must] provide for repayment of the amount recouped plus interest[.]” See 42
16 U.S.C. § 1395ddd(f)(2)(b).
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18 B. Factual Background
19 On or around September 16, 2021, after Plaintiffs discovered that they were not
20 receiving Medicare reimbursement for all of their services, Plaintiffs wrote a letter to
21 Defendants in protest. (Compl. ¶ 20.) Thirteen days later, Defendant Qlarant Integrity
22 Solutions confirmed the receipt of Plaintiffs’ objection and issued a letter stating that “a
23 response would be forthcoming.” (Id. ¶ 21.)
24 On or around October 22, 2021, CMS notified Plaintiffs of its determination that the
25 Medicare payments will be suspended effective September 9, 2021, under 42 C.F.R.
26 § 405.371(a)(2). CMS explained that the suspension was based on “a credible allegation
27 of fraud [that] exists against a provider or supplier.” (Exs. A, B, C to Pls.’ Reply, ECF No.
28 27-1.) Specifically, CMS stated that “Plaintiffs submitted claims to Medicare for services
1 that are medically unnecessary.” (Id.) CMS explained that prior notice of the suspension
2 was not provided “because giving prior notice would place additional Medicare funds at
3 risk and hinder [the agency’s] ability to recover any determined overpayment.” (Exs. A,
4 B, C to Pls.’ Reply, ECF No. 27-1 (citing 42 C.F.R. § 405.372(a)(3) and (4)).) CMS
5 informed Plaintiffs of the right to submit a rebuttal statement to Qlarant Integrity Solutions,
6 LLC, in writing, pursuant to 42 C.F.R. § 405.372(b)(2).
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8 C. Procedural Background
9 On October 7, 2021, Plaintiffs filed the present action against Defendants. (Compl.,
10 ECF No. 1.) Plaintiffs filed an ex parte application for temporary restraining order or for
11 preliminary injunction, which the Court construed as a motion for preliminary injunction
12 and set a briefing schedule. (Pls.’ Mot., ECF No. 7; Order, ECF No. 13.) In their respective
13 opposition briefs, the Secretary of HHS and Qlarant Defendants ask the Court to dismiss
14 the action for lack of subject matter jurisdiction. (Qlarant Defendants’ Opp’n, ECF No.
15 21; HHS’ Opp’n, ECF No. 22). Qlarant Defendants separately argue that they should be
16 dismissed because they are not parties of interest in this action. Plaintiffs filed a reply brief.
17 (ECF No. 27.)
18 The Court held an oral argument on November 30, 2021, and denied Plaintiffs’
19 motion for preliminary injunction. The Court deferred making a ruling on whether the
20 action should be dismissed for lack of subject matter jurisdiction.
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22 II. SUBJECT MATTER JURISDICTION
23 A. Legal Standards
24 1. Sua Sponte Dismissal for Lack of Subject Matter Jurisdiction
25 “A federal district court is a court of limited jurisdiction, and the burden of
26 establishing jurisdiction is on the party claiming jurisdiction.” Cook v. City of Pomona, 70
27 F.3d 1277 (9th Cir. 1995). A court may sua sponte dismiss an action for lack of
28 jurisdiction. See Scholastic Entm’t, Inc. v. Fox Entm’t Grp., Inc., 336 F.3d 982, 985 (9th
1 Cir. 2003). If a court lacks subject matter jurisdiction, any pending motion for preliminary
2 injunction should be denied as moot, and the case must be dismissed. See R.J. Reynolds
3 Tobacco Co. v. Becerra, No. 20-CV-1990-CAB-WVG, 2021 WL 3472697 (S.D. Cal. Aug.
4 6, 2021).
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6 2. Statutory Jurisdiction for Claims Arising Under the Medicare Act
7 “Title XVIII of the Social Security Act, 79 Stat. 291, as amended, 42 U.S.C. § 1395
8 et seq., commonly known as the Medicare Act, establishes a federally subsidized health
9 insurance program to be administered by the Secretary.” Heckler v. Ringer, 466 U.S. 602,
10 605 (1984). “42 U.S.C. § 405(h), made applicable to the Medicare Act by 42 U.S.C.
11 § 1395ii, provides that § 405(g), to the exclusion of 28 U.S.C. § 1331, is the sole avenue
12 for judicial review for all ‘claim[s] arising under’ the Medicare Act.” Silverado Hospice,
13 Inc. v. Hardan, No. SACV 17-01394-JLS (JDEx), 2018 WL 6185966, at *3 (C.D. Cal.
14 Feb. 8, 2018).
15 Section 405(g) “permits an individual to file suit in federal court ‘after any final
16 decision of the Secretary made after a hearing.’” Winter v. California Med. Rev., Inc., 900
17 F.2d 1322, 1325 (9th Cir. 1989). This “final decision” condition consists of two elements:
18 a non-waivable requirement that “a claim for benefits shall have been presented to the
19 Secretary,” and a waivable requirement “that the administrative remedies prescribed by the
20 Secretary be exhausted.” Id. (quoting Mathews v. Eldridge, 424 U.S. 319, 328 (1976); see
21 also Bowen v. City of New York, 476 U.S. 467, 482–83 (1986)).
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23 B. Analysis
24 1. Exhaustion
25 It is not disputed that Plaintiffs’ claims challenging the suspension of Medicare
26 payments arise under the Medicare Act and federal jurisdiction must be based on 42 U.S.C.
27 § 405(g). Assuming that Plaintiffs have presented their claims to the agency, Plaintiffs
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1 must show that they have exhausted the administrative remedies or that such exhaustion
2 should be judicially waived.
3 Plaintiffs concede that they have not exhausted the administrative remedies available
4 to them. Plaintiffs are so early in the administrative review process that they have not
5 shown that they have obtained any initial determination by the HHS, much less a final
6 decision. Accordingly, to avoid a dismissal for lack of subject matter jurisdiction, Plaintiffs
7 must establish that the exhaustion requirement should be judicially waived.
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9 2. Judicial Waiver of Exhaustion
10 To have the administrative exhaustion requirement judicially waived, Plaintiffs must
11 show that their claim is (1) “collateral to a substantive claim of entitlement (collaterality)”;
12 (2) “colorable in its showing that denial of relief will cause irreparable harm
13 (irreparability)”; and (3) “one whose resolution would not serve the purposes of exhaustion
14 (futility).” Kaiser v. Blue Cross of California, 347 F.3d 1107, 1115 (9th Cir. 2003).
15 Because Plaintiffs have not shown that they satisfy any of the three elements of judicial
16 waiver, the Court declines to waive the exhaustion requirement.
17
18 a. Collaterality
19 Plaintiffs argue that their due process claim is collateral to their claim of entitlement.
20 “A claim is collateral when it is ‘not bound up with the merits so closely that the court’s
21 decision would constitute interference with agency process.’” Hollywood Home Health
22 Servs., Inc. v. Qlarant Quality Sols., Inc., No. CV 19-6817-DMG (ASX), 2020 WL
23 3964792, at *4 (C.D. Cal. Feb. 27, 2020) (quoting Johnson v. Shalala, 2 F.3d 918, 922 (9th
24 Cir. 1993)).
25 As an initial matter, because the injunction Plaintiffs seek is an order for Defendants
26 to stop withholding Medicare payments, it “is essentially another way of stating that
27 Plaintiff wants the Court to order Defendants to pay out Medicare benefits.” St. Ann
28 Hospice, Inc. v. Sec’y of the U.S. Dep’t of Health & Hum. Servs., No. CV 10-2669 PA
1 (RCX), 2010 WL 11597946, at *2 (C.D. Cal. July 26, 2010). In addition, while a
2 procedural due process claim may be collateral to a substantive claim of entitlement in
3 some cases, courts have held that challenges to agency errors in the early stages of making
4 an initial determination that can be appealed through the administrative exhaustion process
5 are “inextricably intertwined with” the substantive claim of entitlement and thus do not
6 satisfy the collaterality requirement. See Kildare v. Saenz, 325 F.3d 1078, 1083 (9th Cir.
7 2003); see also Clarinda Home Health v. Shalala, 100 F.3d 526, 531 (8th Cir. 1996)
8 (holding that the collaterality requirement was not satisfied as to the provider’s due process
9 claim challenging the suspension without a hearing, where the agency has merely notified
10 the provider that it is suspending the Medicare payments based on allegation of fraud).
11 Here, Plaintiffs’ claims that Defendants’ actions are extralegal are based on the
12 allegations that the CMS suspended the Medicare payments without “evidence of any
13 conceivable fraud or abuse on the part of the Plaintiff Medical Providers” and in doing so
14 committed procedural irregularities in violation of its own regulations, such as not
15 responding to Plaintiffs’ letter in a timely manner. (Compl. ¶¶ 6, 12, 14, 21.) Plaintiffs
16 also allege that Defendants are indefinitely suspending the Medicare payments without
17 notice and an opportunity to be heard. (Id. ¶ 22.) Determining the merits of Plaintiffs’
18 claims necessarily requires the Court to examine whether the suspension is without merit
19 and in violation of the relevant statute and regulations. Therefore, the Court finds that
20 Plaintiffs have not shown that their claims are not bound up with the merits of their
21 substantive claim of entitlement.
22 Thus, the collaterality element of judicial waiver is not satisfied.
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24 b. Irreparability
25 Plaintiffs argue that they will suffer irreparable injury without the rescission of
26 suspension because their businesses will not survive, and they will not be able to provide
27 “life-saving” treatment to their patients. To satisfy the irreparability element, Plaintiffs
28 must show that they have a colorable claim of irreparable harm. “A colorable claim of
1 irreparable harm is one that is not ‘wholly insubstantial, immaterial, or frivolous.’”
2 Kildare, 325 F.3d at 1083.
3 As an initial matter, the Medicare Act provides for payment of amount owed plus
4 interest, if it is determined that the suspension must be reversed. 42 U.S.C.
5 § 1395ddd(f)(2)(b). Ordinarily, where such monetary relief is available, the alleged injury
6 is not deemed irreparable. See Los Angeles Mem’l Coliseum Comm’n v. Nat’l Football
7 League, 634 F.2d 1197, 1202 (9th Cir. 1980); see also Casa Colina Hosp. & Centers for
8 Healthcare v. Wright, 698 F. App’x 406, 407 (9th Cir. 2017) (finding that judicial waiver
9 of exhaustion was not appropriate where the appellant “lack[ed] an irreparable injury
10 because a future award of damages plus interest will make it whole”).
11 Assuming that irreparable harm may be found in some cases where monetary injuries
12 would threaten a business’s existence, Plaintiffs have not made a sufficient showing of a
13 threat to the existence of their businesses. Plaintiffs rely on a declaration by Plaintiffs’
14 business owner, who states that without the termination of suspended payments, “Plaintiffs
15 will be forced to close their operations because of insolvency or bankruptcy.” (Smith Decl.
16 ¶ 26.a, ECF No. 7-2.) The Ninth Circuit has already held that similar, conclusory affidavits
17 by business owners do not constitute sufficient evidence to show that the existence of the
18 business would be threatened without relief. See Am. Passage Media Corp. v. Cass
19 Commc’ns, Inc., 750 F.2d 1470, 1474 (9th Cir. 1985) (holding that statements by the
20 plaintiff entity’s president that it sustained monetary losses, standing alone, are not
21 sufficient evidence that the plaintiff is threatened with extinction).
22 Similarly, Plaintiffs have not shown that their patients would suffer irreparable harm
23 from Plaintiffs’ inability to provide services because of the suspended payments. Plaintiffs
24 allege, in a conclusory manner, that they will not be able to provide their patients with
25 “life-saving medical care.” (Pls.’ Mem. at 11, ECF No. 7-1.) According to Plaintiffs, they
26 are “the largest providers of intrathecal pain pump treatment,” and their pump patients “will
27 have nowhere to go to receive treatment because of the decimation of pain management
28 physicians by regulatory and law enforcement action in Southern California.” (Id.) To the
1 extent that in some instances a provider’s discontinuance of a particular medical service
2 can satisfy the irreparability requirement, Plaintiffs have not made a sufficient showing
3 that their patients will be irreparably harmed. Even assuming that patients’ access to
4 intrathecal pain pump treatment will be curtailed because of Plaintiffs’ inability to provide
5 that particular treatment, Plaintiffs offer no proof that the patients lack access to any other
6 alternative, medically necessary treatment.
7 Therefore, the Court finds that Plaintiffs have not established a colorable claim of
8 irreparable harm.
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10 c. Futility
11 Plaintiffs argue that exhausting administrative remedies would be futile because the
12 Medicare Act and its implementing regulations do not provide a process to appeal the
13 allegedly “fraudulent” temporary suspension of payments. “Futility is established if
14 exhausting administrative remedies ‘would not serve the policies underlying exhaustion.’”
15 Sensory Neurostimulation, Inc. v. Azar, 977 F.3d 969, 981 (9th Cir. 2020) (quoting Cassim,
16 824 F.2d at 795)). The policies underlying exhaustion are “to compile a detailed factual
17 record and apply agency expertise in administering its own regulations”; and “conserve[]
18 judicial resources” by allowing the agency to “correct its own errors through administrative
19 review.” Id.
20 As stated above, the suspension at issue is temporary and is generally capped at
21 eighteen months. 42 C.F.R. § 405.371(b)(3). Thus, the claims “can be considered once
22 final agency decisions . . . are issued.” See Silverado Hospice, 2018 WL 6185966, at *4.
23 A delayed review does not equal futility of review. As the Supreme Court has held in
24 Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1 (2000), Section 405’s
25 requirement to channel “virtually all legal attacks through the agency . . . assures the
26 agency greater opportunity to apply, interpret, or revise policies, regulations, or statutes
27 without possibly premature interference by different individual courts applying ‘ripeness’
28 and ‘exhaustion’ exceptions case by case.” Id. at 13. Although “this assurance comes at a
1 price, namely, occasional individual, delay-related hardship,” the Congress decided that
2 this price is justified “[i]n the context of a massive, complex health and safety program
3 such as Medicare, embodied in hundreds of pages of statutes and thousands of pages of
4 often interrelated regulations, any of which may become the subject of a legal challenge in
5 any of several different courts[.]” Id.
6 Here, the administrative review would include a review on the merits of the agency’s
7 reasoning behind the suspension or a later determination of overpayment. See St. Ann
8 Hospice, 2010 WL 11597946, at *2. “[T]here is much to be gained from establishing a
9 factual record at the administrative level” because whether Defendants properly
10 determined that a basis for suspension exists or whether there was an overpayment was
11 made “depends on facts specific to each individual patient for which Plaintiff made a
12 claim.” See id. “Administrative process would help develop facts to assist a court in
13 determining whether the services rendered were reasonable and necessary for each
14 individual patient and whether the services were properly documented in each instance.”
15 Id.
16 To the extent that Plaintiffs argue that the suspension may extend beyond eighteen
17 months if the case is referred to the OIG or the DOJ pursuant to 42 C.F.R. § 405.371(b)(3),
18 that concern is purely hypothetical at this juncture. Further, Plaintiffs provide no authority
19 to support its position that a mere possibility of an extension beyond eighteen months itself
20 would make it futile to exhaust administrative remedies. To the contrary, decisions by
21 courts in this circuits counsel against a finding of futility of exhaustion in the context of
22 challenges made against temporary suspensions of Medicare payments. See, e.g.,
23 Silverado Hospice, 2018 WL 6185966, at *4 (finding that a provider failed to show that it
24 would be futile to exhaust administrative remedies regarding its claim that the temporary
25 suspension of Medicare payments was not justified by a credible allegation of fraud).
26 Plaintiffs have not shown that the futility requirement for obtaining judicial waiver of
27 exhaustion is satisfied.
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1 CONCLUSION
2 Plaintiffs have not exhausted administrative remedies nor shown that the exhaustion
3 || requirement should be judicially waived, as required under 42 U.S.C. § 405(g). The Court
4 ||concludes that it lacks subject matter jurisdiction over this action. Accordingly, the Court
5 DISMISSES this action WITHOUT PREJUDICE for lack of jurisdiction.!
6 IT IS SO ORDERED.
7 A ,
8 || DATED: December 1, 2021 yi A (Bashan. 6
9 United States District Judge
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28 ' Because the Court dismisses this action for lack of Jurisdiction, it need not determine whether
the Qlarant Defendants are adequate parties of interest in this action.
~192