Doctors Nursing & Rehabilitation Center v. Sebelius

In the

United States Court of Appeals

For the Seventh Circuit

No. 09-2226

D OCTORS N URSING & R EHABILITATION C ENTER,

Plaintiff-Appellant,

v.

K ATHLEEN S EBELIUS, Secretary of Health and

Human Services, United States Dept. of Health

and Human Services,

Defendant-Appellee.

Appeal from the United States District Court

for the Central District of Illinois.

No. 08 CV 3096—Jeanne E. Scott, Judge.

A RGUED D ECEMBER 10, 2009—D ECIDED JULY 16, 2010

Before P OSNER, M ANION, and H AMILTON, Circuit Judges.

M ANION, Circuit Judge. After Doctors Nursing & Rehabil-

itation Center, a nursing home in Salem, Illinois, sued the

Secretary of Heath and Human Services, claiming that

Medicare underpaid it for certain services provided to

Medicare beneficiaries, the agency decided to reopen its

2 No. 09-2226

administrative proceedings and reconsider the nursing

home’s claims. The district court dismissed the suit,

reasoning that the agency’s reopening eliminated the

prerequisite final decision and stripped the court of

jurisdiction. Because we hold that the agency may not

reopen its proceedings after judicial review begins

without permission from the court, we reverse.

I.

The underlying payment dispute involves the rate at

which Medicare reimburses skilled nursing facilities for

pulse-oximetry tests—a routine and non-invasive means

of testing oxygen levels in the blood. Medicare reim-

burses nursing facilities in one of two ways. When a

beneficiary’s entire stay is covered by Medicare Part A,

which provides coverage for in-patient hospital and other

institutional care services, Medicare generally pays a

per diem rate to the facility. When the stay is not cov-

ered under Part A, Medicare reimburses some covered

services on a per procedure basis under its Part B supple-

mental insurance. Since 1999, this per procedure rate

has declined significantly—abruptly at first in 2000 and

gradually each year since. All of the disputed payments

in this case were properly made on a per procedure

basis, but the nursing home believes that the reductions

in the per procedure rate were unlawful.

The nursing home first presented its claims through the

agency’s administrative channels. It filed its claims, as

required, with its “fiscal intermediary” (the private

contractor responsible for paying Medicare claims in

No. 09-2226 3

nursing facilities), which determined the applicable fee

schedule and paid the nursing home according to the

rates therein.

Believing that the proper reimbursement rate for its

services was several times the amount indicated in the

fee schedule, the nursing home asked for a “redet-

ermination” from its fiscal intermediary. When a fiscal

intermediary receives a request for redetermination, it

must decide whether the contested issue was an “initial

determination” or simply a rote application of a sched-

uled rate. Only initial determinations are subject to ad-

ministrative review and eventually a hearing. Believing

that the issue involved a rote application of the physi-

cian fee schedule payment rate and that the nursing

home was challenging the rate itself, the fiscal intermedi-

ary decided that the nursing home’s payment did not

involve an “initial determination” and denied the

redetermination request.

When its redetermination request failed, the nursing

home again followed the prescribed administrative pro-

cedure and asked the Qualified Independent Contractor

(the contractor that handles appeals from the fiscal inter-

mediary) for a “reconsideration” of the fiscal intermedi-

ary’s dismissal of the redetermination request. That

Qualified Independent Contractor affirmed the fiscal

intermediary’s dismissal and informed the nursing home

the decision was “final and not subject to any further

review.”

The nursing home then sued, complaining that the

agency had underpaid it for the pulse-oximetry tests by

4 No. 09-2226

illegally reducing the rate under the applicable fee sched-

ule. In the meantime, however, the agency decided that

its contractors had erred in terminating the administra-

tive review process. It concluded that the nursing home

was entitled to additional process before the agency and

sought to reopen its administrative proceedings. The

agency filed a motion to dismiss arguing that the district

court should dismiss the case for lack of jurisdiction

because there was no longer a final decision to review. The

district court dismissed the case for want of jurisdiction.

The nursing home appeals.

II.

A.

The nursing home argues that the agency may not

divest the courts of jurisdiction simply by unilaterally

reopening its proceeding after the lawsuit was filed: if

there was a final decision that provided subject matter

jurisdiction at the time the lawsuit was filed, the agency

may not disturb that jurisdiction.1

1

This presumes, of course, that the court had jurisdiction in

the first place. Concerned that the nursing home was chal-

lenging the calculation of the physician fee schedule rate

for pulse oximetry—a challenge we may not entertain pursuant

to 42 U.S.C. § 1395w-4(i)(1)—we ordered supplemental briefing

from both parties to clarify whether the nursing home’s chal-

lenge was precluded by that statute. After considering the

supplemental filings, we are satisfied that the suit can be

(continued...)

No. 09-2226 5

We review a dismissal for lack of subject matter juris-

diction de novo. Evers v. Astrue, 536 F.3d 651, 656 (7th Cir.

2008). Jurisdiction over suits involving claims for pay-

ment under the Medicare Act arises under 42 U.S.C

§ 1395ff(b)(1)(A), which adopts by reference the judicial

review provisions applicable to the Social Security Ad-

ministration at 42 U.S.C. § 405(g). Section 405(g), in

turn, provides for judicial review of any “final decision . . .

made after a hearing.”

To be sure, there was no such “final decision . . . made

after a hearing” in this case. But contrary to the

Secretary’s suggestion, that fact has no effect on our

jurisdiction: it is well established that the agency may

waive the hearing requirement under § 405(g). See

Matthews v. Eldridge, 424 U.S. 319, 328-30 (1976). Judicial

review is permitted when there is a lack of additional

1

(...continued)

characterized as asserting that the agency either applied (a

factual dispute) or should have applied (a legal dispute) a rate

other than the physician fee schedule rate in the first place. The

agency does not suggest that this argument is so unsubstantial

that it cannot support our jurisdiction. See Carr v. Tillery,

591 F.3d 909, 917 (7th Cir. 2010) (“A suit that is utterly

frivolous does not engage the jurisdiction of the federal

courts.”). So the court had jurisdiction—ab initio at least—to

determine which fee schedule the agency applied and whether

it was correct. We note, however, that if the agency correctly

applied the physician fee schedule rate, judicial review must

instantly cease: Congress has expressly precluded judicial

review of the calculation of physician fee schedule rates.

6 No. 09-2226

administrative review, whether due to exhaustion

or waiver.2 So we will simply refer to the Qualified Inde-

pendent Contractor’s dismissal of the nursing home’s

reconsideration request, which was “final and not subject

to further review” and by which the agency waived

any requirement of exhaustion of additional administra-

tive remedies, as the agency’s final decision.

The nursing home argues that the general rule is that

subject matter jurisdiction is determined at the time of

filing. The Secretary responds that so long as the agency

has authority under its regulations, it may reopen its

administrative proceedings. And she asserts that once

it reopens the proceedings, there is no longer a “final

decision” for the courts to review and any suit based on the

2

After oral argument, the agency brought our attention to

a change in the regulation governing the Qualified Inde-

pendent Contractor’s reconsideration decision. 42 C.F.R.

§ 405.974(b)(3). The regulation now states that the decision is

“binding”—rather than “final”—“and not subject to any

further review.” In its final rule implementing this change, the

agency noted that, unlike a “final” decision, a “binding”

decision is not necessarily “a final decision of the Secretary

for purposes of exhausting administrative remedies when

seeking judicial review.” 74 Fed. Reg. 65296, 65308. This, the

agency argues, clarifies that the affirmation of the dismissal of

the nursing home’s redetermination request in this case was

never a “final decision . . . made after a hearing.” But because

the agency may waive the exhaustion requirement, it cannot

insulate its decisions from judicial review simply by refusing

to label an otherwise appealable decision as a “final decision”

within the meaning of the statute.

No. 09-2226 7

earlier decision must be dismissed for want of jurisdic-

tion. Because this argument is not based on anything

unique to the Medicare regulatory context, the Secretary

effectively would have us hold that an agency may

always divest the courts of jurisdiction with post-

filing reopening and reconsideration, notwithstanding

the traditional rule that jurisdiction is determined at the

time of filing.

We have never specifically considered this question of

whether the agency can reopen a Medicare claim and

thereby destroy federal jurisdiction. For three reasons,

however, we hold that when a suit is filed under § 405(g),

the agency may not divest the federal courts of jurisdic-

tion by unilaterally reopening its administrative pro-

ceedings.

First, the general rule is that “[w]e analyze jurisdiction

based on the events at the time the case is brought.” Hukic

v. Aurora Loan Services, 588 F.3d 420, 427 (7th Cir. 2009)

(citing Grupo Dataflux v. Atlas Global Group, L.P., 541

U.S. 567 (2004)). So we presume that the general rule

applies here. It is true, as the agency points out, that the

rule is primarily encountered when determining the

prerequisites of diversity jurisdiction. E.g., id.; Smith v.

Widman Trucking and Excavating, Inc., 627 F.2d 792, 799

(7th Cir. 1980). But the rule is not so limited. See, e.g.,

Laborers’ Pension Fund v. Pavement Maint., Inc., 542 F.3d 189,

194 (7th Cir. 2008) (“If jurisdiction exists at the outset of

a suit, subsequent procedural events will not divest the

court of that original jurisdiction.”).

Second, Congress has specifically spoken on the issue

of when and how the agency can reopen its administra-

8 No. 09-2226

tive proceedings after judicial review begins. The sixth

sentence of § 405(g) allows the court “on motion of the

[agency] made for good cause shown before the [agency]

files [its] answer, [to] remand the case to the [agency] for

further action.” 3 While this provision addresses only

the court’s power to remand, and not the agency’s own

authority to reopen its proceedings, it assumes that an

agency may not disrupt federal jurisdiction on its own.

Otherwise, the remand authority in § 405(g) would serve

no purpose: the agency would never need to ask the

court for a remand. By specifying the procedure for

remand, Congress has limited the agency’s authority

under § 1395ff(b)(1)(G) to reopen and revise a prior

determination.

Finally, determining whether a final decision exists at

the time of filing comports with the normal procedures

of appellate review. Ordinarily, when one tribunal prop-

erly takes a case on appeal, the inferior tribunal transfers

authority over the case. Gao v. Gonzales, 464 F.3d 728, 729

(7th Cir. 2008). Thus, the majority rule (accepted by this

circuit) is that while a district court may consider a

motion for relief from a judgment under Federal Rule of

Civil Procedure 60, and even deny the motion, while an

3

Sentence six, which also allows a claimant to request a remand

on the basis of new and material facts, is one of two remands

available under § 405(g). Sentence four provides the other,

allowing the court to remand upon a “judgment affirming,

modifying, or reversing” the agency’s decision. These are the

exclusive methods of remand available to the district court.

Melkonyan v. Sullivan, 501 U.S. 89, 99-100 (1991).

No. 09-2226 9

appeal is pending, it must request permission from the

appellate court to grant the motion. Washington v. Bd. of

Educ., 498 F.2d 11, 16 (7th Cir. 1974); see also C HARLES

A LAN W RIGHT, A RTHUR R. M ILLER & M ARY K AY K ANE,

F EDERAL P RACTICE & P ROCEDURE, § 2873. Otherwise, a

district court could eliminate a final judgment, and with

it federal appellate jurisdiction. This precisely parallels

the rule that Congress established with § 405(g): the

inferior tribunal (the agency) must request permission

from the appellate tribunal before it reopens its final

decision.4

The Secretary argues that we have already held that the

time-of-filing rule does not apply to judicial review of

agency decisions, citing to Gao v. Gonzales, 464 F.3d 728. In

that case, the petitioner had declined to challenge the

Board of Immigration Appeals decision ordering his

deportation, but after second thoughts asked the Board

to reopen its decision. Id. at 729. When the Board denied

his motion to reopen, he petitioned this court for review.

While his petition was pending, the Board changed its

mind, reopened the deportation order on its own

4

This holding has no bearing on the effect of a motion to

reopen a final administrative decision filed by the plaintiff in a

suit involving judicial review of that decision. See Wade v. FCC,

986 F.2d 1433, 1434 (D.C. Cir. 1993) (holding that a motion to

reopen divested the federal courts of jurisdiction by analogy

to Federal Rule of Civil Procedure 59(e), which—unlike Rule

60—does divest a court of appeals of jurisdiction over a previ-

ously filed action (citing Griggs v. Provident Consumer Disc.

Co., 459 U.S. 56, 61 (1982))).

10 No. 09-2226

accord, and asked the court to dismiss the petition. We

dismissed the petition, holding the Board was authorized

under the immigration statutes and controlling case law

to continue its administrative proceedings even while a

petition was pending in a Court of Appeals. Id. at 730.

We reasoned that because the Board had the authority

to consider whether to reopen its earlier deportation

order, it could also decide to reopen, even on its own

accord. And because it had authority to reopen the case

and thereby rescind the denial that the petitioner was

challenging, there was no longer a final decision for us

to review. We thus concluded that we lacked jurisdic-

tion to consider his petition. Id.

But Gao does not control here for two reasons. First,

Gao was fundamentally a mootness case: because the

petitioner had challenged only the agency’s refusal to

reopen his case, there was no more relief that the court

could have granted once the agency itself decided to

give the petitioner the very thing he was asking of the

court. Second, Gao did not establish a general rule that

agencies may divest courts of jurisdiction by reopening

final decisions. Rather, Gao was careful to justify its

holding based on the particulars of the immigration

context. It noted that the Supreme Court has interpreted

the statutory scheme of immigration review as allowing

for concurrent review of a case by both the Board and

the courts, even though this concurrent review is one of

the specific inefficiencies prevented by the requirement

that a party exhaust his administrative remedies before

seeking judicial review. Id. at 729. We stressed that it was

because of this statutory scheme that the Board was

No. 09-2226 11

empowered to consider, and decide, the very same ques-

tion that was pending before the court.

So while Gao teaches that the time-of-filing rule

does not apply in every administrative context, it

does not speak to this administrative context. And as

we have noted, rather than allow for concurrent review

in this context, Congress has expressly provided a mecha-

nism by which a district court can return the case to

the agency before the case has progressed beyond the

pleadings.

The Secretary also cites an older social security claim

case from the Sixth Circuit in support of her position that

an agency’s reopening of a case subsequent to the filing

of a lawsuit deprives the court of jurisdiction. Bisson v.

Secretary of Health and Human Services, 787 F.2d 181 (6th

Cir. 1986), involved a request for mandamus relief by a

social security claimant challenging the Social Security

Administration’s denial of benefits. The plaintiff had

applied for benefits and received an administrative

denial. Id. at 182. After a hearing, an Administrative Law

Judge (“ALJ”) returned the case to have the record cor-

rected and for further proceedings. The agency took no

additional formal action. The plaintiff sued, seeking

mandamus relief to enforce the ALJ’s decision. Shortly

thereafter, the agency decided to reopen the plaintiff’s

claim. The court held that the agency’s reopening

deprived it of its mandamus jurisdiction under 28 U.S.C.

§ 1361 and that it did not have jurisdiction under 42 U.S.C.

§ 405(g).

The Secretary argues that in Bisson the Sixth Circuit

adopted the rule she advocates here and that we should

12 No. 09-2226

follow suit. But Bisson, like Gao, was essentially a case

of mootness and is similarly inapposite here. The relief

that the plaintiff was seeking in Bisson was an order

that the agency effectively reopen its proceedings and

comply with the ALJ’s order to reconsider the case. Id. at

182. When the agency decided to reopen the application

on its own, there was no longer any relief the court

could order until the agency had completed its admin-

istrative review. Mandamus relief was inappropriate

because there was another avenue for relief. Id. at 185.

And the court did not have jurisdiction over the plain-

tiff’s procedural claims under § 405(g) because they were

intertwined with a claim for benefits that was not final.

Id. In short, Bisson did not involve a “final decision”

comparable to the decision here, but rather a breakdown

in the administrative procedures that the agency itself

corrected.

The Secretary next argues that the rationale underlying

the time-of-filing rule in the context of diversity jurisdic-

tion, where it originated, does not apply here. For

example, absent the rule, a party in a diversity suit might

destroy jurisdiction by amending the amount in contro-

versy, thus preventing the case from being heard in a

federal forum altogether. Here, by contrast, the agency’s

reopening would merely delay the eventual judicial

review.

But a complete preclusion of federal jurisdiction is

hardly the only strategic behavior imaginable, and the

risk of manipulation is only one basis for the time-of-filing

rule. Under the Secretary’s proposed rule, any agency

No. 09-2226 13

could strip jurisdiction from federal courts, seemingly at

any stage of the proceeding, for any reason. If the agency

became concerned that a Court of Appeals—or even the

Supreme Court—might issue a decision adverse to its

interests, it could reopen its proceedings and yank the

case out of the courts, regardless of the amount of re-

sources that had already been expended or the advanced

stage of the case. Besides being highly inefficient, it

would allow the agency to manipulate federal jurisdic-

tion to frustrate litigants by increasing the time and

expense required to pursue claims, and prevent or at

least postpone into perpetuity unfavorable precedent.

The Secretary notes that the possibility of manipulation

need not concern us because its actions are entitled to a

strong presumption of regularity. Busboom Grain Co., Inc. v.

ICC, 830 F.2d 74, 75 (7th Cir. 1987). This is true. And we

do not suggest that there is any evidence that the agency

is actively manipulating our jurisdiction. But under the

agency’s theory, it would enjoy more than a presumption

of regularity: its decision, and motivation, would effec-

tively be unreviewable because the courts would have

no jurisdiction over the case once a final decision had

been reopened.

The Secretary also emphasizes that its reopening oc-

curred early and while the suit was still in the pleading

stage. Again, the relatively minor inconvenience and

inefficiency in this case is beside the point: under the

agency’s theory, jurisdiction would disappear at any

stage, regardless of the inefficiency or expense.

Finally, the Secretary argues that it would be ineffi-

cient for the time-of-filing rule to apply in a manner

14 No. 09-2226

that would prevent the agency from correcting its own

errors and giving full and proper consideration to a plain-

tiff’s claims. Some delay-related hardship is indeed the

price we pay for efficiency in our “massive, complex”

programs, such as Medicare. See Shalala v. Illinois Council

on Long Term Care, Inc., 529 U.S. 1, 13 (2000). We recognize

that the interests in administrative efficiency often

weigh heavily in favor of the agency when balanced

against an individual plaintiff’s interest in having

judicial review of his claim.

But this advantage is not absolute, particularly once

concerns of judicial efficiency enter the calculation. Here,

Congress has established a method of allowing the

agency to revisit its own decisions and correct initial

errors that it or its contractors make. At the same time,

it has set a limit on how late in the day the agency may

revisit a decision—before it files its answer—and pro-

vided some judicial oversight by requiring the agency to

demonstrate good cause to the court before the case can

be remanded for further proceedings. The Secretary’s

position would make this provision largely irrelevant.

So we reject the Secretary’s theory, which would give the

agency the unreviewable power to manipulate federal

jurisdiction without any guarantee of efficiency. Instead,

we read Congress’s specification of the district court’s

power to remand in § 405(g)—the same section that

authorizes judicial review in the first place—as a limita-

tion on the agency’s authority under § 1395ff(b)(1)(G) to

reopen and revise its determination. Thus, we hold

that under § 405(g) the agency may not, during the pen-

No. 09-2226 15

dency of judicial review, reopen and revise a final deci-

sion without permission from the court.

B.

As we have noted, § 405(g) provides a mechanism for

a district court to remand a case to an agency if the

agency moves for such a remand before it files its answer.

The Secretary suggests that if we reverse on the juris-

dictional question, we remand to the district court with

instructions to remand the case to the agency—in effect, it

asks us to treat its motion to dismiss as a motion to

remand under § 405(g). Although we have never had

occasion to consider a remand by a district court under

the first clause of sentence six of § 405(g),5 we think it

plain from the discretionary language of the statute—“a

district court may remand a case”—that we would review

any such decision for an abuse of discretion. Accord Dudley

v. Astrue, 246 Fed. Appx. 249, 251 (5th Cir. 2007) (unpub-

lished) (reviewing decision to remand upon agency’s

motion for abuse of discretion).

Of course, if the agency could not satisfy the “good

cause” requirement, allowing the district court to remand

the case to the agency would make little sense and might

5

Most of our, and other circuits’, precedents on sentence six

involve the second clause: we review de novo a district court’s

determination that new evidence warrants a remand. Johnson

v. Apfel, 191 F.3d 770, 776 (7th Cir. 1999).

16 No. 09-2226

simply solicit an unnecessary appeal.6 The nursing home

argues that the agency cannot show “good cause” either

under § 405(g) or its own regulations. According to the

Secretary, the agency wishes to reopen to consider

whether its contractors applied the correct fee schedule.

The nursing home argues that the contractors applied the

correct fee schedule, but that the fee schedule rate was

calculated in violation of the statute. Which fee schedule

the contractor actually applied is an issue of fact still

unresolved at this stage. The agency certainly has an

interest in making sure that it agrees with its contractors’

decisions before subjecting those decisions to judicial

review. We cannot say that “good cause” is so clearly

lacking that the district court would abuse its discretion

if it remanded the case to the agency.

We expect that the district court will give due deference

to the agency’s determination of whether it has “good

cause” to reopen its decision. And, if “good cause” has

been established, we assume that the weighty interest of

an agency in correcting its own mistakes will generally

prevail in the absence of concerns of strategic behavior

or gross inefficiency. At the same time, we note that the

district court has the discretion to grant or deny the

motion, notwithstanding the agency’s “good cause.” The

district court must make its own evaluation of the ad-

6

Although remands to the agency are not ordinarily final

judgments that are appealable under 28 U.S.C. § 1291, we have

held that in some cases, remands under sentence six of § 405(g)

are appealable under the doctrine of practical finality. Travis

v. Sullivan, 985 F.2d 919, 920-23 (7th Cir. 1993).

No. 09-2226 17

ministrative need for a remand, the interests in judicial

efficiency and finality, and the hardship to the litigants.

Therefore, we remand the case to allow the district court

to consider whether to grant a remand in the first instance.

III.

We hold that the agency does not have the unilateral

authority to reopen its administrative proceedings once

judicial review of the agency’s final decision has begun.

Rather, the agency may, at any point prior to filing its

answer and with a showing of “good cause,” move the

district court to remand the case to the agency for

further proceedings. Accordingly, we R EVERSE the

district court’s dismissal of the case for lack of subject

matter jurisdiction and R EMAND the case for further

proceedings consistent with this opinion.

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