Nichole Medical Equipment & Supply, Inc. v. Tricenturion, Inc.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 11-2132

_____________

NICHOLE MEDICAL EQUIPMENT &

SUPPLY, INC.,

Appellant

v.

TRICENTURION, INC., formerly known as

TRICENTURION, LLC; NATIONAL HERITAGE

INSURANCE COMPANY, doing business as

NHIC CORP.

On appeal from the United States District Court

For the Eastern District of Pennsylvania

District Court No. 2:10-cv-00389

District Judge: The Honorable Cynthia M. Rufe

Argued on April 20, 2012

Before: MCKEE, Chief Judge, SLOVITER,

Circuit Judge, and O’CONNOR, Associate

Justice (Ret.) *

(Filed: September 13, 2012)

*

Hon. Sandra Day O’Connor, Associate Justice (Ret.) of the

Supreme Court of the United States, sitting by designation.

1

David M. Hollar, (Argued) Esq.

Villari, Brandes & Kline,

8 Tower Bridge, Suite 400

161 Washington Street

Conshohocken, PA 19428

Counsel for Appellant

Zane David Memeger, Esq.

United States Attorney

Office of United States Attorney

615 Chestnut Street

Suite 1250

Philadelphia, PA 19106

Margaret L. Hutchinson, Esq.

Chief, Civil Division

Office of United States Attorney

615 Chestnut Street

Suite 1250

Philadelphia, PA 19106

David A. Degnan, Esq. (Argued)

Assistant United States Attorney

Office of United States Attorney

615 Chestnut Street

Suite 1250

Philadelphia, PA 19106

Counsel for Appellees

2

_______________

OPINION

_______________

MCKEE, Chief Judge.

Nichole Medical Equipment and Supply Company (“Nichole

Medical”) appeals the district court’s dismissal of an action that Nichole

Medical brought to recover damages for various state and federal claims.

The district court dismissed the suit for lack of subject matter jurisdiction

and because Nichole Medical had not stated a claim for which relief could

be granted. For reasons that follow, we agree. We also agree that all of

Nichole Medical’s claims arise under the Medicare Act and that the

Defendants/Appellees are therefore immune from suit as officers or

employees of the Secretary of the Department of Health and Human

Services. Accordingly, we will affirm the district court’s dismissal of the

complaint.

I. Statutory and Regulatory Background

This suit originates from relationships that were created under the

Medicare Act, 42 U.S.C. § 1395 et seq., (“Act”). The Act is administered

through private organizations that contract with the Secretary of the

Department of Health and Human Services. * 30 FED. PROC. §71:746.

Pursuant to statutory provisions in effect prior to October 1, 2005,

Medicare Part B was administered by organizations known as “carriers.” †

Id. Carriers entered into contracts with the Centers for Medicare and

Medicaid Services (“CMS”). The obligations undertaken by carriers under

those contracts include paying for items Medicare suppliers provide to

Medicare beneficiaries, adjusting any incorrect payments, and recovering

overpayments when the carrier concludes an overpayment was made for a

covered Medicare benefit. 42 C.F.R. §§ 421.100, 421.200; see also 30 Fed.

Proc. §§ 71:747, 71:754.

*

The U.S. Department of Health and Human Services (“DHHS”), through the Secretary,

exercises its authority to administer Medicare through the Centers for Medicare and

Medicaid Services. Arkansas Dept. of Health and Human Services v. Ahlborn, 547 U.S.

268, 275 (2006).

†

Medicare Part B (Medical Insurance) covers ambulance, physician, laboratory, durable

medical supplies and other non-institutional services. 3 Health L. Prac. Guide §45:24

(2011).

3

As a result of the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003, the obligations previously imposed on carriers

are now undertaken by Medicare Administrative Contractors (“MACS”).

See Medicare Prescription Drug, Improvement, and Modernization Act of

2003, Pub. L. No. 108-173,§911(e), 117 Stat. 2066, 2256 (2003). ‡ MACS

enter into contracts with CMS to perform various duties pursuant to 42

U.S.C. §1395kk-1. 42 U.S.C. §1395kk-1; see also 42 C.F.R. §421.401.

Those duties include assisting in the administration of the Medicare

Integrity Program. 42 U.S.C. §1395kk-1; see also, 30 Fed. Proc. §71:746.

Pursuant to the Medicare Integrity Program, entities known as

“Program Safeguard Contractors” (“PSCs”) contract with CMS to perform

various program integrity tasks to “safeguard” Medicare payments on

behalf of the Secretary. See 42 U.S.C. §1395ddd(a). PSCs responsibilities

include reviewing Medicare payments for potential fraud and ensuring that

amounts billed under the Medicare program are appropriate and supported

by proper documentation. See 42 U.S.C. §1395ddd(b).

This auditing obligation thus requires MACs and PCSs to determine

if amounts paid under Medicare “are reasonable and necessary in

accordance with Medicare coverage policies and program instructions.” 42

C.F.R. §421.500. In discharging this obligation, CMS or a Medicare

contractor can suspend payments under the Act in whole or in part “if CMS

or the Medicare contractor possesses reliable information that an

overpayment existed or that the payments to be made may not be correct,

although additional information may be needed for a determination.” § 42

C.F.R. §405.371(a)(1) (emphasis added). A Medicare contractor is also

authorized to offset or recoup Medicare payments, in whole or in part, if it

is “determined that the provider or supplier to whom payments are to be

made has been overpaid.” 42 C.F.R. §405.371(a)(3) (emphasis added).

‡

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003

amended the guidelines under which Medicare claims were processed and, in doing so,

changed the terms identifying administering organizations. See Medicare Prescription

Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, sec. 911(e),

117 Stat. 2066, 2256 (2003); see also MacKenzie Medical Supply, Inc. v. Leavitt, 506

F.3d 341, 344 n.1 (4th Cir. 2007) (“Pursuant to §911 of the Medicare Prescription Drug,

Improvement, and Modernization Act of 2003, . . . with an effective date of October 1,

2005, most of the carrier responsibilities have been transferred to entities now labeled

medicare administrative contractors.”).

§

A Medicare contractor includes, but is not limited to, a carrier, a MAC and/or a PSC.

42 C.F.R. §405.370.

4

At all times relevant to our inquiry, Nichole Medical was a durable

medical equipment supplier, ** National Heritage Insurance Company

(“NHIC”) was a carrier and/or a MAC †† and TriCenturion was a PSC. See

42 U.S.C. §1395u.

II. Factual Background

This dispute arises from an audit TriCenturion conducted of Nichole

Medical’s in the course of TriCenturion discharging its obligations under

the Act as a PSC. After examining records obtained from Nichole

Medical’s office, TriCenturion concluded that Nichole Medical “might” be

improperly billing Medicare for medical equipment such as the motorized

wheelchairs and hospital beds that Nichole Medical provided to Medicare

beneficiaries. TriCenturion’s examination of Nichole Medical’s records

also caused TriCenturion to conclude that Nichole Medical had received

overpayments from Medicare. Id. at p. 00007, ¶26. ‡‡ TriCenturion also

concluded that Nichole Medical had not maintained sufficient medical

records to establish the reasonableness and/or medical necessity of some of

the medical equipment it had supplied to Medicare beneficiaries. Id. at

00037.

Accordingly, TriCenturion directed Nichole Medical’s prior carrier,

HealthNow, to withhold payments to Nichole Medical in an effort to recoup

the amount that TriCenturion believed had been overpaid to Nicole

**

In its simplest form, a durable medical equipment supplier provides items such as

hospital beds, wheel chairs, etc., to Medicare beneficiaries following the receipt of a

medical prescription for that particular item. See United States. v. Isiwele, 635 F.3d 196,

198 (5th Cir. 2011). After providing the equipment to the Medicare beneficiary,

Medicare reimburses the supplier for the medical equipment it provided to fill the

prescription. See id.

††

Nichole Medical alleged that NHIC is a “carrier” which Appellees appear to insinuate

is an improper distinction. See Appellees Brief, p. 4 n. 1. However, the Medicare

Prescription Drug, Improvement, and Modernization Act of 2003 was not effective until

October 1, 2005, and the transition from carriers to MACs occurred between October 1,

2005, and October 1, 2011. See 42 C.F.R. §421.400(a). The conduct underlying

Nichole Medical’s complaint begins as early as 2002.

‡‡

Nichole Medical asserts that this was TriCenturion’s attempt to “bootstrap” its claims

of inappropriate billing to a then-pending action filed by United States against Nichole

Medical for fraudulent billing with regard to incontinence products. Id. at 00006, ¶25.

Nichole Medical alleges that a settlement agreement reached in that action permitted

Nichole Medical to continue business with Medicare so long as it successfully paid the

settlement payment.

5

Medical. Id. at 00007, ¶27. TriCenturion determined the offset amount by

calculating the actual overpayment of several specific claims. It then used

those claims as a representative sampling of Nichole Medical’s claims and

extrapolated an overpayment amount for all of Nichole Medical’s relevant

claims from that sample. Id. at 00019.

In addition to the offset, TriCenturion also informed the Attorney

General’s Office that Nichole Medical had improperly requested

reimbursement for certain medical devices delivered to Medicare

beneficiaries to fill their prescriptions. TriCenturion persisted in its belief

that payments had been improperly made to Nichole Medical even after the

Attorney General found no evidence of fraud and refused to prosecute. Id.

at 00006, ¶23.

For reasons that remain unclear, but presumably because the

Attorney General refused to prosecute, HealthNow stopped withholding

payments to Nichole Medical and did not attempt to recoup any further

payments. Id. at 00066. However, after NHIC succeeded HealthNow,

TriCenturion instructed NHIC to re-institute the offset. Id. According to

Nichole Medical, reinstituting the offset eventually forced it out of

business. Id. Nevertheless, after it went out of business, Nichole Medical

pursued an appeal of TriCenturion’s determination that it (Nichole

Medical) had been overpaid. §§

The administrative law judge who was handling that appeal

subsequently determined that Nichole Medical was entitled to

reimbursement on some of the appealed claims for which payment had

been withheld or offset, but not all such claims. *** Id. at 00035. The ALJ

§§

That procedure is allowed under the Act.

***

TriCenturion’s post-payment audit of 39 randomly-selected claims resulted in a

finding that benefits were improperly paid to Nichole Medical for the sale of 19

motorized wheelchairs and the rental of 20 hospital beds. Id. at 00035-6. TriCenturion

calculated an actual overpayment amount of $98,501.47. Id. Additionally, using these

39 claims against the universe of 467 claims, TriCenturion applied a statistical

methodology to obtain an extrapolated overpayment amount totaling $485,374.54. Id.

When TriCenturion and NHIC reinstituted the withholding of benefits to offset this

overpayment, Nichole Medical appealed arguing that those 39 claims were

inappropriately re-opened and that the extrapolated overpayment amount was improper.

Id. at 00007, ¶33. The ALJ reviewed separately each individual claim and the sampling

process. Id. at 00038-56. When reviewing each individual claim, the ALJ made a

6

also ruled that TriCenturion had failed to: (i) provide proper notice of the

post-payment audit; (ii) establish new evidence justifying the post-payment

audit; and (iii) fully explain the methodology used for the statistical

sampling that resulted in the determination that Nichole Medical had been

overpaid or improperly paid under the Act. Id. at 00035-55. The ALJ

found that the extrapolated amount determined by examining the 39 claims

that were sampled had no legal force because it was impossible to

recalculate the sampling. Id. at 00054-6. †††

The Medicare Appeals Council (“Council”) reviewed the ALJ’s

decision and found that the ALJ had erred in determining which of the 39

claims was properly paid because all 39 claims had been reopened and

reviewed improperly. Id. at 00018-25.

After the Council entered that ruling, Nichole Medical filed this suit

against TriCenturion and NHIC alleging that TriCenturion had wrongfully

withheld Medicare payments owed to Nichole Medical for equipment it had

supplied to Medicare beneficiaries and that that caused Nichole Medical’s

insolvency. Id. at 00007. Nichole Medical also claimed that

“TriCenturion conducted an unannounced, unauthorized and illegal search

and seizure of Nichole Medical’s Medicare records” when it audited

Nichole Medical’s cost reports and records. ‡‡‡ Appx., p. 00006, ¶21.

favorable ruling on 2 wheelchairs and 15 beds but the ALJ found the remaining claims

were improperly paid to Nichole Medical, thus, resulting in overpayment. Id. at 00035.

†††

The ALJ held “the extrapolated overpayment, which resulted from the statistical

process in this case, is nullius juris, not because the statistical methodology was flawed or

invalid but because the process, which the regulations require the government to follow,

were [sic] not followed, thereby denying [Nichole Medical] the benefit of the law and

regulations. In addition, this decision declines to uphold the statistical extrapolation

because the contractor failed to explain fully the methodology that was applied, and

therefore this decision cannot meet its responsibility to recalculate a new extrapolated

amount.” Id. at 00051.

‡‡‡

As noted by the administrative law judge, “Medicare rules do not contemplate the

exclusion of improperly obtained evidence in the fashion of the constitutional exclusion

of evidence in criminal proceedings. When the evidence comes into the record by

whatever means, it may be considered.” Appx., p. 00038. The administrative law judge

did not decide the issue but acknowledged “a fair argument can be made that [Appellees]

committed no regulatory violations when it sought additional documentation from

whatever source possible.” Id.

7

According to Nichole Medical’s allegations, it was forced into

insolvency because TriCenturion “developed and implemented a business

pattern and practice of ignoring and failing to follow statutory and

regulatory guidelines and procedures with regard to its audit activities.” Id.

at 00009, ¶¶37, 40. Nichole Medical asked the district court to award

compensation “including, but not limited to, past and future damages of an

economic nature, including: attorneys fees, costs, loss of sales, loss of

revenue, loss of profits, and other expenses.” Id. at ¶43. Nichole Medical

bases its claim for damages on various state law torts and breach of the

statutory duty of care pursuant to 42 U.S.C. §1320c-6(b). §§§ Id. at 00065.

The district court granted a motion to dismiss based on Nichole

Medical’s failure to exhaust its claims before the ALJ and the Council as

required by the Act. Id. at 00070-77. Alternatively, the district court

concluded that the complaint should be dismissed because the challenged

conduct was within the scope of TriCenturion’s and NHIC’s official duties

under the Act and that they were therefore immune from suit under the

Medicare Act. **** Id. at 00070-77.

This appeal followed.

III. Discussion

A. Jurisdiction

1. Judicial Review under the Act.

42 U.S.C. §405(h) is incorporated into the Act pursuant to 42 U.S.C.

§1395ii. Section 405(h) provides

[t]he findings and decision of the [Secretary] after a hearing

shall be binding upon all individuals who were parties to such

hearing. No findings of fact or decision of the [Secretary]

§§§

The alleged torts include: negligence; unjust enrichment; intentional interference with

contractual relations; extreme and outrageous conduct; malicious prosecution; and

trespass (the last two claims were asserted against TriCenturion only).

****

TriCenturion and NHIC were and continue to be represented by the United States

Department of Justice as a result of their Medicare contracts. See 28 U.S.C. §517 (“The

Solicitor General, or any officer of the Department of Justice, may be sent by the

Attorney General to any State or district in the United States to attend to the interests of

the United States in a suit pending in a court of the United States, or in a court of a State,

or to attend to any other interest of the United States.”).

8

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

thereof shall be brought under section 1331 or 1346 of Title

28 to recover on any claim arising under this subchapter.

Id. (emphasis added). Section 405(h) thus limits judicial review of claims

“arising under” the Act. See Midland Psychiatric Assocs., Inc. v. United

States, 145 F.3d 1000, 1002-3 (8th Cir. 1998). In Midland Psychiatric

Association, Inc., the Eighth Circuit explained: “the last four words of

§405(h)’s second sentence—‘except as herein provided’—refer to the rest

of 42 U.S.C. §405, particularly §405(g) . . . .” Id. (internal citations

omitted). Section 405(g) provides that

[a]ny individual, after any final decision of the Commissioner

[is] . . . made after a hearing to which he was a party,

irrespective of the amount in controversy, may obtain a

review of such decision by a civil action commenced within

sixty days after the mailing to him of notice of such decision .

. . . The court shall have power to enter, upon the pleadings

and transcript of the record, a judgment affirming, modifying,

or reversing the decision of the Commissioner of Social

Security, with or without remanding the cause for a rehearing.

Id. at §405(g) (emphasis added). “Section 405(h) purports to make

exclusive the judicial review method set forth in §405(g).” Shalala v.

Illinois Council on Long Term Care, Inc., 529 U.S. 1, 10 (2000). We have

previously explained that: “there is no judicial review of final agency action

under the district court’s federal question jurisdiction [under the Act].”

Fanning v. United States, 346 F.3d 386, 402 (3d Cir. 2003).

Nichole Medical argues that Congress only intended §405(h) to bar

federal jurisdiction of suits under 28 U.S.C. §§1331 and 1346 and,

therefore, its suit against TriCenturion and NHIC was improperly dismissed

because the court had diversity jurisdiction under 42 U.S.C. §1332.

When it was originally enacted, however, §405(h) barred virtually

all grants of jurisdiction under Title 28. Subsequent “technical corrections”

were made in 1976, which resulted in the current wording of that section.

We agree that the language may at first appear to bar only jurisdiction

under §§1331 or 1346 of Title 28. However, it is clear that the changes

enacted in 1976 were intended only as “technical corrections” and they

9

were therefore not intended to make any substantive change in the statute.

See Bodimetric Health Services, Inc. v. Aetna Life & Casualty, 903 F.2d

480, 488 (7th Cir. 1990). Accordingly, we hold that §405(h) continues to

bar virtually all grants of jurisdiction under Title 28.

In Bodimetric, the Seventh Circuit explained: “In this section,

Congress clearly expressed its intent not to alter the substantive scope of

section 405(h). Because the previous version of section 405(h) precluded

judicial review of diversity actions, so too must newly revised section

405(h) bar these actions. Any other interpretation would contravene

section 2664(b) by ‘changing or affecting a right, liability, status, or

interpretation’ of section 405(h) that existed before the Technical

Corrections were enacted.” 903 F.2d. at 489 (quoting Griffin v. Oceanic

Contractors, Inc., 458 U.S. 564, 571 (1982)). Similarly, in Midland

Psychiatric Association, the Court of Appeals for the Eighth Circuit found

“the jurisdictional bar imposed by sentence three of §405(h) extends to

claims based on diversity of citizenship” because “[w]hen Congress revised

sentence three, it labeled the amendment a technical correction, and at the

same time made clear that no substantive change in the law was intended.”

145 F.3d at 1004.

We therefore agree with the district court’s conclusion that Nichole

Medical’s attempt to rely on the court’s diversity jurisdiction by filing

under §1332 is barred by §405(h) if those claims “arise under” the

Medicare Act. Congress clearly prohibited federal courts from exercising

subject matter jurisdiction or diversity jurisdiction over claims arising

under the Act.

2. Nichole Medical’s Claims Arise “under the Act.”

We exercise plenary review over the district court’s dismissal of a

complaint for lack of subject matter jurisdiction. Gould Electronics Inc. v.

United States, 220 F.3d 169, 176 (3d Cir. 2000). In reviewing a facial

attack to the court’s jurisdiction, “courts must only consider the allegations

of the complaint and documents referenced therein and attached thereto, in

the light most favorable to the plaintiff.” Id. Moreover, Nichole Medical

carries the burden of convincing us that Congress has not barred federal

courts from exercising subject matter jurisdiction over this suit.

Nichole Medical’s claims for damages are supported by allegations

that the defendants: (i) wrongfully entered Nichole Medical’s premises to

review its records; (ii) improperly withheld payments to offset purported

overpayments; and (iii) unnecessarily informed the CMS of their concerns

10

with Nichole Medical’s billing practices. Appellant’s Brief, pp. 10-16.

Despite those allegations and their relationship to Medicare, Nichole

Medical argues that its claims do not arise under the Act because it is not

asking a court to determine “whether Medicare should pay the claims as

submitted, how much should be paid, or whether the [Appellees’] conduct

was illegal, wrongful or improper” and “at bottom [it is] not seeking to

recover benefits” but rather it is seeking damages arising from Appellees’

“unlawful” conduct. †††† Id. Of course, that argument totally ignores the

underlying reality that all of the actions complained of are squarely rooted

in, and arise from, the relationship between the parties. That relationship is

firmly rooted in the Act and certainly arises from it.

In attempting to argue the contrary proposition, Nichole Medical

relies on Ardary v. Aetna Health Plans of Southern California, Inc., 98 F.3d

496 (9th Cir. 1996), wherein the Court of Appeals for the Ninth Circuit

found state law claims did not arise under the Act because, at bottom, they

were not seeking to recover benefits. See Appellant’s Brief, pp. 15-16.

However, that case involved a wrongful death action and the court merely

concluded that the Act did not preclude the heirs of a deceased Medicare

beneficiary from bringing state law claims for wrongful death against a

private Medicare provider. See Ardary, 98 F.3d at 498. The plaintiffs

there were seeking compensatory and punitive damages on the grounds that

the Medicare provider improperly denied emergency medical services and

misrepresented its managed care plan. Id.

Moreover, the Court of Appeals for the Ninth Circuit subsequently

clarified the limited nature of the holding in Ardary by explaining that it

“does not extend beyond patients and torts committed in the sale or

provision of medical services.” Kaiser v. Blue Cross of Cal., 347 F.3d

1107, 1113 (9th Cir. 2003). That is simply not this case.

The Supreme Court has defined claims that “arise under” the Act as

claims that are “inextricably intertwined” with a claim for benefits or

claims where “both the standing and the substantive basis for presentation”

is the Act. Shalala, 529 U.S. at 12. A claim is “inextricably intertwined” if

it does not involve issues separate from the party’s claim that it is entitled

††††

Nichole Medical’s allegations that the Appellees’ conduct was unlawful, alone, are

entirely insufficient to survive a motion to dismiss. See Ashcroft v. Iqbal, 129 S. Ct.

1937, 1949 (2009) (“The plausibility standard . . . asks for more than a sheer possibility

that a defendant has acted unlawfully. . . . threadbare recitals of the elements of a cause of

action, supported by mere conclusory statements, do not suffice.”); see also Fowler v.

UPMC Shadyside, 578, F.3d 203, 210-11 (3d Cir. 2009) (“The District Court must accept

all the complaint’s well-pleaded facts as true, but may disregard any legal conclusions.”).

11

to benefits and/or if those claims are not completely separate from its

substantive claim to benefits. See Cathedral Rock of North College v.

Shalala, 223 F.3d 354, 363 (6th Cir. 2000).

A claim can arise under the Medicare Act even if the substantive

relief sought is not permitted by the Act. See Heckler v. Ringer, 466 U.S.

602, 623 (1984). As the Ninth Circuit explained in Kaiser, “[t]he fact that

[Appellant] seek[s] damages beyond the reimbursement payments available

under Medicare does not exclude the possibility that [its] case arises under

Medicare. Simply put, the type of remedy sought is not strongly probative

of whether a claim falls under §405(h).” 347 F.3d at 1112.

Bodimetric Health Services, Inc. v. Aetna Life & Casualty is

illustrative of this point and “on all fours” with Nichole Medical’s attempt

to argue that its claims do not “arise under” the Act. There, a Medicare

intermediary refused to pay certain claims and, as a result, Bodimetric went

out of business. Bodimetric, 903 F.2d 480, 482-83 (7th Cir. 1990).

Bodimetric sued the intermediary for fraud, fraudulent concealment, breach

of contractual relationship, tortious breach of the implied covenant of good

faith and fair dealing and intentional harm to property interest. Id. The

Court of Appeals for the Seventh Circuit rejected Bodimetric’s assertion

that its tort claims did not arise under the Act. The court explained: a

“party cannot avoid the Medicare Act’s jurisdictional bar simply by styling

its attack as a claim for collateral damages instead of a challenge to the

underlying denial of benefits.” Id. at 487 (“If litigants who have been

denied benefits could routinely obtain judicial review of these decisions by

recharacterizing their claims under state and federal causes of action, the

Medicare Act’s goal of limited judicial review for a substantial number of

claims would be severely undermined.”). We agree.

Here, based on its own recitation of facts, it is clear that Nichole

Medical’s action is, at bottom, nothing more than an argument that it was

entitled to payments under the Medicare program, those payments were

delayed or denied, and Nichole Medical suffered damages as a result.

Thus, these claims are not only “inextricably intertwined” with Nichole

Medical’s claim for benefits, they derive from (and are firmly rooted in) the

Act. See, e.g. Midland Psychiatric Assocs., Inc., 145 F.3d at 1005 (finding

a tortious interference claim to be “inextricably intertwined” with a

Medicare benefits determination because “[a]t bottom, [Appellant] is

claiming [the Medicare carrier] should have paid for its services.”);

Bodimetric, 903 F.2d at 486 (“[Appellant’s] grievance is, at bottom, a

challenge to [the intermediary’s] approach to processing claims. Judicial

review of such a challenge seems to be foreclosed.”); Fanning, 346 F.3d at

400 (It is “apparent that both the standing and the substantive basis for the

12

claim . . . are rooted in, and derived from, the Medicare Act” when the

claim was wholly dependent on whether the parties qualified as a primary

plan as defined by the Act).

3. Judicial Review of Nichole Medical’s Claims

Nichole Medical concedes that it did not raise the tort and contract

claims that this suit is based on during its Medicare appeals process. ‡‡‡‡ To

obtain judicial review under §405(g), however, Nichole Medical “must

have complied with (1) a nonwaivable requirement of presentation of any

claim to the Secretary, and (2) a requirement of exhaustion of

administrative review, which the Secretary may waive.” Cathedral Rock,

223 F.3d at 359 (emphasis added); see also Ringer, 466 U.S. at 617 (“[T]he

exhaustion requirement of §405(g) consists of a nonwaivable requirement

that a ‘claim for benefits shall have been presented to the Secretary’ and a

waivable requirement that the administrative remedies prescribed by the

Secretary be pursued fully by the claimant.”) (internal citations omitted).

“‘[A]ll aspects of [Nichole Medical’s] claim for benefits should be

channeled first into the administrative process which Congress provided for

the determination of claims for benefits.’” Fanning, 346 F.3d at 395

(quoting Ringer, 466 U.S. at 614).

Moreover, Nichole Medical is not exempt from this exhaustion

requirement simply because the claims arising under the Act are not within

the jurisdiction of the Secretary. See Salfi, 422 U.S. at 765 (“Plainly [the

purposes for exhaustion] have been served once the Secretary has satisfied

himself that the only issue is the constitutionality of a statutory

requirement, a matter which is beyond his jurisdiction to determine, and

that the claim is neither otherwise invalid nor cognizable under a different

section of the Act.”). §§§§

‡‡‡‡

Nichole Medical avers that (i) it exhausted all claims that it was required to under the

Act; and (ii) there is no administrative procedure to obtain review of state law claims for

damages. Appellant’s Brief, pp. 10-16. Additionally, Nichole Medical argues that the

“scope of the administrative proceedings was limited to a determination on claims for

benefits, i.e., whether benefits should be paid, and if so, in what amount” and, therefore,

it was not required to exhaust its claims. Id. at 9-10.

§§§§

See, e.g. Kaiser, 347 F.3d at 1115 (“And, while the administrative action may in

some sense be futile for [Appellant] (if the administrative process cannot provide the

damages the [Appellant] seek[s]), the administrative exhaustion of [Appellant’s] claims

would still serve the purposes of exhaustion and not be futile in the context of the

system.”); Shalala, 529 U.S. at 24 (“At a minimum, however, the matter must be

presented to the agency prior to review in a federal court.”); Id. at 23 (“After the action

13

To conclude otherwise would allow any party to avoid the Act’s

administrative procedures for reviewing the Secretary’s determinations

simply by restyling their argument as something different. See Cathedral

Rock, 223 F.3d at 363. Accordingly, Nichole Medical improperly advances

an action based on unexhausted claims that “arise under” the Act. See

Kaiser, 347 F.3d at 1116 n.4 (9th Cir. 2003) (“[A]ll inextricably

intertwined claims must first be raised in an administrative process. In that

process, the agency, with the benefit of its experience and expertise, can

resolve whatever issues it can, limiting the number of issues before judicial

review (and limiting review on those issues according to the appropriate

standard of deference).”).

Without a final agency decision on Nichole Medical’s claims, the

district court lacks jurisdiction to review this action. See 42 U.S.C.

§405(h). Because §§1331 and 1332 jurisdiction is barred and the

prerequisites of §405(g) have not been satisfied, the district court properly

determined that it was without subject matter jurisdiction to entertain

Nichole Medical’s state law claims.

B. Official Immunity for Medicare Contractors

In the alternative, the district court also dismissed Nichole Medical’s

action for failing to state a claim for which relief may be granted because it

found TriCenturion and NHIC were entitled to official immunity. Our

review of the district court’s grant of a motion to dismiss for failure to state

a claim is plenary. Morse v. Lower Merion School Dist., 132 F.3d 902, 906

(3d Cir. 1997). “In considering whether a complaint should have been

dismissed for failure to state a claim upon which relief can be granted, [this

Court] must consider only those facts alleged in the complaint and accept

all of the allegations as true.” ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859

(3d Cir. 1994).

A Rule 12(b)(6) motion should be granted when it appears to a

certainty that no relief can be granted under any set of facts which could be

has been [channeled through the agency], the court will consider the contention when it

later reviews the action. And a court reviewing an agency determination under §405(g)

has adequate authority to resolve any statutory or constitutional content that the agency

does not, or cannot, decide . . . .”); Kaiser, 347 F.3d at 1116 n.4 (The agency “may make

a determination that it is without authority to decide and grant the . . . right to obtain

judicial review. . . . Such determinations would satisfy presentment and exhaustion, and

permit [courts] to hear claims [inextricably intertwined with claims arising under the Act]

. . .”).

14

proved. Morse, 132 F.3d at 906. Though Nichole Medical’s complaint

need not set forth detailed allegations, it must provide the grounds for its

entitlement to relief which requires more than labels, conclusions and a

formulaic recitation of the elements of a cause of action. See Bell Atlantic

Corp. v. Twombly, 550 U.S. 544, 555 (2007).

On appeal, TriCenturion and NHIC assert that, “as Medicare

contractors—acting on behalf of the Secretary and performing functions

under their contract with CMS—and because the complaint alleges only

state-law tort claims, [Appellees] are entitled to official immunity.”

Appellees’ Brief, p. 17. Nichole Medical argues that “government

contractors who engage in illegal conduct have no claim to immunity” and,

therefore, official immunity should not be extended to Appellees. *****

Appellant’s Brief, pp. 18-22.

Nichole Medical’s argument is unpersuasive. TriCenturion and

NHIC, as Medicare contractors, are entitled to immunity for discretionary

conduct that falls within the outer perimeter of their official duties.

Westfall v. Erwin, 484 U.S. 292, 300 (1988); see also 42 C.F.R. §421.5(b)

(Medicare contractors “act on behalf of the CMS in carrying out certain

administrative responsibilities that the law imposes”); Midland Psychiatric

Association., 145 F.3d at 1003-4 (Medicare contractors are government

agents because they are “[u]nder contract with the Secretary of Health and

Human Services, [and] do the work of the Government on the Secretary’s

behalf.”).

Under the Act, Appellees had discretion to suspend payments to

recoup monies they believed had been overpaid to suppliers. See 42 C.F.R.

§405.371. Appellees were discharging that discretionary duty when they

withheld benefits to recoup the perceived overpayments to Nichole

Medical. See id. Since Nichole Medical is seeking damages purportedly

*****

Putting aside the fact that an agency should be permitted, in the first instance, to

determine whether its agents acted outside of their statutory authority, the plain language

of the implementing regulations provides Appellees with the authority to withhold

payments to entities furnishing services or items under the Act. See 42 C.F.R. §405.371.

Appellees were authorized to suspend payments when they possessed reliable

information that an overpayment had been made to Nichole Medical even if additional

information was needed for a final determination. See id. at (a)(1). Appellees were also

authorized to offset or recoup Medicare payments if they determined that Nichole

Medical had been overpaid. See id. at (a)(3). The substance of Appellees’ findings which

prompted the withholdings was never found to be insufficient. In fact, though his inquiry

was found improper on appeal, the ALJ found that 22 of the 39 claims were improperly

paid and actually did result in overpayments made to Nichole Medical.

15

arising from the exercise of Appellees’ discretion to withhold benefits they

are seeking damages for the exercise of discretion that is easily within the

outer perimeter of Appellees’ official duties. See id.

Accordingly, the district court properly found that Appellees are

entitled to immunity and dismissed Nichole Medical’s complaint. See

Bodimetric, 903 F.2d at 488 (“Congress apparently did not differentiate

between the respective abilities of public and private agencies to serve as

fiscal intermediaries, 42 U.S.C. §1395h(a), we see no reason to allow

claimants to proceed against private agencies when they clearly cannot

proceed against federal agencies.”).

IV. CONCLUSION

For the forgoing reasons, we conclude that the district court properly

granted Appellees motions under Fed R. Civ P. 12(b)(1) and (6) and we

will therefore affirm its decision.

16