# Petition for Writ of Certiorari — Fanning v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2004
- **Citation:** 542 U.S. 919

## Text

Supreme
FILE®

No. 8 132 7 MAR 15 9004

IN THE

Supreme Court of the Hnited States

DANIEL C. FANNING, individuaily and as Class Representative,

Petitioners,
v.
UNITED STATES OF AMERICA, et al.,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

ARNOLD LEVIN
Counsel of Record

MICHAEL D. FISHBEIN

ZANETTA MOORE-DRIGGERS

LEVIN, FISHBEIN, SEDRAN & BERMAN
510 Walnut Street, Suite 500
Philadelphia, PA 19106
(215) 592-1500

Attorneys for Petitioners

186312 ce

COUNSEL PRESS
(800) 274-3321 * (800) 359-6859

~

1

QUESTION PRESENTED

Does 42 U.S.C. § 405(h), incorporated into the Medicare
Act by 42 U.S.C. § 1395ii, preclude federal question
jurisdiction under 28 U.S.C. § 1331, over an action asserting
constitutional challenges to the administrative adjudication
procedure utilized by the United States government to seek
Medicare reimbursement from private citizens who received
distribution from a tort settlement fund, where the
adjudication effected a deprivation of property without due
process of law.

il

PARTIES TO THE PROCEEDINGS

The Petitioners, who appeared before the United States
Court of Appeals for the Third Circuit at Docket
No. 01-3366 (3d Cir.), are Daniel Fanning, individually and
as Class Representative.

The respondents to this Petition, who appeared before

the Third Circuit at Docket No. 01-3366 (3d Cir.), and are
not set forth in the caption are: the United States Department
of Defense; the United States Department of the Army; the
United States Department of the Navy; the United States
Department of the Air Force; the United States Indian Health
Service; the United States Department of Veterans Affairs;
Donald H. Rumsfeld, as Secretary of Defense; Gregory A.
Dahlberg, The Honorable, as Acting Secretary of the Army;
Grodon R. England, The Honorable substituted, as Secretary
of the Navy; James G. Roche, The Honorable Dr., as Secretary
of the Air Force; Charles W. Grim D.D.S, M.H.S.A., as
Director of the Indian Health Service; Anthony J. Princip,
The Honorable, as Secretary of the Department of Veterans
Affairs; the Centers for Medicare and Medicaid Services
(formerly the Health Care Financing Administration); the
United States Department of Health and Human Services;
Tommy G. Thompson, in his capacity as Secretary of the
United States Department of Health and Human Services;
and Thomas Scully, in his capacity as Administrator of the
Centers for Medicare and Medicaid Services (formerly
Administrator of the Health Care Financing Administration).

— oe

lil

TABLE OF CONTENTS

Page
OO 1
Parties To The Proceedings .................... li
es ea decay bse sheewes lil
Table Of Cited Authorities .................... iV
re Vii
Opinions | SE ere l
Statement Of Jurisdiction ..................... ]
Constitutional And Statutory Provisions Involved . l
Statement Of The Case ....................... 2
Reasons For Granting The Petition ............. 6

I. This Petition Presents A Recurring Issue of
Significant National Concern ............ 6

II. The Administrative Adjudication Of The

Government’s MSP Claims Violate The Due
OMS 5 kee vce nescssviavanss 9
es a sk ao xd be ook ae Owes 13

iv
TABLE OF CITED AUTHORITIES
Page

Cases:

Buckman vy. Plaintiffs’ Legal Comm., 513 U.S. 341

cS RR a eee ere th Peg ey Wer ee a Ae ety 2
Gray Panthers v. Schweiker, 652 F.2d 146 (D.C. Cir.

WE Crk acca ence cere seen a tioas eee 9
Connecticut v. Doehr, 501 U.S. 1 (1991) ....... 9,11, 12
Fanning v. United States, 346 F.3d 386 (3d Cir. 2003)

b gts Mel wee ounce aca ee ee i 1, 4-5, 8, 10
Fuentes v. Shevin, 407 U.S. 67 (1972) ........... 7, 8,9

In re Air Crash at Taipei, Taiwan, on October 31,
2000, MDL No. 1394(C.D. Cal.) ............ 6

In re Baycol Prod Liab. Litg., MDL No. 1431
RS are rh eer Ne hats ny 6

In re Dow Corning Corp., 250 B.R. 298 (Bankr. E.D.
er ene enor mre 8,12

In re Orthopedic Bone Screw, 202 F.R.D. 154 (E.D.
| eer err se ere re er er rere ae 4

In re Propulsid Prod. Liab. Litig., MDL No. 1355
Se UE no 0 ihe an eS oe ee a eee 6

v
Cited Authorities
Page
In re Rezulin Prod. Liab. Litig., MDL No. 1348
Roh & gree + +4ee henna eRe 6

In re Sulzer Orthopedics Inc. Hip Prosthesis and
Knee Prosthesis Prod. Liab. Litig., MDL No. 1401

PEER SOD 6 6h vee cases bekee eee 6
Mason vy. American Tobacco Co., 346 F.3d 36

CP" Gi BD. nn ohn v'noa0kadsnene 5
Mathews v. Eldridge, 424 U.S. 319 (1976) ....... 10

Pension Benefit Guar. Corp. v. R.A. Gray & Co.,
467 U.S. 717 (1984) ....... ieceKnaeearee es 5

Reardon vy. United States, 947 F.2d 1509 (1* Cir.
POPES ona 4205 eed Ree hee 9

Sniadach y. Family Finance Corp., 395 U.S. 337
GOOF Eh 5 vies s ve detvhes eee eee 9

Thompson v. Goetzmann, 315 F.3d 457 (5" Cir.
2002), opinion withdrawn and reissued as
amended on other grounds, 337 F.3d 489 (5" Cir.

BOOED cs sen dnaens¥eke ee ieee 5
United States v. Baxter Int’l Inc., 345 F.3d 866

37° GR SRR os besads teen eee 5,8
United States v. Carlton, 512 U.S. 26 (1994) ..... 5

vi

Cited Authorities
Page
Waters v. Farmers Texas County Mut. Ins. Co., 9 F.3d
S97 63 Cie. 1988) occ ct vuveeeent ese 8
Zinmann v. Shalala, 835 F. Supp. 1163 (N.D. Cal.
1993), aff'd, 67 F.3d 841 (9 Cir. 1995) ....... 9
Constitution and Statutes:
LS. Comet. OG. Vi oa ccc ei vee cn evedevesSes ]
Lib com. rere rer rere rt rs co er 4
sis Pom Bee) |) errr rer rr err 1
TE UBC. 6 TOG oc cunn hess eerie 3
- £Es Tom Et) rere rrr Ter rer rs cy i, 4
ath Com f . ) nner rrre rrr? fre ty 1,12
S2 UG. 8 GOD) ono vn vccaecruysceincnes i, 1, 6, 12
42 U.S.C. § ISOS ONE) bo eons he ks ce ewersucss 2
Ris OMe Be Pe rrrerrrer rr rr re re. i, 1

Miscellaneous:

Medicare Prescription Drug and Modernization
Act of 2003, H.R. 2473, 108" Cong., H.R. Rep.
108-1 780D, 6 301 (2003) . 2.6. ceswennes 7

Vil

TABLE OFAPPENDICES

Page
Appendix A — Opinion Of The United States Court

Of Appeals For The Third Circuit Filed October

ea aCe scene e i eeeaed Akaroa la
Appendix B — Memorandum And Pretrial Order

No. 2000 Of The United States District Court For

The Eastern District Of Pennsylvania Dated June

| Peers Pree rer ry ee 36a
Appendix C — Order Of The United States Court

Of Appeals For The Third Circuit Denying Petition

For Rehearing En Banc Dated December 16,

OE LS eee ees tear ree Ca 80a
Appendix D — Statutes Involved ............... 83a
Appendix E — Government Adjudication Letter To

Class Member For MSP Claims Dated May 7,

Br rer ee ee re emo an 94a
Appendix F — Affidavit Dated June 4, 2001 ..... 10la
Appendix G — Affidavit Dated June 2, 2001 ..... 104a
Appendix H — Affidavit Dated June 1, 2001 ..... 107a

Appendix I — Excerpts Of Testimony In Preliminary
Injunction Hearing In In Re Orthopedic Bone
Screw Products Liability Litigation, Mdl No. 1014
Bree BOG. FOE on cece ccsvecvsusws 110a

a Sell Rel ae NO

Neale aed ti a AIEEE AO, CA

SOAR mae le

a i Sarai. ee eae

l

OPINIONS BELOW

The opinion of the Panel of the United States Court of
Appeals for the Third Circuit is reported as Fanning v. U.S.A.,
346 F.3d 386 (3d Cir. 2003), and is reprinted in the Appendix
to the Petition beginning at page 1a. The opinion of the United
States District Court for the Eastern District of Pennsylvania
is reported as Jn re Orthopedic Bone Screw Products Liability
Litigation, 202 F.R.D. 154 (E.D. Pa. 2001), and is reprinted
in the Appendix beginning at page 36a.

STATEMENT OF JURISDICTION —

The judgment of the Court of Appeals was filed on
October 10, 2003. The Order of the United States Court of
Appeals for the Third Circuit, denying Fanning’s timely
Petition for Rehearing En Banc, dated December 16, 2003,
is reprinted in the Appendix beginning at page 80a. The
jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).

CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED

The Due Process Clause of the United States Constitution
provides in relevant part: ““No person shall . . . be deprived
of life, liberty, or property, without due process of law. .. .”
U.S. Const. Amend. V. The provisions of 42 U.S.C. §§ 405(g),
405(h), 1395ii, and 1395y(b)(2) are reproduced in the
Appendix beginning at 83a.

2

STATEMENT OF THE CASE

This case raises important, recurring questions relating
to whether the government may avoid judicial review of
pre-hearing deprivations of property interests in federally
administered benefits programs, in violation of the United
States Constitution.

This case arises from the Government’s effort to obtain
reimbursement of medical expenses from crippled and
disabled class members who received partial distributions
from a limited fund class action settlement with AcroMed
Corporation in Jn re Orthopedic Bone Screw Product Liability
Litigation, No. 97-cv-381 (“Bone Screw Litig.”).'
The Government claimed it was entitled to reimbursement
under the Medicare Secondary Payer statute, 42 U.S.C.
§ 1395y(b)(2) (“MSP”), and sought to appropriate the
reimbursement through threats of an imminent pre-hearing
attachment. That effort to recover from the class members is
contrary to law. The threat of a pre-hearing levy, used by the
Government against class members who suffer from disabling
spinal injuries, is unconstituiional, as violative of the Due
Process Clause, and class members have no administrative
recourse to address this violation.

On March 1, 2001, Fanning filed a motion in the
Bone Screw Litig., to require distribution of the settlement
proceeds. On that same date, acting in a representative
capacity, Fanning filed an action in the United States District
Court for the Eastern District of Pennsylvania, seeking a
judgment declaring that the Government had no right on

1. One aspect of this complex mass tort action has previously
been subject to review by this court. See Buckman v. Plaintiffs ’Legal
Committee, 531 U.S. 341 (2001).

3

account of the AcroMed settlement to recover payments
previously made by the Government for medical expenses
of the class members, and permanently enjoining the
Government from attempting such recovery from the class
members. Subsequently, the Government administratively
adjudicated its claims against the class members without
affording them notice of its alleged claim and an opportunity
to be heard concerning it.

The Government sent adjudication letters
(““Adjudications’’) to the members of the plaintiff-class stating
that it was entitled to Medicare reimbursement in specified
amounts which were supposed to represent the amounts
previously paid by Medicare for bone screw-related injuries,
to the extent of the class members’ recoveries in the Bone
Screw Litigation, and demanding immediate payment of those
amounts. (App. 96a). The Adjudications also threatened a
levy on other federal benefits received by class members
including the Medicare and Social Security benefits on which
many of these disabled class members rely to support and
maintain their very existence. (App. 96a). Moreover, they
threatened accrual of interest at the confiscatory rate of
13.75%? from the date of the letter, if the amount was not
paid within sixty days, regardless of whether the
class members challenged the de facto levy and requested
an administrative hearing. (App. 96a).

Following the Government’s action, Fanning filed an
amended complaint. Fanning also requested class
certification and a preliminary injunction to prevent the

2. The Adjudications impose interest at the rate of 13.75%
per annum. In contrast, the federal judgment rate of interest is tied to
the yield on treasury bills, which in the last few years has hovered
between one and two percent. See 28 U.S.C. § 1961 and
www. federalreserve. gov.

4

Government from proceeding with its efforts to administratively
adjudicate its claims. The district court had jurisdiction pursuant
to 28 U.S.C. § 1331. The Government filed a motion to dismiss
the complaint.

On June 29, 2001, the judge in the District Court, the
Honorable Louis Bechtle issued an opinion granting the motions
for class certification and for a preliminary injunction. The Court
found that “the Medicare statutory scheme does not preclude
judicial review of the class members’ claims.” Jn re Orthopedic
Bone Screw, 202 F.R.D. 154, 170 (E.D. Pa. 2001). (App. 71a).
The Court also found that judicial review was authorized by the
Administrative Procedures Act, 5 U.S.C. § 702, et seq.
Id. at 171. (App. 72a). In addition, the Court said that “the
class members have established the likelihood of irreparable
harm,” and that the Plaintiffs “are likely to ultimately succeed on
the merits of the Government’s MSP claim.” Jd. at 169. (App.
66a).

The Government filed an appeal of the District Court’s
decision, arguing that the District Court lacked jurisdiction
to hear Petitioners’ claims because they had not exhausted
administrative remedies. On October 10 , 2003, the Third
Circuit Court of Appeals reversed the District Court, ruling
that the District Court had no federal question jurisdiction.
The Third Circuit found that the central issue was whether
the AcroMed settlement fund was a self-insured plan, and
thus a primary plan under the MSP.’ Fanning v. United States,

3. At the time of the Third Circuit’s opinion, there was a circuit
split on the question of whether a tort settlement fund was a
“self-insured plan” under the MSP such that the Government could

recover reimbursement of prior Meidicare expenses paid to treat the
(Cont’d)

:
§
4

a tanta ee ES, RNR“ ee

ee ee ee Te ee ee ee EM ee ee Ee eae e ee Seg h ee ee tee o> | een Mes

5

346 F.3d 386, 400 (3d Cir. 2003). (App. 29a). Therefore, the
Third Circuit held “that both the standing and substantive basis
for the claim asserted in the amended class action complaint are
rooted in, and derived from, the Medicare Act.” /d. (App. 30a).
Thus, the Third Circuit found that 42 U.S.C. § 405(h) compelled

(Cont'd)

injuries that were the subject of the tort action. The Second and Fifth
Circuits rejected the government’s argument and held that the
government was not entitled to such reimbursement. See Mason v.
American Tobacco Co., 346 F.3d 36 (2™ Cir. 2003) and Thompson v.
Goetzmann, 315 F.3d 457 (5" Cir. 2002), opinion withdrawn and
reissued as amended on other grounds, 337 F.3d 489 (5™ Cir. 2003).
The Eleventh Circuit accepted the government’s MSP reimbursement
argument in United States v. Baxter Intern. Inc., 345 F.3d 866
(11" Cir. 2003). On December 8, 2003, Congress amended the MSP
to read that “An entity that engages in a business, trade, or profession
shall be deemed to have a self-insured plan if it carries its own risk
(whether by a failure to obtain insurance or otherwise) in whole or
in part.” The amendments also set forth

A primary plan’s responsibility for such payment may
be demonstrated by a judgment, a payment conditioned
upon the recipient’s compromise, waiver, or release
(whether or not there is a determination or admission of
liability) of payment for items or services included in a
claim against the primary plan or the primary plan’s
insured, or by other means.

However, the validity of the amendments is questionable, given that
they were made retroactive, as if they had been included in the
enactment of section 953 of the Omnibus Reconciliation Amendments
of 1980, a retroactive period of over twenty years. See United States
v. Carlton, 512 U.S. 26 (1994) amendment retroactive for one (1)
year was constitutional where Congress “acted promptly and
established only a modest period of retroavticity”); Pension Benefit
Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717 (1984) (retroactive
effect for five(5) months was constitutional because it was “confined
to short and limited period[]).

6

Petitioners to channel their claims through the agency. /d. (App.
30a). The Third Circuit ignored the government’s violation of
class members’ due process rights, both sustantively and as a
basis for the exercise of jurisdiction by the District Court.

REASONS FOR GRANTING THE PETITION

I. This Petition Presents A Recurring Issue of Significant
National Concern

This issue will continue to arise more frequently, given the
current status of mass-tort litigation as part of our legal
landscape.* The significance of the issue is illustrated by
developments in litigation, the government’s tactics in
asserting its claims, Congressional action, and judicial
commentary. Clear guidance from this Court is imperative.

By definition, mass-tort cases involve substantial
numbers of people injured by the same product or accident.
Along with such litigation come settlement funds that are
often made available to compensate injured victims.
The government has recently decided to seek Medicare
reimbursement from mass-tort or class-action plaintiffs once
they obtain distribution of settlement funds, regardless of
the distribution amount or whether medical expenses for the
class of plaintiffs were calculated in the settlement. In its
zeal for monetary recovery, the government, as a matter of
institutional practice, tramples upon the constitutional rights of

4. A few of the current mass-tort, multidistrict litigation cases
include Jn re Baycol Prod Liab. Litg., MDL No. 1431 (D. Minn.);
In re Propulsid Prod. Liab. Litig., MDL No. 1355 (E.D. La.);
In re Rezulin Prod. Liab. Litig., MDL No. 1348 (S.D.N.Y.); In re
Air Crash at Taipei, Taiwan, on October 31, 2000, MDL No. 1394
(C.D. Cal.); and Jn re Sulzer Orthopedics Inc. Hip Prosthesis and
Knee Prosthesis Prod. Liab. Litig., MDL No. 1401 .(N.D. Ohio).

7

these victims, by denying them a pre-deprivation hearing. The
magnitude of this issue is emphasized in the legislative history of
the recent amendments to the MSP, which reflect that the
Government expects to recover more than nine billion dollars
from the tort recoveries of injured Medicare beneficiaries over
the next ten years. Medicare Prescription Drug and Modemization
Act of 2003, H.R. 2473, 108" Cong., H.R. Rep. 108-178(II),
§ 301 (2003).

The Government, through these coercive pre-hearing
Adjudications, essentially takes the Medicare beneficiaries
property without due process. This is fundamentally
unconstitutional. By definition, mass tort victims are citizens
who have suffered serious or debilitating injuries, which have
rendered them dependent on the Medicare, Social Security
and other federal benefits subject to seizure through the
Adjudications. An unconstitutional deprjvation of their
property cannot be undone or fixed after the fact. Fuentes v.
Shevin, 407 U.S. 67, 81-82 (1972). “If the right to notice
and a hearing is to serve its full purpose, then, it is clear that
it must be granted at a time when the deprivation can still be
prevented.” /d. at 81.

The MSP amendments make it easier for the government
to pursue claims against mass-tort victims, defendants and
settlement funds. However, the procedure routinely used by
the government to appropriate MSP reimbursement was not
addressed by Congress in those recent amendments.
That procedure, which operates to deprive citizens of their
property without due process, is still unconstitutional. It is
simply wrong to coerce immediate payment from citizens
based on erroneous adjudications, without affording those
citizens a pre-deprivation opportunity to demonstrate that
the calculations are mistaken. To, in the same breath, threaten

8

those citizens, who are poor and disabled, with seizure of federally
administered benefits, upon which they are dependent, prior to
an opportunity to dispute the claimed debt, is unconscionable.
“For when a person has an opportunity to speak up in his own
defense, and when the State must listen to what he has to say,
substantively unfair and simply mistaken deprivations of property
interests can be prevented.” Fuentes, 407 U.S. at 81.

The unconstitutionality of the government’s actions cannot
be ignored. Judicial commentary reflects the recurring nature of
the issue presented here. In United States v. Baxter Intern.,
345 F.3d 866 (11" Cir. 2003), the Eleventh Circuit Court of
Appeals indicated that expansion of the MSP statute has made
“Medicare secondary to a greater array of primary coverage
sources... .” Jd. at 877. The Eleventh Circuit also found that
“any payment that Medicare does make is secondary and is
subject to reimbursement from sources of primary coverage
under the statute.”’ /d. at 886. Thus, the government has increasing
opportunities to attempt seizures of private property. Further,
the government’s tactics have repeatedly been questioned. See
e.g. Fanning, 346 F.3d at 25, n.17 (government letters
unnecessarily callous and threatening); Waters v. Farmers Texas
County Mut. Ins. Co., 9 F.3d 397, 400-01 (5 Cir. 1993) (court
expressed disappointment with “the government’s overreaching
interpretation of its authority under the [MSP]”); Jn re Dow
Corning Corp., 250 B.R. 298, 336 (Bankr. E.D. Mich. 2000)
(describing government action as “heavy-handed collection
tool’’).

eee ee ee ee

9

II. The Administrative Adjudication Of The Government’s
MSP Claims Violate The Due Process Clause

The Adjudications violate the class members’ Constitutional
rights. A beneficiary’s interest in receiving Medicare benefits,
such as the interest affected by the Adjudications here, is a
constitutional property interest subject to the protection of the
due process clause. Gray Panthers v. Schweiker, 652 F.2d
146, 152, n.15, 158, 167-72 (D.C. Cir. 1980); Zinman v.
Shalala, 835 F. Supp. 1163, 1169 (N.D. Cal. 1993), aff'd, 67
F.3d 841 (9" Cir. 1995). Moreover, the Adjudications affect
the property interests of class members at least as profoundly as
a judgment or the pre-judgment attachments which were subject
to due process restraint in cases such as Connecticut v. Doehr,
501 U.S. 1, 9-16 (1991); Fuentes v. Shevin, 407 U.S. 67, 88
(1972), and Reardon v. United States, 947 F.2d 1509, 1517-
18 (1* Cir. 1991).

Accordingly, under the Due Process Clause, the Government
was obliged to afford the plaintiff-class members the kind of
“notice and hearing that are aimed at establishing the validity, or
at least the probable validity, of the underlying claim against”
them before entering the Adjudications even if they might be
undone by a later appeal. E.g., Fuentes, 407 U.S. at 97;
Sniadach v. Family Finance Corp., 395 U.S. 337, 343 (1969).
Fundamental notions of due process dictate that the poor and
handicapped class members should have been given notice of
the Government claims. Instead, they were sent the coercive
Adjudications which purported to be final determinations and
threatened attachment of their life sustaining benefits if payment
was not made promptly. In fact the Third Circuit recognized that
the Adjudications were “unnecessarily callous and threatening”
and were “more suggestive of tactics one might attribute to a

10

less than reputable collection agency rather than to one’s own
government.” Fanning, 346 F.3d at 401-02, n.17. (App. 33a-
34a).

The Government adjudicated its own claims, and effectively
initiated a levy on the property of class members without any
advance notice, let alone an opportunity to be heard before the
coercive appropriation of their property. This deprived the
plaintiff-class members of the opportunity to show that the
Government’s claims were legally baseless, that they did not
receive some or all of the health care items or services, which
were the subject of the Adjudications, as a result of injuries related
to AcroMed orthopedic bone screws, and that they did not
receive the amounts from the AcroMed settlement fund which
were set forth as the explicit basis for the Adjudications. None
of the factors set forth in Mathews v. Eldridge, 424 U.S. 319
(1976), justifies this deprivation.

Pursuant to Matthews the factors to be considered when
determining the due process issues in a State deprivation of
property are: “the private interest that will be affected by the
official action;” “the risk of an erroneous deprivation of such
interest ... and the probable value, if any, of additional or
substitute procedural safeguards;” and “the Government’s
interest, including . . . the fiscal and administrative burdens
that the additional or substitute procedural requirement would
entail.” Matthews, 424 U.S. at 335. Consideration of the
private interest affected by the official action certainly points
to the necessity of due process protection here. The interest
of class members in Social Security, Railroad Retirement,
Medicare, and other benefits upon which they rely for
sustenance, are affected by the Government’s Adjudications.
These are extreme deprivations. The Supreme Court has held

1]

that “‘even the temporary or partial impairment to property rights
that attachments, liens, and similar encumbrances
entail are sufficient to merit due process protection.”
Doehr, 501 U.S. at 12.

The risk of erroneous deprivation here is great.
As evidenced by the testimony and affidavits presented to
the District Court, the Adjudications are often wrong.°
The amounts demanded include charges for care not related
to treatment with the orthopedic bone screws that were the
subject of the litigation, services for which Medicare did not
even pay, services for which Medicare was already
reimbursed, and services which were never received by class
members. However, before having the opportunity to dispute
these charges, class members were threatened with accrual
of confiscatory amounts of interest on the Government’s
claimed debt, having their life sustaining benefits seized, and
having the debt assigned to the Department of the Treasury
for collection efforts — all without the prospect for a hearing
before any of these deprivations were effectuated.
The probable value of safeguards, preventing prejudgment
interest accrual and prejudgment deprivation of property, is
substantial. “A later hearing. . . would not cure the temporary
deprivation that an earlier hearing might have prevented.”
Doehr, 501 U.S. at 15. Regarding financial or administrative
burdens on providing the pre-attachment hearing, as this
Court held in Doehr “the State cannot seriously plead
additional financial or administrative burdens involving
predeprivation hearings when it already claims to provide
an immediate post-deprivation hearing.” Doehr at 16. Likewise,
that is not an issue here as the Government argued below that

5. A representative sample of the testimony and affidavits is
included in the Appendix, beginning at 101a.

12

the class members’ “appeal” rights afford them the possibility of
a post-deprivation hearing.

Thus, the Government violated the class members’
due process rights, and it did so deliberately as part of a
heavy-handed collection strategy. See Dow Corning, 250 B.R.
at 336, n.21 (noting the government’s use of MSP as a “heavy-
handed collection tool”). Such behavior is the hallmark of
injustice. Petitioners had a right to seek a judicial remedy
for the government’s unconstitutional acts.

The present matter is not one which falls within the scope
of Section 1395ff and the concomitant review provisions of
Sections 405(h) & (g). The Adjudications at issue here would
strip disabled class members of the amounts which they
require for their medical care and support without a prior
opportunity for judicial review. Thus, as a practical matter,
the Adjudications would impair the class members’ rights to
judicial review so as to make Section 405(h) inapplicable.

13

CONCLUSION ,

Because the government’s collection of MSP
“Reimbursements” is a recurring issue of national importance,
and such collection actions constitute a violation of the Due
Process Clause, this Petition for a Writ of Certiorari should be
granted.

Respectfully submitted,

ARNOLD LEVIN

Counsel of Record

MICHAEL D. FISHBEIN

ZANETTA MooreE-DRIGGERS

LEVIN, FISHBEIN, SEDRAN & BERMAN
510 Walnut Street, Suite 500
Philadelphia, PA 19106

(215) 592-1500

Attorneys for Petitioners

APPENDIX

la

APPENDIX A — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE THIRD CIRCUIT
FILED OCTOBER 10, 2003

UNITED STATES COURT OF APPEALS
THIRD CIRCUIT

No. 01-3366
Argued June 10, 2002.
Opinion Filed: Oct. 10, 2003.

Daniel C. FANNING, Individually, and as Representative
of a Class of Persons Similarly Situated

¥.

THE UNITED STATES of America; United States Health
Care Financing Administration; United States
Department of Defense; United States Department of
Health and Human Services; United States Department
of the Army; United States Department of the Navy;
United States Department of the Air Force; United States
Indian Health Service; United States Department of
Veterans Affairs; Michael McMullen, Mrs., as Acting
Deputy Administrator of the United States Health Care
Financing Administration; Donald H. Rumsfeld, as
Secretary of Defense; Tommy G. Thompson, as Secretary
of the Department of Health and Human Services;
Gregory R. Dahlberg, the Honorable, as Acting Secretary
of the Army; Robert B. Pirie, Jr., the Honorable, as Acting
Secretary of the Navy; Lawrence Delaney, the Honorable
Dr., as Secretary of the Air Force; Michael H. Trujillo,

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M.D., M.P.H., as Director of the Indian Health Service;
Anthony J. Principi, the Honorable, as Secretary of the
Department of Veterans Affairs; Robert E. Welsh, Jr.,
Esquire, as Administrator of the AcroMed Settlement
Agreement; PNC Bank, N.A., as Trustee for the Acromed
Settlement Agreement United States of America, the
Centers for Medicare and Medicaid Services (formerly
the Health Care Financing Administration), the United
States Department of Health and Human Services,
Tommy G. Thompson in his capacity as Secretary of the
United States Department of Health and Human Services,
and Thomas Scully in his capacity as Administrator of
the Centers for Medicare and Medicaid Services
(formerly Administrator of the Health Care Financing
Administration),

Appellants
Before: SLOVITER, ROTH, and McKEE, Circuit Judges.
OPINION OF THE COURT
McKEE, Circuit Judge.

This litigation is the aftermath of an attempt by the Health
Care Financing Administration (“HCFA”) (now known as
the Centers for Medicare and Medicaid Services (““CMS”’)),
to obtain reimbursement under the Medicare as Secondary
Payer statute, 42 U.S.C. § 1395 y(b)(2). HCFA attempted to
collect from a settlement trust fund for Medicare payments
that had been made to AcroMed settlement class members
for various medical expenses arising from injuries the

Ee

3a
Appendix A

settlement class members allegedly suffered as a result of
the use of orthopedic bone screws manufactured by AcroMed.
Daniel Fanning filed an amended complaint for declaratory
and injunctive relief in an attempt to prevent the HCFA from
obtaining Medicare reimbursement. Fanning filed the
complaint on his own behalf and on behalf of the class in an
attempt to prevent the HCFA from obtaining any of the
proceeds of the settlement fund. !

The district court certified the class and granted
preliminary relief enjoining the HCFA from attempting to
obtain MSP reimbursement from the settlement trust fund.
However, because we find that the district court did not have
federal question jurisdiction, we will reverse and remand with
instructions to dismiss the amended complaint.

I. BACKGROUND

A. THE MEDICARE AS SECONDARY PAYER
STATUTE

Prior to 1980, Medicare generally paid for medical
services whether or not the recipient was also covered by
another health plan. See Social Security Amendments of
1965, Pub.L. No. 89-97, § 1862(b), 79 Stat. 286. However,
beginning in 1980, Congress enacted a series of cost cutting
amendments to the Medicare program. These amendments
are collectively known as the Medicare as Secondary Payer
(“MSP”) statute or the MSP provisions. See New York Life

1. Fanning’s amended complaint invoked the district court’s
federal question jurisdiction pursuant to 28 U.S.C. § 1331.

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Appendix A

Ins. Co. v. United States, 190 F.3d 1372, 1374
(Fed.Cir.1999).?

The MSP statute was designed to curb skyrocketing
health costs and preserve the fiscal integrity of the Medicare
system. See Zinman v. Shalala, 67 F.3d 841, 845
(9th Cir.1995); H.R.Rep. No. 96-1167, at 352 (1980).
The MSP attempted to lower overall federal Medicare
disbursements by requiring Medicare beneficiaries to exhaust
all available insurance coverage before looking to Medicare’s
coverage. See United States v. Rhode Island Insurers’
Insolvency Fund, 80 F.3d 616, 618 (1st Cir.1996). The MSP
assigns primary responsibility for medical bills of Medicare
recipients to private health plans when a Medicare recipient
is also covered by private insurance. These private plans are
therefore considered “primary” under the MSP and Medicare
acts as the “secondary” payer responsible only for paying
amounts not covered by the primary plan.’ Blue Cross
and Blue Shield of Texas v. Shalala, 995 F.2d 70,
73 (Sth Cir.1993).

-~

2. The amendments have been codified at 42 U.S.C. § 1395y(b).

3. “Before 1980, if a Medicare beneficiary had an alternate
source of payment, such as private insurance or an employee group
health plan, Medicare was the primary payer, and the health plan
was the secondary payer, liable only for the costs that remained after
Medicare made its payments. Private insurers even wrote this practice
into their health insurance contracts. Congress enacted the MSP
statute to reverse the order of payment in cases where Medicare
beneficiaries have an alternate source of payment for health care.”
Blue Cross and Blue Shield of Texas, 995 F.2d at 73 (citations
omitted).

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Appendix A

Congress established two principal directives to
achieve this objective. First, the MSP bars Medicare
payments where “payment has already been made or can
reasonably be expected to be made promptly (as determined
in accordance with regulations)” by a primary plan. 42 U.S.C.
§ 1395y(b)(2)(A) (parenthetical in original). “Prompt”
payment is defined in the applicable regulations as payment

; made within 120 days of either the date on which care was
provided or when the claim was filed with the insurer,
whichever is earlier. See 42 C.F.R. §§ 411.21, 411.50.
The MSP defines a “primary plan” as “a workmen’s
compensation law or plan, an automobile or liability
insurance policy or plan (including a self-insured plan) or
no fault insurance [.]” 42 U.S.C. § 1395y(b)(2)(A)(ii)
(parenthetical in original). This provision “is intended to keep
the government from paying a medical bill where it is clear
an insurance company will pay instead.” Evanston Hosp. v.
Hauck, | F.3d 540, 544 (7th Cir.1993) (citation omitted).

Second, the MSP provides that when Medicare makes a
payment that a primary plan was responsible for, the
payment is merely conditional and Medicare is entitled to
reimbursement for it. 42 U.S.C. § 1395(y)(b)(2)(B);
Blue Cross and Blue Shield of Texas v. Shalala, 995 F.2d 70,
73 (Sth Cir.1993) (2002). Section 1395y(b)(2)(B) provides:

Any payment under this subchapter with respect
to any item or service to which subparagraph (A)
applies shall be conditioned on reimbursement to
the appropriate Trust Fund established by this
subchapter when notice or other information is

nati

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Appendix A

received that payment for such item or service has
been or could be made under such subparagraph.

42 U.S.C. § 1395y(b)(2)(B)(i). Medicare payments are
subject to reimbursement to the appropriate Medicare Trust
Fund once the government receives notice that a third-party
payment has been or could be made with respect to the same
item or service.* Jd.

B. THE ACROMED LITIGATION

As noted above, the controversy surrounding the
Medicare payments at issue here arose from a class action
settlement of claims pertaining to orthopedic bone screws
manufactured by AcroMed. AcroMed began marketing
orthopedic bone screw devices for use in spinal fusion surgery
in 1983. By the early part of the 1990s, thousands of
individuals who had undergone spinal fusion surgery
experienced complications and infirmities that they
associated with AcroMed’s bonescrews. A flood of product
liability suits against AcroMed followed. See In re Orthopedic
Bone Screw Products Liability Litigation, 176 F.R.D. 158,
165 (E.D.Pa.1997). In 1994, the Judicial Panel on
Multidistrict Litigation transferred all of the pending cases
to the United States District Court for the Eastern District of

4. If MSP reimbursement is not made, the MSP authorizes the
government to bring an action against “any entity which is required
or responsible . .. to make payment . . . under a primary plan” and
against “any other entity (including a physician or provider) that has
received payment from that entity.” 42 U.S.C. § 1395y(b)(2)(B)(ii).
The MSP also gives the government a separate right of subrogation.
42 U.S.C. § 1395y(b)(2)(iii).

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Appendix A

Pennsylvania for pre-trial proceedings. /d. On January 8,
1997, Daniel Fanning, acting as a class representative,
reached a settlement with AcroMed on behalf of the class.
Jd. Pursuant to the terms of that settlement, AcroMed
transferred $100 million into a trust fund for distribution to
class members who qualified for payment in accordance with
a procedure to be established by the court.’ Jd. at 165-166.

Since members of the settlement class had previously
received Medicare payments for medical expenses allegedly
stemming from injuries caused by AcroMed’s bone screws,
the government filed a Statement of Interest in the district
court after learning of the proposed AcroMed settlement.
In that Statement of Interest, the government stated that,
pursuant to the “secondary payer” provisions of the MSP,
it intended to recover amounts Medicare had paid for the
class members’ medical care.

When efforts to settle the government claims broke
down, the government sent letters to the approximately 1,800
members of the settlement class demanding repayment of
the amounts Medicare had paid for medical treatment.
The letters gave each class member 60 days to repay the
amount set forth in each letter and warned that if the amount
remained unpaid after 60 days, interest would accrue at the
rate of 13.75% per annum until the debt was paid, regardless
of whether a waiver of recovery request or administrative
appeal was pending. The letters also told the class members

5. In addition to the $100 million, AcroMed agreed to “assign
the proceeds of virtually all of its insurance policies to the settlement
‘ fund.” 176 F.R.D. at 166.

en

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Appendix A

that if they did not pay, Medicare could recover the
outstanding balance from other federal benefits the individual
plaintiff might otherwise be entitled to including additional
Medicare payments, Social Security benefits and Railroad
Retirement benefits. The letters similarly threatened that
delinquencies would be reported to the Treasury Department
for offset against any other federal payments the class
members might otherwise receive. On March 21, 2001,
Fanning filed an amended complaint alleging that payments
from the AcroMed settlement are not the type of payments
that give the government a right to reimbursement under the
MSP. The amended complaint sought a permanent injunction
barring the government from taking any action to enforce
the rights asserted under the MSP. Concomitantly, Fanning
filed a motion for a preliminary injunction and a motion for
class certification.

The government responded with a motion to dismiss for
lack of jurisdiction, arguing that 42 U.S.C. § 405(h) requires
exhaustion of administrative remedies before claims that arise
under the Medicare Act could be subjected to judicial review.°

The district court denied the government’s motion to
dismiss, certified the class and entered a preliminary
injunction barring the government from taking any action to
obtain reimbursement for Medicare payments from the class
members. Jn re Orthopedic Bone Screw Products Liability
Litigation (Fanning v. United States), 202 F.R.D. 154
(E.D.Pa.2001). The court rejected the government’s claim

6. The government also opposed the motions for a preliminary
injunction and for class certification.

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Appendix A

that the court lacked federal question jurisdiction under
42 U.S.C. § 405(h). The court found that § 405(h) did not
apply to the settlement class members because they were not
trying to recover Medicare benefits. Rather, in the court’s
view, the class members were attempting to enjoin collection
of benefits the government had already paid. Jd. at 170.
This appeal followed.

If. DISCUSSION—FEDERAL QUESTION
JURISDICTION

We have appellate jurisdiction over the district court’s
grant of preliminary injunctive relief pursuant to 28 U.S.C.
§ 1292(a)(1). However, the government renews its argument
that the district court lacked jurisdiction because of the failure
to exhaust administrative remedies. Therefore, before we can
address the merits of the government’s appeal, we must
determine if the district court had jurisdiction over F anning’s
amended class action complaint.’

It is obvious that when another insurer makes a payment
for medical services Medicare has already paid for, a
duplicate payment results. In the absence of reimbursement
to Medicare, the duplicate payment is an overpayment of
Medicare under the MSP. See 42 C.F.R. § 405.704(b)(13);
Buckner v. Heckler, 804 F.2d 258, 259 (4th Cir.1986).

7. A court of appeals has the obligation, not only to satisfy itself
that it has appellate jurisdiction, but also to satisfy itself of the
jurisdiction of the district court under review. Dole vy. Trinity
Industries, Inc., 904 F.2d 867, 870 (3d Cir.1990). Our standard of
review of the district court’s determination that it had jurisdiction is
plenary. Jd.

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Appendix A

As we have discussed, the MSP allows the Secretary to
obtain reimbursement of the overpayment. 42 U.S.C.
§§ 1395y(b)(2)(A)(ii), 1395 y(b)(2)(B)(ii). However, a
beneficiary who disagrees with the Secretary’s determination
that an overpayment of Medicare benefits has been made on
his or her behalf is entitled to a hearing before the Secretary
as provided in 42 U.S.C. § 405(b). See 42 U.S.C.
§ 1395ff(b)(1). If the beneficiary is dissatisfied with the
Secretary’s final decision after a hearing, the beneficiary is
entitled to judicial review of that decision as provided in
42 U.S.C. § 405(g).® See Id.

8. 42 U.S.C. § 405(g) provides in relevant part:

Any individual, after any final decision of the
Commissioner of Social Security made after a hearing
to which he was a party, irresrective 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 or within such
further time as the Commissioner of Social Security may
allow. ... As part of the Commissioner’s answer the
Commissioner ... shall file a certified copy of the
transcript of the record including the evidence upon
whicii ihe findings and decision complained of are based.
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. ... The judgment of the court shall be
final except that it shall be subject to review in the same
manner as a judgment in other civil action. Any action

instituted in accordance with this subsection shall survive
(Cont'd)

ee

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Appendix A

The AcroMed settlement class members did not use the
administrative procedure to challenge the government’s
efforts to obtain MSP reimbursement from the settlement
trust fund. Instead, as noted above, F anning filed an amended
class action complaint pursuant to 28 U.S.C. § 1331 against
various government defendants seeking class certification
and injunctive relief to prevent the government from seeking
reimbursement of the alleged Medicare overpayments.
As noted, the government moved, inter alia, to dismiss the
amended complaint for lack of jurisdiction; however, the
district court denied the government’s motion to dismiss.
The government’s argument that the district court lacked
jurisdiction is based on 42 U.S.C. § 405(h), a section of the
Social Security Act that is made applicable to the Medicare
Act by 42 U.S.C. § 1395ii.° Section 405(h), captioned
“Finality of Commissioner’s decision,” reads:

The findings and decision of the Commissioner
of Social Security after a hearing shall be binding
upon all individuals who were parties to such
hearing. No findings of fact or decision of the

(Cont'd)
notwithstanding any change in the person occupying the
office of Commissioner of Social Security or any vacancy
in such office.

42 U.S.C. § 405(g).

9. The Medicare Act, 42 U.S.C. §§ 1395-1395zz, is Title XVIII
of the Social Security Act. Section 1395ii of the Medicare Act makes
§ 405(h) applicable to the Medicare Act “to the same extent as” it
applies to the Social Security Act.

ie

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Appendix A

Commissioner of Social Security shall be
reviewed by any person, tribunal, or governmental
agency except as herein provided. No action
against the United States, the Commissioner of
Social Security, or any officer or employee thereof
shall be brought under section 1331 or 1346
[federal defendant jurisdiction] of Title 28 to
recover on any claim arising under this
subchapter.

42 U.S.C. § 405(h) (emphasis added). The government
contends that the district court lacked jurisdiction over
Fanning’s amended class action complaint because § 405(h)
requires exhaustion of administrative remedies before claims
that arise under the Medicare Act may be subject to judicial
review. However, as is explained below, we believe that the
technically correct argument is that § 405(h) bars federal
question jurisdiction of Fanning’s class action complaint and
requires that the class members “must proceed instead
through the special review channel that the Medicare statutes
create.” Shalala v. Illinois Council on Long Term Care, Inc.,
529 U.S. 1, 5, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000).

Section 405(h) contains three sentences, but it is the third
sentence that is critical to our jurisdictional inquiry. It reads:
“No action against the United States, the Commissioner of
Social Security, or any officer or employee thereof shall be
brought under section 1331 or 1346 [federal defendant
jurisdiction] of Title 28 to recover on any claim arising under
this subchapter.” If Fanning’s class action complaint asserts
a claim that “aris [es] under” the Medicare Act, then the third
sentence of § 405(h) precludes the district court from

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Appendix A

exercising federal question jurisdiction over it. Although the
issue Of whether a claim arises under a particular statute
appears at first glance to require nothing more than a reading
of the statute, our analysis of whether the class action
complaint alleges a “claim arising under” the Medicare Act
requires us to first examine four cases in which the Supreme
Court discussed the operation and meaning of § 405(h) before
relying solely on the “plain text” of the statute.

The first is Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct.
2457, 45 L.Ed.2d 522 (1975). There, a deceased wage
earner’s widow and step-child challenged the Social Security
Act’s requirement of a nine-month long prior relationship
with the deceased wage earner as a condition of receiving
survivor’s benefits. Concetta Salfi married Londo Salfi on
May 27, 1972. In spite of Londo’s apparent good health, he
suffered a heart attack less than a month later and died on
November 21, 1972, less than six months after the marriage.
His widow filed applications for mother’s insurance benefits
for herself and her daughter by a previous marriage. However,
the applications were denied by the Social Security
Administration, both initially and on reconsideration at the
regional level, solely on the basis of the Act’s duration-of-
relationship provisions.

The widow and other named plaintiffs then filed an action
in the district court, “principally relying on 28 U.S.C. § 1331
for jurisdiction,” challenging the duration-of-relationship
provision on due process and equal protection grounds.
422 U.S. at 755, 95 S.Ct. 2457. The widow also sought to
represent a class of all widows and stepchildren who had
been denied benefits based solely on the Act’s duration-of-

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Appendix A

relationship provisions. The widow and the named plaintiffs
alleged partial exhaustion of their claims, but made no similar
allegations with regard to the claims of other class members.
On cross-motions for summary judgment, a three-judge
district court panel held that the duration-of-relationship
provision was unconstitutional, certified the class and

enjoined the Social Security Administration from denying
benefits on the basis of the duration-of-relationship provision.

On appeal, the Supreme Court ultimately concluded that
the duration-of- relationship provision was constitutional.
However, before it reached the merits, the Count noted that
it was “confronted ... by a serious question as to whether
the District Court had jurisdiction over th[e] suit.” 422 U.S.
at 756, 95 S.Ct. 2457. It is, of course, that jurisdictional
discussion that is relevant to our inquiry.

The Court began its jurisdictional inquiry by noting that
the third sentence of § 405(h) “[o]n its face, .. . bars district
court federal-question jurisdiction over suits, such as
this one, which seek to recover Social Security benefits.”
Id. at 756-757, 95 S.Ct. 2457. Yet, the widow successfully
invoked the district court’s federal question § 1331
jurisdiction and the district court considered the third
sentence “inapplicable because it amounted to no more than
a codification of the doctrine of exhaustion of administrative
remedies.” Jd. at 757, 95 S.Ct. 2457. Therefore, the district
court found that exhaustion would be futile and waived the
requirement. See Salfi v. Weinberger, 373 F.Supp. 961, 964
(N.D.Cal.1974).

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Appendix A

However, the Supreme Court believed that the district
court’s conclusion that § 405(h) is simply an exhaustion
requirement was “entirely too narrow” and held that the third
sentence of § 405(h) is more than that. Jd. at 757, 95 S.Ct.
2457. It wrote:

That the third sentence of § 405(h) is more than a
codified requirement of administrative exhaustion
is plain from its own language, which is sweeping
and direct and which states that no action shall be
brought under § 1331, not merely that only those
actions shall be brought in which administrative
remedies have been exhausted. Moreover, if the
third sentence is construed to be nothing more that
a requirement of administrative exhaustion, it
would be superfluous. This is because the first
two sentences of § 40S5(h) ... assure that
administrative exhaustion will be required.
Specifically, they prevent review of decisions of
the Secretary save as provided in the Act, which
provision is made in § 405(g). This latter section
prescribes typical requirements for review of
matters before an administrative agency, including
administrative exhaustion. Thus the District
Court’s treatment of the third sentence of § 405(h)
not only ignored that sentence’s plain language,
but also relegated it to a function which is already
performed by other statutory provisions.
/

Id. at 757-758, 95 S.Ct. 2457. Although the Court made it
abundantly clear that the third sentence of § 405(h) was

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Appendix A

something more than a mere exhaustion requirement, it did
not fully define the reach of that language.

In any event, the Court next addressed a “somewhat more
substantial argument” that the third sentence of § 405(h) did
not deprive the district court of federal question jurisdiction.
Id. at 760, 95 S.Ct. 2457. By its terms, the third sentence
only concerns actions to recover “on any claim arising” under
the Act. Not unexpectedly, the widow argued that her claim
was not one arising under the Act, but was rather a claim
under the constitution. Jd. Therefore, the widow concluded,
§ 405(h) did not prevent the district court from having federal
question jurisdiction over her complaint. However, the Court
rejected that argument as well. It wrote:

It would, of course, be fruitless to contend that
... the claim is one which does not arise under
the Constitution, since [the widow’s]
constitutional arguments are critical to [her]
complaint. But it is just as fruitless to argue that
this action does not also arise under the Social
Security Act. For not only is it Social Security
benefits which appellees seek to recover, but it is
the Social Security Act which provides both the
standing and the substantive basis for the
presentation of their constitutional contentions.
Appellees sought, and the District Court granted,
a judgment directing the Secretary to pay Social
Security benefits. To contend that such an action
does not arise under the Act whose benefits are
sought is to ignore both the language and
substance of the complaint and judgment. This

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Appendix A

being so, the third sentence of § 405(h) precludes
resort to federal-question jurisdiction for the

adjudication of appellees’ constitutional
contentions.

Id. at 760-761, 95 S.Ct. 2457 (emphasis added). The Court
also held that the operation of § 405(h) is not limited to
“decisions of the Secretary on issues of law or fact.” /d. at
762, 95 S.Ct. 2457. Rather, § 405(h) “extends to any ‘action’
seeking to recover on any (Social Security) claim’—
irrespective of whether resort to judicial processes is
necessitated by discretionary decisions of the Secretary or
by his nondiscretionary application of allegedly
unconstitutional statutory restrictions.” Id. (emphasis added).
Finally, insofar as constitutional challenges are concerned,
the Court found that the Social Security Act “itself provides
jurisdiction for constitutional challenges to its provisions.”
Id. Therefore, the Court held that “the plain words of the

third sentence of § 405(h) do not preclude constitutional
challenges.”

They simply require that they be brought under
jurisdictional grants contained in the Act, and thus
in conformity with the same standards which are
applicable to nonconstitutional claims arising
under the Act. The result is not only of
unquestionable constitutionality, but it is also
manifestly reasonable, since it assures the
Secretary the opportunity prior to constitutional
litigation to ascertain, for example, that the

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Appendix A

particular claims involved are neither invalid for
other reasons nor allowable under other provisions
of the Social Security Act.

Id. Accordingly, the Court held that § 405(h) barred the claims
asserted under the district court's federal question
jurisdiction."°

The second case is Heckler v. Ringer, 466 U.S. 602, 104
S.Ct. 2013, 80 L.Ed.2d 622 (1984), in which the Court
reaffirmed Weinberger v. Salfi and extended its holding to
the Medicare Act. There, four Medicare beneficiaries invoked
the district court’s federal question jurisdiction and brought
an action challenging the Secretary’s policy and ruling that
no Medicare payments would be provided for a surgical
procedure known as a bilateral carotid body resection
(“BCBR”). They alleged that the policy and ruling violated
the Medicare Act, the Administrative Procedure Act and the
Due Process clause. Jd. at 611 n. 7, 104 S.Ct. 2013. They
sought declaratory and injunctive relief, including
invalidation of the policy and ruling as well as an order
enjoining the Secretary from applying it.

The district court dismissed their complaint for lack of
jurisdiction. It held that, in essence, the plaintiffs were
claiming an entitlement to benefits for the BCBR procedure

10. As noted, the widow alleged partial exhaustion of her claims,
but made no such allegations as to the class members. For reasons
not relevant to our discussion, the Court found that the widow and
other named plaintiffs who alleged partial exhaustion could assert
their claims in the district court under § 405(g). 422 U.S. at 767, 95
S.Ct. 2457.

a a ee ee ee ee <,

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Appendix A

and that any challenges to the Secretary’s policy and ruling
were “inextricably intertwined” with their claim for benefits.
Id. at 611, 104 S.Ct. 2013. Therefore, the district court
concluded that 405(g) with its exhaustion prerequisite
provided the sole avenue for judicial review. Because none
of the four plaintiffs had satisfied the exhaustion requirement,
the district court dismissed their complaint. Jd. at 612, 104
S.Ct. 2013.

The court of appeals reversed. It concluded that plaintiffs
were actually arguing that the policy and ruling were
‘an unlawful administrative mechanism for determining the
awards of benefits.” /d. The court reasoned that, to the extent
that the plaintiffs sought to invalidate the Secretary’s method
for determining entitlement to benefits, the claim was a
procedural one cognizable under § 1331 without any
condition of exhaustion. /d. The court of appeals also agreed
with the district court’s conclusion that the plaintiffs had
raised a substantive claim for benefits. However, while
acknowledging that exhaustion was a prerequisite for a
benefits claim under § 405(g), the court of appeals refused
to dismiss the complaint based upon its belief that exhaustion
would be futile.

The Supreme Court reversed the court of appeals.
It agreed with the district court and the court of appeals that
the claims were really for benefits, but rejected the court of
appeals’s attempt to separate the particular claims into
procedural claims (1.e., challenges to the Secretary’s method
of rule making), and substantive claims (i.e., claims for
benefits). Rather, in the Supreme Court’s view, plaintiffs’
procedural claim was “inextricably intertwined” with the

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Appendix A

substantive claim. Jd. at 614, 104 S.Ct. 2013. Accordingly,
the Court held that “all aspects of respondent’s claim for
benefits should be channeled first into the administrative
process which Congress has provided for the determination
of claims for benefits.” /d. at 614, 104 S.Ct. 2013 (emphasis
added). Its explained this “channeling” requirement as
follows: ,

The third sentence of 42 U.S.C. § 405(h),
made applicable to the Medicare Act by 42 U.S.C.
§ 1395ii, provides that 405(g), to the exclusion
of 28 U.S.C. § 1331, is the sole avenue for judicial
review for all “claims arising under” the Medicare
Act. See Weinberger v. Salfi, 422 U.S. at 760-
761, 95 S.Ct. 2457. Thus, to be true to the
language of the statute, the inquiry in determining
whether § 405(h) bars federal-question
jurisdiction must be whether the claim “arises
under” the Act, not whether it lends itself to a
“substantive” rather than a “procedural” label. See
Mathews v. Eldridge, 424 U.S. [319] at 327, 96
S.Ct. 893, 47 L.Ed.2d 18 [1976] (recognizing that
federal-question jurisdiction is barred by 42
U.S.C. § 405(h) even in a case where the claimant
is challenging the administrative procedures used
to terminate welfare benefits).

In Weinberger v. Salfi, 422 U.S. at 760-761,
95 S.Ct. 2457, we construed the “claim arising
under” language quite broadly to include any
claims in which “both the standing and the
substantive basis for the presentation” of the

Raabe od Dahtind

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Appendix A

claims is the Social Security Act. In that case we
held that a constitutional challenge to the duration-
of-relationship eligibility statute pursuant to
which the claimant had been denied benefits, was
a “claim arising under” Title II of the Social
Security Act within the meaning of 42 U.S.C.
§ 405(h), even though we recognized that it was
in one sense also a claim arising under the
Constitution.

Id. at 614-615, 104 S.Ct. 2013. The Court concluded that
under Sa/fi’s “broad test,” the plaintiffs’ claims were not
cognizable under federal-question jurisdiction because the
Medicare Act provided both the substance and standing for
the claims. That is to say, the claims “arise under” the
Medicare Act. /d. at 615, 104S.Ct. 2013. Therefore, the third
sentence of § 405(h) precluded the district court from having
federal question jurisdiction. The only avenue for judicial
review was § 405(g). Jd. at 617, 104 S.Ct. 2013.

The third case relevant to the instant inquiry is Bowen v.
Michigan Academy of Family Physicians, 476 U.S. 667, 106
S.Ct. 2133, 90 L.Ed.2d 623 (1986), which appeared to limit
the holdings of Sa/fi and Ringer. Michigan Academy involved
a challenge by an association of family physicians to a
Medicare regulation which authorized payment of Part B
benefits in different amounts for similar services. The district
court held that the regulation violated several provisions of
the Medicare Act and found it invalid. Therefore, the court
did not need to address the physicians’ constitutional claims.
On appeal, the court of appeals agreed that the regulation
was inconsistent with the Act and, therefore, irrational and

22a

Appendix A

invalid. The court of appeals also declined to address the
physicians’ constitutional claims.

The Secretary did not challenge the decision on the merits
on appeal to the Supreme Court. Rather, he renewed the
jurisdictional argument that the district court and court of
appeals had rejected. He claimed that §§ 1395ff and 139511
(which, as noted, makes § 405(h) applicable to the Medicare
Act) forbid judicial review under the district court’s federal
question jurisdiction of all questions affecting the amount
of benefits payable under Part B of the Medicare program.
At the time of the litigation in Michigan Academy, § 1395ff
of the Medicare Act did not provide any administrative or
judicial review of Part B benefit amount determinations. The
scheme at that time was as follows: Under Part B, the
Secretary contracted with private health insurance Carriers
to provide benefits, and the Medicare participants voluntarily
payed a premium for those benefits. 476 U.S. at 674, 106
S.Ct. 2133. Although it was federally subsidized, Part B
coverage was an option intended to supplement mandatory
institutional health benefits such as coverage for hospital
expenses covered by Part A. Id. at 674-675, 106 S.Ct. 2133.
Individuals aggrieved by delayed or insufficient payment with
respect to Part B benefits were entitled to a hearing by the
private carrier, subject to an amount-in-controversy
requirement. In comparison, an aggrieved individual under
Part A was entitled to a hearing by the Secretary and to
judicial review, also subject to an amount-in-controversy
requirement. Jd. at 675, 106 S.Ct. 2133.

In deciding the case, the Court noted that the “strong
presumption” in favor of judicial review of administrative

23a

Appendix A

action, Jd. at 670, 106 S.Ct. 2133, can only be overcome by
congressional intent evidenced by “specific language,” Jd.
at 673, 106 S.Ct. 2133, or by “inferences of intent drawn
from the statutory scheme as a whole.” Jd. at 673 n. 4, 106
S.Ct. 2133. Applying those principles, the Court found that
the Act and its legislative history demonstrated a
Congressional intention to “bar judicial review only of
determinations of the amount of benefits to be awarded under
Part B.” Jd. at 678, 106 S.Ct. 2133. As noted, Part B
determinations were delegated to private insurance carriers.
However, the Court concluded that “those matters which
Congress did not leave to be determined in a ‘fair hearing’
conducted by the carrier—including challenges to the validity
of the Secretary’s instructions and regulations—are not
impliedly insulated from judicial review by... § 1395ff.""!
Id. (emphasis in original).

The Court also rejected the government’s argument that
the third sentence of § 405(h), as interpreted by Sa/fi and
Ringer, barred federal question jurisdiction over the family
physicians’ challenge to the Secretary’s regulation. It wrote:

Section 405(h) does not apply on its own terms to
Part B or the Medicare program, but is instead
incorporated mutatis mutandis by § 1395ii. The
legislative history of both the statute establishing
the Medicare program and the 1972 amendments
thereto provides specific evidence of Congress’

11. The Court also noted that the Act’s exhaustion requirement
could not apply to the family physicians’ challenge to the regulation
because “there is no hearing, and thus no administrative remedy, to
exhaust.” 476 U.S. at 673 n. 4, 106 S.Ct. 2133.

24a

Appendix A

intent to foreclose review only of “amount
determinations” —i.e., those “quite minor matters”
remitted finally and exclusively to adjudication
to private insurance carriers in a “fair hearing.”
By the same token, matters which Congress did
not delegate to private carriers, such as challenges
to the validity of the Secretary’s instructions and
regulations, are cognizable in courts of law.

Id. at 680, 106 S.Ct. 2133 (citations omitted)(emphasis in
original). Accordingly, the Court held that § 405(h) did not
prevent the district court from having federal question
jurisdiction over the family physicians’ complaint.

Michigan Academy created what came to be called
the “amount/methodology” distinction, under which
pre-enforcement challenges to the method by which Medicare
benefits were determined, rather than challenges to the actual
amount of the benefits, were not barred by § 405(h).
See John Aloysius Cogan, Jr., and Rodney A. Johnson,
Administrative Channeling Under the Medicare Act
Clarified: Illinois Council, Section 405(h), and the
Application of Congressional Intent, 9 Annals Health L. 125,
134 (2000). However, four months after Michigan Academy,
Congress amended the Medicare Act to authorize
administrative and judicial review of Part B claims meeting
certain amount-in-controversy thresholds for services
rendered on or after January |, 1987. The amendment
therefore effectively gave Part B claimants the same
administrative and judicial remedies Part A claimants had.
Id. As a result of the amendment, most courts considered
Michigan Academy a “dead letter,” and the “amount/

o a Ns re

25a
Appendix A

methodology” distinction was deemed to have been
extinguished by Congress. /d. (citations omitted).

This set the stage for the final case bearing on our
analysis, Shalala v. Illinois Council on Long Term Care, Inc.,
529 U.S. 1, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000). In //linois
Council, an association of nursing homes invoked the district
court’s federal question jurisdiction and sued the Secretary
claiming that certain Medicare health and safety regulations
violated various statutes as well as the Constitution.
The district court dismissed the suit for lack of jurisdiction,
holding that “‘a set of special statutory provisions creates a
separate, virtually exclusive, system of administrative and
judicial review of denials of Medicare claims; and it held
that one of those provisions [§ 405(h) ] explicitly barred a
§ 1331 suit.” 529 U.S. at 5, 120 S.Ct. 1084.

However, the court of appeals reversed and gave new
life to Michigan Academy. Illinois Council on Long Term
Care, Inc. v. Shalala, 143 F.3d 1072 (7th Cir.1998). It found
that Michigan Academy modified Salfi and Ringer by limiting
their scope to amount determinations rather than
pre- enforcement challenges. /d. at 1075-1076 (“As the Court
read § 1395ii and therefore § 405(h) in Michigan Academy,
pre-enforcement review of a regulation’s validity is not an
action to ‘recover on’ a claim, even when per Salfi a
constitutional objection to the regulation is a ‘claim arising
under this subchapter.’’’).

The Supreme Court, however, reversed the court of
appeals. The Court held, putting Michigan Academy aside
for the moment, that § 405(h), as interpreted by Sa/fi and

26a

Appendix A

Ringer, “would clearly bar this section 1331 lawsuit.” 529

U.S. at 11, 120 S.Ct. 1084. It wrote:

Despite the urging of the Council and supporting
amici, we cannot distinguish Sa/fi and Ringer from
the case before us. Those cases themselves
foreclose distinctions based upon the “potential
future” versus the “actual present” nature of the
claim, the “general legal” versus the “fact-
specific” nature of the challenge, the “collateral”
versus “noncollateral” nature of the issues, or the
“declaratory” versus “injunctive” nature of the
relief sought. Nor can we accept a distinction that
limits the scope of § 405(h) to claims for monetary
benefits. Claims for money, claims for other
benefits, claims for program eligibility, and claims
that contest a sanction or remedy may all similarly
rest upon individual fact-related circumstances,
may all similarly dispute agency policy
determinations, or may all similarly involve the
application, interpretation, or constitutionality of
interrelated regulations or statutory provisions.
There is no reason to distinguish among them in
terms of the language or in terms of the purposes
of § 405(h). Section 1395ii’s blanket incorporation
of that provision into the Medicare Act as a whole
certainly contains no such distinction. Nor for
similar reasons can we here limit those provisions
to claims that involve “amounts.”

Id. at 13-14, 120 S.Ct. 1084.

27a

Appendix A

The Court also explained the rationale underlying §
405(h). At the outset, it conceded that “[t]he scope of the
italicized language ‘to recover on any claim arising under’
the Social Security (or, as incorporated through § 1395ii, the
Medicare) Act, is, if read alone, uncertain.” Jd. at 10, 120
S.Ct. 1084. Nonetheless, the Court held that the meaning
and import of § 405(h) are clear in light of Salfi and Ringer.
It explained:

[T]he bar of § 405(h) reaches beyond ordinary
administrative law principles of “ripeness” and
“exhaustion of administrative remedies”—
doctrines that in any event normally require
channeling a legal challenge through the agency.

Insofar as § 405(h) prevents application of the
“ripeness” and “exhaustion” exceptions, i.e.,
insofar as it demands the “channeling” of
virtually all legal attacks through the agency, it
assures the agency greater opportunity to apply,
interpret, or revise policies, regulations, or statutes
without possibly premature interference by
different individual courts applying “ripeness” and
“exhaustion” exceptions case by case. But this
assurance comes at a price, namely, occasional
individual, delay-related hardship. In the context
of a massive, complex health and safety program
such as Medicare, embodied in hundreds of pages
of often interrelated regulations, any of which may
become the subject of a legal challenge in any of
several different courts, paying this price may
seem justified. In any event, such was the

28a

Appendix A

judgment of Congress as understood in Sa/fi and
Ringer.

Id. at 12-13, 120 S.Ct. 1084 (citations omitted) (emphasis
added).

The Court then discussed whether Michigan Academy
somehow modified Salfi and Ringer. The Court held that
Michigan Academy did not modify Salfi and Ringer “by
limiting the scope of [§] 139511 and therefore § 405(h) to
amount determinations.” Jd. at 15, 120 S.Ct. 1084 (internal
quotations omitted). The Court noted that Michigan Academy
involved a § 1331 challenge to regulations which, at the time,
were not administratively or judicially reviewable. Because
no administrative or judicial review of the regulations was
available, the Court in Michigan Academy allowed the family
physicians to mount a challenge directly in a court of law
under § 1331. Thus, the Court in /Ilinois Council seemed to
read Michigan Academy as creating an exception to the
channeling requirement of § 405(h) in those cases where no
judicial review is available at all. Jd. at 19, 120 S.Ct. 1084
(“[I]t is more plausible to read Michigan Academy as holding
that § 1395ii does not apply § 405(h) where application of
§ 405(h) would not simply channel review through the
agency, but would mean no review at all.”) (emphasis in
original).

12. In Jllinois Council, the Court noted that § 405(h) “demands
the ‘channeling’ of virtually all legal attacks through the agency.”
529 U.S. at 13, 120 S.Ct. 1084. Since Jilinois Council limited
Michigan Academy to those instances were there was no review
available at all, we assume that the Court’s use of the phrase “virtually
all legal attacks” is a specific reference to Michigan Academy.

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29a

Appendix A

Our discussion of these four cases leads us back to the
question of whether the district court had federal question
jurisdiction over Fanning’s amended class action complaint
seeking to enjoin the government’s attempt to obtain
reimbursement of Medicare overpayments pursuant to the
secondary payer provisions of the MSP. We believe that Sa/fi,
Ringer and Illinois Council compel the conclusion that the
district court had no federal question jurisdiction.

The essence of the claim asserted in Fanning’s amended
class action complaint is that the government is not entitled
to recover Medicare overpayments from a fund created as a
result of a settlement with an alleged tortfeasor because
Congress never intended to treat a settlement trust fund as
payments from a primary insurer under the MSP. We believe
there may be force to Fanning’s argument. However, the
government’s basis for seeking MSP reimbursement from
the AcroMed settlement trust fund is that AcroMed 1s a “self-
insured plan” and is, therefore the primary payer under the
MSP. Accordingly, the claim asserted in the amended class
action complaint is wholly dependent upon determining
whether or not AcroMed is a “self-insured plan” and,
therefore, a “primary plan” under the MSP." It is thus

13. As noted, the statutory definition of “primary plan” includes
plans that are self-insured. 42 U.S.C. § 1395y(b)(2) (“the term
‘primary plan’ means... a workmen’s compensation law or plan, an
automobile or liability policy or plan (including a self-insured plan)
or no fault insurance.”). Under the regulations, a “plan” is defined
as “any arrangement, oral or written, by one or more entities, to
provide health benefits or medical care or assume legal liability for
injury or illness.” 42 C.F.R. § 411.21. The term “self-insured plan”
is defined as a “plan under which an individual, or a private or

(Cont’d)

30a

Appendix A

apparent that both the standing and the substantive basis for
the claim asserted in the amended class action complaint are
rooted in, and derived from, the Medicare Act. Consequently,
the claim is one “arising under” the Medicare Act and the
third sentence of § 405(h) therefore deprived the district court
of federal question jurisdiction. The AcroMed class
settlement plaintiffs are thus required by § 405(h), as
interpreted by Salfi, Ringer and Illinois Council, to channel
their claim through the agency.

Of course, the AcroMed class settlement plaintiffs would
not have to channel their claim through the agency if they
could avail themselves of the Michigan Academy exception.
That is to say, channeling would not be required if they could
show that they have no way of having their claims reviewed.
To that end, they do claim that there is no administrative
review of the agency’s demand for MSP reimbursement.
Therefore, they argue that a suit filed under the district court’s

(Cont’d)

governmental entity, carries its own risk instead of taking out
insurance with a carrier.” 42 C.F.R. § 411.50(b)(2). A “self-insured
plan” includes an “entity engaged in a business, trade or profession.”
Id.

Although it has no bearing on our decision, we note that the
government’s argument that a “self-insured plan” includes a fund
created by a tortfeasor to settle litigation has engendered a circuit
split. The Fifth Circuit, in Thompson v. Goetzmann, 315 F.3d 457,
470 & n. 65 (5th Cir.2002), opinion withdrawn and reissued as
amended on other grounds, 337 F.3d 489 (Sth Cir.2003), rejected
the government’s argument, while the Eleventh Circuit, in
United States v. Baxter Intern., Inc., 345 F.3d 866, 2003 WL
22120071 (11th Cir. Sept.15, 2003), accepted it.

3la

Appendix A

federal question jurisdiction is the only avenue available to
challenge the agency’s reimbursement demand.

However, the class members’ assertion of no
administrative review of the agency’s demand for MSP
reimbursement is plainly wrong. The letters sent to the
approximately 1,800 settlement class members clearly
advised them of the administrative process by which they
could appeal the agency’s determination or, in the alternative,
seek a waiver of Medicare’s claim for reimbursement.'4 More
importantly, the Medicare Manual sets out, at length, the
“procedures to be used in processing appeals of MSP liability
Overpayment and waiver determinations.” Medicare
Intermediary Manual, Part 3, § 3419.!5 Therefore, the
Michigan Academy exception is not available to the AcroMed
settlement class members.

In a further attempt to establish jurisdiction, the AcroMed
class settlement members argue that § 405(h) does not apply

14. The Medicare beneficiary may ask the Secretary to waive
recovery in full or in part. The Secretary may waive recovery when
the beneficiary was not at fault and recovery would defeat the
purposes of the Medicare Act or be against equity or good conscience.
See 42 U.S.C. § 1395gg(c). The regulations explain that the purposes
of the Medicare Act would be defeated if recovery would deprive a
person of income required for ordinary and necessary living expenses,
including medical expenses. See 42 C.ER. § 405.358; 20 CER.
§ 404.508(a). The Secretary’s waiver determination is subject to
administrative and judicial review. See 42 U.S.C. § 1395ff(b)(1);
42 C.F.R. §§ 405.704(b)(14), 405.720-730.

15. The pertinent Manual provisions are available at http://
cms.hhs.gov/manuals/13_int/a3toc.asp.

32a

Appendix A

because their complaint seeks neither a benefit determination
nor a review of benefit determinations, but is instead a
challenge to the right of Medicare to seek reimbursement of
alleged overpayments from a trust fund created as a result of
a settlement with a tortfeasor. We agree with that
characterization of the class members’ claim. However, under
Salfi, Ringer and Illinois Council, that distinction is
irrelevant. The appropriate inquiry is whether the Medicare
Act provides both the standing and the substantive basis for
their contentions. Clearly it does, because the dispositive
issue is whether AcroMed is a “self-insured plan” within the
meaning of the MSP.’®

The AcroMed class settlement plaintiffs next argue that
the agency’s demand letters to them is final agency action
from which they can seek judicial review. However, that
argument is without merit. The demand letters, although harsh
in their terms and probably unsettling to their recipients,
advised the class settlement plaintiffs of their administrative

“c*

review rights. Therefore, it is difficult to define them as final,

16. Moreover, we note, but do not decide, that a reasonable
argument can be made that the AcroMed class settlement members
are in fact seeking benefits. As the government says: “[P]laintiffs do
seek benefits: they are effectively seeking to require that Medicare
make primary, rather than secondary, payment for medical expenses
related to their settlement with AcroMed.” Government’s Br. at 25.
In addition, one court of appeals has held that a Medicare
beneficiary’s “claim that she is entitled to the overpayment is, in
essence, one for medicare benefits.” Buckner v. Heckler, 804 F.2d
258, 260 (4th Cir. 1986).

eine je = rat enn a NT .

33a

Appendix A

rather than initial, agency action.'’ Moreover, even if we

17. We are not unsympathetic to the class settlement counsel’s
consternation over the wording of the 1800 letters the government
sent out. Counsel claims that the language of the letters was intended
more to terrify than to inform, and that, to the extent they may have
served to inform, they succeeded only in misinforming large numbers
of the class because the amounts stated in the letters were frequently
erroneous. Although there has been no finding about the accuracy of
the amounts the government requested in those letters, we agree that
the wording of the letters was unnecessarily callous and threatening.
A typical example of one of these letters read as follows:

You must pay this amount ($11,833.44) within sixty (60)
days of the date of this letter (by July 9, 2001). Please
send a check or money order. ...

If you do not pay this amount by July 9, 2001, you will
be required to pay interest from the date of this letter.
Interest will be calculated at the rate of 13.75% per
annum in accordance with 42 C.F.R. 411.24(m). Interest
will continue to accrue until the debt is paid, whether or
not a waiver of recovery request or appeal is pending.

If you do not »ay this amount, the Medicare program
may recover amount from any Social Security or
Railroad Ret:.2ment benefits to which you might
otherwise be entitled, or the money may be recouped
from payments Medicare would otherwise pay you. Also,
please be aware that Medicare must refer delinquent
debts to the Department of Treasury for offset against
Federal payments that may be due or for other
appropriate collection actions.

JA 98 (emphasis in original).
(Cont’d)

34a

Appendix A

assume arguendo that the letter was final agency action,
judicial review of that final action is available only through
§ 405(g). Under the Medicare Act, there is no judicial review
of final agency action under the district court’s federal
question jurisdiction.'* Ringer, 466 U.S. at 614-615, 104S.Ct.
2013 (“The third sentence of 42 U.S.C. § 405(h), made

(Cont'd)

Although this language did inform class members, it no doubt
did much more; it had to have coerced and frightened them as well.
In fact, the coercive nature of this letter explains why one court
referred to the government’s “heavy-handed collection” tactics under
the MSP. In Re Dow Corning Corp., 250 B.R. 298, 336
(Bankr.E.D.Mich.2000). See also Waters v. Farmers Texas County
Mut. Ins. Co., 9 F.3d 397, 400-01 (Sth Cir.1993) (expressing
disappointment with “the government's overreaching interpretation
of its authority under the [MSP].”).

Although counsel for appellees here engages in some hyperbole
in referring to the government’s actions as “the apogee of a heavy-
handed, coercive, neo-Stalinist approach,” counsel’s outrage over
the threatening tone of the letters is not totally unjustified. See
Appellee’s Br. at 27. Although we would not go so far as to agree
that these letters were “neo-Stalinist” tactics, they are more suggestive
of tactics one might attribute to a less than reputable collection agency
rather than to one’s own government.

18. The AcroMed settlement class plaintiffs.also argue that the
district court had jurisdiction to review final agency action under
the judicial review provision of the Administrative Procedure Act,
5 U.S.C. § 706. However, that “provision is not an independent grant
of subject- matter jurisdiction.” Your Home Visiting Nurse Services,
Inc. v. Shalala, 525 U.S. 449, 457-58, 119 S.Ct. 930, 142 L.Ed.2d
919 (1999) (citing Califano v. Sanders, 430 U.S. 99, 97 S.Ct. 980
(1977)).

35a

Appendix A

applicable to the Medicare Act by 42 U.S.C. § 1395Sii,
provides that § 405(g), to the exclusion of 28 U.S.C. § 1331,
is the sole avenue for judicial review for all ‘claim[s] arising
under’ the Medicare Act.”) (emphasis added).

Ill. CONCLUSION

Thus, for the reasons set forth above, we find the
AcroMed settlement class plaintiffs’ claim that the
government cannot seek MSP reimbursement from the
settlement trust fund established by AcroMed is a “claim
arising under” the Medicare Act. Therefore, Section 405(h)
of the Social Security Act, made applicable to the Medicare
Act by 42 U.S.C. § 1395ii, precluded the district court from
having federal question jurisdiction over Fanning’s amended
class action complaint. Consequently, we will reverse the
district court and remand with instruction to dismiss the
amended class action complaint.

36a

APPENDIX B — MEMORANDUM AND PRETRIAL

ORDER NO. 2000 OF THE UNITED STATES

DISTRICT COURT FOR THE EASTERN DISTRICT
OF PENNSYLVANIA DATED JUNE 239, 2001

UNITED STATES DISTRICT COURT
E.D. PENNSYLVANIA

MDL No. 1014
Civ.A. Nos. 01-1029, 97-381.

In re ORTHOPEDIC BONE SCREW PRODUCTS
LIABILITY LITIGATION.

Daniel C. Fanning
v.
United States of America, et al.
Fanning, et al.
v.
AcroMed Corporation, et al. and All Actions.

MEMORANDUM AND PRETRIAL ORDER NO. 2000

BECHTLE, District Judge.

Presently before the court are plaintiff Daniel C.
Fanning’s motions for class certification and for preliminary

37a

Appendix B

injunction and defendant the United States of America,
et al. s motion to dismiss the Amended Complaint in 01-cv-
1029 (“Fanning IT’); plaintiff Fanning, et a/. 5 (“‘Plaintiffs’’)
motion to require distribution of the settlement proceeds in
97-cv-381 (“Fanning I’); the oppositions and responses
thereto; and the exhibits and testimony received by the court
at a consolidated hearing on the motions held on June 6,
2001. For the reasons set forth below, the motions for class
certification, for preliminary injunction and for distribution
of the settlement proceeds will be granted, and the motion to
dismiss will be granted in part and denied in part.

I. BACKGROUND

In August 1994, the Judicial Panel on Multidistrict
Litigation transferred all cases pending in federal trial courts
against manufacturers of orthopedic bone screws, including
AcroMed Corporation (“AcroMed”), to this court for pretrial
purposes under 28 U.S.C. § 1407. On October 17, 1997, the
court issued a Final Order and Judgment approving a limited
fund class action settlement between Plaintiffs and AcroMed
and certifying a settlement class. Jn re Orthopedic Bone
Screw Prods. Liab. Litig., 176 F.R.D. 158 (E.D.Pa.1997)
(“In re Bone Screw’). Pursuant to the terms of the
settlement agreement, AcroMed placed $100 million into an
interest-bearing fund (the “AcroMed Settlement Fund’’).'
Id. at 165-66.

1. The court incorporates by reference /n re Orthopedic Bone
Screw Prods. Liab. Litig., 176 F.R.D. 158 (E.D.Pa.1997) which
contains, inter alia, a description of the course of this litigation.

38a

Appendix B

In April 1997, defendant the United States of America,
et al. (the “Government”) first asserted its right to recover
costs expended by its constituent agencies under the Medicare
Secondary Payer statute, 42 U.S.C. § 1395y (“MSP”) and
the Medical Care Recovery Act, 42 U.S.C. § 2651-53
(“MCRA”). (P-5 at 3-8; United States’ Statement of
Interest at 1.) Today, the Government’s claims continue to
contribute to delay in the distribution of settlement proceeds.’

On March 1, 2001, Plaintiffs filed a motion to require
distribution of the settlement proceeds without regard to the
Government’s claims in Fanning I. That same day, plaintiff
Daniel C. Fanning brought suit against the Government in
Fanning II, asserting that the Government had no right on
account of the AcroMed settlement to recover payments
previously made by any Government agency to class members
and seeking to enjoin the Government from attempting such
recovery from class members.*

2. For example, in what turned out to be a disappointing
extension of cooperation by the settled parties and the claims
administrator, the Government was given a complete list of class
members from which to identify and quantify its claims. On numerous
occasions between the summer of 1999 and the present, the
Government was provided with computer databases with information
concerning registered class members. (P-6 at 4-5.) Not until December
2000, however, did the Government make its first specific demand
for payment to settle all of its Medicare related claims. This delay
resulted from the Government having taken eight months to extract
data concerning beneficiaries from its National Database, four months
to filter out non-bone screw and otherwise irrelevant expenditures,
and additional time to more accurately estimate its claims.

3. Fanning filed an Amended Complaint on June 22, 2001.

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39a

Appendix B

On May 7, 2001, following the filing of the Complaint
in Fanning II, the Health Care Financing Administration
(“HCFA”) sent letters to approximately 1,800 Medicare
beneficiaries in the AcroMed Settlement Class, demanding
repayment for amounts that Medicare allegedly furnished in
relation to injuries that were the subject of the tort claims
against AcroMed.‘ In pertinent part, the demand letters stated:

Medicare has determined that you are required to
reimburse the Medicare program [a specified sum]
for amounts it paid for items or services relating
to your orthopedic bone screw settlement with
AcroMed Corporation. Federal law requires
Medicare beneficiaries who obtain a liability
recovery to repay the United States the amount
the Medicare program paid for conditions related
to that recovery. ...

You must pay this amount within sixty (60)
days of the date of this letter (by July 9, 2001). ...
If you do not pay this amount by July 9, 2001,
you will be required to pay interest from the date
of this letter. Interest will be calculated at the rate
of 13.75% per annum in accordance with
42 C.F.R. 411.24(m). Interest will continue to

4. It is not contested that HCFA did not provide class members
with notice of the reimbursement claim prior to its demand for
payment or an opportunity to demonstrate that there was no
reimbursement liability because, for example, Medicare paid for
services that were unrelated to any injury allegedly caused by
AcroMed. (P-11 & Exs. 1-30.)

40a

Appendix B

accrue until the debt is paid, whether or not a
waiver of recovery request or appeal is pending-

If you do not pay this amount, the Medicare
program may recover the amount from any Social
Security or Railroad Retirement benefits to which
you might otherwise be entitled, or the money may
be recouped from payments Medicare would
otherwise pay you.

(Pl.’s Mem. of Law in Opp’n to Defs.’ Mot. to Dismiss and
in Supp. of Pl.’s Mots. 1) to Am.Compl.; 2) for Class Cert.;
3) for Summ.J. Including Final Declaratory and Injunctive
Relief and 4) for T.R.O. and/or Prelim. Inj. (“P1.’s Opp’n’”’)
Ex. F.) In the Amended Complaint, Fanning asserts, inter
alia, that the Government’s demand, made pursuant to the
MSP, is contrary to law, arbitrary and capricious, and violates
the Constitutional rights of class members to procedural due
process. (Am.Compl.f¥ 24-54.)

Il. DISCUSSION

Plaintiff Daniel C. Fanning seeks class certification and
a preliminary injunction in Fanning II, whereas defendant
the United States of America, et al. seeks dismissal of the
Amended Complaint. In addition, plaintiff Fanning, et al.
seeks an order requiring distribution of the settlement
proceeds in Fanning I.

The court will first discuss the motions for class
certification and for preliminary injunction. Then, the court
will discuss the motion to dismiss. Finally, the court will

wp einem

4ia

Appendix B

discuss the motion to require distribution of the settlement
proceeds.

A. Class Certification

To certify a class, the court must first find that: 1) the
class is so numerous that joinder of all members is
impracticable; 2) there are questions of law or fact common
to the class; 3) the claims or defenses of the representative
parties are typical of the claims or defenses of the class; and
4) the representative parties will fairly and adequately protect
the interests of the class. Fed.R .Civ.P. 23(a).

If the requirements of Rule 23(a) are satisfied, the parties
must then establish that the suit fits within one of three
categories of Rule 23(b). /n re Bone Screw, 176 F.R.D. at
172 (citing Weiss v. York Hosp., 745 F.2d 786, 807
(3d Cir.1984)). Fanning seeks certification pursuant to
Rule 23(b)(2), under which “the party opposing the class has
acted or refused to act on grounds generally applicable to
the class, thereby making appropriate final injunctive relief
with respect to the class as a whole.” For the reasons
discussed below, the court finds that the suit fits within the
requirements of Rule 23(a) and Rule 23(b)(2).

1. Numerosity

Rule 23(a)(1) permits class action treatment where
“the class is so numerous that joinder of all members is
impracticable.” Fed.R.Civ.P. 23(a)(1). There are no specific
standards regarding class size and it is not necessary for a
plaintiff to allege the exact number of class members to

42a

Appendix B

satisfy the numerosity requirement. /n re Bone Screw, 176
F.R.D. at 173 (citation omitted).

To date, 1,800 class members have received demand
letters from HCFA.° Thus, the numerosity prerequisite to class
certification is satisfied. See H. Newberg, 1 Newberg on Class
Actions § 3.05 at 3-25 (3d ed.1992) (stating that “in light of
prevailing precedent, the difficulty inherent in joining as few
as 40 class members should raise a presumption that joinder
is impracticable, and the plaintiff whose class is that large or
larger should meet the test of Rule 23(a)(1) on that fact
alone”). The court finds that the joinder of that many
individuals in various geographic areas clearly would be
impracticable. Thus, Rule 23(a)(1)’s numerosity requirement
is satisfied.

2. Commonality

The next prerequisite for class certification is that there
be “questions of law or fact common to the class.”
Fed.R.Civ.P. 23(a)(2). Not every question of law or fact need
be common to every member of the class: “[i]ndeed, a single
common question is sufficient to satisfy Rule 23(a)(2).” Jn
re Bone Screw, 176 F.R.D. at 173 (citations omitted).

Here, the common question is whether Medicare
beneficiaries who obtain recovery from the settlement of tort
litigation are obliged to repay the amounts that the
Government paid for conditions related to that recovery under
the MSP. This central issue is common to all class members.

5. The Government has expressed an intention to send additional
letters.

43a

Appendix B

The court finds that the existence of this common legal
question satisfies the commonality requirement of Rule
23(a)(2).

3. Typicality

The third prerequisite to Rule 23(a)(3) class certification
requires that “the claims or defenses of the representative
parties are typical of the claims or defenses of the class.”
Fed.R.Civ.P. 23(a)(3). Claims qualify as typical where
“litigation of the named plaintiffs’ personal claims can
reasonably be expected to advance the interests of absent
class members.” Jn re Bone Screw, 176 F.R.D. at 175 (citation
omitted). Typicality derives from a strong similarity of legal
theories and is present where the class representative’s claims
and those of the class members arise from the same alleged
course of conduct by the defendant. Jn re Prudential Ins.
Co. of Am. Sales Practices Litig., 148 F.3d 283, 311 (3d
Cir.1998), cert. denied, 525 U.S. 1114, 119 S.Ct. 890, 142
L.Ed.2d 789 (1999).

In the proposed class before the court, the legal theory
is typical of the entire class and the same Government conduct
is at issue. The Government sent substantially identical letters
to approximately 1,800 Medicare beneficiaries in the
AcroMed Settlement Class. These letters demand repayment
for amounts that Medicare allegedly furnished in relation to
the injuries that were the subject of the tort claims against
AcroMed. The letters contend that the MSP authorizes the
Government to recover Medicare costs from the proceeds of
a tort settlement. Thus, the court concludes that there is an

44a

Appendix B

identity of interest of all class members and that Rule
23(a)(3)’s typicality requirement is satisfied.

4. Adequacy of Representation

Rule 23(a)’s final prerequisite is that “the representative
parties will fairly and adequately protect the interests of the
class.” Fed.R.Civ.P. 23(a)(4). The question of adequacy of
representation has two components. “First, the adequacy of
representation inquiry tests the qualifications of the counsel
to represent the class. Second, it serves to uncover conflicts
of interest between named parties and the class they seek to
represent.” Jn re Prudential, 148 F.3d at 312 (citations and
internal quotations omitted). The court finds that both class
counsel and the named plaintiffs satisfy these tests.

With respect to class counsel, the Government does not
challenge the qualifications of counsel to represent the class.
(Fed. Defs.’ Opp’n to Pl.’s Am.Mot. for Class Cert. at 10
n.9.) Further, the court has previously determined that
plaintiffs’ counsel are highly competent and experienced class
action attorneys who have pursued the interests of the class
vigorously. Jn re Bone Screw, 176 F.R.D. at 176.

With respect to the class representative, the Government
asserts that Fanning does not adequately represent the class
as he “seeks to deny” and “purports to . . . abandon all waiver
and appeal rights for every putative class member who
received a demand letter from HCFA.” (Federal Defs.’ Opp’n
to Pl.’s Mot. for Class Certification at 13-14.) However, as
stated at the hearing, class members’ waiver rights are
adequately preserved. The Government also contends that

45a

Appendix B

Fanning does not adequately represent the class because
Medicare’s reimbursement demand against him, totaling
$8.71, is “de minimus.” (Federal Defs.” Opp’n to PI.’s
Am.Mot. for Class Cert. at 12.) However, as the Government
recognizes, the size of a representative plaintiff’s claim
“is not determinative as to whether the plaintiff will fairly
and adequately protect the interests of the class.” Denny v.
Carey, 73 F.R.D. 654, 657 (E.D.Pa.1977) (citations omitted).
The court finds that the interest of the named plaintiff is
sufficiently aligned with those of the absentees and that there
are no disparate interests to impair Fanning’s incentive to
prosecute fully all aspects of the claim against the
Government.

5. Rule 23(b)(2)

Under Rule 23(b)(2), class certification 1s appropriate
where “the party opposing the class has acted or refused to
act on grounds generally applicable to the class, thereby
making appropriate final injunctive relief with respect to the
class as a whole.” Fed.R.Civ.P. 23(b)(2).

Here, class members seek an injunction because
the Government has sent virtually identical letters to
Medicare beneficiaries, demanding immediate payment.
The Government bases its identical action against class
members upon its assertion that the MSP authorizes it to
recover the costs of medical care from the proceeds of the
tort litigation.

Thus, the court finds not only that Rule 23(a)’s
requirements are met but also that the suit fits within the

46a

Appendix B

requirements of Rule 23(b)(2). Accordingly, it will certify a
class on behalf of:

All persons who are members of the AcroMed
Settlement Class (as defined in Pretrial Order 1117
entered in MDL 1014) and who, as a result of the
Class Action Settlement Agreement with AcroMed
Corporation, are subject to any Medicare-related
claim, brought pursuant to the Medicare
Secondary Payer statute, 42 U.S.C. § 1395y, or
otherwise, by any of the defendants herein, except
nominal defendants Robert E. Welsh, Jr. and PNC
Bank, N.A., for reimbursement of the cost of
medical care allegedly paid for or provided to
them by any such defendant.

B. Preliminary Injunction

Fanning next seeks an injunction to enjoin the
Government from attempting recovery from class members
for amounts Medicare allegedly furnished in relation to
injuries that were the subject of the tort claims against
AcroMed.

To obtain a preliminary injunction, the moving party
must show both: the likelihood of irreparable harm without
the relief sought; and a reasonable likelihood of ultimate
success on the merits. See Adams v. Freedom Forge Corp.,
204 F.3d 475, 484 (3d Cir.2000) (setting forth standard for
preliminary injunctive relief). The court also considers the
likelihood of irreparable harm to the non-moving party and
whether equitable relief will serve the public interest. /d.

47a

Appendix B

1. Irreparable Harm and the Public Interest

In considering whether to grant a preliminary injunction,
the court first considers the likelihood of irreparable harm
without the relief sought. “The irreparable harm requirement
is met if a plaintiff demonstrates a significant risk that he or
she will experience harm that cannot adequately be
compensated after the fact by monetary damages.” Adams,
204 F.3d at 484.

Pursuant to the demand letters, when a class member
does not or cannot pay Medicare the amount the Government
demands by July 9, 2001, Medicare may recover the amount
from any Social Security or Railroad Retirement benefits to
which the class member would otherwise be entitled.
(Am.Compl.Ex. B. at 2.) The money may also be recouped
from payments to the class member that Medicare would
otherwise have made. /d. Finally, interest on the class
member’s debt will accrue at a rate of 13.75% until it is paid,
and Medicare will refer delinquent debts to the Department
of the Treasury for offset against Federal payments that may
be due or for other collection actions. Jd.

Although the loss of income alone may not necessarily
constitute irreparable harm, in this case, class members would
suffer far more than mere economic loss. The statutory
scheme at issue in this case was enacted to benefit the aged
and the disabled. Class members generally receive Medicare
and Social Security benefits and cannot work because they
have been disabled by spinal disorders unsuccessfully treated
with spinal fixation devices. Thus, they are dependant on
Medicare and Social Security to provide ongoing medical

48a

Appendix B

care 1n addition to basic necessities.° Pursuant to the demand
letters, Medicare may recover the amount demanded from
Social Security or Railroad Retirement benefits to which the
class member would otherwise be entitled, and may recoup
the amount from payments that Medicare would otherwise
make. No compensatory or other corrective relief at a later
date will adequately redress such potential harm. Accordingly,
the court finds that the Goveriment’s demands threaten to
inflict far more than mere economic loss and that the class
members have established the likelihood of irreparable harm.

The court next considers the likelihood of irreparable
harm to the non-moving party. The Government asserts that
granting an injunction would interfere with the Secretary of
Health and Human Service’s’ delegated responsibilities to
make decisions regarding the amounts of benefits payable
on a beneficiary’s behalf. (Federal Defs.’ Opp’n to P1.’s Mot.
for Class Cert. at 35-36.) It also contends that the public has
a strong interest in ensuring that Medicare monies are
reimbursed. /d.

6. The court notes that, in addition to the testimony heard from
individual class members who attended the June 6, 2001 hearing,
it has received numerous phone calls from class members calling to
express their concerns regarding the Government’s actions in
this matter.

7. Medicare is administered by the Health Care Financing
Administration (the “HCFA”), on behalf of the Secretary of the
Department of Health and Human Services (the “Secretary”), who is
ultimately responsible for the administration of Medicare. 42 U.S.C.
§ 1395kk(a); Universal Health Servs. of McAllen, Inc. v. Sullivan,
770 F.Supp. 704, 707 (D.D.C.1991), aff’d, 978 F.2d 745
(D.C.Cir.1992).

49a

Appendix B

The court finds that the Government’s asserted interests
do not weigh strongly against an injunction. The Government
makes no attempt to support its vague, generalized allegation
of irreparable harm. Certainly, it has an interest in maintaining
the integrity of the Medicare program, and it is not contested
that the MSP was designed to further the public interest by
facilitating the recoupment of certain Medicare expenditures
for items or services that Congress has decided are more
appropriately paid for by certain other persons or entities.
Nonetheless, the court fails to see how enjoining the
Government from demanding amounts that class members
received under the AcroMed Settlement Agreement would
interfere with the operation of the Medicare program.

Lastly, the court finds that the public has a significant
interest in the efficient resolution of this mass tort litigation.
Significant public funds have been expended by virtue of
the court’s administration of \his litigation. Further delay in
the distribution of settlement proc.eds will not only cast
doubt on the viability of the judicial system for efficiently
resolving mass tort litigation, but also cause »ynmediate and
irreparable injury to the class. Thus, the cwurt finds that
equitable relief will serve the public interest.

2. Likelihood of Success on the Merits

The Government’s assertion that it is entitled to
reimbursement from the AcroMed Settlement Fund and/or
from Settlement beneficiaries, for amounts that the
Government paid to those beneficiaries for conditions related
to their settled claims, is based on the MSP, 42 U:S.C.
§ 1395y.

50a

Appendix B

The MSP consists of a series of amendments to Medicare
that grant the Government a statutory right to recover certain
Medicare expenditures, creating a direct cause of action in
favor of the Government that is enforceable through judicial
action. Jn re Diet Drugs Prods. Liab. Litig., No. 99-20593,
2001 WL 2 3163, at *9 (E.D.Pa. Mar. 21, 2001) (citing
Health Ins. Ass'n of Am. v. Shalala, 23 F.3d 412, 425
(D.C.Cir.1994)).8 The statute makes Medicare a “secondary”
payer where another entity, a “primary payer” is required to
pay under a “primary plan” for an individual’s healthcare.
42 U.S.C. § 1395y(b)(2); In re Diet Drugs, 2001 WL 283163,
at *9: United States v. Philip Morris, Inc., 116 F.Supp.2d
131, 145 (D.D.C.2000). If the Government, as secondary
payer, makes a payment for which a primary plan is
responsible, the payment is conditioned on reimbursement
from the primary payer. 42 U.S.C. § 1395y(b)(2)(B)(i). The
MSP grants the Government a cause of action against the
primary payer, or any person who has received payment
therefrom, for reimbursement of those payments or double
damages.° Jd. § 1395y(b)(2)(B)(ii).

8. The court hereby incorporates by reference its reasoning Jn
re Diet Drugs Prods. Liab. Litig., No. 99-20593, 2001 WL 283163
(E.D.Pa. Mar. 21, 2001), which discusses the MSP.

9. Specifically, the MSP states that:

[i]n order to recover payment under this subchapter for

such an item or service, the United States may bring an

action against any entity which is required or responsible

_. . to make payment with respect to such item or service

... under a primary plan (and may ... collect double

damages against that entity), or against any other entity
(Cont’d)

at Wh cea hae tae

ta consti lncaa 3 ae

Sla

Appendix B

The MSP defines a “primary plan” as “a group health
plan or large group health plan, ... a workman’s
compensation law or plan, an automobile or liability
insurance policy or plan (including a self-insured plan) or
no fault insurance ...” under which payment for medical
care “has been made or can reasonably be expected to be
made promptly.” 42 U.S.C. § 1395y(b)(2)(A); Jn re Diet
Drugs, 2001 WL 283163, at *9. “Promptly” is defined as
“payment within 120 days after receipt of the claim.”
42 C.F.R. § 411.21.

The Government states that it is entitled to recover
payments made to Medicare beneficiaries who are also
members of the AcroMed Settlement Class because AcroMed
is a “self-insurer” obligated to reimburse the Government
for Medicare expenditures by the plain terms of the MSP.
According to the Government, an entity that enters a liability
settlement for alleged tortious conduct and funds that
settlement with its own assets or borrowings is a “self-insured
plan” that qualifies as a “primary plan.” Further, the

(Cont'd)
(including any physician or provider) that has received
payment from that entity with respect to the item or
service, and may join or intervene in any action related
to the events that gave rise to the need for the ite 1 or
service. ...

42 U.S.C. § 1395y(b)(2)(B)(11). The MSP further provides that the
Government “shall be subrogated ... to any right under this
subsection of an individual or any other entity to payment
with respect to such item or service under a primary plan.”

Id. § 1395y(b)(2)(B)(i11).

52a

Appendix B

Government asserts that the situations in which the MSP
makes Medicare a secondary payer entitled to reimbursement
are not limited to payments for items or services for which
another party has made prompt payment or can reasonably
be expected to pay promptly. Lastly, the Government argues
that its interpretation of the MSP is entitled to deference under
Chevron U.S.A., Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).

The Government’s argument fails as a matter of law
because: the term “‘self- insurer” as used in the MSP was not
meant to encompass alleged tortfeasors who merely fund
liability settlements with their own assets or corporate
borrowings; and the MSP makes a Government payment
conditional, and thus subject to reimbursement, only where
the insurance entity has made prompt payment or can
reasonably be expected to make prompt payment for costs
related to the federal beneficiary’s medical treatment.

The court will first address whether the Government’s
interpretation of the MSP is entitled to deference under
Chevron, and then address the parties’ arguments regarding
whether the AcroMed Settlement Trust or AcroMed itself is
a “self-insured plan” qualifying as a “primary plan” obligated
by the MSP to reimburse the Government.

a. Whether Deference is Due

As an initial matter, contrary to the Government's
contention, its interpretation of the MSP is not entitled to
deference under Chevron. See Chevron, 467 U.S. at 844-45,
104 S.Ct. 2778 (holding that court must give effect to agency
regulation containing a reasonable interpretation of

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53a

Appendix B

ambiguous statute). Agency opinions that are not arrived at
after a formal adjudication, notice-and-comment rulemaking,
or otherwise in the exercise of congressionally delegated
rulemaking authority—such as interpretations in the instant
demand letters, as well as interpretations in legal briefs,
opinion letters, policy statements, agency manuals, and
enforcement guidelines, all of which lack the force of law—
do not warrant deference under Chevron. See, e.g., United
States v. Mead Corp., __ U.S. _., 121 S.Ct. 2164, 150
L.Ed.2d 292 (2001) (holding that tariff classification rulings
in individual cases by United States Customs Service are
not entitled to Chevron deference)'®; Christensen v. Harris
County, 529 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621
(2000) (holding that interpretation in opinion letter not
entitled to deference) (citations omitted); Martin v.—
Occupational Safety and Health Review Comm'n, 499 U.S.
144, 157, 111 S.Ct. 1171, 113 L.Ed.2d 117 (1991) (stating
that interpretative rules and enforcement guidelines are
“not entitled to the same deference as norms that derive from

10. Mead Corp. was decided twelve days after the June 6, 2001
hearing regarding the instant motions. The parties have not submitted
supplemental papers addressing the decision, and the deference issue
has not been extensively briefed or argued by any of the parties.

There is no indication here that the Government’s interpretation
was arrived at through HCFA’s congressionally delegated rulemaking
authority. See, e.g., Mead Corp., _ U.S. __, 121 S.Ct. 2164, 150
L.Ed.2d 292 (concluding that no deference was due to U.S. Customs
Service’s tariff classification rulings where there was no indication
that agency “ever set out with lawmaking pretense in mind” when it
made such rulings). Even if it had been and deference was due, the
Government's interpretation is clearly unsupportable for the reasons
discussed infra.

S4a

Appendix B

the exercise of. . . delegated lawmaking powers”); Bowen v.
Georgetown Univ. Hosp., 488 UsS. 294, 212-213, 109 S.Ct.
468, 102 L.Ed.2d 493 (1988) (exhibiting Court’s near
indifference to interpretation advanced for first time in
litigation brief). Rather, such interpretations are entitled to
respect only to the extent that they have the power to
persuade. Mead Corp., _ U.S. _,, 121 S.Ct. 2164, 150
L.Ed.2d 292 (citing Skidmore v. Swift & Co., 323 U.S. 134,
140, 65 S.Ct. 161, 89 L.Ed. 124 (1944)); Christensen, 529
U.S. at 587, 120 S.Ct. 1655. For the reasons set forth below,
the court finds the Government’s interpretation of the MSP
entirely unpersuasive. See In re Dow Corning Corp., 250
B.R. 298, 336 n. 21 (Bankr.E.D.Mich.2000) (stating that
Government’s statutory construction is “entirely unsupported
by the statute” and appears to be intended to convert MSP
from sensible fiscal cost-cutting measure into heavy-handed
collection tool).

b. “Self-Insured Plan” Under the MSP

The Government notes that under the Health Care
Financing Administration’s (“HCFA”) regulations, a ““‘self-
insured plan’ .. . ‘means a plan under which an individual,
or a private or governmental entity, carries its own risk instead
of taking out insurance with a carrier.’” See Federal Defs.’
Opp’n to Pl.’s Mot. for T.R.O. and/or Prelim. Inj. (“Opp’n
to Mot. for T.R.O.”) at 28 (quoting 42 C.F.R. § 411.50(b)).
It further points out that a “self-insured plan” includes an
“entity engaged in a business, trade or profession.” Id.
(quoting 42 C.F.R. § 411.50(b)). HCFA regulations define a
“plan” as “any arrangement, oral or written, by one or more

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55a

Appendix B

entities, to provide health benefits or medical care or assume
legal liability for injury or illness.” 42 C.F.R. § 411.21.

From these provisions, the Government concludes that
an entity that enters a liability insurance settlement, 1.e., an
arrangement in which an entity that has chosen to carry its
own risk agrees to assume legal liability for injury or illness,
is a self-insured plan under the MSP. (Opp’n to Mot. for
T.R.O. at 29-30.) For the following reasons, however, the
Government cannot establish that AcroMed or the AcroMed
Settlement Fund are “self-insured plans” as defined by the
MSP.

First, the HCFA itself, the entity charged with
administering Medicare and that promulgated the regulations
to which the Government cites, has indicated that:

the mere absence of insurance purchased from a
carrier does not necessarily constitute a ‘plan’ of
self-insurance. If ... the absence of insurance
purchased from a carrier does not constitute a
‘self-insured plan’ in a particular case, HCFA will
not attempt to recover its payments from the entity
that lacks insurance coverage.

54 Fed.Reg. 41727 (Oct. 11, 1989) (responding to comment
that regulations should clarify whether Medicare is primary
payer when presumed tortfeasor has no liability insurance).
Thus, the scope of entities that fall within the definition of a
“self-insured plan” clearly does not encompass all entities
that make payments, independent of any liability insurance

56a

Appendix B

coverage, potentially related to conditions for which
Medicare has made payment.

Second, there is simply no basis to conclude that
Congress intended the MSP to create in the Government a
right to recover from alleged tortfeasors for injuries resulting
in Medicare payments. Jn re Diet Drugs, 2001 WL 283163,
at. Unlike the MCRA, the MSP does not mention a right by
the Government to recover from a tortfeasor. Jd. Rather, the
express wording of the statute creates a cause of action only
against insurers and their payees. /d.; see United States v.
Rhode Island Insurers’ Insolvency Fund, 80 F.3d 616, 622
n.5 (Ist Cir.1996) (stating that MSP “limits rembursement
to recoveries from ‘primary plans,’ whose definition lists only
entities which are clearly ‘within’ the insurance industry”);
Philip Morris, Inc., 116 F.Supp.2d at 146 & n.22 (dismissing
MSP claim against defendants who clearly were not insurance
entities and noting that courts have uniformly recognized that
statute’s clear purpose was to grant Government right to
recover Medicare costs from insurers) (citations omitted);
Dow Corning, 250 B.R. at 337 n.22 (stating that unless
alleged tortfeasor qualifies as primary plan or received
payment from primary plan, MSP does not grant right to
initiate direct action against it); see also Health Ins. Ass'n,
23 F.3d at 427 n.* (stating that MSP “plainly intends to allow
recovery only from an insurer”) (Henderson, J., concurring).
Under the Government’s construction of the statute, every
tortfeasor that used its general assets to fund a tort settlement
with persons who had received federal health care benefits
would be potentially liable under the MSP. Jn re Diet Drugs,
2001 WL 283163, at *10. There is absolutely no legal support
for this extremely broad construction of the statute. /d. The

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Appendix B

court’s conclusion is bolstered by the fact that up until the
recent Philip Morris and Dow Corning cases, the case law is
devoid of any instances in which the Government attempted
to sue a tortfeasor under the MSP, despite the fact that the
statute had been in existence for twenty years. Philip Morris,
116 F.Supp.2d at 146 n. 22. As noted by this court in Jn re
Diet Drugs and by Judge Kessler in Philip Morris, “ ‘it is
clear that Congress did not intend MSP to be used as an across
the board procedural vehicle for suing tortfeasors.’ “ Jn re
Diet Drugs, 2001 WL 283163, at *10 (quoting Philip Morris,
116 F.Supp.2d at 135).

Lastly, the Government asserts that HCFA’s regulation
in 42 C.F.R. § 411-50(b) clarifies that the Government has
an MSP claim with respect to monies paid by a tortfeasor.
That provision states in relevant part that a “[lJiability
insurance payment” subject to the MSP “means a payment
by a liability insurer, or an out-of-pocket payment, including
a payment to cover a deductible required by a liability
insurance policy, by an individual or other entity that carries
liability insurance, or is covered by a self-insured plan.”
42 C.F.R. § 411.50(b). The Government’s argument, however,
fails to account for the repeated use of the word “plan”
throughout the MSP and regulations promulgated thereunder,
including the regulation it cites. See 42 C.F.R. § 411.50(b)
(defining self-insured plan as “plan” under which entity
carries its own risk, including “‘plan” of business entity).

The plain meaning of the term “self-insured plan” and
the statutory context in which that term is used indicate that
it does not include tortfeasors that merely have the ability
to, and do in fact, fund a settlement of a tort suit with general

58a
Appendix B

assets of the company or corporate borrowings. /n re Diet
Drugs, 2001 WL 283163, at *10. The statute’s requirement
of the existence of a primary “plan” connotes some type of
formal arrangement by which an entity consciously
undertakes to set aside funds to cover potential future
liabilities and a formal procedure for processing claims made
against that fund pursuant to the terms of the “plan.” Jn re
Diet Drugs, 2001 WL 283163, at *10; see Moore v.
Warehouse Club, Inc., 992 F.2d 27, 29 (3d Cir. 1993) (stating
that, as a matter of statutory construction, words “will be
interpreted as taking their ordinary, contemporary, common
meaning”). For example, a leading treatise on the subject of
insurance states that:

... to meet the conceptual definition of self

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_1241%3A1. Public record. Not legal advice.