Statute, by not providing review of carrier Part B decisions, demonstrated the intent of the Congress to preclude federal jurisdiction over Part B payment determinations." Erika, 456 U.S. at 208. Nevertheless, Michigan Academy distinguished Part B claims that were based upon the underlying "methodology" of Medicare and the "amount" of a reimbursement. Thus, the Court concluded that those claims which were "methodology" claims were entitled to federal court review pursuant to 28 U.S.C. § 1331. Michigan Academy, 476 U.S. at 680.
NMC Homecare relies on Michigan Academy to support its argument that they be given federal court jurisdiction. NMC Homecare objects specifically to the Magistrate Judge's conclusion that the Plaintiff's complaint seeks recovery on a Medicare claim. Rather, NMC Homecare argues that the complaint only seeks to enjoin the use of an administrative rule made by the Health Care Financing Administration which it claims is in violation of the Administrative Procedure Act. (Doc. 1). Thus, NMC Homecare relies upon the distinction made between a claim challenging the method by which payments are administered and a determination as to the amounts to be recovered.
NMC Homecare's reliance on Michigan Academy is misplaced after the implementation of the 1986 amendments. As previously recited, the 1986 amendments to the Medicare Statute provided administrative review for all Part B claims in excess of $ 500 and judicial review for those claims in excess of $ 1000. Martin, 63 F.3d at 503. See also 42 U.S.C. § 1395ff(a). Thus, subsequent to the 1986 amendments, "the Michigan Academy distinctions drawn between amount of payment and validity of the statute and regulations' challenges, are no longer meaningful or necessary". Martin, 63 F.3d at 503. Rather, under 42 U.S.C. § 405(g), a federal district court may review a claim arising under the Medicare Act only after the Secretary renders a "final decision." Weinberger v. Salfi, 422 U.S. 749, 762-64, 45 L. Ed. 2d 522, 95 S. Ct. 2457 (1975). Section 1395(ii) of the Medicare Act incorporates 42 U.S.C. § 405(h) of the Social Security Act, in which it is explicitly stated that Section 405(g), to the exclusion of 28 U.S.C. § 1331, is the sole avenue for judicial review for claims "arising under the Act." Manakee Professional Medical Transfer Service, Inc. v. Shalala, 71 F.3d 574, 578 (6th Cir. 1995)(citing Salfi, 422 U.S. at 762-64. See also 42 U.S.C. § 405(h). The Supreme Court has interpreted the requirement of a "final decision" of the Secretary "to be central to the requisite grant of subject matter jurisdiction." Salfi, 422 U.S. at 763-64. Therefore, following the post 1986 Amendments to the Medicare Act, NMC Homecare's reliance on its purported "methodology" claim is unavailing. Thus, regardless of whether NMC Homecare's challenge is to the "method" by which it was denied reimbursements or the "determination" as to the amounts recovered, it is precluded from pursuing judicial review pursuant to 28 U.S.C. § 1331 and must follow administrative procedures consistent with 42 U.S.C. § 405(h).
It is not disputed that NMC Homecare did not exhaust the appropriate administrative remedies. Furthermore, there is no administrative record or final decision by an Administrative Law Judge with regard to its claim. Although NMC Homecare's complaint does not "explicitly" seek monetary reimbursements, NMC Homecare's contention that the Secretary's new rule violates the APA is "inextricably intertwined" with a claim for benefits. Ringer, 466 U.S. at 611. NMC Homecare explicitly states in its complaint that its claim arises under the Medicare Act in arguing that the Secretary's new rule violates the APA. Thus, through the implementation of the Secretary's rule, NMC Homecare has failed to be reimbursed for the Part B IDPN therapy.
NMC Homecare additionally contends that the Magistrate Judge's Report and Recommendation failed to follow the Supreme Court decision in McNary v. Haitian Refugee Center, Inc., 498 U.S. 479, 112 L. Ed. 2d 1005, 111 S. Ct. 888 (1991), as it was applied in Blue Bell Medical, Inc. v. Pa. Blue Shield, 775 F. Supp. 829 (M.D. Pa. 1991). In Blue Bell Medical, the plaintiff challenged a unilateral decision made by a carrier within Part B of the Medicare Program. They alleged that the decision of Pennsylvania Blue Shield to reduce its reimbursement for primary surgical dressing kits from $ 30.00 to $ 8.00 violated due process because it was contrary to the notice and comment consistent with 422 C.F.R. § 405.502(g). In addition, the plaintiffs also complained that their due process was violated because of the retroactive effect of the notice on the price for dressing kits that already had been supplied.
The plaintiffs sought direct judicial review arguing that the Michigan Academy, decision supported the exercise of jurisdiction by the Federal District Court. The court concluded that through the application of Michigan Academy and McNary, the Plaintiffs' claims did not "arise under" the Medicare Act and the Court therefore had jurisdiction under Section 1331. The district court based its application of Michigan Academy on the distinction drawn in that case between amount determination and methodology claims. The district court proceeded to state that the Supreme Court's analysis in Michigan Academy was "in accord with the recent decision in McNary. " Blue Bell Medical, 775 F. Supp. at 832-33.
In McNary, the Supreme Court also based its decision on Michigan Academy. The Supreme Court was confronted with a Constitutional challenge to a policy of the Immigration and Naturalization Service (hereinafter "INS") under the "Special Agricultural Workers" amnesty program. The issue in that case was whether § 210(e) of the Immigration and Nationality Act (hereinafter "INA"), codified at 8 U.S.C. § 1160(e), "precluded a federal district court from exercising general federal-question jurisdiction over an action alleging a pattern or practice of procedural due process violations by the [INS] in its administration of the [Special Agricultural Workers] program." McNary, 498 U.S. at 483.
The Court held that 8 U.S.C. § 1160(e) did not preclude the district court from exercising federal-question jurisdiction over the respondents' Constitutional and statutory challenges to the INS procedures. Id. at 479. The Supreme Court distinguished Heckler and stated that "if not allowed to pursue their claims in the district court, respondents would not as a practical matter be able to obtain meaningful judicial review of their application denials or of their objections to INS procedures notwithstanding the review provisions of § 210(e) of the amended INA." McNary, 498 U.S. at 496 (emphasis added).
The court proceeded to discuss Michigan Academy observing that "inherent in an analysis in Michigan Academy was the concern that absent such a construction of the judicial review provisions of the Medicare statute, there would be no review at all of the statutory and constitutional challenges to the Secretary's administration of Part B of the Medicare Program." McNary, 498 U.S. at 498.
The Third Circuit addressed McNary in the same context in which NMC Homecare attempts to apply it in the case at bar. However, in Grant v. Shalala, 989 F.2d 1332 (3d Cir. 1993), the Third Circuit failed to apply McNary. In Grant, a class of plaintiffs attempted to bypass the administrative process and filed a complaint alleging that their denial of benefits was the result of the bias held against them by an Administrative Law Judge. The Court explained its rejection of McNary in stating that
while the Court in McNary observed that the plaintiffs could not have obtained meaningful judicial review if their district court action was barred, in this case the Plaintiffs can obtain judicial review of the Secretary's decision regarding ALJ Powell's alleged bias, but that review must be based on the administrative record and the Secretary's findings of fact.
Grant, 989 F.2d at 1342-43.
As the Secretary correctly points out, the decision in Grant "forecloses NMC Homecare's effort to apply McNary to this case." (Doc. 45, p. 9). The claims of NMC Homecare are subject to federal district court review only after the appropriate administrative processes have been exhausted. By requiring the Plaintiff to exhaust the administrative remedies consistent with 42 U.S.C. § 405(g), NMC Homecare is not in any way deprived of the opportunity for "meaningful judicial review." Thus, NMC may obtain meaningful judicial review of the Secretary's decision based upon the administrative record which will be developed through an appropriate administrative hearing before the Secretary. Manakee Professional Medical Transfer Service, Inc. v. Shalala, 71 F.3d 574, 578 (6th Cir. 1995); Martin v. Shalala, 63 F.3d 497, 503 (7th Cir. 1995). Accord, Michigan Assoc. of Independent Clinical Laboratories v. Shalala, 52 F.3d 1340, 1348 (6th Cir. 1994); Farkas v. Blue Cross and Blue Shield of Michigan, 24 F.3d 853, 859 (6th Cir. 1994); Abbey v. Sullivan, 978 F.2d 37, 43 (2d Cir. 1992); National Kidney Patients Association v. Sullivan, 294 U.S. App. D.C. 269, 958 F.2d 1127, 1130 (D.C. Cir. 1992); cert. denied, 506 U.S. 1049, 122 L. Ed. 2d 122, 113 S. Ct. 966 (1993).
Similarly, NMC Homecare's reliance on Blue Bell Medical is also foreclosed, as "'the Michigan Academy exception applies only when there is no other avenue of judicial review.'" St. Francis Medical Center v. Shalala, 32 F.3d 805, 812 (3d Cir. 1994), cert. denied, 514 U.S. 1016, 131 L. Ed. 2d 215, 115 S. Ct. 1357 (1995))(quoting West Chester Management Corp. v. U.S. Dept. Of Health and Human Services 948 F.2d 279, 282 (6th Cir. 1991) cert. denied, 504 U.S. 909, 118 L. Ed. 2d 543, 112 S. Ct. 1936 (1992)). As the court in St. Francis observed, "if general federal-question jurisdiction had not been available in Michigan Academy, the plaintiffs in that case would have had no avenue for challenging the validity of the regulation under which their payments were calculated." 32 F.3d at 812.
NMC Homecare's ability to have their claims reviewed by the district court is not foreclosed by requiring it to exhaust its administrative remedies. Thus, the Michigan Academy exception does not apply to NMC Homecare because "meaningful judicial review" is available subsequent to NMC Homecare's proper exhaustion of the administrative remedies.
B. WAIVER OF EXHAUSTION REQUIREMENT
NMC Homecare next complains that the Magistrate Judge misread the Supreme Court decision in Bowen v. City of New York, 476 U.S. 467, 90 L. Ed. 2d 462, 106 S. Ct. 2022 (1986). The Plaintiff argues that in accordance with City of New York, they are entitled to a waiver of the exhaustion requirement of 42 U.S.C. § 405(g). The Magistrate Judge held that the three requirements for waiver under City of New York were absent from the circumstances of the case. (Doc. 35, p. 12).
As the Magistrate Judge correctly points out, the factors that govern waiver of the exhaustion requirement are: (1) whether the claim is collateral to a demand for benefits; (2) whether exhaustion would be futile; (3) and whether Plaintiffs would suffer irreparable harm if required to exhaust their administrative remedies before obtaining relief. (Doc. 35, p. 9). City of New York, 476 U.S. at 482-86. See also Pavano v. Shalala, 95 F.3d 147, 150 (2d Cir. 1996) (discussing the above mentioned exhaustion requirements).
In determining whether the exhaustion requirement should be excused, courts should be flexible. Pavano, 95 F.3d at 150; Abbey, 978 F.2d at 44. Such determinations "should also be guided by the policies underlying the exhaustion requirement." Abbey, 978 F.2d at 44 (citing City of New York, 476 U.S. at 484). "No one element is critical to the resolution of the [exhaustion] issue; rather, a more general approach, balancing the competing considerations to arrive at a just result, is in order." Id. (quoting New York v. Sullivan, 906 F.2d 910, 918 (2d Cir. 1990).
The issue that NMC Homecare raises in its complaint is not collateral to a demand for benefits. It attempts to distinguish a claim for benefits with its challenge to the "hard evidence" policy implemented by the Secretary. However, we agree with the Secretary in that the remedy that NMC Homecare seeks, an "invalidation of these adverse determinations, is substantially similar, if not identical, to what it would obtain by pursuing its administrative remedies." (Doc. 45, p. 16). Moreover, NMC Homecare has already begun the administrative appeals process under Part B of the Medicare Act in pursuing some of the 12,000 claims that it asserts have been denied by Medicare. (Doc. 11, p. 4). Thus, its challenge to the Secretary's rule is "inextricably intertwined" with its claim for benefits and not collateral to any potential reimbursement that it may be entitled if the ALJ were to find in its favor.
The administrative exhaustion requirement may also be waived if it would be futile in that "there is no reasonable prospect that the applicant could obtain any relief by pursuing" such administrative remedies. Manakee, 71 F.3d at 581 (quoting Health Equity Resources, Urbana Inc. v. Sullivan, 927 F.2d 963, 965 (7th Cir. 1991)). NMC Homecare argues that in 1993 "[the] Health Care Finance Administration systematically denied, and still denies, IDPN reimbursement without regard to physician certifications based on the hard evidence requirements for the medical necessity criteria." (Doc. 18, p. 24). It complains that this complete reversal of the Horton Policy of 1988 was an internal directive to [the] Health Care Finance Administration and its DMERC agents. As such, NMC Homecare states that even if the ALJ and the Appeals Council may find in favor of NMC Homecare and grant certain claims for benefits, "it does not follow that ALJs and the Appeals Council may conclude that the Secretary has issued a rule in violation of the Administrative Procedures Act." (Doc. 18, p. 24).
We do not agree that it would be futile for the Plaintiff to exhaust their administrative remedies. NMC Homecare would not forfeit any right to pursue any of its 12,000 claims if required to first present their claims to the Secretary. Moreover, by requiring the appropriate presentment and exhaustion of administrative remedies as prescribed by 42 § 405(g), the district court would have an adequately developed factual record to review. Thus, consistent with the holding in Heckler v. Ringer, 466 U.S. 602, 80 L. Ed. 2d 622, 104 S. Ct. 2013 (1984), a challenge to a policy implemented by the Secretary still necessitates an exhaustion of administrative remedies. Likewise, NMC Homecare's challenge to the Secretary's change in policy as violative of the APA must be pursued according to 42 U.S.C. § 405(g).
We also agree with the Magistrate Judge that NMC Homecare has failed to show that it would suffer irreparable harm if exhaustion were required. (Doc. 35, p. 12). As the Magistrate Judge points out, "while the Plaintiff contends that 'exhaustion of the internal [Health Care Finance Administration] review process would be prohibitively expensive and unduly wasteful', the Plaintiff has failed to demonstrate that the alleged injury could not be remedied by the retroactive payment of benefits after the exhaustion of administrative remedies." Id..
In accordance with the Magistrate Judge, we do recognize that the exhaustion of 12,000 claims will be cumbersome. However, "the mere trouble and expense of defending the administrative proceeding is insufficient to warrant judicial review of the agency's action prior to the conclusion of the administrative proceeding." Abbey, 978 F.2d at 46. We also recognize the importance of exhaustion.
Exhaustion is generally required as a matter of preventing interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review.
Weinberger v. Salfi, 422 U.S. 749, 765, 45 L. Ed. 2d 522, 95 S. Ct. 2457 (1975).
Based upon the foregoing reasons, we have determined that NMC Homecare is not entitled to direct judicial review of its claims pursuant to 28 U.S.C. § 1331. Rather, consistent with 42 U.S.C. § 405(h), NMC Homecare is required to pursue the applicable levels of administrative review. Moreover, NMC Homecare has not provided this Court with sufficient evidence that it satisfies the requirements for waiver of the exhaustion requirement.
We therefore adopt the Magistrate Judge's Report and Recommendation and grant the Defendant's Motion to Dismiss for lack of subject matter jurisdiction. We also deem the Plaintiff's Motion for Summary Judgement (Doc. 17) moot. Accordingly, the Plaintiff's Complaint is dismissed.
Richard P. Conaboy
United States District Judge
NOW, this 18th day of JULY, 1997, it is hereby ORDERED that:
1. The Magistrate Judge's Report and Recommendation (Doc.35) is hereby ADOPTED.
2. By this ORDER, we have determined that NMC Homecare is not entitled to direct judicial review of its claims pursuant to 28 U.S.C. § 1331. Rather, consistent with 42 U.S.C. § 405(h), NMC Homecare is required to pursue the applicable levels of administrative review. In addition, NMC Homecare has not provided this Court with sufficient evidence that it satisfies the requirements for waiver of the exhaustion requirement.
3. The Defendant's Motion to Dismiss for lack of subject matter jurisdiction (Doc. 8) is hereby GRANTED.
4. The Plaintiff's Complaint (Doc. 1) is dismissed for LACK OF SUBJECT MATTER JURISDICTION.
5. The Plaintiff's Motion for Summary Judgment (Doc. 17) is deemed MOOT.
6. The CLERK of COURT is DIRECTED to MARK the DOCKET SHEET ACCORDINGLY and CLOSE the CASE FILE.
Richard P. Conaboy
United States District Judge