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American Medical Technologies v. Johnson

February 25, 2009


The opinion of the court was delivered by: John D. Bates United States District Judge


American Medical Technologies ("plaintiff") is a Medicare supplier claiming that contractors for defendant U.S. Department of Health and Human Services ("defendant" or "the Secretary") unlawfully changed the Medicare reimbursement process, thereby harming plaintiff. The Secretary has filed a motion to dismiss for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). He argues that under the Medicare statute, plaintiff was required to present these claims within an administrative review mechanism before filing suit in federal court. For the reasons explained below, the Secretary's motion to dismiss is granted.


Plaintiff is a privately-owned supplier of composite dressings. Compl. ¶ 7. The dressings are covered under Part B of the Medicare statute, 42 U.S.C. §§ 1395j-1395w-4. To obtain reimbursement, plaintiff -- like other enrolled Medicare suppliers -- must submit claims to a Durable Medical Equipment Medicare Administrative Contractor ("DME-MAC"). The United States is divided into four geographic jurisdictions ("A" through "D"), each of which is assigned a DME-MAC. Id. ¶ 11. DME-MACs reimburse Medicare suppliers pursuant to billing codes and fee schedules set by another of the Secretary's contractors, the Statistical Analysis Durable Medical Equipment Regional Carrier ("SADMERC"). Id. ¶ 15. In December 2004 and April 2006, SADMERC assigned billing codes to plaintiff's composite dressings, thereby qualifying those dressings for reimbursement. Id. ¶ 20.

Reimbursement for plaintiff's dressings got off to a rocky start. DME-MACs routinely denied plaintiff's reimbursement claims and those denials were almost always reversed upon appeal. Id. ¶ 22. Plaintiff alleges that the DME-MACs -- frustrated that the denials were being reversed on appeal -- then unilaterally revised the definition of "composite dressings," invalidated the billing codes that applied to plaintiff's dressings and replaced them with new codes, and stopped reimbursing claims submitted under the old codes. Id. ¶¶ 24-25, 29. Plaintiff alleges that these changes violated established procedures for revising definitions and billing codes. Id.

¶¶ 25-42. Plaintiff claims to have had 1,714 claims denied from October 1, 2006 to October 31, 2007, totaling $741,442 in improperly disallowed reimbursements. Id. ¶ 45. Two jurisdictions in particular -- "B" and "C" -- have denied plaintiff's requests for reimbursement under the old billing codes for use of an invalid code. Id. ¶¶ 46, 48.

Plaintiff filed suit on February 25, 2008, alleging jurisdiction pursuant to 28 U.S.C. § 1331. Id. ¶ 4. Plaintiff alleges that the DME-MACs' actions violate the Administrative Procedures Act, 5 U.S.C. §§ 701-706, and seeks monetary, injunctive, and declaratory relief.

The Secretary filed this Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction on August 29, 2008.


Under Fed. R. Civ. P. 12(b)(1), the plaintiff bears the burden of establishing that the court has jurisdiction. Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001) (a court has an "affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority"); see also Pitney Bowes, Inc. v. United States Postal Serv., 27 F. Supp. 2d 15, 18 (D.D.C. 1998). A court must accept as true all the factual allegations contained in the complaint when reviewing a motion to dismiss pursuant to Rule 12(b)(1), and the plaintiff should receive the benefit of all favorable inferences that can be drawn from the alleged facts. See Leatherman v. Tarrant Cty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164, (1993); EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624-25 n. 3 (D.C. Cir. 1997). However, "the court need not accept inferences drawn by plaintiffs if such inferences are unsupported by the allegations set out in the complaint. Nor must the court accept legal conclusions cast in the form of factual allegations." Kowal v. MCI Commun. Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). Furthermore, "'plaintiff[s'] factual allegations in the complaint . . . will bear closer scrutiny in resolving a 12(b)(1) motion' than in resolving a 12(b)(6) motion for failure to state a claim." Grand Lodge, 185 F. Supp. 2d at 13-14 (quoting 5A CHARLES ALAN WRIGHT & ARTHURR. MILLER, FEDERALPRACTICE AND PROCEDURE § 1350).*fn2


The Secretary rests on a single argument in support of his motion to dismiss: the Court lacks subject matter jurisdiction over this case because of the Medicare statute's jurisdictional exclusivity and exhaustion requirements. Under those requirements, the Secretary contends, federal courts lack subject matter jurisdiction over cases like this one until a claim has been presented within an extensive system of administrative review and all administrative appeals have been exhausted. The Secretary argues that plaintiff has not presented his claims within the requisite administrative review mechanism, so this case must be dismissed for lack of subject matter jurisdiction. Plaintiff counters that it could not have pursued administrative appeals any further than it did, and hence this case is excepted from Medicare's jurisdictional exclusivity and exhaustion requirements.

The requirements that form the basis of the Secretary's motion to dismiss come from § 405 of the Medicare statute. See 42 U.S.C. § 405.*fn3 Section 405(h) divests federal courts of jurisdiction over claims "arising under" the Medicare statute.*fn4 Section 405(g), on the other hand, provides that a plaintiff may seek judicial review after the Secretary has made a "final decision." Read together, §§ 405(g) and (h) require "presentment" (i.e., initiation of administrative review) and "exhaustion" (i.e., completion of that review) of claims before a federal court has subject matter jurisdiction over a case arising under the Medicare statute. See Nat'l Kidney Patients Ass'n v. Sullivan, 958 F.2d 1127, 1130 (D.C. Cir. 1992).

Section 405 has been the subject of several Supreme Court opinions. The most recent, Illinois Council, made it clear that the jurisdictional exclusivity and exhaustion requirements demand an expansive reading. There, the Supreme Court held that the presentment and exhaustion requirements apply to all types of claims -- the requirements call for "the 'channeling' of virtually all legal attacks through the agency." 529 U.S. at 13-14; see also Nat'l Kidney, 958 F.2d at 1129, 1133-34 (holding that ยง 405 applies to disputes over the methods used to determine reimbursement just as it applies to disputes over reimbursement amount determinations). The Supreme Court recognized that this broad reading "comes at a price, namely, occasional individual, delay-related hardship." Illinois Council, 529 U.S. at 13. But "in the context of a massive, complex health and safety program such as Medicare . . . paying this price seems justified." Id. The ...

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