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Council For Urological Interests v. Kathleen Sebelius

December 10, 2010

COUNCIL FOR UROLOGICAL INTERESTS, PLAINTIFF,
v.
KATHLEEN SEBELIUS, IN HER OFFICIAL CAPACITY AS SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES, AND UNITED STATES OF AMERICA, DEFENDANTS.



The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge

MEMORANDUM OPINION

Plaintiff Council for Urological Interests ("CUI") brings this action against the United States and Kathleen Sebelius, in her official capacity as Secretary of the Department of Health and Human Services, under the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701--706, and the Regulatory Flexibility Act ("RFA"), 5 U.S.C. §§ 601--612. CUI alleges that the Centers for Medicare and Medicaid Services ("CMS"), acting under the Secretary's authority, has promulgated regulations that exceed its statutory powers under the Stark Act, 42 U.S.C. § 1395nn. CUI bring this suit for declaratory and injunctive relief, arguing that these regulations wrongly prevent joint ventures, through which urologists purchase medical equipment, from providing laser treatment to Medicare patients. Before the Court is defendants' motion to dismiss for lack of subject matter jurisdiction [#7]. Upon consideration of the motion, the opposition thereto, and the record of this case, the Court concludes that the motion must be granted.

I. BACKGROUND

A. Urologist Joint Ventures and Medicare

In recent years, physicians have discovered that certain types of lasers are capable of performing surgical procedures that would in the past have required traditional invasive surgery and a lengthy recovery period. These laser surgery procedures require no hospital stay and are less likely than traditional surgery to create complications. Compl. ¶¶ 7--8. Because, however, hospitals have been reluctant to invest in the expensive equipment required, many urologists have formed joint ventures to purchase the lasers and provide various treatments. Compl. ¶¶ 11--12. Under CMS regulations, however, these joint ventures may not be directly reimbursed for their technical costs under Medicare, which covers over 75% of the patients who receive laser surgery. Compl. ¶¶ 16, 18. As a result, many urologist joint ventures entered into contractual relationships with hospitals through which the hospitals acted as billing agents for Medicare, transferring fees to the joint ventures on a per-procedure ("per-click") basis and retaining some portion of each payment. Compl. ¶ 19. Entities providing treatment for hospitals in this fashion are referred to as operating "under arrangement" with those hospitals.

B. The Stark Act and the Challenged Regulations

In 1989, Congress passed legislation, commonly known as "Stark I," that was designed to "address the strain placed on the Medicare Trust fund by the overutilization of certain medical services by physicians who, for their own financial gain rather than their patients' medical need, referred patients to entities in which the physicians held a financial interest." Am. Lithotripsy Soc'y v. Thompson, 215 F. Supp. 2d 23, 26 (D.D.C. 2002). In 1993, "Stark II" followed, expanding the reach of Stark I to include physician self-referrals for eleven "designated health services" ("DHS"), including urological laser procedures performed under contract with hospitals.*fn1 Id. at 26--27. Under Stark II, physicians may not refer patients for any of these treatments to entities with which they have either an ownership or compensation arrangement. Id. at 27. Exceptions are made, however, for certain compensation arrangements that set payment rates in advance, comport with fair market value, and do not take into account the volume or value of referrals. Compl. ¶ 27. Accordingly, CMS promulgated regulations in 2001 that allowed physician joint ventures to be paid "under arrangement" with hospitals on a per-procedure basis, as described above. Under those regulations, only the hospital was considered to "furnish" the DHS, so referrals to the joint ventures did not run afoul of Stark's ban on "referral[s] . . . for the furnishing of designated health services" to entities with which physicians have financial relationships. 42 U.S.C. § 1395nn(a)(1)(A).

Subsequently, however, CMS reinterpreted the Stark II exceptions, expanding the class of entities considered to "furnish" health services, and concluding that per-procedure payments should be banned. Compl. ¶¶ 30--33, 47--52. CUI alleges that this round of revisions, which took effect on October 1, 2009, has the effect of precluding physician-owned joint ventures from providing urological laser treatments and vitiating the contracts with hospitals under which they have done so in the past. Specifically, CUI asserts that physician joint ventures now fall within the definition of entities that "furnish" DHS, creating a prohibited financial relationship. Compl. 56--57. Further, CUI avers that these revisions treat physicians who own joint ventures that operate "under arrangement" with hospitals as having prohibited indirect financial relationships with the hospitals themselves. CUI asserts that these changes are contrary to the language of the statute and the intent of Congress. Compl. ¶¶ 30--46.

CUI brought this suit to enjoin the enforcement of these regulations and defendants moved to dismiss for lack of subject-matter jurisdiction.

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(1), a defendant may move to dismiss a complaint, or any portion thereof, for lack of subject-matter jurisdiction. FED. R. CIV.P. 12(b)(1); see Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) ("Federal courts are courts of limited jurisdiction. . . . It is to be presumed that a cause lies outside this limited jurisdiction . . . ."). In response to such a motion, the plaintiff must establish that the court has subject-matter jurisdiction over the claims in the complaint. Hunter v. Bd. of Real Prop. Tax Assessment & Appeals, 2010 WL 3275529, at *1 n.3 (D.D.C. Aug. 19, 2010) (citing Moms Against Mercury v. FDA, 483 F.3d 824, 828 (D.C. Cir. 2007)). If the plaintiff is unable to do so, the Court must dismiss the action. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998) (citing Ex parte McCardle, 7 Wall. 506, 514 (1868)). When resolving a motion made under Rule 12(b)(1), a court may consider material beyond the allegations in the plaintiff's complaint. Jerome Stevens Pharm., Inc. v. FDA, 402 F.3d 1249, 1253--54 (D.C. Cir. 2005).

III. ANALYSIS

Defendants argue that this Court lacks jurisdiction over CUI's claims because they are subject to the jurisdictional bar of 42 U.S.C. § 405(h), which precludes federal question jurisdiction over any claims arising under the Medicare Act that were not first channeled through CMS's administrative claims process.*fn2 Defs.' Mot. to Dismiss ("Defs.' Mot.") at 8. CUI acknowledges that its claims arise under the Medicare Act, but argues that its claims are exempt from § 405(h) because it cannot present its claims directly to CMS*fn3 and there is no feasible alternative means for it to seek administrative and judicial review. Pl.'s Opp'n to Defs.' Mot. ("Pl.'s Opp'n") at 10.Thus, CUI argues, its claims fall within the exception to § 405(h) recognized by the Supreme Court in Shalala v. Illinois Council on Long Term Care, 529 U.S. 1 (2000). There, the Court explained that where the Medicare Act's administrative channeling rule would "amount to the 'practical equivalent of a total denial of judicial review,'" the rule does not apply and general federal question jurisdiction lies under 42 U.S.C. § 1331. Ill. Council, 529 U.S. at 20 (quoting McNary v. Haitian Refugee Ctr., Inc., 498 U.S. 479, 497 (1991)). Defendants respond that although CUI's members cannot themselves present their claims to CMS, those claims can nevertheless be heard through the hospitals with which CUI's members contract, rendering the Illinois Council exception inapplicable.

At bottom, the parties agree that the pivotal question here is whether CUI's members could have their claims heard administratively through a proxy or intermediary, but disagree sharply as to the application of the Illinois Council exception to their case.*fn4 In particular, they dispute: (i) whether the Illinois Council inquiry focuses on the plaintiffs themselves, or considers the whole range of parties subject to the regulations; (ii) whether the inquiry should take into account not just the means but also the incentives for a would-be proxy to actually present the claim administratively; ...


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