Henry v. Azar ( 2021 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
JAMES HENRY, et al.,
Plaintiffs,
v. Civil Action No. 20-1144 (CKK)
ALEX M. AZAR II
Secretary of Health and Human Services,
Defendant.
MEMORANDUM OPINION
(February 8, 2021)
This case involves a dispute over the appropriate reimbursement payment for a medical
device called Relizorb under Part B of the Medicare Act. See 42 U.S.C. § 1395k(a)(2)(B). Plaintiff
Alcresta Therapeutics, Inc. (“Alcresta”) is the manufacturer of Relizorb, and Plaintiff James Henry
is a Medicare beneficiary who uses Relizorb to improve his lung function and address his
malnourishment. See Compl. ¶¶ 5–6. Together, Alcresta and Mr. Henry (collectively,
“Plaintiffs”), have filed a motion for summary judgment against the Secretary of Health and
Human Services (“HHS”), asking the Court to invalidate the agency’s Medicare payment
determination for Relizorb. See ECF No. 8. In turn, the Secretary has filed a motion to dismiss
Plaintiffs’ claims for lack of subject-matter jurisdiction, as well as a cross-motion for summary
judgment. See ECF No. 13.
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Upon consideration of the briefing, the relevant authorities, and the record as a whole, 1 the
Court concludes that it does not possess subject-matter jurisdiction over Plaintiffs’ claims.
Accordingly, it will GRANT the Secretary’s motion and DISMISS Plaintiffs’ claims WITHOUT
PREJUDICE. Because this Court lack’s subject-matter jurisdiction, it will also DENY Plaintiffs’
motion for summary judgment WITHOUT PREJUDICE.
I. BACKGROUND
Plaintiff Alcresta is the exclusive manufacturer of Relizorb, which “is a small, single use
cartridge that connects in-line between the feeding pump and the patient as part of the enteral
feeding pump tubing set-up.” Compl. ¶ 33. Relizorb “mimics normal pancreatic function by
breaking down fats in formula used for enteral tube feeding—i.e., delivery of nourishment directly
to a patient’s gastrointestinal tract—by exposing the formula to a special digestive enzyme
immediately before it enters the body.” Id. In this way, Relizorb “facilitates absorption of essential
fats in patients suffering from severe fat malabsorption resulting from pancreatic insufficiency
associated with cystic fibrosis and other serious pancreatic conditions.” Id. ¶ 32. Alcresta
maintains that there is no comparable “product currently available that breaks down fats
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The Court’s consideration has focused on the following briefing and material submitted by the parties:
• Compl., ECF No. 1;
• Pls.’ Mem. of P. & A. in Supp. of Mot. for Summ. J. (“Pls.’ Mot.”), ECF No. 8;
• Gov’t Mem. In. Supp. of Mot. to Dismiss and Remand and Cross-Mot. for Summ. J. (“Gov’t
Mot.”), ECF No. 13-1;
• Pls.’ Reply in Supp. of Pls. Mot. for Summ. J. (“Pls. Reply”), ECF No. 17;
• Pls.’ Opp’n to Gov’t Mot. to Dismiss and Remand and to its Alt. Cross-Mot. for Summ. J. (Pls.’
Opp’n”), ECF No. 18;
• Gov’t Reply in Supp. of Mot. to Dismiss and Remand and Alt. Cross-Mot. for Summ. J. (“Gov’t
Reply”), ECF No. 19; and,
• Joint App’x of Admin. Record (“AR”), ECF No. 20.
In an exercise of its discretion, the Court finds that holding oral argument in this action would not be of
assistance in rendering a decision. See LCvR 7(f).
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throughout a full enteral feeding session.” Id. ¶ 34. The Food and Drug Administration (“FDA”)
cleared Relizorb for prescription use in 2015. See id. ¶¶ 31, 34.
Medicare Part B offers coverage for prosthetic devices used for enteral nutrition therapy,
such as Alcresta, where they are medically necessary for enrolled beneficiaries. See 42 U.S.C.
§§ 1395k(a)(2)(B), 1395k(a)(2)(I); 42 C.F.R. § 421.210(b)(2); disc. infra at 10. Accordingly, after
Relizorb’s FDA clearance in 2015, Alcresta applied with the Centers for Medicare & Medicaid
Services (“CMS”) for a unique Medicare billing code for Relizorb. See Compl. ¶ 35. Initially,
CMS determined that Relizorb did not require a separate Medicare billing code, because
preexisting codes for other enteral nutrition supply kits adequately covered Relizorb. See id. ¶ 36.
But Alcresta disputed this determination, see id. ¶¶ 35–50, and in December 2018, CMS ultimately
issued a unique Medicare billing code for Relizorb, see id. ¶ 51. At this point, Relizorb became a
newly-coded product that was not yet on Medicare’s national fee schedule for enteral nutrition
therapy. See id. ¶ 52; Pub. L. No. 105-33 § 4315. As such, CMS directed Medicare contractors
processing payment claims for the newly-coded Relizorb to determine reimbursement payments
“‘in accordance with the gap-filling methodology in section 60.3 of Chapter 23 of the Medicare
Claims Processing Manual.’” Compl. ¶ 52 (quoting Technical Direction Letter (TDL-190132) at
2 (Dec. 20, 2018)).
Plaintiff James Henry is a cystic fibrosis patient enrolled under Medicare Part B, who uses
Medicare coverage of Relizorb to obtain the device for his medical treatment. Compl. ¶ 53. In
2019, Mr. Henry’s Medicare supplier submitted a Medicare claim on his behalf for 60 cartridges
of Relizorb that had been prescribed by Mr. Henry’s physician. See id. ¶ 54. In this Medicare
claim, Mr. Henry sought a total reimbursement of $9,898.20 for the 60 cartridges of Relizorb, a
rate of $164.97 per cartridge. Id. On October 31, 2019, however, the first-level Medicare
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contractor approved a payment of $2,025.07 for the 60 Relizorb cartridges, a rate of only $33.75
per cartridge. See id. ¶ 55: AR at 314. Mr. Henry requested a redetermination from the Medicare
contractor, arguing that the contractor’s payment determination for Relizorb rested on an erroneous
application of the Medicare gap-filling methodology. See Compl. ¶ 56; AR at 92, 105–14. On
January 7, 2020, however, the contractor upheld its original payment determination. See AR at
308–09.
Pursuant to the Medicare administrative appeals process, see 42 U.S.C. § 1395ff(c), Mr.
Henry then requested that a “qualified independent contractor” (“QIC”) reconsider the payment
determination for Relizorb made by the first-level Medicare contractor, see AR at 305–06. But
on February 18, 2020, the QIC dismissed Mr. Henry’s claim, concluding that the first-level
contractor’s payment determination for Relizorb was not an “initial determination” under the
Medicare Act and, therefore, could not be appealed. AR at 69 (citing 42 C.F.R. § 405.926(c)).
Mr. Henry subsequently requested that an administrative law judge (“ALJ”) within HHS review
the QIC’s dismissal. See AR at 2–4. The ALJ, however, dismissed Mr. Henry’s request to review
the QIC’s dismissal order on March 30, 2020, also concluding that the contractor’s payment
determination was not an “initial determination.” See AR at 4. Following the ALJ’s dismissal,
Mr. Henry and Alcresta jointly filed a complaint before this Court on May 1, 2020. See generally
Compl., ECF No. 1.
In their complaint, Mr. Henry and Alcresta assert four claims, each aimed at invalidating
the Medicare contractor’s payment determination for Relizorb. See id. ¶ 2. In Count I, Plaintiffs
allege that the Relizorb payment determination was “contrary to law” and specifically violated the
Medicare gap-filling requirements applicable to newly-coded products like Relizorb. See id. ¶¶
82–89. In Count II, Plaintiffs similarly allege that the Medicare contractor’s payment
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determination for Relizorb was “arbitrary and capricious because it started from an unreasonable
assessment of reasonable charges and approached gap-filling payment[s] for Relizorb differently
than for other products, and without explanation for the departure.” Id. ¶ 91 (citing 5 U.S.C.
§ 706(2)(A). In Count III, Plaintiffs argue that the contractor’s “payment determination is also
unsupported by substantial evidence and should be set aside as unlawful” for that separate reason.
Compl. ¶ 98. Finally, in Count IV, Plaintiffs allege that the contractor’s underpayment for Relizorb
constituted an “amendment” to a preexisting Medicare standard, known as a “national coverage
determination” (“NCD”), which requires Medicare coverage for enteral nutrition therapy. See id.
¶ 102. Specifically, Plaintiffs allege that this functional NCD “amendment” was invalid because
the agency failed to adhere to the requisite notice and comment procedures applicable to such a
regulatory change. See id. ¶ 102–03; Azar v. Allina, 139 S. Ct. 1804, 1808–09 (2019). For relief,
Mr. Henry and Alcresta ask the Court to “set aside the invalid payment determination and direct
the agency to require its contractor to apply properly the gap-filling methodology set forth in the
Medicare statute and rules.” Compl., Relief Requested, at ¶ (d).
Plaintiffs have now filed for summary judgment, relying upon the administrative record
and requesting relief from the agency’s Relizorb payment determination as a matter of law. See
Pls.’ Mot. at 1–2. In response, however, the Secretary has filed a cross-motion for summary
judgment and a motion to dismiss Plaintiffs’ claims for lack of subject matter jurisdiction. See
Gov’t Mot. at 15–24. The parties have now fully briefed these motions and filed the administrative
record before the Court. See LCvR 7(n). Consequently, the parties’ pending motions are ripe for
the Court’s review.
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II. LEGAL STANDARD
A court must dismiss a case pursuant to Federal Rule of Civil Procedure 12(b)(1) when it
lacks subject-matter jurisdiction. In determining whether there is jurisdiction, the Court may
“consider the complaint supplemented by undisputed facts evidenced in the record, or the
complaint supplemented by undisputed facts plus the court’s resolution of disputed facts.” Coal.
for Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C. Cir. 2003) (internal quotation
marks omitted) (quoting Herbert v. Nat’l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992)); see
also Jerome Stevens Pharm., Inc. v. Food & Drug Admin., 402 F.3d 1249, 1253 (D.C. Cir. 2005)
(“[T]he district court may consider materials outside the pleadings in deciding whether to grant a
motion to dismiss for lack of jurisdiction.”)
In reviewing a motion to dismiss pursuant to Rule 12(b)(1), courts must accept as true all
factual allegations in the complaint and construe the complaint liberally, granting plaintiff the
benefit of all inferences that can be drawn from the facts alleged. See Settles v. U.S. Parole
Comm’n, 429 F.3d 1098, 1106 (D.C. Cir. 2005) (“At the motion to dismiss stage, counseled
complaints as well as pro se complaints, are to be construed with sufficient liberality to afford all
possible inferences favorable to the pleader on allegations of fact.”); Leatherman v. Tarrant Cty.
Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993) (“We review here a decision
granting a motion to dismiss, and therefore must accept as true all the factual allegations in the
complaint.”); Koutny v. Martin, 530 F. Supp. 2d 84, 87 (D.D.C. 2007) (“[A] court accepts as true
all of the factual allegations contained in the complaint and may also consider ‘undisputed facts
evidenced in the record.’” (internal citations omitted) (quoting Mineta, 333 F.3d at 198)).
Despite the favorable inferences that a plaintiff receives on a motion to dismiss, it remains
the plaintiff’s burden to prove subject-matter jurisdiction by a preponderance of the evidence. Am.
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Farm Bureau v. United States Envtl. Prot. Agency, 121 F. Supp. 2d 84, 90 (D.D.C. 2000).
“Although a court must accept as true all factual allegations contained in the complaint when
reviewing a motion to dismiss pursuant to Rule 12(b)(1), [a] 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.” Wright v. Foreign Serv. Grievance Bd., 503 F. Supp. 2d 163,
170 (D.D.C. 2007) (internal citations and quotation marks omitted) (quoting Grand Lodge of
Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13–14 (D.D.C. 2001)), aff’d, 2008 WL
4068606 (D.C. Cir. Mar. 17, 2008). A court need not accept as true “a legal conclusion couched
as a factual allegation” or an inference “unsupported by the facts set out in the complaint.” Trudeau
v. Fed. Trade Comm’n, 456 F.3d 178, 193 (D.C. Cir. 2006) (internal quotation marks omitted)
(quoting Papasam v. Allain, 478 U.S. 265, 286 (1986)).
III. DISCUSSION
“Federal courts are courts of limited jurisdiction,” and “[t]hey possess only that power
authorized by Constitution and statute.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375,
377 (1994). Here, Plaintiffs have not established that this Court has the requisite authority to
adjudicate their claims. In their complaint and briefing, Plaintiffs assert two separate bases for
subject-matter jurisdiction: 42 U.S.C. § 1395ff(f) and 28 U.S.C. § 1331. See Compl. ¶ 3. But for
the reasons set forth below, the Court concludes that neither statute confers this Court with
jurisdiction over Plaintiffs’ Medicare claims. Accordingly, the Court must DISMISS Plaintiffs’
complaint in its entirety for lack of subject-matter jurisdiction. See Fed. R. Civ. P. 12(b)(1).
A. Plaintiffs’ Claims Arise Under the Medicare Act
The first jurisdictional inquiry in a Medicare case such as this, is to determine whether the
claims at issue “arise under” the Medicare Act and are, therefore, subject to the unique
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jurisdictional requirements embedded in that statute. See Porzecanski v. Azar, 943 F.3d 472, 480
(D.C. Cir. 2019). “In determining whether a particular claim ‘arises under’ the . . . Medicare Act,
the Supreme Court has construed the phrase ‘quite broadly to include any claims in which both the
standing and the substantive basis for the presentation of the claims is the Social Security Act,’”
which includes the Medicare Act itself. Integrity Soc. Work Servs., LCSW, LLC v. Azar, No. 20-
CV-118 (BAH), 2020 WL 3103913, at *4 (D.D.C. June 11, 2020) (quoting Heckler v. Ringer, 466
U.S. 602, 615 (1984)).
In this case, Plaintiffs’ claims each arise under the Medicare Act. As set forth above,
Plaintiffs claims in Counts I, II, and III derive from the October 31, 2019 payment determination
made by a Medicare contractor for Mr. Henry’s Relizorb cartridges, which Plaintiffs allege was
improper under the Medicare “gap-filling” rules. See Pls.’ Mot. at 21 (citing 42 U.S.C.
§§ 1395u(a), (s); 42 C.F.R.§ 405.502); Compl. ¶¶ 82–100. Similarly, Plaintiffs’ Count IV asserts
that the contractor’s payment determination for Relizorb improperly “amended” the existing
Medicare NCD for enteral nutrition therapy. See Compl. ¶ 102. These claims derive directly from
the substance of the Medicare Act and, therefore, Plaintiffs’ standing and the substantive basis for
their claims arise from that statute as well. See Heckler, 466 U.S. at 615. Indeed, Plaintiffs do not
dispute that their claims arise under the Medicare Act. See Am. Med. Techs. v. Johnson, 598 F.
Supp. 2d 78, 81 n.4 (D.D.C. 2009).
The conclusion that Plaintiffs’ claims arise under the Medicare Act restricts this Court’s
authority. It is well established that “[f]ederal jurisdiction is extremely limited for claims arising
under the Medicare Act.” Porzecanski, 943 F.3d at 480. Thereunder, “42 U.S.C. § 1395ii—part
of the Medicare Act—incorporates the judicial review scheme set forth in 42 U.S.C. § 405(h).”
Id. Section “405(h) divests the district courts of federal question jurisdiction on any claim arising
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under” the Medicare Act, except as provided in 42 U.S.C. § 405(g). Am. Hosp. Ass’n v. Azar, 895
F.3d 822, 825 (D.C. Cir. 2018). “In pertinent part, [§ 405(g)] permits any person to file a civil
action, after any final decision of the [Secretary of Health and Human Services] made after a
hearing to which he was a party, to obtain a review of such decision’ in federal district court.” Id.
(internal quotations omitted); see also 42 U.S.C. § 1395ff(b)(1)(A).
In practice then, § 405(g) “demands the ‘channeling’ of virtually all legal attacks through
the agency.” Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 13 (2000). There are,
however, narrow exceptions to these channeling and exhaustion requirements, which derive from
the Medicare Act itself, see 42 U.S.C. § 1395ff(f)(3), as well as from the Supreme Court precedent,
see Ill. Council, 529 U.S. at 19. It is upon these exceptions that Plaintiffs rest their jurisdictional
arguments in this case.
B. Jurisdiction Under 42 U.S.C. § 1395ff(f)
Plaintiffs first argue that this Court possesses jurisdiction under 42 U.S.C. § 1395ff(f). See
Compl. ¶ 3. Section 1395ff(f)(3) supplies a “limited exception” to the presentment and exhaustion
requirements of the Medicare Act. Hays v. Leavitt, 583 F. Supp. 2d 62, 66 (D.D.C. 2008), aff’d
sub nom. Hays v. Sebelius, 589 F.3d 1279 (D.C. Cir. 2009). Under this provision, a party “may
seek” judicial review of a “national coverage determination” or “local coverage determination”
“without otherwise exhausting other administrative remedies,” so long as “there are no material
issues of fact in dispute” and “the only issue of law is . . . that a regulation, determination, or ruling
by the Secretary is invalid.” 42 U.S.C. § 1395ff(f)(3). Relevant here, the Medicare Act defines
an NCD as “a determination by the Secretary with respect to whether or not a particular item or
service is covered nationally under this subchapter.” Id. § 1395ff(f)(1)(B).
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Plaintiffs contend that § 1395ff(f)(3) allows them to seek judicial review directly in this
case, because the Secretary has effectively “amended” the existing NCD pertaining to Relizorb
through its unreasonably low reimbursement payment for the device. See Compl. ¶ 3; Pls.’ Opp’n
at 17–22. As to Plaintiff Alcresta, however, this position is facially untenable on standing grounds.
Section 1395ff(f)(5) makes clear that “[a]n action under [§ 1395ff(f)(3)] seeking review of a
national coverage determination . . . may be initiated only by individuals entitled to benefits under
part A, or enrolled under part B, or both, who are in need of the items or services that are the
subject of the coverage determination.” 42 U.S.C. § 1395ff(f)(5). Alcresta, however, is the
manufacturer of Relizorb, see Compl. ¶ 6, and therefore does not have standing as a beneficiary to
challenge an NCD under § 1395ff(f)(3), see Hays, 583 F. Supp. 2d at 67. The plain language of
§ 1395ff(f)(5) limiting expedited judicial review of NCDs to Medicare beneficiaries must control.
See Block v. Cmty. Nutrition Inst., 467 U.S. 340, 349 (1984) (holding that specific Congressional
language overrides the presumption favoring judicial review). As such, Alcresta cannot rely upon
§ 1395ff(f)(3) as a basis for subject-matter jurisdiction in this case.
Mr. Henry, however, is a Medicare beneficiary and, therefore, does have standing to
challenge an NCD under § 1395ff(f)(3). See Compl. ¶ 5. Unfortunately, Mr. Henry encounters
another problem: he has not challenged an NCD. As noted above, an NCD is “a determination by
the Secretary with respect to whether or not a particular item or service is covered nationally” by
Medicare. 42 U.S.C. § 1395ff(f)(1)(B); see also Pls.’ Mot. at 2. In 1984, for example, the
Secretary adopted an NCD for “Enteral and Parenteral Nutritional Therapy,” stating that: “Enteral
nutrition is considered reasonable and necessary for a patient with a functioning gastrointestinal
tract who, due to pathology to, or non-function of, the structures that normally permit food to reach
the digestive tract, cannot maintain weight and strength commensurate with his or her general
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condition.” See National Coverage Determination (NCD) for Enteral and Parenteral Nutritional
Therapy (180.2) (July 11, 1984). Pursuant to that 1984 NCD, Medicare now covers enteral
nutritional therapy, as well as related supplies and equipment, such as Relizorb. See Gov’t Mot.
at 4; Pls.’ Mot. at 24.
Mr. Henry now argues that the Medicare contractor’s underpayment for his Relizorb
cartridges effectively “amended” the existing NCD coverage for Relizorb. See Pls.’ Opp’n at 17–
22. Mr. Henry’s argument on this point, while novel, is not without merit. In October 2019, Mr.
Henry’s Medicare supplier submitted a reimbursement claim for 60 cartridges of Relizorb
provided to Mr. Henry for his medical use. See Compl. ¶ 54. The Medicare supplier sought
reimbursement for this Relizorb at a rate of $164.97 per cartridge. See id. The Medicare
contractor, however, approved a reimbursement of only $33.75 per cartridge of Relizorb. See id.
¶ 55. On this point, Plaintiffs allege that the reimbursement rate of $33.75 per cartridge is below
even the supplier’s own acquisition cost for Relizorb, see id. ¶ 68, and that “[b]y reimbursing
Relizorb below the supplier’s cost of acquiring the product, the agency creates an unsustainable
revenue loss for Medicare suppliers that effectively removes Relizorb as a covered item for
Medicare beneficiaries,” Pls.’ Opp’n at 6.
On its face, Mr. Henry’s theory of an effective NCD “amendment” rests on sound logic.
A Medicare reimbursement rate set below the supplier’s own cost of acquisition forces that
supplier to transact at a loss. In this way, a Medicare reimbursement rate set below acquisition
cost could suffocate the market for Medicare suppliers of a given drug or medical device. There
are no clear incentives for a Medicare supplier to sell such a product at a price lower than his own
rate of purchase. Under these conditions, one would eventually expect all Medicare suppliers to
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discontinue the sale of that product which, by definition, would be unprofitable. This is the
gravamen of Mr. Henry’s effective NCD amendment theory. See Pls.’ Opp’n at 6.
Unfortunately, Mr. Henry’s theory runs headlong into the plain language of the Medicare
Act. In defining an NCD, § 1395ff(f)(1)(B) expressly states that an NCD “does not include . . . a
determination with respect to the amount of payment made for a particular item or service so
covered.” 42 U.S.C. § 1395ff(f)(1)(B) (emphasis added). Yet, Mr. Henry’s claims in this case
clearly arise from a dispute over “a determination with respect to the amount of payment made”
for his Relizorb cartridges. Id. Mr. Henry sought a reimbursement in the amount of $164.97 per
cartridge of Relizorb, see Compl. ¶ 54, but the Medicare contractor determined that Medicare
would only cover $33.75 per cartridge, see id. ¶ 55. Mr. Henry now disputes the amount of that
payment determination. Congress expressly excluded such “amount of payment” disputes from
the definition of an NCD and did not create any exceptions for this rule. 42 U.S.C.
§ 1395ff(f)(1)(B). Instead, the Medicare Act provides an alternative channel for beneficiaries to
raise payment claims when dissatisfied with the amount of a Medicare reimbursement. See, e.g.,
42 U.S.C. § 1395ff(b)(1)(A); 42 C.F.R. § 405.904(a)(2). While the Court is sympathetic to the
functional argument Mr. Henry presents, see Pls.’ Opp’n at 18 (citing Azar v. Allina Health Servs.,
139 S. Ct. 1804, 1812 (2019)), it must adhere to this plain language in the Medicare Act, see Block,
467 U.S. at 349. For these reasons, the Court concludes that Mr. Henry has not challenged an
NCD in this case and, therefore, may not seek judicial review under § 1395ff(f)(3).
C. Jurisdiction Under 28 U.S.C. § 1331Plaintiffs also attempt to assert their Medicare claims under traditional federal question
jurisdiction. See Compl. ¶ 3 (citing 28 U.S.C. § 1331). As a general matter, 42 U.S.C. § 405(h),
as incorporated into the Medicare Act by 42 U.S.C. § 1395ii, “divests the district courts of federal
question jurisdiction” for all Medicare claims. Am. Hosp. Ass’n v. Azar, 895 F.3d 822, 825 (D.C.
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Cir. 2018). Instead, as described above, claimants must “channel” their Medicare claims through
the Medicare Act itself, seeking judicial review only as provided therein. See id.; 42 U.S.C.
§ 1395ff(b)(1)(A). In this case, however, Plaintiffs attempt to circumvent the Medicare
“channeling” rule by relying on a narrow exception addressed by the Supreme Court in Illinois
Council. See Pls.’ Opp’n at 10–17; Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667,
670 (1986).
Under Illinois Council, parties may invoke traditional federal question jurisdiction for
Medicare claims, “where [the] application of § 405(h) would not simply channel review through
the agency, but would mean no review at all.” Ill. Council, 529 U.S. at 19. This Illinois Council
exception “applies not only when administrative regulations foreclose judicial review, but also
when roadblocks practically cut off any avenue to federal court.” Am. Chiropractic Ass’n v.
Leavitt, 431 F.3d 812, 816 (D.C. Cir. 2005). Nonetheless, a party seeking to invoke the Illinois
Council exception must do more than merely show “that postponement of judicial review would
mean added inconvenience or cost in an isolated, particular case.” Council for Urological Interests
v. Sebelius, 668 F.3d 704, 708 (D.C. Cir. 2011). Rather, federal question jurisdiction for Medicare
claims is appropriate only where the “difficulties [are] severe enough to render judicial review
unavailable as a practical matter.” Am. Chiropractic Ass’n, 431 F.3d at 816.
1. Alcresta
The Court first considers whether Plaintiff Alcresta may assert its Medicare claims under
28 U.S.C. § 1331, as permitted by Illinois Council. Here, the parties agree that Alcresta is the
manufacturer of Relizorb and, therefore, does not have access to the administrative appeals process
set forth in the Medicare Act. See Pls.’ Opp’n at 14. The Court concurs with this assessment.
Alcresta’s present Medicare claims turn on Mr. Henry’s payment claim regarding his Relizorb
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supply in September 2019, see Compl. ¶¶ 82–111, but as the manufacturer of Relizorb, Alcresta
was not a “party” to the initial determination on Mr. Henry’s reimbursement claim, see 42 C.F.R.
§ 405.906; 42 U.S.C. § 1395ff(b)(1)(A). Consequently, Alcresta possesses “no direct means of
channeling its claims through the agency before seeking judicial review under the Medicare Act.”
Council for Urological Interests, 668 F.3d at 707.
It does not inexorably follow, however, that Alcresta may now invoke federal question
jurisdiction under Illinois Council. To the contrary, “the Illinois Council exception is not intended
to allow section 1331 federal question jurisdiction in every case where section 405(h) would
prevent a particular individual or entity from seeking judicial review.” Council for Urological
Interests, 668 F.3d at 711. Instead, the Medicare Act “channeling” requirement still applies so
long as an “adequate proxy” could pursue the Medicare claim in question for Alcresta. See id. at
712; Am. Chiropractic Ass’n, 431 F.3d at 816. In identifying an “adequate proxy,” the D.C. Circuit
has considered whether a potential third party exists to assert the Medicare claim at issue and
whether any “lack of incentive” or “misalignment of interests” would prevent that party from
adequately pursuing the claim. Council for Urological Interests, 668 F.3d at 712. “In cases where
the only entities able to invoke Medicare Act review are highly unlikely to do so, their
unwillingness to pursue a Medicare Act claim poses a serious ‘practical roadblock’ to judicial
review,” sufficient to trigger the Illinois Council exception. Id.
The D.C. Circuit’s decisions in American Chiropractic and Council for Urological
Interests define the contours of the “adequate proxy” doctrine. In American Chiropractic, the D.C.
Circuit considered a challenge by the American Chiropractic Association (the “Association”) to a
Medicare rule allowing HMOs to require that patients procure a referral from a non-chiropractor
before seeking chiropractic services. Am. Chiropractic Ass’n, 431 F.3d at 814–15. The
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Association opposed this chiropractor-referral rule, but it did not have access to an administrative
channel to challenge the rule through the Medicare Act. See id. Nonetheless, the D.C. Circuit
concluded that the Association could instead rely upon a beneficiary to challenge the rule through
the Medicare Act. Specifically, a Medicare “beneficiary could receive chiropractic services
without a referral, have his or her claim for benefits denied by his or her HMO, and then proceed
through the administrative process.” Sensory Neurostimulation, Inc. v. Azar, 977 F.3d 969, 983
(9th Cir. 2020) (citing Am. Chiropractic Ass’n, 431 F.3d at 816–17). The possibility of such
review through the administrative channels of the Medicare Act was sufficiently plausible and
rendered the Illinois Council exception inapplicable to the Association’s claim. See Am.
Chiropractic Ass’n, 431 F.3d at 816–18.
In Council for Urological Interests, the D.C. Circuit reached a different conclusion. There,
the plaintiff-appellant was the Council for Urological Interests (the “Council”), a group of
“physician-owned joint ventures formed to purchase specialized equipment for urologic laser
surgery.” 668 F.3d at 706. “These joint ventures typically operate[d] ‘under arrangement’ with
hospitals,” wherein “the urologist-owned venture provide[d] the laser equipment and related
services, while the hospital provide[d] space for the procedure.” Id. In turn, Medicare would
“pay[] full ‘technical fees’ for [the] equipment and nonprofessional services” rendered by the joint-
venture during a procedure, but would make those payments “only to hospitals.” Id. Therefore,
“in a typical joint venture arrangement, the hospital bill[ed] Medicare for the technical fee for each
surgical procedure performed and then passe[d] on a pre-negotiated portion of that fee to the joint
venture on a per-procedure basis.” Id. In 2008, however, HHS promulgated new regulations
providing that “urologists who have a financial interest in a joint venture may no longer refer
patients to the venture for laser services, even if the services are provided under arrangement with
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a hospital.” Id. As such, the new 2008 HHS regulations governing patient referrals directly
impacted the Council and its financial interests.
But like the Association in American Chiropractic, neither the Council nor its members
had standing to raise an administrative challenge through the Medicare Act. See id. at 707, 714.
In Council for Urological Interests, however, the D.C. Circuit found that the Council could instead
resort to federal question jurisdiction under the Illinois Council exception. In reaching this
conclusion, the D.C Circuit acknowledged that only hospitals could challenge the 2008 HHS
regulations through the channeling provisions of the Medicare Act. See id. at 707. Yet, these
hospitals had little incentive to do so. The hospitals “resented” physicians exercising control over
the equipment used in medical procedures and viewed the new HHS regulations as an opportunity
“to reassert control over the procurement of lasers and other urological medical equipment.” Id.
at 713. Moreover, “the regulations also allowed hospitals to purchase expensive laser equipment
from urologist joint ventures at ‘fire-sale prices.’” Id. Consequently, at the time of the appeal in
Council for Urological Interests, “not one of the 5,795 hospitals in the United States ha[d] brought
an administrative challenge to th[e] regulations” at issue. Id. Under these circumstances, the D.C.
Circuit found that federal question jurisdiction under Illinois Council was appropriate: the Council
could not pursue its own claim through the Medicare Act and the only parties that could do so had
no interest in pursuing such a claim. See id. Without § 1331, the application of the Medicare Act’s
“channeling” requirement would have meant no judicial review at all of the 2008 HHS regulations.
In this case, Plaintiffs rely on Council for Urological Interests to argue that Alcresta
qualifies for the Illinois Council exception. See Pls.’ Opp’n at 15–17. The Court, however,
disagrees. Here, there are Medicare beneficiaries using Relizorb who could challenge
reimbursement rates for the medical device, in place of Alcresta. See 42 C.F.R. § 405.904(a)(2).
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And importantly, the relationship between Alcresta and these Medicare beneficiaries is not
structurally adverse, as was the unique relationship between the Council and its partner hospitals
in Council for Urological Interests. Conversely, “Relizorb users can present and exhaust
[payment] claims” through the Medicare Act, and, in doing so, “their interests align with those of
Alcresta.” Alcresta Therapeutics, Inc. v. Azar, 755 F. App’x 1, 7 (D.C. Cir. 2018) (Katsas, J.,
dissenting). In this very case, for example, Mr. Henry stands as a co-plaintiff with Alcresta
challenging the adequacy of the payment determination for Relizorb as a Medicare beneficiary.
See Compl. ¶ 53. Mr. Henry’s presence in this case directly undercuts the argument that no party
exists to raise a reimbursement challenge for Relizorb through the Medicare Act—Mr. Henry has
already done just that. Consequently, Alcresta is more closely analogous to the chiropractic
association in American Chiropractic, which could rely on Medicare beneficiaries to assert
Medicare claims on its behalf and could not, therefore, circumvent the channeling requirements of
the Medicare Act. See Am. Chiropractic Ass’n, 431 F.3d at 814–15. For these reasons, the Court
concludes that the Illinois Council exception does not apply to Alcresta and, therefore, Alcresta
may not assert its Medicare claims under 28 U.S.C. § 1331.
2. Mr. Henry
Finally, the Court considers whether Mr. Henry may rely upon the Illinois Council
exception and bring his Medicare claims under 28 U.S.C. § 1331. For the reasons below, the Court
concludes that the Illinois Council exception is also inapplicable to Mr. Henry. Consequently, he
may not assert his Medicare claims under § 1331.
To begin, Mr. Henry did attempt to channel his Relizorb payment determination claim
through the administrative appeals process. In October 2019, Mr. Henry received an initial
payment determination for his Relizorb cartridges from a Medicare contractor. See Compl. ¶ 54.
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Dissatisfied with that contractor’s payment determination, Mr. Henry requested a
“redetermination” from that same contractor. See Compl. ¶ 56; 42 U.S.C. § 1395ff(a)(3)(A). After
receiving another negative result, Mr. Henry requested reconsideration of the contractor’s decision
by a qualified independent contractor (“QIC”). See Compl. ¶ 58. The QIC, however, dismissed
this request for reconsideration on procedural grounds, concluding that under 42 C.F.R.
§ 405.926(c), the contractor’s payment determination for Relizorb did not constitute an “initial
determination” subject to appeal. See Compl. ¶ 58; AR at 69. Mr. Henry then appealed the QIC’s
dismissal order to an HHS ALJ, see Compl. ¶ 59, but on March 30, 2020, the ALJ upheld the
QIC’s determination that Mr. Henry’s reimbursement claim was not an “initial determination”
subject to review, see AR at 2–4.
At this point in the Medicare appeals process, an aggrieved beneficiary can generally
appeal an adverse order from an ALJ to the Medicare Appeals Council, the final layer of agency
review. See 42 C.F.R. § 405.1130. The Medicare Act would then permit judicial review of that
final decision from the Medicare Appeals Council. See id.; 42 U.S.C. § 1395ff(b)(1)(A). Here,
however, Mr. Henry argues that the ALJ’s March 30, 2020 dismissal order precluded him from
reaching the Medicare Appeals Council. Instead, he contends that under 42 C.F.R. § 405.1054(b),
an ALJ’s “dismissal of a request for review of a QIC dismissal of a request for reconsideration is
binding and not subject to further review” by the Medicare Appeals Council. See Pls.’ Opp’n at
12–14. On these grounds, Mr. Henry maintains that following the ALJ’s March 30, 2020 dismissal
order, see AR at 2, he had “no further avenue of administrative proceedings available” and his
“only option to obtain further review of his claim was to bring an action before this court” under
federal question jurisdiction, Pls.’ Opp’n at 13.
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On its face, the “binding” effect of the ALJ’s March 30, 2020 dismissal order might seem
like an adequate trigger for the Illinois Council exception permitting federal question jurisdiction.
There are two complicating factors, however, that impede Mr. Henry’s jurisdictional argument.
First, the parties now agree that the ALJ’s March 30, 2020 dismissal order was erroneous. Citing
to 42 C.F.R. § 405.924(b)(11), the Secretary concedes in his briefs before the Court that Mr. Henry
did, in fact, “receive[] an initial determination on a specific Medicare claim,” and that “the agency
adjudicators improperly dismissed [his] administrative appeal” under 42 C.F.R. § 405.926(c).
Gov’t Mot. at 22, 24.
This post hoc admission of error from the government creates something of a legal
conundrum. As described above, Mr. Henry claims that federal question jurisdiction is necessary
because the ALJ’s March 30, 2020 procedural dismissal precluded him from obtaining a final
agency action that could have triggered judicial review through the Medicare Act. See 42 C.F.R.
§ 405.1054(b). But now, the parties before the Court agree that this should not have been the case.
Instead, the parties agree that Mr. Henry did receive an “initial determination” on his Relizorb
payment claim, properly subject to administrative appeals and ultimately judicial review through
the Medicare Act following a final agency decision by the Secretary. See 42 U.S.C.
§ 1395ff(b)(1)(A); 42 C.F.R. § 405.904(a)(2). Unsurprisingly, Mr. Henry provides no authority
demonstrating the applicability of Illinois Council in a case where the “roadblock” to an otherwise
accessible administrative channel through the Medicare Act was an agency decision that all parties
agree was erroneous.
There is also a second factor that impacts Mr. Henry’s jurisdictional argument. Mr. Henry
argues that the ALJ’s March 30, 2020 dismissal order left him “[w]ith no further avenue of
administrative proceedings available,” such that his “only option to obtain further review of his
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claim was to bring an action before this court” under § 1331. Pls.’ Opp’n at 13. But upon a closer
review of the administrative record, this is not clearly the case. In her March 30, 2020 order, the
ALJ dismissed Mr. Henry’s “request for review of a QIC dismissal of a request for
reconsideration.” 42 C.F.R. § 405.1054(b); see also AR at 4. Under § 405.1054(b) of the Medicare
regulations, such an order “is binding and not subject to further review unless it is vacated by the
ALJ or attorney adjudicator under § 405.1052(e).” 42 C.F.R. § 405.1054(b) (emphasis added).
To that end, the agency notified Mr. Henry on March 30, 2020, that he could request vacatur from
the ALJ, and if “good and sufficient cause is established, the adjudicator may vacate the dismissal.”
AR at 2. Mr. Henry does not address whether he requested that the ALJ vacate her March 30,
2020 order, and there is nothing in the administrative record to suggest that he ever availed himself
of this option.
Considering these unique factors, the Court does not find the Medicare Act’s channeling
requirement “would result in ‘complete preclusion of judicial review’” for Mr. Henry’s Relizorb
payment claim. Calif. Clinical Lab. Ass’n v. Sec’y of Health & Human Servs., 104 F. Supp. 3d
66, 81 (D.D.C. 2015) (Jackson, J.) (quoting Illinois Council, 529 U.S. at23). First, Mr. Henry now
has an administrative channel through which he may challenge the agency’s reimbursement
determination for Relizorb. See 42 U.S.C. § 1395ff(b)(1)(A); 42 C.F.R. § 405.904(a)(2). As a
Medicare beneficiary, Mr. Henry can challenge the Relizorb coverage determination up to the
Medicare Appeals Council and then “seek[] judicial review under section 1395ff(b)(1)(A) after
the Secretary has rendered a final decision with respect to the initial coverage determination.”
Calif. Clinical Lab. Ass’n, 104 F. Supp. 3d at 81. The practical roadblock that previously stalled
this administrative channel was an erroneous determination from an HHS ALJ that the Relizorb
payment determination that Mr. Henry challenged was not an “initial determination” subject to
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further appeal under the Medicare Act. See AR at 4. The Secretary now acknowledges, however,
that Mr. Henry’s Relizorb coverage claim does, in fact, challenge an “initial determination” from
the agency and, therefore, may proceed through the administrative appeals process. See Gov’t
Mot. at 22 (citing 42 C.F.R. § 405.926). While the administrative errors in Mr. Henry’s case have
caused unfortunate delay, such added “inconvenience or cost in an isolated, particular case” does
not trigger the Illinois Council exception, particularly where the Secretary concedes that the
payment claim in question can be channeled through the Medicare Act. Council for Urological
Interests, 668 F.3d at 708. 2
Furthermore, the Court disagrees with Mr. Henry’s assertion that following the ALJ’s
March 30, 2020 dismissal order, he had “no further avenue of administrative proceedings
available” and his “only option to obtain further review of his claim was to bring an action before
this court” under § 1331. Pls.’ Opp’n at 13. To support this proposition, Mr. Henry relies on 42
C.F.R. § 405.1054(b), which provides that such an ALJ order “is binding and not subject to further
review.” See Pls.’ Opp’n at 13. But, as explained above, § 405.1054(b) goes on to state that such
an administrative order “is binding and not subject to further review unless it is vacated by the ALJ
or attorney adjudicator under § 405.1052(e).” 42 C.F.R. § 405.1054(b)(emphasis added). Mr.
Henry does not address this administrative provision for vacatur, but the Court finds it relevant to
his jurisdictional argument under Illinois Council.
The administrative record does not show that Mr. Henry ever requested vacatur of the
March 30, 2020 dismissal order, even though the agency notified Mr. Henry that he could “request
that the adjudicator who issued the dismissal vacate the dismissal by sending a letter explaining
2
Going forward, the Court anticipates that agency adjudicators will adhere to the Secretary’s concession in
this case that the payment determination made for Mr. Henry’s Relizorb cartridges was an “initial
determination” subject to further agency appeal. See Gov’t Mot. at 22 (citing 42 C.F.R. § 405.926).
21
why . . . the dismissal should be vacated.” AR at 2. Moreover, the Medicare regulations permit
an ALJ to “vacate his or her dismissal of a request for hearing or review within 180 calendar days
of the date of the notice of dismissal” if “good and sufficient cause is established.” 42 C.F.R.
§ 405.1052(e). It is significant that Mr. Henry did not avail himself of the opportunity to vacate
the ALJ’s March 30, 2020 order. The parties now agree that the ALJ’s order was erroneous. See
Gov’t Mot. at 22. If Mr. Henry had established “good and sufficient cause” for the ALJ to vacate
that erroneous order during his administrative appeal, Mr. Henry would not have been bound by
42 C.F.R. § 405.1054(b), as he now claims. Instead of resorting to § 1331 for jurisdiction, Mr.
Henry could have continued to pursue his Relizorb payment claim through a final decision by the
Medicare Appeals Council, ultimately subject to judicial review under the Medicare Act itself.
See 42 U.S.C. § 1395ff(b)(1)(A); Pls.’ Opp’n at 11. Mr. Henry’s failure to pursue this
administrative channel places his case even further outside the contours of the Illinois Council
exception.
For these reasons, the Court concludes that the Illinois Council exception does not apply
to Mr. Henry’s Medicare claims challenging the agency’s payment determination for Relizorb.
Consequently, Mr. Henry may not pursue those claims under traditional federal question
jurisdiction. See 28 U.S.C. § 1331; Am. Hosp. Ass’n, 895 F.3d at 825.
IV. CONCLUSION
For the reasons set forth in this Memorandum Opinion, the Court concludes that it lacks
subject-matter jurisdiction over Plaintiffs’ Medicare claims. Accordingly, it will GRANT the
Secretary’s motion and DISMISS Plaintiffs’ claims WITHOUT PREJUDICE. Because this
Court lack’s subject-matter jurisdiction, it will also DENY Plaintiffs’ motion for summary
judgment WITHOUT PREJUDICE.
An appropriate Order accompanies this Memorandum Opinion.
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Dated: February 8, 2021
/s/
COLLEEN KOLLAR-KOTELLY
United States District Judge
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