Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-02888/USCOURTS-cand-3_07-cv-02888-5/pdf.json

Nature of Suit Code: 151
Nature of Suit: Overpayments under the Medicare Act
Cause of Action: 28:2345 Medicare Recovery

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SANTA CRUZ COUNTY,

 Plaintiff,

 v.

MICHAEL O. LEAVITT,

Defendant. /

No. C07-02888 MJJ

ORDER GRANTING DEFENDANT’S

MOTION TO DISMISS

INTRODUCTION

Before the Court is Defendant Michael O. Leavitt’s (“Defendant”) Motion To Dismiss. 

(Docket No. 40.) For the following reasons, the Court GRANTS Defendant’s Motion. The Court

DISMISSES Plaintiffs’ statutory claims (the fifth, sixth, and seventh causes of action) for lack of

subject matter jurisdiction under 42 U.S.C. § 1395w-4(i)(1)(D). The Court DISMISSES Plaintiffs’

Fifth Amendment due process and equal protection claims (the first, second, third and fourth causes

of action) for failure to state a claim because the named Plaintiffs, which are all political

subdivisions of the State of California, do not qualify as “persons” within the meaning of the Fifth

Amendment. Finally, the Court DISMISSES WITH LEAVE TO AMEND Plaintiffs’ unlawful

delegation claim (the eighth cause of action) because Plaintiffs have not adequately pleaded the

claim in a manner that demonstrates it has a constitutional basis that might confer subject matter

jurisdiction on this Court.

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FACTUAL BACKGROUND

Plaintiffs, several California counties that provide Part B Medicare services, contend that

changing demographics have resulted in relative cost changes that meet or exceed the regulatory

thresholds for modifying “fee schedule areas” or “localities” established by Medicare in 1996. The

fee schedule controlling payments to physicians providing Part B Medicare services is determined

by a formula set forth in 42 U.S.C. § 1395w-4. The formula consists of three core components

calculated together in a multi-step process. One of these core components is the “geographic

adjustment factor”, which takes into account the variance in costs for doctors working in different

parts of the country. A geographic adjustment factor is established for every “fee schedule area” in

the United States on the basis of the relative costs of practicing medicine, the relative costs of

malpractice insurance, and the relative value of physician work effort in the different fee schedule

areas. The term “fee schedule area” is defined as “a locality” used “for purposes of computing

payment amounts for physicians’ services”, under the payment regime that preceded the present fee

schedule regime. 42 U.S.C. § 1395w-4(j)(2).

Plaintiffs contend that Medicare has refused to implement its own policy to revise the

affected localities and redraw the “fee schedule areas” to reflect the true economic costs of the

services provided by Plaintiffs. Plaintiffs’ putative class action complaint asserts eight causes of

action challenging Defendant’s determination and application of the fee schedule areas. Plaintiffs

seek declaratory and injunctive relief, as well as more than $2.4 billion in compensation for

underpayments under Part B Medicare reimbursement.

Plaintiffs’ complaint asserts eight causes of action. The first, second, third and fourth causes

of actions assert various equal protection and due process claims grounded in the Fifth Amendment. 

The fifth, sixth and seventh causes of action assert statutory claims grounded in the Administrative

Procedure Act and the Medicare Act. The eighth cause of action asserts that Medicare has

unlawfully delegated its duty to reconfigure Part B payment localities to state medical associations. 

Defendant now moves to dismiss Plaintiff’s claims on Rule 12(b)(1) and 12(b)(6) grounds.

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LEGAL STANDARD

A. Rule 12(b)(1).

Rule 12(b)(1) authorizes a party to move to dismiss a claim for lack of subject matter

jurisdiction. Federal courts are courts of limited jurisdiction; thus, the Court presumes lack of

jurisdiction, and the party seeking to invoke the court’s jurisdiction bears the burden of proving that

subject matter jurisdiction exists. See Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377

(1994). A party challenging the court's jurisdiction under Rule 12(b)(1) may do so by raising either

a facial attack or a factual attack. See White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). 

A facial attack is one where “the challenger asserts that the allegations contained in a

complaint are insufficient on their face to invoke federal jurisdiction.” Safe Air for Everyone v.

Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In evaluating a facial attack to jurisdiction, the Court

must accept the factual allegations in plaintiff's complaint as true. See Miranda v. Reno, 238 F.3d

1156, 1157 n.1 (9th Cir. 2001). For a factual attack, in contrast, the Court may consider extrinsic

evidence. See Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987). Further, the court does

not have to assume the truthfulness of the allegations, and may resolve any factual disputes. See

White, 227 F.3d at 1242. Thus, “[o]nce the moving party has converted the motion to dismiss into a

factual motion by presenting affidavits or evidence properly before the court, the party opposing the

motion must furnish affidavits or other evidence necessary to satisfy its burden of establishing

subject matter jurisdiction.” Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n.2 (9th Cir.

2003). 

 In the Ninth Circuit, “[j]urisdictional dismissals in cases premised on federal-question

jurisdiction are exceptional, and must satisfy the requirements specific in Bell v. Hood, 327 U.S. 678

[] (1946).” Sun Valley Gas., Inc. v. Ernst Enters., 711 F.2d 138, 140 (9th Cir. 1983); see Safe Air for

Everyone, 373 F.3d at 1039. The Bell standard provides that jurisdictional dismissals are warranted

“where the alleged claim under the [C]onstitution or federal statute clearly appears to be immaterial

and made solely for the purpose of obtaining federal jurisdiction or where such a claim is wholly

insubstantial and frivolous.” 327 U.S. at 682-83. Additionally, the Ninth Circuit has admonished

that a “[j]urisdictional finding of genuinely disputed facts is inappropriate when ‘the jurisdictional

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issue and substantive issues are so intertwined that the question of jurisdiction is dependent on the

resolution of factual issues going to the merits’ of an action.” Sun Valley, 711 F.2d at 139. The

jurisdictional issue and the substantive issues are intertwined where “a statute provides the basis for

both the subject matter jurisdiction of the federal court and the plaintiff’s substantive claim for

relief.” Safe Air for Everyone, 373 F.3d at 1039 (quoting Sun Valley, 711 F.2d at 139). 

B. Rule 12(b)(6).

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal

sufficiency of a claim. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Because the focus of a

Rule 12(b)(6) motion is on the legal sufficiency, rather than the substantive merits of a claim, the

Court ordinarily limits its review to the face of the complaint. See Van Buskirk v. Cable News

Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002). In considering a Rule 12(b)(6) motion, the Court

accepts the plaintiff’s material allegations in the complaint as true and construes them in the light

most favorable to the plaintiff. See Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). 

Generally, dismissal is proper only when the plaintiff has failed to assert a cognizable legal theory or

failed to allege sufficient facts under a cognizable legal theory. See SmileCare Dental Group v.

Delta Dental Plan of Cal., Inc., 88 F.3d 780, 782 (9th Cir. 1996); Balisteri v. Pacifica Police Dep’t,

901 F.2d 696, 699 (9th Cir. 1988); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th

Cir. 1984). In pleading sufficient facts, however, a plaintiff must suggest his or her right to relief is

more than merely conceivable, but plausible on its face. See Bell Atlantic Corp. v. Twombly, 127

S.Ct. 1955, 1974 (2007).

ANALYSIS

I. Plaintiffs’ Statutory Claims Under The APA And The Medicare Act Must Be Dismissed

For Lack Of Subject Matter Jurisdiction.

As a threshold matter, Defendant contends that this Court lacks subject matter jurisdiction

over Plaintiffs’ statutory claims brought under the APA and the Medicare Act because Congress has

precluded judicial review of the configuration of fee schedule areas. The central dispute between the

parties is whether the configuration of fee schedule areas, the agency action challenged by Plaintiffs

here, falls within the scope of 42 U.S.C. § 1395w-4(i)(1)(D), which precludes any judicial review of

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“the establishment of geographic adjustment factors.” Defendant contends that the configuration of

fee schedule areas is a sub-component of establishing geographic adjustment factors, and therefore is

outside the scope of judicial review pursuant to 42 U.S.C. § 1395w-4(i)(1)(D). Plaintiffs disagree,

and contend that because the configuration of fee schedule areas is not expressly enumerated in so

many words in 42 U.S.C. § 1395w-4(i)(1), Congress did not intend to prevent judicial review of how

the Defendant determines and applies the fee schedule areas.

After carefully considering the parties’ arguments, the Court finds that 42 U.S.C. § 1395w4(i)(1)(D) has placed the configuration of fee schedule areas outside the scope of this Court’s

jurisdiction for purposes of Plaintiff’s statutory claims. 

A. 42 U.S.C. § 1395w-4(i)(1) Is A Clear Prohibition Upon Judicial Review.

The relevant statute, 42 U.S.C. § 1395w-4(i)(1), provides:

There shall be no administrative or judicial review under section

1395ff of this title or otherwise of--

(A) the determination of the adjusted historical payment basis (as

defined in subsection (a)(2)(D)(I) of this section),

(B) the determination of relative values and relative value units under

subsection (c) of this section, including adjustments under subsections

(c)(2)(F), (c)(2)(H), and (c)(2)(I) of this section and section 13515(b)

of the Omnibus Budget Reconciliation Act of 1993,

(C) the determination of conversion factors under subsection (d) of

this section, including without limitation a prospective redetermination

of the sustainable growth rates for any or all previous fiscal years,

(D) the establishment of geographic adjustment factors under

subsection (e) of this section, and

(E) the establishment of the system for the coding of physicians'

services under this section.

(Emphasis added.) 

As several courts have found, 42 U.S.C. § 1395w-4(i)(1) is a clear and comprehensive “no

review” provision that directly targets all three core components of the overall formula for Part B fee

reimbursement. See Am. Med. Ass’n v. Thompson, 2001 WL 619510 at *4 (N.D. Ill. May 29, 2001)

(“AMA”) (“the ‘no review’ provision in this statute is clear and comprehensive”); see also Am. Soc’y

of Dermatology v. Shalala, 962 F. Supp. 141, 145 (D.D.C. 1996); Am. Soc’y of Cataract and

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Refractive Surgery v. Thompson, 279 F.3d 447, 453 (7th Cir. 2002). 42 U.S.C. § 1395w-4 “could

not be a more clear prohibition of judicial review.” Soc’y of Dermatology, 962 F. Supp. at 146; see

also Painter v. Shalala, 97 F.3d 1351,1356 (10th Cir. 1996) (“the ‘no review provision’ clearly

indicates Congress’ intent to preclude administrative and judicial review”). 42 U.S.C. § 1395w4(i)(1) unequivocally precludes judicial review of any element listed in subsections (A) through (E),

including one of the core components of the fee schedule: “the establishment of geographic

adjustment factors.” 

B. The Sole Use For “Fee Schedule Areas” In The Statutory Scheme Is To Help

Establish And Calculate Geographic Adjustment Factors.

A review of the statutory scheme for Part B Medicare payments, located at 42 U.S.C. §

1395j-1395w-4, makes clear that the sole purpose for the existence of “fee schedule areas” is to

define local geographic areas that form the basis for calculating the “geographic adjustment factors”

that adjust Medicare reimbursement based on geographic variations in the costs and resources

required to furnish medical items and services. 

Payment for physician services under Part B is made according to a “fee schedule” published

once a year. 42 U.S.C. § 1395w-4. Under the fee schedule, the amount Medicare pays for a

particular type of physician’s service is not uniform throughout the country. Rather, payment rates

are adjusted for geographic variations in the costs and resources required to furnish medical items

and services. This adjustment is accomplished through use of a “geographic adjustment factor”, 42

U.S.C. § 1395w-4(e), which is determined according to a formula that includes a significant degree

of judgment on the part of the Secretary. A geographic adjustment factor is established for every

“fee schedule area” in the United States on the basis of the relative costs of practicing medicine, the

relative costs of malpractice insurance, and the relative value of physician work effort in the

different fee schedule areas. 42 U.S.C. §§ 1395w-4(e)(1)(a)(i), (ii) & (iii). The term “fee schedule

area” is defined in the statutory scheme as “a locality” used “ for purposes of computing payment

amounts for physicians’ services” under the payment regime that was replaced by the fee schedule. 

42 U.S.C. § 1395w-4(j)(2). 

It is evident from these statutory provisions that the establishment of fee schedule areas is a

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 The Court finds inapposite the fact that Congress directed the Secretary, on various timetables, to review and revise

other components of the geographic adjustment factor, but did not establish any time frame for reviewing or revising fee

schedule areas. This contrast does not render fee schedule areas independent of the “establishment of geographic adjustment

factors” that is barred from judicial review, and does not change the fact that fee schedule areas must be determined and

defined before the calculation of geographic adjustment factors can take place under 42 U.S.C. § 1395w-4(e).

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subcomponent, and necessary precursor, to the establishment of geographic adjustment factors. 

The boundaries of fee schedule areas must be drawn before any geographic adjustment factors can

be established under 42 U.S.C. § 1395w-4(e). Indeed, on the record before the Court, there does not

appear to be any purpose for “fee schedule areas” in the statutory scheme other than for establishing

geographic adjustment factors under 42 U.S.C. § 1395w-4(e). The only occasion to create or utilize

fee schedule areas springs from the need to use to them to establish geographic adjustment factors

that adjust Medicare reimbursement based on geographic variations in the costs and resources

required to furnish medical items and services. 

 Although Plaintiffs contend the “the establishment of fee schedule areas is ancillary to the

determination” of geographic adjustment factors (Opp. at 14:3-4), Plaintiffs fail to identify any other

role that fee schedule areas play in the statutory scheme. When asked at oral argument, Plaintiffs

were unable to identify any other role for “fee schedule areas” in the Medicare reimbursement

system other than as a basis for calculating geographic adjustment factors. Moreover, Plaintiffs’

ultimate purpose in challenging the boundaries of the fee schedule areas is clearly to force a

recalculation of the geographic adjustment factors that apply to the Plaintiffs’ provision of medical

services. If Plaintiffs are not really challenging the “geographic adjustment factors” used to

determine their Part B reimbursements then their lawsuit could not result in the relief that they seek,

because it is only from impact of the fee schedule areas upon the determination of the geographic

adjustment factors that the physician fee schedule could be changed in the manner that Plaintiffs

seek. The Court is not persuaded by Plaintiffs’ contention that the establishment of fee schedule

areas is an agency action that somehow has significance independent of the establishment of

geographic adjustment factors.1

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C. Because The Sole Purpose Of Configuring Fee Schedule Areas Is For Purposes

Of Establishing Geographic Adjustment Factors, 42 U.S.C. § 1395w-4(i)(1)(D)

Precludes Judicial Review Of How The Boundaries Are Drawn.

Given that the sole purpose for defining the boundaries of fee schedule areas in the statutory

scheme is to aid the Secretary’s establishment of geographic adjustment factors, the Court finds that

42 U.S.C. § 1395w-4(i)(1)(D) precludes judicial review, in connection with Plaintiffs’ statutory

claims, of how the fee schedule area boundaries are drawn.

Consistent with other courts that have considered judicial challenges to components of the

fee schedule formula, this Court finds that it cannot read 42 U.S.C. § 1395w-4(i)(1) to allow litigants

to challenge specific items that are “integral to and essential components of the congressionalprotected determinations” because this would frustrate the congressional mandate and defeat the

Secretary’s ability to make the protected determination itself. See Am. Soc’y of Anesthesiologists v.

Shalala, 90 F. Supp. 2d 973, 976 (N.D. Ill. 2000); Dermatology, 962 F. Supp. at 145-46; Cataract,

279 F.3d at 449. “It would not make much sense for Congress to preclude review of the three main

components of the statutory formula but then to allow review of challenges to the various subcomponents of that formula.” AMA, 2001 WL 619510 at *4.

 Here, because defining the boundaries of fee schedule areas has no function beyond aiding

in the geographic factor calculation, it would strain common sense to say that the fee schedule areas

are not a part of the determination of the geographic conversion factor that has been placed outside

the scope of judicial review. See AMA, 2001 WL 619510 at *4; Painter, 97 F.3d 1351 at 1356. 

Plaintiffs’ reliance on the doctrine of expressio unis est exclusio alterius is misplaced in this context,

given that fee schedule areas are a necessary component of an item expressly listed in the “no

review” provision. Courts have appropriately declined to carve out, for judicial review, individual

pieces of the three core components expressly enumerated in the “no review” clauses of 42 U.S.C. §

1395w-4(i)(1). See Cataract, 279 F.3d at 452-53 (finding no judicial review available for transition

formula under 42 U.S.C. § 1395w-4(i)(1)(B) where formula was “an integral part of the relative

value determination”); AMA, 2001 WL 61956 at *3-5 (finding no judicial review available for

calculation that affects conversion factor rendered unreviewable by 42 U.S.C. § 1395w-4(i)(1)(C));

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 The instant case is unlike Furlong v. Shalala, 1996 WL 393526 (S.D.N.Y. July 12, 1996), to which Plaintiff cites,

because the configuration of fee schedule areas cannot be characterized as “ancillary” to the establishment of geographic

adjustment factors, given that they must be configured before geographic adjustment factors can be established. The plaintiffs

in Furlong were challenging a policy that was utilized after the calculation of the relevant core component of the Part B fee

schedule. It was therefore more reasonable to argue in Furlong that the policy at issue was not part of the “determination

of” or “establishment of” that core component.

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Anesthesiologists, 90 F. Supp. at 974-76 (finding no judicial review available for “individual

strands” of the Secretary’s determinations of relative value units protected under 42 U.S.C. §

1395w-4(i)(1)(B)). Here, to allow Plaintiffs to attack the boundaries of the “fee schedule areas” by

means of claims brought under the APA or the Medicare Act would undermine the Secretary’s

ability to make the congressionally-protected determination, under 42 U.S.C. § 1395w-4(i)(1)(D), as

to geographic adjustment factors. Accord Anesthesiologists, 90 F. Supp. 2d at 976.

In this Court’s view, the wording of the no review clause found at 42 U.S.C. § 1395w4(i)(1)(D) is even broader than the no-review clauses at issue in Cataract, AMA and

Anesthesiologists. Whereas those clauses precluded judicial review of “the determination of relative

values and relative value units” and “the determination of conversion factors” , the no-review clause

at issue here prevents review of “the establishment of geographic adjustment factors.” Compare 42

U.S.C. §§ 1395w-4(i)(1)(B) & (C) with 42 U.S.C. § 1395w-4(i)(1)(D). The word “establishment” is

a broader term that this Court reads to encompass not only the particular formulas used to calculate

the geographic adjustment factors, but the establishment of particular geographic regions (fee

schedule areas) across which the geographic adjustment factors are to be applied.2

Contrary to Plaintiffs’ contention, the mere fact that “fee schedule areas” are formally

defined in subsection (j) of U.S.C. § 1395w-4, rather than in subsection (e) which describes how

geographic adjustment factors are to be determined, does not lend support to Plaintiffs’ position that

the prohibition upon judicial review of “the establishment of geographic adjustment factors under

subsection (e) of this section” (42 U.S.C. § 1395w-4(i)(1)(D)) cannot extend to fee schedule areas. 

The fee schedule areas are incorporated into subsection (e) for purposes of determining geographic

adjustment factors and have no other purpose in the statutory scheme. Cf. AMA, 2001 WL 619510

at *4 (“The mere fact that the SGR calculation is set forth in a separate subsection does not prove

much. Although the details of the SGR calculation are not set out in [the subsection directly

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 The House language’s cross-reference to “subsection (c)(3)(B)” appears to include a typographical error, given

that subsection (c)(3)(B) of the House draft referred to anesthesia services and bore no relation to fee schedule areas. 

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referenced by the no-review clause], the SGR calculation is incorporated into that subsection.”).

D. The Legislative History Does Not Evidence An Intent By Congress To Permit

Judicial Review Of The Boundaries Of Fee Schedule Areas.

In support of their narrow reading of the “no review” provision, Plaintiffs contend that the

legislative history of 42 U.S.C. § 1395w-4(i)(1) demonstrates that Congress intended to allow

judicial review of the boundaries of fee schedule areas. The Court finds this argument unpersuasive. 

 As an initial matter, the no-review provision is sufficiently clear in its directive that the Court need

not resort to legislative history to interpret it. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105,

119 (2001). But in any event, the Court disagrees with Plaintiffs’ reading of the legislative record.

The initial House draft of the Omnibus Budget Reconciliation Act of 1989, which contained

the statutory provision now found at 42 U.S.C. § 1395w-4(i)(1), expressly listed “the selection of fee

schedule areas under subsection (c)(3)(B)” as one of the enumerated items not subject to judicial

review. 135 Cong. Rec. H5984, H6023 (daily ed. Sept. 27, 1989). In contrast, the Senate version

did not contain a similarly-worded prohibition. 135 Cong. Rec. S13911-04, S13928-29 (daily ed.

Oct. 24, 1989). The final bill, as enacted, did not include the express prohibition on “the selection of

fee schedule areas under subsection (c)(3)(B)” originally contained in the House draft. Plaintiffs

contend that this legislative record indicates that Congress contemplated shielding fee schedule areas

from judicial review, but ultimately decided to allow them to be subject to judicial scrutiny. Cf.

Russello v. United States, 464 U.S. 16, 23-24 (1983) (“Where Congress includes limiting language

in an earlier version of a bill, but deletes it prior to enactment, it may be presumed that the limitation

was not intended.”)

The Court finds the inference regarding Congressional intent advanced by Plaintiffs is

unwarranted. The specific reference to “the selection of fee schedule areas under subsection

(c)(3)(B)” found in the House draft appears to have been a cross-reference to another provision in

the House draft, found at subsection (c)(3)(C),3

 that required that fee schedule areas be redrawn

according to one of two new methods to be chosen by the Secretary. 135 Cong. Rec. H5984, H6022

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 At oral argument, Plaintiffs cited Bedford County Memorial Hospital v. HHS, 769 F.2d 1017 (4th Cir. 1985) in

support of their contention that at least one theory of liability in Plaintiffs’ statutory claims might survive even if 42 U.S.C.

§ 1395w-4(i)(1)(D) precludes judicial review of the boundaries of fee schedule areas. Having reviewed Bedford, the Court

finds that it lends no support to Plaintiffs’ contention. Bedford did not involve a statute barring judicial review and that court

did not address any issues involving non-reviewability.

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 “Construing a statute to preclude constitutional review would ‘raise serious questions concerning its

constitutionality,’and therefore, whenever possible, statutes should be interpreted as permitting such review.” U.S. v.

Emerson, 846 F.2d 541, 544 (9th Cir. 1988) (quoting Johnson v. Robison, 415 U.S. 351, 366 (1974)).

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(daily ed. Sept. 27, 1989). The fact that this specific cross-reference did not make it into the final

bill is more plausibly explained by the fact that the cross-referenced requirement that the Secretary

redraw the boundaries also did not make it into the final bill, obviating any need for the specific

reference. 

Accordingly, the Court finds that 42 U.S.C. § 1395w-4(i)(1)(D) bars judicial review of

Plaintiffs’ fifth, sixth, and seventh causes of action, which are statutory claims premised on the APA

and the Medicare Act.4

II. Plaintiffs’ Due Process And Equal Protection Constitutional Claims Must Be Dismissed

Because Plaintiffs Are Not “Persons” Within The Meaning Of The Fifth Amendment.

Plaintiffs’ first, second, third and fourth causes of action assert due process and equal

protection claims grounded in the Fifth Amendment of the U.S. Constitution. The question of

whether Congress intended 42 U.S.C. § 1395w-4(i)(1)(D) to bar judicial review of such

constitutional challenges – and, if so, whether such a prohibition of judicial review would itself

violate due process or separation of powers principles – presents a thorny legal issue.5 However, at

least with respect to Plaintiffs’ due process and equal protection claims, the Court need not resolve

this jurisdictional issue because the claims must be dismissed for an independent reason. Plaintiffs,

as political subdivisions of a State, are unable to assert either due process or equal protection claims

against the federal government.

A. As Political Subdivisions Of A State, The Plaintiff Counties Are Not “Persons”

Entitled To Bring Fifth Amendment Due Process Claims.

Plaintiffs’ due process claims necessarily arise under the Fifth Amendment because they are

brought against the federal government. However, it has long been settled that States are not

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“persons” within the meaning of the Due Process clause of the Fifth Amendment. See South

Carolina v. Katzenbach, 383 U.S. 301, 323-24 (1966); Premo v. Martin, 119 F.3d 764, 771 (9th Cir.

1997); Ariz. State Dep’t of Pub. Welfare v. HEW, 449 F.2d 456, 478 (9th Cir. 1971). Federal courts

considering the issue have also found – based on reasoning that this Court finds persuasive – that a

political subdivision of a State also cannot constitute a “person” entitled to assert a due process

violation under the Fifth Amendment. For example, in City of Sault Ste. Marie v. Andrus, 532 F.

Supp. 157 (D.D.C. 1980), the court ruled that the plaintiff, a municipality, did not constitute a

“person” within the meaning of the Fifth Amendment and therefore could not assert a due process

challenge. See id. at 167. The court explained:

It is difficult to imagine how a municipality can be a “person” under

the Fifth Amendment if its progenitor, the state, cannot be. . . . [A]

state cannot confer a constitutional status upon a municipality which

the state does not itself enjoy, since the municipality performs the

same function as the state.

Id.

Similarly, in Creek v. Village of Westhaven, 1987 WL 5429(N.D. Ill. Jan. 15, 1987), the

court observed that “[t]he notion that a political body created by the state enjoys protection, by

virtue of the due process clause, from enforcement of the laws of its own or some other sovereign is

not supported by either the case law or the language of the clause.” Id. at *7 (holding that

municipality could not assert a due process violation); see also El Paso County Water Imp. Dist. No.

1 v. International Boundary and Water Comm'n, 701 F. Supp. 121, 123-24 (W.D. Tex. 1988)

(holding that El Paso County Water Improvement District Number 1, a political subdivision of the

State of Texas, could not assert a Fifth Amendment due process claim).

Plaintiffs’ arguments as to why California counties should be considered “persons” under the

Due Process clause of the Fifth Amendment are unconvincing. Plaintiffs offer no analysis of federal

constitutional law. Instead, they cite to the directive in Federal Rule of Civil Procedure 17(b) that

the “capacity to sue or be sued shall be determined by the law of the state in which the district court

is held . . . .” Plaintiffs then point to provisions in California state law that indicate that California

counties, although they are political subdivisions of the state, are considered quasi-corporations with

the power to sue and be sued under state law. See California Government Code §§ 23000 & 23004;

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Pacific Gas & Elec. Co. v. County of Stanislaus, 16 Cal. 4th 1143, 1150-59 (1997) (holding

California county could bring action under state and federal antitrust laws). However, in this

Court’s view, neither the Federal Rules of Civil Procedure, nor California state law, inform the

federal constitutional analysis of what entities qualify as a “person” for purposes of the Due Process

clause of the Fifth Amendment. Although Congress can of course permit the states to determine

whether their political subdivisions will constitute “persons” entitled to sue under federal statutes,

and the California state legislature can confer to its own political subdivisions the power to sue

under state statutes, neither the Federal Rules of Civil Procedure, nor the acts of the California state

legislature, can confer the federal constitutional status to sue as a “person” under the Due Process

clause of the Fifth Amendment. Taken to its logical end, Plaintiffs’ argument that this constitutional

determination depends on application of Federal Rule of Civil Procedure 17(b) would allow the

States themselves to declare themselves “persons” under the Fifth Amendment’s Due Process clause,

a result flatly inconsistent with the Supreme Court’s constitutional analysis. See South Carolina,

383 U.S. at 323-24.

The Court therefore finds that Plaintiffs, all California counties, do not constitute “persons”

under the Due Process clause of the Fifth Amendment. The Court accordingly must dismiss their

due process claims.

B. Because Equal Protection Limitations Apply To The Federal Government Only

Through Operation Of The Due Process Clause Of The Fifth Amendment,

Plaintiffs’ Equal Protection Claims Also Fail.

 Because Plaintiffs’ equal protection claims are also predicated on the Due Process clause of

the Fifth Amendment, they must be dismissed for the same reason. Constitutional limitations based

on equal protection grounds apply to the federal government only through the Due Process clause of

the Fifth Amendment. See Bolling v. Sharpe, 347 U.S. 497, 499-500 (1954); Weinberger v.

Wiesenfeld, 420 U.S. 636, 638 n.2 (1975). As the Ninth Circuit recently observed in a case where

equal protection claims were asserted against a federal agency:

Although the Bureau of Reclamation, being a Federal agency, is not

subject to the strictures of the Equal Protection Clause, [i]n Bolling v.

Sharpe, 347 U.S. 497, 74 S.Ct. 693, 98 L.Ed. 884 (1954), the Supreme

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Court indicated that the Fifth Amendment's Due Process Clause,

subjects the federal government to constitutional limitations that are

the equivalent of those imposed on the states by the Equal Protection

Clause of the Fourteenth Amendment. We therefore read [Plaintiff’s]

challenge as a Fifth Amendment claim. 

Consejo de Desarrollo Economico de Mexicali, A.C. v. U.S., 482 F.3d 1157, 1170 n.4 (9th Cir.

2007) (internal quotation marks and citations omitted).

As discussed above, however, the Plaintiffs here, as political subdivisions of a State, do not

qualify as “persons” within the meaning of the Due Process clause of the Fifth Amendment, and

therefore are unable to bring an equal protection challenge against the federal government.

Accordingly, the Court must dismiss Plaintiffs’ equal protection claims as well.

III. To The Extent Plaintiffs’ “Unlawful Delegation” Claim Sounds In Constitutional Law

And Might Survive 42 U.S.C. § 1395w-4(i)(1)(D), It Is Not Adequately Pleaded.

Plaintiffs’ eighth cause of action alleges that Medicare has unlawfully delegated its duty to

reconfigure the localities used to calculate Part B Medicare payments to state medical associations. 

(Complaint ¶¶ 360-367.) However, neither the precise legal theory that Plaintiffs contend renders

the delegation “unlawful”, nor whether that legal theory is premised on constitutional principles, are

clear from the Complaint, as currently pleaded. The eighth cause of action characterizes Medicare’s

allegedly unlawful delegation of authority as a violation of 5 U.S.C. § 706(2)(A) and (C), which are

provisions of the APA. (Complaint ¶ 362.) 5 U.S.C. § 706(2)(A) and (C) authorize a Court to “hold

unlawful and set aside agency action, findings, and conclusions found to be” either “

arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” (subsection

(A)) or “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right”

(subsection (C)). Noticeably absent is any reliance by Plaintiffs on 5 U.S.C. § 706(2)(B), which

authorize a Court to hold unlawful and set aside agency action that is “contrary to constitutional

right, power, privilege, or immunity.” Thus, as currently pleaded, Plaintiffs’ eighth cause of action

appears to assert solely a statutory basis for relief. However, some ambiguity in Plaintiffs’ pleading

of the eighth cause of action is created by paragraph 365 of the Complaint, which indirectly alludes

to, but does not directly plead, a constitutional underpinning for the eighth cause of action. 

Paragraph 365 reads:

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 Until the constitutional dimensions, if any, of Plaintiffs’ “unlawful delegation” allegations are clearer, the Court

will not attempt to resolve whether 42 U.S.C. § 1395w-4(i)(1)(D) would prevent judicial review of such a claim. The Court

also finds it premature to attempt to determine whether the presentation and exhaustion requirements of 42 U.S.C. §

1395ff(b)(1)(A) have been met with respect to any constitutional claim for “unlawful delegation” that Plaintiffs may be able

to plead.

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Medicare delegated its authority to initiate locality changes to the state

medical associations even though President George H. W. Bush

deemed a similar delegation by Congress in 1990 to be

unconstitutional. President Bush went so far as to direct Medicare not

to enforce a provision of the 1990 Act because it vested significant

authority to execute federal law to persons not appointed by the

President, and attempted to confer lawmaking power on individual

members of Congress. If Congress cannot constitutionally delegate

authority to state medical associations to initiate locality changes, then

Medicare certainly lacks the authority to do so.

For the reasons set forth above in Section I, to the extent Plaintiffs’ eighth cause of action for

“unlawful delegation” rests upon a statutory basis, the Court lacks subject matter jurisdiction to hear

it because of the no-review provisions of 42 U.S.C. § 1395w-4(i)(1)(D). To the extent Plaintiffs

intended to rely on a constitutional theory as a basis for their eighth cause of action, Plaintiffs have

not adequately alleged the existence and contours of the alleged constitutional violation upon which

their claim might be able to proceed. The Court will therefore dismiss Plaintiffs’ eighth cause of

action, but, unlike the other causes of action, finds it appropriate to grant Plaintiffs leave to amend

the “unlawful delegation” claim to clarify its legal basis and constitutional underpinnings, if any.6

 

Defendant’s other challenges to the “unlawful delegation” claim raise factual disputes that

fall outside the scope of a Rule 12 motion. Defendant contends that the Secretary has retained

ultimate decisional authority and merely “considered” private views, but Plaintiffs’ Complaint

contends that the Secretary went much farther than merely considering private views by

“delegat[ing] its authority to initiate locality changes to state medical associations (Complaint ¶ 362)

and “retain[ing] no authority, final or otherwise, over the action or inaction of those state medical

associations with respect to the locality issue” (Complaint ¶ 363). For purposes of this Rule 12

motion, the Court must regard Plaintiffs’ factual allegations as true, and cannot dismiss the unlawful

delegation claim on the grounds advanced by Defendant.

///

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 The Court also DENIES AS MOOT Plaintiffs’ Motion To Strike. (Docket No. 42.) The declaration of William

Hardwick, which Plaintiffs seek to strike, related only to Defendants’ assertion that certain of the Plaintiffs lacked standing

because they do not operate facilities that are suppliers participating in Medicare Part B. Defendant withdrew this challenge

at oral argument. The other materials that Plaintiffs seek to strike related to Rule 12 arguments that this Court need not reach

given the disposition of Plaintiffs’ claims described in this Order.

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CONCLUSION

For the foregoing reasons, the Court GRANTS Defendant’s Motion.7

 The Court

DISMISSES Plaintiffs’ statutory claims (the fifth, sixth, and seventh causes of action) for lack of

subject matter jurisdiction under 42 U.S.C. § 1395w-4(i)(1)(D). The Court DISMISSES Plaintiffs’

Fifth Amendment due process and equal protection claims (the first, second, third and fourth causes

of action) for failure to state a claim because the named Plaintiffs, which are all political

subdivisions of the State of California, do not qualify as “persons” within the meaning of the Fifth

Amendment. Finally, the Court DISMISSES WITH LEAVE TO AMEND Plaintiffs’ unlawful

delegation claim (the eighth cause of action) because Plaintiffs have not adequately pleaded the

claim in a manner that demonstrates it has a constitutional basis that might confer subject matter

jurisdiction on this Court. 

 Plaintiffs shall filed their amended complaint, if any, within twenty (20) days of entry of

this Order.

IT IS SO ORDERED.

Dated: March 11, 2008 

MARTIN J. JENKINS

UNITED STATES DISTRICT JUDGE

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