Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-11-05030/USCOURTS-caDC-11-05030-0/pdf.json

Parties Involved:
Council For Urological Interests
Appellant
Kathleen Sebelius
Appellee
United States of America
Appellee

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 14, 2011 Decided December 23, 2011 

No. 11-5030 

COUNCIL FOR UROLOGICAL INTERESTS, 

APPELLANT

v. 

KATHLEEN SEBELIUS, IN HER OFFICIAL CAPACITY AS 

SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN 

SERVICES, AND UNITED STATES OF AMERICA, 

APPELLEES

Appeal from the United States District Court 

for the District of Columbia 

(No. 1:09-cv-00546) 

Elizabeth Petrela Papez argued the cause for appellant. 

With her on the briefs were Thomas L. Mills and Michael T. 

Morley. 

Jeffrey Clair, Attorney, U.S. Department of Justice, 

argued the cause for appellee. With him on the brief were 

Tony West, Assistant Attorney General, Ronald C. Machen 

Jr., U.S. Attorney, and Michael S. Raab, Attorney. R. Craig 

Lawrence, Assistant U.S. Attorney, entered an appearance. 

USCA Case #11-5030 Document #1349423 Filed: 12/23/2011 Page 1 of 18
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Before: SENTELLE, Chief Judge, TATEL and BROWN, 

Circuit Judges. 

Opinion for the Court filed by Circuit Judge TATEL. 

 TATEL, Circuit Judge: Although the Medicare Act 

provides for judicial review of reimbursement decisions, it 

requires that claimants first exhaust their administrative 

remedies. In Shalala v. Illinois Council on Long Term Care, 

Inc., the Supreme Court recognized an exception to this 

requirement for cases where its application “would not lead to 

a channeling of review through the agency, but would mean 

no review at all.” 529 U.S. 1, 17 (2000). In this case, an 

association of doctor-owned equipment providers challenges 

regulations issued by the Secretary of Health and Human 

Services (HHS) that effectively prevent its members from 

obtaining Medicare reimbursement for their services. For the 

reasons set forth in this opinion, we conclude that under the 

particular circumstances of this case, the Illinois Council

exception applies and the association may invoke the district 

court’s general federal question jurisdiction without first 

seeking administrative review under the Medicare Act. 

I.

The HHS Secretary issued the challenged regulations 

under a statute known as the Stark law, 42 U.S.C. § 1395nn. 

Congress enacted that statute to address perceived 

overutilization of services by physicians who stood to profit 

by referring patients to facilities or entities in which they had 

a financial interest. United States ex rel. Kosenske v. Carlisle 

HMA, Inc., 554 F.3d 88, 95 (3d Cir. 2009). In its current form, 

the Stark law provides that if a physician has a financial 

relationship with an entity that “furnish[es]” certain 

“designated health services,” the physician “may not make a 

referral to the entity for the furnishing of designated health 

USCA Case #11-5030 Document #1349423 Filed: 12/23/2011 Page 2 of 18
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services for which payment otherwise may be made” under 

the Medicare Act, and the entity “may not present or cause to 

be presented a claim . . . or bill to any individual, third party 

payor, or other entity for designated health services furnished 

pursuant to” such a referral. 42 U.S.C. § 1395nn(a)(1). 

The Stark law directly affects the members of appellant 

Council for Urological Interests—physician-owned joint 

ventures formed to purchase specialized equipment for 

urologic laser surgery. These joint ventures typically operate 

“under arrangement” with hospitals, that is, under a contract 

in which the urologist-owned venture provides the laser 

equipment and related services, while the hospital provides 

space for the procedure and compensates the venture for the 

equipment and services provided. Although Medicare 

reimburses urologists directly for their professional services, 

it pays full “technical fees” for equipment and nonprofessional services only to hospitals. Appellant’s Br. 7. So 

in a typical joint venture arrangement, the hospital bills 

Medicare for the technical fee for each surgical procedure 

performed and then passes on a pre-negotiated portion of that 

fee to the joint venture on a per-procedure basis.

The Secretary initially approved these arrangements as 

consistent with the Stark law. In 2008, however, the Secretary 

reconsidered the issue and promulgated new regulations 

prohibiting most such arrangements. Under the 2008 

regulations, 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 a hospital. See 42 C.F.R. § 411.351 (defining an entity 

“furnishing [designated health services]” to include “the 

person or entity that has performed services that are billed as 

[designated health services]”); 42 U.S.C. § 1395nn(a)(1)(A) 

(prohibiting referrals by physicians who have a financial 

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relationship with the entity “furnishing” the designated health 

services). The regulations also prohibit per-procedure leases 

with physician-owned equipment suppliers. 42 C.F.R. 

§ 411.357(b)(4)(ii)(B). 

 

After the new regulations were issued but before they 

became effective, the Council filed suit in the United States 

District Court for the District of Columbia, invoking the 

court’s general federal question jurisdiction pursuant to 28 

U.S.C. § 1331, and alleging that the 2008 regulations 

exceeded the Secretary’s statutory authority. The government 

moved to dismiss pursuant to Federal Rule of Civil Procedure 

12(b)(1) for lack of subject matter jurisdiction, arguing that 

section 405(h) of the Social Security Act, incorporated into 

the Medicare Act through 42 U.S.C. § 1395ii, precluded 

federal question jurisdiction over the Council’s claims. Under 

section 405(h), “[n]o action against the United States, the 

[Secretary of Health and Human Services], or any officer or 

employee thereof shall be brought under section 1331 . . . of 

title 28 to recover on any claim arising under” the Medicare 

Act. 42 U.S.C. § 405(h); see also 42 U.S.C. § 1395ii. Instead, 

such claims must be “channeled” through the agency’s 

administrative procedures. Ill. Council, 529 U.S. at 12. After 

exhausting those procedures, the claimant can seek judicial 

review pursuant to the Medicare Act, which contains its own 

jurisdictional provision separate from section 1331’s grant of 

general federal question jurisdiction. See 42 U.S.C. 

§ 1395ff(a)(1)(C), (b), (d); 42 U.S.C. § 405(b), (g)–(h). 

 Responding to the government’s motion, the Council 

acknowledged that direct judicial review is normally 

unavailable for Medicare Act challenges, but claimed that it 

had no choice but to seek immediate judicial review pursuant 

to section 1331. Specifically, because only Medicare 

“providers” may seek administrative review of the 

USCA Case #11-5030 Document #1349423 Filed: 12/23/2011 Page 4 of 18
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reimbursement decision at issue in this case, and because 

neither the Council nor its members qualify as “providers,” 

the Council argued—and the government agreed—that it had 

no direct means of channeling its claims through the agency 

before seeking judicial review under the Medicare Act. 

Compl. ¶ 80. Thus barred from seeking Medicare Act review, 

the Council argued that section 405(h) could not likewise bar 

section 1331 jurisdiction; otherwise, the Council would have 

no judicial remedy at all. The district court disagreed. 

Although recognizing that the Council and its members 

lacked access to Medicare Act review, the court concluded 

that no exception to the channeling requirement applied 

because the hospitals with which Council members had 

contracted, as Medicare “providers,” could challenge the 2008 

regulation through the administrative process. See Council for 

Urological Interests v. Sebelius, 754 F. Supp. 2d 78, 83–88 

(D.D.C. 2010). Accordingly, the district court dismissed the 

complaint for lack of subject matter jurisdiction—a decision 

we now review de novo. Nat’l Air Traffic Controllers Ass’n v. 

Fed. Serv. Impasses Panel, 606 F.3d 780, 786 (D.C. Cir. 

2010) (“We review de novo the district court’s grant of a 

motion to dismiss for lack of subject matter jurisdiction.” 

(internal quotation marks omitted)). 

II.

The Supreme Court has long understood section 405(h) 

as a “channeling” requirement that “reaches beyond ordinary 

administrative law principles of ‘ripeness’ and ‘exhaustion of 

administrative remedies.’ ” Ill. Council, 529 U.S. at 12–13 

(citing Weinberger v. Salfi, 422 U.S. 749, 757 (1975)). 

Because section 405(h), as incorporated by section 1395ii, 

applies to any case in which the Medicare Act supplies “both 

the standing and the substantive basis” for the claim, it has the 

effect of “ ‘channeling’ . . . virtually all legal attacks through 

the agency.” Id. 

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That said, the Supreme Court has also held that section 

405(h)’s “channeling requirement” is not absolute. In Bowen 

v. Michigan Academy of Family Physicians, 476 U.S. 667 

(1986), the Court considered a challenge, brought under 

section 1331, to regulations governing the method for 

calculating benefits under Medicare Part B. Because at that 

time the Medicare Act provided no avenue, either 

administrative or judicial, for challenging the validity of Part 

B regulations, applying section 405(h) would have meant “no 

review at all of substantial statutory and constitutional 

challenges” to those regulations. Id. at 680. Proceeding from 

“the strong presumption that Congress intends judicial review 

of administrative action,” id. at 670, the Court found it 

“implausible to think [that Congress] intended that there be no

forum to adjudicate statutory and constitutional challenges to 

regulations promulgated by the Secretary,” id. at 678. 

Accordingly, finding no “clear and convincing evidence” to 

overcome the strong presumption favoring judicial review, id.

at 681 (internal quotation marks omitted), the Court rejected 

the government’s view that “whatever specific procedures 

[Congress] provided for judicial review of final action by the 

Secretary were exclusive,” id. at 679, and held the challenge 

to the Secretary’s regulations cognizable under section 1331, 

id. at 680. 

The Supreme Court fleshed out the scope of the Michigan 

Academy exception in Illinois Council. Emphasizing that 

section 405(h) is intended to postpone judicial review, not 

totally preclude it, 529 U.S. at 19, the Court read Michigan 

Academy as holding section 405(h) inapplicable to Medicare 

Act claims “where its application to a particular category of 

cases . . . would not lead to a channeling of review through 

the agency, but would mean no review at all.” Ill. Council, 

529 U.S. at 17. The Court cautioned, however, that a party 

may not circumvent the channeling requirement by showing 

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merely that “postponement [of judicial review] would mean 

added inconvenience or cost in an isolated, particular case.” 

Id. at 22. Rather, in determining whether the Illinois Council

exception to section 405(h) applies, “the question is whether, 

as applied generally to those covered by a particular statutory 

provision, hardship likely found in many cases turns what 

appears to be simply a channeling requirement into complete

preclusion of judicial review.” Id. at 22–23. 

This Circuit’s approach to the Illinois Council inquiry is 

best illustrated by American Chiropractic Association, Inc. v. 

Leavitt, 431 F.3d 812 (D.C. Cir. 2005). In that case, an 

association of chiropractors brought suit under section 1331 to 

challenge Medicare reimbursement regulations. In order to 

determine whether section 405(h) applied, and guided by the 

Supreme Court’s warning that mere inconvenience is no 

reason for invoking the Illinois Council exception, we 

carefully considered the various ways through which the 

association’s claim could be brought before the agency. 

Ultimately, because we determined that at least some 

chiropractors—though not all—could obtain administrative 

review of the challenged regulations, we found the Illinois 

Council exception inapplicable. Id. at 817–18. 

The case before us presents a somewhat different 

situation, one not clearly addressed by existing case law. 

Illinois Council and Michigan Academy make clear that 

section 405(h) is inapplicable where the Medicare Act offers 

no avenue for review of a particular category of statutory or 

constitutional claims. But here other parties—specifically, the 

hospitals with which the Council’s members had contracted—

could challenge the 2008 regulations through Medicare Act 

channels. American Chiropractic, in turn, suggests that 

section 405(h) applies so long as Medicare Act review of a 

claim is available to some, though perhaps not all, of a class 

USCA Case #11-5030 Document #1349423 Filed: 12/23/2011 Page 7 of 18
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of affected parties. But here, as the government 

acknowledges, a whole category of affected parties—that is, 

joint ventures providing laser surgery equipment and 

services—has no way to obtain review through Medicare Act 

channels. This case, then, presents the following question: 

How does section 405(h) apply when the Medicare Act 

provides an avenue for administrative and judicial review of a 

particular claim (the challenge to the 2008 regulations), but 

not by the category of affected parties who wish to bring it 

(the Council)? Before addressing that question, however, we 

must consider an antecedent matter, namely, the 

government’s argument that the failure of anything in the 

Medicare Act to provide administrative remedies for nonMedicare providers, such as the Council and its members, 

reflects congressional intent to limit the right of judicial 

review to Medicare providers, i.e., hospitals. 

III. 

 As directed by the Supreme Court in Michigan Academy, 

“[w]e begin with the strong presumption that Congress 

intends judicial review of administrative action” and that 

“judicial review of a final agency action by an aggrieved 

person will not be cut off unless there is persuasive reason to 

believe that such was the purpose of Congress.” Mich. Acad., 

476 U.S. at 670 (internal quotation marks omitted). To 

overcome this presumption, the government bears a “heavy 

burden.” Id. at 672 (internal quotation marks omitted). 

Pursuant to Block v. Community Nutrition Institute, the 

government may attempt to satisfy its burden in several ways: 

by pointing to “specific language or specific legislative 

history that is a reliable indicator of congressional intent”; by 

demonstrating “congressional acquiescence” to a 

“contemporaneous judicial construction barring review”; or 

by drawing “inferences of intent . . . from the statutory 

scheme as a whole,” such as when the statute provides a 

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“detailed mechanism for judicial consideration of particular 

issues at the behest of particular persons,” but not at the 

behest of others. 467 U.S. 340, 349 (1984). Seeking to 

overcome the presumption via the last route, the government 

argues that by prohibiting review of HHS decisions except as 

provided in the Medicare Act and by barring claims brought 

under section 1331, section 405(h) “unambiguously limits 

judicial review to those parties who can invoke Medicare’s 

administrative remedies”—that is, hospitals, not the Council 

or its members. Appellees’ Br. 43. We disagree. 

Critical to our analysis, the Supreme Court has 

understood section 405(h) as having only channeling force, 

not, as the government would have it, foreclosing force. See 

Ill. Council, 529 U.S. at 19 (characterizing section 405(h) as 

“a channeling requirement, not a foreclosure provision—of 

‘amount determinations’ or anything else,” and drawing a 

distinction “between a total preclusion of review and 

postponement of review” (emphasis added)); Mich. Acad., 

476 U.S. at 680 (finding no evidence of congressional intent 

to foreclose statutory and constitutional challenges to 

Medicare regulations). Indeed, in Michigan Academy, the 

Court rejected an implied preclusion argument very similar to 

the one the government makes here—that “by failing to 

authorize [review of Medicare Part B determinations] while 

simultaneously authorizing administrative and judicial review 

[of Part A determinations]” and by “expressly preclud[ing] all 

administrative or judicial review not otherwise provided in 

that statute,” the Medicare Act foreclosed review of the 

challenged regulation. 476 U.S. at 673. Invoking the strong 

presumption favoring judicial review, the Court declined to 

interpret the statute’s “total silence about review” of Part B 

regulations, coupled with section 405(h)’s jurisdictional bar, 

as an implied preclusion of judicial review. See Ill. Council, 

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529 U.S. at 16–17 (describing Michigan Academy); Mich. 

Acad., 476 U.S. at 675–76, 678–81. 

The government argues that this case differs from 

Michigan Academy where “limiting appeal rights to those 

conferred by Medicare’s remedial scheme would result in ‘no

forum to adjudicate statutory and constitutional challenges to 

regulations promulgated by the Secretary.’ ” Appellees’ Br. 

45 (quoting Mich. Acad., 476 U.S. at 678). According to the 

government, “[t]hat is not the case here. Hospitals, the parties 

directly affected by Stark law limitations on hospital 

reimbursement, indisputably have the right to challenge the 

pertinent regulations through Medicare’s jurisdictional 

scheme, thereby providing the administrative and judicial fora 

deemed lacking in Michigan Academy.” Appellees’ Br. 45. In 

support of its argument, the government relies on Block, in 

which the Supreme Court recognized that “when a statute 

provides a detailed mechanism for judicial consideration of 

particular issues at the behest of particular persons, judicial 

review of those issues at the behest of other persons may be 

found to be impliedly precluded.” 467 U.S. at 349. 

In our view, however, this case is different from Block. 

There, ordinary consumers possessing only a general interest 

in a reliable, low-cost supply of milk sought section 1331 

review of milk market orders regulating payments between 

dairy producers and processors, see id. at 344, 352 & n.3. 

Here, Council members, unlike the consumers in Block, are 

directly targeted by the regulations they challenge. The 2008 

regulations redefine the status of urologist-owned joint 

ventures, see 42 C.F.R. § 411.351 (providing a new definition 

of entities “furnishing DHS” that includes any “entity that has 

performed services that are billed as DHS”), in such a way 

that the joint ventures can no longer either receive referrals 

from their urologist-owners or bill for services furnished 

USCA Case #11-5030 Document #1349423 Filed: 12/23/2011 Page 10 of 18
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pursuant to such referrals, 42 U.S.C § 1395nn(a)(1). The 

regulations also bar physician-owned ventures from charging 

per procedure, while imposing no similar bar on the nonphysician-owned ventures with which Council members 

compete. See 42 C.F.R. § 411.357(b)(4)(ii)(B) (prohibiting 

per-unit charges “to the extent that such charges reflect 

services provided to patients referred by the lessor to the 

lessee”). That Council members are not “providers” who can 

bill Medicare and receive reimbursements directly hardly 

makes their interest in the 2008 regulations “tangential” or 

“indirect,” as the government argues. Appellees’ Br. 46–47. 

Quite to the contrary, because over seventy-five percent of 

patients who undergo urologic laser surgery are insured by 

Medicare, Appellant’s Br. 7, the regulations’ impact on 

urologist-owned joint ventures is not only direct, but 

substantial, a fact that distinguishes the ventures from the 

ordinary consumers who Block held were precluded from 

judicial review. 

 In Block, moreover, the statute at issue “contemplate[d] a 

cooperative venture among the Secretary [of Agriculture], 

handlers, and producers,” and nowhere provided for 

participation by consumers. 467 U.S. at 346. The milk market 

orders set minimum prices that handlers (dairy product 

processors) were required to pay to producers for milk 

products, id. at 341–42, and the statute provided a mechanism 

for handlers and producers, but not ordinary consumers, to 

participate in the adoption of market orders, to enter into 

agreements with each other and the Secretary, and to obtain 

administrative and judicial review of the Secretary’s orders, 

id. at 346. Here, the statute is not so exclusive. Although the 

Council and its members may not bill Medicare directly, they 

are free to participate in rulemakings, and the Act 

contemplates their participation in the Medicare system 

(although now, of course, the challenged regulations largely 

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forbid such participation). Indeed, under those regulations, 

Council members are deemed to “furnish[]” designated health 

services, 42 C.F.R. § 411.351, leaving little distinction 

between urologist-owned joint ventures and Medicare 

“suppliers” who have access to Medicare Act channels for 

administrative and judicial review, at least for some claims. 

See 42 U.S.C. § 1395x(d) (defining “supplier” to mean “a 

physician or other practitioner, a facility, or other entity . . . 

that furnishes items or services”). 

 True, the Supreme Court has described the Medicare 

Act’s review provisions as “precisely drawn.” United States v. 

Erika, Inc., 456 U.S. 201, 208 (1982). But the Court has 

found implied preclusion in the Medicare Act’s review 

scheme only where Congress’s failure to authorize review is 

“[c]onspicuous[]” and suggests “deliberate[] inten[t]” to 

foreclose judicial review. Compare id. at 208–11 (finding 

intent to preclude judicial review of amount determinations 

where the statute expressly authorized judicial review of 

eligibility determinations, but provided only for limited 

insurance carrier-review of amount determinations and 

“[c]onspicuously . . . fail[ed] to authorize further review” of 

those determinations, and where the legislative history 

“unambiguously support[ed] [this] reading of the statutory 

language”), with Mich. Acad., 476 U.S. at 675–76 (refusing to 

read Congress’s silence as intent to preclude review, despite 

the Medicare Act’s “carefully detail[ed]” review scheme). 

Particularly considering the Supreme Court’s characterization 

of section 405(h) as “a channeling requirement, not a 

foreclosure provision,” Ill. Council, 529 U.S. at 19, we see no 

“clear and convincing evidence,” Mich. Acad., 476 U.S. at 

671 (internal quotation marks omitted), in the statute’s 

language or structure indicating that Congress deliberately 

intended to completely bar non-providers from seeking 

review of regulations that target them directly. 

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In reaching this conclusion, we acknowledge that it may 

seem anomalous to require providers to go through 

administrative review channels while permitting nonproviders to seek immediate review in federal court. But that 

is a consequence of the fundamental principle lying at the 

heart of this case—that “judicial review of a final agency 

action by an aggrieved person will not be cut off unless there 

is persuasive reason to believe that such was the purpose of 

Congress.” Id. at 670 (internal quotation marks omitted). In 

any event, this “two-tiered system” of review is not as 

“nonsensical” as the government would have us believe, 

Appellees’ Br. 46–47. As the government itself points out, id.

at 33 n.6, a provider bringing a pure legal challenge to the 

validity of a regulation may invoke the Medicare Act’s 

provisions for expedited judicial review, in which case a 

provider may also obtain prompt access to the federal courts. 

See 42 U.S.C. § 1395ff(b)(2). That providers must take the 

extra step of presenting their claim to the agency for an initial 

determination is, in our view, insufficient to justify precluding 

entities who “furnish” services for purposes of the Medicare 

Act, see 42 C.F.R. § 411.351, from obtaining judicial review 

of regulations that directly and substantially affect them. 

IV. 

Having determined that the Medicare Act imposes no 

absolute bar to the Council’s challenge, we return to the issue 

identified at the outset—whether section 405(h)’s channeling 

requirement applies to the Council’s claims. 

We start from the premise that, as emphasized in 

American Chiropractic, 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. See Ill. 

Council, 529 U.S. at 23–24 (“[W]e do not hold that an 

USCA Case #11-5030 Document #1349423 Filed: 12/23/2011 Page 13 of 18
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individual party could circumvent § 1395ii’s channeling 

requirement simply because that party shows . . . added 

inconvenience or cost in an isolated, particular case. Rather, 

the question is whether, as applied generally to those covered 

by a particular statutory provision, hardship likely found in 

many cases turns what appears to be simply a channeling 

requirement into complete preclusion of judicial review.”); 

Am. Chiropractic, 431 F.3d at 817–18 (applying section 

405(h) to the association’s claims because some, though not 

all, of its members could access administrative review). The 

Council nowhere disagrees with this basic premise. Making 

clear that its “quarrel is not with administrative exhaustion by 

proxy,” Appellant’s Reply Br. 21, the Council concedes that 

there are some situations—like the one in American 

Chiropractic—in which a particular plaintiff is unable to 

exhaust its claims, but the channeling provision nonetheless 

applies because an adequate proxy could raise the plaintiff’s 

claims in its stead. In those situations, however, the Council 

insists that courts must have some assurance that the proxy’s 

interests align with the plaintiff’s, such that the proxy can be 

expected to bring and diligently pursue the plaintiff’s claims 

through Medicare Act channels. The Council proposes two 

possible means of assuring such an alignment of interests. 

First, courts could require a legal relationship between the 

plaintiff and the proxy that presupposes a strong alignment of 

interests, such as the relationship between an association, 

which generally has standing only to seek redress of its 

members’ injuries, and those very members, see Ill. Council, 

529 U.S. at 24, or the relationship between a patient who has 

assigned her claim to a physician and that very physician, cf. 

Am. Chiropractic, 431 F.3d at 817 (noting that a chiropractor 

could obtain review by becoming the patient’s assignee). 

Second, and apart from any legal relationship, courts could 

require a showing that the proxy “has adequate incentive to 

initiate and diligently pursue a timely administrative 

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proceeding on the claims the litigant wishes to raise in federal 

court.” Appellant’s Br. 29–30. According to the Council, 

neither condition exists here. 

 For its part, the government contends that our precedent 

requires no showing that a third party capable of exhausting 

the plaintiff’s claims has adequate incentive to do so or has 

any specific legal relationship to that plaintiff. According to 

the government, because “the Illinois Council exception turns 

solely on whether a claim can be heard, not whether a 

particular party can be heard,” Appellees’ Br. 23, our inquiry 

ends—and section 405(h) applies—once we determine that 

some party, somewhere, could bring the Council’s claims 

before HHS. As the government sees it, we need not, indeed 

may not, consider whether that party is likely to do so as a 

practical matter. 

Although we agree that the Illinois Council exception is 

primarily concerned with whether a particular claim can be 

heard through Medicare Act channels, we see nothing in the 

case law requiring us to disregard factors that speak to a 

potential proxy’s willingness and ability to pursue the 

plaintiff’s claim. To the contrary, the Illinois Council inquiry 

is fundamentally a practical one. The exception applies “not 

only when administrative regulations foreclose judicial 

review, but also when roadblocks practically cut off any 

avenue to federal court.” Am. Chiropractic, 431 F.3d at 816; 

see also Ill. Council, 529 U.S. at 21–22 (suggesting that 

section 405(h) does not apply in cases where “as applied 

generally to those covered by a particular statutory provision, 

hardship likely found in many cases” amounts to the 

“practical equivalent of a total denial of judicial review” 

(internal quotation marks omitted)). In cases where the only 

entities able to invoke Medicare Act review are highly 

unlikely to do so, their unwillingness to pursue a Medicare 

USCA Case #11-5030 Document #1349423 Filed: 12/23/2011 Page 15 of 18
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Act claim poses a serious “practical roadblock” to judicial 

review. 

 In this case, however, we have no need to determine 

precisely at what point a third party’s lack of incentive or 

misalignment of interests triggers the Illinois Council

exception. Wherever that point lies, we think it clear that 

given the particular circumstances of this case, the Illinois 

Council exception applies: invoking section 405(h) would 

result not merely in “added inconvenience or cost in an 

isolated, particular case,” but in the “complete preclusion of 

judicial review.” Ill. Council, 529 U.S. at 22–23. 

This conclusion flows from several unique characteristics 

of the hospitals’ relationship to the Council and to the 

challenged regulations. To begin with, the Council alleged in 

its complaint that the hospitals had no incentive to challenge 

the 2008 regulations. Compl. ¶ 82. Hospitals, the Council 

contended, “resent[ed] the notion of doctors having control 

over the purchase of medical equipment, which they view as a 

hospital prerogative,” id. ¶ 22, and the regulations presented 

an opportunity “for hospitals to reassert control over the 

procurement of lasers and other urological medical 

equipment,” id. ¶ 82. According to the Council, the 

regulations also allowed hospitals to purchase expensive laser 

equipment from urologist joint ventures at “fire-sale prices,” 

id. ¶ 75, while hospitals choosing not to acquire their own 

equipment could simply contract with non-urologist-owned 

ventures instead, thus suffering no material financial harm, id.

¶¶ 72, 82. Although the government points to allegations in 

the complaint that might indicate different incentives, such as 

the suggestion that only urologist-owned ventures have been 

willing to invest in new technology, see, e.g., Compl. ¶¶ 78–

79, it has failed to counter the Council’s allegations with, for 

instance, affidavits from hospitals attesting to their incentives 

USCA Case #11-5030 Document #1349423 Filed: 12/23/2011 Page 16 of 18
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or intent to pursue an administrative challenge. See Coal. for 

Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C. 

Cir. 2003) (noting that courts may consider materials outside 

the pleadings in ruling on a 12(b)(1) motion to dismiss for 

lack of subject matter jurisdiction). Taking the Council’s 

allegations as true and drawing all reasonable inferences in its 

favor, as we must at this stage, City of Harper Woods Emps.’ 

Retirement Sys. v. Olver, 589 F.3d 1292, 1298 (D.C. Cir. 

2009), we believe that the complaint demonstrates, at the very 

least, that hospitals have little incentive to pursue the 

Council’s challenge to the regulations. Indeed, history 

confirms the Council’s contentions. In the three years since 

the Secretary announced the regulations, not one of the 5,795 

hospitals in the United States has brought an administrative 

challenge to those regulations. Appellant’s Reply Br. 23 

(citing Am. Hosp. Ass’n, Fast Facts on US Hospitals (2010), 

available at http://www.aha.org/aha/resource-center/Statistics 

-and-Studies/fast-facts.html). Finally, unlike the chiropractors 

in American Chiropractic, who could “mount an 

administrative challenge” by becoming assignees of their 

patients’ claims, 431 F.3d at 817, here all parties agree that 

Council members have no way of becoming the assignee of a 

hospital’s claim. Nor do they possess some other relationship 

with the hospitals that would assure us that the hospitals share 

their interest in challenging the 2008 regulations. Although 

the joint ventures have a contractual relationship with 

hospitals, this in itself provides no assurance of shared 

interests, for many hospitals have terminated their contracts 

with Council members and, pursuant to their contracts, have 

done so without penalty. Compl. ¶ 74; Appellant’s Br. 48. 

Taken together, the allegations in the Council’s 

complaint, the fact that not one hospital has challenged the 

regulations despite having had three years to do so, and the 

absence of any relationship between Council members and the 

USCA Case #11-5030 Document #1349423 Filed: 12/23/2011 Page 17 of 18
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hospitals that would ensure an alignment of interests 

demonstrate that invoking section 405(h) in this case would 

have the practical effect of “turn[ing] what appears to be 

simply a channeling requirement into complete preclusion of 

judicial review.” Ill. Council, 529 U.S. at 22–23. We therefore 

conclude that, under the specific facts of this case, the Illinois 

Council exception applies and the Council may therefore 

pursue its claim in district court pursuant to section 1331 

general federal question jurisdiction. 

V.

We reverse the district court’s dismissal for lack of 

subject matter jurisdiction and remand for further proceedings 

consistent with this opinion. 

So ordered. 

USCA Case #11-5030 Document #1349423 Filed: 12/23/2011 Page 18 of 18