# United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 14, 2011 Decided December 23, 2011

No. 11-5030

C OUNCIL F OR U ROLOGICAL I NTERESTS

, A PPELLANT

v.

K ATHLEEN S EBELIUS

, IN HER OFFICIAL CAPACITY AS
S ECRETARY OF THE D EPARTMENT OF H EALTH AND H UMAN
S ERVICES

, AND U NITED S TATES OF A MERICA

, A PPELLEES

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.2

Before: S ENTELLE

, Chief Judge , T ATEL and B ROWN

, Circuit Judges

.

Opinion for the Court filed by Circuit Judge T ATEL

.

T ATEL

, 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 Counc il 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 e quipment providers challenges regulations issued by the Secr etary 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 opini on, we conclude that under the particular circumstances of this case, the Illinois Council exception applies and the associ ation may invoke the district court’s general federal questio n 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 stat ute 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 health3

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 designa ted health services furnished pursuant to” such a referral. 42 U.S.C. § 1395nn(a)(1).

The Stark law directly affect s the members of appellant Council for Urological Intere sts—physician-owned joint ventures formed to purchase specialized equipment for urologic laser surgery. These join t 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 pr ovided. Although Medicare reimburses urologists directly fo r 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 a rrangement, the hospital bills

Medicare for the technical f ee 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 appr oved 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 pati ents 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 phys icians who have a financial4

relationship with the entity “fur nishing” 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 fi led suit in the United States

District Court for the Distri ct 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 Secu rity Act, incorporated into the Medicare Act through 42 U.S.C. § 1395ii, precluded federal question jurisdiction ove r the Council’s claims. Under section 405(h), “[n]o action ag ainst 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 judi cial review is normally

unavailable for Medicare Act ch allenges, but claimed that it

had no choice but to seek immedi ate judicial review pursuant to section 1331. Specifically, because only Medicare “providers” may seek admini strative review of the5

reimbursement decision at issue in this case, and because

neither the Council nor its memb ers 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 revi ew under the Medicare Act. Compl. ¶ 80. Thus barred from seeking Medicare Act review, the Council argued that secti on 405(h) could not likewise bar section 1331 jurisdiction; otherwise, the Council would have no judicial remedy at all. Th e district court disagreed. Although recognizing that the Council and its members

lacked access to Medicare Ac t review, the court concluded that no exception to the cha nneling requirement applied because the hospitals with which Council members had contracted, as Medicare “provi ders,” could challenge the 2008 regulation through the ad ministrative 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 th e Medicare Act supplies “both the standing and the substantive basis” for the claim, it has the effect of “ ‘channeling’ . . . vi rtually all legal attacks through the agency.” Id.6

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 Medicar e 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 substantia l statutory and constitutional challenges” to those regulations. Id. at 680. Proceeding from “the strong presumption that C ongress intends judicial review of administrative action,” id. at 670, the Court found it “implausible to think [that Congr ess] 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 presumpti on favoring judicial review, id. at 681 (internal quotation marks omitted), the Court rejected the government’s view that “w hatever 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 showing7

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) applie s, “the question is whether, as applied generally to those c overed by a particular statutory provision, hardship likely f ound 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 vari ous 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—co uld 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 a ddressed 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 partic ular category of statutory or

constitutional claims. But here other parties—specifically, the hospitals with which the Counc il’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, t hough perhaps not a ll, of a class8

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 fo r administrative and j udicial 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 addressi ng that questi on, however, we must consider an antecedent matter, namely, the government’s argument that the failure of anything in theMedicare 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 langua ge or specific legislative history that is a relia ble indicator of congres sional intent”; by demonstrating “congressional acquiescence” to a “contemporaneous judicial cons truction barring review”; or by drawing “inferences of inte nt . . . from the statutory scheme as a whole,” such as when the statute provides a9

“detailed mechanism for judicial consideration of particular issues at the behest of partic ular persons,” but not at the

behest of others. 467 U.S. 340, 349 (1984). Seeking to overcome the presumption via th e 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 part ies 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 ha ving 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 admini strative and judicial review [of Part A determinations]” and by “expressly preclud[ing] all administrative or judicial revi ew not otherwise provided in that statute,” the Medicare Ac t 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 s ilence about review” of Part B regulations, coupled with secti on 405(h)’s juri sdictional bar, as an implied preclusion of judicial review. See Ill. Council

,10

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 Star k law limitations on hospital reimbursement, indisputably have the right to challenge the pertinent regulations through Medicare’s jurisdictional scheme, thereby providing the ad ministrative 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 rec ognized that “when a statute provides a detailed mechanism fo r 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 posse ssing 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 regula tions they challenge. The 2008 regulations redefine the stat us 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 furnished11

pursuant to such referrals, 42 U.S.C § 1395nn(a)(1). The regulations also bar physician-owned ventures from chargingper 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 la ser surgery are insured by Medicare, Appellant’s Br. 7, the regulations’ impact on urologist-owned joint ventur es is not only direct, but substantial, a fact that disti nguishes 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 S ecretary [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 an d the Secretary, and to obtain administrative and judicial revi ew 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 participat ion in the Medicare system (although now, of course, the ch allenged regulations largely12

forbid such participation). Indeed, under those regulations,

Council members are deemed to “furnish[]” designated health services, 42 C.F.R. § 411.351, l eaving little distinction between urologist-owned join t 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) (definin g “supplier” to mean “a physician or other practitioner, a facility, or other entity . . . that furnishes items or services”).

True, the Supreme Court ha s 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 th e Medicare Act’s review scheme only where Congress’s fail ure 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 re view of amount determinations where the statute expressly auth orized 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 wh ere the legislative history “unambiguously support[ed] [thi s] reading of the statutory language”), with Mich. Acad. , 476 U.S. at 675–76 (refusing to read Congress’s silence as inte nt to preclude review, despite the Medicare Act’s “carefully detail[ed]” review scheme). Particularly considering the S upreme Court’s characterization of section 405(h) as “a ch anneling 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 indicati ng that Congress deliberately intended to completely bar non-providers from seeking review of regulations that target them directly.13

In reaching this conclusion, we acknowledge that it may seem anomalous to require providers to go throughadministrative review channels while permitting nonproviders to seek immediate revi ew in federal court. But that is a consequence of the fundamental prin ciple lying at the heart of this case—that “judicial review of a final agency action by an aggrieved person wi ll not be cut off unless there is persuasive reason to believe that such was the purpose of Congress.” Id. at 670 (internal quota tion 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 gove rnment itself points out, id. at 33 n.6, a provider bringing a pu re legal challenge to the validity of a regulation may invoke the Medicare Act’s provisions for expedited judici al 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 clai m 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 obt aining judicial review of regulations that directly a nd 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—whet her 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 fe deral 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 an14

individual party could circ umvent § 1395ii’s channeling requirement simply because that party shows . . . added

inconvenience or cost in an isol ated, particular case. Rather, the question is whether, as appl ied generally to those covered by a particular statutory provi sion, 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 ch anneling 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 th e 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 relati onship between an association, which generally has standing onl y 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 physic ian 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 lega l relationship, courts could require a showing that the proxy “has adequate incentive to initiate and diligently pursue a timely administrative15

proceeding on the claims the litigan t 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 thir d party capable of exhausting the plaintiff’s claims has ade quate 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,” Appelle es’ Br. 23, our inquiry ends—and section 405(h) applie s—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 roadbl ocks 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 stat utory provision, hardship likely found in many cases” amounts to the “practical equivalent of a tota l denial of judicial review” (internal quotation marks omitted)). In cases where the only

entities able to invoke Medi care Act review are highly unlikely to do so, their unwillingness to pursue a Medicare16

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 in convenience 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 noti on of doctors having control over the purchase of medical equipment, which they view as a hospital prerogative,” id. ¶ 22, and the regu lations 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 hospita ls to purchase expensive laser equipment from urologist joint ventures at “fire-sale prices,”

id. ¶ 75, while hospitals choosin g not to acquire their own equipment could simply contra ct with non-urologist-owned ventures instead, thus sufferi ng 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 urologis t-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 incentives17

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 re gulations. Indeed, history

confirms the Council’s contentio ns. In the three years since the Secretary announced the regul ations, 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/re source-center/Statistics -and-Studies/fast-facts.html). Fi nally, unlike the chiropractors

in American Chiropractic , who could “mount an administrative challenge” by be coming 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 challengi ng the 2008 regulations. Although the joint ventures have a c ontractual relationship with hospitals, this in itself provi des 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 th ree years to do so, and the absence of any relationship be tween Council members and the18

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 specifi c facts of this case, the Illinois

Council exception applies and th e Council may therefore pursue its claim in district court pursuant to section 1331 general federal ques tion 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.