2003 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

10-17-2003

NJ Univ Medicine v. Inspector Gen HHS

Precedential or Non-Precedential: Precedential

Docket No. 03-1268

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PRECEDENTIAL

Filed October 17, 2003

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 03-1268

THE UNIVERSITY OF MEDICINE AND DENTISTRY OF

NEW JERSEY; THE COOPER HEALTH SYSTEM;

UNIVERSITY PHYSICIAN ASSOCIATES OF

NEW JERSEY, INC.

v.

DANA CORRIGAN, ACTING INSPECTOR GENERAL,

UNITED STATES DEPARTMENT OF HEALTH AND

HUMAN SERVICES*

The University of Medicine and Dentistry of New

Jersey; The Cooper Health System; University

Physician Associates of New Jersey, Inc.,

Appellants

*(Pursuant to Rule 43(c), F.R.A.P.)

On Appeal from the United States District Court

for the District of New Jersey

D.C. Civil Action No. 99-cv-05046

(Honorable Harold A. Ackerman)

Argued April 23, 2003

Before: SCIRICA, Chief Judge,** AMBRO and

WEIS, Circuit Judges

(Filed: October 17, 2003)

** Judge Scirica began his term as Chief Judge on May 4, 2003. 
HERVÉ GOURAIGE, ESQUIRE

(ARGUED)

Epstein, Becker & Green

Gateway Two, 12th Floor

Newark, New Jersey 07102

GARY J. LESNESKI, ESQUIRE

Archer & Greiner

One Centennial Square

P.O. Box 3000

Haddonfield, New Jersey 08033

Attorneys for Appellants,

The University of Medicine and

Dentistry of New Jersey and

The Cooper Health System

KEVIN McNULTY, ESQUIRE

Gibbons, Del Deo, Dolan,

Griffinger & Vecchione

One Riverfront Plaza

Newark, New Jersey 07102

Attorney for Appellant,

University Physician Associates of

New Jersey, Inc.

DOUGLAS HALLWARD-DRIEMEIER,

ESQUIRE (ARGUED)

MICHAEL S. RAAB, ESQUIRE

United States Department of Justice

Civil Division, Appellate Staff

601 D Street, N.W., Room 9147

Washington, D.C. 20530

SUSAN C. CASSELL, ESQUIRE

Office of United States Attorney

970 Broad Street, Room 700

Newark, New Jersey 07102

Attorneys for Appellee

2
OPINION OF THE COURT

SCIRICA, Chief Judge. 

This is an action seeking an injunction against a planned

Medicare audit of New Jersey teaching hospitals by the

inspector general of the Department of Health and Human

Services. The District Court held that it did not have

standing to consider plaintiffs’ claims under the

Administrative Procedures Act, 5 U.S.C. § 704, and that

plaintiffs failed to state a due process claim. The District

Court also granted defendant’s motion to enforce

subpoenas related to the audit. We will affirm.

I.

A. Medicare Billing.

The underlying dispute in this case involves Medicare

billing at teaching hospitals. The parties differ on when

physicians could bill for work performed by interns and

residents under Health and Human Services regulations in

effect before July 1996. Plaintiffs contend defendant’s

planned audit of their billing records would use an

improper standard and should be enjoined.1

The Medicare program is the responsibility of the United

States Department of Health and Human Services. Within

the department, the program is administered by the

Centers for Medicare and Medicaid Services, the successor

to the Health Care Financing Administration. The

processing of bills submitted by the healthcare providers for

particular services rendered has been contracted out to

several insurance companies known as “carriers.” Because

1. Plaintiffs are the University of Medicine and Dentistry of New Jersey

and two corporations associated with it: the Cooper Health System, a

non-profit corporation that owns and operates a teaching hospital

affiliated with the university; and University Physician Associates of New

Jersey, Inc., a non-profit corporation that processes bills and Medicare

payments for university faculty members. The claims of all parties are

based on the proposed audit of the university’s teaching hospitals. 

3
the carriers handle the billing and payment, they have

initial responsibility for ensuring compliance with the

statutes and regulations governing Medicare billing of

individually billable services.2

Medicare payments to healthcare providers fall under two

categories. Medicare Part A covers general hospital

expenses, including residents’ and interns’ salaries. Part B

covers payments made on a fee-for-service basis,

reimbursing direct care by physicians, among other

services. Consequently, at teaching hospitals, most services

performed by residents are covered under Part A, which

reimburses the hospitals for residents’ salaries, but does

not reimburse them on the basis of particular services they

provide. 42 U.S.C. § 1395x(b)(6). Physicians providing care

to patients, by contrast, are reimbursed under Part B based

on the service performed and in line with reimbursement

paid to physicians for services outside of teaching hospitals.

But this distinction is not so easily drawn. Physicians

can also bill Medicare for services in which residents and

interns participate, so long as the physician is sufficiently

involved in the provision of services. The appropriate

standard for determining when physicians may bill under

Part B for work performed by residents and interns is the

subject of the underlying dispute in this case.

In 1968, HHS promulgated regulations for Part B

reimbursement of services performed at teaching hospitals.

The regulations authorized payment to an “attending

physician” for services “of the same character, in terms of

the responsibilities to the patient that are assumed and

fulfilled, as the services he renders to his other paying

patients” if the physician “provides personal and

identifiable direction to interns or residents who are

participating in the care of his patient.” 20 C.F.R. § 405.521

(1968). Notwithstanding, “[i]n the case of major surgical

procedures and other complex and dangerous procedures

2. Payments for other kinds of costs, i.e., not on a fee-for-service basis,

are made by “intermediaries”—private entities contracted by HHS for

processing payments under Medicare Part A. Like the carriers, their Part

B analogues, intermediaries have a certain amount of responsibility for

ensuring compliance with Medicare requirements. 42 U.S.C. § 1395h. 

4
or situations, such personal and identifiable direction must

include supervision in person by the attending physician.”

Id.

In 1980, Congress amended the statute, largely adopting

the standard HHS stated in its regulations, but omitting the

specific references to surgery and other hazardous

procedures. The statute now provides that if a physician

“renders sufficient personal and identifiable physicians’

services to the patient to exercise full, personal control over

the management of the portion of the case for which the

payment is sought, [and] the services are of the same

character as the services the physician furnishes to

patients not entitled to benefits under this subchapter,” the

physician may bill for the services under Part B. 42 U.S.C.

§ 1395u(b)(7)(A)(i)(I). 

HHS’s regulations were changed in 1992, but continued

to authorize payment to a teaching physician only when the

attending physician “furnishes personal and identifiable

direction to interns or residents who are participating in the

care of the patient.” 42 C.F.R. § 405.521(b)(1) (1992). And

the regulations continued to require that the physician

“personally supervise” the residents and interns in the case

of major surgery or other dangerous procedures. 

Between 1992 and 1996, the Health Care Financing

Administration began to interpret the phrase “furnishes

personal and identifiable direction” as requiring the

physician to be physically present when and where the

resident or intern provides the billed service in order to be

eligible for Part B payment. This interpretation led to

widespread complaints from healthcare providers, many of

whom claimed that it amounted to a change in the

regulation. A physician could provide “personal and

identifiable direction,” it was claimed, without being

physically present when the resident performed the billed

care. The university contends that in response to these

comments, the Health Care Financing Administration

agreed to refrain from imposing such a requirement until

there was a new rule clarifying the agency’s position. 

In December 1995, HHS adopted a new rule governing

physicians at teaching hospitals that took effect July 1,

5
1996. The rule now provides, “If a resident participates in

a service furnished in a teaching setting, physician fee

schedule payment is made only if a teaching physician is

present during the key portion of any service or procedure

for which payment is sought.” 42 C.F.R. § 415.170. 

Because the carriers are initially responsible for enforcing

the billing standards, the carriers themselves often issue

clarifying instructions to the healthcare providers,

furnishing a source of information about Medicare billing

requirements in addition to the statute and regulations. 

B. The Inspector General.

The Office of Inspector General of HHS, along with

inspector generalships for other federal administrative

agencies and departments, is governed by the Inspector

General Act of 1978, 5 U.S.C. App. 3.3 Offices of Inspector

General are designed to be “independent and objective

units” separate from their respective departments and

agencies. 5 U.S.C. App. 3 § 2. They are directed to “conduct

and supervise audits and investigations relating to the

programs and operations” of their respective agencies. Id.

Their primary task is to prevent fraud and abuse within

such programs and operations. The Office of Inspector

General of HHS is thus an independent office with a

primary function to investigate fraud and abuse within the

Medicare program. 

The Inspector General Act grants inspectors general

broad discretion to determine which investigations and

audits are necessary to its mission, authorizing them “to

make such investigations and reports relating to the

administration of the programs and operations of the

applicable establishment as are, in the judgment of the

Inspector General, necessary or desirable.” 5 U.S.C. App. 3

§ 2. 

3. The inspector general for HHS (then the Department of Health,

Education, and Welfare) was created by statute in 1976. Pub L. No. 94-

505. The Inspector General Act is similar in relevant respects to the

original statute. 

6
C. The PATH Audits.

The HHS inspector general’s auditing of teaching

hospitals for overbilling began with an audit of the

University of Pennsylvania Health System’s Medicare billing

records from 1989 to 1994. The audit disclosed three

purported deficiencies in the University of Pennsylvania

Health System’s billing. First, the inspector general

reported a substantial amount of billing by physicians for

work performed by residents. Second, the audit revealed a

certain amount of “upcoding”—billing for procedures more

complex than were actually performed. And finally, the

inspector general contended that documentation was

inadequate for many of the billed items. The University of

Pennsylvania Health System paid $30 million to settle any

potential False Claims Act charges. 

Following that audit, the inspector general (then June

Gibbs Brown) decided to expand the investigation to

determine if these practices were widespread. The result

was the Physicians at Teaching Hospitals (“PATH”)

initiative, under which the inspector general selected a

large number of teaching hospitals nationwide for audits

looking for the alleged problems discovered in the

University of Pennsylvania audit. 

The PATH initiative was launched in 1996, the same year

the new HHS regulations expressly adopted a physical

presence requirement. PATH audits—including the one now

challenged—were directed at billing in the years before the

rule change. The operative rules for these audits, therefore,

are primarily the rules as amended in 1992, which spoke of

“personal and identifiable direction,” but did not expressly

state that a physician’s presence was required. 42 C.F.R.

§ 404.521(b)(1) (1992). 

PATH audits are of two types. “PATH I” audits are those

performed by the Office of Inspector General at its expense.

A healthcare provider can choose, however, to hire an

independent auditor to perform the audit, reporting the

results to the inspector general. This is a “PATH II” audit.

A number of healthcare providers and medical

professional organizations objected to the initiative,

claiming the PATH audits amounted to retroactive

7
application of the 1996 rules. The inspector general

contended instead that the rules had always required the

physical presence of the physician for Part B payments,

even though it was not stated as clearly as under the new

rule. 

HHS responded to the controversy by issuing the socalled “Rabb letter.” Harriet Rabb, the general counsel of

HHS, issued a letter clarifying her views concerning the

PATH audits. Rabb, of course, worked for HHS, not the

independent Office of Inspector General. Accordingly, her

letter is not a policy statement from the Office of Inspector

General. Rather, it expressed Rabb’s understanding of the

standards the Office of Inspector General would apply in

determining when a PATH audit would be conducted. 

In the letter, Rabb acknowledged that “the standards for

paying teaching physicians under Part B of Medicare have

not been consistently and clearly articulated by [the Health

Care Financing Administration, now the Centers for

Medicine and Medicaid Services] over a period of decades.”

Letter of Harriet S. Rabb, HHS General Counsel, at 4 (July

11, 1997). Nevertheless, Rabb concluded that the inspector

general’s interpretation, even if not clearly stated before

1996, was the correct one. Because of the ambiguity, Rabb

stated that clear statements by the carriers “would be

controlling.” Id. Thus, if the carriers had issued materials

clearly stating a physical presence requirement, the

providers would bound by it. Rabb concluded that many,

though not all, carriers had expressly stated that physical

presence was required for teaching physicians to receive

compensation under Medicare Part B. 

Given this, Rabb stated her understanding that carrier

notification would be a necessary requirement for initiation

of a PATH audit: “[T]he OIG will undertake PATH audits

only where carriers, before December 30, 1992, issued clear

explanations” that Part B payments would be made only

“when the teaching physicians either personally furnished

services to Medicare beneficiaries or were physically present

when the services were furnished by interns or residents.”

Id. at 5. An audit would go forward only after the Office of

Inspector General had “obtained carrier materials showing

that clear instructions on the need for teaching physicians

8
to be physically present were given to the institutions or

physicians served by that carrier.” Id. at 5-6. If the Office of

Inspector General obtained such materials, a hospital

would “have the opportunity to show, as a matter of fact,

that it or the teaching physicians at the institution received

guidance from the carrier which the hospital views as

contradictory to the standard referenced above.” Id. at 6. 

Importantly, the letter states, “The decision whether clear

guidance was given by carriers to teaching hospitals and

physicians will be made by OIG. That determination is,

necessarily, a fact bound one and will have to be made

particularly and in each instance.” Id.

In short, Rabb—speaking on behalf of HHS, not the

inspector general—stated the Office of Inspector General

would begin a PATH audit only if it was convinced, after a

hospital had an opportunity to respond, that the hospital

had received clear instructions from its carrier of the

physical presence requirement. 

D. This Case.

When the Office of Inspector General informed of its

intention to initiate a PATH audit, the University of

Medicine and Dentistry of New Jersey initially elected to

have a PATH II audit performed by an independent auditor

at its expense. But it never went forward with the audits

and instead filed this action to enjoin the audits. 

The university contends the audits are unlawful for

several reasons. First, it argues the inspector general lacks

the power to conduct PATH audits, as they are properly the

function of HHS. It also argues the Office of Inspector

General did not comply with the terms of the Rabb letter,

concluding the University of Medicine and Dentistry was

auditable without its having received clear notice from its

carrier. And because it lacked prior notice of the standard

the Office of Inspector General intends to apply in its audit,

the university contends the initiation of the audits is

arbitrary and capricious and violates its due process rights.

Because of the university’s refusal to go forward with the

audit, the inspector general issued administrative

subpoenas for the relevant records. The university refused

9
to comply with the subpoenas. Consequently, the inspector

general filed a motion to enforce the subpoenas in the

District Court. 

The District Court rejected the university’s claims,

primarily on the basis of its finding a lack of subject-matter

jurisdiction for lack of finality and ripeness. It also granted

the inspector general’s motion to enforce the administrative

subpoenas. The university appealed. 

II.

The university’s challenge to the PATH audits comes to

us in two forms. First, because the university has resisted

the administrative subpoenas issued by the inspector

general, the inspector general brought an action seeking

enforcement of those subpoenas. The university appeals the

District Court’s order enforcing the subpoenas. Second, the

university seeks injunctive relief against the audits. Under

both sets of claims, the university seeks to block the

initiation of the PATH audits. But the audits themselves

would appear to be an early stage in an investigation that

may or may not lead to enforcement actions. Because of

this, the District Court determined that review of most of

the university’s claims was premature. As we discuss, we

hold that the District Court lacked jurisdiction to consider

these claims at this stage in the proceedings, but that it

had jurisdiction over the inspector general’s motion to

enforce the subpoenas.

A.

With respect to the subpoenas, the District Court found—

correctly—that it had jurisdiction to enforce the subpoenas.

Under the Inspector General Act, each inspector general “is

authorized . . . to require by subpena [sic] the production

of all . . . documentary evidence necessary in the

performance of the functions assigned by this Act, which

subpena, in the case of contumacy or refusal to obey, shall

be enforceable by order of any appropriate United States

district court.” 5 U.S.C. app. § 6(a)(4); see also 28 U.S.C.

§ 1345 (“[T]he district courts shall have original jurisdiction

of all civil actions, suits or proceedings commenced by the

10
United States, or by any agency or officer thereof expressly

authorized to sue by Act of Congress.”). 

Although orders enforcing, or refusing to quash,

subpoenas issued in the trial context are ordinarily not

considered final orders subject to appeal (unless a

contempt order is entered, which is itself a final order

subject to appeal), orders enforcing administrative

subpoenas are subject to appellate review. “These orders

are considered ‘final’ for purposes of 28 U.S.C. § 1291

because there is no ongoing judicial proceeding that would

be delayed by an appeal.” In re Subpoena Duces Tecum, 228

F.3d 341, 345-46 (4th Cir. 2000); see also FDIC v. Wentz,

55 F.3d 905 (3d Cir. 1995) (reviewing order enforcing

administrative subpoena); NLRB v. Frazier, 966 F.2d 812,

815 (3d Cir. 1992) (reviewing quashal). “[W]e will affirm an

order enforcing an agency’s subpoena unless we conclude

that the district court has abused its discretion.” Wentz, 55

F.3d at 908.

B.

As the Supreme Court has said of the Federal Trade

Commission and Internal Revenue Service, an agency

ordinarily “can investigate merely on suspicion that the law

is being violated, or even just because it wants assurance

that it is not.” United States v. Powell, 379 U.S. 48, 57

(1964) (IRS); United States v. Morton Salt Co., 338 U.S. 632,

642-643 (1950) (FTC); see also Wentz, 55 F.3d at 908

(FDIC). The power to effectively investigate HHS and the

participants in the Medicare program is fundamental to the

HHS inspector general’s mission. Cf. Fed. Maritime Comm’n

v. Port of Seattle, 521 F.2d 431 (9th Cir. 1975) (“It is beyond

cavil that the very backbone of an administrative agency’s

effectiveness in carrying out the congressionally mandated

duties of industry regulation is the rapid exercise of the

power to investigate the activities of the entities over which

it has jurisdiction and the right under the appropriate

conditions to have district courts enforce its subpoenas.”).

In the ordinary course, judicial proceedings are appropriate

only after the investigation has led to enforcement, because

“[j]udicial supervision of agency decisions to investigate

might hopelessly entangle the courts in areas that would

11
prove to be unmanageable and would certainly throw great

amounts of sand into the gears of the administrative

process.” SEC v. Wheeling-Pittsburgh Steel Corp., 648 F.2d

118, 127 n.12 (3d Cir. 1981) (quoting Dresser Industries,

Inc. v. United States, 596 F.2d 1231, 1235 n.1 (5th Cir.

1979)). 

For these reasons, judicial review of administrative

subpoenas is “strictly limited.” FTC v. Texaco, 555 F.2d

862, 871-72 (D.C. Cir. 1997) (en banc). “The ultimate

inquiry . . . is whether the enforcement of the

administrative subpoena would constitute an abuse of the

court’s process.” Wheeling-Pittsburgh, 648 F.2d at 125. A

district court should enforce a subpoena if the agency can

show “that the investigation will be conducted pursuant to

a legitimate purpose, that the inquiry is relevant, that the

information demanded is not already within the agency’s

possession, and that the administrative steps required by

the statute have been followed. The demand for information

must not be unreasonably broad or burdensome.” Wentz,

55 F.3d at 908 (citing Powell, 379 U.S. at 57-58; Morton

Salt, 338 U.S. at 652). 

C.

The University of Medicine and Dentistry of New Jersey

contends the subpoenas were not “issued pursuant to a

legitimate purpose” because the inspector general lacks the

authority to conduct PATH audits in the absence of

evidence of fraud or abuse. And the university avers that

the inspector general admitted to them that she had no

evidence of Medicare fraud at the university hospitals. 

As noted, the Inspector General Act creates Offices of

Inspector General “to prevent and detect fraud and abuse

in . . . programs and operations” of their respective

departments and agencies. 5 U.S.C. App. 3 § 2. To

accomplish these ends, the statute specifically authorizes

inspectors general “to conduct and supervise audits and

investigations relating to [these] programs and operations.”

Id. Furthermore, the Act grants inspectors general a degree

of discretion in determining when such audits and

investigations are appropriate: “In addition to the authority

12
otherwise provided by this Act, each Inspector General, in

carrying out the provisions of the Act, is authorized . . . to

make such investigations and reports relating to the

administration of the programs and operations of the

applicable establishments as are, in the judgment of the

Inspector General, necessary or desirable.” Id. § 6, 6(a)(2). 

Here, the inspector general determined that the PATH

audits are necessary or desirable for the purposes of

preventing and detecting fraud and abuse in teaching

hospitals’ Medicare Part B billing. Accordingly, at first

blush, the PATH audits would seem to fall comfortably

within the Inspector General Act’s broad grant of authority.

That authority is subject to certain limitations, however.

Section 9 of the Act contains a restriction on the ability of

the inspectors general to perform program operating

responsibilities.4 The Act permits the transfer of

departmental functions that the head of the agency “may

determine are properly related to the functions of the Office

[of Inspector General] and would, if so transferred, further

the purposes of this Act.” The Act specifically provides,

however, that no such transfer shall include “program

operating responsibilities.” 5 U.S.C. App. 3 § 9. 

The hospitals rely on this section in attempting to

establish a distinction between “routine compliance audits”

and “fraud investigations.” The administration of the

Medicare program is the responsibility of HHS (carried out

by the Centers for Medicare and Medicaid Services, an

agency within HHS). HHS’s direct role with respect to Part

B payments at teaching hospitals, however, is one of

oversight. Most of the direct interaction with the healthcare

providers is done by the carriers, who process the bills

submitted by the healthcare providers. The carriers are

responsible for ensuring, in the first instance, that the bills

they receive comply with the statutory and regulatory

requirements of the Medicare program, subject to the

oversight of the Centers for Medicare and Medicaid

Services. Indeed, 42 U.S.C. § 1395u(a) provides that “the

Secretary shall to the extent possible enter into . . .

contracts [to] . . . make such audits of the records of

4. The 1976 Act contained a similar limitation. 

13
providers of services as may be necessary to assure that

proper payments are made under this part.” Thus, HHS,

through the carriers, is statutorily responsible for routine

compliance audits, which are core “program operating

responsibilities,” according to the university. And because

the PATH audits are routine compliance audits, the

university contends the authority to conduct them cannot

be transferred to the inspector general unless it is acting on

a specific allegation of fraud or abuse. 

The university does not challenge the inspector general’s

authority to investigate healthcare providers directly under

the right circumstances. While a primary purpose of the

inspectors general is to investigate the operations of their

federal departments internally, they are charged with

preventing fraud and abuse in the programs of their

departments as well. The providers are participants in the

Medicare program, and through that program they receive

federal funds. Thus, they are not merely regulated by HHS,

they are part of the Medicare program. As such, they are

within the range of legitimate targets of the inspector

general’s efforts “to prevent and detect fraud and abuse” in

the Medicare program. Cf. Inspector Gen. of the U.S. Dept.

of Agric. v. Glenn, 122 F.3d 1007, 1011 (11th Cir. 1997)

(“While we agree that the [Inspector General Act]’s main

function is to detect abuse within agencies themselves, the

IGA’s legislative history indicates that Inspectors General

are permitted and expected to investigate public

involvement with the programs in certain situations.”). The

university concedes this, but contends the inspector

general’s authority to investigate healthcare providers

arises only after the inspector general has received a

referral from a carrier, or is otherwise responding to a

specific allegation of fraud. 

If the carriers uncover any evidence that gives rise to a

suspicion of fraud on the part of healthcare providers, they

are directed to refer the case to the Office of Inspector

General for a fraud investigation. Medicare Program

Integrity Manual, ch. 3 § 10.1. (“Carriers . . . have a duty to

identify cases of suspected fraud and to make referrals of

all such cases to the OIG, regardless of dollar thresholds or

subject matter.”). But in the absence of a specific allegation

14
of fraud, according to the university, an audit is simply a

routine matter of ensuring compliance with the regulations,

a responsibility central to the basic mission of HHS itself.

HHS directs and oversees the carriers’ routine auditing of

healthcare providers. And because this is routine work

performed by HHS (through the carriers), permitting the

inspector general to perform such functions would amount

to a transfer of “program operating responsibilities.” 

At bottom, the university contends the inspector general

cannot perform such audits because HHS can and does5

perform those audits in the ordinary course of business.

But we see no basis for concluding that the inspector

general’s authority cannot overlap with that of the

department. As the Court of Appeals for the Fifth Circuit

stated, “Section 9(a)(2) prohibits the transfer of ‘program

operating responsibilities,’ and not the duplication of

functions or the copying of techniques. No transfer of

operating responsibility occurs and the IG’s independence

and objectivity is not compromised when the IG mimics or

adapts agency investigatory methods or functions in the

course of an independent audit or investigation.” Winters

Ranch Partnership v. Viadero, 123 F.3d 327, 334 (5th Cir.

1997). The inspector general’s mandate to prevent and

detect fraud and abuse is not limited by HHS’s—or its

agents’—own efforts to prevent and detect fraud and abuse.

If the department fails to perform a function that is

within its responsibilities, and the inspector general takes

on those responsibilities, then it may be correct to speak of

“transfer” of program operating responsibilities. See, e.g.,

id. at 334; Burlington N. R.R. Co. v. Office of Inspector

General, R.R. Retirement Bd., 983 F.2d 631 (5th Cir. 1993)

(finding impermissible transfer of authority where the

inspector general audited railroad employers for tax

compliance when the board had declined to do so). For in

such a case, the department might be said to be abdicating

5. HHS itself does not appear to perform any compliance audits.

According to plaintiffs, these are the responsibility of the carriers, acting

as contractors for the department. We need not determine what effect, if

any, the fact that these audits are not, strictly speaking, functions of the

department itself may have on the analysis. 

15
its own responsibilities, which is arguably one of the

concerns animating § 9(a)(2)’s prohibition on transfers of

program operating responsibilities. But this is not a

concern here. 

Furthermore, that HHS can and does perform routine

compliance audits does not necessarily make them

“program operating responsibilities.” Routine compliance

audits, routine as they be, are nonetheless investigatory in

nature, and are directed at enforcing the rules under which

the providers operate. They need not be seen as part of the

“operation” of the Medicare program. In any event, the

statute contemplates the transfer of any duties that may

assist the inspector general in its mission, so long as they

are not “program operating responsibilities.” Presumably,

this would include a range of responsibilities the

department might perform, that do not constitute program

operating responsibilities. Thus, the fact that the

department can and does perform some of these tasks

would not alone prevent their transfer to the Office of

Inspector General. 

The university relies on a seemingly contrary decision

reached by the Court of Appeals for the District of

Columbia Circuit. In Truckers United for Safety v. Mead,

251 F.3d 183 (D.C. Cir. 2001), the court held the Office of

Inspector General for the Department of Transportation had

overstepped its statutory authority when it engaged in a

joint operation with the Office of Motor Carriers (an office

within DOT) to investigate trucking records. The program

was designed “to create a greater deterrence to motor

carrier violations of the Federal Motor Carrier Safety

Regulations.” Id. at 187. The inspector general subpoenaed

a variety of records seeking, inter alia, to uncover

falsification of hours of service logs. 

The court viewed the investigation “as part of enforcing

motor carrier safety regulations—a role which is central to

the basic operations of the agency.” Id. at 189. On the

court’s view, the inspector general was not engaged in an

audit investigation, rather, he “merely lent his search and

seizure authority to standard OMC enforcement

investigations.” Id. The court concluded that the “actions of

the IG were ultra vires.” Id. at 190. 

16
Here, by contrast, there is no suggestion that the PATH

audits are aimed at anything other than the inspector

general’s (admittedly broad) view of what constitutes fraud

and abuse in the Medicare program. The inspector general

is charged with preventing and detecting, by audit and

investigation, fraud and abuse in the Medicare program.

There is no statutory basis for imposing an additional

requirement that the inspector general begin such an audit

or investigation only after she has received a referral or

other allegation of fraud. And this is especially true given

the broad discretion the inspector general enjoys when

determining audits and investigations are appropriate. 

D.

In sum, the PATH audits are of a kind that is squarely

within the broad authority of the inspector general to audit

providers for the purpose of preventing fraud and abuse

within the Medicare program. The PATH audits do not

represent a “transfer” of “program operating

responsibilities.” The important issue here is not whether

the inspector general is doing something that HHS itself (or

its agents) might also do, but whether the PATH audits are

within the authority granted the inspector general by the

Inspector General Act. For the reasons discussed, we hold

that they are. 

There is no dispute that the subpoenas at issue are

relevant to the inspector general’s purpose, that the

inspector general lacks the information it seeks, that

statutory procedures have been followed, or that the

demand for information is not unreasonably broad or

burdensome. See Wentz, 55 F.3d at 908. Consequently, the

subpoenas are lawful and we will affirm the District Court’s

order to enforce them.

III.

In addition to opposing the inspector general’s motion to

enforce its subpoenas, the University of Medicine and

Dentistry of New Jersey seeks to enjoin the PATH audits for

several reasons. The District Court declined to consider the

17
merits of these claims, deciding it lacked jurisdiction over

these claims. We agree. 

The District Court found a lack of jurisdiction on two

related grounds. First, it held it lacked jurisdiction to

review the agency action under the Administrative

Procedures Act, 5 U.S.C. § 704, because the decision to

initiate the audit was not “final.” It also concluded, for

similar reasons, that the case was not sufficiently “ripe” at

this point to permit judicial review. 

Ripeness and finality in this context are closely related.

Finality is an element in the test for ripeness. Nat’l Park

Hospitality Assoc. v. Dept. of the Interior, 123 S. Ct. 2026,

2032 (2003); Abbott Labs. v. Gardner, 387 U.S. 136, 149

(1967). And as we have noted, “the Court’s treatment of the

finality issue has involved an inquiry into the broader

question of whether a given action is ripe for judicial

review.” CEC Energy Co. v. Public Serv. Comm’n, 891 F.2d

1107, 1110 (3d Cir. 1989). We will address finality within

the context of an assessment of ripeness. 

A.

Determining whether a dispute over agency action is ripe

involves a two-part inquiry. We must assess “(1) the fitness

of the issues for judicial decision and (2) the hardship to

the parties of withholding court consideration.” Nat’l Park

Hospitality Assoc., 123 S. Ct. at 2030; Abbott Labs., 387

U.S. at 149. The fitness question, in turn, requires an

assessment of whether the issues presented are “purely

legal,” whether the agency action is final for purposes of

section 10 of the Administrative Procedures Act,6 and

whether “further factual development would ‘significantly

advance our ability to deal with the legal issues

presented.’ ” Nat’l Park Hospitality Assoc., 123 S. Ct. at

2028 (quoting Duke Power Co. v. Caroline Envtl. Study

Group, Inc., 438 U.S. 59 (1978)); Abbott Labs., 387 U.S. at

149. 

6. Under section 10(c) of the Administrative Procedures Act, federal

courts have jurisdiction to review “final agency action for which there is

no other adequate remedy,” 5 U.S.C. § 704, unless the action “is

committed to agency discretion by law.” § 701(a)(2). 

18
While there are some factual disputes in this case, the

main issue—whether the inspector general has the

authority to initiate audits of the providers under the

announced standard—is primarily legal. Further factual

development does not seem necessary to resolve these

issues. But we believe the case is not sufficiently “fit” for

judicial review, because the action of the inspector general

was not a final one for these purposes. 

No matter how decisive the inspector general’s

determination to initiate a PATH audit of the University of

Medicine and Dentistry of New Jersey under its stated

standard was, it was only a decision to initiate an

investigation of the university’s prior billing practices.

Neither the university nor the other plaintiffs has been

charged with fraud, nor has any kind of enforcement

proceeding commenced. The hospitals are required neither

to change their billing practices nor pay a penalty for past

practices. All they are required to do is to cooperate with

the audit—an audit the Office of Inspector General would

perform at its expense if the university so chose. 

Courts should hesitate to scrutinize decisions to initiate

administrative audits and investigations for the same

reasons they accord administrative entities broad leeway in

issuing subpoenas. Subpoenas in this context are part of

an investigation or audit, taken after the decision to

investigate has been made, where there is a reason to

believe the target of the subpoena may not cooperate

without a legal requirement. It would be anomalous to

demand a greater showing for the initiation of an

investigation than is required for the issuance of

subpoenas. 

“An investigation, even one conducted with an eye to

enforcement, is quintessentially non-final as a form of

agency action.” Assoc. of Am. Med. Colls. v. United States,

217 F.3d 770, 781 (9th Cir. 2000). In the ordinary course,

an investigation is the beginning of a process that may or

may not lead to an ultimate enforcement action. The

decision to investigate is normally seen as a preliminary

step—non-final by definition—leading toward the possibility

of a “final action” in the form of an enforcement or other

action. That path is highly uncertain. Here, as in most

19
actions, the possibility that no enforcement action may be

taken is real for several reasons, not least of which is that

the inspector general may change her mind on one or more

issues along the way. “Judicial intervention into the agency

process denies the agency an opportunity to correct its own

mistakes and to apply its expertise.” FTC v. Standard Oil

Co., 449 U.S. 232, 242 (1980). 

B.

The university nevertheless contends that the initiation of

the PATH audits is a final decision under the standards

announced by the Supreme Court and this court. Even if

the decision to initiate the audits is not deemed final, the

hospitals argue the decision to employ a standard

incorporating a physical-presence requirement was itself

“final action” subject to judicial review. 

We have listed several factors relevant to an assessment

of finality in the administrative context, the most important

of which for these purposes are “whether the decision

represents the agency’s definitive position on the question,”

“whether the decision has the status of law with the

expectation of immediate compliance,” and “whether the

decision has immediate impact on the day-to-day

operations of the party seeking review.”

7 CEC Energy, 891

F.2d at 1110 (citing Standard Oil, 449 U.S. at 239-40; Solar

Turbines, Inc. v. Seif, 879 F.2d 1073,1080 (3d Cir. 1989). 

7. In CEC Energy, we provided the following list of relevant factors: 

1) whether the decision represents the agency’s definitive position on

the question; 2) whether the decision has the status of law with the

expectation of immediate compliance; 3) whether the decision has

immediate impact on the day-to-day operations of the party seeking

review; 4) whether the decision involves a pure question of law that

does not require further factual development; and 5) whether

immediate judicial review would speed enforcement of the relevant

act. 

891 F.2d at 1110. 

We recognize the decision involves a pure question of law that may not

require further factual development. We have doubts that immediate

judicial review would speed enforcement, but would reach the same

result even if we concluded it might. 

20
The decision to initiate the PATH audit represents a

“definitive position” of the inspector general only in the

narrowest sense. The decision is not likely to be reopened,

but it is a decision only to investigate, which is by nature

a preliminary one. It is the initiation of a process designed

to make a determination as to plaintiffs’ potential fraud and

abuse in the Medicare program. Intermediate decisions

made in the course of determining what position will

ultimately be taken are not “determinative” in the

appropriate sense. As the Court of Appeals for the Ninth

Circuit stated: 

[O]n the facts before this court it is an open question

whether the PATH audits will actually result in findings

of abuse or fraud. . . . OIG could still modify its rather

draconian view of the Act’s requirements for Part B

billing, and, for any number of reasons, the PATH

audits may not reveal significant violations. Even if

violations are found there are a panoply of

administrative and judicial remedies open to the

Secretary and DOJ, at least some of which we might be

without jurisdiction review under 42 U.S.C. § 405(h)

and [Shalala v. ]Illinois Council [on Long Term Care,

Inc., 529 U.S. 1, (2000)]. 

Assoc. of Am. Med. Colls., 217 F.3d at 781. 

The University of Medicine and Dentistry of New Jersey

also contends the decision to initiate the audits “has the

status of law with the expectation of immediate

compliance,” and “has immediate impact on the day-to-day

operations of the party seeking review.” CEC Energy, 891

F.2d at 1110. Instead of focusing on potential enforcement

measures, the university contends the burdens of

compliance with the audits themselves constitute the

relevant effects. The university avers the decision requires

that they immediately comply with the audits—a disruptive

process it alleges would detract from providing healthcare

and would cost over one million dollars.8

8. This figure appears to be based on an assessment of a PATH II audit,

which would be performed by a third party at the university’s expense.

A PATH I audit, which the university could have chosen, would be

performed by the Office of Inspector General at its cost. Accordingly, it

appears the university could choose a course substantially less costly

than the one it selected. 

21
These burdens, however, are not the kind of burdens that

support a finding of finality. In Standard Oil, the Supreme

Court held the FTC’s issuance of a complaint was not a

final order in the face of a similar contention. The Court

noted that the only legal effect of filing the complaint on

defendant was the requirement that it participate in the

proceeding by responding to the charges against it. The

Court stated, “Although this burden certainly is

substantial, it is different in kind and legal effect from the

burdens attending what heretofore has been considered to

be a final action.” 449 U.S. at 242. The Court noted that

“the expense and annoyance of litigation is part of the

social burden of living under government.” Id. at 244. There

is no basis for treating the expense and annoyance of

administrative audits and investigations any differently. See

CEC Energy, 891 F.2d at 1110 (following Standard Oil and

stating that the obligation to respond to the FTC’s inquiries,

even if substantial, is not a basis for finding finality). And

because the audit at issue here is directed only at past

conduct, the only effects plaintiffs will encounter are related

to their participation in the investigatory process and

actions that might be taken as a result—there is no direct

effect on plaintiffs’ “primary conduct.” See Nat’l Park

Hospitality Assoc., 123 S. Ct. at 2031; Toilet Goods Assn.,

Inc. v. Gardner, 387 U.S. 158, 164 (1967). 

We are cognizant of the special responsibilities entrusted

to healthcare providers and the obstacles they face. The

economics of healthcare are at a precarious juncture.

Placing additional burdens—financial and otherwise—on

already taxed hospitals may have serious consequences for

access to healthcare, either by increasing its cost or by

diminishing its availability. It is to be hoped that a decision

to initiate a PATH audit will be made only after

consideration of these consequences. But these

considerations are, in the first instance, ones for the

inspector general, who has been charged with uncovering

fraud and has been given the authority to determine when

audits are appropriate to that end. 

Focusing not on the decision to initiate the audit, but to

initiate the audit under a particular standard, the lack of

finality is even more clear. For it seems unlikely that the

22
choice of which standard would be applied in assessing the

billing data compiled would have a significant effect on the

university during the audit. The relevant costs would seem

to be associated with collecting the data, not applying any

particular standard in interpreting it. The only apparent

effect from that choice would come if and when it resulted

in a conclusion about plaintiffs’ compliance with the

applicable standards. And as we have seen, we are not now

in a position to assess what might or might not happen at

the end of this process. 

C.

For the foregoing reasons, the present dispute is not

sufficiently “fit” for review at this time. Nor have the

hospitals shown sufficient “hardship” to support a

determination that the case is ripe for judicial

consideration. Again, the only significant hardships

resulting from the challenged decision are those related to

compliance with a request for information reasonably

directed at a legitimate purpose of the inspector general.

This is a cost that plaintiffs—recipients of Medicare funding

—must face as a “burden of living under government.”

Standard Oil, 449 U.S. at 244. 

While the hospitals have raised profoundly serious

questions about the wisdom and fairness of the PATH

audits, the audits are within the broad authority of the

inspector general, and any challenges are properly made

when they have led to action against the hospitals and their

employees, if any. Accordingly, we will affirm the judgment

of the District Court.

23
AMBRO, Circuit Judge, Concurring: 

The majority decides (1) generally that the Inspector

General (“IG”) of the federal Department of Health and

Human Services (“HHS”) has the authority to issue

subpoenas in furtherance of an audit of appellants’

teaching hospitals in determining compliance with certain

Medicare requirements, and (2) specifically that the District

Court lacks jurisdiction to enjoin the audit at issue here

because the IG’s decision merely to investigate by issuing

subpoenas was neither final nor ripe for review. I agree as

to (1) and concur in the result as to (2). 

At the outset is a paradox. If there is no jurisdiction to

consider appellants’ attempt to block the Medicare audit,

how does jurisdiction exist to enforce subpoenas to turn

over documents for the audit? Stated conversely, if there is

jurisdiction to review the enforcement of administrative

subpoenas like those of the IG, should not jurisdiction also

exist to review whether an audit (which the subpoenas

attempt to implement) is allowed in appellants’ case? 

The majority handles this conundrum deftly. The IG has

the power under the Inspector General Act of 1978 to

investigate fraud and abuse involving Medicare. Inherent

within its investigatory power is the authority to issue

subpoenas. But a subpoena to an entity operating within

the Medicare program merely begins an investigation

lacking both the finality and ripeness of an enforcement

action that may result from the investigation. Thus the

general authority for the IG to issue subpoenas is not, for

any particular entity, an action alleging noncompliance

with Medicare. 

But rather than deciding that specific enforcement of the

IG’s auditing powers is not final nor ripe for review, I simply

would rely on 5 U.S.C. § 701(a)(2) of the Administrative

Procedures Act (“APA”), which exempts from judicial review

“agency action . . . committed to agency discretion by law.”

As § 6(a)(2) [5 U.S.C. app. 3, § 6(a)(2)] of the Inspector

General Act authorizes the IG “to make such investigations

. . . relating to the administration of the programs and

operations of [HHS] as are, in the judgment of the [IG],

24
necessary or desirable,” § 701(a)(2) applies. Cf. Webster v.

Doe, 486 U.S. 592, 600 (1988).

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

25