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____________H onor abl e Paul S. D i amond, U ni t ed St at es D i s tr i ctJ udge forthe East ern D i s tr i ct * of Penns y l vani a, s i t t i ng bydes i gnat i on. 2

O n A p p ea l from the U n it ed S tat es D istri ct C o u rt

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D elaw are ( D . C . N os . 07- cv- 000039 and 07- cv- 00069) D i s tr i ctJ udge: G r egoryM . Sl eet

____________ A r gued J une 2, 2009 B e f o re : F IS H E R a n d C H A G A R E S , C i r cui tJudges , a n d DI AM OND, D is tr i ct Judge . * ( Fi l ed: Sept ember8, 2009) T er es a N . C avena gh J ohn J . Sor oko D u a n e M o rris 30 Sout h 17th St r eet U ni t ed Pl aza Phi l adel phi a, PA 19103- 4196 M i chae l R . G ot t fr i ed ( A r gued) D u a n e M o rris 470 A t l ant i c A venue, Sui t e 500 B os t on, M A 02210 A tto r n e y s fo rN o r th e r n Mic h ig a n H

o s p ita ls , In c ., G iff o rdMe d ica l C e n ter, In c ., L a ke w o o d He a lth Sys t em and N

or thw es tMedi cal

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Se r v i c e s , LLC Scot tM . A bel es R obertR . G as aw ay( A r gued)3

A shl eyC . P arr i sh R obertS. R y l and K irk lan d & E lli s 655 15t h St r eet , N . W . , Sui t e 1200 W as hi ngt on, D C 20005 L ew i s H . L aza rus M atthew F. L i ntner K athe ri n e J. N eikirk M orr i s J ames 500 D el aw ar e A venue P. O . B ox 2306, Sui t e 1500 W i l m i ngt on, D E 19899 A t t or neys f

orTri w es tHeal thcar e Al l i ance Corp.

____________ OPI NI ON O F THE COURT

____________ F IS H E R , C i r cui tJudge . N orthern M i chigan H ospit al s, Inc. and L akew oo d H ospit al S y st em (the H ospit al s) a p p e a l f ro m th e D istric t C o u rt’s o rd e r g ra n tin g a m o tio n to d ism iss w ith o u t p re ju d ice in favorof H eal th N etFeder al Ser vi ces , L L C ( H eal th N et ) and Tri w es tH eal thcar e A l l i ance C orp. ( T r i w es t ) . T he H os pi t al s fi l ed put at i ve cl as s act i ons forbr eac h of i m pl i ed contr act a n d u n ju st e n ric h m e n t re latin g to H e a lth N e t an d T riw e st’s a lleg e d f a ilu re to p ro p e rly r ei m bur s e the H os pi t al s forcert ai n s ervi ces theypr ovi ded. T he D i s tr i ctC our tdi s m i s s ed the compl ai nt s on t he bas i s thatthe H os pi t al s had fa i l ed t o exhaus tthei radmi ni s tr at i ve r emedi es . T he H os pi t al s appea l ed fr om the D i s tr i ctC ourt ’ s or derand H eal th N etand Tr i we s tc r o s s - a p p e a l e d . F o rth e r e a s o n s b e l o w, we wi l l a f f i r m.4 I. W e w r i t e exc l us i vel yforthe part i es , w ho ar e fa m i l i arw i th the fa ctual cont extand l egal hi s t oryof thi s cas e. T her efor e, w e w i l l s etfor th onl ythos e fa ct s nece s s aryt o our analy si s. A . B ackgr ound I n 1995, C ongr es s es t abl i s hed TR I C A R E , w hi ch i s a compr ehens i ve managed h e a lth c a re p ro g ra m c o v e rin g a c tiv e m e m b e rs o f th e U n if o rm e d S e rv ice s a n d th e ir d e p e n d e n ts. T R IC A R E w a s d e sig n e d to im p ro v e th e d e liv e rya n d f in a n c in g o f

h e a lth ca re se rvice s o ff

ere d thro u g h the C ivil ian H ea lth an d M ed ical P rog ram o f th e U n ifo rm S erv ices (C H A M P U S ), the b en ef it s p rog ram estab li sh ed in 1 9 6 7 fo r fo rm er m il it ary p e rs o n n e l, a n d th e re f

o re it s u p p le m e n ts b u t d o e s n o t r e p la c e C H A M P U S . See 3 2 C. F . R. § 199. 1( r ) . T R I C A R E i s m anage d and admi ni s t er ed bythe TR I C A R E M anage m ent A c tiv ity(T M A ), w h ich is a f ield o f f ice in th e D e f

e n se D e p a rtm e n t. Tr i we s ta n d He a l th Ne ta r e ma n a g e d c a r e s u p p o r tc o n tr a c t o r s f o rth e TRI CARE pr ogr am, r es pons i bl e forfi nanci al l yunderw r i t i ng the del i veryof hea l th car e s ervi ces for T R I C A R E benef

i ci ar i es i n t he W es tand N or th r egi ons r es pect i vel y . I n thei rr ol es as m anage d car e s uppor tcontr act or s , T r i w es tand H eal th N etar e r es pons i bl e fores t abl i s hi ng n e tw o rk s o f

h e a lth c a re p ro v id e rs to o f f e r se rv ice s to T R IC A R E b e n e f icia rie s. H e a lth s ervi ces ar e pr ovi ded thr ough “N etw or k Pr ovi der s ” – w hi ch i ncl ude hos pi t al s , other author i zed medi cal fac i l i t i es , doct or s , and otherheal th pr ofes s i onal s – w ho ent eri nt o an5

a g re e m e n t w ith a m a n a g e d c a re su p p o rt c o n tra c to r to p ro v id e se rv ice s f o r a n a g re e d ra te of rei m bu rs em ent and “N on -N et w ork P art i ci pati ng P rovi ders” – w hich i nclude h ospit al s, i n s t i tu t i o n s , a n d i n d i v i d u a l p r o f e s s i o n a l s – wh o a r e r e i mb u r s e d a tr a t e s s e tb yTRI CARE re g u la tio n s . See 32 C . F. R . § 199. 14( a) . T he H os pi t al s ar e non- netw or k part i ci pat i ng p ro v id e rs a n d c la im th e yw e re n o t p ro p e rl yre im b u rs e d f o r t h e ir“ f

a c ility c h a rg e s .” Th e p a yme n tme th o d f

o rf a c i l i tyc h a r g e s i s d e s c r i b e d a s f o l l o ws : “ TRI CARE paym ent s forhos pi t al outpat i entfac i l i tychar ges thatw oul d i ncl ude the overhead c os t s of p ro v id in g th e o u tp a tie n t s e rv ic e w o u ld b e p a id a s b ille d .” 3 2 C .F .R . § 1 9 9 .1 4 (a )( x i) . “F aci l i tycharges” are defi ned as: “[T] he cha r ge, ei theri npat i entoroutpat i ent , m ade bya hos pi t al orother i ns t i tut i onal pr ovi dert o coverthe overhead c os t s of pr ovi di ng the s ervi ce. T h e se c o sts w o u ld in c lu d e b u ild in g c o sts , i. e . d e p re c iatio n a n d in ter e st; st affing cost s; drugs an d sup pli es; and ov erhead co st s, i . e. , uti l i t i es, h o u s e k e e p in g , m a in te n a n c e , e tc .” 32 C . F. R . § 199. 2. I n or dert o be r ei m bur s ed forpr ovi di ng heal th car e s ervi ces t o a cove r ed b e n e f icia ry , N o n -N e tw o rk P a rticip a tin g P ro v id e rs m u st s u b m it a s p e c if ic c laim o n b e h a lf o f th e b e n e f

icia ryto th e a p p ro p ria te r e g io n a l co n tra c to r, an d th e n a n yb e n e f it p a ym e n ts due as a r es ul tof thatcl ai m s ubm i s s i on w i l l be made i n the name of and mai l ed t o the p ro v id e r. 3 2 C .F .R . § 1 9 9 .7 (h )(2 ). “[ B ]ysig n in g th e c laim f o rm , the p ro v id e r a g re e s to abi de bythe C H A M PU S- det erm i ned al l ow abl e cha r ge orcos t , w hetherornotl ow ert han the amountbi l l ed. ” I

d. S i mi l a r l y , b ya c c e p t i n g a s s i g n me n to n th e c l a i m f o r m,T h e H o sp itals a lleg e d th a t th e yin c u rre d f a c ili tyc h a rg e s in c o n n e c tio n w ith 1 providi ng ou tpati ent s ervi ces t o all of thei r pat i ents , i ncludi ng T R IC A R E ben efi ci ari es, and thattheyal l ocat e “a por t i on of thes e fa ci l i tychar ges t o eac h of the pr ocedur es 6 part i ci pat i ng pr ovi der s agr ee t o acc eptthe C H A M PU S M axi m um A l l ow abl e C har ge ( C M A C ) as the maxi m um t ot al char ge fora s ervi ce ori t em re nder ed t o a cove r ed b e n e f ic ia ry. See 32 C . F. R . § 199. 2. A uthor i zed pr ovi der s s eeki ng paym entfors ervi ces r ender ed t o T R I C A R E benef i ci ar i es have a dutyt o fami l i ar i ze themsel ves w i th, and c o m p ly w ith , th e p ro g ra m re q u ir e m e n ts . See 3 2 C . F . R . § 1 9 9 . 6 (a). B . P roc ed u ral H ist o ry O n Janu ary23 , 20 07 , N orthern M i chigan an d G i ffo rd M edical fi l ed thei r fi rs t amended compl ai nti n t he D i s tr i ctC our t , as s ert i ng cl ai m s forbr eac h of contr acti m pl i ed i n f a c ta n d b r e a c h o f

q u a s i - c o n tr a c t/u n

j u s te n r i c h me n ta g a i n s tHe a l th Ne t . On February7, 2007, L akew ood H eal th and N or thw es tM edi cal fi l ed a ne ar l yi dent i cal c o m p lain t in th e D istric t C o u rt a ss e rtin g th e sa m e c laim s a g a in st T riw e st. B o th compl ai nt s w er e fi l ed on beha l f of the named hos pi t al s and a put at i ve cl as s of otherN onN e tw o rk P a rticip a tin g P ro v id e r h o sp itals. T h e c o m p lain ts e a c h a lleg e d d a m a g e s in excess of $ 10 0 m i l l i on based o n the und erpaym ent of the H ospit al s’ bil l s. T he H ospit al s al l eged that H eal th N etand T ri w estrefused t o p aythe H ospit al s’ f a c i l i tyc h a r g e s f

o rc e r t a i n o u tp a t i e n ts e r v i c e s r e n d e r e d b yth e Ho s p i t a l s t o TRI CARE benef i ci ar i es , des pi t e the fa ctthatthe H os pi t al s s ubm i t t ed cl ai m s t o H eal th N etand T r i w es tw hi ch i ncl uded s uch cha r ges . H eal th N etfi l ed a mot i on t o di s m i s s the compl ai nt 1per form ed atthei rr es pect i ve fa ci l i t [i es ] . ” Theyal s o al l eged that“[t ] hes e fa ci l i tychar ges

ar e i ncl uded w i thi n and cons t i tut e a port i on of the cos t s r efl ect ed i n the bi l l s entbythe H o sp itals f

o r th e sp e c if

ic s e rv ice s d e n o ted o n su c h b ill .” A d d iti o n a lly , the H o sp itals al l eged thatthey“s ubm i ta s i ngl e uni t arychar ge . . . foreac h of the s ervi ces r ender ed and th e a c c o m p a n y in g f

a c ility c h a rg e a s s o c ia te d w ith th e s e rv ic e re n d e re d .” 7 b r o u g h ta g a i n s ti t , a r g u i n g th a tth e U n i t e d S t a t e s w a s a n e c e s s a ry a n d i n d i s p e n s a b l e p a r ty, the U ni t ed St at es w as the r eal partyi n i nt er es tand the cl ai m s w er e thus barr ed by s over ei gn i m m uni ty , the H os pi t al s fai l ed t o exhaus tthei radmi ni s tr at i ve r emedi es , and the H os pi t al s fai l ed t o s t at e a c aus e of a ct i on. Si m i l ar l y , T r i w es tfi l ed a mot i on t o di s m i s s t he compl ai ntbr oughtagai ns ti tforthe s ame r eas ons and al s o on the gr ounds thatthe H os pi t al s ’ cl ai m s w er e pr eempt ed byfede r al l aw and TM A had pr i m aryj ur i s di ct i on. T he U ni t ed St at es ent er ed an appear ance i n the D i s tr i ctC our tand fi l ed a St at ement of I nt er es tpur s uantt o 28 U . S. C . § 517. T he U ni t ed St at es ar gued thati tw as notthe r eal partyi n i nt er es t , i tw as nota nec es s aryand i ndi s pens abl e party , the “f aci l i tychar ge” i s s ue un derl y i ng the H ospit al s’ com plai nts cou l d b e adjudi cat ed u nd er the D efen se D epart m ent’ s adm i nis trat i ve p rocedu res , and the H ospit al s m i sr epresent ed the D efen se D epart m ent ’ s i nt erpr et at i on of the TR I C A R E r egul at i ons . T he part i es s ubm i t t ed s uppl ement al br i efi ng i n r es pons e t o the G overnm ent ’ s St at ementof I nt er es t , and the D i stri ctC ou rtheld a heari ng on the m oti on s. O n M ay30, 2008, the D i s tr i ctC our tent er ed a M emora ndum and O r dergr ant i ng th e m o tio n s to d ism iss b o th c o m p lain ts, w ith o u t p re ju d ice , b e c a u se th e H o sp itals f a iled to8

exhaus tthei ravai l abl e admi ni s tr at i ve r emedi es pr i ort o s eeki ng r edr es s i n the D i s tr i ct C our t . T he D i s tr i ctC our tnot ed:

“ Th e r e i s n o d i s p u t e th a tf a c i l i tyc h a r g e s , a s d e f

i n e d u n d e rth e TRI CARE r egul at i ons , ar e pai d ‘ as bi l l ed’ under32 C . F. R . § [199. 14( a) ( 5) ( xi ) ] . T he di s put e i s thus notoverthe r equi r ementof the r egul at i on. I ns t ead, the di s put e i s overw hetherthe hos pi t al s ’ cl ai m ed cha r ges qual i fyfor re im b u rs e m e n t a s f

a c ility c h a rg e s .” A s a r es ul t , the D i s tr i ctC our tdet erm i ned thatthe H os pi t al s ’ cl ai m s coul d be appe al ed thr ough the TR I C A R E admi ni s tr at i ve r evi ew pr oces s . A l though exhaus t i on w as not sta tu to rilyre q u ire d , the D istric t C o u rt d e c id e d to re q u ire e x h a u stio n a s a n e x e rc ise o f its d iscreti o n b ec au se d o ing so “w o u ld allow the a g en cyto ap p lyit s sp ec ial reg u lat o ry expert i s e t o t he di s put e, ” and “ w oul d pr oduce a fac tual r ecor d and the age ncy ’ s pos i t i on forl at erj udi ci al r evi ew . ” A l though the D i s tr i ctC our tdi s m i s s ed the compl ai nt s on the exhaus t i on i s s ue, i tfi r s thel d t hatthe cl ai m s w er e notpr eempt ed and thatthe U ni t ed St at es w as notthe r eal partyi n i nt er es tnora nec es s arypartyt o the l i t i gat i on. T he D i s tr i ct C our tdi d notr eac h t he i s s ue of w hetherthe compl ai nt s fai l ed t o s t at e a c aus e of a ct i on. T he H ospit al s appea l ed the D i stri ctC ou rt ’s order, and H eal th N etand T ri w est cr os s - appea l ed. II. T he D i s tr i ctC our thad s ubj ectm att erj ur i s di ct i on pur s uantt o 28 U . S. C . § 1332 (a) (1) and 28 U . S . C . § 1 33 2(d)( 2) becau se of d i versi tybetw een the part i es and b ecause th e a mo u n ti n c o n tr o v e r s ye x c e e d s th e j u r i s d i c t i o n a l mi n i mu m. T h e p a r t i e s a s s e r tth a twe9

h a v e ju risd ictio n p u rsu a n t to 2 8 U .S .C . § 1 2 9 1 , w h ich a u th o riz e s th e e x e rc ise o f a p p e llate j ur i s di ct i on over“fi nal deci s i ons ” of the di s tr i ctcourt s . A fi nal deci s i on i s one w hi ch “ends the l i t i gat i on on the mer i t s and l eave s nothi ng forthe courtt o do butexec ut e the j udgm ent . ” C at l i n v. U ni t ed Stat es , 3 2 4 U . S . 2 3 3 , 2 3 4 (19 4 5 ). B u t ord inaril y , o rde rs di s m i s s i ng compl ai nt s w i thoutpr ej udi ce – l i ke the one i n thi s cas e – ar e nei therfi nal nor a p p e a la b le w ith in th e m e a n in g o f § 1 2 9 1 . See G hana v. H ol land , 226 F. 3d 175, 180 ( 3d C ir. 2 0 0 0 ); W

elch v. Fol

s om , 9 2 5 F .2 d 6 6 6 , 6 6 8 (3 d C ir. 1 9 9 1 ); B or el l iv. C i t y of R eadi ng , 532 F. 2d 950, 951- 52 ( 3d C i r . 1976) . N onethel es s , w e have r ecogni zed a few l i m i t ed e x c e p tio n s to th e g e n e ra l ru le th a t d ism iss a ls w ith o u t p re ju d ice a re n o t im m e d iate ly appea l abl e. “I f the pl ai nt i ff c annotcur e the def ectthatl ed t o di s m i s s al orel ect s t o s t and on the di s m i s s ed compl ai nt , . . . w e have hel d thatthe or derof di s m i s s al i s fi nal and appea l abl e. ” W

elch , 9 2 5 F .2 d a t 6 6 6 ; acco rd G hana , 2 2 6 F .3 d a t 1 8 0 -8 1 ; N yhuis v. R eno , 204 F. 3d 65, 68 n. 2 ( 3d C i r . 2000) . A ddi t i onal l y , “[w ] e have s t at ed thatan appe l l antw ho does notatt empt t o avai l hi m s el f of the admi ni s tr at i ve pr oces s , butw ho i ns t ead f i l es an a p p e a l ra isin g th e a rg u m e n t th a t ex h a u stio n w o u ld b e f u til e , ‘ef f e c tiv e lysta n d s o n h is or i gi nal compl ai nt , ’ and i n s uch ca s es w e mayexer ci s e j ur i s di ct i on overan or der di s m i s s i ng a compl ai ntw i thoutpr ej udi ce. ” G hana , 226 F. 3d at180- 81 ( quot i ng N y h u is , 2 0 4 F . 3 d at 68 n . 2 ). A lth o u g h th e H o sp itals c a n c u re th e d e f e c t th a t led to th e d ism iss a l o f th e ir compl ai nt s byavai l i ng themsel ves of the admi ni s tr at i ve pr oces s , the H os pi t al s have10

i ns t ead a r gued thatexhaus t i on of admi ni s tr at i ve r emedi es w oul d be fut i l e and, i n doi ng s o, have e ffe ct i vel ydecl ar ed an i nt entt o s t and on thei rcompl ai nt s . T her efor e, w e may exer ci s e j ur i s di ct i on overthi s appea l cons i s t entw i th § 1291. A s forours t andar d of re v iew , w e w ill c o n sid e r “ d e n o v o th e a p p lica b ili tyo f e x h a u stio n p rin c ip les , b e c a u se it i s a ques t i on of l aw , ” but“[w ] hen the D i s tr i ctC our tdecl i nes t o gr antan exc ept i on t o the appl i cat i on of exha us t i on pr i nci pl es , w e r evi ew forabus e of di s cr et i on. ” H ar r ow v. P r u d e n t i a lI

n s . Co . o f A m. , 2 7 9 F . 3 d 2 4 4 , 2 4 8 (3d C ir . 2 0 0 2 ).

III . A. T h e H o sp itals a rg u e th a t th e D istric t C o u rt e rre d w h e n it d e ter m in e d th a t th e ir cl ai m s coul d be appe al ed thr ough the TR I C A R E admi ni s tr at i ve appe al s pr oces s , as s er t i ng thatthe cl ai m s theyr ai s ed i n t hei rcompl ai nt s ar e notappea l abl e i s s ues underthe T R I C A R E admi ni s tr at i ve r egul at i ons . M or e s peci fi cal l y , the di s put e i n thi s cas e i s over w h e th e r c e rta in c h a rg e s th a t th e H o sp itals s u b m itt e d q u a lifyf o r re im b u rse m e n t as f

a c ili ty c h a r g e s . Th e Ho s p i t a l s c o n t e n d th a tth i s i s s u e i s n o ta p p e a l a b l e u n d e rTRI CARE re g u latio n s – a n d in p a rticu lar u n d e r 3 2 C .F .R . § 1 9 9 .1 0 (a ) – b e c a u se th e d isp u te in v o lv e s th e in terp re tatio n o f a re g u latio n a n d is th u s s o lelya leg a l d isp u te a n d n o t a fac tual one. A n appea l abl e i s s ue underT R I C A R E r egul at i ons i s one thati nvol ves a “[ d] i s put ed ques t i on[] of fa ctw hi ch, i f r es ol ved i n favorof the appe al i ng party , w oul d r es ul ti n the11

a u th o riz a tio n o f

C H A M P U S b e n e f

its.” 3 2 C .F .R . § 1 9 9 .2 . A c c o rd in g ly , w h e n “ n o f a c ts ar e i n di s put e, ” an i s s ue i s notadmi ni s tr at i vel yappea l abl e. 32 C . F. R . § 199. 2. T he r egul at i ons al s o excl ude ce r t ai n i s s ues fr om bei ng appea l ed admi ni s tr at i vel y , s uch as w hen a c hal l enge i s m ade t o “the pr opr i ety , equi ty , orl egal i tyof anypr ovi s i on of l aw or r egul at i on, ” 32 C . F. R . § 199. 10( a) , w hen the di s put e i s i n r egar d t o “a r equi r ementof the l aw orr egul at i on, ” 32 C . F. R . § 199. 10( a) ( 6) ( i ) , and w hen the i s s ue i n di s put e i s “[t ] he a mo u n to f

th e CHAM P US- d e t e r mi n e d a l l o wa b l e c o s to rc h a r g e , ” 3 2 C. F . R. § 1 9 9 . 1 0 (a)(6)(ii ). A lth o u g h the H o sp it als asse rtthat the issu e is w h ethe r H ea lth N et an d T ri w est are re q u ire d to p a yf

a c ili tyc h a rg e s in a d d iti o n to p a y in g m a x im u m a llo w a b le c h a rg e s, th is cont ent i on over s i m pl i fi es the natur e of the di s put e. W i thoutques t i on, the r egul at i ons s t at e thatcert ai n s ervi ces ar e r ei m bur s ed bas ed on a maxi m um al l ow abl e cha r ge c a lcu latio n a n d th a t f

a c ili tyc h a rg e s, w h ich a re n o t su b jec t to a m a x im u m a llo w a b le c h a rg e , a re p a id a s b ille d . See 3 2 C . F . R . § 1 9 9 . 1 4 (a)(5)(i) -(xi). B u t th e re g u lat ion s are equal l ycl earthatthe H os pi t al s ar e notal l ow ed t o s i m pl ys ubm i tbi l l s foranyamount and then cl ai m that theyare ent i t l ed to r ei m bu rs em ent for the fu l l am ou nt char ged becau se anyam ou nt above the C M A C repr esent s their“facil i t i es” exp enses. H ence , the r eal ques t i on i s w hetherthe H os pi t al s ar e ent i t l ed t o m or e money b e c a u s e th e re g u la tio n s h a v e n o t b e e n p ro p e rl ya p p lie d to th e irc la im s f o r r e im b u rs e m e n t. C ons i der ed i n t hi s l i ght , the di s put e ati s s ue i s nota pur el yl egal one, butr atherr equi r es12

fa ctua l determ ination s su ch as w h ethe r ex p en ses th at qu ali fyas f ac il itych arg es w ere incu rred , w h ethe r suc h ch arg es w ere p rop erlyb il led, an d h o w m u ch is ow ed if th eyw ere in c u rre d a n d p ro p e rlyb ill e d . T h e re f o re , w h a t is re q u ire d b yth e u n d e rly in g d isp u te in th is cas e i s an appl i cat i on of the TR I C A R E r egul at i ons t o the H os pi t al s ’ s peci fi c cl ai m s for reim b u rsem en t. If the se d ispu ted q u esti o n s o f f ac t are reso lved in the H o sp it als’ fa v o r, th e n th e yw ill b e e n tit led to a d d iti o n a l p a ym e n t, w h ich is th e re lief th e ya re p u rp o rte d ly se e k in g , w h e re a s “ re so lv in g ” th e q u e stio n o f w h e th e r f

a c ili tyc h a rg e s c a n b e p a id in addi t i on t o C M A C s w i l l notent i t l e them t o addi t i onal paym entw i thoutfur ther as s es s m entof the ac tual cl ai m s theys ubm i t t ed. T he cen tral cl ai m present ed in the H ospit al s’ com plai nts i s bestun derst oo d as a chal l enge t o t he deni al of paym ent , w hi ch i s an appr opr i at e i s s ue foradmi ni s tr at i ve a p p e a l . Ac c o r d i n g l y , th e r e a r e a d mi n i s tr a t i v e l ya p p e a l a b l e i s s u e s u n d e rth e TRI CARE r egul at orys cheme. B. N ext , the H os pi t al s ar gue thateven i f thei rcl ai m s ar e admi ni s tr at i vel yappea l abl e, e x h a u stio n o f

a d m in istra tiv e re m e d ies w o u ld b e f u til e , as w e ll as u n n e c e ss a rily b u rd e n s o m e , a n d th e re f o re th e D is tr ic t C o u rt s h o u ld n o t h a v e im p o s e d th is re q u ir e m e n t. T he s t atut es and r egul at i ons governi ng T R I C A R E do notm andat e the exha us t i on of admi ni s tr at i ve r emedi es . I n cas es w her e exha us t i on i s notr equi r ed, w e have hel d thatt he deci s i on of w hethert o r equi r e exha us t i on “i s a mat t erof s ound j udi ci al di s cr et i on, ” w hi ch13

s houl d “be gui ded byr at i onal es advanc ed forthe j udi ci al l ycr eat ed exha us t i on doctr i ne. ” C e rr o Me ta l P ro d u c ts v . M a rs h a ll , 620 F. 2d 964, 970 ( 3d C i r . 1980) . T he r at i onal es or purpos es forr equi r i ng exhaus t i on ar e as fol l ow s : ( 1) “pr om ot [i ng] admi ni s tr at i ve eff i ci encybypr event i ng pr ematur e i nt er fer ence w i th the age ncypr oces s es ”; (2 ) “ re sp e c t[ in g ] e x e c u tiv e a u to n o m yb ya llo w in g a n a g e n c yth e o p p o rtu n ityto c o rre c t it s ow n err or s ”; ( 3) “fa ci l i t at [i ng] j udi ci al r evi ew byaff or di ng court s the bene fi t s of the agenc y ’ s exper i ence and expe r t i s e”; and ( 4) “s erv[i ng] j udi ci al economybyhavi ng the agenc yorot hertr i bunal , r atherthan the di s tr i ctcourt , compi l e a f actual r ecor d. ” I

d. (in ter n a l q u o tatio n m a rk s o m itt e d ); s ee W i l s on v. M V

M , I nc. , 4 7 5 F . 3 d 1 6 6 , 1 7 3 (3d C ir . 2007) ( “[E] xhaus t i on of admi ni s tr at i ve r emedi es s erves t o pr om ot e admi ni s tr at i ve eff i ci ency , r es pectexec ut i ve aut onom ybyal l ow i ng an age ncythe opportuni tyt o corr ect i t s ow n err or s , pr ovi de court s w i th the bene fi tof an a gency ’ s expert i s e, and s erve j udi ci al economybyhavi ng the age ncycompi l e the fa ctual r ecor d. ” ( i nt ernal quot at i on m arks and alt era ti o n s o m itted)). W e have r efe r r ed t o j udi ci al l ycr eat ed exha us t i on as prudent i al exhaus t i on and have e xpl ai ned that“[b] eca us e of i t s natur e, prudent i al exhaus t i on can be bypas s ed under cert ai n ci r cumst ance s , i ncl udi ng w ai ver , es t oppel , t ol l i ng orfut i l i ty . ” W i l s on , 475 F. 3d at 1 7 4 ; s ee al

s o Facchi ano v. U. S. D ep’ tof Labor , 859 F. 2d 1163, 1167- 68 ( 3d C i r . 1988) ( excus i ng exhaus t i on w hen ( 1) “the cha l l enged a gencyact i on pr es ent s a cl earand unambi guous vi ol at i on of s t atut oryorcons t i tut i onal r i ght s ”; ( 2) “r es or tt o admi ni s tr at i ve14

pr ocedur es i s cl ear l ys how n t o be i nadequa t e t o pr eventi rr epar abl e i nj ury ”; and (3 ) re q u irin g e x h a u stio n is “ f u til e ” ). “H o w e v e r, m e re lyb e c a u se e x h a u stio n re q u ire m e n ts ar e prudent i al does notm ean thattheyar e w i thoutt eeth. E ven prudent i al exhaus t i on r equi r ement s w i l l onl ybe exc us ed i n a narr ow s etof ci r cumst ance s . ” W i l s on , 475 F. 3d at 17 5. In part i cular , “[i ]n order t o invok e t he fu t i l i tyexcep t i on t o ex hau st i on , a partym ust

‘ pr ovi de a c l ears how i ng’ of fut i l i tybefor e the D i s tr i ctC our t . ” I d. ( quot i ng D ’

A m i co v. C B S C or p. , 2 9 7 F . 3 d 2 8 7 , 2 9 3 (3d C ir . 2 0 0 2 )). T he H os pi t al s di d notes t abl i s h a “c l earand pos i t i ve s how i ng” of f ut i l i tybefor e the D i s tr i ctC our t , and ther efor e the D i s tr i ctC our tact ed w i thi n i t s di s cr et i on byr equi r i ng t he H o s p ita ls to e x h a u s t th e ira v a ila b le a d m in is tr a tiv e re m e d ie s . See W i l s on , 4 7 5 F .3 d a t 1 7 5 . A l though t he H os pi t al s ar gue thatexhaus t i on w oul d be fut i l e bec aus e TM A has u n a m b ig u o u slyre

jec ted th e H o sp itals’ in terp re tatio n o f th e c o n tro lli n g re g u latio n s, th is ar gum enti gnor es the fa ctthatthe r eal di s put e i s notaboutthe meani ng of the r egul at i ons butw hetherthe H os pi t al s s ubm i t t ed cl ai m s forexpens es thatqual i fyas “fa ci l i tychar ges . ” A s t o thi s l att eri s s ue, T M A has nothad an opportuni tyt o eval uat e the s peci fi c cl ai m s t hat the H os pi t al s al l ege w er e underpai d. T hus , the r el i ef the H os pi t al s s eek i s notfor ecl os ed beca us e, as pr evi ous l ydi s cus s ed, the H os pi t al s have the opportuni tyt o pr es entevi dence to T M A th a t th e yin c u rre d e x p e n se s th a t q u a lifya s f a c ili tyc h a rg e s, th a t th e yp ro p e rly bil l ed these charges, and that H eal th N etand T ri w estdid not r ei m bu rs e t hem for these exp enses.15

Farfr om bei ng fut i l e, i tr emai ns pos s i bl e thatr ecour s e thr ough the admi ni s tr at i ve a p p e a l s p r o c e s s ma yr e s u l ti n a n a wa r d o f a d d i t i o n a l r e i mb u r s e me n tt o th e Ho s p i t a l s . On th is p o in t, H e a lth N e t an d T riw e st p e rsu a siv e lya rg u e th a t th e H o sp itals’ re a l co m p lain t is th a tth e yma yn o tu l t i ma t e l yp r e v a i l a tth e a g e n c yl e v e l a n d th a te x h a u s t i o n wi l l b e t i me con sum i ng . B ut these reasons are noteno ug h to excu se exha ust i on and do no test abli sh thatexhaus t i ng admi ni s tr at i ve r emedi es w oul d be fut i l e. W i th r es pectt o thei rar gum ent aboutthe “bur dens om enes s ” of r equi r i ng exhaus t i on i n a put at i ve cl as s act i on cas e, the D i s tr i ctC our tpoi nt ed outthat“the s ame t hous ands of cl ai m s ati s s ue i n the ad m inistrati v e a p p ea l pro ce ss w o u ld also b e a t i ssu e in th is l it igation . ” A n d , m o re basi cal l y , there are current l yon l ya t otal of f ou r hospi t al s i nv olved i n thi s case, and these are the o nlypart i es that have b een requ i red t o ex hau sttheiradm i nis trat i ve rem edies . A ddi t i onal l y , r equi r i ng the H os pi t al s t o exhaus tthei rr emedi es underthe T R I C A R E r egul at orys cheme i s cons i s t entw i th the tr adi t i onal r at i onal es forr equi r i ng t he e x h a u stio n o f

a d m in istra tiv e re m e d ies . R e q u irin g th e H o sp itals to e x h a u st th e ir a d m in istra tiv e re m e d ies w ill h e lp to a v o id u n n e c e ss a ryin tru sio n b yth e ju d icia ryin to E x e c u tiv e B ra n c h a f

f a irs a n d w ill p ro m o te ju d icia l ec o n o m yb ya llo w in g th e a g e n c yto ut i l i ze i t s expert i s e i n r es ol vi ng di s put ed fa ctual i s s ues , corr ecti t s ow n err or s ( i f any r es ul t ed fr om H eal th N etand Tri w es t ’ s r efus al t o pr ovi de addi t i onal r ei m bur s ement ) , and devel op the fa ctual r ecor d forthe bene fi tof a r evi ew i ng courti n the eve ntthatthe a d m i n i s tr a t i v e p r o c e s s d o e s n o tr e s o l v e th e d i s p u t e i n i t s e n t i r e ty.W e w i l l br i efl yaddr es s the ar gum entthatthe H os pi t al s l acke d s t andi ng t o br i ng 2 thei rcl ai m s i n l i ghtof ouri ndepende ntobl i gat i on t o ens ur e thatthe r equi r ement s of A rt ic le II I a re s a tis f

ie d . See I

nt er f ai th C m t y. O r g. v. H oneywel lI

nt ’ l , I nc. , 399 F. 3d 248, 254 ( 3d C i r . 2005) ( “St andi ng i s a thr es hol d j ur i s di ct i onal r equi r ement , and w e have an obl i gat i on t o exami ne ourow n j ur i s di ct i on and thatof the di s tr i ctcourt s . ” ( i nt ernal quot at i on m arks and ci t at i on om i t t ed) ) . T he H os pi t al s have s at i s fi ed the i nj uryi n fac t r e q u i r e me n to f

s t a n d i n g b ya l l e g i n g th a tth e yp r o v i d e d s e r v i c e s t o TRI CARE benef i ci ar i es w i thi n T r i w es tand H eal th N et ’ s r egi on, s ubm i t t ed cl ai m s forr ei m bur s ement to T riw e st a n d H e a lth N e t f o r th e se se rv ice s, a n d th a t T riw e st a n d H e a lth N e t f a iled to properl yrei m bu rs e t hem for the servi ces theyrendered. A dd i t i on al l y , becau se T ri w est and H eal th N etare r espon si ble for r ei m bu rs i ng N on -N et w ork P art i ci pati ng P rovi ders, s uch as the H os pi t al s , forthe s ervi ces theypr ovi de t o T R I C A R E benef i ci ar i es , i ti s cl ear th a t th e H o s p ita ls in

ju ry is tr a c e a b le to a n d re d re s s a b le b yT ri w e s t a n d H e a lth N e t. A c c o rd in g ly, w e c o n c lu d e th a t th e H o s p ita ls h a d s ta n d in g to p u rs u e th e irc la im s . See L u ja n v . D e fen d e rs o f W ild lif e , 504 U . S. 555, 560- 61 ( 1992) ( des cr i bi ng thr ee re q u ire m e n ts o f

th e “ irre d u c ib le c o n stitu tio n a l m in im u m ” o f sta n d in g : in

ju ryin f a c t, tr ac ea b il ity , an d red ressa b il ity ). 16 A c c o rd in g ly , w e c o n c lu d e th a t th e D istric t C o u rt d id n o t ab u se its d isc re tio n in re q u irin g th e H o sp itals to e x h a u st th e ir a d m in istra tiv e re m e d ies b e c a u se d o in g so is nei therfut i l e norundul ybur dens om e, and i s cons i s t entw i th the tr adi t i onal j us t i fi cat i ons forprudent i al exhaus t i on. I V. I n thei rcr os s - appea l s , H eal th N etand Tri w es tr ai s e s ever al al t ernat i ve r eas ons for aff i r m i ng the D i s tr i ctC our t ’ s or der ; how ever , w e nee d notr eac h thes e al t ernat i ve ar gum ent s . B eca us e the H os pi t al s ’ cl ai m s ar e admi ni s tr at i vel yappea l abl e underthe

2 T R I C A R E r egul at orys cheme and bec aus e r equi r i ng the exha us t i on of admi ni s tr at i ve r emedi es i s notundul ybur dens om e orfut i l e and i s cons i s t entw i th the tr adi t i onal17

ju stif ica tio n s f

o r re q u irin g p ru d e n tial e x h a u stio n o f a d m in istra tiv e re m e d ies , w e w ill a f f irm th e o rd e r o f

th e D istric t C o u rt.