IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 12-40097

SOUTHWEST PHARMACY SOLUTIONS, INCORPORATED, doing business

as American Pharmacies, 

Plaintiff-Appellant

v.

CENTERS FOR MEDICARE AND MEDICAID SERVICES; DONALD M.

BERWICK, solely in his official capacity as Administrator of The Centers for

Medicare and Medicaid Services; KATHLEEN SEBELIUS, Secretary of the

United States Department of Health and Human Services, solely in her

official capacity; UNITED STATES DEPARTMENT OF HEALTH AND

HUMAN SERVICES, 

Defendants-Appellees

Appeal from the United States District Court

for the Southern District of Texas

Before WIENER, CLEMENT, and PRADO, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

The sole issue on appeal is whether the district court properly dismissed

Southwest Pharmacy Solutions’s claim for lack of subject matter jurisdiction. 

While 42 U.S.C. § 405(h) clearly requires a plaintiff to exhaust administrative

remedies before filing a claim in federal court, the Supreme Court has provided

a narrow exception to this rule in Shalala v. Illinois Council on Long Term Care,

United States Court of Appeals

Fifth Circuit

F I L E D

May 1, 2013

Lyle W. Cayce

Clerk

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Inc., 529 U.S. 1, 17–20 (2000). Southwest argues that its claim falls within this

exception and therefore was dismissed erroneously. However, caselaw

interpreting the application of § 405(h) to Medicare claims emphasizes that the

Illinois Council exception is extremely narrow and appropriately applied only in

cases where judicial review would be entirely unavailable through the prescribed

administrative procedures. As Southwest has not carried its heavy burden of

showing that the Illinois Council exception applies, we AFFIRM the district

court’s order dismissing the suit.

FACTS AND PROCEEDINGS

1. Medicare Part D

In 2003, Congress enacted the Medicare Prescription Drug, Improvement,

and Modernization Act of 2003 (“Medicare Part D”). Pub. L. 108–173, codified

at 42 U.S.C. §§ 1395w-101, et seq. Appellee Centers for Medicare and Medicaid

Services (“CMS”) is the agency within the Department of Health and Human

Services (“DHHS”) that is charged with the administration of the Medicare

Program. Among other things, Medicare Part D added a new prescription drug

benefit to the Medicare Program. Individuals eligible for Medicare but not

enrolled in a separate Medicare Advantage Plan can obtain prescription drug

benefits through a Prescription Drug Plan (“PDP”). 

Medicare Part D requires PDPs to permit enrollees to fill prescriptions at

“any willing pharmacy,”which includes “any pharmacy that meets the terms and

conditions under the plan.” Id. at § 1395w-104(b)(1). However, under the

regulations promulgated pursuant to the statute, the Preferred Pharmacy Rule

(“PPR”) allows PDPs to charge enrollees different copayment amounts based on

the pharmacy where they choose to have their prescriptions filled. 42 C.F.R. §

423.120(a)(9) (“A Part D sponsor . . . may reduce copayments or coinsurance for

covered Part D drugs obtained through a preferred pharmacy relative to the

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copayments or coinsurance applicable for such drugs when obtained through a

non-preferred pharmacy.”). 

Although the PPR has been in effect since 2006, the first PDP to establish

a preferred pharmacy network was the Humana Walmart-Preferred Rx Plan

(“Walmart Plan”) in 2011. The Walmart Plan designates Walmart-owned

pharmacies as “preferred” and greatly reduces the copayments and coinsurance

required at these pharmacies as compared to the copayments and coinsurance

required at other, non-preferred pharmacies. 

2. The Present Lawsuit

Southwest Pharmacy Solutions, Inc. (“Southwest”) is a coalition of

independent pharmacies operating in Texas, Arkansas, Louisiana, New Mexico,

Oklahoma, Missouri, Mississippi, and Tennessee. Southwest filed this suit in

district court on July 11, 2011 against CMS. Southwest alleged that the PPR

allows a PDP to create a scheme that excludes independent pharmacies from

participating in preferred pharmacy networks in direct contravention of the “any

willing pharmacy” requirement. 42 U.S.C. § 1395w-104(b)(1)(A).1 CMS moved

to dismiss Southwest’s claim for lack of subject matter jurisdiction. 

In its motion to dismiss, CMS argued that the district court was precluded

from exercising jurisdiction over claims arising under the Medicare statute

unless such claims were first channeled through the administrative review

process. Id. at § 405(h). Section 405(h) provides that “[n]o action against the

United States . . . or any officer or employee thereof shall be brought under

section 1331 or 1346 of Title 28 to recover on any claim arising under this

subchapter.”2

Id. In other words, “[t]his means that §1331 (federal question)

jurisdiction is categorically unavailable for claims arising under the Medicare

1 At the time this suit was filed,the Walmart Plan remained the only PDP in operation.

2 Section 405(h) of the Social Security Act has been adopted and incorporated into the

Medicare Act. 42 U.S.C. § 1395ii; see Ill. Council, 529 U.S. at 9. 

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Act.” GOS Operator, LLC v. Sebelius, 843 F. Supp. 2d 1218, 1222 (S.D. Ala.

2012). Instead, any claims arising under the Medicare Act must be brought

before DHHS prior to seeking judicial review of those claims under § 405(g). 

In response to this argument, Southwest maintained that the district court

had jurisdiction under Illinois Council, which provides a narrow exception to

§ 405(h) where “the Medicare Act offers no avenue for review of a particular

category of statutory or constitutional claims.” Council for Urological Interests

v. Sebelius, 668 F.3d 704, 708 (D.C. Cir. 2011). The district court disagreed and

granted CMS’s motion to dismiss after finding thatthe Illinois Council exception

to § 405(h) did not apply. Southwest timely appeals.

STANDARD OF REVIEW

This Court reviews de novo a district court’s dismissal for lack of subject

matter jurisdiction. Nat’l Athletic Trainers’ Ass’n v. U.S. Dept. of Health &

Human Servs., 455 F.3d 500, 502 (5th Cir. 2006).

ANALYSIS

Title 42 U.S.C. § 405(h), which is incorporated into the Medicare Act by

42 U.S.C. § 1395ii, “severely restricts the authority of federal courts [to hear

claims arising under the Medicare Act] by requiring [that] ‘virtually all legal

attacks’ under the Act be brought through the agency.” Physician Hosps. of Am.

v. Sebelius, 691 F.3d 649, 653 (5th Cir. 2012) (quoting Ill. Council,

529 U.S. at 13). Although the Supreme Court in Illinois Council acknowledged

that this channeling requirement comes “at a price, namely, occasional

individual delay-related hardship,” it nonetheless determined that:

In the context of a massive, complex health and safety

program such as Medicare, embodied in hundreds of pages of

statutes and thousands of pages of often interrelated

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regulations, any of which may become the subject of a legal

challenge in any of several different courts, paying this price

may seem justified.

529 U.S. at 13. The “net effect of § 405(h) is that it ‘demands the channeling of

virtually all legal attacks through the agency,’ thereby assuring the Secretary

[of the DHHS] ‘greater opportunity to apply, interpret or revise policies,

regulations, or statutes without possibly premature interference by different

individual courts.’” GOS Operator, 843 F. Supp. 2d at 1223 (quoting Ill. Council,

529 U.S. at 13). 

In Illinois Council, the Supreme Court created a very narrow exception to

the channeling requirement “where application of § 405(h) would not simply

channel review through the agency, but would mean no review at all.” 

529 U.S. at 19. Under this exception, a party may file a claim under the

Medicare Act in federal court without first bringing it before the DHHS if

further postponement of judicial review would have the effect of foreclosing

judicial review entirely. See id. at 17. In other words, § 405(h) does not serve

as a jurisdictional bar where the party challenging a regulation shows that

“hardship likely found in many cases turns what appears to be simply a

channeling requirement into complete preclusion of judicial review.” Id. at

22–23. 

The fact that a plaintiff would suffer great hardship if forced to proceed

through administrative channels before obtaining judicial review is insufficient

to warrant application of the Illinois Council exception. See Physician Hosps.,

691 F.3d at 657 (noting that the Supreme Court’s language in Illinois Council

“requires that a party go beyond showing its own hardship and indicate that the

difficulty it encounters is sufficiently widespread as to threaten the loss of any

judicial review”). Instead, a plaintiff must demonstrate “either a legal

impossibility that any claimant would obtain judicial or administrative review,

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or hardship from administrative channeling that was ‘sufficiently widespread’

to threaten the loss of any judicial review.” Vertos Med. Inc. v. Novitas

Solutions, Inc., No. H-12-3224, 2012 WL 5943542, at *6 (S.D. Tex. Nov. 27,

2012). The second criterion applies only “when there [is] no third party with an

interest and a right to seek administrative review. If [third parties have] an

incentive, and [are] properly aligned to bring an administrative challenge, the

[plaintiff’s] inability or difficulty would not trigger the Illinois Council

exception.” Id. (citing Physicians Hosps., 691 F.3d at 657–58). 

Southwest provides three primary reasons why channeling its claims

through the administrative process would effectively result in a total loss of

judicial review: (1) Southwest would be foreclosed from appealing an adverse

administrative decision in federal court since a claim challenging the PPR would

likely be characterized by CMS as a grievance rather than a coverage dispute;

(2) Southwest could not bring a claim challenging the PPR either directly or

through its enrollees as proxies since the enrollees would not have sufficient

financial incentive to vigorously pursue the regulatory challenge; and, (3) even

assuming Southwest could bring a claim through its enrollees, those enrollees

would not be able to satisfy the statutory amount-in-controversy requirement. 

A. Classification of Southwest’s Claim

Under the Medicare Part D regulations, only claims that CMS has

characterized as “coverage determinations,” as opposed to “grievances,” are

appealable to the federal courts after being channeled through the

administrative review process. See 42 C.F.R. § 423.562(b). Claims that are

characterized as grievances do not receive either administrative or judicial

review. See id.; see also id. at § 423.564. A “coverage determination” is defined

as including a “decision on the amount of cost sharing for a drug.” Id.

at § 423.566(b)(5). A “grievance,” on the other hand, includes “any complaint or

dispute, other than one that involves a coverage determination, expressing

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dissatisfaction with any aspect of the operations, activities, or behavior of a Part

D plan sponsor, regardless of whether remedial action is requested.” Id. at §

423.560. 

According to Southwest, any claim challenging the PPR would be treated

as a grievance rather than a coverage determination by CMS and thus would not

be subject to judicial review. Southwest continues to press this point even

though CMS submitted a declaration written by Anthony Culotta, the Director

of Medicare Enrollment and Appeals Group at CMS, to the district court,

admitting that an enrollee’s complaint regarding the disparity in copayments or

coinsurance between preferred and non-preferred pharmacies would be treated

as a coverage determination (the “Culotta Declaration”). Southwest’s refusal to

accept CMS’s interpretation of a coverage determination stems from its

speculation that CMS has adopted this interpretation solely to advance its

position in the instant litigation and its contention that the interpretation

conflicts with CMS’s past practices. 

Generally, we defer to an agency’s interpretation of its own regulations

absent plain error or inconsistency with those regulations. See Auer v. Robbins,

519 U.S. 452, 461 (1997). While we have declined to extend deference under

Auer to an agency’s “interpretation [that] is a novel litigating position ‘wholly

unsupported by regulations, ruling, or administrative practice,’” Tex. Clinical

Labs Inc. v. Sebelius, 612 F.3d 771, 777 (5th Cir. 2010) (quoting Brown v.

Georgetown Univ. Hosp., 488 U.S. 204, 212 (1988)), that is not the case here.

Southwest has not provided any evidence that CMS has previously applied the

Medicare Part D regulations in a manner inconsistent with its proffered

interpretation—in fact, CMS has not even had the opportunity to characterize

a challenge to the PPR as a grievance rather than a coverage determination. 

Absent such an inconsistency, we decline to hold that the agency’s interpretation

“is merely a litigating position” rather than a “fair and considered judgment on

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the matter in question.” Id. at 778 (quoting Auer, 519 U.S. at 462). This is

simply not a case where the agency’s interpretation is so lacking in the

“hallmarks of thorough consideration” that we should decline to grant it Auer

deference. Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156, 2169

(2012).

Southwest has also failed to convince us that CMS’s interpretation is

merely a “post hoc rationalization advanced by an agency seeking to defend past

agency action against attack.” Id. at 2166 (alteration omitted) (quoting Auer,

519 U.S. at 462). As CMS has yet to characterize a claim challenging the PPR

as either a grievance or a coverage determination, there is no past action to

defend. Moreover, unlike previous cases where courts have declined to defer to

an agency’s interpretation when doing so would impose liability, see, e.g., id. at

2167 (“Petitioners invoke the [agency’s] interpretation of ambiguous regulations

to impose potentially massive liability on respondent for conduct that occurred

well before that interpretation was announced.”), or unfair surprise, see, e.g.,

Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 171 (2007) (“[A]s long as

interpretive changes create no unfair surprise . . . the change in interpretation

alone presents no separate ground for disregarding the Department’s present

interpretation.”), on a party without sufficient warning, CMS’s interpretation in

fact benefits Southwest by promising to allow its challenges to the PPR to

proceed as coverage determinations rather than grievances. Nor is this

conclusion undermined by the fact that CMS advanced this position in a

document drafted in response to the present litigation, see id., 551 U.S. at 171;

Tex. Clinical Labs, 612 F.3d at 778, or by the fact that CMS is a party to this

case, see generally Tex. Clinical Labs, 612 F.3d 771. 

As Southwest has not shown that CMS’s interpretation of its own

regulations is merely a litigating position or a post hoc rationalization, we must

look to see if this interpretation is consistent with the regulatory text. See Chase

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Bank USA, N.A. v. McCoy, 131 S. Ct. 871, 880 (2011) (“Because the

interpretation the [Board of Governors of the Federal Reserve System] presents

in its brief is consistent with the regulatory text, we need look no further in

deciding this case.”). Since an agency’s interpretations “are creatures of its own

regulations,” CMS’s interpretations of the Medicare regulations are “controlling

unless plainly erroneous or inconsistent with the regulations being interpreted.” 

Castellanos-Contreras v. Decatur Hotels LLC, 622 F.3d 393, 409 (5th Cir. 2010)

(citing Long Island Care at Home, 551 U.S. at 171). CMS’s interpretation of the

Medicare Part D regulations’ characterization of claims as coverage

determinations or grievances is neither plainly erroneous nor inconsistent with

the text of the regulations.3 Southwest has not given us a compelling reason to

doubt CMS’s explicit commitment to characterize claims challenging the PPR as

coverage determinations that dispute the amount of cost sharing for a particular

enrollee purchasing a particular drug.4

3 Several provisions in the regulations and CMS’s Medicare Prescription Drug Benefit

Manual support this interpretation. A coverage determination includes, for example, a

“decision not to provide or pay for a Part D drug (including a decision not to pay because the

drug is not on the plan’s formulary, because the drug is determined not to be medically

necessary [or] because the drug is furnished by an out-of-network pharmacy . . . ) that the

enrollee believes may be covered by the plan.” 42 C.F.R. § 423.566. If uncertainty arises as

to whether the claim should be considered a grievance, the Manual directs the plan sponsor

to “process the complaint as a request for a coverage determination.” CTRS.FORMEDICAREAND

MEDICAID SERVS., MEDICARE PRESCRIPTION DRUG BENEFIT MANUAL, ch. 18, § 20.2 (2013).

4 Although Southwest contends that the interpretation of Medicare Part D regulations

advanced in the Culotta Declaration contradicts CMS’s interpretation set forth in its

Prescription Drug Benefit Manual, supra note 3, none of the examples provided by Southwest

directly cover the hypothetical claims at issue here. Southwest’s examples from the

Prescription Drug Benefit Manual instead address situations where an enrollee contests the

characterization of a particular drug as a “non-preferred” versus a “preferred” drug, or where

an enrollee chooses between copayment and coinsurance, and not the imposition of different

prices for drugs purchased at a “non-preferred” versus a “preferred” pharmacy. Accordingly,

Southwest cannot claim that the Culotta Declaration is materially inconsistent with any

previously promulgated policies on this specific issue.

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We find it appropriate to extend Auer deference to an agency’s

interpretation of its own regulations “where, as here, the regulation is

ambiguous as to the precise issue in contest,” Wells Fargo Bank of Tex. N.A. v.

James, 321 F.3d 488, 494 (5th Cir. 2003) (citing Auer, 519 U.S. at 452), the

agency’s interpretation is consistent with the regulations, and there is no

indication that the interpretation was adopted to further the agency’s litigating

position. See Tex. Clinical Labs, 612 F.3d at 778. If, at some point in the future,

CMS were to refuse to process a challenge to the PPR as a coverage

determination, Southwest could reassert its right to judicial review by filing a

new claim with that new evidence. But on the evidence before us, we hold that

CMS’s interpretation of the Medicare Part D regulations, as set forth in the

Culotta Declaration, is deserving of courts’ deference. The district court did not

err in finding that the administrative process would be available to Southwest

and other similarly situated parties seeking a determination on this issue. 

B. Ability to Bring a Claim Directly or Through a Proxy

Southwest’s second argument posits that, even if CMS were to

characterize a challenge to the PPR as a coverage determination, Southwest

would still be unable to obtain judicial review since the Medicare Part D

regulations do not allow providers to bring coverage determination claims. 

See 42 U.S.C. § 1395w-104(h)(1) (“[O]nly the part D eligible individual shall be

entitled to bring [a coverage determination] appeal.”). The regulations do,

however, allow for an enrollee to appoint a representative to navigate the

appeals process on his behalf. See 42 C.F.R. § 423.566(c). Consequently, in

order to obtain judicial review of a regulatory challenge to the PPR, a provider

must seek to be appointed as the representative of an enrollee. See id.

at § 423.562(b)(4)(vi) (noting that enrollees may request judicial review of a

claim if the Medicare Appeals Council affirms an adverse Administrative Law

Judge decision). Southwest argues that, since it cannot challenge the regulation

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directly or as an assignee, its claim falls within the Illinois Council exception. 

Although Southwest acknowledges that its enrollees could appoint a member

pharmacy to act as their representative in a challenge to the PPR, it maintains

that this is not sufficient to satisfy the requirement of judicial review because

representatives do not have the same rights as assignees and because the

enrollees would have little incentive to bring these claims in the first place.

In arguing that the type of representation allowed under the Medicare

Part D regulations is inadequate, Southwest attempts to distinguish precedent

declining to extend the Illinois Council exception where a third party could bring

a claim as an assignee of the aggrieved provider. See, e.g., Am. Chiropractic

Ass’n v. Leavitt, 431 F.3d 812, 816–17 (D.C. Cir. 2005) (finding that judicial

review was not completely foreclosed since the aggrieved chiropractors could

bring their challenge as the enrollees’ assignee). According to Southwest,

assigning rights to a provider—thereby allowing the provider to become a party

to the administrative proceeding—is not the same as merely appointing a

provider as a representative. However, the only meaningful distinction

identified by Southwest between appointment as a representative and

assignment is that an appointment can be revoked by the enrollee whereas an

assignment cannot. Southwest provides no compelling explanation why this

minor difference leads to the conclusion that enrollees would be inadequate

proxies for pharmacies in a challenge to the PPR. And we see no reason why it

would. That a representative’s appointment can be revoked is not relevant to

whether a representative whose appointment has not been revoked can vindicate

its claim in the courts. 

Furthermore, as CMS notes, the Medicare Part D regulations would allow

Southwest’s member pharmacies to pursue these claims on behalf of their

customers immediately after obtaining authorization from them. 

See 42 C.F.R. § 423.560 (“Unless otherwise stated [in the rules described in

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subpart M of part 423], the appointed representative has all of the rights and

responsibilities of an enrollee in . . . obtaining a coverage determination, or in

dealing with any of the levels of the [Medicare Part D] appeals process.”). The

enrollees would not have to navigate the process of bringing an administrative

claim or shoulder any of the expenses associated with that process. In this way,

Southwest could shield enrollees from the cost and inconvenience of bringing a

claim challenging the PPR, thereby making it easier to attract potential

litigants.

Even assuming that the assignment of rights to providers by the enrollees

differs from the appointment of providers as representatives of the enrollees for

the purposes of § 405(h), Southwest has not demonstrated that the enrollees

would be ineffective or unwilling proxies. In spite of Southwest’s efforts to

compare the instant facts to those in Council for Urologicial Interests,

668 F.3d at 713 (applying the Illinois Council exception where the provider’s

proposed proxies had no reason initiate the litigation), we find important

distinctions between the two cases. In Council for Urological Interests, the only

parties that could bring a challenge to the regulation at issue “were at best

neutral and at worst stood to gain from the new regulation.” Physician Hosps.,

691 F.3d at 657 (citing Council for Urological Interests, 668 F.3d at 713). “Thus,

the third parties [in Council for Urological Interests] lacked the incentive to

bring a challenge because they were categorically misaligned with the plaintiffs.” 

Id. (emphasis added). The D.C. Circuit ultimately concluded that, “[i]n cases

where the only entities able to invoke Medicare Act review are highly unlikely

to do so, their unwillingness to pursue a Medicare Act claim poses a serious

‘practical roadblock’ to judicial review.” Council for Urological Interests,

668 F.3d at 712.

The facts of this case are, however, more akin to those in National Athletic

Trainers, where we held that third-party physicians were sufficient proxies for

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aggrieved athletic trainers since the physicians had adequate financial incentive

to pursue a regulatory challenge on the trainers’ behalf. 455 F.3d at 507. Like

the physicians in National Athletic Trainers, the enrollees stand to gain

financially as they could reduce their future prescription copayments or

coinsurance by challenging the PPR. See id. at 507. Both Southwest and the

enrollees could receive a financial benefit from overturning the PPR—albeit of

different magnitudes—and have similar incentives to initiate a regulatory

challenge.

Moreover, precedent from this circuit and our sister circuits merely

requires that the proxies have some incentive to bring a regulatory challenge on

behalf of the aggrieved party. See, e.g., Nat’l Ath. Trainers., 455 F.3d at 507

(discussing economic incentives); Am. Chiropractic Ass’n, 431 F.3d at 816–17

(discussing non-economic incentives). While the enrollees may not stand to gain

a fortune from challenging the PPR, they also have some non-financial stake in

the outcome of the case, as evidenced by their continued patronage of

independent pharmacies even after the introduction of the Walmart-Humana

Plan discount. There is no indication that “the absence of any relationship

between [Southwest] and the [enrollees]” would prevent an “alignment of

interests” such that the practical effect of § 405(h) would be a complete

preclusion of judicial review.5

 See Council for Urological Interests, 668 F.3d at

5 The United States District Court for the Eastern District of North Carolina has

recently reached a similar conclusion, finding that the plaintiffs:

[F]ailed to show that the interests of non-preferred pharmacies and PDP

enrollees are so misaligned that judicial review is precluded. PDP enrollees

have the incentive to patronize a non-preferred pharmacy for all the normal,

non-economic reasons customers prefer one business to another, such as

location, product selection, and customer service. . . . Furthermore, a PDP

enrollee’s non-economic incentive to bring a challenge dovetails with the

enrollee’s financial incentive. An enrollee patronizing a non-preferred

pharmacy naturally would be interested in paying the lower preferred

pharmacy co-payment for a medication and therefore would be inclined to bring 

a challenge.

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713–14. Because Southwest could shoulder the administrative and financial

burdens of bringing an administrative claim and its enrollees stand to gain some

financial or other benefit from overturning the PPR, the Illinois Council

exception does not apply. 

C. Satisfaction of the Amount-in-Controversy Requirement

Finally, Southwest argues that, assuming its claim is characterized as a

coverage determination and assuming that it found enrollees who would allow

a member pharmacy to represent them, it still would be foreclosed from judicial

review by the amount-in-controversy requirement. The Medicare Part D

regulations provide that an enrollee may only obtain judicial review of an

adverse coverage determination if the enrollee has at least $1,300 in controversy.

42 C.F.R. §§ 423.1976(a)–(b), 423.2136(a); 75 Fed. Reg. 58407–01 (Sept. 24, 2010)

(setting the minimum amount in controversy as $1,300 at the time Southwest’s

complaint was filed). The amount in controversy in this case consists of the

difference in copayment or coinsurance for a particular drug at preferred

pharmacies versus non-preferred pharmacies. Under the regulations, an

enrollee may aggregate his claims for multiple medications in order to satisfy the

amount in controversy. 42 C.F.R. § 423.1970(c)(1). An enrollee may also

aggregate his appeal with the appeals of other enrollees in order to satisfy the

amount in controversy.6Id. at § 423.1970(c)(2). However, the power to

Farmville Drug Discount, Inc. v. Sebelius, No. 4:12–CV–109–D, 2013 WL 1246815, at *9

(E.D.N.C. Mar. 27, 2013) (citations omitted).

6 CMS contends that the amount in controversy could also be satisfied by accounting

for an enrollee’s projected annual costs for a particular prescription drug or set of drugs. We

reject this methodology since, as Southwest notes, the projected value of an enrollee’s

prescriptions can only be used to satisfy the amount in controversy when the basis for the

enrollee’s appeal is the provider’s refusal to provide prescription drug benefits.

See 42 C.F.R. § 423.1970(b). Because a claim challenging the PPR is based on an objection to

the amount of cost sharing for a particular prescription drug, and not the refusal to provide

prescription drug benefits, the enrollees would not be able to use the projected value formula

to satisfy the amount in controversy.

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aggregate claims under this provision is limited by the requirement that all

claims be brought within 60 days of filling the prescriptions, id. at §§ 423.582(b),

423.1970(c)(2), and the requirement that the aggregated claims involve the same

prescription drugs, id. at § 423.1970(c)(2)(iii). 

Southwest argues that these restrictions completely preclude it from

challenging the PPR. In its brief, Southwest makes numerous calculations to

demonstrate that “it is mathematically impossible for any [single] enrollee of the

Walmart Humana-Preferred Rx Plan to reach the $1,300 amount in controversy

utilizing the differences [in copayment or coinsurance] between preferred and

non-preferred pharmacies.” Southwest further insists that it would be

“impossible, if not virtually impossible, to have a sufficient group of individuals

submitting their administrative appeals virtually simultaneously concerning the

identical prescription drug such that they can collectively achieve the minimum

amount in controversy for judicial review.” According to Southwest, it would be

mathematically and practically impossible to find a sufficient number of

enrollees whose claims could be aggregated to satisfy the amount-in-controversy

requirement. 

The district court disagreed with this argument, citing Southwest’s failure

to refute CMS’s contention that some prescription drugs are so costly that

meeting the amount-in-controversy threshold would not be preclusively difficult

for a group of enrollees. Neither party has provided definitive calculations on

this issue; Southwest refers generally to the testimony of two pharmacists who

maintained that it would be difficult for any single individual to satisfy the

amount-in-controversy requirement, while CMS counters that Southwest need

only identify four enrollees with prescriptions for the same expensive drug who

would be willing to allow Southwest to represent them in court.7 Both

7 CMS’s assertion is based on the following analysis: during the second stage of the

Walmart Plan’s prescription drug coverage (the “Initial Coverage Stage”), a single enrollee

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Southwest’s and CMS’s calculations are based on hypothetical drug costs, and

neither give any concrete estimate of how many enrollees’ claims would need to

be aggregated to reach $1,300 in controversy given a particular drug or set of

drugs. 

At the very least, both parties seem to agree that it would take multiple

enrollees who have been prescribed expensive drugs to satisfy the amount-incontroversy requirement. Nonetheless, without more, this burden does not

warrant the application of the Illinois Council exception, which requires

complete preclusion of judicial review rather than mere postponement of review

based on hypothetical, unconfirmed difficulties in bringing a claim. See Puerto

Rican Ass’n of Physical Med. & Rehab., Inc. v. United States, 521 F.3d 46, 49–50

(1st Cir. 2008) (declining to apply the Illinois Council exception where plaintiffs

had not attempted to bring a test case through the administrative review process

in order to challenge the regulation at issue). Accordingly, Southwest’s

hypothetical illustration that reaching the amount in controversy would be

mathematically impossible is insufficient to trigger the Illinois Council

exception. 

Moreover, as discussed above, Southwest cannot prevail on its conclusory

assertion that “enrollee[s] [have] no incentive to engage in the collective

coordinated action necessary to aggregate all such claims to meet a minimum

amount in controversy over a single prescription drug in order to obtain judicial

review” such that the aggregation of enrollees’ claims would be a practical

impossibility. To apply the Illinois Council exception to this set of facts would

using a non-preferred pharmacy could pay up to a total of $430.10 more in co-insurance (for

either a single prescription drug or multiple prescription drugs) than an enrollee using a

preferred pharmacy. Since the Initial Coverage Stage is the only stage during which an

enrollee’s amount in controversy can increase, the maximum amount in controversy that any

single enrollee could achieve under the Walmart Plan is $430.10. Thus, it would require a

minimum of four enrollees to reach the $1,300 amount in controversy under the Medicare Part

D regulations.

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open the door to a myriad of challenges based on hypothetical impossibilities.

While Southwest may ultimately be unable to successfully recruit multiple

enrollees to challenge the PPR, we should not assume that the hypothetical facts

before us would necessarily culminate in a complete preclusion rather than a

mere postponement of judicial review.8

Southwest asks us to apply the Illinois Council exception based purely on

speculation that finding a group of enrollees who would be willing to pursue

their claims would be an impossible task. Although no enrollee or group of

enrollees has yet challenged the PPR, this does little to bolster Southwest’s

argument as the first plan promulgated under the PPR went into effect on

January 1, 2011. At the time this case was brought in district court, the

regulations had not even been in effect for a year.9 See Nat’l Athletic Trainers,

455 F.3d at 507 (holding that, under the circumstances of the case, one year was

not a “sufficient period of time . . . for us to infer from the lack of a challenge

that there will be no challenge”); cf. Council for Urological Interests, 668 F.3d at

713 (finding that no third party had an incentive to bring a claim where there

was an absence of any administrative challenge to the regulations at issue in the

three-year period following the promulgation of those regulations). The fact that

a relatively short period of time has passed without challenge to the PPR does

not necessarily indicate that, given the appropriate information and guidance,

the enrollees could not or would not bring those claims in the future. As a result,

Southwest has not convinced us that its enrollees would be unwilling or unable

8 Southwest admits that it has not attempted to recruit enrollees who could aggregate

their claims in order to challenge the PPR. Such an attempt, while not always necessary to

successfully invoke the Illinois Council exception, would provide us with some concrete basis

on which to determine that obtaining judicial review would be practically impossible.

9 Southwest filed its original complaint in the United States District Court for the

Southern District of Texas on July 11, 2011.

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to reach the amount-in-controversy threshold such that it should be granted an

exception to § 405(h)’s channeling requirement. 

CONCLUSION

 While Southwest may have shown that it faces obstacles in finding

enrollees who would file claims challenging the PPR which would satisfy the

amount-in-controversy requirement, it has not shown that those obstacles are

insurmountable. The question asked by the Supreme Court in Illinois Council

is not whether compliance with § 405(h)’s channeling requirement would be

merely inconvenient or expensive, but instead whether it would result in a

“complete preclusion of judicial review.” Council for Urological Interests, 668

F.3d at 708. Because Southwest has failed to demonstrate that its challenge to

the PPR falls within the very narrow reach of the Illinois Council exception, we

AFFIRM the district court’s dismissal for lack of subject matter jurisdiction.

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