### I N THE UNI TED STATES COURT OF APPEALS FOR THE FI F TH CI RCUI T

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 t he district court properly dismissed Southwest Pharmacy Solutions’s claim for l a ck of subject matter jurisdiction. Whil e 42 U.S.C. § 405(h) clearly requires a plaintiff to exhaust administrative remedies before filing a c laim in f ederal c o urt, the Supreme Court has p rovided

a narrow exception to this rule in Shalala v. I llinois Council on Long Term Care , U n i t e d S t a te s C o u rt o f A p p e al s

F i f t h C i rc u i t 

### F I L E D May1, 2013 Ly l e W . Cay ce Clerk Case: 12-40097 Document: 00512227455 Page: 1 Date Filed: 05/01/2013No. 12-40097

Inc. , 529 U.S. 1, 17–20 (2000). Southwest argues that its claim f alls within this exception and t herefore w a s dismissed e rroneously. However, caselaw interpreting the a pplication of § 405(h) to Medicare claims emphasizes that the Illinois Council exception is extremely narrow and appropriately a pplied only in

cases where judicial re vi e w w o u l d b e e n t i r e ly u n available through the p r escribed administrative p r o c e d u res. 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, e t seq
. Appellee Centers f or M edicare a nd Medicaid Services ( “ C M S ” ) i s the agency w ithin the Department of Health and Human Se r v i c e s (“DHHS”) that is charged with the a dministration of t he M edicare Program. Among other things, Medicare P art D added a n e w prescription drug benefit to the Medicare Program. Individuals eligible for M e dicare but not enrolled in a se p a r a t e Medicare Advantage Plan can obtain p rescription drug benefits through a Prescription Drug Plan (“PDP”). Medicare Part D requires P DPs to permit enrollees t o fill prescriptions at “any wi l l i n g p h a r m a c y , ” w h i c h includes “any pharmacy that meets the t erms and conditions under the plan.” Id. at § 1 39 5 w-104(b)(1). However, under the regulations promulgated pursuant to the statute, the Preferred Pharmacy Rule (“PPR”) allows PDPs t o charge enrollees different copayment amounts based on the pharmacy where t hey choose to have their prescriptions filled. 42 C.F.R. § 423.120(a)(9) (“A Part D sponsor
. . . may reduce copayments or c oinsurance for covered Part D drugs obtained through a preferr e d p h armacy r elative 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 s ince 2 006, the first P D P to establish

a preferred pharmacy network was the Humana Walmart-Preferred Rx Plan (“Walmart P lan”) in 2011. The Walmart Plan designates Walma r t

- o w n e d pharmacies a s “ preferred” and greatly reduces the copayments and c oinsurance required at these pharmacies as compared to the copayments and c oinsurance required at other, non-preferred pharmacies. 2. The Present Lawsuit Southwest Pharmacy Solutions, Inc

. (“Southwest”) i s a coalition of independent pharmacies o perating in Texas, Arkansas, Louisiana, New Mexico, Oklahoma, Missouri, Mississippi, and Tennessee. S outhwest filed thi s s uit in d istrict 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 n e tw o rk s i n di r e ct 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 a r gued that the d istrict court was precluded from exerc i s i n g jurisdiction over claims arising under the Medicare statute unless such claims were first channeled t hrough the a dministrative review
process. Id. a t § 4 0 5 (h )

. S e ction 405(h) provides that “[n]o action against the Un i t e d S t ates

. . . or any officer or employee thereof s hall be brought under section 1331 or 1 346 o f Title 28 to r e c o v er o n any claim arising under this subchapter.” 2 I

d. In other words, “[t]his m eans that § 1331 (federal q uestion) jurisdiction i s categorically unavailable for cla ims arising under the M edicare

1 At the tim e this suit was f iled , the Walm art Plan rem ained the only P D P in op eration.

2 Section 405( h) of the Social Security Act has been ad op ted and incorp orated into the M ed icare Act. 42 U

. S. C. § 1395ii; s ee Il l

. Counci l , 529 U

. S. at 9

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Act.” GOS Operator, LLC v. Sebelius , 843 F. S upp. 2 d 1 2 1 8 , 1 222 (S.D. Ala. 2012). Instead, any c laims arising under the Medicare Act must be brought before DHHS prior to seeking judicial review of those claims under § 405(g). I n r e s p o n s e t o this a rgument, Southwest maintained that th e di s t ri c t c o u rt had jurisdiction under I l l i n o i s Council , which provides a narrow exception to § 405(h) where “ t h e Medicare Act offers no avenue for review of a particular category of statutory or c onstitutional claims.” Council for U rological Interests

v. Sebelius , 6 68 F.3d 704, 7 08 (D.C. Cir. 2011). The district court disagreed and granted CMS’s m otion to dismiss a fter finding th a t th e Illinois Council e xception to § 405(h) did not apply. Southwest timely appeals.

STANDARD OF REVIEW This Court reviews de novoa district court’s dismissal for lack of subject matter jurisdiction. Nat’l A t h l e t i c 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. § 4 0 5(h), which i s incorporated into the Medicare Act by 42 U.S.C. § 1395ii, “ s everely restricts the authority of federal c ourts [to hear claims arising u nder the M edicare Act ] b y requiring [that] ‘ virtually all legal attacks’ under the Act b e brought through the agency.” Physician Hosps. of Am.

v. Sebelius , 691 F.3d 6 4 9 , 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, n a m e l y , occasional individual delay-related hardship,” it nonetheless determined that:

In the context of a massive, complex healt h a n d s afety program s uch as Medicare, embodied in hundreds of pages of statutes and t housands o f pages of often interrelat e d

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regula t i o n s , any of which may become the subject o f a legal challenge i n any of several different c o urts, paying this price may seem justified. 529 U.S. at 13. The “net effect of § 405(h) is that it ‘demands the c h anneling of

v i r t ually all legal attacks through the agency,’ thereby assuring the Secre t a r y [of the DHHS] ‘gre a t e r o p portunity to apply, i nterpret o r revise policies, regulations, or statutes without possibly premat u re 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 S upreme Court created a very narrow exception to the channeling requirement “ where application of § 405(h) would not simply channel review through t he agency, but would mean no review at a l l .” 529 U .S. at 19. U n d e r t h i s e x ception, a party may file a claim under the Medicare Act in f

e d e r a l court without first bringing it before the DHHS if further postponement of judicial review would have the effect of foreclosing jud i c i a l r e v i ew entirely. See id. a t 17. In other words, § 405(h) does not serve

as a jurisdictional ba r w h e r e the p arty challenging a regulation shows that “hardship l i k e l y f

o u n d in many cases turns w hat appears t o be simply a channeling requirement into complete preclusion o f j u d i c ial review.” Id. at 22–23. The fact t hat a plaintiff would suffer gre a t hardship if forced to proceed through administrative channels before obtaining judicial review i s insufficient to warrant application of the Illinois Council exception. See Physician Hosps. , 691 F.3d at 657 (noting that the Sup r e m e C o u r t’s language in Illinois Council “requires that a party go beyond showing its own h ardship and indicate that the difficulty it e ncounters is sufficiently widespread as to threaten t h e l o ss of any judicial review”). Instead, a pl a i n t i ff m ust demonstrate “either a legal impossibility that any c laimant w ould obtain judicial or administrative review,

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or hardship from a dministrative channeling that was ‘sufficiently widespread’ to t hreaten the loss of any judicial r ev i e w . ” Vertos Med. I nc. v. Novitas Solutions, In c
. , 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 r ight to seek administrative revie w . I f [third parties have] an incentive, and [are] properly aligned to bring an administrative c hallenge, the [plaintiff’s] inability or difficulty would not trigger the I l l i nois Council exception.” Id. (citing Physicians Hosps. , 691 F.3d at 657–58). Southwest provides t hree primary reasons why channeling its claims through the administrative proc e s s w o u l d effectively result in a total loss of judicial review: (1) Southwest w o u ld b e 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 r a ther than a coverage dispute; (2) Southwest could n ot b ring a claim c h allengi n g t h e P PR either directly or through its enrollees as proxies since the enrollees would not h a v e s u f f icient financial incentive to vigorously pursue the r e gulatory c hallenge; and, (3) even assuming Southwest could bring a claim t h r o ugh its enrollees, t hose e nrollees would not be able to s atisfy the statutory amount-in-controversy requirement. A. Classification of Southwest’s Claim Under t he M edicare Part D regulat i o n s , o nly claims that C MS has characterized as “ coverage d e terminations,” as o pposed to “grievances,” are appealable to t he federal courts after being c hanne l e d t h rough the administrative review process. See 42 C.F. R

. § 423.562(b). Claims that are character i z e d as grievances do not receive either administrative or judicial review. See i d .; see also id. at § 423.564. A “coverage determination” is defined

as i ncluding a “decision on the amount of cost sharing f or a drug.” I

d. at § 423.566(b)(5). A “grievance,” on the other h and, i ncludes “any c omplaint or dispute, other than one t hat involves a coverage d e t e r m i n ation, expressing

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dissatisfaction with a ny aspect of t he operations, activities, or behavior of a Part D p l a n sponsor, r egardless of whether r emedial action is requested.” Id. at § 423.560. According to Southwest, any claim challenging the PPR would be treated

as a grievance rather t han a coverage determination by C M S and thus would not be subject to j u d i c i al review. Southwest continues to press this point even though C MS submitted a declaration written by Anthony C ulotta, the Director of Medicare Enrollment a nd Appeals Group at CMS, to the d i s trict court, admitting that a n e nrollee’s complaint regarding the disparity in copayments or coinsurance between p referred and non-preferred pharmacies would be treated

as a c overage determination (the “Culotta Declaration”). Southwest’s refusal to accept CMS’s interpretation of a c overage determination stems from its speculation that CMS ha s a d o p t ed this i nterpretation s olely to advance its position in the instant litigation and its contention t hat the interpr e t a t i on conflicts with CMS’s past practices. Generally, we defer to an agency’s interpretation of i t s o w n regulations absent plain error or i nconsistency with those regulations. See Auer v. Robbins , 519 U .S. 452, 461 (1997). While w e have dec l i ned to extend d eference under Auer to an agency’s “interpretation [that] is a novel litigating p o sition ‘wholly unsupported by regulations, ruli n g, or administrative practice,’” Tex. Clinical Labs I nc. v. Sebelius , 6 1 2 F

. 3 d 771, 777 ( 5th C ir. 2010) (quoting Brown v. Georgetow n Univ. Hosp. , 488 U.S. 2 04, 212 ( 1988)), that i s not the case here. Southwest has not p rovided any evidence t h at CMS has previously applied the Medicare Part D regulations in a man n e r inconsistent with its proffered interpretation—in fact, CMS has not even had the opportunity to characterize

a challenge t o the P PR a s a grievance rather than a coverage determination. Absent such an inconsistency, we decline to hold that t he agency’s interpretation “is merely a litigating position” rather than a “fair a nd considered judgment on
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t h e matter in question.” Id. at 778 (quoting Auer , 519 U.S. at 462). This is simply no t a c a s e where the a gency’s interpretation is so lacking in the “hallmarks of thoroug h c o n s i d eration” that we should decline to grant it Auer deference. Christopher v. SmithKline Beecham Corp. , 132 S. C t

. 2156, 2169 (2012). Southwest has also failed to c onvince u s that CMS’s interpretation is merely a “

p ost hoc rationalization advanced by an agency seeking to d efend p ast

a g e n cy action against attack.” I d. a t 2166 (alteration omitted) (quoting Auer , 519 U.S. at 462). As CMS has yet to characterize a claim challenging the PPR

a s e i t h er a grievance or a coverage determination, t h ere i s no past a cti o n t o defend. Moreover, unlike previous cases w here courts have declined to defer to

an a gency’s interpretation w hen doing so w ould impose liability, see, e.g., id. at 2167 (“Petitioners invoke t he [agency’s] i nterpretation of ambiguous regulations to impose p otentially massive liability o n respondent for conduct that occurred well before that i nterpretation was announced

. ” ) , o r unfair surprise, s ee, e.g., Long Island Care at Home, Ltd. v. Coke , 551 U.S. 1 58, 171 (2007) (“[A]s long as interpretive changes create no unfair surprise

. . . the change in interpretation alone presents no separate ground f or disregarding t h e D e partment’s present interpretation.”), on a party without sufficient warning, CMS’s interpretation in fact benefits S o uthwest b y promising to allow its challe n g e s t o the PPR to proceed as coverage deter m i n ations rather than grievances. Nor is this conclusion u n dermined by the fact that CMS advanced this p o sition in a document drafted in r esponse to the present litigation, see id. , 5 51 U.S. at 171; Tex. Clinical Labs , 6 12 F .3d at 778, or by the fact that C MS is a party to this
case, see generally Tex. Clinical Labs , 612 F.3d 771. As Sou t hwest has not shown that CMS’s interpretation of its own regulations is merely a litigating position or a post hoc r ationalization, we must look to see if t his i nterpretation 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 b rief is consistent with the regulatory text, we n e e d l o o k no further in deciding this case.”). Since an agency’s interpretations “are creatures of its own regulations,” C MS’s interpretations of the Medicare r egulations a re “controlling unless p lainly erroneous or inconsistent with the regulations being interpreted.” Castellanos-Contreras v. Decatur Hotels LLC, 6 22 F.3d 393, 409 (5th Cir. 2010) (citing Long Island Care at H ome , 551 U.S. at 171). CMS’s interpretation of the M edicare P art D regulations’ characterization of claims as cover a g e determinations or grievances is neither plainly erroneous n or inconsistent with the text o f the regulations. 3 Southwest has not given us a compelling reason to doubt C MS’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 p rovis ions in the regulations and C M S’s M ed icare Pres crip tion D rug Benef it M anual sup p ort this interp retation. A coverage d eterm ination includ e s , f or exam p le, a “d ecis ion not to p rovid e or p ay f or a Part D d rug (includ ing a d ecis ion not to p ay becaus e the d rug is not on the p lan’s f orm ulary, becaus e the d rug is d eterm i n e d not to be m ed ically
neces s ary [ or] becaus e the d rug is f urnis hed b y a n o u t

- o f

- n etw ork p harm acy
. . . ) that the enrollee believes m ay be covered by the p lan. ” 42 C. F. R. § 423. 566. If uncertainty aris es as to w hether the claim s hould be cons id ered a grievance, the M anual d irects the p lan s p ons or to “p roces s the com p laint as a reques t for a coverage d eterm ination. ” C TR S

. F O R M E D I CAR E AN D M E DI CAI D S E R

V S

. , M E DI CAR E P R E SC R I P T I ON D RU G B E N E FI T MANU AL , ch. 18, § 20. 2 ( 2013)

.

4 Although Southw es t contend s that the interp retation of M ed icare Part D regulations ad vanced in the Culotta D eclaration contrad icts CM S’s interp retation set forth in its Pres crip tion D rug Benef it Manual, sup ra note 3, none of the exam p les p rovid ed by Southw es t d irectly cover the hyp othetical claim s at is s ue here. Southw es t’s e x a m p l e s f rom the Pres crip tion D rug Benef it M anual ins tead ad d res s s ituations w here an enrollee contes ts the characterization of a p articular d rug as a “non- p ref erred ” vers us a “p ref

erred ” d rug, or w here
an enrollee choos es betw een cop aym ent and coins urance, and not the im p os ition of d if f erent p rices f or d rugs p urchas ed at a “non- p ref erred ” vers us a “p ref

erred ” p harm acy. Accord ingly, Southw es t cannot claim that the Culotta D eclaration is materially incons is tent w i t h a n y p revious ly p rom ulgated p olicies on this s p ecif ic is sue. 9 Case: 12-40097 Document: 00512227455 Page: 9 Date Filed: 05/01/2013No. 12-40097

We find it a ppropriate to e x t e nd Auer deference t o an agency’s interpret a t i o n of its own regulations “where, as here, the r e gulation is ambiguous as to the precise issue in contest,” Wells Fargo Bank of Tex. N.A. v. James , 321 F

. 3 d 488, 494 (5th C ir. 2003) (citing Auer , 519 U.S. a t 452), the
agen c y ’ s i n t erpretation is consistent with the regulations, and there is no indication that the interpretation was a dopted to further t h e agency’s l itigating 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 t h e P PR as a c overage d e t e r m i n ation, Southwest could reassert its right to judicial review by filing a

new claim with that new evidence. But o n the e vidence before us, we hold that C M S’s interpretation o f t he Medicare Part D regulations, as set forth in t h e 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 s ituated parties s eeking a d e t e r m i nation on this issue. B. Ability to Bring a Claim Directly or Through a Proxy Southwest’s second argument posits t h a t , e ven if CMS w ere to characterize a challenge to the P PR as a coverage determination, Southwest would still be unable to o b t a i n judicial r eview since the Medicare Part D regula tions do not allow p roviders to bring coverage determination claims. See 4 2 U.S.C. § 1395w-104(h)(1) (“[O]nly the part D eligible individual s hall be entitled to bring [a coverage determi n a t i o n ] a ppeal.”). The regulations do, however, allow for an enrollee to appoint a representative to n avigate the appeals process o n his behalf. See 4 2 C .F.R. § 4 2 3

. 5 6 6 ( c )

. Consequently, in order to obtain judicial r eview of a regulatory challenge to the PPR, a provider must s e e k t o b e appointed as t he representative of an enrollee. See id. at § 423.562(b ) ( 4 ) (v i) (noting that enrollees may request judicial review of a claim if the Medicare Appeals Council affirms an adverse Administrative Law Judge decision). S o uthwest argues that, since it c annot challenge t he regulation

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directly or as an assignee, i ts claim falls within the Illinois Council exception. Although Southwest acknowledges that its enrollees c ould a ppo i nt a member pharmacy to act as their representative in a challenge to the PPR, it maintains that this is not sufficient to s atisfy the re q u i r e m e n t of judicial review because representativ e s d o n o t have the same rights as assignees and because the enrollees would have little incentive to bring these claims in the first place. In a r g u i n g t hat the type of representation allowed under the M edicare Part D regulations is inadequate, Southwest attempts to distinguish precedent declining to extend the Illinois Council exception w here a third party could bring

a claim as an assignee o f the a g grieved provider. See, e.g. , Am. Chiropractic Ass’n v. Leavitt , 431 F.3d 812, 8 16–17 (D.C. Cir. 2005) (finding t hat judicial review was not completely foreclosed sin c e t he aggrieved chiropractors could bring their challenge as the enrollees’ assignee). Ac c o r ding to Southwest, assigning rights to a provider—thereby allowing the provider to b ecome a party to the administrative proceeding—is n ot the same as merely appoin t i n g a provider as a representative. H owever, the o n l y meaningful distinction identi f ied by S o uthwest 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 t o the conclusion t hat enrollees w o u ld be inadequate proxies for pharmacies in a challenge to the PPR. And we see n o reason why it would

. T h a t a representative’s appointment can be revoked is not relevant to whether a representative whose a ppointment ha s n o t b e e n r e v o k e d c a n vi n di cate its claim in the courts. Furthermore, as CMS notes, the Medicare Part D regulations would allow Southwest’s member pharmacies to pursue these claims o n behalf o f their

c u s t o m e r s i m m e d i a t e l y a f t e r o b t a i n i n g a u t h o r i z a t i o n f r o m t h e m
. See 42 C .F.R. § 4 23.5 6 0 ( “ U n less o therwise stated [in the r ules described in

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s u b p a r t M of part 423], the appointed representative h as all of the r i ghts and responsibilities of an enrollee in

. . . ob t a i n i n g 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 b ringing a n administrative claim or s houlder a ny of the expenses a ssociated with t hat process. In this way, Southwest could shield enrollees from the c ost and inconvenience of bringing a claim challenging the PPR, thereby maki n g it easier to attract p otential litigants. Even assuming that the assignment of rights to providers by the e nrollees differs from the appointment of providers as representatives o f t he enrollees for the purposes of § 405(h), S o uthwest h a s n o t demonstrated that the e nrollees would b e ineffective o r u n w illing proxies. In spite of Southwest’s efforts to
compare the instant facts to those in Council for U r ologicial Interests , 668 F .3d at 713 (applying the Illinois Council e xception where the p rov i d er’s proposed p roxies had no reason initiate th e l i tigation), we f ind important distinctions between t he two cases. In Council for Urological Interests , the only parties that could bring a challenge t o t h e r e gu lation at i s sue “were at best neutral and at worst s tood 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 p arties [in Council for U r o l og i c al I

nterests ] lacked t he incentive to bring a challenge because t hey were cate go r i c a l l y m i s a l i gn e d w ith th e plaintiffs.” Id. (emphasis added)

. T h e D.C. Circuit u ltimately concluded t h at, “[i]n cases where the only entities able to invoke Medicare Act review are highly unlikely to do s o, th e i r unwillingness to pursue a Medicare Act claim poses a serious ‘practical roadblock’ t o judicial review.” Council fo r Urological Interests , 668 F.3d at 712. The facts of this case are, however, more akin to those i n National Athletic Trainers , where we held that third-party physicians were s u fficient proxies for

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aggrieved athletic trainers si n c e th e p hy s i c i ans had adequate f inancial incentive to pursue a regulatory challenge on the trainers’ behalf. 455 F.3d at 507. Like the p hysicians in National Athletic T r a i n e rs , the enrollees stand to gain financially as they c ould reduce their future prescription c opayments or coinsurance by challenging the PPR. See id. at 50 7

. B o th Southwest and the enrollees could receive a financial benefit from overturning the PPR—albeit of different magnitudes—and h ave similar i ncentives to i nitiate a regulatory challenge. Moreover, precedent from t his circuit and our s i s t er circuits merely requires that the proxies have some incentive to bring a regulatory challenge on behalf of the aggrieved p arty. See, e
. g., Nat’l Ath. Trainers. , 4 5 5 F

. 3 d at 507 (discussing economic incentives); Am. Ch i r o p ra ctic Ass’n , 431 F.3d at 816–17 (discussing non-economic i ncentives). While the enrollees may n ot s tand to gain

a fortune from challenging the PPR, they also have some n on-financial stake in the outcome of the case, as evidenced b y t h e i r c ontinued patronage of independent pharmacies even after the introduction o f the W a l m a rt-Humana Plan discount. Ther e i s no indication that “the absence of any relationship betwee n [Southwest] and the [enrollees]” would prevent a n “alignment of i n t e r e s ts” such that the practical effect of § 405(h) would be a compl e t e preclusion of judicial review. 5 See Council for Urological Interests , 668 F.3d at

5 The U nited States D is trict Court f or the E as tern D is trict of N orth Caro l i na has recently reached a sim ilar conclus ion, f ind ing that the plaintif f s : [ F] ailed to s how that t h e i nteres ts of non- p ref erred p harm acies and PD P enrollees are so m is a l igned that j ud icial review is p reclud ed

. P DP enrollees have the incentive to p atronize a non- p ref erred p harm acy for all the norm al,
non- econom ic reas o n s cus tom ers p ref er one bus ines s to another, s uch as location, p rod uct s election, and cus tom er s ervice.

. . . Fu r t herm ore, a PD P enrollee’s non- econom ic incentive to bring a c hallenge d ovetails w ith the enrollee’s f

inancial incentiv e
. An enrollee p atronizing a non- p ref erred p harm acy naturally w ould be i nteres ted in p aying the low er p ref erred p harm acy co- p aym ent f or a m ed ication and theref ore would be inclined to bring
a challenge. 13 Case: 12-40097 Document: 00512227455 Page: 13 Date Filed: 05/01/2013No. 12-40097

713–14. Because Southwest could shoulder t he administrative a nd f in a n c i a l burdens of bringing a n administrative claim and its e nrollees stand to gain some financial or other benefit f r om ove r t u r n ing the P PR, the Illinois Council exception does not apply. C. Satisfaction of the Amount-in-Controversy Requirement Finally, Southwest argues that, assuming its claim i s 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 m a y o nly obtain judicial review of an

a dv e rse coverage determination if the enrollee h as at l east $ 1,300 i n c o n tr o v e r s y . 42 C.F.R. §§ 423.1976(a)–(b), 423.2136(a); 75 Fed. Reg. 5 8 4 0 7

–0 1 ( S e p t

. 2 4, 2010) (setting t he minimum a mount in controversy as $1,300 at the time S outhwest’s

c o m p l aint was filed). The amount in controversy in t h is case consists o f t h e difference in copayment or coinsurance for a particular drug at preferred pharmacies v ersus non-preferred pharmacies. Under the regulations, an

e n r o llee may aggregate his claims for multiple medications in order t o satisfy th e amount in controver s y . 42 C.F.R. § 423.1970(c)(1). An enrollee may also aggregate his appeal with the appeals of other enrollees in o rder to satisfy the amount in controversy. 6 Id. at § 4 23. 1 970(c)(2). However, the power to

Fa rm v i l l e D rug D i scount, In c
. v
. Se bel i us , N o. 4: 12–CV–109–D , 2013 WL 1246815, at *9 ( E. D .N

. C. M ar. 27, 2013) ( citations om itted )

.

6 CM S contend s that the am ount in controvers y could als o be s atis fied by accounting f or an enrollee’s p rojected annual cos ts f or a p articular pres crip tion d rug or s et of d rugs
. We reject this m ethod ology s ince, a s S outhw es t notes , the p rojected value of an enrollee’s p res crip tions can only be us e d t o s atis f y the am ount in controvers y w hen the bas is f or the enrollee’s ap p eal i s the p rovid er’s ref us al to p rovid e p res crip tion d rug benef its

. See 42 C

. F. R. § 423. 1970(b)

. Becaus e a claim challenging the PPR is bas ed on an objection to the am ount of cos t s haring f or a particular p res crip tion d rug, and not the ref us al to p rovid e p res crip tion d rug benef its , the enrollees w ould not be able to us e the p rojected value f orm ula to s atis f y the am ount in controvers y. 14 Case: 12-40097 Document: 00512227455 Page: 14 Date Filed: 05/01/2013No. 12-40097

aggregate claims u nder this provis i o n i s limited by t he requirement that all claims be brought within 60 days of f illing the p rescriptions, id. at §§ 423.582(b), 423.1970(c)(2), and the requirement that the aggregated c l a i m s i nv o lv e the same prescription drugs, id. at § 423.1970(c)(2)(iii). Southwest argues that these restrictions completely preclude it from challenging the P P R

. In its brief, Southwest makes numerous calculations to demonstrate that “it is mathematically i m possible for any [single] enrollee of the Walmart Humana-Preferred Rx Plan to reach the $ 1,300 amount in controversy utilizing the differences [i n copayment or coinsurance] between p referred and non-preferred pharmacies.” Southwest further insists that i t w ould be “impossible, if not virtually impossible, to have a sufficient group of individuals

s ub m i t t i n g th e ir a d m i n i s tr a tive appeals virtually simultaneo u s ly c o n c e r n i n g th e identical prescription drug such that they can collectively achieve the minimum amount in controversy for judicial review.” According to Southwest, it would be mathem a t i c a lly and practically impossible to find a s ufficient number of enrollees whose claims could b e aggregated to satisfy the amount-in-controversy requirement. The district court disagreed with this argu m e n t, citing Southwest’s failure to r e f u t e CMS’s contention that some prescription drugs are so costly that meeting the amount-in-controversy threshold w ould not be p reclusively difficult f o r a group of enrollees. Neither party has provided definitive calculations o n this issue; Southwest refers generally to t he testimony o f two p harmacists who maintained that it would b e difficult for a ny si n gle individual to satisfy the amount-in-controversy requirement, while CMS counters that Southwest need only identify four enrollees w ith prescriptions for the same expensive drug who would b e willing to allow Southwest to represent them in court. 7 Both

7 CM S’s as s ertion is bas ed on the f ollow in g analys is : d uring the s econd s tage of the Walm art Plan’s p res crip tion d rug coverage (the “Initial Covera g e S t a g e”) , a s ingle enrollee 15 Case: 12-40097 Document: 00512227455 Page: 15 Date Filed: 05/01/2013No. 12-40097

Southwest’s and CMS’s calculations a r e based on h ypothetical d rug costs, and neither give any c oncrete estimate of how many enrollees’ claims would need to b e aggregated to reach $ 1,300 in controversy given a particular drug or set o f drugs. At the very least, b oth parties seem to agree that it w o u l d t ake multiple enrollees who h a v e b een p rescribed expensive drugs to satisfy the amount-incontr o v e rsy requirement. Nonetheless, without more, this burden does not warrant the application o f the I llinois Council excep tion, which requires complete preclusion of judicial review rather than mere postponement o f review based on hypothetical, unconfirmed difficulties in b ringing 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 t he I llinois Council exception where plaintiffs had not attempted to b ring a test case t hrough the adm i n istrative review process in order to challenge the regulation at issue). Ac c o r d i n g ly, S outhwest’s hypothetical illustration that reaching the amount in controversy w ould be

m a t h e m a tically impossible is insufficient to trigger the Illinois Council exception. Moreover, a s discussed above, Southwest cannot prevail on its conclusory assertion that “ e n r o l lee[s] [have] no incentive to engage in t he collective coordinated action necessary to a ggregate a ll such claims to m eet a minimum amount in controversy over a single prescription drug in order to obtain judicial review” such that the aggregation of e nrollees’ claims w ould be a practi cal impossibility. T o apply the Illinois Council exception to this set of facts would

us ing a non- p ref

erred p harm acy could p ay up to a total of $430. 10 m ore in co- ins urance (f or either a s ingle p res crip tion d r u g o r m u l tip le p res crip tion d rugs ) than an enrollee us ing a p ref erred p harm acy. Since the Initial Coverage Stage is the only s tage d uring w h i c h an enrollee’s am ount in controvers y can increas e, the m axim um am ount in controvers y that any s i n g l e e n r o llee could achieve und er the Walm art Plan is $430. 10. Thus , it w ould require a m inim um of f

our enrollees to reach the $1, 300 am ount in controvers y und er the M ed icare Part D regulations

. 16 Case: 12-40097 Document: 00512227455 Page: 16 Date Filed: 05/01/2013No. 12-40097

o p e n the door to a myriad of challenges based on hypothetical impossibilities. While Southwest may ultimately be unable to successfully re c r u i t m ultiple enrollees to challenge the PPR, we should not assume that the hypothetical facts before u s would necessarily culminate in a complete preclusion rather than a mere postponement of judicial review. 8 Southwest asks us to a pply the I llinois Council exception based purely on speculation that finding a group o f enrollees who w ould b e w i lling to pursue their claims would be an impossible task. Although no en r o l l e e o r g roup of enrollees has yet challenged the PPR, this d oes little to bolster S outhwest’s argument as the first plan promulgated u nder t h e P PR w ent into effect on Januar y 1 , 2 0 1 1

. At the time this case was brought in district court, the regulations had not even b een in effect f or a year. 9 Se e Nat’l Athletic Trainers , 455 F.3d at 507 (holding that, under the circumstances of the case, o ne year was not a “sufficient period of time

. . . for us to infer from t he l a c k o f a challenge that there will be no challenge”); cf. Council for Urological Interests , 668 F.3d at 713 (finding that no t h i r d p arty h ad an incentive t o bring a claim where there

was an absence of a ny administrative challenge to the regulations at issue in the three-year period following the promulgation o f those regulations). The fact that a relatively short period of t ime has passed without challenge to the PPR does not necessarily indicate that, given the appropriate information and guidance, the e nrollees could not or would not b r ing those claims in t he future. As a result, Southwest has not convinced us that its enrollees would be u nwilling or unable

8 Southw es t ad mits that it has not attem pted to recruit enrollees w ho could aggregate their claim s in ord er to challenge the PPR. Such an attem p t, w hile not alw ays neces s ary to s ucces sf ully invok e the Il l inoi s Counci l excep tion, would p rovid e us w ith s om e concrete bas is
on w hich to d eterm ine that obtaining jud icial review w ould be p ractically im p os s ible.

9 Southw es t f

iled its original com p laint i n t h e U nited States D is trict Court f or the Southern D is trict of T exas on July 11, 2011. 17 Case: 12-40097 Document: 00512227455 Page: 17 Date Filed: 05/01/2013No. 12-40097

to reach the amount-in-controversy threshold such that it should be granted an exception to § 405(h)’s channeling requirement.

CONCLUSION W h i l e S o u t h w e st may h a v e s h o w n t h a t i t f a c e s o b s t a c l e s i n f

i n d i n g enrollees who would file claims challenging t h e P P R which would satisfy the amount-in-controversy requirement, it has not shown that those o bstacles are insurmountable. T he q uestion asked by the Supreme C ourt in Illinois Council is not whether compliance wi t h § 4 05(h)’s channeling r e quirement would be merely inconvenient or expensive, b u t i n stead whether it would result in a

“ complete p r eclusion of j udicial review.” Council for Urological I nterests , 668 F.3d at 708. B ecause Southwest has f ailed to demonstrate that i ts challenge to the PPR falls within the very narrow r each of t he Illinois Council exception, we AFFIRM the district court’s dismissal for lack of subject matter jurisdiction.

18 Case: 12-40097 Document: 00512227455 Page: 18 Date Filed: 05/01/2013