Court Opinion

ID: 619738
Source: CourtListenerOpinion
Date Created: 2011-12-23 15:36:54+00
Date Added: 2024-06-11T17:50:49.458128
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 14, 2011           Decided December 23, 2011

                       No. 11-5030

          COUNCIL FOR UROLOGICAL INTERESTS,
                     APPELLANT

                             v.

    KATHLEEN SEBELIUS, IN HER OFFICIAL CAPACITY AS
 SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN
      SERVICES, AND UNITED STATES OF AMERICA,
                     APPELLEES

        Appeal from the United States District Court
                for the District of Columbia
                    (No. 1:09-cv-00546)

    Elizabeth Petrela Papez argued the cause for appellant.
With her on the briefs were Thomas L. Mills and Michael T.
Morley.

     Jeffrey Clair, Attorney, U.S. Department of Justice,
argued the cause for appellee. With him on the brief were
Tony West, Assistant Attorney General, Ronald C. Machen
Jr., U.S. Attorney, and Michael S. Raab, Attorney. R. Craig
Lawrence, Assistant U.S. Attorney, entered an appearance.
                               2
    Before: SENTELLE, Chief Judge, TATEL and BROWN,
Circuit Judges.

    Opinion for the Court filed by Circuit Judge TATEL.

     TATEL, Circuit Judge: Although the Medicare Act
provides for judicial review of reimbursement decisions, it
requires that claimants first exhaust their administrative
remedies. In Shalala v. Illinois Council on Long Term Care,
Inc., the Supreme Court recognized an exception to this
requirement for cases where its application “would not lead to
a channeling of review through the agency, but would mean
no review at all.” 529 U.S. 1, 17 (2000). In this case, an
association of doctor-owned equipment providers challenges
regulations issued by the Secretary of Health and Human
Services (HHS) that effectively prevent its members from
obtaining Medicare reimbursement for their services. For the
reasons set forth in this opinion, we conclude that under the
particular circumstances of this case, the Illinois Council
exception applies and the association may invoke the district
court’s general federal question jurisdiction without first
seeking administrative review under the Medicare Act.

                               I.
     The HHS Secretary issued the challenged regulations
under a statute known as the Stark law, 42 U.S.C. § 1395nn.
Congress enacted that statute to address perceived
overutilization of services by physicians who stood to profit
by referring patients to facilities or entities in which they had
a financial interest. United States ex rel. Kosenske v. Carlisle
HMA, Inc., 554 F.3d 88, 95 (3d Cir. 2009). In its current form,
the Stark law provides that if a physician has a financial
relationship with an entity that “furnish[es]” certain
“designated health services,” the physician “may not make a
referral to the entity for the furnishing of designated health
                               3
services for which payment otherwise may be made” under
the Medicare Act, and the entity “may not present or cause to
be presented a claim . . . or bill to any individual, third party
payor, or other entity for designated health services furnished
pursuant to” such a referral. 42 U.S.C. § 1395nn(a)(1).

     The Stark law directly affects the members of appellant
Council for Urological Interests—physician-owned joint
ventures formed to purchase specialized equipment for
urologic laser surgery. These joint ventures typically operate
“under arrangement” with hospitals, that is, under a contract
in which the urologist-owned venture provides the laser
equipment and related services, while the hospital provides
space for the procedure and compensates the venture for the
equipment and services provided. Although Medicare
reimburses urologists directly for their professional services,
it pays full “technical fees” for equipment and non-
professional services only to hospitals. Appellant’s Br. 7. So
in a typical joint venture arrangement, the hospital bills
Medicare for the technical fee for each surgical procedure
performed and then passes on a pre-negotiated portion of that
fee to the joint venture on a per-procedure basis.

    The Secretary initially approved these arrangements as
consistent with the Stark law. In 2008, however, the Secretary
reconsidered the issue and promulgated new regulations
prohibiting most such arrangements. Under the 2008
regulations, urologists who have a financial interest in a joint
venture may no longer refer patients to the venture for laser
services, even if the services are provided under arrangement
with a hospital. See 42 C.F.R. § 411.351 (defining an entity
“furnishing [designated health services]” to include “the
person or entity that has performed services that are billed as
[designated health services]”); 42 U.S.C. § 1395nn(a)(1)(A)
(prohibiting referrals by physicians who have a financial
                              4
relationship with the entity “furnishing” the designated health
services). The regulations also prohibit per-procedure leases
with physician-owned equipment suppliers. 42 C.F.R.
§ 411.357(b)(4)(ii)(B).

      After the new regulations were issued but before they
became effective, the Council filed suit in the United States
District Court for the District of Columbia, invoking the
court’s general federal question jurisdiction pursuant to 28
U.S.C. § 1331, and alleging that the 2008 regulations
exceeded the Secretary’s statutory authority. The government
moved to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(1) for lack of subject matter jurisdiction, arguing that
section 405(h) of the Social Security Act, incorporated into
the Medicare Act through 42 U.S.C. § 1395ii, precluded
federal question jurisdiction over the Council’s claims. Under
section 405(h), “[n]o action against the United States, the
[Secretary of Health and Human Services], or any officer or
employee thereof shall be brought under section 1331 . . . of
title 28 to recover on any claim arising under” the Medicare
Act. 42 U.S.C. § 405(h); see also 42 U.S.C. § 1395ii. Instead,
such claims must be “channeled” through the agency’s
administrative procedures. Ill. Council, 529 U.S. at 12. After
exhausting those procedures, the claimant can seek judicial
review pursuant to the Medicare Act, which contains its own
jurisdictional provision separate from section 1331’s grant of
general federal question jurisdiction. See 42 U.S.C.
§ 1395ff(a)(1)(C), (b), (d); 42 U.S.C. § 405(b), (g)–(h).

    Responding to the government’s motion, the Council
acknowledged that direct judicial review is normally
unavailable for Medicare Act challenges, but claimed that it
had no choice but to seek immediate judicial review pursuant
to section 1331. Specifically, because only Medicare
“providers” may seek administrative review of the
                                5
reimbursement decision at issue in this case, and because
neither the Council nor its members qualify as “providers,”
the Council argued—and the government agreed—that it had
no direct means of channeling its claims through the agency
before seeking judicial review under the Medicare Act.
Compl. ¶ 80. Thus barred from seeking Medicare Act review,
the Council argued that section 405(h) could not likewise bar
section 1331 jurisdiction; otherwise, the Council would have
no judicial remedy at all. The district court disagreed.
Although recognizing that the Council and its members
lacked access to Medicare Act review, the court concluded
that no exception to the channeling requirement applied
because the hospitals with which Council members had
contracted, as Medicare “providers,” could challenge the 2008
regulation through the administrative process. See Council for
Urological Interests v. Sebelius, 754 F. Supp. 2d 78, 83–88
(D.D.C. 2010). Accordingly, the district court dismissed the
complaint for lack of subject matter jurisdiction—a decision
we now review de novo. Nat’l Air Traffic Controllers Ass’n v.
Fed. Serv. Impasses Panel, 606 F.3d 780, 786 (D.C. Cir.
2010) (“We review de novo the district court’s grant of a
motion to dismiss for lack of subject matter jurisdiction.”
(internal quotation marks omitted)).

                               II.
     The Supreme Court has long understood section 405(h)
as a “channeling” requirement that “reaches beyond ordinary
administrative law principles of ‘ripeness’ and ‘exhaustion of
administrative remedies.’ ” Ill. Council, 529 U.S. at 12–13
(citing Weinberger v. Salfi, 422 U.S. 749, 757 (1975)).
Because section 405(h), as incorporated by section 1395ii,
applies to any case in which the Medicare Act supplies “both
the standing and the substantive basis” for the claim, it has the
effect of “ ‘channeling’ . . . virtually all legal attacks through
the agency.” Id.
                               6
     That said, the Supreme Court has also held that section
405(h)’s “channeling requirement” is not absolute. In Bowen
v. Michigan Academy of Family Physicians, 476 U.S. 667
(1986), the Court considered a challenge, brought under
section 1331, to regulations governing the method for
calculating benefits under Medicare Part B. Because at that
time the Medicare Act provided no avenue, either
administrative or judicial, for challenging the validity of Part
B regulations, applying section 405(h) would have meant “no
review at all of substantial statutory and constitutional
challenges” to those regulations. Id. at 680. Proceeding from
“the strong presumption that Congress intends judicial review
of administrative action,” id. at 670, the Court found it
“implausible to think [that Congress] intended that there be no
forum to adjudicate statutory and constitutional challenges to
regulations promulgated by the Secretary,” id. at 678.
Accordingly, finding no “clear and convincing evidence” to
overcome the strong presumption favoring judicial review, id.
at 681 (internal quotation marks omitted), the Court rejected
the government’s view that “whatever specific procedures
[Congress] provided for judicial review of final action by the
Secretary were exclusive,” id. at 679, and held the challenge
to the Secretary’s regulations cognizable under section 1331,
id. at 680.

     The Supreme Court fleshed out the scope of the Michigan
Academy exception in Illinois Council. Emphasizing that
section 405(h) is intended to postpone judicial review, not
totally preclude it, 529 U.S. at 19, the Court read Michigan
Academy as holding section 405(h) inapplicable to Medicare
Act claims “where its application to a particular category of
cases . . . would not lead to a channeling of review through
the agency, but would mean no review at all.” Ill. Council,
529 U.S. at 17. The Court cautioned, however, that a party
may not circumvent the channeling requirement by showing
                              7
merely that “postponement [of judicial review] would mean
added inconvenience or cost in an isolated, particular case.”
Id. at 22. Rather, in determining whether the Illinois Council
exception to section 405(h) applies, “the question is whether,
as applied generally to those covered by a particular statutory
provision, 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.

     This Circuit’s approach to the Illinois Council inquiry is
best illustrated by American Chiropractic Association, Inc. v.
Leavitt, 431 F.3d 812 (D.C. Cir. 2005). In that case, an
association of chiropractors brought suit under section 1331 to
challenge Medicare reimbursement regulations. In order to
determine whether section 405(h) applied, and guided by the
Supreme Court’s warning that mere inconvenience is no
reason for invoking the Illinois Council exception, we
carefully considered the various ways through which the
association’s claim could be brought before the agency.
Ultimately, because we determined that at least some
chiropractors—though not all—could obtain administrative
review of the challenged regulations, we found the Illinois
Council exception inapplicable. Id. at 817–18.

     The case before us presents a somewhat different
situation, one not clearly addressed by existing case law.
Illinois Council and Michigan Academy make clear that
section 405(h) is inapplicable where the Medicare Act offers
no avenue for review of a particular category of statutory or
constitutional claims. But here other parties—specifically, the
hospitals with which the Council’s members had contracted—
could challenge the 2008 regulations through Medicare Act
channels. American Chiropractic, in turn, suggests that
section 405(h) applies so long as Medicare Act review of a
claim is available to some, though perhaps not all, of a class
                               8
of affected parties. But here, as the government
acknowledges, a whole category of affected parties—that is,
joint ventures providing laser surgery equipment and
services—has no way to obtain review through Medicare Act
channels. This case, then, presents the following question:
How does section 405(h) apply when the Medicare Act
provides an avenue for administrative and judicial review of a
particular claim (the challenge to the 2008 regulations), but
not by the category of affected parties who wish to bring it
(the Council)? Before addressing that question, however, we
must consider an antecedent matter, namely, the
government’s argument that the failure of anything in the
Medicare Act to provide administrative remedies for non-
Medicare providers, such as the Council and its members,
reflects congressional intent to limit the right of judicial
review to Medicare providers, i.e., hospitals.

                              III.
     As directed by the Supreme Court in Michigan Academy,
“[w]e begin with the strong presumption that Congress
intends judicial review of administrative action” and that
“judicial review of a final agency action by an aggrieved
person will not be cut off unless there is persuasive reason to
believe that such was the purpose of Congress.” Mich. Acad.,
476 U.S. at 670 (internal quotation marks omitted). To
overcome this presumption, the government bears a “heavy
burden.” Id. at 672 (internal quotation marks omitted).
Pursuant to Block v. Community Nutrition Institute, the
government may attempt to satisfy its burden in several ways:
by pointing to “specific language or specific legislative
history that is a reliable indicator of congressional intent”; by
demonstrating       “congressional      acquiescence”     to    a
“contemporaneous judicial construction barring review”; or
by drawing “inferences of intent . . . from the statutory
scheme as a whole,” such as when the statute provides a
                              9
“detailed mechanism for judicial consideration of particular
issues at the behest of particular persons,” but not at the
behest of others. 467 U.S. 340, 349 (1984). Seeking to
overcome the presumption via the last route, the government
argues that by prohibiting review of HHS decisions except as
provided in the Medicare Act and by barring claims brought
under section 1331, section 405(h) “unambiguously limits
judicial review to those parties who can invoke Medicare’s
administrative remedies”—that is, hospitals, not the Council
or its members. Appellees’ Br. 43. We disagree.

     Critical to our analysis, the Supreme Court has
understood section 405(h) as having only channeling force,
not, as the government would have it, foreclosing force. See
Ill. Council, 529 U.S. at 19 (characterizing section 405(h) as
“a channeling requirement, not a foreclosure provision—of
‘amount determinations’ or anything else,” and drawing a
distinction “between a total preclusion of review and
postponement of review” (emphasis added)); Mich. Acad.,
476 U.S. at 680 (finding no evidence of congressional intent
to foreclose statutory and constitutional challenges to
Medicare regulations). Indeed, in Michigan Academy, the
Court rejected an implied preclusion argument very similar to
the one the government makes here—that “by failing to
authorize [review of Medicare Part B determinations] while
simultaneously authorizing administrative and judicial review
[of Part A determinations]” and by “expressly preclud[ing] all
administrative or judicial review not otherwise provided in
that statute,” the Medicare Act foreclosed review of the
challenged regulation. 476 U.S. at 673. Invoking the strong
presumption favoring judicial review, the Court declined to
interpret the statute’s “total silence about review” of Part B
regulations, coupled with section 405(h)’s jurisdictional bar,
as an implied preclusion of judicial review. See Ill. Council,
                              10
529 U.S. at 16–17 (describing Michigan Academy); Mich.
Acad., 476 U.S. at 675–76, 678–81.

     The government argues that this case differs from
Michigan Academy where “limiting appeal rights to those
conferred by Medicare’s remedial scheme would result in ‘no
forum to adjudicate statutory and constitutional challenges to
regulations promulgated by the Secretary.’ ” Appellees’ Br.
45 (quoting Mich. Acad., 476 U.S. at 678). According to the
government, “[t]hat is not the case here. Hospitals, the parties
directly affected by Stark law limitations on hospital
reimbursement, indisputably have the right to challenge the
pertinent regulations through Medicare’s jurisdictional
scheme, thereby providing the administrative and judicial fora
deemed lacking in Michigan Academy.” Appellees’ Br. 45. In
support of its argument, the government relies on Block, in
which the Supreme Court recognized that “when a statute
provides a detailed mechanism for judicial consideration of
particular issues at the behest of particular persons, judicial
review of those issues at the behest of other persons may be
found to be impliedly precluded.” 467 U.S. at 349.

     In our view, however, this case is different from Block.
There, ordinary consumers possessing only a general interest
in a reliable, low-cost supply of milk sought section 1331
review of milk market orders regulating payments between
dairy producers and processors, see id. at 344, 352 & n.3.
Here, Council members, unlike the consumers in Block, are
directly targeted by the regulations they challenge. The 2008
regulations redefine the status of urologist-owned joint
ventures, see 42 C.F.R. § 411.351 (providing a new definition
of entities “furnishing DHS” that includes any “entity that has
performed services that are billed as DHS”), in such a way
that the joint ventures can no longer either receive referrals
from their urologist-owners or bill for services furnished
                              11
pursuant to such referrals, 42 U.S.C § 1395nn(a)(1). The
regulations also bar physician-owned ventures from charging
per procedure, while imposing no similar bar on the non-
physician-owned ventures with which Council members
compete. See 42 C.F.R. § 411.357(b)(4)(ii)(B) (prohibiting
per-unit charges “to the extent that such charges reflect
services provided to patients referred by the lessor to the
lessee”). That Council members are not “providers” who can
bill Medicare and receive reimbursements directly hardly
makes their interest in the 2008 regulations “tangential” or
“indirect,” as the government argues. Appellees’ Br. 46–47.
Quite to the contrary, because over seventy-five percent of
patients who undergo urologic laser surgery are insured by
Medicare, Appellant’s Br. 7, the regulations’ impact on
urologist-owned joint ventures is not only direct, but
substantial, a fact that distinguishes the ventures from the
ordinary consumers who Block held were precluded from
judicial review.

      In Block, moreover, the statute at issue “contemplate[d] a
cooperative venture among the Secretary [of Agriculture],
handlers, and producers,” and nowhere provided for
participation by consumers. 467 U.S. at 346. The milk market
orders set minimum prices that handlers (dairy product
processors) were required to pay to producers for milk
products, id. at 341–42, and the statute provided a mechanism
for handlers and producers, but not ordinary consumers, to
participate in the adoption of market orders, to enter into
agreements with each other and the Secretary, and to obtain
administrative and judicial review of the Secretary’s orders,
id. at 346. Here, the statute is not so exclusive. Although the
Council and its members may not bill Medicare directly, they
are free to participate in rulemakings, and the Act
contemplates their participation in the Medicare system
(although now, of course, the challenged regulations largely
                               12
forbid such participation). Indeed, under those regulations,
Council members are deemed to “furnish[]” designated health
services, 42 C.F.R. § 411.351, leaving little distinction
between urologist-owned joint ventures and Medicare
“suppliers” who have access to Medicare Act channels for
administrative and judicial review, at least for some claims.
See 42 U.S.C. § 1395x(d) (defining “supplier” to mean “a
physician or other practitioner, a facility, or other entity . . .
that furnishes items or services”).

      True, the Supreme Court has described the Medicare
Act’s review provisions as “precisely drawn.” United States v.
Erika, Inc., 456 U.S. 201, 208 (1982). But the Court has
found implied preclusion in the Medicare Act’s review
scheme only where Congress’s failure to authorize review is
“[c]onspicuous[]” and suggests “deliberate[] inten[t]” to
foreclose judicial review. Compare id. at 208–11 (finding
intent to preclude judicial review of amount determinations
where the statute expressly authorized judicial review of
eligibility determinations, but provided only for limited
insurance carrier-review of amount determinations and
“[c]onspicuously . . . fail[ed] to authorize further review” of
those determinations, and where the legislative history
“unambiguously support[ed] [this] reading of the statutory
language”), with Mich. Acad., 476 U.S. at 675–76 (refusing to
read Congress’s silence as intent to preclude review, despite
the Medicare Act’s “carefully detail[ed]” review scheme).
Particularly considering the Supreme Court’s characterization
of section 405(h) as “a channeling requirement, not a
foreclosure provision,” Ill. Council, 529 U.S. at 19, we see no
“clear and convincing evidence,” Mich. Acad., 476 U.S. at
671 (internal quotation marks omitted), in the statute’s
language or structure indicating that Congress deliberately
intended to completely bar non-providers from seeking
review of regulations that target them directly.
                               13
     In reaching this conclusion, we acknowledge that it may
seem anomalous to require providers to go through
administrative review channels while permitting non-
providers to seek immediate review in federal court. But that
is a consequence of the fundamental principle lying at the
heart of this case—that “judicial review of a final agency
action by an aggrieved person will not be cut off unless there
is persuasive reason to believe that such was the purpose of
Congress.” Id. at 670 (internal quotation marks omitted). In
any event, this “two-tiered system” of review is not as
“nonsensical” as the government would have us believe,
Appellees’ Br. 46–47. As the government itself points out, id.
at 33 n.6, a provider bringing a pure legal challenge to the
validity of a regulation may invoke the Medicare Act’s
provisions for expedited judicial review, in which case a
provider may also obtain prompt access to the federal courts.
See 42 U.S.C. § 1395ff(b)(2). That providers must take the
extra step of presenting their claim to the agency for an initial
determination is, in our view, insufficient to justify precluding
entities who “furnish” services for purposes of the Medicare
Act, see 42 C.F.R. § 411.351, from obtaining judicial review
of regulations that directly and substantially affect them.

                              IV.
    Having determined that the Medicare Act imposes no
absolute bar to the Council’s challenge, we return to the issue
identified at the outset—whether section 405(h)’s channeling
requirement applies to the Council’s claims.

     We start from the premise that, as emphasized in
American Chiropractic, the Illinois Council exception is not
intended to allow section 1331 federal question jurisdiction in
every case where section 405(h) would prevent a particular
individual or entity from seeking judicial review. See Ill.
Council, 529 U.S. at 23–24 (“[W]e do not hold that an
                              14
individual party could circumvent § 1395ii’s channeling
requirement simply because that party shows . . . added
inconvenience or cost in an isolated, particular case. Rather,
the question is whether, as applied generally to those covered
by a particular statutory provision, hardship likely found in
many cases turns what appears to be simply a channeling
requirement into complete preclusion of judicial review.”);
Am. Chiropractic, 431 F.3d at 817–18 (applying section
405(h) to the association’s claims because some, though not
all, of its members could access administrative review). The
Council nowhere disagrees with this basic premise. Making
clear that its “quarrel is not with administrative exhaustion by
proxy,” Appellant’s Reply Br. 21, the Council concedes that
there are some situations—like the one in American
Chiropractic—in which a particular plaintiff is unable to
exhaust its claims, but the channeling provision nonetheless
applies because an adequate proxy could raise the plaintiff’s
claims in its stead. In those situations, however, the Council
insists that courts must have some assurance that the proxy’s
interests align with the plaintiff’s, such that the proxy can be
expected to bring and diligently pursue the plaintiff’s claims
through Medicare Act channels. The Council proposes two
possible means of assuring such an alignment of interests.
First, courts could require a legal relationship between the
plaintiff and the proxy that presupposes a strong alignment of
interests, such as the relationship between an association,
which generally has standing only to seek redress of its
members’ injuries, and those very members, see Ill. Council,
529 U.S. at 24, or the relationship between a patient who has
assigned her claim to a physician and that very physician, cf.
Am. Chiropractic, 431 F.3d at 817 (noting that a chiropractor
could obtain review by becoming the patient’s assignee).
Second, and apart from any legal relationship, courts could
require a showing that the proxy “has adequate incentive to
initiate and diligently pursue a timely administrative
                              15
proceeding on the claims the litigant wishes to raise in federal
court.” Appellant’s Br. 29–30. According to the Council,
neither condition exists here.

     For its part, the government contends that our precedent
requires no showing that a third party capable of exhausting
the plaintiff’s claims has adequate incentive to do so or has
any specific legal relationship to that plaintiff. According to
the government, because “the Illinois Council exception turns
solely on whether a claim can be heard, not whether a
particular party can be heard,” Appellees’ Br. 23, our inquiry
ends—and section 405(h) applies—once we determine that
some party, somewhere, could bring the Council’s claims
before HHS. As the government sees it, we need not, indeed
may not, consider whether that party is likely to do so as a
practical matter.

     Although we agree that the Illinois Council exception is
primarily concerned with whether a particular claim can be
heard through Medicare Act channels, we see nothing in the
case law requiring us to disregard factors that speak to a
potential proxy’s willingness and ability to pursue the
plaintiff’s claim. To the contrary, the Illinois Council inquiry
is fundamentally a practical one. The exception applies “not
only when administrative regulations foreclose judicial
review, but also when roadblocks practically cut off any
avenue to federal court.” Am. Chiropractic, 431 F.3d at 816;
see also Ill. Council, 529 U.S. at 21–22 (suggesting that
section 405(h) does not apply in cases where “as applied
generally to those covered by a particular statutory provision,
hardship likely found in many cases” amounts to the
“practical equivalent of a total denial of judicial review”
(internal quotation marks omitted)). In cases where the only
entities able to invoke Medicare Act review are highly
unlikely to do so, their unwillingness to pursue a Medicare
                               16
Act claim poses a serious “practical roadblock” to judicial
review.

     In this case, however, we have no need to determine
precisely at what point a third party’s lack of incentive or
misalignment of interests triggers the Illinois Council
exception. Wherever that point lies, we think it clear that
given the particular circumstances of this case, the Illinois
Council exception applies: invoking section 405(h) would
result not merely in “added inconvenience or cost in an
isolated, particular case,” but in the “complete preclusion of
judicial review.” Ill. Council, 529 U.S. at 22–23.

     This conclusion flows from several unique characteristics
of the hospitals’ relationship to the Council and to the
challenged regulations. To begin with, the Council alleged in
its complaint that the hospitals had no incentive to challenge
the 2008 regulations. Compl. ¶ 82. Hospitals, the Council
contended, “resent[ed] the notion of doctors having control
over the purchase of medical equipment, which they view as a
hospital prerogative,” id. ¶ 22, and the regulations presented
an opportunity “for hospitals to reassert control over the
procurement of lasers and other urological medical
equipment,” id. ¶ 82. According to the Council, the
regulations also allowed hospitals to purchase expensive laser
equipment from urologist joint ventures at “fire-sale prices,”
id. ¶ 75, while hospitals choosing not to acquire their own
equipment could simply contract with non-urologist-owned
ventures instead, thus suffering no material financial harm, id.
¶¶ 72, 82. Although the government points to allegations in
the complaint that might indicate different incentives, such as
the suggestion that only urologist-owned ventures have been
willing to invest in new technology, see, e.g., Compl. ¶¶ 78–
79, it has failed to counter the Council’s allegations with, for
instance, affidavits from hospitals attesting to their incentives
                              17
or intent to pursue an administrative challenge. See Coal. for
Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C.
Cir. 2003) (noting that courts may consider materials outside
the pleadings in ruling on a 12(b)(1) motion to dismiss for
lack of subject matter jurisdiction). Taking the Council’s
allegations as true and drawing all reasonable inferences in its
favor, as we must at this stage, City of Harper Woods Emps.’
Retirement Sys. v. Olver, 589 F.3d 1292, 1298 (D.C. Cir.
2009), we believe that the complaint demonstrates, at the very
least, that hospitals have little incentive to pursue the
Council’s challenge to the regulations. Indeed, history
confirms the Council’s contentions. In the three years since
the Secretary announced the regulations, not one of the 5,795
hospitals in the United States has brought an administrative
challenge to those regulations. Appellant’s Reply Br. 23
(citing Am. Hosp. Ass’n, Fast Facts on US Hospitals (2010),
available at http://www.aha.org/aha/resource-center/Statistics
-and-Studies/fast-facts.html). Finally, unlike the chiropractors
in American Chiropractic, who could “mount an
administrative challenge” by becoming assignees of their
patients’ claims, 431 F.3d at 817, here all parties agree that
Council members have no way of becoming the assignee of a
hospital’s claim. Nor do they possess some other relationship
with the hospitals that would assure us that the hospitals share
their interest in challenging the 2008 regulations. Although
the joint ventures have a contractual relationship with
hospitals, this in itself provides no assurance of shared
interests, for many hospitals have terminated their contracts
with Council members and, pursuant to their contracts, have
done so without penalty. Compl. ¶ 74; Appellant’s Br. 48.

    Taken together, the allegations in the Council’s
complaint, the fact that not one hospital has challenged the
regulations despite having had three years to do so, and the
absence of any relationship between Council members and the
                               18
hospitals that would ensure an alignment of interests
demonstrate that invoking section 405(h) in this case would
have the practical effect of “turn[ing] what appears to be
simply a channeling requirement into complete preclusion of
judicial review.” Ill. Council, 529 U.S. at 22–23. We therefore
conclude that, under the specific facts of this case, the Illinois
Council exception applies and the Council may therefore
pursue its claim in district court pursuant to section 1331
general federal question jurisdiction.

                               V.
    We reverse the district court’s dismissal for lack of
subject matter jurisdiction and remand for further proceedings
consistent with this opinion.

                                                     So ordered.