Court Opinion

ID: 3004275
Source: CourtListenerOpinion
Date Created: 2015-09-24 22:42:35.620214+00
Date Added: 2024-06-11T11:45:56.115709
License: Public Domain

In the

United States Court of Appeals
              For the Seventh Circuit

No. 09-2226

D OCTORS N URSING & R EHABILITATION C ENTER,

                                              Plaintiff-Appellant,
                                v.

K ATHLEEN S EBELIUS, Secretary of Health and
Human Services, United States Dept. of Health
and Human Services,
                                       Defendant-Appellee.

           Appeal from the United States District Court
               for the Central District of Illinois.
            No. 08 CV 3096—Jeanne E. Scott, Judge.

     A RGUED D ECEMBER 10, 2009—D ECIDED JULY 16, 2010

 Before P OSNER, M ANION, and H AMILTON, Circuit Judges.
  M ANION, Circuit Judge. After Doctors Nursing & Rehabil-
itation Center, a nursing home in Salem, Illinois, sued the
Secretary of Heath and Human Services, claiming that
Medicare underpaid it for certain services provided to
Medicare beneficiaries, the agency decided to reopen its
2                                             No. 09-2226

administrative proceedings and reconsider the nursing
home’s claims. The district court dismissed the suit,
reasoning that the agency’s reopening eliminated the
prerequisite final decision and stripped the court of
jurisdiction. Because we hold that the agency may not
reopen its proceedings after judicial review begins
without permission from the court, we reverse.

                            I.
  The underlying payment dispute involves the rate at
which Medicare reimburses skilled nursing facilities for
pulse-oximetry tests—a routine and non-invasive means
of testing oxygen levels in the blood. Medicare reim-
burses nursing facilities in one of two ways. When a
beneficiary’s entire stay is covered by Medicare Part A,
which provides coverage for in-patient hospital and other
institutional care services, Medicare generally pays a
per diem rate to the facility. When the stay is not cov-
ered under Part A, Medicare reimburses some covered
services on a per procedure basis under its Part B supple-
mental insurance. Since 1999, this per procedure rate
has declined significantly—abruptly at first in 2000 and
gradually each year since. All of the disputed payments
in this case were properly made on a per procedure
basis, but the nursing home believes that the reductions
in the per procedure rate were unlawful.
  The nursing home first presented its claims through the
agency’s administrative channels. It filed its claims, as
required, with its “fiscal intermediary” (the private
contractor responsible for paying Medicare claims in
No. 09-2226                                              3

nursing facilities), which determined the applicable fee
schedule and paid the nursing home according to the
rates therein.
  Believing that the proper reimbursement rate for its
services was several times the amount indicated in the
fee schedule, the nursing home asked for a “redet-
ermination” from its fiscal intermediary. When a fiscal
intermediary receives a request for redetermination, it
must decide whether the contested issue was an “initial
determination” or simply a rote application of a sched-
uled rate. Only initial determinations are subject to ad-
ministrative review and eventually a hearing. Believing
that the issue involved a rote application of the physi-
cian fee schedule payment rate and that the nursing
home was challenging the rate itself, the fiscal intermedi-
ary decided that the nursing home’s payment did not
involve an “initial determination” and denied the
redetermination request.
  When its redetermination request failed, the nursing
home again followed the prescribed administrative pro-
cedure and asked the Qualified Independent Contractor
(the contractor that handles appeals from the fiscal inter-
mediary) for a “reconsideration” of the fiscal intermedi-
ary’s dismissal of the redetermination request. That
Qualified Independent Contractor affirmed the fiscal
intermediary’s dismissal and informed the nursing home
the decision was “final and not subject to any further
review.”
  The nursing home then sued, complaining that the
agency had underpaid it for the pulse-oximetry tests by
4                                                No. 09-2226

illegally reducing the rate under the applicable fee sched-
ule. In the meantime, however, the agency decided that
its contractors had erred in terminating the administra-
tive review process. It concluded that the nursing home
was entitled to additional process before the agency and
sought to reopen its administrative proceedings. The
agency filed a motion to dismiss arguing that the district
court should dismiss the case for lack of jurisdiction
because there was no longer a final decision to review. The
district court dismissed the case for want of jurisdiction.
The nursing home appeals.

                             II.
                             A.
  The nursing home argues that the agency may not
divest the courts of jurisdiction simply by unilaterally
reopening its proceeding after the lawsuit was filed: if
there was a final decision that provided subject matter
jurisdiction at the time the lawsuit was filed, the agency
may not disturb that jurisdiction.1

1
  This presumes, of course, that the court had jurisdiction in
the first place. Concerned that the nursing home was chal-
lenging the calculation of the physician fee schedule rate
for pulse oximetry—a challenge we may not entertain pursuant
to 42 U.S.C. § 1395w-4(i)(1)—we ordered supplemental briefing
from both parties to clarify whether the nursing home’s chal-
lenge was precluded by that statute. After considering the
supplemental filings, we are satisfied that the suit can be
                                                (continued...)
No. 09-2226                                                     5

  We review a dismissal for lack of subject matter juris-
diction de novo. Evers v. Astrue, 536 F.3d 651, 656 (7th Cir.
2008). Jurisdiction over suits involving claims for pay-
ment under the Medicare Act arises under 42 U.S.C
§ 1395ff(b)(1)(A), which adopts by reference the judicial
review provisions applicable to the Social Security Ad-
ministration at 42 U.S.C. § 405(g). Section 405(g), in
turn, provides for judicial review of any “final decision . . .
made after a hearing.”
  To be sure, there was no such “final decision . . . made
after a hearing” in this case. But contrary to the
Secretary’s suggestion, that fact has no effect on our
jurisdiction: it is well established that the agency may
waive the hearing requirement under § 405(g). See
Matthews v. Eldridge, 424 U.S. 319, 328-30 (1976). Judicial
review is permitted when there is a lack of additional

1
   (...continued)
characterized as asserting that the agency either applied (a
factual dispute) or should have applied (a legal dispute) a rate
other than the physician fee schedule rate in the first place. The
agency does not suggest that this argument is so unsubstantial
that it cannot support our jurisdiction. See Carr v. Tillery,
591 F.3d 909, 917 (7th Cir. 2010) (“A suit that is utterly
frivolous does not engage the jurisdiction of the federal
courts.”). So the court had jurisdiction—ab initio at least—to
determine which fee schedule the agency applied and whether
it was correct. We note, however, that if the agency correctly
applied the physician fee schedule rate, judicial review must
instantly cease: Congress has expressly precluded judicial
review of the calculation of physician fee schedule rates.
6                                                   No. 09-2226

administrative review, whether due to exhaustion
or waiver.2 So we will simply refer to the Qualified Inde-
pendent Contractor’s dismissal of the nursing home’s
reconsideration request, which was “final and not subject
to further review” and by which the agency waived
any requirement of exhaustion of additional administra-
tive remedies, as the agency’s final decision.
   The nursing home argues that the general rule is that
subject matter jurisdiction is determined at the time of
filing. The Secretary responds that so long as the agency
has authority under its regulations, it may reopen its
administrative proceedings. And she asserts that once
it reopens the proceedings, there is no longer a “final
decision” for the courts to review and any suit based on the

2
  After oral argument, the agency brought our attention to
a change in the regulation governing the Qualified Inde-
pendent Contractor’s reconsideration decision. 42 C.F.R.
§ 405.974(b)(3). The regulation now states that the decision is
“binding”—rather than “final”—“and not subject to any
further review.” In its final rule implementing this change, the
agency noted that, unlike a “final” decision, a “binding”
decision is not necessarily “a final decision of the Secretary
for purposes of exhausting administrative remedies when
seeking judicial review.” 74 Fed. Reg. 65296, 65308. This, the
agency argues, clarifies that the affirmation of the dismissal of
the nursing home’s redetermination request in this case was
never a “final decision . . . made after a hearing.” But because
the agency may waive the exhaustion requirement, it cannot
insulate its decisions from judicial review simply by refusing
to label an otherwise appealable decision as a “final decision”
within the meaning of the statute.
No. 09-2226                                                 7

earlier decision must be dismissed for want of jurisdic-
tion. Because this argument is not based on anything
unique to the Medicare regulatory context, the Secretary
effectively would have us hold that an agency may
always divest the courts of jurisdiction with post-
filing reopening and reconsideration, notwithstanding
the traditional rule that jurisdiction is determined at the
time of filing.
  We have never specifically considered this question of
whether the agency can reopen a Medicare claim and
thereby destroy federal jurisdiction. For three reasons,
however, we hold that when a suit is filed under § 405(g),
the agency may not divest the federal courts of jurisdic-
tion by unilaterally reopening its administrative pro-
ceedings.
  First, the general rule is that “[w]e analyze jurisdiction
based on the events at the time the case is brought.” Hukic
v. Aurora Loan Services, 588 F.3d 420, 427 (7th Cir. 2009)
(citing Grupo Dataflux v. Atlas Global Group, L.P., 541
U.S. 567 (2004)). So we presume that the general rule
applies here. It is true, as the agency points out, that the
rule is primarily encountered when determining the
prerequisites of diversity jurisdiction. E.g., id.; Smith v.
Widman Trucking and Excavating, Inc., 627 F.2d 792, 799
(7th Cir. 1980). But the rule is not so limited. See, e.g.,
Laborers’ Pension Fund v. Pavement Maint., Inc., 542 F.3d 189,
194 (7th Cir. 2008) (“If jurisdiction exists at the outset of
a suit, subsequent procedural events will not divest the
court of that original jurisdiction.”).
  Second, Congress has specifically spoken on the issue
of when and how the agency can reopen its administra-
8                                                  No. 09-2226

tive proceedings after judicial review begins. The sixth
sentence of § 405(g) allows the court “on motion of the
[agency] made for good cause shown before the [agency]
files [its] answer, [to] remand the case to the [agency] for
further action.” 3 While this provision addresses only
the court’s power to remand, and not the agency’s own
authority to reopen its proceedings, it assumes that an
agency may not disrupt federal jurisdiction on its own.
Otherwise, the remand authority in § 405(g) would serve
no purpose: the agency would never need to ask the
court for a remand. By specifying the procedure for
remand, Congress has limited the agency’s authority
under § 1395ff(b)(1)(G) to reopen and revise a prior
determination.
  Finally, determining whether a final decision exists at
the time of filing comports with the normal procedures
of appellate review. Ordinarily, when one tribunal prop-
erly takes a case on appeal, the inferior tribunal transfers
authority over the case. Gao v. Gonzales, 464 F.3d 728, 729
(7th Cir. 2008). Thus, the majority rule (accepted by this
circuit) is that while a district court may consider a
motion for relief from a judgment under Federal Rule of
Civil Procedure 60, and even deny the motion, while an

3
  Sentence six, which also allows a claimant to request a remand
on the basis of new and material facts, is one of two remands
available under § 405(g). Sentence four provides the other,
allowing the court to remand upon a “judgment affirming,
modifying, or reversing” the agency’s decision. These are the
exclusive methods of remand available to the district court.
Melkonyan v. Sullivan, 501 U.S. 89, 99-100 (1991).
No. 09-2226                                                     9

appeal is pending, it must request permission from the
appellate court to grant the motion. Washington v. Bd. of
Educ., 498 F.2d 11, 16 (7th Cir. 1974); see also C HARLES
A LAN W RIGHT, A RTHUR R. M ILLER & M ARY K AY K ANE,
F EDERAL P RACTICE & P ROCEDURE, § 2873. Otherwise, a
district court could eliminate a final judgment, and with
it federal appellate jurisdiction. This precisely parallels
the rule that Congress established with § 405(g): the
inferior tribunal (the agency) must request permission
from the appellate tribunal before it reopens its final
decision.4
  The Secretary argues that we have already held that the
time-of-filing rule does not apply to judicial review of
agency decisions, citing to Gao v. Gonzales, 464 F.3d 728. In
that case, the petitioner had declined to challenge the
Board of Immigration Appeals decision ordering his
deportation, but after second thoughts asked the Board
to reopen its decision. Id. at 729. When the Board denied
his motion to reopen, he petitioned this court for review.
While his petition was pending, the Board changed its
mind, reopened the deportation order on its own

4
  This holding has no bearing on the effect of a motion to
reopen a final administrative decision filed by the plaintiff in a
suit involving judicial review of that decision. See Wade v. FCC,
986 F.2d 1433, 1434 (D.C. Cir. 1993) (holding that a motion to
reopen divested the federal courts of jurisdiction by analogy
to Federal Rule of Civil Procedure 59(e), which—unlike Rule
60—does divest a court of appeals of jurisdiction over a previ-
ously filed action (citing Griggs v. Provident Consumer Disc.
Co., 459 U.S. 56, 61 (1982))).
10                                              No. 09-2226

accord, and asked the court to dismiss the petition. We
dismissed the petition, holding the Board was authorized
under the immigration statutes and controlling case law
to continue its administrative proceedings even while a
petition was pending in a Court of Appeals. Id. at 730.
We reasoned that because the Board had the authority
to consider whether to reopen its earlier deportation
order, it could also decide to reopen, even on its own
accord. And because it had authority to reopen the case
and thereby rescind the denial that the petitioner was
challenging, there was no longer a final decision for us
to review. We thus concluded that we lacked jurisdic-
tion to consider his petition. Id.
  But Gao does not control here for two reasons. First,
Gao was fundamentally a mootness case: because the
petitioner had challenged only the agency’s refusal to
reopen his case, there was no more relief that the court
could have granted once the agency itself decided to
give the petitioner the very thing he was asking of the
court. Second, Gao did not establish a general rule that
agencies may divest courts of jurisdiction by reopening
final decisions. Rather, Gao was careful to justify its
holding based on the particulars of the immigration
context. It noted that the Supreme Court has interpreted
the statutory scheme of immigration review as allowing
for concurrent review of a case by both the Board and
the courts, even though this concurrent review is one of
the specific inefficiencies prevented by the requirement
that a party exhaust his administrative remedies before
seeking judicial review. Id. at 729. We stressed that it was
because of this statutory scheme that the Board was
No. 09-2226                                              11

empowered to consider, and decide, the very same ques-
tion that was pending before the court.
  So while Gao teaches that the time-of-filing rule
does not apply in every administrative context, it
does not speak to this administrative context. And as
we have noted, rather than allow for concurrent review
in this context, Congress has expressly provided a mecha-
nism by which a district court can return the case to
the agency before the case has progressed beyond the
pleadings.
  The Secretary also cites an older social security claim
case from the Sixth Circuit in support of her position that
an agency’s reopening of a case subsequent to the filing
of a lawsuit deprives the court of jurisdiction. Bisson v.
Secretary of Health and Human Services, 787 F.2d 181 (6th
Cir. 1986), involved a request for mandamus relief by a
social security claimant challenging the Social Security
Administration’s denial of benefits. The plaintiff had
applied for benefits and received an administrative
denial. Id. at 182. After a hearing, an Administrative Law
Judge (“ALJ”) returned the case to have the record cor-
rected and for further proceedings. The agency took no
additional formal action. The plaintiff sued, seeking
mandamus relief to enforce the ALJ’s decision. Shortly
thereafter, the agency decided to reopen the plaintiff’s
claim. The court held that the agency’s reopening
deprived it of its mandamus jurisdiction under 28 U.S.C.
§ 1361 and that it did not have jurisdiction under 42 U.S.C.
§ 405(g).
  The Secretary argues that in Bisson the Sixth Circuit
adopted the rule she advocates here and that we should
12                                              No. 09-2226

follow suit. But Bisson, like Gao, was essentially a case
of mootness and is similarly inapposite here. The relief
that the plaintiff was seeking in Bisson was an order
that the agency effectively reopen its proceedings and
comply with the ALJ’s order to reconsider the case. Id. at
182. When the agency decided to reopen the application
on its own, there was no longer any relief the court
could order until the agency had completed its admin-
istrative review. Mandamus relief was inappropriate
because there was another avenue for relief. Id. at 185.
And the court did not have jurisdiction over the plain-
tiff’s procedural claims under § 405(g) because they were
intertwined with a claim for benefits that was not final.
Id. In short, Bisson did not involve a “final decision”
comparable to the decision here, but rather a breakdown
in the administrative procedures that the agency itself
corrected.
  The Secretary next argues that the rationale underlying
the time-of-filing rule in the context of diversity jurisdic-
tion, where it originated, does not apply here. For
example, absent the rule, a party in a diversity suit might
destroy jurisdiction by amending the amount in contro-
versy, thus preventing the case from being heard in a
federal forum altogether. Here, by contrast, the agency’s
reopening would merely delay the eventual judicial
review.
  But a complete preclusion of federal jurisdiction is
hardly the only strategic behavior imaginable, and the
risk of manipulation is only one basis for the time-of-filing
rule. Under the Secretary’s proposed rule, any agency
No. 09-2226                                              13

could strip jurisdiction from federal courts, seemingly at
any stage of the proceeding, for any reason. If the agency
became concerned that a Court of Appeals—or even the
Supreme Court—might issue a decision adverse to its
interests, it could reopen its proceedings and yank the
case out of the courts, regardless of the amount of re-
sources that had already been expended or the advanced
stage of the case. Besides being highly inefficient, it
would allow the agency to manipulate federal jurisdic-
tion to frustrate litigants by increasing the time and
expense required to pursue claims, and prevent or at
least postpone into perpetuity unfavorable precedent.
  The Secretary notes that the possibility of manipulation
need not concern us because its actions are entitled to a
strong presumption of regularity. Busboom Grain Co., Inc. v.
ICC, 830 F.2d 74, 75 (7th Cir. 1987). This is true. And we
do not suggest that there is any evidence that the agency
is actively manipulating our jurisdiction. But under the
agency’s theory, it would enjoy more than a presumption
of regularity: its decision, and motivation, would effec-
tively be unreviewable because the courts would have
no jurisdiction over the case once a final decision had
been reopened.
  The Secretary also emphasizes that its reopening oc-
curred early and while the suit was still in the pleading
stage. Again, the relatively minor inconvenience and
inefficiency in this case is beside the point: under the
agency’s theory, jurisdiction would disappear at any
stage, regardless of the inefficiency or expense.
  Finally, the Secretary argues that it would be ineffi-
cient for the time-of-filing rule to apply in a manner
14                                              No. 09-2226

that would prevent the agency from correcting its own
errors and giving full and proper consideration to a plain-
tiff’s claims. Some delay-related hardship is indeed the
price we pay for efficiency in our “massive, complex”
programs, such as Medicare. See Shalala v. Illinois Council
on Long Term Care, Inc., 529 U.S. 1, 13 (2000). We recognize
that the interests in administrative efficiency often
weigh heavily in favor of the agency when balanced
against an individual plaintiff’s interest in having
judicial review of his claim.
   But this advantage is not absolute, particularly once
concerns of judicial efficiency enter the calculation. Here,
Congress has established a method of allowing the
agency to revisit its own decisions and correct initial
errors that it or its contractors make. At the same time,
it has set a limit on how late in the day the agency may
revisit a decision—before it files its answer—and pro-
vided some judicial oversight by requiring the agency to
demonstrate good cause to the court before the case can
be remanded for further proceedings. The Secretary’s
position would make this provision largely irrelevant.
  So we reject the Secretary’s theory, which would give the
agency the unreviewable power to manipulate federal
jurisdiction without any guarantee of efficiency. Instead,
we read Congress’s specification of the district court’s
power to remand in § 405(g)—the same section that
authorizes judicial review in the first place—as a limita-
tion on the agency’s authority under § 1395ff(b)(1)(G) to
reopen and revise its determination. Thus, we hold
that under § 405(g) the agency may not, during the pen-
No. 09-2226                                                 15

dency of judicial review, reopen and revise a final deci-
sion without permission from the court.

                              B.
   As we have noted, § 405(g) provides a mechanism for
a district court to remand a case to an agency if the
agency moves for such a remand before it files its answer.
The Secretary suggests that if we reverse on the juris-
dictional question, we remand to the district court with
instructions to remand the case to the agency—in effect, it
asks us to treat its motion to dismiss as a motion to
remand under § 405(g). Although we have never had
occasion to consider a remand by a district court under
the first clause of sentence six of § 405(g),5 we think it
plain from the discretionary language of the statute—“a
district court may remand a case”—that we would review
any such decision for an abuse of discretion. Accord Dudley
v. Astrue, 246 Fed. Appx. 249, 251 (5th Cir. 2007) (unpub-
lished) (reviewing decision to remand upon agency’s
motion for abuse of discretion).
  Of course, if the agency could not satisfy the “good
cause” requirement, allowing the district court to remand
the case to the agency would make little sense and might

5
   Most of our, and other circuits’, precedents on sentence six
involve the second clause: we review de novo a district court’s
determination that new evidence warrants a remand. Johnson
v. Apfel, 191 F.3d 770, 776 (7th Cir. 1999).
16                                                No. 09-2226

simply solicit an unnecessary appeal.6 The nursing home
argues that the agency cannot show “good cause” either
under § 405(g) or its own regulations. According to the
Secretary, the agency wishes to reopen to consider
whether its contractors applied the correct fee schedule.
The nursing home argues that the contractors applied the
correct fee schedule, but that the fee schedule rate was
calculated in violation of the statute. Which fee schedule
the contractor actually applied is an issue of fact still
unresolved at this stage. The agency certainly has an
interest in making sure that it agrees with its contractors’
decisions before subjecting those decisions to judicial
review. We cannot say that “good cause” is so clearly
lacking that the district court would abuse its discretion
if it remanded the case to the agency.
  We expect that the district court will give due deference
to the agency’s determination of whether it has “good
cause” to reopen its decision. And, if “good cause” has
been established, we assume that the weighty interest of
an agency in correcting its own mistakes will generally
prevail in the absence of concerns of strategic behavior
or gross inefficiency. At the same time, we note that the
district court has the discretion to grant or deny the
motion, notwithstanding the agency’s “good cause.” The
district court must make its own evaluation of the ad-

6
   Although remands to the agency are not ordinarily final
judgments that are appealable under 28 U.S.C. § 1291, we have
held that in some cases, remands under sentence six of § 405(g)
are appealable under the doctrine of practical finality. Travis
v. Sullivan, 985 F.2d 919, 920-23 (7th Cir. 1993).
No. 09-2226                                              17

ministrative need for a remand, the interests in judicial
efficiency and finality, and the hardship to the litigants.
Therefore, we remand the case to allow the district court
to consider whether to grant a remand in the first instance.

                            III.
  We hold that the agency does not have the unilateral
authority to reopen its administrative proceedings once
judicial review of the agency’s final decision has begun.
Rather, the agency may, at any point prior to filing its
answer and with a showing of “good cause,” move the
district court to remand the case to the agency for
further proceedings. Accordingly, we R EVERSE the
district court’s dismissal of the case for lack of subject
matter jurisdiction and R EMAND the case for further
proceedings consistent with this opinion.

                           7-16-10