Court Opinion

ID: 158476
Source: CourtListenerOpinion
Date Created: 2010-08-14 05:23:11+00
Date Added: 2024-06-11T17:24:33.247068
License: Public Domain

FILED
                                                            United States Court of Appeals
                                                                    Tenth Circuit

                     UNITED STATES COURT OF APPEALS August 4, 2010
                                                                Elisabeth A. Shumaker
                                  TENTH CIRCUIT                     Clerk of Court

 In re: PRECEDENT HEALTH CENTER
 OPERATIONS, LLC,

           Debtor.
 _______________________________

 JEANNE Y. JAGOW, Trustee of
 Precedent Health Center Operations, LLC,                  No. 09-1206
                                                          (D. Colorado)
                Plaintiff-Appellant,             (D.C. No. 1:09-CV-00191-RPM)
          v.
 MUTUAL OF OMAHA INSURANCE
 COMPANY,

                Defendant-Appellee,

          and

 UNITED STATES DEPARTMENT OF
 HEALTH AND HUMAN SERVICES,

                Intervenor-Defendant
                - Appellee.

                             ORDER AND JUDGMENT *

Before MURPHY, McKAY, and TYMKOVICH, Circuit Judges.

      *
        This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
I.    INTRODUCTION

      Jeanne Jagow filed this action on behalf of Precedent Health Center

Operations LLC (“Precedent”). 1 In its capacity as a fiscal intermediary for the

Department of Health and Human Services (“HHS”), Mutual of Omaha Insurance

Company (“Mutual”) processed Medicare payments on HHS’s behalf for various

health care providers. Alleging Mutual failed to timely process Precedent’s

Medicare cost reports, thereby depriving Precedent of Medicare reimbursements,

Jagow filed this action seeking “all sums due from Medicare for reimbursement,”

as well as “statutory penalties” and “exemplary damages” for Mutual’s “failure to

comply with the applicable regulations and procedures of HHS.” HHS moved for

its substitution as the defendant or, in the alternative, to intervene, and argued it

is the only proper defendant in a suit to recover Medicare reimbursements. The

district court granted HHS’s motion and dismissed Jagow’s suit, concluding it

lacked subject matter jurisdiction because Precedent had not properly exhausted

its administrative remedies. Jagow appeals.

      Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court AFFIRMS

the district court’s decision.

      1
      Jagow is Precedent’s Trustee with respect to its Chapter 7 bankruptcy
proceedings.

                                          -2-
II.   BACKGROUND

A. The Medicare Reimbursement Process

      A brief overview of the Medicare reimbursement process as it generally

operated at the time Jagow filed this action is helpful. Congress established the

Medicare program to assist elderly and disabled persons to purchase necessary

health care. 42 U.S.C. §§ 1395 et seq. (“Medicare Act”). Under the Medicare

Act, the Secretary of HHS reimburses hospitals for covered inpatient services

provided to Medicare beneficiaries. 42 U.S.C. § 1395ww. A provider wishing to

be reimbursed for Medicare-covered services was required to enter into an

agreement with HHS, which incorporated various provisions of the Medicare Act

and its implementing regulations. 42 U.S.C. § 1395cc; 42 C.F.R. Part 481. The

Medicare Act authorized a fiscal intermediary to process, on HHS’s behalf,

payments made to providers. 2 42 U.S.C. § 1395h (2003); 42 C.F.R. Part 421,

Subpart B; 42 C.F.R. § 421.3. Intermediaries implemented the payment schemes

mandated by the Medicare Act and regulations. 42 U.S.C. § 1395h (1997); 42

C.F.R. Part 421, Subpart B (2005). Intermediaries were required to have an

agreement with the Health Care Financing Administration (“HCFA”) and had to

process claims in accordance with published HCFA guidelines. 42 C.F.R. Part

421 (2005).

      2
       The functions previously undertaken by fiscal intermediaries are now
performed by “Medicare administrative contractors.” 42 U.S.C. §§ 1395h,
1395kk-1.

                                        -3-
      To ensure providers were paid promptly, intermediaries were required to

make payments on an interim basis and subsequently conduct audits to determine

the precise amount of reimbursement due. 42 C.F.R. § 413.60(a). These interim

payments were made during a provider’s fiscal cost report year, on the basis of an

estimate of what the provider’s reasonable costs would be for a given period. Id.

After the cost report year was over, the provider submitted its year-end cost

report, and a reasonable cost determination was made by the intermediary. 42

U.S.C. § 1395g; 42 C.F.R. § 413.60(b). Through the cost report process, interim

payments were reconciled with Medicare reimbursement amounts the provider

was actually entitled to for the cost report year. 42 C.F.R. Part 413, Subpart E.

After this reconciliation, the fiscal intermediary would issue to the provider a

notice of program reimbursement (“NPR”), which identified any adjustments that

were made, and calculated the amount of any Medicare underpayment or

overpayment. 42 C.F.R. § 405.1803. In making any further interim payments,

adjustments were made to take into account prior underpayment or overpayment.

42 U.S.C. § 1395g(a). A provider could challenge an adverse determination and,

if the amount in controversy on a year-end cost report was $10,000 or more, the

provider could request a hearing before the Provider Reimbursement Review

Board (the “Review Board”). 42 U.S.C. § 1395oo. The HHS Secretary was

required to reverse, affirm, or modify the Review Board’s decision within 60 days

after it was issued. See 42 U.S.C. § 1395oo(f)(1). The Review Board’s decision

                                         -4-
was subject to judicial review by filing a civil action in the appropriate federal

district court. See 42 U.S.C. § 1395oo(f)(1).

B. Jagow’s Factual Allegations

      The facts, as alleged in Jagow’s complaint, are as follows. Precedent

operated an HHS-certified health care facility that provided Medicare and

Medicaid services to patients. Pursuant to its contract with HHS, Mutual

functioned as a fiscal intermediary under the regulations contained in the

Medicare Financial Management Manual. To obtain reimbursement for providing

Medicare services, Precedent was required to submit cost reports to Mutual. In

turn, Mutual was required to process the cost reports in accordance with HHS

regulations. Precedent timely prepared and submitted cost reports for the 1998

and 1999 fiscal years. In January 2001, Mutual issued a timely NPR for the 1999

fiscal year. According to Jagow, Mutual’s 1999 NPR failed to include

adjustments for “net depreciation” and “related party” transactions.

Consequently, Precedent disagreed with the NPR and appealed to the Review

Board. Before the Review Board could issue its decision, the parties settled their

dispute, and Mutual issued a Notice of Corrected Program Reimbursement on

October 17, 2002. Precedent issued a final cost report on July 2, 2005, containing

adjustments consistent with the settlement. 3 Although Mutual received that final

      3
        Unfortunately, it is difficult to decipher Jagow’s complaint, and Jagow’s
brief provides no clarification. Consequently, it is not clear why a new final cost
                                                                       (continued...)

                                          -5-
cost report on July 5, 2005, it did not accept or reject it by July 6, 2006, as

required by law. See 42 C.F.R. §§ 405.1803(a) & 405.1835(c) (2005).

      Although not reflected in Jagow’s complaint, it is uncontested Precedent

did not avail itself of available administrative remedies for Mutual’s failure to

timely act on Precedent’s 2005 final cost report. Under 42 C.F.R. § 405.1835(c)

(2005), 4 a provider

      has a right to a hearing before the Board if an intermediary’s
      determination concerning the amount of reasonable cost
      reimbursement due a provider is not rendered within 12 months after
      receipt by the intermediary of a provider’s perfected cost report or
      amended cost report . . . provided such delay was not occasioned by
      the fault of the provider.

Instead, eighteen months after its administrative appeal rights accrued, Jagow

filed the instant action against Mutual in the United States Bankruptcy Court for

the District of Colorado. 5 Jagow’s complaint sought “all sums due from Medicare

for reimbursement,” as well as “statutory penalties” and “exemplary damages” for

      3
       (...continued)
report was necessary in light of the parties’ settlement and the issuance of the
Notice of Corrected Program Reimbursement. Jagow’s reply brief further
confuses the matter by referring to an unidentified decision from the Review
Board’s Hearing Officer, an event which was not mentioned in either the
complaint or Jagow’s opening appellate brief. Additionally, Jagow’s complaint
never indicates which years are covered by the July 2005 final cost report or
which years the reimbursement she seeks covers.
      4
      The current version of this provision is located at 42 C.F.R. §
405.1835(a)(3)(ii).
      5
        According to Jagow’s complaint, Precedent filed a Chapter 7 bankruptcy
petition on July 1, 1999.

                                          -6-
Mutual’s “failure to comply with the applicable regulations and procedures of

HHS.”

      Shortly after Jagow filed the complaint, HHS sought to be substituted as

the defendant or, in the alternative, to intervene. The bankruptcy court denied the

motion, noting that while the allegations of the complaint were, “arguably,

ambiguous, or unclear, as to whether HHS is responsible, culpable or liable,

directly or indirectly, for the damages claimed by” Precedent, it was “unequivocal

and unqualified” from the responses filed to the motion that damages were sought

“solely and exclusively” from Mutual. Mutual then filed a motion for withdrawal

of reference with the district court, arguing “resolution of the Complaint will

require substantial application and interpretation of Medicare statutes and

regulations, which consideration will predominate over the consideration of any

bankruptcy laws.” The district court granted the motion, concluding the

proceeding was not a core proceeding within the definition of 28 U.S.C. §

157(a)(2) because it involved questions arising under the Medicare Act and its

implementing regulations. At the same time, the district court reversed the

bankruptcy court’s denial of HHS’s motion to intervene because “[u]ltimate

liability for payment of reimbursement for services which are the subject of the

complaint for declaratory relief is with [HHS].”

      Proceeding before the district court, Mutual and HHS filed motions to

dismiss pursuant to 12(b)(1). They argued HHS was the real party in interest and

                                         -7-
Jagow’s failure to exhaust mandatory administrative remedies deprived the

district court of jurisdiction. The district court granted the motions to dismiss,

ruling that Mutual had no liability, HHS was the only proper source of the claim

for reimbursement under Medicare, and Jagow failed to exhaust her

administrative remedies. Accordingly, the action was dismissed for lack of

subject matter jurisdiction. Jagow timely appealed.

III.   DISCUSSION

       We review a district court’s dismissal for lack of subject matter jurisdiction

de novo. Butler v. Kempthorne, 532 F.3d 1108, 1109 (10th Cir. 2008). Jagow

argues the district court erred in concluding an action for reimbursement cannot

proceed against an intermediary. We agree with the district court, however, that a

provider seeking to recover Medicare reimbursements must proceed against HHS.

       The relevant federal regulation provides:

       Intermediaries and carriers act on behalf of [HHS] in carrying out
       certain administrative responsibilities that the law imposes.
       Accordingly, their agreements and contracts contain clauses
       providing for indemnification with respect to actions taken on behalf
       of [HHS] and [HHS] is the real party of interest in any litigation
       involving the administration of the program.

42 C.F.R. § 421.5(b). As defendants point out, the legislative history of the

Medicare Act also makes clear Congress’s intention that the government, not the

intermediary, is the real party in interest in suits involving the administration of

the program:

                                          -8-
             In the performance of their contractual undertakings, the
      carriers and fiscal intermediaries would act on behalf of the
      Secretary, carrying on for him the governmental administrative
      responsibilities imposed by the bill. The Secretary, however, would
      be the real party in interest in the administration of the program and
      the Government would be expected to safeguard the interests of his
      contractual representatives with respect to their actions in the
      fulfillment of commitments under the contracts and agreements
      entered into by them with the Secretary.

S. Rep. No. 89-404, at 50 (1965).

      This approach is logical in light of the complex system of statutes and

regulations governing which services are compensable under the Medicare

program. Due to this complexity, reimbursement errors are bound to occur. The

Medicare Act accounts for such a possibility by setting out an administrative

appeal process. Indeed, with respect to the particular error alleged here, an

intermediary’s failure to make a timely determination regarding a provider’s

claimed reimbursement, the applicable regulations provide as follows:

      [T]he provider also has a right to a hearing before the Board if an
      intermediary’s determination concerning the amount of reasonable
      cost reimbursement due a provider is not rendered within 12 months
      after receipt by the intermediary of a provider’s perfected cost report
      or amended cost report.

42 C.F.R. § 405.1836(c) (2005). 42 U.S.C. § 405(h) makes it clear that this

review process, as set out by statute and regulation, must be followed in order to

recover a claimed reimbursement.

      Jagow acknowledges this administrative process, but argues a provider is

entitled to raise a cause of action directly against an intermediary where the

                                         -9-
complaint alleges intentional conduct or gross negligence. See Rochester

Methodist Hosp. v. Travelers Ins. Co., 728 F.2d 1006, 1015-16 (8th Cir. 1984).

We need not determine whether such a cause of action exists, however, as

Jagow’s complaint does not allege an intentional tort or gross negligence. The

only intentional conduct mentioned in the complaint is an allegation that Mutual

“[i]ntentionally avoid[ed] and improperly appl[ied] Medicare Regulations to the

Cost Reports.” Reading the complaint as a whole, this allegation does not suggest

Jagow intended to plead a tort claim; the complaint never so much as alludes to

the elements of a tort claim. Furthermore, while Jagow’s complaint does allege

that Mutual’s alleged violations “constitute fraudulent conduct on the part of the

Defendant that resulted in damages to Plaintiff,” Federal Rule of Civil Procedure

9(b) requires that a fraud claim be pled with particularity. Jagow’s complaint

falls well short of this standard.

      Additionally, Jagow’s complaint seeks “a declaratory judgment determining

the sums due plaintiff from defendant in accordance with the Final Cost Report,”

and requests monetary recovery for “all sums due from Medicare for

reimbursement” and “statutory penalties and exemplary damages” under the

Medicare Act. Jagow’s claim, therefore, bears the hallmarks of a claim for

Medicare reimbursement rather than a tort claim. Thus, even if we were to

recognize a cause of action against an intermediary where an intentional tort or

gross negligence is alleged, Jagow has not presented such a claim.

                                        -10-
      Finally, irrespective of any wrongful conduct on the part of an intermediary

in calculating reimbursements, a provider still has access to the administrative

review process. Jagow provides no reason as to why Precedent’s reimbursable

costs could not be recovered through those channels despite Mutual’s alleged

intentional and improper application of the Medicare regulations. Permitting a

provider to ignore the exhaustion requirement and instead proceed against the

intermediary directly would have the practical effect of rendering the

administrative process wholly ineffective, as a mere allegation that an

intermediary’s failure to pay amounted to gross negligence would allow a

provider to circumvent HHS’s review. Consequently, even under the hypothetical

tort claim to which Jagow alludes, a provider would have to establish that the

defendant’s conduct actually deprived the provider of utilizing the administrative

review process. Jagow, however, makes no such allegation.

      As Jagow’s only avenue for relief was through the administrative review

process and there is no dispute that Jagow failed to exhaust administrative

remedies, the district court correctly concluded it lacked subject matter

jurisdiction. See 42 U.S.C. § 405(g), (h); Shalala v. Ill. Council on Long Term

Care, Inc., 529 U.S. 1, 7-10 (2000).

                                        -11-
IV.   CONCLUSION

      For the foregoing reasons, this court AFFIRMS the district court’s

dismissal of Jagow’s complaint for lack of subject matter jurisdiction.

                                               ENTERED FOR THE COURT

                                               Michael R. Murphy
                                               Circuit Judge

                                        -12-