347 F.3d 1107 (9th Cir. 2003), 02-35020, Kaiser v. Blue Cross of California

Docket Nº:02-35020
Citation:347 F.3d 1107
Party Name:Kaiser v. Blue Cross of California
Case Date:October 28, 2003
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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347 F.3d 1107 (9th Cir. 2003)

Gary L. KAISER and Verlene D. Kaiser, as debtors in possession, Community Home Health, Inc., Gary L. Kaiser, Shawna Exline and Sharie Monteferrante, Plaintiffs-Appellants,


BLUE CROSS OF CALIFORNIA, United States of America, Department of Health and Welfare, Health Care Financing Agency, Defendants-Appellees.

No. 02-35020.

United States Court of Appeals, Ninth Circuit

October 28, 2003

Submitted May 8, 2003. [*]

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[Copyrighted Material Omitted]

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Donald W. Lojek, Lojek Law Offices, Chtd., Boise, ID, for the plaintiffs-appellants.

Thomas E. Moss and Alan G. Burrow, Department of Health and Human Services and Blue Cross of California, Boise, ID, for the defendants-appellees.

Appeal from the United States District Court for the District of Idaho, Edward J. Lodge, District Judge, Presiding.

Before: CUDAHY, [**] O'SCANNLAIN and GOULD, Circuit Judges.


CUDAHY, Circuit Judge.

The Kaisers owned and operated an Idaho home health agency called Community Home Health, which was a Medicare provider operating under fiscal intdit diary Blue Cross of California. In 1998, after Blue Cross ceased making payments to Community Home Health on account of Blue Cross's previous overpayments, Community Home Health entered Chapter 7 bankruptcy. The Kaisers sued Blue Cross and the federal government on constitutional, statutory and common law claims, asserting that Blue Cross and the federal government acted improperly in their relationship with Community Home Health. The district court dismissed the case, finding no jurisdiction absent exhaustion of administrative review. 42 U.S.C. § 405(g), (h). The Kaisers appeal, arguing that the nature of their claims makes administrative procedures inapposite. Because their claims arise under Medicare, we affirm.


Because this case was dismissed for lack of subject matter jurisdiction, we construe all facts in the light most favorable to the plaintiffs. Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003).

Medicare, first enacted in 1965, provides health insurance to eligible aged and disabled persons. Among the services covered

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under Medicare are home health services, such as part-time nursing care, physical therapy and home health aid services. 42 U.S.C. § 1395d. An agency within the Department of Health and Human Services, the Health Care Financing Agency (HCFA, recently renamed the Centers for Medicare and Medicaid Services, or CMS), oversees the program. Home health care providers, like other Medicare providers, coordinate with the HCFA through "fiscal intermediaries," private insurance companies that contract with the HCFA to serve as agents for functions such as claims processing. 42 U.S.C. § 1395h. Blue Cross of California is such a fiscal intermediary.

Gary and Verlene Kaiser (along with the other individual plaintiffs in this lawsuit 1) were shareholders of Community Home Health (CHH), an Idaho corporation providing home health services to some 500 clients in central and southwest Idaho. Since almost all of its patients were Medicare or Medicaid beneficiaries, CHH was highly dependent on the payments it received from the government through Blue Cross of California, the fiscal intermediary under which it operated; the government was its primary source of revenue. These payments, called periodic interim payments, were made in installments based on estimates of CHH's volume of business.

In late 1997, Congress passed the Balanced Budget Act of 1997, 105 Pub.L. No. 33, 111 Stat. 251, which directed the HCFA to promulgate new rules on the allowable costs of home health agencies, §§ 4602-03, 111 Stat. at 466-72. These regulations were issued on January 2 and March 31, 1998. Schedule of Limits on Home Health Agency Costs Per Visit, 63 Fed.Reg. 89; Schedule of Per-Beneficiary Limitations on Home Health Agency Costs, 63 Fed.Reg. 15,718. According to the Kaisers, the delay between the passage of the law and the issuance of the regulations left CHH unable to determine, for the first quarter of 1998, what costs Medicare would cover. Because of this uncertainty, CHH dramatically reduced both the number of patients it served and its visits per patient. Meanwhile, CHH kept receiving from Blue Cross periodic interim payments at relatively high levels consistent with its prior patient volume.

On April 27, 1998, CHH, recognizing that it had been over paid more than one million dollars, sent a letter to Blue Cross requesting an extended repayment plan (ERP). Blue Cross at first denied that there had been an overpayment, then solicited additional information in order to review the request. On June 4, CHH was notified that its ERP request was denied and told that 100% of its future Medicare payments would be withheld until the entire overpayment was recouped. This recoupment was proposed without issuance of a Notice of Program Reimbursement (NPR). Two weeks later, Blue Cross reversed its position and offered CHH a 23-month ERP. Nonetheless, CHH closed its operations and filed for Chapter 7 bankruptcy on June 25, 1998. The Kaisers, who had personally guaranteed some of CHH's obligations, also entered bankruptcy.

After the filing of the petition for bankruptcy, Blue Cross auditors, sent to Idaho to audit other Medicare health care providers, allegedly breached confidentiality rules and defamed CHH and its officers, adversely impacting the ability of CHH and the Kaisers to do business in Idaho or elsewhere.

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CHH's bankruptcy trustee sold to the Kaisers "[a]ll receivables, claims and causes of action against federal agencies or their agents related to Medicare." Armed with this assignment, the Kaisers filed the present lawsuit. The Kaisers allege that the HCFA violated the Administrative Procedure Act, the Regulatory Flexibility Act and the Fifth Amendment in its issuance of the new home health care regulations; that Blue Cross did not negotiate an ERP in good faith, in violation of 42 C.F.R. § 401.607(d)(1); that Blue Cross wrongfully neglected to issue an NPR; that the sudden cessation of payments by the HCFA and Blue Cross violated 4 C.F.R. §§ 102.1-.20 and the Fifth Amendment; that Blue Cross breached CHH's confidentiality, defamed CHH and the Kaisers and invaded their privacy; and that Blue Cross and the government did not abide by their contractual obligations to CHH. The Kaisers maintain that Blue Cross acted at all times as the agent of the HCFA and the United States, making all three entities responsible for the Kaisers' damages.

Magistrate Judge Mikel H. Williams reviewed the defendants' Motion to Dismiss, and issued a Report and Recommendation supporting the grant of the motion. Magistrate Judge Williams agreed with the defendants that the Kaisers' claims "arose under" Medicare, and were therefore subject to the 42 U.S.C. § 405(g) requirement that claimants first exhaust administrative review. District Judge Lodge adopted this order in its entirety.


A dismissal for lack of subject matter jurisdiction is reviewed de novo. See Sommatino v. United States, 255 F.3d 704, 707 (9th Cir. 2001). A motion to dismiss should not be granted "unless it appears beyond doubt [that] the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994).

We ask first whether the Kaisers' claims arise under Medicare, requiring them to have exhausted their administrative remedies. Second, we consider whether any exhaustion requirement should be waived. Third, we decide whether the case should be transferred to the Court of Federal Claims. Finally, we ask whether, for any claims that might not be subject to the exhaustion requirement, jurisdiction is barred by sovereign immunity.


"No action against the United States, the [Secretary of Health and Human Services], or any officer or employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under this subchapter." 42 U.S.C. § 405(h) (made applicable to Medicare and modified by 42 U.S.C. § 1395ii). Jurisdiction over cases "arising under" Medicare exists only under 42 U.S.C. § 405(g), which requires an agency decision in advance of judicial review. 42 U.S.C. § 405(g) ("Any individual, after any final decision of the [Secretary] made after a hearing to which he was a...

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