Bodimetric Health Services, Inc. v. Aetna Life & Cas.

• Citation: 903 F.2d 480
• Decision Date: 05 June 1990
• Docket Number: Nos. 89-1428,89-1570,s. 89-1428
• Parties: , Medicare&Medicaid Gu 38,534 BODIMETRIC HEALTH SERVICES, INCORPORATED, Bodimetric Home Health Care, Incorporated and American Service Bureau, Incorporated, Plaintiffs-Appellants and Cross-Appellees, v. AETNA LIFE & CASUALTY, Defendant-Appellee, United States of America, Intervenor-Cross-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 480

903 F.2d 480

29 Soc.Sec.Rep.Ser. 556, Medicare&Medicaid Gu 38,534

BODIMETRIC HEALTH SERVICES, INCORPORATED, Bodimetric Home Health Care, Incorporated and American Service Bureau, Incorporated Plaintiffs-Appellants and Cross-Appellees, v. AETNA LIFE & CASUALTY, Defendant-Appellee United States of America, Intervenor-Cross-Appellant.

Nos. 89-1428, 89-1570.

United States Court of Appeals Seventh Circuit.

Argued Dec. 15, 1989.

Decided May 25, 1990.

As Amended June 5, 1990.

Barbara S. Steiner, Theodore Tetzlaff, Jenner & Block, Chicago, Ill., Leonard C. Homer, Carel T. Hedlund, David B. Hamilton, Ober, Kaler, Grimes & Shriver, Baltimore, Md., George Koelzer, Ober, Kaler, Grimes & Shriver, New York City, for plaintiffs-appellants and cross-appellees.

Jack R. Bierig, David F. Graham, Robert M. Portman, Sidley & Austin, Chicago, Ill., for defendant-appellee.

Thomas P. Walsh, Asst. U.S. Atty., Chicago, Ill., Anthony J. Steinmeyer, Peter P. Maier, Dept. of Justice, Civ. Div., Appellate Section, Washington, D.C., for intervenor.

Before CUDAHY, EASTERBROOK and KANNE, Circuit Judges.

CUDAHY, Circuit Judge.

Bodimetric Health Services ("Bodimetric") ¹ brought suit against Aetna Life & Casualty ("Aetna") for improperly denying reimbursement claims made under the Medicare Act, 42 U.S.C.A. section 1395 et seq. (West Supp.1990). Aetna defended itself with a motion to dismiss for lack of subject matter jurisdiction, alleging that the exclusive review mechanisms of the Medicare Act barred Bodimetric from pursuing its challenge in federal court. The district court granted Aetna's motion. The question on appeal is whether the allegedly improper application of "exclusive" review mechanisms to Bodimetric's claim is actionable in the district court. We affirm.

I.

The facts of this case--as well as the underlying statutory provisions--are ably recited in the district court opinion. Bodimetric Health Servs. v. Aetna Life & Casualty, 706 F.Supp. 619 (N.D.Ill.1989). We pause here only to note some of the more pertinent details involved in this appeal.

Bodimetric owned and operated fifteen home health agencies ("HHAs") that provided in-home medical services as an alternative to institutional treatment. All fifteen of these HHAs were certified as Medicare providers. Under Part A of the Medicare Act, ² these HHAs generally are reimbursed for the lesser of their reasonable costs (in providing treatment) or customary charges for rendering services. 42 U.S.C. Sec. 1395f(b) (1982). To obtain reimbursement from so-called "fiscal intermediaries," ³ section 1395f(a)(2)(C) requires a physician to certify that services are necessary, that the individual is confined to the home and that a plan of treatment has been developed. 42 U.S.C.A. Sec. 1395f(a)(2)(C) (West Supp.1990). Before 1984, the Health Care Financing Administration's Office of Direct Reimbursement ("ODR") acted as fiscal intermediary to Bodimetric by processing Bodimetric's claims under these provisions of the Act; apparently, ODR rarely denied any of Bodimetric's claims.

In 1984, the Health Care Financing Administration determined that ODR could no longer serve as Bodimetric's fiscal intermediary. In this situation, the provisions of the Medicare Act permit an HHA to nominate a public or private agency to act as fiscal intermediary. 42 U.S.C.A. Sec. 1395h (West Supp.1990). Bodimetric relied upon these provisions to nominate Aetna as its fiscal intermediary. Aetna, at first, provided reimbursement for virtually all of Bodimetric's claims. In early 1985, however, Bodimetric alleges that the Department of Health and Human Services released a contractor evaluation critical of Aetna's performance as a fiscal intermediary. Because of this evaluation, Bodimetric charges, Aetna adopted a more restrictive approach that led to the denial of a substantial number of HHA claims. Plaintiffs' Complaint pp 23-24. "The purpose of Aetna's [new approach] was to raise its denial rate, and hence improve its contract performance evaluation, so that it could retain its contract with HCFA as a fiscal intermediary." Appellants' Brief at 8-9.

Officials of Aetna agreed to meet with officials of Bodimetric to discuss the denial of the claims. Bodimetric alleges that Aetna used these meetings to lull Bodimetric into believing that the denials were atypical while it continued to deny thousands of claims without regard to their underlying substance. In support of this charge, Bodimetric asserts that administrative law judges have reversed almost all of Aetna's denials where Bodimetric has entered an appearance and argued for reversal. Bodimetric, 706 F.Supp. at 623.

Aetna's arbitrary campaign of denials, according to Bodimetric, led to the closing of Bodimetric's HHAs and, as a result, caused Bodimetric to lose more than 8 million dollars. Consequently, Bodimetric filed suit in district court seeking damages due to Aetna's alleged fraud, fraudulent concealment, negligent misrepresentation, breach of contractual relationship, breach of third-party beneficiary relationship, tortious breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, liability for intended consequences, intentional harm to property interest and violations of civil RICO. Aetna successfully moved for dismissal, noting that the district court did not have subject matter jurisdiction to consider the case.

II.

A. The Underlying Regulatory and Statutory System of Review

Congress provided elaborate review provisions to be used by parties dissatisfied with the initial disposition of their Medicare claims. See 42 U.S.C.A. Secs. 405(h), 1395ff (1982 & West Supp.1990). If a fiscal intermediary determines that certain HHA provided services are not "reasonable and necessary for the diagnosis or treatment of illness or injury," or otherwise are not covered by Medicare, the affected HHA may request reconsideration by the fiscal intermediary. 42 C.F.R. Secs. 405.710(b), 405.711 (1988). Should this avenue prove unsuccessful, the provider (assuming the claim exceeds $100) may argue its case to an administrative law judge, 42 C.F.R. Sec. 405.720 (1988), and may request an additional review by the Appeals Council. 42 C.F.R. Sec. 405.724 (1988). Should the disputed amount exceed $1000, the HHA may seek judicial review of the final decision in federal district court. 42 C.F.R. Sec. 405.730 (1988). Congress, as noted by Judge Moran, "intended the remedies provided by these review procedures to be exclusive." 706 F.Supp. at 621; see S.Rep. No. 404, 89th Cong., 1st Sess., reprinted in 1965 U.S.Code Cong. & Admin.News 1943, 1995.

The exclusive nature of these remedies is reflected in the statutory structure of the Medicare Act: after exhausting the provisions outlined in the regulations promulgated under 42 U.S.C. section 1395ff, many claimants, under the Medicare statutes, simply do not have recourse to the federal courts:

The findings and decision of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Secretary, 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. Sec. 405(h) (1982). Put simply, "42 U.S.C. section 405(h) (as applied to Medicare by 42 U.S.C.A. section 1395ii) provides that any 'claim arising under' the Medicare program must be brought exclusively under section 405(g)," Wilkins v. Sullivan, 889 F.2d 135, 138 (7th Cir.1989); individuals generally cannot otherwise obtain judicial review of certain actions that "arise under" this subchapter of the Medicare Act. Whether Bodimetric's state law charges (which we are asked to consider pursuant to our diversity jurisdiction) "arise under" the Medicare Act is one of the principal questions presented by this case.

B. Does Bodimetric's Claim "Arise Under" the Medicare Act?

At the outset, we observe that the Supreme Court has instructed us to read the term "arising under" broadly. See Attorney Registration & Disciplinary Comm'n v. Schweiker, 715 F.2d 282, 287 (7th Cir.1983) ("[W]e cannot disregard the Supreme Court's admonition to read section 205(h) as written--that is, broadly."). The Court considered the scope of this section in Heckler v. Ringer, 466 U.S. 602, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984), and concluded that claims arising under other statutes may be barred by section 405(h) if they are also "inextricably intertwined" with benefits determinations under the Medicare Act. Id. at 622-24, 104 S.Ct. at 2025-26; see Weinberger v. Salfi, 422 U.S. 749, 760-61, 95 S.Ct. 2457, 2464, 45 L.Ed.2d 522 (1975) (presenting "standing and substantive basis" test). In Ringer, Medicare claimants mounted a statutory and constitutional challenge to the Secretary of Health and Human Services's final decision prohibiting reimbursement for bilateral carotid body resection ("BCBR") claims. Although the claimants styled their challenge as a claim based upon the Medicare Act, the Administrative Procedure Act and the Due Process Clause, the Court noted that the plaintiffs' complaint was, "at bottom, a claim that they should be paid for their BCBR surgery." 466 U.S. at 614, 104 S.Ct. at 204. As such, the Court concluded that the claim was inextricably intertwined with the claim for benefits and was therefore barred by section 405(h).

Nonetheless, the Supreme Court has recognized that a party does not necessarily assert a claim under the Medicare Act merely by including the word "Medicare" in his challenge. Indeed, the Court suggested in Ringer that certain Medicare-related claims may be "wholly collateral" to claims for benefits and therefore would not be barred from federal courts pursuant to section 405(h). 466 U.S. at 617-18, 104 S.Ct....