Farkas v. Blue Cross & Blue Shield of Michigan

• Citation: 24 F.3d 853
• Decision Date: 24 May 1994
• Docket Number: No. 92-2377,92-2377
• Parties: , Medicare & Medicaid Guide P 42,408 Neil J. FARKAS, D.O.; Neil J. Farkas, D.O., P.C., Plaintiffs-Appellants, v. BLUE CROSS & BLUE SHIELD OF MICHIGAN; Secretary of Health and Human Services, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 853

24 F.3d 853

44 Soc.Sec.Rep.Ser. 460, Medicare & Medicaid Guide

P 42,408

Neil J. FARKAS, D.O.; Neil J. Farkas, D.O., P.C., Plaintiffs-Appellants, v. BLUE CROSS & BLUE SHIELD OF MICHIGAN; Secretary of Health and Human Services, Defendants-Appellees.

No. 92-2377.

United States Court of Appeals, Sixth Circuit.

Argued Feb. 28, 1994.

Decided May 24, 1994.

Andrew B. Wachler, Phyllis A. Avery (argued), Detroit, MI, Gordon S. Gold (briefed), Seyburn, Kahn, Ginn, Bess & Howard, Southfield, MI, for Neil J. Farkas, D.O., PC, and Neil J. Farkas, D.O.

Edward W. Fisher, Debra A. Spicer, Detroit, MI, for Blue Cross & Blue Shield of Michigan.

Peter A. Caplan, Asst. U.S. Atty., Detroit, MI (argued and briefed), for Secretary of Health and Human Services.

Before: JONES and BOGGS, Circuit Judges; and BROWN, Senior Circuit Judge.

BAILEY BROWN, Senior Circuit Judge.

Neil J. Farkas, D.O. and Neil J. Farkas, D.O., P.C. ("Dr. Farkas") appeal the district court's dismissal of their claim against Blue Cross & Blue Shield of Michigan ("BCBSM") and the intervenor, the Secretary of Health and Human Services ("the Secretary"), arising from Dr. Farkas' being placed under Medicare Prepayment Utilization Review ("PPUR"). The district court also vacated the Temporary Restraining Order ("TRO") that it had previously granted to prevent BCBSM from implementing PPUR for Dr. Farkas' Medicare claims. We AFFIRM both of the district court's rulings.

I.

Dr. Farkas filed on 21 December 1991 a two-count complaint in Wayne County (Michigan) Circuit Court against BCBSM, claiming (1) tortious interference with business relationship and business expectancy and (2) intentional infliction of emotional distress, both resulting from various billing and directory-listing errors committed by BCBSM, the Medicare insurance carrier for the State of Michigan. Farkas v. BCBSM, 803 F.Supp. 87, 88 (E.D.Mich.1992). Soon thereafter, Dr. Farkas received from BCBSM a letter, dated 7 January 1992, informing him that he was being placed under PPUR ¹ due to "numerous problems" relating to five patients' medical records previously obtained from Dr. Farkas by BCBSM in connection with a standard postpayment audit that it conducted in July 1990.

Dr. Farkas then applied for and received from Wayne County Circuit Court a TRO to prevent BCBSM from implementing the proposed PPUR. Dr. Farkas alleged in his Motion for TRO--which has been treated by the parties, after removal to district court, as a substitute for an amended complaint--that he was placed under PPUR in retaliation for his having filed suit against BCBSM in state court. ² The Secretary then intervened and removed Dr. Farkas' case to federal district court. The district court initially granted an extension of the TRO against BCBSM. Upon motion by Dr. Farkas, the state law claims against BCBSM were remanded to state court, but the "post-Complaint PPUR claim" was severed from those claims and remained in federal court. Farkas, 803 F.Supp. at 89. The Secretary then moved for dismissal of this federal cause of action for lack of subject matter jurisdiction, which the district court granted, at the same time vacating the TRO against BCBSM.

There is but a single issue before us here: Did the district court have jurisdiction over Dr. Farkas' PPUR claim, when he had neither presented his claim to the Secretary nor exhausted the administrative remedies available to him prior to seeking judicial review?

II.

In reviewing a district court's dismissal of a plaintiff's complaint for lack of subject matter jurisdiction, we must assume all material facts alleged by that plaintiff to be true and construe his complaint liberally, giving him "the benefit of any doubt." Westchester Management Corp. v. HHS, 948 F.2d 279, 279 (6th Cir.1991) (internal quotation marks omitted), cert. denied, --- U.S. ----, 112 S.Ct. 1936, 118 L.Ed.2d 543 (1992). The "accepted rule" is that dismissal is warranted only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief" in federal district court. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

III.

A. The Medicare Act

Medicare claims are divided into two parts by the Medicare Act, 42 U.S.C. Secs. 1395-1395ccc (1988). "Part A" claims involve hospitalization coverage, while "Part B" claims are for physicians' services and related medical needs. The Secretary administers both parts; she is authorized to assign to private insurance carriers, such as BCBSM, the task of paying Part B claims from the Federal Supplementary Insurance Trust Fund ("Medicare Trust Fund"). See 42 U.S.C. Sec. 1395u; Isaacs v. Bowen, 865 F.2d 468, 470 (2d Cir.1989). The Secretary has issued regulations pursuant to the Medicare Act, see generally 42 C.F.R. Secs. 405.301-405.2472 (1992), that authorize these Medicare carriers to audit provider records to ensure that services for which reimbursement is claimed are "medically necessary," "reasonable," and otherwise payable under Part B, Isaacs, 865 F.2d at 470, and to "safeguard[ ] against unnecessary utilization of services furnished by providers to Medicare beneficiaries." Farkas, 803 F.Supp. at 90. Most Part B claims are assigned by the ultimate Medicare beneficiaries (e.g., elderly patients) to their service providers (e.g., Dr. Farkas), who are paid by Medicare insurance carriers (e.g., BCBSM) pursuant to an agreement that the provider will accept the Medicare reasonable-charge determination as payment in full. Id. at 90 n. 3.

The Medicare Act has provided, since its effective date, for a "fair hearing" by the insurance carrier for disputes over Part B claims that surpass the amount in controversy threshold, when such claims "are denied or are not acted upon with reasonable promptness" or when the amount due is in dispute. 42 U.S.C. Sec. 1395u(b)(3)(C); see also 42 C.F.R. Sec. 405.801(a). The Medicare Act has also incorporated, since its effective date, via 42 U.S.C. Sec. 1395ii, the exclusive judicial review provision of the Social Security Act, 42 U.S.C. Sec. 405(h) (1988), which prohibits an action in federal court concerning any "claim arising under" that Act when such action is brought against "the United States, the Secretary, or any officer or employee thereof" under the grant of federal jurisdiction provided in either 28 U.S.C. Sec. 1331 ("Federal question") or 28 U.S.C. Sec. 1346 ("United States as defendant"). Judicial review of Medicare claims, pursuant to Sec. 405, is only available as "herein provided"--i.e., after a final decision by the Secretary ³ on a claim arising under a provision of the Medicare Act itself.

Although the Medicare Act has provided, since its effective date, for judicial review of Part A benefit claims, until 1987 it allowed no review of Part B "amount determination" claims beyond the Medicare carrier's own fair hearing. The Supreme Court so held in 1982 when it decided that claims concerning amount determinations under Part B were not subject to judicial review in the federal courts. The Court based its decision upon the language and legislative history of 42 U.S.C. Sec. 1395ff(b)(1), ⁴ which did not at that time provide for judicial review of Part B claims. United States v. Erika, Inc., 456 U.S. 201, 102 S.Ct. 1650, 72 L.Ed.2d 12 (1982). Later, however, the Court determined that federal-question jurisdiction existed to review "substantial statutory and constitutional challenges to the Secretary's administration of Part B of the Medicare program." Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 680, 106 S.Ct. 2133, 2141, 90 L.Ed.2d 623 (1986). In so doing, it distinguished "amount determinations," for which there remained no judicial review for Part B claims, from determinations of "the method by which such amounts are determined" (now known as "methodology determinations"), id. at 680 n. 11, 106 S.Ct. at 2141 n. 11, to which the "strong presumption that Congress intends judicial review of administrative action" opened the federal courts, despite the Medicare Act's failure to provide for judicial review of Part B claims. Id. at 670, 106 S.Ct. at 2135. Shortly thereafter, however, in the Omnibus Budget Reconciliation Act of 1986 ("OBRA"), Congress amended Sec. 1395ff(b)(1) so as to provide for judicial review of Part B amount determinations that meet the amount in controversy threshold and that concern services provided after 1 January 1987. ⁵ See, e.g., Farkas, 803 F.Supp. at 91.

B. The Supreme Court

The issue before us, then, is whether the holding in Michigan Academy authorizes federal question jurisdiction over Dr. Farkas' claim under 28 U.S.C. Sec. 1331 or whether instead Dr. Farkas is bound by the requirement of 42 U.S.C. Sec. 405(g) that judicial review is available only "after [a] final decision of the Secretary made after a hearing to which he was a party." There are four Supreme Court cases that bear directly upon the outcome here.

(a) Weinberger v. Salfi

Respondents in Salfi sought to challenge in a class action certain provisions of the Social Security Act that they claimed were unconstitutional. Weinberger v. Salfi, 422 U.S. 749, 755, 95 S.Ct. 2457, 2462, 45 L.Ed.2d 522 (1975). The Court held that because "the Social Security Act ... provides both the standing and the substantive basis" for respondents' constitutional claims, "Sec. 405(h) precludes resort to federal-question jurisdiction for the adjudication" of these claims, despite their constitutional basis. Id. at 760-61, 95 S.Ct. at 2464-65. Such claims are not barred from the federal courts; they must, however, "be brought under jurisdictional grants contained in the Act," id. at 762, 95 S.Ct. at 2465, i.e., in conformity with the "final decision" requirement of Sec. 405(g). This requirement consists of two elements: (1) "presentment"--a nonwaivable, jurisdictional prerequisite that a claim for benefits shall have been presented to the...