Gos Operator, LLC v. Sebelius

• Decision Date: 10 February 2012
• Docket Number: Civil Action No. 12–0035–WS–N.
• Citation: 843 F.Supp.2d 1218
• Parties: GOS OPERATOR, LLC, Plaintiff, v. Kathleen SEBELIUS, Secretary of the U.S. Department of Health and Human Services, et al., Defendants.
• Court: U.S. District Court — Southern District of Alabama

843 F.Supp.2d 1218

GOS OPERATOR, LLC, Plaintiff,

v.Kathleen SEBELIUS, Secretary of the U.S. Department of Health and Human Services, et al., Defendants.

Civil Action No. 12–0035–WS–N.

United States District Court,

S.D. Alabama,

Southern Division.

Feb. 10, 2012.

Alexandra Stevens Terry, M. Warren Butler, Starnes Davis Florie LLP, Mobile, AL, Robert L. Rothman, W. Jerad Rissler, Atlanta, GA, for Plaintiff.

Charles Baer, Eugene A. Seidel, U.S. Attorney's Office, Mobile, AL, Mary–Frank Brown, Bond, Botes, Thornton & Carlson, P.C., Montgomery, AL, for Defendants.

ORDER

WILLIAM H. STEELE, Chief Judge.

This matter comes before the Court on plaintiff's construed Motion for Preliminary Injunction (doc. 4). The parties have submitted extensive briefing on the Motion (including supplemental briefing as directed by the Court). The Motion is now ripe.¹ Plaintiff's Motion for Leave to Exceed Page Limit for Reply Brief (doc. 33) is granted for cause shown, and its Reply (doc. 34) will be accepted and considered in its present form. ²

I. Relevant Background.

Plaintiff, GOS Operator, LLC (“GOS”), is the operator of Gordon Oaks Healthcare Center (“Gordon Oaks”), a skilled nursing facility located in Mobile, Alabama. At present, Gordon Oaks participates in the Medicare program pursuant to a provider agreement (the “Provider Agreement”) with defendant Secretary of the United States Department of Health and Human Services (the “Secretary”). The Secretary has announced its intention to terminate the Provider Agreement, based on a series of on-site inspections (called “surveys”) conducted at Gordon Oaks over a six-month period from July 21, 2011 through January 18, 2012. According to the Secretary, those surveys reveal that Gordon Oaks is not in substantial compliance with federal health and safety requirements for Medicare residents, as necessary for continued participation in the Medicare program.

On January 19, 2012, the Secretary (by and through the Centers for Medicare & Medicaid Services (“CMS”), an agency within the Department of Health and Human Services) issued a written notice of involuntary termination to Gordon Oaks. (Doc. 26, Exh. 1.) The notice referenced surveys performed on January 8, 2012 and January 18, 2012, and set forth CMS's conclusion that Gordon Oaks “remains out of substantial compliance with the Medicare/Medicaid participation requirements.” ( Id. at 1.) ³ On that basis, CMS indicated in the January 19 letter that “[y]our Medicare provider agreement will be terminated at midnight on January 21, 2012.... Medicare and Medicaid payments for services rendered to those residents admitted to Gordon Oaks Healthcare Center before January 21, 2012, will continue to be made up to a 30–day period, in order to facilitate the orderly transfer/relocation of residents.” ( Id. at 2 (emphasis omitted).) The January 19 letter further notified Gordon Oaks that “[i]f you disagree with CMS determinations that are based on the January 8, 2012 and January 18, 2012 surveys ..., you or your legal representative may request a hearing before an administrative law judge of the Department of Health and Human Services, Departmental Appeals Board.” ( Id. at 4.)

It is undisputed that GOS has invoked the administrative appeals process as to each survey conducted between July 21, 2011 and January 18, 2012 that has found Gordon Oaks not to be in substantial compliance with program requirements. (Doc. 1, ¶¶ 69, 71 & Exh. T; McAuliffe Decl. (doc. 34–1), at Att. 2.) Most recently, in a January 30, 2012 letter sent to CMS and the Departmental Appeals Board, GOS requested “an expedited hearing on its appeals,” on the grounds that “[a]n expedited hearing is warranted in order to ensure that the administrative proceeding is resolved as expeditiously as possible.” (McAuliffe Decl., at Att. 2.) To date, GOS has not received an administrative hearing on any of its appeals from deficiencies identified in surveys conducted at Gordon Oaks between July 2011 and January 2012.⁴ The record is devoid of information that such a hearing is imminent, and there is no indication as to how soon an expedited administrative hearing can or will occur in this case. Nonetheless, the Secretary's conduct clearly evinces its intention to proceed with the termination of Gordon Oaks' Provider Agreement at this time, and to allow the administrative appeals process to play out on a post-termination basis, notwithstanding GOS's presentation of pre-termination requests for administrative hearing that remain pending today.

The trouble with this arrangement from GOS's perspective is that, according to its evidence, termination of the Provider Agreement would inflict devastating harm on Gordon Oaks, inasmuch as: (i) it would necessitate transfer all Medicaid and Medicare residents to other facilities; (ii) the loss of Provider Agreements would constitute a catastrophic event of default under GOS's lease, resulting in termination of the lease and closure of the entire Gordon Oaks campus; and (iii) the ultimate effect of termination of the Provider Agreements would be that GOS would cease operations and go out of business. (Feuer Decl. (doc. 1, Exh. B), ¶¶ 3–5.) In GOS's view, a post-termination administrative hearing would be useless and ineffectual because “Plaintiff will not survive long enough to contest the termination through the appropriate administrative process.” (Doc. 34, at 1.) ⁵

In light of these circumstances, GOS filed its Complaint and Motion for Temporary Restraining Order on January 19, 2011, the same day that CMS issued the termination notice and a bare two days before the Secretary intended to terminate Gordon Oaks' Provider Agreements. The Complaint does not seek review of the underlying administrative determinations. GOS is not asking this Court to make any findings as to whether Gordon Oaks was or was not in substantial compliance with program requirements at any time. Nor does the Complaint request that judicial review supplant the administrative appeals process. Rather, the Complaint by its terms “seeks only to preserve the status quo pending the outcome of the administrative hearing” by enjoining defendants from terminating Gordon Oaks' provider agreements “until its challenges to the Defendants' actions have been heard and decided by an administrative law judge of the Departmental Appeals Board of Defendant HHS.” (Doc. 1, ¶ 6.) As grounds for the requested injunction, the Complaint alleges causes of action for violation of plaintiff's procedural due process rights (failure to provide pre-termination administrative hearing), violation of substantive due process (arbitrary and capricious termination of provider agreements), and ultra vires (Secretary exceeding statutory authority by terminating provider agreement despite no “immediate jeopardy” deficiencies and during pendency of administrative hearing process). Plaintiff has joined neither the constitutional claims nor the ultra vires claim to its pending administrative appeals before the HHS Departmental Appeals Board.⁶

On January 20, 2012, the undersigned issued a series of Orders (docs. 13, 2012 WL 175056, 17, 18) that granted GOS's Motion for Temporary Restraining Order and considered and rejected the Government's arguments for reconsideration or vacatur of same. The resulting TRO enjoins and restrains defendants “from terminating Gordon Oaks' Medicare and Medicaid provider agreements, pending a pre-termination administrative hearing.” (Doc. 13, at 11.) The TRO was to expire at the close of business on February 3, 2012; however, on that date, the undersigned extended the TRO through February 10, 2012 for good cause under Rule 65(b)(2) to facilitate supplemental briefing of a substantial merits issue that the Government had not previously addressed. The parties have now had a full and fair opportunity to brief the question of whether the TRO should be converted into a Preliminary Injunction. The Government opposes entry of a preliminary injunction on both jurisdictional and merits grounds.

II. Jurisdiction.

As a threshold matter, the Government asserts that this action should be dismissed for lack of subject-matter jurisdiction.⁷

A. Section 405(h) and the Channeling Requirement.

The statutory underpinning of defendants' jurisdictional argument is 42 U.S.C. § 405(h). That section provides, in part, as follows: “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. § 405(h).⁸ This means that § 1331 (federal question) jurisdiction is categorically unavailable for claims arising under the Medicare Act. In lieu of § 1331, Congress created a special jurisdictional foothold for these claims, as follows: “Any individual, after any final decision of the [Secretary] made after a hearing to which he was a party ... may obtain a review of such decision by a civil action commenced within sixty days.” 42 U.S.C. § 405(g). “ Section 405(h) purports to make exclusive the judicial review method set forth in § 405(g).” Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 10, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000). Thus, the general rule is that, for any claim arising under the Medicare Act, ordinary federal-question jurisdiction is lacking and a claimant must instead abide by special review procedures before raising its claim in a judicial forum.

The Supreme Court has explained that the net effect of § 405(h) is that it “demands the ‘channeling’ of virtually all legal attacks through the agency,” thereby assuring the Secretary “greater opportunity to apply, interpret or revise policies, regulations, or statutes without possibly premature interference by different individual courts.” Illinois Council, 529 U.S. at 13, 120 S.Ct. 1084;see also Lifestar Ambulance Service, Inc. v. United States, 365 F.3d 1293, 1296 (11th Cir.2004) (“The reality,...