Odell v. U.S. Dep't of Health & Human Servs.

• Decision Date: 27 April 2021
• Docket Number: No. 19-15262,19-15262
• Citation: 995 F.3d 718
• Parties: Robert H. ODELL, Jr.; Robert Odell, M.D., Ph.D. Medical Enterprises, A Nevada Corporation, Plaintiffs-Appellees, v. U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES; Xavier Becerra, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

995 F.3d 718

Robert H. ODELL, Jr.; Robert Odell, M.D., Ph.D. Medical Enterprises, A Nevada Corporation, Plaintiffs-Appellees,

v.U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES; Xavier Becerra, Defendants-Appellants.

No. 19-15262

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 10, 2020 San Francisco, California

Filed April 27, 2021

Sarah Carroll (argued), Michael S. Raab, and Abby C. Wright, Appellate Staff; Nicholas A. Trutanich, United States Attorney; Civil Division, United States Department of Justice, Washington, D.C.; Janice L. Hoffman, Associate General Counsel; Susan Maxson Lyons, Deputy Associate General Counsel for Litigation; Brett Bierer, Attorney; United States Department of Health & Human Services, Washington, D.C.; for Defendants-Appellants.

George K. Brew (argued), Law Office of George Brew PLLC, Jacksonville, Florida, for Plaintiffs-Appellees.

Before: Eric D. Miller and Danielle J. Hunsaker, Circuit Judges, and Douglas L. Rayes,^* District Judge.

MILLER, Circuit Judge:

Dr. Robert H. Odell, Jr., is a Nevada physician who treats patients covered by Medicare. For several years, Odell has been engaged in a dispute with the contractor that administers Medicare in his region. Believing that the contractor was improperly applying an "unwritten rule" that led to the denial of his claims for reimbursement, Odell sought an injunction compelling the contractor to change its method of evaluating his claims. The district court granted the injunction. The Medicare statute, however, permits a court to review only claims that have been presented to the agency. Because this case does not involve a claim that was presented to the agency, the district court lacked subject-matter jurisdiction. We therefore vacate the preliminary injunction and remand to the district court with instructions to dismiss the complaint for lack of jurisdiction.

I

A

Medicare is a federally subsidized medical insurance program for the elderly and disabled. See 42 U.S.C. § 1395 et seq. ; Thomas Jefferson Univ. v. Shalala , 512 U.S. 504, 506, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994). The Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services, oversees the Medicare program. CMS contracts with private entities to administer Medicare. See 42 U.S.C. §§ 1395u(a), 1395kk-1(a) ; 42 C.F.R. § 421.5(c). Each contractor is responsible for a particular region of the country. 42 C.F.R. § 421.404(b)(1), (c)(1).

Medicare pays only for services that are "reasonable and necessary." 42 U.S.C. § 1395y(a)(1)(A). The Medicare contractor determines initially whether a service is covered. Id. § 1395ff(a)(1); 42 C.F.R. § 405.920. In making that determination, the contractor can rely on several sources of guidance.

Sometimes, the agency issues a regulation or a "national coverage determination" specifying "whether or not a particular item or service is covered." 42 U.S.C. § 1395ff(f)(1)(B) ; see id. § 1395hh. Both regulations and national coverage determinations are binding on Medicare contractors. See Erringer v. Thompson , 371 F.3d 625, 628 (9th Cir. 2004).

In other cases, a Medicare contractor can issue a "local coverage determination" (LCD) specifying whether a particular item or service will be covered within its jurisdiction. 42 U.S.C. § 1395ff(f)(2)(B) ; see Erringer , 371 F.3d at 628. Before adopting an LCD, a contractor must solicit public comment and hold an open meeting. See Medicare Program Integrity Manual § 13.2.4 (rev. 863, Oct. 3, 2018). Once a contractor has adopted an LCD, any interested party may request that the contractor reconsider it. Id. § 13.3.2. And Medicare patients—but not doctors or hospitals—may challenge an LCD through an administrative process and, ultimately, in court. 42 U.S.C. § 1395ff(f)(2), (5).

Absent a regulation, a national coverage determination, or an LCD, the Medicare contractor proceeds on a case-by-case basis to determine whether a service is reasonable and necessary. 42 U.S.C. § 1395y(a)(1)(A).

If the contractor determines that a service is covered, it pays the claim. 42 U.S.C. § 1395l (a). Otherwise, it denies the claim. A party seeking reimbursement can then challenge the denial of coverage through four levels of administrative review. See Haro v. Sebelius , 747 F.3d 1099, 1114 (9th Cir. 2014). First, a party can seek redetermination by the Medicare contractor. 42 U.S.C. § 1395ff(a)(3). Second, a party can seek reconsideration by a "qualified independent contractor," which is not bound by the Medicare contractor's LCD but must give it "substantial deference." Id. § 1395ff(c), (c)(3)(B)(ii)(II) ; 42 C.F.R. § 405.968(b)(2). Third, a party can seek a hearing before an administrative law judge. 42 U.S.C. § 1395ff(d)(1). Fourth, a party can seek review of the administrative law judge's decision before the Medicare Appeals Council. Id. § 1395ff(d)(2) ; 42 C.F.R. § 405.1100 ; see 42 C.F.R. § 405.902. Like independent contractors, administrative law judges and the Medicare Appeals Council are not bound by an LCD but must give it "substantial deference," and if they depart from an LCD, they must explain why. 42 C.F.R. § 405.1062(a) – (b). After exhausting administrative remedies, a claimant can seek judicial review. 42 U.S.C. § 1395ff(b)(1)(A).

B

Since approximately 2008, Odell has provided treatment for a condition called neurological ischemia, which he describes as "a root cause of pain, numbness and loss of functionality in the lower extremities." Odell's treatment involves "nerve blocks for pain together with electrical stimulation."

The Medicare contractor for Odell's area has promulgated a local coverage determination, LCD L28271, for "Injections – Tendon, Ligament, Ganglion Cyst, Tunnel Syndromes and Morton's Neuroma." Odell argues that the contractor has erroneously applied that LCD to deny coverage for his treatment and that the contractor should instead apply LCD L28240, which covers "Blocks and Destruction of Somatic and Sympathetic Nerves."

Based on the limited record before us, it appears that Odell has had some success in challenging the application of LCD L28271 to his treatment at varying levels of administrative review. While the independent contractor has issued unfavorable decisions for certain claims (without relying on any LCD), it has also issued favorable decisions with respect to others. Similarly, Odell has obtained favorable rulings from administrative law judges with respect to certain claims. Those judges concluded that LCD L28240 applied and that Odell's treatment was covered by Medicare. In some instances, however, the Medicare Appeals Council has remanded for a more thorough explanation of the administrative law judges' decisions.

In response to the application of LCD L28271 to his claims, Odell brought this action against the Secretary of Health and Human Services. The complaint also named two other plaintiffs: a corporation that Odell owns and Kenneth Baker, one of Odell's patients. But because nothing in our analysis turns on the identity of the plaintiffs, we will discuss only Odell.

According to the complaint, the Medicare contractor follows an "unwritten rule" of erroneously applying LCD L28271 to Odell's claims to deny coverage for his treatment. Odell does not argue that LCD L28271 is invalid; instead, he argues that it does not apply to the treatment he provides. In Odell's view, the contractor's "unwritten rule" of applying LCD L28271 to his claims is invalid because that "unwritten rule" was not adopted through notice-and-comment rulemaking, is arbitrary and capricious, and is contrary to the Medicare statute. Odell sought an injunction barring the agency "from imposing an LCD that categorically denies Medicare coverage of ... Odell's services or applying an unwritten rule to do the same." The Secretary moved to dismiss for lack of subject-matter jurisdiction, and the district court ordered limited jurisdictional discovery.

Upon the completion of discovery, Odell moved for a preliminary injunction.

The district court denied the Secretary's motion to dismiss and granted a preliminary injunction. Odell v. Azar , 344 F. Supp. 3d 1192, 1207 (D. Nev. 2018). The court recognized that the Medicare statute requires exhaustion of administrative remedies as a prerequisite to bringing an action in court, but it excused Odell's failure to exhaust on the ground that it would be "impractical for Dr. Odell to appeal hundreds of claims on a piecemeal basis," and therefore it would be futile for him to attempt "to challenge the unwritten rule through the administrative process." Id. at 1199–1200, 1202. The court then determined that Odell had shown "a likelihood of success on the merits for his claims that the continuous default application of LCD L28271 to his treatment is arbitrary and capricious in violation of the APA and/or constitutes a new substantive rule that did not go through the required rulemaking process." Id. at 1206. It entered an injunction barring the Medicare contractor from applying LCD L28271 to any claim filed by Odell without first conducting "an individual medical review of the claim."

II

We begin—and end—by considering the district court's subject-matter jurisdiction. The judicial-review provision in the Medicare statute incorporates that of the Social Security Act. 42 U.S.C. § 1395ii. That statute, in turn, provides an exclusive mechanism for review of the agency's decisions, expressly displacing the general federal-question jurisdiction of 28 U.S.C. § 1331. See 42 U.S.C. § 405(h). It states that "[a]ny individual, after any final decision of the [Secretary of the Department of Health and Human Services] made after a hearing to which he was a party, ... may obtain a review of such decision by a civil action." Id. § 405(g) ; see id. § 1395ff(b)(1)(A). For our purposes, the critical feature of section 405(g) is that it permits review only "after any final decision" of the agency.

The Supreme Court has explained that "th...