Physician Hosps. of Am. v. Sebelius

• Decision Date: 16 August 2012
• Docket Number: No. 11–40631.,11–40631.
• Citation: 691 F.3d 649
• Court: U.S. Court of Appeals — Fifth Circuit
• Parties: PHYSICIAN HOSPITALS OF AMERICA; Texas Spine & Joint Hospital, Limited, Plaintiffs–Appellants, v. Kathleen SEBELIUS, Secretary, Department of Health and Human Services, Defendant–Appellee.

691 F.3d 649

PHYSICIAN HOSPITALS OF AMERICA; Texas Spine & Joint Hospital, Limited, Plaintiffs–Appellants,

v.Kathleen SEBELIUS, Secretary, Department of Health and Human Services, Defendant–Appellee.

No. 11–40631.

United States Court of Appeals, Fifth Circuit.

Aug. 16, 2012.

Scott Charles Oostdyk (argued), Lisa MacKinnon Sharp, McGuireWoods, L.L.P., Richmond, VA, Lindsey Scott Birdsong, Birdsong & Armstrong, Tyler, TX, for Plaintiffs–Appellants.

Dana Lydia Kaersvang (argued), U.S. Dept. of Justice, Kimberly L. Herb, U.S. Dept. of Justice, Civ. Div. Fed. Programs Branch, Alisa Beth Klein, Mark Bernard Stern, U.S. Dept. of Justice, Civ. Div., App. Staff, Washington, DC, Robert Austin Wells, Asst. U.S. Atty., Tyler, TX, for Defendant–Appellee.

Anthony Lee Icenogle, Icenogle & Sullivan, L.L.P., Donald P. Wilcox, Gen. Counsel, Andrea Irene Schwab, Texas Medical Ass'n, for Texas Medical Ass'n and Physicians Foundation, Inc., Amici Curiae.

Appeal from the United States District Court for the Eastern District of Texas.

Before SMITH, GARZA and SOUTHWICK, Circuit Judges.

LESLIE H. SOUTHWICK, Circuit Judge:

A trade group and a physician-owned hospital sued the Secretary of the Department of Health and Human Services. They sought injunctive relief to remedy multiple alleged constitutional infirmities with Section 6001 of the Patient Protection and Affordable Care Act of 2010. Section 6001 limits Medicare reimbursement for services furnished to a patient referred by a physician owner. Although it denied the Secretary's motion to dismiss for lack of jurisdiction, the district court granted summary judgment to the Secretary. The court concluded that Congress had a rational basis for enacting Section 6001, the new law does not constitute a real or regulatory taking, and the law's requirements are not unconstitutionally vague. The plaintiffs appeal and challenge the district court's ruling as an erroneous evaluation of the taking claims and an improper application of rational-basis review. Concluding that the district court lacked subject-matter jurisdiction, we VACATE and DISMISS.

FACTUAL AND PROCEDURAL BACKGROUND

Starting in 1989 with what is known as the “Stark Law,” Congress ended reimbursement for services provided to Medicare patients at a facility in which a referring physician had an ownership interest. See42 U.S.C. § 1395nn. Congress expanded the ban in 1993 to cover hospitals where the referring physician had an ownership interest unless that interest was in the whole hospital. Omnibus Budget ReconciliationAct of 1993, Pub.L. No. 103–66, § 13562, 107 Stat. 312 (1993). During this period, there was a rise in the number of speciality hospitals. U.S. Gov't Accounting Office, GAO–03–683R, Specialty Hospitals: Information on National Market Share, Physician Ownership, and Patients Served 3 (2003). In 2003, Congress enacted an 18–month moratorium on reimbursements to new and certain expanded specialty hospitals while directing the Medicare Payment Advisory Commission (MedPAC) and the Department of Health and Human Services (HHS) to study a number of issues relating to the cost and type of care at speciality hospitals. Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub.L. No. 108–173, § 507, 117 Stat. 2066 (2003). The moratorium expired after the initial 18–month period.

In 2010, Congress enacted the Patient Protection and Affordable Care Act. It contains Section 6001, the provision at issue in this case. Pub.L. No. 111–148, 124 Stat. 119 (2010). Soon after, Congress amended Section 6001 in the Health Care and Education Reconciliation Act. Pub.L. No. 111–152, 124 Stat. 1029 (2010). In its current form, Section 6001 provides that any physician-owned hospital licensed as of December 31, 2010, falls under the whole-hospital exception. 42 U.S.C. § 1395nn(i)(1)(A). This subsection provides, however, that such grandfathered facilities may not expand unless first obtaining an exception from the Secretary. Id. § 1395nn(i)(1)(B), (i)(3).

One plaintiff is Physician Hospitals of America. It is an organization that supports physician-owned hospitals. The other plaintiff, Texas Spine & Joint Hospital (TSJH), is a physician-owned hospital that opened in Tyler, Texas in 2002. In 2008, TSJH decided to expand its facilities and spent about $3 million towards a planned $30 million expansion. Because TSJH would have been unable to complete its expansion before the statutory cutoff, it stopped construction after the passage of Section 6001. TSJH alleges that in order to file an administrative claim it would have to complete its new building and treat a patient in that building, thereby risking millions of dollars in investment and creating a potential of having a large, empty building. The Secretary does not appear to challenge this allegation. Physician Hospitals and TSJH brought this case in the Eastern District of Texas seeking declaratory and injunctive relief on the basis that Section 6001 violates the Due Process Clause generally, is void for vagueness, and violates the Equal Protection Clause of the Constitution. The Secretary moved to dismiss for lack of subject-matter jurisdiction, which the court denied. Instead, the court granted the Secretary's motion for summary judgment. The plaintiffs appealed.

DISCUSSION

We first determine whether the district court had subject-matter jurisdiction. Our review of jurisdictional issues is de novo. Volvo Trucks N. Am., Inc. v. Crescent Ford Truck Sales, Inc., 666 F.3d 932, 935 (5th Cir.2012). Generally, the proponents of federal-court jurisdiction carry the burden of establishing it. Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001). The plaintiffs have not offered any basis on which to conclude the burden lies elsewhere in this case and we see none. Because the district court resolved this issue at the Rule 12(b)(1) stage of the proceedings, the plaintiffs' burden is to allege a plausible set of facts establishing jurisdiction. See Davis v. United States, 597 F.3d 646, 649–50 (5th Cir.2009). Thus, the plaintiffs carry the burden of establishing that statutory subject-matter jurisdiction exists and they have failed to do so.

The Medicare Act severely restricts the authority of federal courts by requiring “virtually all legal attacks” under the Act be brought through the agency. Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 13, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000). The government argues we lack jurisdiction because the plaintiffs failed to follow the statutorily mandated administrative procedures. In the alternative, the government argues the current suit should instead be one seeking compensation in the Court of Federal Claims.

As we will explain, the plaintiffs had to proceed with the available administrative procedures. Their failure to do so leaves us without subject-matter jurisdiction over the claims they have presented in this suit. Accordingly, we do not reach the other issues raised for review.

By statute, claims under Medicare must first be presented to the HHS Secretary. The first relevant statute mandates a procedure for another context:

The findings and decision of the Commissioner of Social Security after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Commissioner of Social Security shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Commissioner of Social Security, 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). Title 42, Section 1395ii makes Section 405(h) applicable to Medicare, substituting the HHS Secretary for the references to the Social Security Commissioner. Once the Secretary reaches a final decision, an individual who was a party to the administrative proceeding “may obtain a review of such decision by a civil action commenced within sixty days after the mailing to him of notice of such decision or within such further time as the [Secretary] may allow.” 42 U.S.C. § 405(g).

In summary, judicial review of such a claim is available only after a party first presents the claim to the Secretary and receives a final decision.

The Supreme Court has had four occasions to interpret Section 405(h). After its most recent such opinion, a few courts of appeals have also considered the application of this Section. These opinions acknowledge that bringing claims administratively comes “at a price, namely, occasional individual, delay-related hardship.” Ill. Council, 529 U.S. at 13, 120 S.Ct. 1084. The hardship is identified as one that Congress was aware it was imposing on health-care providers:

In the context of a massive, complex health and safety program such as Medicare, embodied in hundreds of pages of statutes and thousands of pages of often interrelated regulations, any of which may become the subject of a legal challenge in any of several different courts, paying this price may seem justified. In any event, such was the judgment of Congress as understood [by the Court].

Id. Section 405(h) requires that short of a “ complete preclusion of judicial review,” a party must channel his or her claims to the Secretary prior to litigating in federal court. Id. at 22–23, 120 S.Ct. 1084.

In the first of the four Supreme Court decisions, plaintiffs challenged the constitutionality of portions of the Social Security Act in federal court. Weinberger v. Salfi, 422 U.S. 749, 752–53, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975). The district court exercised jurisdiction over all of the claims in the case, including those that had not been first pursued administratively. Id. at 755, 95 S.Ct. 2457. The district court concluded that Section 405(h) “amounted to no more than a codification of the doctrine of exhaustion of administrative remedies.” Id. at 757, 95 S.Ct. 2457. The...