Sensory Neurostimulation, Inc. v. Azar

• Decision Date: 16 October 2020
• Docket Number: No. 19-55036,19-55036
• Citation: 977 F.3d 969
• Parties: SENSORY NEUROSTIMULATION, INC., a California corporation, Plaintiff-Appellant, and Fred Burbank, MD, CEO, President, Board Chairman, and stock holder, Plaintiff, v. Alex M. AZAR II, in his official capacity as Secretary of the United States Department of Health and Human Services; U.S. Department of Health & Human Services; Centers for Medicare & Medicaid Services, Defendants-Appellees, and Seema Verma, Administrator Centers for Medicare and Medicaid Services; Demetrios Kouzoukas, Principal Deputy Administrator Centers for Medicare and Medicaid Services; Laurence Wilson, Centers for Medicare and Medicaid Services; Peter J. Gurk, MD, Medical Director, DME MAC, Jurisdiction D; Robert D. Hoover, Jr., MD, MPH, FACP, Medical Director, DME MAC, Jurisdiction C; Stacey V. Brennan, M.D., FAAFP, Medical Director, DME MAC, Jurisdiction B; Wilfred Mamuya, MD, PHD Medical Director, DME MAC, Jurisdiction A, Defendants.
• Court: U.S. Court of Appeals — Ninth Circuit

977 F.3d 969

SENSORY NEUROSTIMULATION, INC., a California corporation, Plaintiff-Appellant,

and

Fred Burbank, MD, CEO, President, Board Chairman, and stock holder, Plaintiff,

v.Alex M. AZAR II, in his official capacity as Secretary of the United States Department of Health and Human Services; U.S. Department of Health & Human Services; Centers for Medicare & Medicaid Services, Defendants-Appellees,andSeema Verma, Administrator Centers for Medicare and Medicaid Services; Demetrios Kouzoukas, Principal Deputy Administrator Centers for Medicare and Medicaid Services; Laurence Wilson, Centers for Medicare and Medicaid Services; Peter J. Gurk, MD, Medical Director, DME MAC, Jurisdiction D; Robert D. Hoover, Jr., MD, MPH, FACP, Medical Director, DME MAC, Jurisdiction C; Stacey V. Brennan, M.D., FAAFP, Medical Director, DME MAC, Jurisdiction B; Wilfred Mamuya, MD, PHD Medical Director, DME MAC, Jurisdiction A, Defendants.

No. 19-55036

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 13, 2020 Pasadena, California

Filed October 16, 2020

Linda T. Coberly (argued), Winston & Strawn LLP, Chicago, Illinois; Diana Leiden and Saul S. Rostamian, Winston & Strawn LLP, Los Angeles, California; Lauren Gailey, Winston & Strawn LLP, Washington, D.C.; for Plaintiff-Appellant.

Karen Y. Paik (argued), Assistant United States Attorney; David M. Harris, Chief, Civil Division; Nicola T. Hanna, United States Attorney; United States Attorney's Office, Los Angeles, California; for Defendants-Appellees.

Before: Mary M. Schroeder and Daniel P. Collins, Circuit Judges, and Michael M. Baylson,^* District Judge.

OPINION

BAYLSON, District Judge:

I. Introduction

The issue in this case is whether the district court correctly decided it lacked subject matter jurisdiction over a lawsuit brought by a medical device supplier seeking to have Medicare "cover" the supplier's product. We conclude that the lawsuit is subject to Medicare's administrative channeling requirements, that Plaintiff-Appellant Sensory NeuroStimulation, Inc. ("Sensory") has not met those requirements, that there exists a way to satisfy those requirements, and that these conclusions do not completely preclude judicial review so as to trigger a key exception to the channeling requirements. We therefore affirm the district court.

II. Background

A. Statutory Background

Medicare is a half-century-old federal health insurance program for elderly and disabled Americans. Social Security Amendments of 1965, Pub. L. 89-97, 79 Stat. 286. As of 2019, it insured 61.2 million people. 2020 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds 6 (2020). These federal insureds are known generally as Medicare "beneficiaries." The program is administered by the Centers for Medicare and Medicaid Services ("CMS"), an agency housed in the United States Department of Health and Human Services ("HHS"). Medicare administrative contractors ("MACs") help CMS administer Medicare benefits in specific geographic regions. See 42 U.S.C. § 1395u.

Medicare is governed by an intricate statutory scheme, codified at 42 U.S.C. §§ 1395 – 1395lll . This case involves two parts of the statutory scheme: (1) provisions addressing how medical devices become covered, and (2) provisions defining the availability of judicial review.

1. Medicare's Coverage for Medical Devices

Medicare covers a limited universe of medical devices. Relevant here, devices classified as "durable medical equipment" may be eligible for Medicare reimbursement, subject to an exception that does not apply here. 42 U.S.C. § 1395m(a)(2). Devices considered "personal comfort items," on the other hand, are categorically not covered. Id. § 1395y(a)(6). Durable medical equipment is equipment that "[c]an withstand repeated use," "has an expected life of at least 3 years," "[i]s primarily and customarily used to serve a medical purpose," "[g]enerally is not useful to an individual in the absence of an illness or injury," and "[i]s appropriate for use in the home." 42 C.F.R. § 414.202.

Devices may be covered nationally, regionally, or on a case-by-case basis. A nationwide determination by CMS as to whether Medicare will reimburse beneficiaries for the purchase of the device is a "national coverage determination" ("NCD"). See 42 U.S.C. § 1395y(l )(6)(A). NCDs may be favorable or unfavorable.¹ Id. NCDs bind MACs. See id. § 1395ff(c)(3)(B)(ii)(I); 42 C.F.R. § 405.1060(a)(4). In the absence of an NCD, MACs may also issue "local" coverage determinations that apply to their own subsequent decisions. See 42 U.S.C. § 1395ff(f)(2)(B). In the absence of a national or local coverage determination, MACs deciding whether to reimburse particular claims make case-by-case decisions "based on applicable information, including clinical experience and medical, technical, and scientific evidence." Id. § 1395ff(c)(3)(B)(ii)(III).

There are several pathways for CMS to initiate an NCD evaluation process. CMS may initiate an NCD process on its own initiative. Medicare Program; Revised Process for Making National Coverage Determinations, 78 Fed. Reg. 48164, 48167 (Aug. 7, 2013). Alternatively, beneficiaries, medical professional societies, businesses such as medical device manufacturers, and others can request CMS initiate an NCD process through a written, "formal" request. Id. at 41166.

When there is no NCD for particular medical services or devices, individual beneficiaries "in need of the items or services" can request that CMS initiate a coverage determination process and are ordinarily entitled to receive a decision within ninety days. 42 U.S.C. § 1395ff(f)(4)–(5). Such beneficiaries in need are known as "aggrieved parties." Id . If the aggrieved party finds CMS's decision unsatisfactory—i.e. , if CMS ultimately decides not to issue an NCD or issues an unfavorable NCD—the aggrieved party may appeal to the Departmental Appeals Board of HHS. Id. § 1395ff(f)(1)(A). The result of that appeal is a final agency action subject to judicial review. Id. § 1395ff(f)(1)(A)(v). No NCD requestors other than aggrieved parties have the same or even similar statutory rights to a decision and appeal, and aggrieved parties may not assign their rights. Id. § 1395ff(f)(1)(A)(iii) ; 42 C.F.R. § 426.320.

The heart of this case is about what, if any, rights to appeal are available to NCD requestors like Sensory who are not Medicare beneficiaries.

2. Medicare's Limitation on Judicial Review: The "Channeling" Requirement

The Medicare statute eliminates federal question jurisdiction over lawsuits brought "to recover on any claim arising under" Medicare. See 42 U.S.C. § 405(h) ("No action against the United States ... 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."); id . § 1395ii (incorporating § 405(h) into the Medicare statute). This is known as § 405(h) ’s "channeling requirement" because it forces plaintiffs to exhaust pertinent administrative channels. Shalala v. Ill. Council on Long Term Care, Inc. , 529 U.S. 1, 19, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000). In practice, the channeling requirement "assures the agency greater opportunity to apply, interpret, or revise policies, regulations, or statutes without possibly premature interference by different individual courts." Id. at 13, 120 S.Ct. 1084.

The Medicare statute creates administrative channels specifically designed for Medicare. As discussed earlier, under 42 U.S.C. § 1395ff(f)(1)(A)(iii), when an aggrieved party is unhappy with the agency's NCD, that aggrieved party may appeal that decision to the Departmental Appeals Board of HHS, and that Appeals Board's decision "constitutes a final agency action and is subject to judicial review." 42 U.S.C. § 1395ff(f)(1)(A)(v). Some of the administrative channels are adapted from other statutory schemes. For example, beneficiaries’ challenges to adverse benefits determinations "shall be entitled to reconsideration of the determination, and ... a hearing thereon by the Secretary to the same extent as is provided in" 42 U.S.C. § 405(b). Id. § 1395ff(b)(1)(A).

When a claim arises under Medicare, § 405(h) eliminates federal question jurisdiction and the plaintiffs must first exhaust the appropriate administrative channels before seeking judicial review. The Supreme Court has held that a wide range of claims "arise under" Medicare. See Weinberger v. Salfi , 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975) ; Ill. Council , 529 U.S. at 13–14, 120 S.Ct. 1084. Of course, § 405(h) ’s channeling requirement applies in "a typical Social Security or Medicare benefits case, where an individual seeks a monetary benefit from the agency (say, a disability payment, or payment for some medical procedure), the agency denies the benefit, and the individual challenges the lawfulness of that denial." Ill. Council , 529 U.S. at 10, 120 S.Ct. 1084. § 405(h) also requires that plaintiffs channel claims that advance "general legal" arguments just as much as claims that advance "fact-specific" arguments; claims that are "collateral" to a benefits determination just as much as claims that are not; claims based on a "potential future" just as much as claims rooted in the "actual present"; and claims for declaratory, injunctive, or monetary relief. Id. at 13–14, 120 S.Ct. 1084.

There is an important exception to the broad channeling requirement, however. The channeling requirement does not apply where its "application ... would mean no review at all." Id. at 19, 120 S.Ct. 1084 (interpreting Bowen v. Mich. Acad. of Fam. Physicians , 476 U.S. 667, 106 S.Ct. 2133, 90 L.Ed.2d 623 (1986) ) (known as the " Michigan Academy exception"). In Michigan Academy , a group of physicians brought statutory and constitutional challenges to a regulation promulgated under Part B of the Medicare statute. 476 U.S. at 668–69, 106 S.Ct. 2133. That regulation determined rates at which...