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NEW YORK v. LUTHERAN CTR. FOR THE AGING

February 21, 1997

STATE OF NEW YORK, Plaintiff,
v.
LUTHERAN CENTER FOR THE AGING, INC., Defendant. LUTHERAN CENTER FOR THE AGING, INC., Third Party Plaintiff, v. DONNA E. SHALALA, as Secretary of the United States Department of Health and Human Services, Third Party Defendant.



The opinion of the court was delivered by: SPATT

 SPATT, District Judge:

 This action arises from the allegations of the plaintiff, the State of New York (the "State" or "plaintiff"), against the defendant-third party plaintiff, Lutheran Center for the Aging, Inc. ("LCA" or the "defendant" or "third party plaintiff") for wrongfully obtaining Medicaid benefits under New York State law. The defendant in turn alleges that to the extent that it is found liable for any Medicaid benefits, it is entitled to reimbursement from the Secretary of Health and Human Services (the "Secretary" or "third party defendant") in the form of Medicare benefits.

 Presently before the Court are two motions: (1) the Secretary moves to dismiss the third party complaint pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction; and (2) the State moves to remand this action, pursuant to 28 U.S.C. § 1447(c), to the New York Supreme Court, Suffolk County, where it was originally filed. LCA opposes both motions, maintaining that this proceeding is properly before the Court.

 I. Background

 The following facts are taken from the complaint. The New York State Department of Social Services ("DSS") is a state agency charged with implementation and administration of New York's Medicaid program under which eligible individuals are provided with health care benefits. DSS is also responsible for the licensing and supervision of Medicaid health care providers. In this capacity, pursuant to state law and regulations, DSS has established standards and rates of reimbursement for the services provided.

 The defendant, LCA, is a Medicaid and Medicare provider located in Smithtown, New York. According to the complaint, at all times relevant to this litigation, LCA operated and maintained a long term home health care program ("LTHHC"). The operation of an LTHHC requires state certification.

 According to the plaintiff, on or about January 1, 1992 until August 31, 1995, the defendant was authorized under New York's Medicaid program to supply long term home health care services to patients enrolled in the LTHHC who were "both Medicaid recipients and Medicare beneficiaries." Further, the State pleads that the defendant knew that "in the case of individuals eligible to receive Medicare benefits under the LTHHC, Medicaid was the payor of last resort and Medicare was required to be billed first." This "Medicare Maximization" was implemented to minimize the burden on Medicaid or on a private individual where Medicare would be otherwise available.

 When submitting budgets to DSS for approval and billing Medicaid for services provided for LTHHC clients, the defendant is obligated to set forth whether the Medicaid recipient has other insurance available, such as Medicare. If Medicare is obtainable, that service must be billed first. Nevertheless, according to the State:

 
. . . defendant LCA submitted or caused to be submitted numerous claim forms to DSS in which payments were sought for providing services covered by Medicaid, when in fact LCA knew, but omitted from such claim forms, that these individuals were Medicare-eligible and the services were covered by Medicare under LTHHC.

 Compl. P 8. Based on this alleged unlawful conduct, the State maintains that DSS reimbursed the defendant in the sum of $ 118,912.61 for Medicaid benefits to which LCA was not entitled.

 As a result, on July 11, 1996, the State filed a complaint in New York Supreme Court, Suffolk County alleging four causes of action for: (1) moneys had and received; (2) violation of New York Executive Law § 63-c; (3) unjust enrichment; and (4) violation of New York Social Service Law § 145-b.

 On August 27, 1996, the defendant filed its notice of removal to this Court based on federal question jurisdiction. According to LCA, this action is "governed by Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq. (the "Medicare Statute") and Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq. (the "Medicaid Statute").

 On August 28, 1996, the defendant filed its Answer and on September 5, 1996, LCA filed a third party complaint against the Secretary of Health and Human Services. In its third party action LCA alleges that in order for the State to succeed on its claims, it must first establish that the individual clients were entitled to Medicare benefits under federal law. Accordingly, to the extent that LCA must repay the State Medicaid benefits, the defendant-third party plaintiff will be entitled to Medicare benefits from the Secretary, either by statute, or under a theory of unjust enrichment.

 As stated above, presently before the Court are two motions. The Secretary moves to dismiss the third party complaint pursuant to Fed. R. Civ. P. 12(b)(1), for lack of subject matter jurisdiction. The State moves pursuant to 28 U.S.C. § 1447(c) to have this case remanded back to New York Supreme Court, also arguing that there is no basis for federal subject matter jurisdiction. For the sake of a clear record, the Court will address the Secretary's motion first.

 A. The Secretary's motion to dismiss

 The Secretary moves to dismiss the third party complaint for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). The third party complaint alleges that in the event LCA is found liable to the State for damages, the defendant will be entitled to recover from the Secretary for the long term home health care services at issue under Medicare. See 42 U.S.C. §§ 1395 et seq.

 Medicare provides a federally subsidized health insurance program primarily for the aged and disabled and is comprised of two major components. See id. Part A provides medical insurance coverage for hospital treatment, home health care, and post hospital extended care services. 42 U.S.C. §§ 1395c-1395e. Part B is a voluntary supplementary medical insurance program, which generally reimburses participants for 80 percent of the reasonable charges for certain other health care services, including physician's services, drugs, medical supplies, x-rays and laboratory tests. See 42 U.S.C. §§ 1395j-1395m, 1395x(s). According to the Secretary, which LCA does not dispute, the third party complaint alleges claims under Part A.

 The Medicare statute authorizes the Secretary to determine which claims are covered by the statute and to promulgate regulations toward this end. See 42 U.S.C. § 1395ff(a). The statute further permits the Secretary to contract with private organizations referred to as "fiscal intermediaries" whose responsibilities include processing claims to determine whether they are covered by Medicare and if so, the amount of Medicare payment. 42 U.S.C. § 1395h; 42 C.F.R. §§ 421.100(a), 421.103, 421.200(a). The conditions under which payment is granted or denied are not relevant to the Court's decision.

 A fiscal intermediary's determination regarding Medicare coverage is final unless the provider requests reconsideration within 60 days. 42 U.S.C. § 1395ff(b), (incorporating by reference 42 U.S.C. § 405(b)); 42 C.F.R. § 405.708(b), 405.710(b), 405.711. A determination upon reconsideration becomes final unless the provider requests a hearing before an administrative law judge ("ALJ") and the amount in controversy is at least $ 100. See 42 U.S.C. § 405(b), 1395ff(b)(2)(A), 42 C.F.R. §§ 405.701, 405.716, 405.720, 405.722. If unsatisfied with the ALJ's decision, the provider may seek review by the Appeals Council. See 42 C.F.R. §§ 405.701(c), 405.724; 20 C.F.R. Part 404, Subpart J. Judicial review by the federal district court after an Appeals Council decision is possible where the amount in controversy is at least $ 1000. 42 U.S.C. § 1395ff(b)(2)(A); see also Heckler v. Ringer, 466 U.S. 602, 606-07, 80 L. Ed. 2d 622, 104 S. Ct. 2013 (1984) (summarizing this entire process). This avenue is the only path to judicial review in the federal courts. See 42 U.S.C. § 1395ii (incorporating 42 U.S.C. § 405(h)); see also Ringer, 466 U.S. at 615; Manakee Prof'l Med. Trans. Serv. v. Shalala, 71 F.3d 574, 578 (6th Cir. 1995) ("Section 1395ii of the Medicare Act incorporates 42 U.S.C. § 405(h) of the Social Security Act, in which it is explicitly stated that § 405(g), to the exclusion of 28 U.S.C. § 1331, is the sole avenue for judicial review for claims 'arising under' the [Medicare] Act"). In Ringer, the Supreme Court broke down these exhaustion of remedies requirements into two parts: (1) presentation of the claim to the Secretary, which is "nonwaivable;" and (2) full pursuit of the administrative remedies prescribed by the Secretary, which is waivable. See Ringer, 466 U.S. at 617; Abbey v. Sullivan, 978 F.2d 37, 43 (2d Cir. 1992).

 Applying these standards for seeking judicial review, the Court finds that it lacks subject matter jurisdiction over LCA's claims against the Secretary. The third party complaint does not allege that LCA's claims were ever presented to the fiscal intermediary for resolution or litigated through any other stage of the administrative process. Failure to present the claims to the Secretary, a jurisdictional requirement, operates as a bar to judicial review. See Abbey, 978 F.2d at 43. Further, the Court notes that there is no indication that the Secretary has waived the second portion of the exhaustion requirement, namely that the claimant " pursue fully" his administrative remedies. See Ringer 466 U.S. at 617. Accordingly, the Secretary's motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction is granted.

 In reaching this conclusion, the Court notes LCA's argument that it is unable to present a claim to the Secretary because it is not clear whether the services at issue are covered by the Medicare Statute. However, as the Secretary correctly points out, this argument was rejected in Ringer, where the Supreme Court reasoned that a claim for future benefits "must be construed as a 'claim arising under' the Medicare Act." Ringer, 466 U.S. at 621. Accordingly, these claims are subject to the same exhaustion requirements as those for medical expenses already incurred. As a result, regardless of whether the services at issue are ultimately determined to be covered by Medicare, they still must be litigated through the administrative process.

 Finally, the Court distinguishes the decision Greenery Rehabilitation Group, Inc. v. Sabol, 841 F. Supp. 58 (N.D.N.Y. 1993), relied on by LCA. The substantive issue in Greenery was whether the plaintiff, the Greenery Rehabilitation Group, Inc. ("Greenery"), was entitled to Medicaid reimbursement for services provided to three "aliens" as treatment for "emergency medical conditions." The critical distinguishing feature of Greenery is that the court in that case was addressing the Secretary's motion to dismiss claims brought pursuant to the Medicaid, not the Medicare statute. The statutory requirements with respect to exhaustion of administrative remedies for Medicare claims do not exist under the Medicaid Statute. ...


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