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PENOYER v. U.S.

February 3, 2004.

DONALD PENOYER, AS CONSERVATOR OF LA VERNE PENOYER, AND AS TRUSTEE OF THE C.A. PENOYER TRUST, AND ON BEHALF OF ALL SIMILARLY SITUATED PLAINTIFFS, Plaintiff -v- THE UNITED STATES OF AMERICA; TOMMY THOMPSON, SECRETARY, DEPARTMENT OF HEALTH AND HUMAN SERVICES; AND THE CENTERS FOR MEDICARE AND MEDICAID SERVICES, Defendants


The opinion of the court was delivered by: NEAL McCURN, Senior District Judge

MEMORANDUM-DECISION AND ORDER

Factual and Procedural Background

Presently before the court is a motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted by defendants, the United States of America; Tommy Thompson, Secretary of the Department of Health and Human Services; and the Centers for Medicare and Medicaid Services*fn1 ("defendants"). Also before the court is a motion by plaintiff to certify a class pursuant to Fed.R.Civ.P. 23(b). Because the court grants the motion to dismiss for lack of subject matter jurisdiction, the remaining ground for defendants' motion as well as plaintiff's motion for class certification are rendered moot and will not be addressed.

  Plaintiff, Donald Penoyer ("Penoyer" or "plaintiff), brings this suit in his capacity as conservator of LaVerne Penoyer's person and property as well as trustee of the estate of C.A. Penoyer, requesting declaratory and injunctive relief.*fn2 Penoyer sets forth three causes of action in his First Amended Complaint.*fn3 Count I alleges a violation of the Medicare Secondary Payer statute, 42 U.S.C. § 1395y ("the MSP") on behalf of plaintiff individually, Count II alleges same on behalf of all persons similarly situated, and Count III alleges violations of due process on behalf of himself and all persons similarly situated. This court has subject matter jurisdiction, according to plaintiff, pursuant to 28 U.S.C. § 1331.

  Because this court must accept the factual allegations in the complaint as true for purposes of the present motion, see supra at 4, the relevant facts as set forth in the First Amended Page 3 Complaint will be summarized herein.*fn4

  In June 1999, an action was commenced in Supreme Court, Onondaga County, State of New York on behalf of Carl A. Penoyer, La Verne Penoyer, and Donald Penoyer ("the Penoyer Family") seeking monetary damages versus an allegedly responsible defendant therein, regarding the death of Carl A. Penoyer due to alleged medical malpractice. In July 2000, while the medical malpractice claim was pending, defendants asserted a claim pursuant to the MSP for reimbursement of expenses paid by Medicare on behalf of Carl A. Penoyer, which were related to the medical malpractice litigation. Defendants asserted a lien against the Penoyer Family pursuant to the MSP, which prevented them from settling their medical malpractice claim. Defendant Centers for Medicare and Medicaid Services ("CMS") agreed to reduce its claimed lien against the Penoyer Family from $169,272.32 to $92,735.26. Defendants have submitted a copy of a letter dated October 12, 2001, wherein CMS notified plaintiff's attorney that Carl A. Penoyer had been overpaid $92,735.36. Instructions regarding a request for an appeal or a waiver of the overpayment determination were also included in the letter. According to plaintiff, because the medical malpractice defendants would not settle the Penoyer Family's claims without full satisfaction of the Medicare lien, the Penoyer Family was forced to pay CMS $92,735.26, and did so in January 2002. Defendants submitted a copy of a letter dated January 28, 2002, wherein plaintiff's attorney confirmed that he was submitting a check payable to CMS for $92,735.36, and that the purpose of said letter was to request an "appeal" regarding said payment. Plaintiff contends that after payment was made to CMS, the Penoyer Family timely requested a waiver and return of the payment on hardship grounds, which was thereafter denied on approximately May 15, 2002. Defendants submitted a copy of a letter dated May 15, 2002, wherein CMS notified plaintiff's attorney that, at his request, it reconsidered its initial determination denying the Penoyer Family's request for a waiver of Mr. Penoyer's overpayment, and it concluded that said determination would be affirmed.*fn5 Plaintiff contends that the Penoyer Page 4 Family filed a notice of appeal of the waiver denial on approximately May 17, 2002. Defendants submitted a copy of a letter dated May 17, 2002, wherein plaintiff's attorney did in fact request a hearing before an administrative law judge ("ALJ"). According to plaintiff, although the notice of appeal included a request for review before an ALJ, defendants have not scheduled any such hearing or review.

  Plaintiff now seeks judicial review from this court pursuant to 5 U.S.C. § 703 (of the Administrative Procedure Act), and a declaratory judgment holding that defendants violated the MSP by wrongfully demanding and obtaining reimbursement of Medicare benefits paid on behalf of Carl A. Penoyer from 1997 through the date of his death on May 4, 2001 and that in so doing "defendants have exceeded their authority under the MSP." Plaintiff further seeks, on behalf of himself and all persons similarly situated, a declaratory judgment holding that defendants have wrongfully demanded, obtained and retained funds in violation of the MSP. Finally, plaintiff requests injunctive relief in the form of an order requiring defendants to reimburse him the sum of $92,735.36 and refrain from further attempts to collect same as well as an order entitling each person similarly situated the right to recover from defendants sums unlawfully retained under the MSP and protect them from further attempts by defendants to collect same.

  Analysis

  Defendants move to dismiss the entire action for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1) due to plaintiff's failure to exhaust administrative remedies. A case may be properly dismissed pursuant to Rule 12(b)(1) when a court lacks statutory or constitutional authority to adjudicate it. See Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). When deciding whether to grant a 12(b)(1) motion to dismiss, a court "must accept all factual allegations in the complaint as true and draw inferences from those allegations in the light most favorable to [the] plaintiff. See McGinty v. State, 193 F.3d 64, 68 (2d Cir. 1999). A court may also refer to evidence outside the pleadings and the plaintiff carries the burden of proving by a preponderance of the evidence that subject matter jurisdiction exists. See Makarova, 201 F.3d at 113, fating Kamen v. American Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986); Malik v. Meissner, 82 F.3d 560, 562 (2d Cir. 1996)).

 Medicare Secondary Payer Statute and Regulatory Scheme Page 5

  Initially, a brief explanation of the overall statutory structure of the Social Security Act as well as the hierarchy of agencies charged with its administration may be instructive. Retirement, Survivors and Disability Insurance ("RSDI") is codified at Title II of the Social Security Act, and Medicare is codified at Title XVIII. Defendants refer to Title XVIII as "the Medicare Act" and the court will do so as well for purposes of the present decision. The Department of Health and Human Services ("HHS"), headed by Secretary Thompson, a defendant in this action, oversees CMS, another defendant in this action. CMS, formerly the Health Care Financing Administration ("HCFA"), administers Medicare. The Social Security Administration ("SSA"), now an independent agency separate and apart from HHS, administers, among other programs, RSDI.

  As initially enacted, the Medicare Act established Medicare as the primary payer of beneficiaries' medical services, regardless of whether other insurance was available. See 42 U.S.C. § 1395-1395ggg (2003). See also Zinman v. Shalala, 67 F.3d 841, 843 (9th Cir. 1995). Subsequently, in response to increasing Medicare costs, Congress enacted the Medicare Secondary Payer Statute ("MSP"), codified at 42 U.S.C. § 1395y, which required beneficiaries to exhaust all other insurance benefits before seeking payment from Medicare. See Fanning v. United States, 346 F.3d 386, 388-389 (3d Cir. 2003). Pursuant to the MSP, Medicare will not provide coverage where "payment has been made, or can reasonably expect to be made" under a group health plan, workmen's compensation law or plan, automobile or liability insurance policy or plan, or no-fault insurance. See 42 U.S.C. § 1395y(b)(2)(A)(i)(ii) (2003). Moreover, if Medicare does provide coverage where any of the aforementioned types of payment have been made or can reasonably expect to be made, said coverage is conditioned upon reimbursement to the Medicare Trust Fund. See § 1395y(b)(2)(B)(i).

  Congress has enabled the Secretary of HHS ("the Secretary") to promulgate regulations regarding initial determinations of Medicare entitlement and benefit amounts. See 42 U.S.C. § 1395ff(a)(1) (2003). Pursuant to HHS' enabling act, the Secretary has promulgated regulations which, among other things, set forth a description of the types of actions that constitute an initial determination, and the procedure for appealing said determinations. See 42 C.F.R. § 405.701-405.877. A decision that an overpayment has occurred and whether to grant a request to waive Page 6 an overpayment*fn6 are two types of initial determinations under Medicare Part A.*fn7 See § 405.704(b)(13)-(14). Initial determinations under Part B are made by a carrier and include determinations such as whether a service is covered, whether a deductible has been met, whether evidence of payment is acceptable, and whether charges for services are reasonable. See § 405.803.

  Congress has also carved out a statutory right to a reconsideration, hearing and judicial review regarding any initial determination with which a beneficiary is dissatisfied. See 42 U.S.C. § 1395ff(b)(1)(A). Pursuant to HHS regulations, reconsideration of an initial determination under Part A must be requested within 60 days of said determination. See 42 C.F.R. § 405.710, 405.711. If dissatisfied with the outcome of the redetermination, a hearing before an administrative law judge ("ALJ") must be requested within 60 days of notice of said outcome. See §§ 405.720, 405.722. Finally, review by the Appeals Council may be sought if dissatisfied with the ALJ decision. See § 405.724; 20 C.F.R. § 404.967, 404.968. Review of Part B initial determinations may be sought within six months of same. See 42 C.F.R. § 405.807.*fn8 If dissatisfied with the outcome of the review, a hearing before the carrier may be sought within six months of notice of said outcome. See § 405.821. Next, an appeal for a hearing before an ALJ may be sought within 60 days of notice of the outcome of the carrier hearing, if that outcome is unsatisfactory. See § 405.855. Finally, Appeals Council review may be sought within 60 days of notice of an unsatisfactory ruling from the ...


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