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St. Francis Hospital v. Kathleen Sebelius

June 5, 2012


The opinion of the court was delivered by: Hurley, District Judge:


Plaintiff brings this action for judicial review of certain administrative determinations issued by defendant in her capacity as Secretary of Health and Human Services, which resulted in the recoupment of approximately $1.2 million in Medicare reimbursements from plaintiff. Presently before the Court is defendant's motion to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction. For the reasons stated below, defendant's motion is denied.


Plaintiff, a hospital located in Roslyn, New York, regularly obtains reimbursement under Part A*fn1 of the Medicare program from the U.S. Department of Health and Human Services ("HHS") for services rendered to Medicare beneficiaries. (Compl. ¶ 8.) Under Agency regulations, the reimbursement process starts with an "initial determination" by a private "fiscal intermediary" regarding the coverage and payment of a particular claim. (Compl. ¶¶ 14-17 (citing 42 U.S.C. § 1395h; 42 C.F.R. §§ 405.704(b), 405.924(b)).) In this case, the fiscal intermediary, Empire Medical Services ("Empire"),*fn2 determined from 2002 to 2004 that a number of reimbursement claims at issue in this action were covered and payable to plaintiff under Medicare Part A.

As part of an experimental demonstration project authorized by the Medicare Prescription Drug, Improvement and Modernization Act of 2003, HHS engaged the services of recovery audit contractors ("RACs") to identify underpayments and overpayments made to Medicare service providers. (Compl. ¶ 37.) The RACs were offered a percentage of each overpayment that it identified and which was later recovered by the Agency. Under this project, Connolly Consulting, an RAC, informed plaintiff that it had identified a total of 225 reimbursement claims previously paid to plaintiff that were subject to overpayment. (Compl. ¶ 54.) The RAC then forwarded these purportedly overpaid claims to Empire, the original fiscal intermediary, for reconsideration. (Id. ¶ 55.)

This referral triggered a multi-step review process, beginning with Empire's decision whether or not to reopen a claim for further consideration.*fn3 Empire chose to reopen all 225 claims identified by the RAC, and later issued "revised reimbursements," resulting in a substantial recoupment to HHS for overpayments to plaintiff. (Compl. ¶ 55.) Plaintiff then entered a four-layer appeal process. The first appeal is made to the fiscal intermediary (Empire), the second to a "Qualified Independent Contractor," the third to an Administrative Law Judge for a hearing and decision, and the fourth to the Medicare Appeals Council ("MAC"). 42 C.F.R. §§ 405.904(b), 405.984; 42 U.S.C. §§ 405g, 1395ff.

Plaintiff took advantage of this administrative appeals process to an extent. Through those efforts, 104 of the original 225 overpayment claims at issue were overturned in plaintiff's favor, 18 went as far as the MAC, 15 are pending before an Administrative Law Judge, and the remaining claims were abandoned by plaintiff at various stages in the appeals process. In the present action, plaintiff does not challenge the Agency's determinations on the merits of the reimbursement claims. Rather, plaintiff alleges that there is no mechanism within the administrative appeals process to challenge the propriety of Empire reopening these claims in the first instance.

Under agency regulations, a reimbursement claim may be reopened either within one year of the initial determination without cause, or within four years of the initial determination with cause.*fn4 (Compl. ¶ 25 (citing 42 C.F.R. § 405.980(b)).) Plaintiff claims that none of the claims were reopened within a year of the initial determination, and that in some cases they were reopened more than four years after the fact. (Id. ¶ 56.) And, in no event, plaintiff alleges, was good cause ever shown. (Id. ¶¶ 57-60.) According to plaintiff, in order to show such cause, Empire and the RAC must cite "new and material evidence," or establish that "reopening was necessary to correct an obvious facial error made at the time of the initial determination to pay the claims." (Id. ¶ 59, 68 (citing 42 C.F.R. 405.986).) No new evidence was available at the time of reopening that was not previously available at the time of the initial determination. (Id. ¶ 69.)

However, under 42 C.F.R. § 405.926(l), "[a] contractor's . . . decision to reopen or not to reopen an initial determination" is not appealable. Therefore, plaintiff was unable to challenge the untimely reopening of a Medicare reimbursement claim at the administrative level, resulting in a substantial monetary loss through recoupment, and allegedly depriving plaintiff of its due process rights.

Plaintiff brings four causes of action to remedy its alleged deprivation: (1) that defendant violated the Medicare statute and regulations governing the timing of reopening decisions, (2) that defendant denied plaintiff's Fifth Amendment right to due process (3) that regulation 42 C.F.R. § 405.926(l) is inconsistent with the mandates of 42 U.S.C. § 1395ff(b)(1)(A), in that it does not provide an administrative review mechanism to challenge the act of reopening a particular Medicare claim, and (4) that defendant's regulation shielding decisions to reopen a claim from administrative review is arbitrary, capricious, and an abuse of the Agency's discretion, and should therefore be invalidated pursuant to 5 U.S.C. § 706(2) of the Administrative Procedures Act.

Defendant brings this motion to dismiss, arguing that the Court lacks subject matter jurisdiction to hear this claim.



A case may properly be dismissed for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) "when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). "In contrast to the standard for a motion to dismiss for failure to state a claim under Rule 12(b)(6), a 'plaintiff asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that it exists.'" MacPherson v. State St. Bank & Trust Co., 452 F. Supp. 2d 133, 136 (E.D.N.Y. 2006) (quoting Makarova, 201 F.3d at 113); see also Tomaino v. United States, 2010 U.S. Dist. LEXIS 24980, 2010 WL 1005896, at *1 (E.D.N.Y. Mar. 16, 2010). "On a Rule 12(b)(1) motion, the court may consider matters outside the pleadings, including affidavits, documents, and ...

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