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Alvarado Hospital, LLC v. Cochran

United States Court of Appeals, Federal Circuit

August 22, 2017

ALVARADO HOSPITAL, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA ALVARADO HOSPITAL MEDICAL CENTER, VERITAS HEALTH SERVICE, INC., A CALIFORNIA CORPORATION, DBA CHINO VALLEY MEDICAL CENTER, DESERT VALLEY HOSPITAL, INC., A CALIFORNIA CORPORATION, DBA DESERT VALLEY HOSPITAL, PRIME HEALTHCARE CENTINELA, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA CENTINELA HOSPITAL MEDICAL CENTER, PRIME HEALTHCARE - ENCINO HOSPITAL, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA ENCINO HOSPITAL MEDICAL CENTER, PRIME HEALTHCARE SERVICES - GARDEN GROVE, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA GARDEN GROVE HOSPITAL MEDICAL CENTER, PRIME HEALTHCARE HUNTINGTON BEACH, LLC, ADELAWARE LIMITED LIABILITY COMPANY, DBA HUNTINGTON BEACH HOSPITAL, PRIME HEALTHCARE LA PALMA, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA LA PALMA INTERCOMMUNITY HOSPITAL, PRIME HEALTHCARE SERVICES - LOW BUCK LLC, ADELAWARE LIMITED LIABILITY COMPANY, DBA LOWER BUCKS HOSPITAL, PRIME HEALTHCARE SERVICES - MONTCLAIR, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA ONTCLAIR HOSPITAL MEDICAL CENTER, PRIME HEALTHCARE PARADISE VALLEY, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA PARADISE VALLEY HOSPITAL, PRIME HEALTHCARE SERVICES - ROXBOROUGH, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA ROXBOROUGH MEMORIAL HOSPITAL, PRIME HEALTHCARE SERVICES - SAN DIMAS, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA SAN DIMAS COMMUNITY HOSPITAL, PRIME HEALTHCARE SERVICES - SHASTA, LLC, A ELAWARE LIMITED LIABILITY COMPANY, DBA SHASTA REGIONAL MEDICAL CENTER, PRIME HEALTHCARE SERVICES - SHERMAN OAKS, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA SHERMAN OAKS HOSPITAL, PRIME HEALTHCARE ANAHEIM, LLC, A DELAWARE LIMITED LIABILITY COMPANY, DBA WEST ANAHEIM MEDICAL CENTER, Plaintiffs-Appellants
v.
NORRIS COCHRAN, ACTING SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant-Appellee

         Appeal from the United States District Court for the Central District of California in No. 2:15-cv-06312-R-PLA, Judge Manuel L. Real.

          Mark Steven Hardiman, Nelson Hardiman LLP, Los Angeles, CA, argued for plaintiffs-appellants. Also represented by John Alfred Mills, Jonathan Winsor Radke.

          Benjamin M. Shultz, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Michael S. Raab, Benjamin C. Mizer; Sean Siekkinen, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC; EILEEN M. DECKER, Office of the United States Attorney for the Central District of California, United States Department of Justice, Los Angeles, CA.

          Before Prost, Chief Judge, NEWMAN and LOURIE, Circuit Judges.

          OPINION

          PROST, CHIEF JUDGE.

         Plaintiffs-Appellants Prime Hospitals[1] appeal from the order of the United States District Court for the Central District of California transferring their complaint under 28 U.S.C. § 1631 to the United States Court of Federal Claims. Prime Hospitals are seeking monetary relief for a breach of an alleged settlement agreement and, in the alternative, declaratory, injunctive, and mandamus relief from an alleged secret and illegal policy to prevent and delay Prime Hospitals from exhausting their administrative remedies.

         Because Prime Hospitals' breach of contract claim is fundamentally a suit to enforce a contract and it does not arise under the Medicare Act, we hold that the Court of Federal Claims has exclusive jurisdiction over that claim under the Tucker Act, 28 U.S.C. § 1491. We also hold that the Court of Federal Claims does not have jurisdiction, however, over Prime Hospitals' alternative claims seeking declaratory, injunctive, and mandamus relief. Accordingly, we affirm the district court's transfer order in-part, reverse-in-part, and remand for further proceedings.

         Background

         I

         The Medicare program, which provides health insurance for the elderly and disabled, is administered by the United States Department of Health & Humans Services ("HHS") through its agency, the Center for Medicare & Medicaid Services ("CMS"). 42 U.S.C. §§ 1395 et seq. Medicare Part A covers hospital inpatient services and Medicare Part B covers outpatient services, including emergency room services for patients who do not require a hospital admission. See id. § 1395d, k. Under both Part A and Part B, providers submit individual claims for payment to private contractors who make an initial determination as to what payment, if any, should be made on the claim. See id. § 1395ff(a)(1)-(2). A provider dissatisfied with the initial determination can bring a challenge through an administrative appeals process provided under the Medicare Act. See id. § 1395ff(a)-(d).

         A provider may first seek a redetermination by the private contractor. Id. § 1395ff(a)(3). If still dissatisfied, the provider may then seek reconsideration by an independent entity under contract with HHS. Id. § 1395ff(b)-(c), (g). If the provider is dissatisfied with the reconsideration decision, the provider may request a hearing before an administrative law judge. See id. § 1395ff(b)(1), (c)(3)(C)(ii), (d)(1). The Medicare Appeals Council, which is part of the Departmental Appeals Board within HHS, provides the final level of administrative review. Id. § 1395ff(d)(2).

         A provider that obtains a final decision from the Medicare Appeals Council is entitled to judicial review of that decision. Id. §§ 405(g), 1395ff(b)(1)(A). Under § 405(g), the provider may file suit in district court, and the Act mandates that "[n]o findings of fact or decision of the [Secretary] shall be reviewed by any person, tribunal, or governmental agency except as" provided under the Act. Id. §§ 405(h), 1395ii.

         II

         Prime Hospitals are sixteen acute care hospitals that are part of Prime Healthcare Services, Inc. and Prime Healthcare Foundation, a national healthcare system that owns and operates thirty-five for-profit and non-profit hospitals in ten different states. Prime Hospitals provide inpatient hospital services under Medicare Part A to patients covered under the Medicare program.

         Prime Hospitals, like other Medicare providers, submit individual claims for payment to private contractors, who make initial reimbursement determinations for the inpatient hospital services provided. Prime Hospitals alleged that, although the private contractors generally processed and paid their individual claims, many of their claims for one-day inpatient stays (known as "short-stay claims") were subsequently subject to post-payment review and denied. In response, Prime Hospitals ap- pealed the denials of these Medicare short-stay claims through the Medicare administrative appeal process.

         Prime Hospitals alleged the audits of short-stay claims were not limited to Prime Hospitals but were part of a larger initiative that resulted in a substantial increase in hospital claim denials. As a result of this increase, Prime Hospitals alleged, CMS became overwhelmed by the number of hospital appeals of inpatient claim denials. Prime Hospitals' complaint states that these appeals caused "the number of appeals received ... to soar from 1, 250 per week in January 2012 to more than 15, 000 per week in December 2013. The yearly number of. . . appeals more than quintupled from 59, 600 appeals in 2011 to 384, 151 appeals in 2013." J.A. 33.

         In an effort to reduce the backlog of hospital appeals of Medicare short-stay claim denials and ease the administrative burden for all parties, CMS began offering health care providers the opportunity to resolve their eligible appeals through settlement. In its letter announcing the offer and corresponding settlement parameters, CMS indicated that it was proposing "to make a partial payment (68 percent of the net payable amount of the denied inpatient claim) in exchange for hospitals agreeing to the dismissal of any associated appeals and accept[ing] the settlement as final administrative and legal resolution of the eligible claims." J.A. 46. CMS subsequently explained in a letter to Congressman Kevin Brady that

[t]his settlement is intended to ease the administrative burden for all parties. The settlement offers an opportunity for the government to reduce the pending appeals backlog by resolving a large number of homogeneous claims in a short period of time. In addition, the settlement offers an opportunity for hospitals to obtain payment now for rendered services, rather than waiting a considerable amount of time with the associated risk of not prevailing in the appeals process.

J.A. 166.

         Prime Hospitals alleged that, under its settlement offer, CMS agreed to pay all such Medicare short-stay appeal claims if a hospital accepted the offer of partial payment on or before October 31, 2014, by submitting (1) a spreadsheet of eligible claims to CMS by October 31, 2014, and (2) an executed copy of the CMS administrative settlement agreement. Prime Hospitals also alleged that "[s]ubject to checking the spreadsheets to ensure that the claims were eligible Short-stay Appeal Claims, CMS expressly and unconditionally agreed to execute the settlement agreement and process the eligible claims if the Prime Hospitals accepted its offer by timely submitting the spreadsheet and an executed settlement agreement." J.A. 34.

         In particular, Prime Hospitals pointed to CMS's settlement agreement where it stated that "[u]pon receipt of an Agreement executed by the Hospital, CMS will determine whether the list of appeals furnished by the Hospital matches CMS's records at each level of the administrative appeals process, " and, "[i]f so, CMS will execute the Agreement, " and, "[i]f not, CMS and the Hospital will use their best efforts to work together to resolve promptly any discrepancies so that a match is achieved, at which time CMS will execute the Agreement." J.A. 56; see also J.A. 34.

         Prime Hospitals alleged that, on or before October 31, 2014, they accepted CMS's offer by each submitting a spreadsheet of their eligible Medicare short-stay appeal claims and an executed CMS administrative settlement agreement. Thus, Prime Hospitals contends that once they accepted the offer, under the terms of the settlement agreement, the agency was contractually required to pay them sixty-eight percent of the net payable amount of their 5, 079 separate Medicare appeals-a total sum equaling $23, 205, 245-in exchange for their agreement that the related appeals would be dismissed.

         CMS ultimately refused to allow the Prime Hospitals to participate in the CMS settlement because the agency "ha[d] been made aware of one or more ongoing False Claims Act case(s) or investigation(s) involving the facilities." J.A. 37. Prime Hospitals alleged that the settlement agreement did not authorize such an exclusion. Accordingly, Prime Hospitals alleged that CMS failed to execute the settlement agreements as required and breached the agreement by failing to pay "the agreed-upon sum of $23, 205, 245." J.A. 35.

         Based on these allegations, Prime Hospitals filed a complaint in the district court for breach of contract. In their complaint, Prime Hospitals specifically alleged that: (1) CMS offered them a settlement agreement; (2) Prime Hospitals signed and otherwise accepted the agreement; (3) CMS is estopped from claiming that its signature was required to form a binding contract; (4) CMS agreed to settle Prime Hospitals' pending Medicare administrative appeals for sixty-eight percent of the net payable amounts of those denied claims in exchange for Prime Hospitals dismissing the appeals and their acceptance of the settlements as a final administrative and legal resolution of the claims; and (5) CMS breached the agreement when it failed to pay plaintiffs the agreed-upon sum ($23, 205, 245).

         Prime Hospitals also pleaded two other independent and alternative causes of action in their complaint. They alleged that the seven-month delay in deciding to exclude them from CMS's settlement program and the time in which the agency had allegedly improperly stayed their short-stay appeals amounted to "a secret and illegal policy to prevent and delay [Prime Hospitals] from exhausting their administrative remedies under the Medicare appeals process with respect to their Medicare short-stay claim denials." J.A. 41.

         In Prime Hospitals' second alternative cause of action, Prime Hospitals requested declaratory and injunctive relief from this scheme because it violated the Medicare Act and their right to procedural and substantive due process. In Prime Hospitals' third alternative cause of action for a writ of mandamus, Prime Hospitals requested an order compelling the Secretary to comply with the "clear, indisputable and non-discretionary duty to provide a Medicare appeals process for [Prime Hospitals] to administratively appeal denials of their Medicare inpatient claims within specified time frames." J.A. 43.

         The Secretary filed a motion to dismiss the complaint on various grounds, including that the district court lacked subject matter jurisdiction over the hospitals' breach of contract claim because under the Tucker Act, 28 U.S.C. § 1491, the Court of Federal Claims had exclusive jurisdiction to adjudicate this claim.

         The district court issued a written order that denied the Secretary's motion to dismiss but transferred the case to the Court of Federal Claims. According to the district court, the Court of Federal Claims has Tucker Act jurisdiction over the Prime Hospitals' breach of contract cause of action because it involves questions of contract formation and scope, not questions about Medicare reimbursement law. The district court also concluded that, because Prime Hospitals' second cause of action seeking declaratory and injunctive relief and third cause of action seeking a writ of mandamus depended on the resolution of the breach of contract claim, those claims also arose under contract law.

         We have jurisdiction to review the district court's decision to transfer Prime Hospitals' case to the Court of Federal Claims under 28 U.S.C. § 1292(d)(4)(A).

         Discussion

         We review a district court's decision to transfer a case under the federal transfer statute, 28 U.S.C. § 1631, to the Court of Federal Claims de novo because the district court's underlying determination is one of jurisdiction. Acceptance Ins. Co. v. United States, 503 F.3d 1328, 1332 (Fed. Cir. 2007). It is well settled that transfer of a case to another court is only permissible if the destination court has subject matter jurisdiction to hear the case. Souders v. S.C. Pub. Serv. Auth., 497 F.3d 1303, 1307 (Fed. Cir. 2007) (citing 28 U.S.C. § 1631; James v. Caldera, 159 F.3d 573, 582-83 (Fed. Cir. 1998)). Accordingly, our "crucial inquiry" is whether the Court of Federal Claims has subject matter jurisdiction over the claims at issue. Souders, 497 F.3d at 1307.

         We first discuss whether the Court of Federal Claims has jurisdiction to adjudicate Prime Hospitals' claim for breach of the alleged settlement agreement. This discussion includes two parts. First, although the Court of Federal Claims typically has Tucker Act jurisdiction over any express or implied contract with the United States, the settlement agreement at issue here arose from disputes under the Medicare Act, which has its own comprehensive administrative and judicial review scheme. We must determine, therefore, whether the Medicare Act preempts Tucker Act jurisdiction over the contract claim. We conclude that it does not. Second, because the Medicare Act's own review scheme, which places jurisdiction in the district court, provides the sole avenue for judicial review for all claims "arising under" the Medicare Act and the Supreme Court has construed the "arising under" language broadly, we must also determine whether the contract claim arises under the Medicare Act. We conclude that it does not. In sum, we hold that jurisdiction over the contract claim is proper in the Court of Federal Claims.

         We also address the question of whether the Court of Federal Claims has subject matter jurisdiction over Prime Hospitals' alternative claims seeking declaratory, injunctive, and mandamus relief from the Secretary's alleged policy to prevent and delay Prime Hospitals from exhausting their administrative remedies. We conclude that it does not. We take each issue in turn.

         I

         A

         The jurisdiction of the Court of Federal Claims is set forth in the Tucker Act, 28 U.S.C. § 1491(a), which states:

The United States Court of Federal Claims shall have jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.

         The Tucker Act, however, does not create any substantive right enforceable against the United States. United States v. Testan, 424 U.S. 392, 398 (1976). In order to come within the jurisdictional reach of the Tucker Act, a plaintiff must identify a separate source of substantive law that creates the right to money damages. Fisher v. United States, 402 F.3d 1167, 1172 (Fed. Cir. 2005) (citing United States v. Mitchell (Mitchell II), 463 U.S. 206, 216-17 (1983); Testan, 424 U.S. at 398).

         Contract law is one such separate source of law compensable under the Tucker Act. 28 U.S.C. § 1491(a); Higbie v. United States, 778 F.3d 990, 993 (Fed. Cir. 2015), cert, denied, 136 S.Ct. 37 (2015). The Supreme Court has also recognized non-contractual bases of Tucker Act jurisdiction, which include those claims "founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department, " 28 U.S.C. § 1491(a). Testan, 424 U.S. at 398. In order for a noncontractual claim to be "cognizable under the Tucker Act. . . the claimant must demonstrate that the source of substantive law he relies upon can fairly be interpreted as mandating compensation by the Federal Government for the damages sustained." Mitchell II, 463 U.S. at 216-17 (internal quotation marks omitted). Tucker Act jurisdiction is preempted, however, when that non-contractual source of substantive law contains its own judicial review scheme. United States v. Bormes, 568 U.S. 6, 12 (2012). If such a remedial scheme exists, it will establish the exclusive framework for the monetary liability Congress created under the statute. Id.

         The Medicare Act is a non-contractual source of substantive law that mandates compensation to private parties by the Federal Government. See, e.g., Appalachian Reg'l Healthcare, Inc. v. United States,999 F.2d 1573, 1577 (Fed. Cir. 1993) (observing that the Medicare Act provides a substantive right to money damages). It also contains its own judicial review scheme. See Heckler v. Ringer,466 U.S. 602, 614-15 (1984) (explaining that 42 U.S.C. ยงยง 405(h), (g), and 1395ii provide "the sole avenue for judicial review for all 'claim[s] arising under' the Medicare Act"). Accordingly, this court has held that ...


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