By Nadine E. Roddy, J.D.
The "channeling" requirement of the Medicare Act deprived the court of subject matter jurisdiction over the third-party claim in a medical provider’s suit against the billing firm involving underpaid Medicare reimbursement.
In an action brought by a medical provider against a medical billing firm for misclassification as a nonparticipating provider under the Medicare Act, the billing firm’s third-party claim against a Medicare Administrative Contractor (MAC) had to be dismissed for lack of subject matter jurisdiction, the federal district court sitting in Connecticut has held. Because the provider would be an adequate proxy for the billing firm in an attempt to obtain Medicare reimbursement that was not made due to the misclassification, the "channeling" (i.e., administrative exhaustion) requirement of the Act deprived the court of subject matter jurisdiction over the billing firm’s third-party claim (Retina Group of New England, P.C. v. Dynasty Healthcare, LLC, March 30, 2021, Shea, M.).
Background. A novel jurisdictional question under the Medicare Act was presented in this action arising from a dispute between a medical practice, Retina Group of New England, P.C. (provider), and the medical billing firm, Dynasty Healthcare LLC (billing firm), that handled administrative tasks relating to the provider’s participation in Medicare. The provider alleged that the billing firm’s negligence in handling these tasks caused the federal government’s Medicare Administrative Contractor, National Government Services, Inc. (MAC), to misclassify the provider as nonparticipating, which resulted in lower amounts of reimbursement than the provider would have received had it been properly classified as a participating provider. The billing firm filed a third-party claim against the MAC, alleging that its negligence, rather than any by the billing firm, was the cause of the misclassification. The billing firm also sought to join the United States as a third-party defendant.
The MAC moved to dismiss the billing firm’s claims for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), while the United States opposed joinder based on the "channeling" provision of the Medicare Act (42 U.S.C. §§ 1395ii, 405(h)), which generally requires that all Medicare-related claims against the United States be presented to HHS in the first instance and exhausted in the prescribed administrative process. The issue for decision was whether the billing firm’s third-party complaint fit within a narrow exception to the channeling requirement for claims that would be foreclosed from judicial review if they could not be asserted in court.
Exception to channeling requirement. The court first determined that the billing firm’s claims for indemnification and apportionment against the MAC and the United States arose under the Medicare Act because they were "inextricably intertwined" with the provider’s claims for Medicare benefits. The court then turned to the billing firm’s argument that it should qualify for the exception to the channeling requirement recognized by the Supreme Court in Shalala v. Illinois Council on Long Term Care, Inc., for cases in which application of Section 405(h) would not simply channel review through the agency, but would mean no review at all. The billing firm contended that it fit within this exception because, as a non-party, it could not pursue any administrative remedy. The court noted, however, that the focus of Illinois Council was on whether a particular type of claim was subject to judicial review, or on whether a category of persons who could make that claim could secure judicial review, and not on whether a particular party could secure such review.
Although the Second Circuit had not yet addressed the issue, several federal courts of appeals had treated the Illinois Council exception as one aimed at avoiding "complete preclusion" of judicial review for types of claims, or for categories of parties, rather than for a specific party. In particular, the courts focused on whether there was an "adequate proxy" with standing and an incentive to pursue a claim when the party asserting that claim in court could not itself access the administrative process. In this case, the court found that the financial interests of providers such as the plaintiff vis-à-vis the Medicare program are aligned with those of the medical billing companies they retain to submit claims to Medicare on their behalf, and that providers are likely to press the types of claims made in this case through the administrative process. Because the provider in this case was an adequate proxy for the billing firm, the court held that the billing firm did not fall within the Illinois Council exception to the Medicare Act’s channeling requirement. The court granted the MAC’s motion to dismiss the billing firm’s third-party claim and denied the billing firm’s motion to join the United States as moot.
The case is No. 3:20-cv-00121-MPS.
Attorney: Eric William Callahan (Suisman Shapiro LLP) for Retina Group of New England, P.C. Beverly Knapp Anderson (Neubert Pepe Monteith P.C.) for Dynasty Healthcare LLC. James O. Craven (Wiggin & Dana LLP) for Administrative Advantage, LLC.
Companies: Retina Group of New England, P.C.; Dynasty Healthcare LLC; Administrative Advantage, LLC
MainStory: TopStory CaseDecisions CMSNews BillingNews MedicareContractorNews PaymentNews PartANews PartBNews PartCNews PartDNews ProgramIntegrityNews ProviderNews ConnecticutNews
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