|||UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
|||July 11, 2000
|||ASSOCIATION OF AMERICAN MEDICAL COLLEGES; AMERICAN MEDICAL ASSOCIATION;
THE AMERICAN HOSPITAL ASSOCIATION; ASSOCIATION OF ACADEMIC HEALTH CENTERS;
CALIFORNIA MEDICAL ASSOCIATION; CALIFORNIA HEALTHCARE ASSOCIATION; HEALTHCARE
ASSOCIATION OF NEW YORK STATE; MEDICAL GROUP MANAGEMENT ASSOCIATION; THE
REGENTS OF THE UNIVERSITY OF CALIFORNIA, ON BEHALF OF THE UNIVERSITY OF
CALIFORNIA, SAN DIEGO
SCHOOL OF MEDICINE, UCLA SCHOOL OF MEDICINE, UNIVERSITY OF CALIFORNIA-DAVIS SCHOOL OF MEDICINE, UNIVERSITY OF CALIFORNIA-IRVINE COLLEGE OF MEDICINE AND UNIVERSITY OF CALIFORNIA SAN FRANCISCO SCHOOL OF MEDICINE; LOMA LINDA UNIVERSITY HEALTHCARE, INC.; ALLEGHENY UNIVERSITY OF THE HEALTH SCIENCES; UNIVERSITYOF COLORADO; TRUSTEES OF INDIANA UNIVERSITY; THE JOHN HOPKINS UNIVERSITY; REGENTS UNIVERSITY OF MICHIGAN; MONTEFIORE MEDICAL CENTER; BOARD OF REGENTS OF THE UNIVERSITY OF NEBRASKA; BOARD OF REGENTS UNIVERSITY MEDICAL ASSOCIATES; STATE UNIVERSITY OF NEW YORK; MEDICAL COLLEGE OF WISCONSIN; UNIVERSITY PHYSICIANS INC., AND UNIVERSITY OF MARYLAND NEUROSURGERY ASSOCIATES PA; UNIVERSITY OF MARYLAND PHYSICAL THERAPY ASSOCIATES PA; UNIVERSITY OF MARYLAND DIAGNOSTIC IMAGING SPECIALISTS; UNIVERSITY OF MARYLAND PATHOLOGY ASSOCIATES PA; UNIVERSITYOF MARYLAND ANESTHESIA ASSOCIATES PA; UNIVERSITYOF MARYLAND DERMATOLOGIES PA; UNIVERSITY OF MARYLAND ONCOLOGY ASSOCIATES PA; UNIVERSITY OF MARYLAND FAMILY MEDICINE ASSOCIATES PA; UNIVERSITY OF MARYLAND PSYCHIATRY ASSOCIATES PA; UNIVERSITY OF MARYLAND EMERGENCY MEDICINE ASSOCIATES; SHOCK TRAUMA ASSOCIATES PA; UNIVERSITY OF MARYLAND RADIATION ONCOLOGY ASSOCIATES PA; UNIVERSITY OF MARYLAND MEDICINE PA; UNIVERSITY OF MARYLAND NEUROLOGY ASSOCIATES PA; UNIVERSITY OF MARYLAND OB/GYN ASSOCIATES PA; UNIVERSITY OF MARYLAND PEDIATRIC ASSOCIATES PA; UNIVERSITY OF MARYLAND EYE ASSOCIATES PA; UNIVERSITY OF KANSAS; KANSAS UNIVERSITY ANESTHESIOLOGY FOUNDATION; KANSAS FAMILY MEDICAL FOUNDATION; KANSAS UNIVERSITY INTERNAL MEDICINE FOUNDATION; KANSAS UNIVERSITY NEUROLOGICAL FOUNDATION; KANSAS UNIVERSITY GYNECOLOGICAL & OBSTETRICAL FOUNDATION; KANSAS UNIVERSITY OTOLARYNGOLOGY-HEAD & NECK SURGERY FOUNDATION; UNIVERSITY PATHOLOGY ASSOCIATES; KANSAS UNIVERSITY CHILDRENS CENTER FOUNDATION; KANSAS UNIVERSITY PSYCHIATRY FOUNDATION; KANSAS UNIVERSITY CLINICAL RADIOLOGY FOUNDATION; KANSAS UNIVERSITY RADIATION THERAPY FOUNDATION; KANSAS UNIVERSITY REHABILITATION MEDICINE ASSOCIATION; KANSAS UNIVERSITY SURGERY ASSOCIATION; KANSAS UNIVERSITY OPHTHALMIC FOUNDATION; MASSACHUSETTS HOSPITAL ASSOCIATIONS, INC.; AMERICAN MEDICAL GROUP ASSOCIATION; AMERICAN COLLEGE OF CARDIOLOGY; AMERICAN ACADEMY OF OTOLARYNGOLOGY-HEAD & NECK SURGERY; ASSOCIATION OF ACADEMIC PHYSIATRISTS; AMERICAN COLLEGE OF RHEUMATOLOGY; AMERICAN SOCIETY OF CLINICAL PATHOLOGISTS; AMERICAN COLLEGE OF SURGEONS; AMERICAN ACADEMY OF ORTHOPEDIC SURGEONS; AMERICAN ACADEMY OPHTALMOLOGY; AMERICAN ASSOCIATION OF NEUROLOGICAL SURGEONS; CONGRESS OF NEUROLOGICAL SURGEONS; AMERICAN LUNG ASSOCIATIONAND ITS MEDICAL SECTION THE AMERICAN THORACIC SOCIETY; AMERICAN UROLOGICAL ASSOCIATION; AMERICAN ACADEMY OF DERMATOLOGY; AMERICAN SOCIETY OF ANESTHESIOLOGISTS; SOCIETY OF THORACIC SURGEONS; AMERICAN ACADEMY OF FAMILY PHYSICIANS; AMERICAN PSYCHIATRIC ASSOCIATION; AMERICAN SOCIETY OF PLASTIC AND RECONSTRUCTIVE SURGEONS; AMERICAN ACADEMY OF PEDIATRICS; AMERICAN COLLEGE OF OSTEOPATHIC SURGEONS; ASSOCIATION OF ACADEMIC DEPARTMENTSOF OTOLARYNGOLOGYHEAD & NECK SURGERY, PLAINTIFFS-APPELLANTS,
UNITED STATES OF AMERICA, DEFENDANT-APPELLEE.
|||D.C. No. CV 98-01734 CM
|||Counsel Leonard C. Homer, Baltimore, Maryland, and Harry R. Silver, Washington,
D.C., for the plaintiffs-appellants. Peter Robbins, United States Attorney,
Civil Division, for the defendant-appellee.
|||Before: Betty B. Fletcher, Alex Kozinski, & David R. Thompson, Circuit
|||The opinion of the court was delivered by: B. Fletcher, Circuit Judge
|||Appeal from the United States District Court for the Central District
of California Carlos R. Moreno, District Judge, Presiding
|||Argued and Submitted December 8, 1999--Pasadena, California
|||Opinion by Judge B. Fletcher
|||This is an action for declaratory and injunctive relief brought by the
American Association of Medical Colleges, the American Medical Association,
a host of other medical associations, and numerous teaching hospitals against
the Office of the Inspector General for the Department of Health and Human
Services and the Department of Justice. Plaintiffs allege that the government
has initiated a nationwide program of audits for reimbursements made to
teaching hospitals under Part B of the Medicare Act, that the audits are
based on unlawful or retroactively applied standards for Medicare billing,
and that, on threat of suit under the False Claims Act, the audits are being
used to coerce settlements. The district court dismissed the action for
lack of subject matter jurisdiction on defendant's motion to dismiss under
Rule 12(b)(1) of the Federal Rules of Civil Procedure, ruling that the action
is premature because there has been no final agency action, plaintiffs have
adequate alternative remedies, and the issues are not ripe for adjudication.
Although we affirm on grounds that there is no case or controversy under
Article III of the Constitution, we order the case dismissed without prejudice.
|||FACTS AND PROCEDURAL HISTORY
|||This case arises out of efforts by the Secretary of Health and Human Services
(the "Secretary") to review Medicare Part B billings by teaching
hospitals and to recover potential overpayments for services rendered by
such hospitals to Medicare beneficiaries. The review is called the Physicians
at Teaching Hospitals ("PATH") program, and is conducted in the
form of audits by the HHS's Office of the Inspector General ("OIG").*fn1
After a PATH audit of the billings submitted by the University of Pennsylvania
Health System produced a settlement of over $30 million for the government
for Medicare claims submitted between 1989 and 1994, the review was extended
to teaching hospitals nationwide. The key findings in the University of
Pennsylvania PATH audit were (1) a lack of documentation showing the physical
presence of the teaching physician during a service performed by a resident
and subsequently billed for payment under Medicare Part B, and (2) "upcoding"
-- i.e., billing for a more complex level of care than that which was provided.
According to the government, services performed by a resident may be billed
to Medicare Part B by a teaching physician only if that physician was present
during the performance of the service.
|||Plaintiffs, comprising nearly all the major medical associations in the
country along with several major teaching hospitals currently subject to
PATH audits, filed a complaint in October 1997, alleging (1) that the PATH
audits apply billing requirements beyond those set forth in the Medicare
Act and HHS regulations, and (2) that the audits are being used along with
the threat of ruinous penalties under the False Claims Act to coerce settlements.
Fourteen plaintiff hospitals and affiliated practice groups were subject
to PATH audits as of February 1998. At least one audit has concluded with
a finding of no Medicare fraud or abuse and at least one plaintiff (the
University of California) has been named in a qui tam suit by an individual
who alleges Medicare fraud in the hospitals'P art B billings.*fn2
A brief review of the billing requirements historically imposed on teaching
hospitals will illustrate why plaintiffs are so deeply concerned by the
|||Title XVIII of the Social Security Act of 1935 establishes a federally
subsidized health insurance program for elderly and disabled persons. 42
U.S.C. S 1395 (the "Medicare Act"). While Part A of the Medicare
Act covers institutional health costs, such as hospital expenses (e.g.,
room, board, nursing, residents' salaries, and other inpatient care costs),
see 42 U.S.C. SS 1395c-1395i-2, Part B covers medical services provided
directly to individuals on a fee-for-service basis such as physician services,
medical supplies, and diagnostic/ laboratory tests. See 42 U.S.C. SS 1395j-1395w.
Coverage and payment for services rendered to beneficiaries is administered
by the Secretary through the Health Care Financing Administration ("HCFA").
For Medicare Part B claims, the HCFA contracts with approximately 34 private
insurance companies nationwide ("Carriers") to process claims
and to perform payment safeguard functions. See 42 U.S.C. S 1395u.
|||In order to obtain payment for Part B services rendered at teaching hospitals,
the regulations traditionally required (1) that the teaching physician establish
an "attending physician" relationship with the patient, and (2)
that the services rendered be "of the same character, in terms of the
responsibilities to the patient that are assumed and fulfilled," as
the services provided to paying patients. 20 C.F.R. S 405.521 (1968).
|||Although payment of residents' salaries is covered under Medicare Part
A, services performed by residents under the direction of teaching physicians
qualified for Part B reimbursement where (1) the teaching physician furnished
"personal and identifiable direction to interns or residents who are
participating in the care of his patient," or (2) in the case of "major
surgical procedures and other complex and dangerous procedures or situations,"
the attending physician provided direction "in person." 20 C.F.R.
S 405.521(b) (1968).
|||With respect to documentation of the teaching physician's role in services
provided, HCFA simply required that "[p]erformance of the activities
. . . must be demonstrated, in part, by notes and orders in the patient's
records that are either written by or countersigned by the supervising physician."
|||Bureau of Health Insurance Intermediary Letter No. 372, at 3 (April 1969).
In other words, countersignature by the teaching physician would adequately
document his or her personal supervision of services provided to the patient.
See id.; Bureau of Health Insurance Intermediary Letter No. 70-2 (January
1970) (answer to question #22).
|||In 1980, Congress amended the Medicare Act, incorporating the medical
direction standard set forth in 20 C.F.R. S 405.521 (1968), but omitting
any reference to the "attending physician" concept or the personal
presence requirement for major surgery and dangerous or complex procedures.
As amended, the Act provided that no payment may be made for teaching physician
|||unless the physician renders sufficient personal and identifiable physicians'
services to the patient to exercise full, personal control over the management
of the portion of the case for which payment is sought [and] the services
are of the same character as the services the physician furnishes to patients
not entitled to benefits under this subchapter . . . . 42 U.S.C. S 1395u(b)(7)(A)(i)(I)-(II)
|||The Secretary and HCFA have repeatedly acknowledged that, at least prior
to 1996, the standards for personal presence and documentation by teaching
physicians were less than clear. See 60 Fed. Reg. 63,138 (Dec. 8, 1995)
(Secretary concedes that I.L. 372 is "vague, perhaps necessarily, on
the matter of the presence of the physician during . . . occasions of inpatient
service"); Letter from Harriet Rabb, HHS General Counsel to Jordan
J. Cohen, M.D., President of the Assn. of American Medical Colleges, and
P. John Seward, M.D., Executive Vice President of the American Medical Association
4 (July 11, 1997) (the "Rabb Letter") (stating that "the
standards for paying teaching physicians under Part B of Medicare have not
been consistently and clearly articulated by HCFA over a period of decades");
The Physicians at Teaching Hospitals (PATH) Audits: Hearings before the
Subcomm. on Labor, HHS, Education, and Related Agencies of the Senate Comm.
on Appropriations, 105th Cong. 35 (1997) ("PATH Hearings") (testimony
of HCFA representative Wynn) ("HCFA has not articulated within IL 372
or some of its other policy issuances a clear and unambiguous policy that
the physician needed to be present. There are some explicit statements that
the physician should be present in supervising the interning resident; in
other cases, it's vague."); PATH Hearings, at 5 (statement of Michael
F. Mangano, Principal Deputy Inspector General, HHS) (acknowledging that
HHS's policy documents "often used the terms `personal and identifiable
services' and `personal and identifiable direction' interchangeably, "
and that while some policy documents were clear about physician presence,
others "were not as distinctly stated").
|||Presumably in an effort to address ambiguity in the statutory and regulatory
requirements for Part B reimbursements, Carriers often issued policies and
guidance to teaching hospitals articulating their view of the personal presence
and documentation requirements. These policies varied widely by Carrier
in terms of the degree of physician involvement required. As the Complaint
alleges, the rules "ranged from merely repeating or paraphrasing the
text of the regulation or I.L.372 to improperly adding additional requirements
for physical presence and documentation thereof not found in, or inconsistent
with, S 1395u(b)(7), S 405.521, and/or I.L.372." Compl. P 31; see also
54 Fed. Reg. 5948 (1989) (admitting that existing regulations were somewhat
unclear and were interpreted differently by different teaching hospitals);
cf. PATH Hearing, at 5 (statement of Mangano) (estimating that 75% of teaching
hospitals received clear guidance from Carriers requiring physical presence
of physician for all services billed under Medicare Part B).
|||On December 8, 1995, after years of struggling with the issue, the Secretary
published final regulations revising the requirements for Part B Medicare
claims by teaching physicians. See 42 C.F.R. SS 415.150-190 (effective July
1, 1996). According to the new regulations, payment for services performed
by residents and directed by teaching physicians is limited to services
for which the teaching physician is physically present. See id. at S 415.172.
Both the "attending physician " and the "of the same character"
requirements are eliminated. Moreover, the new regulations require more
than a mere countersignature of the resident's notes by the teaching physician
as documentation of personal presence."[T]he medical records must document
[that] the teaching physician was present at the time the service is furnished.
|||In 1995, HCFA and the American Medical Association also adopted new documentation
guidelines for coding and billing of so-called evaluation and management
("E & M") services. The guidelines were based on regulations
originally promulgated in 1991. See 56 Fed. Reg. 59,502, 59,792-801 (Nov.
25, 1991) (effective Jan. 1, 1992). E & M services include basic diagnostic
services provided by physicians during office or bedside visits such as
taking a patient's medical history, the history of the medical problem,
physical examination, diagnosis and counseling. Prior to the new guidelines,
coding and billing of E & M services occurred in terms of a few simple
phrases designating the time and comprehensiveness of the service. The new
guidelines reflect a dramatic change, requiring precise designation of codes
from an extensive set of descriptions of E & M services in the AMA manual
of current procedural technology ("CPT-4 Manual").
|||As soon as the PATH initiative began, plaintiffs complained that OIG and
DOJ were retroactively applying the new 1996 physical presence and documentation
requirements as well as the 1995 guidance on E & M coding in audits
covering the period 1990-96. The AAMC and AMA raised their concerns with
the agency and on July 11, 1997, Harriet Rabb, General Counsel to the Secretary,
issued a responsive letter. As with all agency communication on the PATH
audits, the letter begins by insisting that, however ambiguous the agency's
regulations have been, physical presence of the teaching physician is essential
to reimbursement under Medicare Part B for services performed by residents:
|||As you know, supervision of interns and residents by teaching physicians
is reimbursed under Medicare Part A through graduate medical education (GME)
payments. By this mechanism, teaching physicians are paid for taking responsibility
for the hospital's oversight of its doctors in training. It would be absurd
to assert that physicians could receive the significant remuneration that
characterizes Part B reimbursement for supplying the same level of services
that qualifies and was paid for as Part A services . The physical presence
of a physician with the treating intern or resident at the time of treatment
is one clear indication of a more patient-specific level of responsibility
for the physician entitling her or him to Part B, rather than Part A, reimbursement.
That view is consistent both with common sense and the [statutory and regulatory
|||Rabb Letter at 1-2 (emphasis added); see also PATH Hearings, at 4 (statement
of Mangano) ("In light of [the] direct and indirect payments for training,
the teaching physicians may not submit claims for payment to Medicare Part
B for the same general supervision of residents and interns already paid
for under Part A. Teaching physicians seeking reimbursement under Part B
must do more. Physicians claiming Part B reimbursement for services performed
by the intern or resident alone are making a duplicate claim . . . .");
JUNE GIBBS BROWN, INSPECTOR GENERAL, HHS, STATUS REPORT: OIG/DOJ JOINT PROJECT
REVIEW OF MEDICARE PART B BILLINGS BY PHYSICIAN GROUP PRACTICES AT TEACHING
HOSPITALS 4 (1996) (same).*fn3
|||The Letter nevertheless goes on to make several assurances regarding future
PATH audits. First, Rabb states that due to regulatory confusion as to the
proper standard for teaching physician presence, only teaching hospitals
that previously received clear written guidance from their Carrier that
physical presence was necessary will be subject to PATH audits.*fn4
|||Second, any hospital approached for a PATH audit "will have the opportunity
to show, as a matter of fact, that it or the teaching physicians at the
institution received guidance from the carrier which the hospital views
as contradictory . . . ." Rabb Letter at 6. Third, unless it is auditing
a hospital's compliance with the physical presence requirement, OIG will
not audit a hospital's E & M coding. Id. Finally, because hospitals
were still training on the new coding rules, only "egregious cases
of abuse or fraud" in E & M coding will be pursued for the period
prior to August 1995. Id.
|||Plaintiffs filed their complaint just a few months after the Rabb Letter.
They allege that OIG has impermissibly elevated Carrier policies to legal
requirements for purposes of assessing Medicare Part B payments. They also
challenge the E & M auditing and the government's determination that
a physician's countersignature (on medical reports drafted by residents
) is insufficient to establish the physician's presence. Plaintiffs charge
that these actions violate the Medicare Act, the Administrative Procedure
Act, and the Due Process Clause of the Fifth Amendment. Compl. PP 72-76.
On the due process front, plaintiffs claim that the PATH is unconstitutional
to the degree that (1) Carrier guidance rather than national standards set
forth in the Medicare Act and relevant agency regulations now determines
whether a hospital will be audited, id. P 73, (2) audited hospitals are
not permitted to submit evidence outside the records reviewed by the auditors,
id. P 77, and (3) the audits are predicated on inappropriately small statistical
samples of hospital billing records. Id. at P (e). Plaintiffs also claim
that the government's coercive use of potential False Claims Act liability
to "obtain participation in an OIG/DOJ team audit process and thereby
[favorable settlements ] . . . is a violation of the doctrine of unconstitutional
conditions and an abridgement of [plaintiffs' ] due process rights . . .
." Id. at P 79. Plaintiffs seek declaratory and injunctive relief.
|||When plaintiffs moved for summary judgment, the government opposed the
motion and filed a separate motion to dismiss for lack of subject matter
jurisdiction. Finding the action premature, the district court granted the
motion to dismiss under Rule 12(b)(1) of the Federal Rules of Civil Procedure
and entered judgment for the government. The court reasoned that the government's
actions are not reviewable under the Administrative Procedure Act because
the actions are not final and plaintiffs may challenge the legality of the
actions in any False Claims Act suit brought by the government if and when
a PATH audit reveals misconduct and the government decides to sue. Following
Texas v. United States , the court further held that plaintiffs' action
fails on ripeness grounds because the complaint seeks to enjoin and declare
invalid "contingent future events that may not occur as anticipated,
or indeed may not occur at all." 523 U.S. 296, 300 (1998) (internal
quotation marks omitted). We have jurisdiction to review the court's order
pursuant to 28 U.S.C. S 1291, and we affirm in part and reverse in part.
|||STANDARD OF REVIEW
|||Dismissal for lack of subject matter jurisdiction is reviewed de novo.
Crist v. Leippe, 138 F.3d 801, 803 (9th Cir. 1998). The district court's
findings of fact relevant to its determination of subject matter jurisdiction
are reviewed for clear error. See Kruso v. Int'l Tel. & Tel. Corp.,
872 F.2d 1416, 1421 (9th Cir. 1989). For motions to dismiss under Rule 12(b)(1),
unlike a motion under Rule 12(b)(6), the moving party may submit
|||affidavits or any other evidence properly before the court . . . . It
then becomes necessary for the party opposing the motion to present affidavits
or any other evidence necessary to satisfy its burden of establishing that
the court, in fact, possesses subject matter jurisdiction. The district
court obviously does not abuse its discretion by looking to this extrapleading
material in deciding the issue, even if it becomes necessary to resolve
factual disputes. St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir.
1989) (citations omitted); see also Kokkonen v. Guardian Life Ins. Co. of
America, 511 U.S. 375, 377 (1994) ("Federal courts are courts of limited
jurisdiction . . . . It is to be presumed that a cause lies outside this
limited jurisdiction, and the burden of establishing the contrary rests
upon the party asserting jurisdiction. ") (citations omitted).
|||I. 42 U.S.C. S 405(h)
|||After we heard oral argument in this case, the Supreme Court decided Shalala
v. Illinois Council on Long Term Care, Inc., 120 S. Ct. 1084 (2000). In
Illinois Council, the Court held that 42 U.S.C. S 405(h) (as incorporated
into the Medicare Act through 42 U.S.C. S 1395ii), is a complete bar to
federal question jurisdiction for claims arising under the Medicare Act
unless "application of S 405(h) would not simply channel review through
the agency, but would mean no review at all." 120 S. Ct. at 1096-97.
Section 405(h) provides:
|||The findings and decisions of the [Secretary] after a hearing shall be
binding upon all individuals who were parties to such hearing. No findings
of fact or decision of the [Secretary] shall be reviewed by any person,
tribunal, or governmental agency except as herein provided. No action against
the United States, the [Secretary], or any officer or employee thereof shall
be brought under section 1331 or 1346 of Title 28 to recover on any claim
arising under this subchapter . 42 U.S.C. S 405(h) (emphasis added).
|||Because the Act provides an administrative mechanism for reviewing the
nursing home sanction provisions at issue in Illinois Council, the Court
held that plaintiffs could not escape theS 405(h) bar.*fn5
|||Following Illinois Council, we are obliged to inquire whether there is
an administrative channel for review of adverse determinations following
a PATH audit. If such a channel exists, S 405(h) precludes this suit. The
short answer is that there are administrative channels of review for some,
but not all, of the courses of action open to OIG and the Secretary once
violations of the Act are identified. *fn6
But because we do not know which course the agency will pursue, we cannot
decide whether S 405(h) applies at this juncture.
||| It is well settled that "injunctive and declaratory judgment
remedies are discretionary, and courts traditionally have been reluctant
to apply them to administrative determinations unless these arise in the
context of a controversy`ripe' for judicial resolution." Abbott Laboratories
v. Gardner, 387 U.S. 136, 148 (1967), overruled on other grounds, Califano
v. Sanders, 430 U.S. 99 (1977). The basic purpose of the ripeness doctrine
"is to prevent the courts, through avoidance of premature adjudication,
from entangling themselves in abstract disagreements over administrative
policies, and also to protect the agencies from judicial interference until
an administrative decision has been formalized and its effects felt in a
concrete way by the challenging parties." Id. at 148-49. Thus, in evaluating
ripeness, courts assess "both the fitness of the issues for judicial
decision and the hardship to the parties of withholding court consideration."
Id. at 149.
|||A. Fitness for Judicial Review
||| Under the first prong, "agency action is fit for review if the
issues presented are purely legal and the regulation at issue is a final
agency action." Anchorage v. United States, 980 F.2d 1320, 1323 (9th
Cir. 1992) (citations omitted). Courts traditionally take a pragmatic and
flexible view of finality. See Abbott Laboratories, 387 U.S. at 149-50.
"The core question is whether the agency has completed its decisionmaking
process, and whether the result of that process is one that will directly
affect the parties." Franklin v. Massachusetts, 505 U.S. 788, 797 (1992).
We have accordingly looked to the following elements: whether the administrative
action is a definitive statement of an agency's position; whether the action
has a direct and immediate effect on the complaining parties; whether the
action has the status of law; and whether the action requires immediate
compliance with its terms. See Mt. Adams Veneer Co. v. United States, 896
F.2d 339, 343 (9th Cir. 1990), see also Anchorage, 980 F.2d at 1323; Ukiah
Valley Medical Ctr. v. Fed. Trade Comm'n, 911 F.2d 261, 264 (9th Cir. 1990)
("The general rule is that administrative orders are not final and
reviewable`unless and until they impose an obligation, deny a right, or
fix some legal relationship as a consummation of the administrative process.
' ") (quoting Chicago & S. Air Lines, Inc. v. Waterman S.S. Corp.,
333 U.S. 103, 113 (1948)); Sierra Club v. Nuclear Regulatory Comm'n, 825
F.2d 1356, 1362 (9th Cir. 1987) ("We will not entertain a petition
where pending administrative proceedings or further agency action might
render the case moot and judicial review completely unnecessary.")
(citation omitted). Informal or "tentative" regulations are not
final. See Abbott Laboratories, 387 U.S. at 151.
||| The Supreme Court has recently held that even final agency rules may
not be fit for review unless the rule has been concretely applied to the
plaintiff. See Lujan v. Nat'l Wildlife Federation, 497 U.S. 871, 891 (1990)
("a regulation is not ordinarily considered . . . `ripe' for judicial
review under the APA until the scope of the controversy has been reduced
to more manageable proportions, and its factual components fleshed out,
by some concrete action applying the regulation to the claimant's situation
in a fashion that harms or threatens to harm him"; holding unripe a
general challenge to Bureau of Land Management's "land withdrawal review
|||The core issues in plaintiffs' challenge to the PATH audits are indeed
purely legal: (1) whether OIG can apply Carrier policies on physical presence
when the Medicare Act and applicable regulations were ambiguous on the physical
presence requirement; (2) whether OIG can require more than the teaching
physician's countersignature to establish the physician's presence and supervisory
role; and (3) whether the 1995 E & M coding standards are retroactively
||| Although judicial resolution of these important questions might aid
the parties, the challenged agency actions are not final. Even if we were
to assume that OIG has taken a definitive position on the nature and scope
of the PATH audits -- i.e., that physical presence is required for all services
and that countersignature is inadequate documentation of presence*fn7
-- the audits themselves do not "impose an obligation, deny a right,
or fix some legal relationship as a consummation of the administrative process."
Chicago & S. Air Lines, 333 U.S. at 113 (emphasis added). An investigation,
even one conducted with an eye to enforcement, is quintessentially non-final
as a form of agency action. See Jobs, Training & Services, Inc. v. East
Tex. Council, 50 F.3d 1318, 1324-25 (5th Cir. 1995) (" `[A]n agency's
initiation of an investigation does not constitute final agency action.'
. . . Judicial intervention at [the investigative] stage will deter rather
than foster effective administration of the statute.") (quoting Veldhoen
v. United States Coast Guard , 35 F.3d 222, 225 (5th Cir. 1994)); Winter
v. California Medical Review Inc., 900 F.2d 1322, 1325-26 (9th Cir. 1990)
(since the agency's conclusions could change with additional information
"[a]ppellant's claim that the investigation itself represented final
agency action lacks merit . . . . This court must give the agency an opportunity
to formulate a final position."); O'Brien, Inc. v. Sec. & Exch.
Comm'n, 704 F.2d 1065, 1067 n.6 (9th Cir. 1983) ("District court review
of the propriety of SEC actions in its investigation would . . . have been
inappropriate because `final agency action,' a prerequisite to judicial
review, had not yet occurred.") (citing Fed. Trade Comm'n v. Standard
Oil Co. of Cal., 449 U.S. 232 (1980)), rev'd on other grounds, 467 U.S.
735 (1984); Dresser Indus., Inc. v. United States, 596 F.2d 1231, 1235 (5th
Cir. 1979) (SEC and DOJ investigation is not final agency action).
||| More importantly, on the facts before this court it is an open question
whether the PATH audits will actually result in findings of abuse or fraud.
For obvious reasons, plaintiffs have not admitted in their pleadings that
they stand in violation of the Medicare Act as interpreted by OIG. We might
infer this fact, but its absence from the record demonstrates a lack of
finality. OIG could still modify its rather draconian view of the Act's
requirements for Part B billing, and, for any number of reasons, the PATH
audits may not reveal significant violations. Even if violations are found,
there are a panoply of administrative and judicial remedies open to the
Secretary and DOJ, at least some of which we might be without jurisdiction
to review under 42 U.S.C. S 405(h) and Illinois Council. See supra S I.
And only one of those remedies (settlement under threat of False Claims
Act liability) presents the dire Hobson's choice plaintiffs complain of.
||| As a review of recent Supreme Court precedent confirms, the district
court properly concluded that these uncertainties render plaintiffs' action
unfit for judicial resolution at this time. In Texas v. United States, the
Supreme Court considered a ripeness challenge to an action brought by the
State of Texas seeking a declaratory judgment that preclearance provisions
of the Voting Rights Act do not apply to state laws permitting sanctions
for local school districts that fail to meet state-mandated performance
criteria. 523 U.S. at 297-98. The Court deemed the case unfit for judicial
resolution because the feared sanctions that would implicate Voting Rights
Act preclearance were contingent on a host of factors: (1) a school district
falling below the state standards; (2) imposition of lesser sanctions required
by the applicable state law; and (3) a determination that the lesser sanctions
failed and that greater sanctions are necessary. Id. at 300-01. As the Court
|||A claim is not ripe for adjudication if it rests upon contingent future
events that may not occur as anticipated , or indeed may not occur at all
. . . . Under these circumstances, where we have no idea whether or when
such [a sanction] will be ordered, the issue is not fit for adjudication.
Id. at 300 (internal quotation marks and citations omitted).
|||In Ohio Forestry Ass'n, Inc. v. Sierra Club, the Sierra Club "challenge[d]
the lawfulness of a federal land and resource management plan adopted by
the United States Forest Service for Ohio's Wayne National Forest on the
ground that the plan permits too much logging and too much clearcutting.
" 523 U.S. 726, 728 (1998). Although the plan made logging possible,
and even likely, the Court dismissed the case as unripe because the plan
itself did "not authorize the cutting of any trees." Id. at 729.
The Forest Service was required to take at least five additional steps beyond
the plan before permitting any logging. Id. at 729-30. Accordingly, the
Court held that immediate judicial review would unnecessarily interfere
with the administrative process and
|||would require time-consuming judicial consideration of the details of
an elaborate, technically based plan, which predicts consequences that may
affect many different parcels of land in a variety of ways, and which effects
themselves may change over time. That review would take place without the
benefit of the focus that a particular logging proposal could provide .
. . . And, of course, depending upon the agency's future actions to revise
the Plan or modify the expected methods of implementation, review may now
turn out to have been unnecessary . . . . All of this is to say that further
factual development would "significantly advance our ability to deal
with the legal issues presented" and would "aid us in their resolution."
Id. at 736-37 (emphasis added) (citing Standard Oil Co., 449 U.S. at 242,
and quoting Duke Power Co. v. Carolina Envt'l Study Group, Inc., 438 U.S.
59, 82 (1978)). See also Dalton v. Specter, 511 U.S. 462, 469-70 (1994)
(Secretary of Defense's and commission's recommendations for base closures
not final agency action where President's approval is a prerequisite to
actual base closures) (following Franklin, 505 U.S. 788); Nat'l Wildlife
Federation, 497 U.S. at 890-91 (BLM's general land management program is
not final agency action for purposes of ripeness; plaintiffs must await
concrete, particular application of program).
||| Although plaintiffs are currently subject to concrete agency action
in the form of PATH audits (and plaintiffs' case is therefore less abstract
than the claims asserted in Texas v. United States and Ohio Forestry), the
actions are not final and their outcomes turn on contingencies which the
court is illequipped to predict. Plaintiffs' case would indeed be moot if
the auditors are not relying on Carrier rules and retroactive application
of the 1995 E & M guidelines. Plaintiffs' case would also be moot if
the OIG/DOJ teams decide to abandon reliance on these standards, if the
audits turn up no Medicare billing violations, or if coercion is absent
from settlement negotiations after violations are found.
|||B. The Balance of Hardships
||| Perhaps recognizing the weakness of their claims under the first prong
of the ripeness analysis, plaintiffs stress an exception that has been recognized
under the hardship prong.
|||In Abbott Laboratories, the Supreme Court held that a preenforcement challenge
to a regulation may be ripe where the impact of the regulation is "sufficiently
direct and immediate. " 387 U.S. at 152. At issue was a regulation
requiring drug manufacturers to designate the generic name of a drug on
labels and advertisements where the drug's trade name was printed. Although
plaintiffs believed that the regulation exceeded the statutory provision
from which it derived, failure to comply immediately opened the possibility
of product seizure as well as severe criminal and civil penalties. As the
Court described the plaintiffs' dilemma, " `[e]ither they must comply
with the every time requirement and incur the costs of changing over their
promotional material and labeling or they must follow their present course
and risk prosecution.' " Id. (quoting district court findings). The
Court therefore concluded :
|||Where the legal issue presented is fit for judicial resolution , and where
a regulation requires an immediate and significant change in the plaintiffs'
conduct of their affairs with serious penalties attached to noncompliance
, access to the courts under the Administrative Procedure Act and the Declaratory
Judgment Act must be permitted, absent a statutory bar or some unusual circumstance,
neither of which appears here. Id. at 153.
||| Strictly speaking, plaintiffs' case falls outside the Abbott Laboratories
rule since the PATH initiative is not a final rule and it relates to liability
for past billing practices rather than requiring a costly change in present
conduct. Courts typically read the Abbott Laboratories rule to apply where
regulations require changes in present conduct on threat of future sanctions.
See, e.g., Ohio Forestry, 523 U.S. at 734 (plaintiff is outside Abbott Laboratories
rule where agency plan does not "force [plaintiff] to modify its behavior
in order to avoid future adverse consequences, as, for example, agency regulations
can sometimes force immediate compliance through threat of future sanctions")
(citing Abbott Laboratories, 387 U.S. at 152-53; Columbia Broadcasting System,
Inc. v. United States, 316 U.S. 407, 417-19 (1942)). However, plaintiffs
are faced with a similar dilemma. If they enter settlement agreements predicated
on audit standards that exceed the requirements of the Medicare Act and
applicable regulations, they will simultaneously waive their right to challenge
the audit standards in court. See, e.g., Aulenback, Inc. v. Fed. Highway
Admin., 103 F.3d 156, 161-62 (D.C. Cir. 1997) (settlement with agency moots
legal challenge to rules applied to induce settlement). On the other hand,
if they refuse to settle, they face potentially ruinous liability under
the False Claims Act.*fn8
||| But this argument assumes that plaintiffs face an immediate Hobson's
choice. Since none of the PATH audits pending against plaintiffs are complete,
however, we have no evidence that the government has threatened litigation
to obtain settlements. The rule in Abbott Laboratories has been carefully
circumscribed to regulations that pose an immediate dilemma. Because the
Commissioner of Food and Drugs expected immediate compliance with the new
regulations, the companies in Abbott Laboratories faced an immediate choice
between adjusting their businesses or disregarding the new rules. See also
Nat'l Wildlife Federation, 497 U.S. at 891 (although pre-enforcement review
is normally precluded, "[t]he major exception . . . is a substantive
rule which as a practical matter requires the plaintiff to adjust his conduct
immediately") (citing Abbott Laboratories). Here, however likely plaintiffs
think a settlement/FCA litigation choice may be, the choice is not before
them yet, and because the PATH initiative reaches only past conduct, nothing
but participation in the audits is demanded of them at present.
|||The boundaries of the Abbott Laboratories exception are confirmed by another
decision the Supreme Court issued on the same day. In Toilet Goods Ass'n,
Inc. v. Gardner, 387 U.S. 158 (1967), the Court upheld the dismissal of
a preenforcement challenge by a cosmetics industry group to regulations
promulgated by the Food and Drug Commissioner. The regulations permitted
the Commissioner to suspend certification services to any company that refused
to allow agency employees to inspect the facilities and processes used in
preparing color additives for cosmetic products. Applying the reasoning
of Abbott Laboratories , the Court found the action unripe because the impact
of the regulation was not "felt immediately by those subject to it
in conducting their day-to-day affairs." Id. at 164. As the Court reasoned:
|||The regulation serves notice only that the Commissioner may under certain
circumstances order inspection of certain facilities and data, and that
further certification of additives may be refused to those who decline to
permit a duly authorized inspection until they have complied in that regard.
At this juncture we have no idea whether or when such an inspection will
be ordered and what reasons the Commissioner will give to justify his order
. . . . We believe that judicial appraisal of these factors is likely to
stand on a much surer footing in the context of a specific application of
this regulation than could be the case in the framework of the generalized
challenge made here . . . .
|||Moreover, no irremediable adverse consequences flow from requiring a later
challenge to this regulation by a manufacturer who refuses to allow this
type of inspection. Id. at 163-65 (emphasis in original).
||| At this juncture, we can only speculate whether the PATH audits will
result in findings of Medicare violations and threats of prosecution under
the False Claims Act. Absent a coercive threat of prosecution, plaintiffs'
claim is unripe.*fn9
||| Having held that plaintiffs' case is unripe, we AFFIRM its dismissal
for want of jurisdiction. However, we REVERSE the district court's dismissal
with prejudice and the entry of judgment for the United States. In the time
since judgment was entered the PATH audits may have progressed at any number
of hospitals to a point where plaintiffs' claims are ripe. Accordingly,
the action is DISMISSED WITHOUT PREJUDICE.
|||AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
|||*fn1 Audits initiated by
OIG offer hospitals the choice of either submitting to audit directly by
OIG ("PATH I"), or paying for their own OIG approved auditor ("PATH
II"). The Department of Justice ("DOJ") has also cooperated
with OIG by initiating its own investigations under the False Claims Act.
|||*fn2 Unless the government
has decided to intervene, the qui tam suit will presumably be short lived.
See Vermont Agency of Natural Resources v. United States ex rel. Stevens,
120 S. Ct. 1858 (2000) (state is not a "person " under False Claims
Act where private individual brings suit).
|||*fn3 Plaintiffs' view is
diametrically opposed. According to the President of the AAMC, for the last
30 years teaching physicians have understood the regulations to require
the physical presence of the physician for major surgeries and all other
complex procedures. But for simple procedures, Medicare Part B billing was
acceptable so long as the teaching physician established an "attending
physician" relationship with the patient and provided medical direction
to the residents involved in providing care to the patient. Also, a countersignature
on the patient's medical records was adequate documentation of the physician's
role: In the cases of major surgery and other complex procedures, in order
to bill for the services, the teaching physician must have been physically
present, elbow-to-elbow with the resident and prepared to perform the procedure
if necessary. That standard was clear, everyone understood it and everyone
should be held accountable to it. The majority of cases, however, do not
involve major surgery or other complex procedures . . . . The teaching physician's
presence is obviously required to provide medical direction, and HCFA stipulated
that countersignature , countersigning the note in the medical record written
by the involved resident provided presumptive evidence of that presence
for billing purposes. The [Inspector General] has interpreted HCFA's medical
direction standard to require the teaching physician to be elbow-toelbow
with the resident in these non-surgical instances [and] the Inspector General
is insisting that contrary to the standard practice in this country for
30 years or more since Medicare was enacted that countersignature does not
constitute adequate documentation of the teaching physician's presence when
IL 372 clearly stipulated that that was an adequate documentation. We've
attempted on a number of occasions to persuade the Inspector General that
the relevant language in the governing Medicare laws and regulations do
not support the present PATH audit parameters, but thus far, the IG has
insisted on an interpretation of those governing standards that simply does
not conform to the reality of the time. PATH Hearings, at 15-16 (testimony
of Jordan J. Cohen, M.D.).
|||*fn4 The letter states:
[T]he OIG will undertake PATH audits only where carriers, before December
30, 1992, issued clear explanations of the rules regarding reimbursement
for the services of teaching physicians. Thus, claims for services of teaching
physicians will be considered for a PATH I or II audit only where a carrier
provided written guidance stating that Part B reimbursement for teaching
physician services would be limited to . . . when the teaching physicians
either personally furnished services to Medicare beneficiaries or were physically
present when the services were furnished by interns or residents. Rabb Letter
at 5 (emphasis added).
|||*fn5 The Court so held
notwithstanding plaintiffs' insistence that they could not avail themselves
of the administrative review process because to do so they would have to
risk termination of their provider agreements. 120 S. Ct. at 1098.
|||*fn6 Under the Inspector
General Act of 1978, "[e]ach Inspector General shall report to and
be under the general supervision of the head of the [agency] involved .
. . ." 5 U.S.C. App. 3S 3(a). The Inspector General is authorized to
"conduct, supervise, and coordinate audits and investigations relating
to the programs and operations of[the agency]." Id. S 4(a)(1). If an
audit discloses potential criminal liability, OIG must report "expeditiously
to the Attorney General." Id. at S 4(d). DOJ may then bring criminal
charges or a civil action under the False Claims Act. Otherwise, the Secretary
retains discretion to pursue administrative sanctions. If the Secretary
proceeds under 42 U.S.C. SS 1320a-7, 1320a-7a(a), 1395ff, or 31 U.S.C. SS
3801-3812, the S 405(h) bar arguably applies.
|||*fn7 The assumption is
not unwarranted given the agency's repeated claim that Part B cannot cover
any services residents perform in the absence of their instructors. Nevertheless,
it is worth noting that of the numerous declarations submitted by deans
at teaching hospitals currently subject to PATH audits, none aver that Carrier
physical presence requirements, as opposed to Medicare Act or DHHS regulatory
mandates, are or will be used to assess Medicare Part B billings. Thus,
we have no way of knowing what standards OIG is actually using in plaintiffs'
PATH audits. Moreover, the Rabb Letter and subsequent communication from
the OIG suggest that the agency has been willing to shift the parameters
of the PATH audit in response to plaintiffs' concerns. Indeed, the transition
from nationwide audits to audits focused on hospitals who received clear
Carrier guidance reflects just such a shift. See also Declaration of George
Reeb, Assistant Inspector General for HCFA #9E9E # 3, 5 (Feb. 12, 1998)
(indicating that PATH audits will focus on a twelve-month period between
1994 and 1996, and that PATH audit results will not be finalized or forwarded
to the Attorney General until after the audited entity has had an opportunity
to review the findings, provide additional information or documents and
submit a response).
|||*fn8 As in Abbott Laboratories,
plaintiffs here "deal in a sensitive industry, in which public confidence
. . . is especially important. To require them to challenge these regulations
only as a defense to an action brought by the Government might harm them
severely and unnecessarily." 387 U.S. at 153. Indeed, plaintiffs argue
that their goodwill and status as teaching hospitals could be irreparably
harmed by allegations, let alone findings, of False Claims Act liability
for Medicare fraud. And the audits themselves are costly and onerous, taking
precious time and resources away from hospital administration and patient
|||*fn9 Plaintiffs' unconstitutional
conditions argument mirrors the Abbott Laboratories claim and fails for
the same reasons. See, e.g., Thunder Basin Coal Co. v. Reich, 510 U.S. 200,
218 (1994) (distinguishing Ex parte Young, 209 U.S. 123, 148 (1908)). We
also reject plaintiffs argument that "federal question jurisdiction
exists whenever substantial constitutional violations are alleged."
Appellants'O pening Brief at 34. In support of this proposition, plaintiffs
cite a late Lochner era takings case and an obscure footnote in a Ninth
Circuit Equal Access to Justice Act attorney fees case. See South Covington
& C. St. Ry. Co. v. City of Newport, 259 U.S. 97 (1922); Foster v. Tourtellotte,
704 F.2d 1109 (9th Cir. 1983). In South Covington, the Supreme Court found
federal subject matter jurisdiction in an action to enjoin enforcement of
a municipal resolution which directed immediate removal of a high-tension
wire used to run electrical current in support of plaintiff's perpetual
franchises for operating street cars in Newport, Kentucky. Finding "a
substantial claim under the Constitution" that the city's action would
amount to a taking, the Court held that jurisdiction would not be defeated
merely because the city's answer disclaimed an intention to enforce the
resolution "except through an order of court." Id. at 100 (noting
that the "denial went to the merits of the claim" and could not,
therefore, defeat jurisdiction). In Foster, we merely noted the well recognized
rule that, for purposes of establishing federal question jurisdiction, "[a]
claim of constitutional violation need not be proven." 704 F.2d at
1111 n.2. Rather, federal courts will exercise jurisdiction unless the constitutional
claim " `clearly appears to be immaterial and made solely for the purpose
of obtaining jurisdiction or where such a claim is wholly insubstantial
and frivolous.' " Id. (quoting Bell v. Hood, 327 U.S. 678, 682-83 (1946)).
But even if federal question jurisdiction may be established by pleading
a substantial constitutional claim, the claim must still be ripe for review
before courts will exercise jurisdiction. In South Covington, the claim
was presumably ripe because the city's resolution created the prospect of
imminent, forcible removal and destruction of the company's property. Although
the Court held that the city's denial of an intention to act in the absence
of a court order could not defeat jurisdiction, the holding was predicated
on the rule that jurisdiction "must be determined on the allegations
of the bill." South Covington, 259 U.S. at 99. This rule predates modern
Rule 12(b)(1) practice, which allows the court to look beyond the bare allegations
of the complaint in order to determine the existence of jurisdiction. Whether
statutory or constitutional in origin, an unripe claim is not justiciable.
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