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Brief - Health Care Providers Cannot Appeal HHS Regulations Directly to District Court - Shalala v. Illinois Council on Long Term Care, Inc., 120 S.Ct. 1084 (U.S. 2000)

This is an important administrative law decision involving the reviewability of nursing home standards and their application to individual nursing homes.  As is increasingly common, it comes from a 5-4 court. Each year, HHS, through its Medicare, Medicaid, and Social Security Disability Insurance programs, processes most of the claims for payment and benefits made the federal government, and probably processes nearly as many claims as the entire private health insurance industry.  The United States Supreme Court and congress have spent many years resolving the proper balance between providing due process to potential beneficiary and controlling the costs and delays of administering these benefits programs.  Through a series of decisions founded on Goldberg v. Kelly, 397 U.S. 254 (U.S. 1970) and Mathews v. Eldridge, 424 U.S. 319 (U.S. 1976), the court determined that it was constitutionally proper to limit the due process rights of the individual claimants in order the protect the rights of claimants in general from depletion of the benefits pool thought costly legal process.  Thus the court recognized that congress would limit the right to hearings and judicial review of individual claims until all agency provided process was exhausted, and to limit the judicial reviewabilty the final agency actions.

Plaintiffs are nursing homes and their professional association, suing over the constitutionality of various regulations on nursing home participation in Medicare.  The district court dismissed the plaintiffs' claim, finding that it had no jurisdiction until the plaintiffs exhausted the statutorily provided appeals process through the Department of Health and Human Services. The plaintiffs complained that this was an impossible burden because they could not afford to risk the sanction of being denied participation in Medicare while prosecuting their appeal.  The government agues two points: 1) that these same limitations apply to agency reviews and sanctions of nursing homes, and that the nursing homes cannot bypass this review by invoking statutory federal question jurisdiction, and 2) that HHS only uses Draconian sanctions in a very small number of egregious cases, so that most plaintiffs can just accept the sanction and then appeal it to the courts. The Circuit court reversed, allowing plaintiffs to skip the statutory appeals process, and the United States Supreme Court reviewed in this decision.

The court split 5-4 in this case, not on ideological or constitutional grounds, but on the construction of a previous case, Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667 (1986), which also construed the statutory language at issue.  The language, "to recover on any claim arising under" the Social Security Act or, as incorporated through 42 USC 1395ii, the Medicare Act, is ambiguous on its face.  The majority believed that the statutory context implies that this language is expansive, applying to right of health care providers to receive payments on behalf of beneficiaries, as well as the right of the beneficiaries to receive benefits. Since it clear from previous case law that beneficiaries must use the statutory appeals process, the majority's interpretation of the language requires the plaintiff nursing homes to also exhaust the statutory appeals process.  In its analysis, the majority first reasons that plaintiffs must lose if Michigan Academy is put aside.  Having reached this conclusion, the Court then discusses the proper interpretation of Michigan Academy and distinguishes it from this case.  The court also reviews the factual basis of plaintiffs' claim that they risk the "death penalty" - termination from participation - if they refuse to comply with the agency requests, but that they moot their cases by complying.  The court reviewed the evidence put forth by the secretary and determined that there was no reason to reject the secretary's claim that most plaintiffs only risked a "minor" sanction, rather than termination of participation.  Based on the legal and factual analysis, the court reversed the Circuit Court and agreed with the district court that it had no jurisdiction to proceed.

The four dissenting justices were divided in the basis for their dissents.  Justice Scalia believed that Michigan Academy should be interpreted contrary to the majority opinion, and that until the court was willing to specifically overrule Michigan Academy, it controlled the result in this case.  The other dissents relied partially on Michigan Academy, but also drew a distinction between traditional beneficiaries, who, in the aggregate, make millions of small claims each year, and the much smaller class of nursing homes who are contesting conditions of participation rather than the payment of individual claims.

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