Killing the Patient to Cure the Disease: Medicare's Jurisdictional Bar Does Not Apply to Bankruptcy Courts

• Jurisdiction: United States,Federal
• Publication year: 2015
• Citation: Vol. 32 No. 1

Killing the Patient to Cure the Disease: Medicare's Jurisdictional Bar Does Not Apply to Bankruptcy Courts

Samuel R. Maizel

Michael B. Potere

KILLING THE PATIENT TO CURE THE DISEASE: MEDICARE'S JURISDICTIONAL BAR DOES NOT APPLY TO BANKRUPTCY COURTS

Samuel R. Maizel^*

Michael B. Potere^**

Abstract

Sections 405(g) and 405(h) of the Social Security Act require exhaustion of administrative remedies prior to judicial review for any claims brought under the Medicare Act. Generally, these claims arise when the Centers for Medicare and Medicaid Services decides that a hospital owes the government for prior overpayment. The appeal of such decisions can take years, potentially forcing hospitals to close due to a lack of continued Medicare payments. As such, filing for bankruptcy protection quickly becomes one of the hospital's primary avenues for survival. Historically, however, some bankruptcy courts have looked to the legislative context of § 405(h) and determined that bankruptcy courts lack jurisdiction over Medicare claims prior to the exhaustion of administrative remedies. This Article argues that such an interpretation is incorrect because the plain language of § 405(h) renders it inapplicable to a federal bankruptcy court's jurisdictional grant, and is also contrary to the Bankruptcy Code's purpose.

Introduction

Acute care hospitals and other providers of goods and services to Medicare beneficiaries face a very difficult situation. Many of the patients treated by hospitals, the supplies provided to patients in hospitals, and numerous other goods and services, are paid for by the Medicare program.¹ However, if the

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Centers for Medicare and Medicaid Services ("CMS") (or a private contractor working under contract to CMS), which administers the Medicare Program, decide the hospital owes the government for a prior overpayment, the Medicare Program arguably has the right to recoup the amount it believes it is owed by offsetting it against monies otherwise payable to the hospital. The hospital has the right to appeal the decision, but in the meantime, its cash flow could be reduced to a point where it cannot stay in business and provide its services to Medicare beneficiaries. The right to appeal CMS's decision is, in many instances, a meaningless right, because it takes years to proceed through the Medicare Program's appeals process. In the meantime, many hospitals risk being forced to close their doors during this time because they cannot pay their bills if Medicare does not pay them.

This Article addresses a unique jurisdictional issue that can shorten the time required to obtain judicial review of a CMS decision by going directly to federal bankruptcy court. Two bankruptcy court decisions from 2015, In re Bayou Shores, SNF, LLC² and In re Nurses' Registry and Home Health Corp.,³ held that Medicare's jurisdictional bar under 42 U.S.C. § 405(h), which would otherwise prevent judicial review of CMS decisions prior to exhausting Medicare's appeals process, does not apply to federal bankruptcy courts. If bankruptcy courts continue to make this finding consistently (as this Article argues they should), then filing for bankruptcy would become an important option available to health care providers and suppliers to resolve disputes with CMS and the Medicare Program when they would otherwise go out of business absent the speedy resolution of these disputes. However, bankruptcy courts (as well as federal district courts and circuit courts of appeal) have debated this issue for more than thirty years and are not in agreement on the outcome.

This Article concludes that debtors in bankruptcy court are exempt from 42 U.S.C. § 405(h)'s exhaustion requirement because its plain language does not bar bankruptcy court jurisdiction prior to exhaustion—thus, bankruptcy courts do not have to wait. However, some language in § 405(h)'s "legislative

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history"⁴ has caused courts to ignore the statute's plain language in favor of trying to interpret what Congress meant when it passed § 405(h). This analysis is flawed; § 405(h)'s plain language should govern its interpretation and application. Part I of this Article discusses § 405(h)'s background and legislative history. Part II outlines the current state of the Medicare appeals process, noting the delays that plague the system. Part III discusses the requirement that the proceedings "arise under" the Medicare Act. Part IV analyzes the analytical framework in which § 405(h) has been interpreted and concludes that § 405(h)'s plain language, not its legislative history, should govern its application.

I. Background on 42 U.S.C. § 405(h) and Its Analytical Framework: Medicare's Jurisdictional Bar Absent Exhaustion of Administration Remedies

A. Section 405(h) and Its Legislative History

The Social Security Act requires exhaustion of administrative remedies prior to judicial review through 42 U.S.C. §§ 405(g) and (h), and this requirement specifically applies to the Medicare Act—which itself has been described by courts as one of the "most completely impenetrable texts within human experience"⁵ —via 42 U.S.C. §§ 1395ii (incorporating § 405(h)) and 1395ff(c) (incorporating § 405(g)).⁶ The relevant provisions state:

42 U.S.C. § 405(g) Judicial Review
Any individual, after any final decision of the Commissioner . . . may obtain a review of such decision by a civil action. . . . The court shall

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have power to enter, upon the pleadings and transcript of the record, a judgment affirming, modifying, or reversing the decision of the Commissioner . . . with or without remanding the cause for a rehearing. . . . The judgment of the court shall be final except that it shall be subject to review in the same manner as a judgment in other civil actions.
42 U.S.C. § 405(h) Finality of Commissioner's Decision
The findings and decision of the Commissioner . . . after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision . . . shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, . . . or any officer or employee thereof shall be brought under § 1331 or 1346 of title 28 to recover on any claim arising under this subchapter.⁷

Absent a final decision by the applicable administrative body, federal courts cannot take jurisdiction over a disputed issue arising under the Social Security or Medicare Acts. The concept underlying this requirement is that a party is not entitled to federal judicial relief unless and until available administrative remedies have been exhausted.⁸ The question then becomes whether such a jurisdictional limitation applies only to those suits brought pursuant to 28 U.S.C. §§ 1331 and 1336, or if § 405(h) applies to other federal jurisdictional grants, including the bankruptcy courts' jurisdictional grant in 42 U.S.C. § 1334.

Section 405 was enacted in 1939 as part of the Social Security Act.⁹ At that time, it barred jurisdiction under 28 U.S.C. § 41.¹⁰ Section 41 contained

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twenty-eight sub-sections that granted the United States district courts "original jurisdiction" over various types of claims, including, in sub-section 19, "all matters and proceedings in bankruptcy."¹¹ In 1948, when Congress revised the U.S. Code, it extracted these jurisdictional grants from § 41 and recodified some of them as 28 U.S.C. §§ 1331 to 1348, 1350 to 1357, 1359,

1397, 2361, 2401, and 2402.¹² The re-codification included numerous substantive changes, such as removing the designation of a married woman as "disabled" for the purpose of tolling of the statute of limitations for her to bring a claim against the United States government.¹³ Although Congress rewrote § 41, it did not correspondingly update § 405(h), which maintained its reference to § 41 for the next three decades. As such, § 405(h) was applied as though it referred to all of the jurisdictional grants that previously existed in § 41, largely due to the proposition in the 1975 Supreme Court decision Weinberger v. Salfi that the 1948 re-codification of 28 U.S.C. § 41 "caused no substantive change in the coverage of [§ 405(h)'s] jurisdictional bar."¹⁴

In 1976, one year after the Weinberger decision, the Office of Law Revision Counsel¹⁵ revised § 405(h) by removing its reference to 28 U.S.C. § 41 and replacing it with references to 28 U.S.C. §§ 1331 (federal question jurisdiction) and 1346 (suits against the United States).¹⁶ Seemingly (and to at least one court, "clearly"), these were the only jurisdictional grants the Office

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of Law Revision Counsel believed were relevant to Medicare Act claims.¹⁷ And so, after almost three decades, the Social Security Act caught up with and incorporated the changes in the Code pertaining to federal court jurisdiction.

Eight years later, in 1984, Congress expressly enacted the Law Revision Counsel's changes as part of the Deficit Reduction Act of 1984 ("DRA").¹⁸ As part of the DRA, Congress enacted a provision entitled, "Effective Dates," which stated in sub-section (b) that:

Except to the extent otherwise specifically provided in this subtitle, the amendments made by section 2663 shall be effective on the date of the enactment of this Act; but none of such amendments shall be construed as changing or affecting any right, liability, status, or interpretation which existed (under the provisions of law involved) before that date.¹⁹

Some courts have found that this provision represents Congress's caution to the courts not to interpret § 2663's "technical corrections" as "substantive changes" to § 405(h).²⁰ In so doing, however, these courts have ignored § 405(h)'s facially limited applicability to §§ 1331 or 1346.²¹

B. Section 405(h)'s Purpose and Application

Section 405(h) serves two primary purposes. First, its rigorous enforcement is said to aid in and benefit from the development of the Secretary of Health and Human Services's expertise.²²...