The Centers for Medicare & Medicaid Services (“CMS”) terminated a skilled nursing facility’s (“SNF”) provider agreement effective August 12, 2013. The SNF sought injunctive relief from a federal district court while it appealed the termination through the administrative appeals process established by the U.S. Department of Health and Human Services (“HHS”).1 HHS filed a motion seeking to have the district court dismiss the case based on its assertion that the court lacked jurisdiction. On August 9, 2013, the district court granted HHS’ motion and dismissed the case.

Background

The facility was designated as a “Special Focus Facility” by CMS in September 2010. Consequently, it was subjected to two annual surveys instead of one, as well as abbreviated surveys following any complaints. Between February 11, 2011 and May 3, 2013, it had five standard and four abbreviated surveys for a total of nine surveys. Multiple deficiencies, including those alleged to have caused actual harm and “immediate jeopardy” were cited by the surveyors. CMS imposed civil money penalties and a denial of payment for new admissions (“DPNA”).

On June 20, 2013, seven deficiencies resulting in actual harm to residents were cited during an abbreviated survey. CMS thereafter notified the provider that it would be terminated from the Medicare program effective August 12, 2013. The Kansas Department for Aging and Disability Services also notified the provider that it was terminating the provider’s Medicaid agreement, also on August 12, 2013. Although the provider submitted a plan of correction requesting the opportunity to demonstrate that it was in substantial compliance with program requirements, CMS denied the request. The SNF then filed an appeal with the HHS Departmental Appeals Board (“DAB”) and requested an expedited hearing before an administrative law judge (“ALJ”). It also filed a claim in district court seeking injunctive relief based on several premises, most notably, a denial of its due process rights. The SNF was seeking to have the court “preserve the status quo” (preclude termination) until it exhausted its administrative remedies, as required by the Medicare statute.

The District Court’s Decision and Analysis

The motion for injunctive relief was opposed by HHS. HHS argued that the court lacked jurisdiction and therefore should not even consider the motion for a preliminary injunction. In granting HHS’ motion to dismiss the case, the court noted that there are two critical provisions of the Social Security Act (“Act”) which are incorporated into the Medicare statute to address judicial review of agency actions. The court held that neither of those provisions allowed the court to consider the SNF’s motion for injunctive relief. Thus, the court ruled the termination could go forward and residents would need to be relocated to another facility before the facility could obtain a hearing on the merits before an ALJ.

The first provision in the Medicare statute dealing with judicial review states that when a SNF fails to comply substantially with the requirements for participation in the Medicare program, the Secretary of HHS is authorized to terminate the SNF’s provider agreement. The Act provides for “judicial review of the Secretary’s final decision after such hearing as provided in 405(g).” Of importance is that Section 405(g) provides, in part, that a party may obtain judicial review sixty days after a “final decision [of the Secretary].” (The Secretary’s final decision is a decision by a panel of the DAB, following an appeal of an ALJ’s decision.)

Section 405(h) of the Medicare Act provides the second limitation on judicial review. Section 405(h) requires that “no findings of fact or decision of the [Secretary] shall be reviewed by any person, tribunal, or governmental agency except as herein provided.” The import of that sentence is that judicial review of the Secretary’s decisions is precluded until and unless the “administrative exhaustion” requirements are satisfied. Thus, a provider is required to have completed administrative appeals before both an ALJ and then the DAB; and wait until the DAB renders an adverse decision before it can obtain judicial review.

The requirements for a provider to “exhaust” its administrative remedies are strict and as the court observed, mostly unyielding. There is an exception to the requirement that appeals must be channeled through the administrative process. The exception, known as the “Michigan Academy exception,” permits a district court to have subject matter jurisdiction in the absence of administrative exhaustion when there is no other avenue of judicial review.2 The provider argued, unsuccessfully, that a post-termination review or a delayed review “entitled it to no review at all since its business will no longer be viable once the provider agreement terminates.” In spite of the fact that the court noted, “to be sure, the delayrelated harm in this case will cause the nursing home to close,” it held that because the provider was (eventually) entitled to judicial review, the Michigan Academy exception did not apply. It drew the distinction between no review at all and a delayed review. Whether a delayed review in this context is tantamount to no review at all is debatable. Not all courts agree with such reasoning.

Having dealt with the exception to exhaustion of administrative remedies, the court next considered whether a waiver was applicable. It acknowledged a U.S. Supreme Court case that prescribes when a court may waive some of the exhaustion requirements under 405(g). According to the Supreme Court’s decision in Mathews v. Eldridge, the exhaustion requirement may be waived where a plaintiff raises a colorable claim that is “entirely collateral” to the claim before an ALJ.3 Additionally, a plaintiff seeking a waiver of the exhaustion requirements must raise a constitutional claim that a post-deprivation hearing would cause irreparable damage that even a favorable decision by the Secretary could not remedy.

The court agreed that the provider met the first prong of the waiver requirements. Its due process challenge seeking injunctive relief on the basis of its right to a pre-termination hearing was “entirely collateral” from the substantive challenge to the Secretary’s decision to terminate its provider agreement. However, the court found that the provider failed to assert a constitutional claim that it was entitled to a pre-termination hearing. Thus, it was not entitled to a waiver under Mathews, and therefore, the court lacked jurisdiction to consider the motion for preliminary injunction.

It is worth noting that there is a split in the circuit courts on the issue of whether a court has subject matter jurisdiction in the absence of a nursing home exhausting its administrative remedies. In another case where a SNF sought a temporary restraining order and a preliminary injunction to prevent HHS from terminating its provider agreement, the court came to the opposite conclusion from the one described above. In granting the temporary restraining order, that court held, “terminating provider benefits to a nursing home would require an extremely vulnerable population to undergo the trauma of moving to a new facility.”4 The split in circuit courts raises the question, “how much due process is due to a SNF facing termination from Medicare without benefit of an administrative hearing?” It would be a Pyrrhic victory for a SNF to prevail at an ALJ and DAB hearing if it was terminated from the Medicare program and forced to close many months earlier.