The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge
Through the present litigation, Plaintiff Sutter Health Sacramento Sierra Region, dba Sutter Medical Center Sacramento (hereinafter "Sutter") alleges that Medicare's proposed termination of its approval for Sutter's heart transplant program improperly runs counter to Medicare's own provisions for administering such programs.
Defendant Michael A. Leavitt, as Secretary of Health and Human Services and the government official in charge of Medicare, now moves to dismiss Sutter's Complaint, for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1),*fn1 on grounds that Sutter has not satisfied a necessary prerequisite to suit; namely, the exhaustion of available administrative remedies. Alternatively, Defendant moves to dismiss Plaintiff's Complaint for failure to state a viable cause of action under Rule 12(b)(6).
As set forth below, the Court finds that because Sutter failed to exhaust its administrative remedies before filing the present lawsuit, this Court cannot entertain Sutter's claims at the present time. Dismissal on that ground will therefore be ordered.
This case challenges the proposed termination of Medicare funding for Sutter's heart transplant center, as relayed to Sutter by Defendant's designated agency for administering the Medicare program, the Centers for Medicare and Medicaid Services ("CMS") on December 12, 2008. The stated reason for termination was Sutter's continuing low volume of heart transplants, despite Sutter's implementation of a corrective action plan ("CAP") in 2006 to remedy that shortcoming.
According to the December 12 notice, the termination was to become effective on January 15, 2009. In order to facilitate full briefing on Sutter's request for injunctive relief to prevent termination of its program, that effective date was changed by stipulation of the parties to February 20, 2009.
Sutter's heart transplant program was initially approved by CMS in 1997, under rules established in Medicare's 1987 National Coverage Determination, or NCD. See 52 Fed. Reg. 10935 (April 6, 1987). The 1987 NCD established a minimum volume requirement for heart transplant centers at twelve transplants on an annual basis. Id. at 10947.
Despite CMS' initial approval, Sutter never met Medicare's annual threshold requirements. It never exceeded seven transplants a year, and sometimes performed as few as three. Sutter nonetheless claims to have a good outcome rate, allegedly because of its highly trained staff (Sutter is not a teaching hospital and consequently all care is performed by seasoned professionals on the regular staff) and their considerable experience with open heart procedures in addition to full transplants.
In 2006, CMS requested data from Sutter and other transplant centers that did not satisfy Medicare's volume standards. On January 30, 2007, based on Sutter's response, Sutter was notified that Medicare payment approval would be terminated unless an approved CAP was submitted within 30 days. The January 30, 2007 notice cited both the fact that Sutter had performed only three heart transplants in 2005 and four in 2006, as well as the fact that this small number made it difficult to gauge meaningful statistical outcomes.
After granting an extension for submission of the CAP, Sutter eventually submitted its proposed correctional action plan on March 22, 2007, along with its response to CMS' letter expressing its intent to terminate the Sutter program. Essentially, Sutter pointed to mitigating facts like good clinical results and various explanations for its low volume, including the fact that it had not obtained the means to utilize ventricular assist devices (VADs) for very sick patients to alleviate failing heart function. Because such patients consequently had to seek treatment at heart transplant facilities with VAD capability (there were a total of eleven Medicare-approved heart transplants within California), those facilities obtained priority for receiving organ donations destined for the sickest individuals.
In the meantime, in March of 2007, CMS issued new "conditions of participation" ("CoPs") for organ transplant centers, as set forth in 42 C.F.R. Part 482, subpart E. 72 Fed Reg 15198 (March 30, 2007). Under those requirements, a transplant center had to perform ten or more transplants per year "to demonstrate commitment to its transplant program and gain adequate clinical experience." Id. at 15217. This volume directive was later codified at 42 C.F.R. § 482.80. Heart transplant previously approved under the 1985 NCD had to comply with the new CoPs by June 28, 2007, and to apply for "initial approval" thereunder by December 26, 2007. 42 C.F.R. § 488.61(b)(1).
After working with Sutter to revise the proposed CAP plan issued with respect to the 1987 NCD over a period of three months, CMS approved it on July 2, 2007. Between September 2007 and July 2008, Sutter submitted four quarterly updates on implementation of that CAP. Even though Sutter took steps to obtain VAD capability, those updates showed that Sutter still had performed only three heart transplants in 2007 and three in 2008, only a quarter of the minimum number established by the 1987 NCD. Accordingly, on or about July 29, 2008, Sutter was once again advised that its program would be terminated for continued failure to meet Medicare's volume requirements.
Despite this notification, CMS still permitted Sutter to submit further information bearing on its proposed decision. Consequently, on September 15, 2008, Sutter made another written submission presenting its case for continued inclusion on Medicare's approved list of transplant providers. After considering those mitigating circumstances, CMS ultimately concluded that the mitigating circumstances identified by Sutter were not sufficiently compelling to warrant approval. Therefore, on December 12, 2008, Sutter was notified in writing that Medicare approval would be withdrawn under the 1987 NCD, and that Sutter's request for initial approval under Medicare's new CoPs would be denied, with both decisions based on low volume. The December 12 letter initially specified that Sutter's termination would become effective on January 15, 2009, or 34 days after issuance of the final notice. As stated above, however, to facilitate this Court's review that termination date was extended to February 20, 2009.
While Defendant moves to dismiss Plaintiff's lawsuit under Rule 12(b)(1) for lack of subject matter jurisdiction, a literal reading of Rule 12(b) suggests that the defense asserted here, a failure to exhaust non-judicial remedies, may not be made by pre-answer motion. As the Ninth Circuit pointed out in Ritza v. Int'l Longshoremen's and Warehousemen's Union, 837 F.2d 365, 369 (9th Cir. 1988), none of the defenses actually described in Rules 12(b)(1) through (7) actually encompass a failure to exhaust. Nonetheless, in Bass v. Social Security Administration, 872 F.2d 832, 833 (9th Cir. 1989), the Ninth Circuit found that failure to exhaust administrative remedies mandated by the Social Security Act (and incorporated within the Medicare statute) deprived the district court of jurisdiction. Failure to exhaust has therefore been viewed as a "matter in abatement" related to jurisdiction that consequently can be heard as a "non-enumerated" Rule 12(b) motion. Inlandboatmens Union of the Pacific v. Dutra Group, 279 F.3d 1075, 1078 n.2 (9th Cir. 2001), citing Ritza, 837 F.3d at 369.
A. Federal Question Jurisdiction Is Barred Unless And Regulations Has Been Completed
Until Administrative Review Under Medicare Statutes And 42 U.S.C. § 405(g) of the Social Security Act, as incorporated into the Medicare Act at 42 U.S.C. § 1395cc(h)(1), provides that a Medicare provider dissatisfied with the termination of its approval may seek judicial review of Medicare's decision in that regard only after the Secretary's "final decision". Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 20-21 (2000). Section 405(h), as also incorporated into the Medicare Act at § 1395ii, states specifically that federal question jurisdiction over Medicare matters is barred except as provided in the statute.*fn2 As the Ninth Circuit explained in Queen of Angels/Hollywood Presbyterian Med. Ctr. v. Shalala, 65 F.3d 1472, ...