Summary
holding that state agency that performs surveys of nursing homes under contract with DHHS not a proper party to action challenging constitutionality of DHHS regulations
Summary of this case from Outagamie Cnty. v. Wis. Dep't of Health Servs.Opinion
No. C 02-1675 CRB
April 7, 2003
MEMORANDUM AND ORDER
This action arises out of the Department of Health and Human Services imposition of monetary sanctions against plaintiff for its failure to comply with federal regulations governing the care and treatment of Medicare nursing home patients. Now pending before the Court are the state defendants' motion to dismiss and the federal defendants' motion to dismiss. The Court previously concluded that oral argument was unnecessary and took the motions under submission.
BACKGROUND
A. The Medicare Program
Medicare is a federally-administered program that provides payment for medical services for certain elderly or disabled persons. 42 U.S.C. § 426, § 1395c. The Medicare program is administered by the Centers for Medicare and Medicaid Services ("CMS"), an operating division within the federal Department of Health and Human Services ("DHHS"). Medicare provides coverage for certain nursing home services. 42 U.S.C. § 1395d(a)(2); 42 U.S.C. § 1396d(a)(4); Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 6 (2000). Payment for nursing home services is made directly to the nursing home.
In order for a nursing home to qualify for payment under the Medicare program, the home must entered into a provider agreement with DHHS, and it must comply with numerous statutory and regulatory requirements. See Shalala, 529 U.S. at 6. A state agency with whom DHHS has contracted conducts on-site surveys of the participating nursing homes to determine whether the homes are in substantial compliance with Medicare requirements. 42 U.S.C. § 1395aa(a). The state agency forwards its survey results and recommendations to CMS. If the state agency found violations of the regulations (deficiencies), CMS may impose various sanctions or remedies, including monetary penalties and termination of the facility's participation in the programs. See Shalala, 529 U.S. at 6; 42 U.S.C. § 1395i-3 (h); 42 U.S.C. § 1395cc(b)(2); 42 U.S.C. § 1396r(h).
B. The Appeals Process
If CMS decides to impose sanctions upon a home for substantial noncompliance, it must issue a notice to the nursing home. The notice must include, among other things, a description of the nature of the noncompliance, the dates of the noncompliance, factors that were considered in determining the sanction, and instructions for responding to the notice, including notification of the home's right to a hearing. 42 U.S.C. § 1395i-3 (h); 42 U.S.C. § 1395cc(b)(2); 42 U.S.C. § 1396r(h); 42 C.F.R. § 488.434. Regulations require that a facility be given the opportunity for informal dispute resolution to dispute the state agency's findings with the state agency.
If the informal dispute resolution proceeding is not resolved to the satisfaction of the nursing home, it may appeal a finding of noncompliance and imposition of sanctions to the Civil Remedies Division of the Departmental Appeals Board of DHHS ("DAB"). The nursing home may request a full evidentiary hearing before an administrative law judge ("ALJ"). 42 C.F.R. § 498.1, § 498.5, § 498.40(a). The appeal (request for a hearing) must be filed within 60 days of the date the home received the sanction notice unless that date is extended by an ALJ or "good cause shown." 42 C.F.R. § 498.40.
After the ALJ issues a written decision, either party may request review by the DAB's Appellate Division. 42 C.F.R. § 498.5 (c) and § 498.80. After the Appellate Division issues its decision, the nursing home may appeal by initiating an action in federal court. An appeal of a determination imposing a civil monetary penalty must be filed with the United States Court of Appeals within 60 days. 42 U.S.C. § 1320a-7a(e). Review of a DHHS determination that does not impose a monetary penalty is in the district courts. 42 U.S.C. § 405 (g).
C. Factual background
Plaintiff Nursing Inn of Menlo Park ("Nursing Inn") was a Medicare-certified long-term care nursing facility located in Menlo Park, California. On August 13, 1999, the California Department of Health Services ("California Health Services"), operating pursuant to a contract with DHHS, completed a Medicare certification survey of Nursing Inn. California Health Services found that Nursing Inn was not in substantial compliance with certain federal regulations and issued a statement identifying 27 separate deficiencies. One month later, on September 16, 1999, CMS notified Nursing Inn in writing (the "September 16 Notice") that based on California Health Service's findings it was imposing the following remedies/sanctions: (1) a civil monetary penalty of $1,000.00 per day effective August 13, 1999; (2) denial of Medicare payments for new admissions effective October 1, 1999; and (3) denial of nursing aid training (after the current class). The September 16 Notice specifically advised Nursing Inn that it had a right to appeal the finding of noncompliance, but that to do so it must file its appeal within 60 days of the date of receipt of the notice. Shortly after receiving the September 16 Notice Nursing Inn utilized the informal dispute resolution process. On October 7, 1999, California Health Services notified Nursing Inn that as a result of that process it was deleting one deficiency finding and reducing the scope and severity of another finding. The findings with respect to the remaining 25 deficiencies remained the same.
California Health Services completed a follow-up survey of Nursing Inn on December 10, 1999 — after the 60 days for filing an appeal of the September 16 Notice had expired. California Health Services found that Nursing Inn was still not in substantial compliance with certain federal regulations. On January 7, 2000, CMS notified Nursing Inn that the remedies imposed in the September 16 Notice remained in effect. CMS also advised Nursing Inn that since it had not appealed the September 16 Notice, the monetary penalty of $1,000 per day from August 13 through December 9 (for a total of $119,000) was due and payable on January 22, 2000.
One week later California Health Services notified Nursing Inn that the Plan of Correction it had submitted to address the deficiencies identified during the December 10, 1999 survey was not acceptable. Nursing Inn voluntarily ceased business on January 19, 2000.
2. The Administrative Rulings
Nursing Inn filed a written appeal of the September 16 and December 7 Notices with the DAB on February 24, 2000. The ALJ to whom the appeal was assigned ruled that Nursing Inn's appeal of the September 16 Notice was untimely because it was not filed within 60 days of the date of the notice. He also rejected Nursing Inn's request for an extension of time to file its appeal; the ALJ found that Nursing Inn had not shown good cause for its delay. Nursing Inn appealed the ALJ's ruling to the Appellate Division of the DAB. The Appellate Division affirmed the ALJ's ruling in a written decision dated February 4, 2002.
3. The Complaint
Plaintiff subsequently filed this action in federal district court. The complaint's First Cause of Action is entitled "Appeal of DHHS Decision." Plaintiff states that it seeks review of the DAB Appellate Division decision entered on February 4, 2002. As part of this claim plaintiff contends that the Medicare regulations are unconstitutionally vague resulting in arbitrary and discriminatory enforcement of the regulations. Complaint ¶¶ 71, 72. The Second Cause of Action, entitled "Vagueness Challenge," again asserts that DHHS regulations "which establish procedures for the survey and certification of long-term care facilities, as well as the penalties for noncompliance" are unconstitutionally vague. The Third and Fourth Causes of Action, "Civil Rights — Declaratory Relief," are identical and allege that defendants denied plaintiff the right to defend itself before an impartial tribunal and to effective assistance of counsel. The Complaint names as defendants California Health Services and Diana Bonta, "individually and in her official capacity as the Director of the Department of Health Services" (the "state defendants") and DHHS and Tommy Thompson, "individually and in his official capacity as the Secretary and Health and Human Services" (the "the federal defendants").
DISCUSSION
The state defendants move to dismiss plaintiff's entire complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for a failure to state a claim and the federal defendants move to dismiss or in the alternative for summary judgment for lack of jurisdiction and failure to state a claim.
A. Standard of Review
On a motion to dismiss the Court must accept a plaintiff's allegations as true and construe them in a light most favorable to the plaintiff. See School of Business v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). The court should not dismiss for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [the plaintiff's] claims which would entitle [the plaintiff] to relief."Barnett v. Centoni, 31 F.3d 813, 816 (9th Cir. 1994) (per curiam).
The federal defendants' motion cites extensively to the underlying administrative record. "Generally, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion." Hal Roach Studios, Inc. v. Richard Feiner Co., 896 F.2d 1542, 1555 n. 19 (9th Cir. 1990). A document is not "outside" the complaint, however, if the complaint specifically refers to the document and if its authenticity is not questioned. See Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994). As the complaint refers to, and, indeed, is based on the underlying administrative proceedings, the Court may consider the administrative record under this rule. Moreover, the federal defendants' motion is based in part on its claim that this Court lacks jurisdiction of plaintiff's claims. On motions to dismiss for lack of jurisdiction the Court may consider evidence properly submitted by the parties. See Association of American Medical Colleges v. U.S., 217 F.3d 770, 778 (9th Cir. 2000).
B. State Defendants' Motion to Dismiss
The First Cause of Action is an appeal of the DAB Appellate Division decision affirming the ALJ's dismissal of plaintiff's appeal of the September 16 sanctions as untimely. The state defendants move to dismiss on the ground that they are not proper defendants to this appeal. The DAB is a division of DHHS, a federal agency. Plaintiff offers no explanation as to how the state defendants can be proper defendants to an appeal of a decision of a federal agency. See. e.g., St. Anthony Hosp. v. United States Department of Health and Human Services, 309 F.3d 680 (10th Cir. 2002) (petition for review of a DAB decision naming the Secretary of DHHS as defendant); Indiana Family Social Services Admin. v. Thompson, 286 F.3d 476 (7th Cir. 2002) (same). Accordingly, the state defendants' motion to dismiss the First Cause of Action must be granted.
The state defendants are also not proper parties to plaintiffs challenge to the constitutionality of DHHS regulations. The challenged regulations were promulgated by DHHS, not by state defendants. Any challenge to the constitutionality of these regulations must be addressed to DHHS; the state defendants have no authority to rescind or otherwise modify the regulations. See e.g., Cochran v. U.S. Health Care Financing Administration, 291 F.3d 775 (11th Cir. 2002) (naming federal agency as defendant in challenge to constitutionality of Medicare regulations). Accordingly, the state defendants' motion to dismiss the Second Cause of Action must also be granted.
The Third and Fourth Causes of Action for declaratory relief also fail as to the state defendants. There is no case or controversy between plaintiff and the state defendants as the state defendants are not responsible for the regulations which plaintiff contends deprived it of due process. See Aydin Corp. v. Union of India, 940 F.2d 527, 527-28 (9th Cir. 1991) (stating that declaratory relief is proper only when there is an actual case or controversy).
C. Federal Defendants' Motion to Dismiss
The federal defendants move to dismiss plaintiff's complaint on the ground, among others, that the Court lacks jurisdiction of plaintiff's claims.
1. First Cause of Action: Appeal of DAB Appellate Division decision
Plaintiff's appeal of the DAB decision necessarily involves an appeal of the imposition of a civil monetary sanction, namely, the imposition of the $1,000 per day in fines. An appeal of a monetary sanction imposed by DHHS lies exclusively in the federal Court of Appeals. See Woodstock Care Center v. Thompson, 161 F. Supp.2d 813, 816 (S.D. Ohio 2001). The United States Code, 42 U.S.C. § 1395i3 (h)(2)(B)(ii), authorizes DHHS to impose civil monetary penalties to remedy a nursing home's non-compliance with applicable regulations. That section expressly incorporates 42 U.S.C. § 1320a-7a(e), which provides that:
[a]ny person adversely affected by a determination of the Secretary under this section may obtain judicial review of such determination in the United States Court of Appeals for the circuit in which the person resides, or in which the claim was presented, by filing in such court (within sixty days following the date the person is notified of the Secretary's determination) a written petition requesting that the determination be modified or set aside. . . . Upon such filing, the court shall have jurisdiction of the proceeding. . . . Upon the filing of the record with it, the jurisdiction of the court shall be exclusive and its judgment and decree shall be final, except that the same shall be subject to review by the Supreme Court of the United States, as provided in section 1254 of Title 28.42 U.S.C. § 1320a-7a(e) (emphasis added); see also Fairfax Nursing Home, Inc. v. United States Department of Health and Human Services, 300 F.3d 835 (7th Cir. 2002) (hearing direct appeal of DHHS monetary sanction); South Valley Health Care Center v. Health Care Financing Administration, 223 F.3d 1221 (10th Cir. 2000) (same). In addition, DHHS regulations provide that a DAB decision is final unless "[t]he affected party has a right to judicial review and timely files a civil action in a United States District Court or, in the case of a civil monetary penalty, in a United States Court of Appeals." 42 C.F.R. § 498.90 (a)(1) (emphasis added). Plaintiff thus filed appeal of the DAB's decision in the wrong court.
2. Third and Fourth Causes of Action for Declaratory Relief
This Court also lacks jurisdiction of plaintiff's Third and Fourth Causes of Action. While styled as a claim for declaratory relief rather than an appeal of the DAB's decision, it is apparent that plaintiff is challenging the defendants' conduct that led to the imposition of the civil monetary penalties; in other words, plaintiff's claim arises from the imposition of the monetary penalty. See Woodstock Care Center, Inc., 161 F. Supp.2d at 817. Accordingly, the Court also lacks jurisdiction of these claims.
3. Second Cause of Action: Vagueness Challenge
In its Second Cause of Action plaintiff does not appear to challenge the vagueness of DHHS regulations as they relate to the imposition of monetary fines in the September 16 Notice. Instead, plaintiff appears to allege that the regulations are vague and will therefore cause plaintiff harm in the future. See Plaintiff's Opposition at 8.
This Court lacks jurisdiction of plaintiffs prospective vagueness challenge to the regulations. In Shalala v. Illinois Council On Long Term Care, 529 U.S. 1 (2000), the plaintiff association of nursing homes filed a lawsuit in federal district court alleging that certain Medicare regulations were unconstitutional. The Supreme Court held that the plaintiffs complaint was barred by 42 U.S.C. § 405 (h). That subsection provides that "[n]o action against the United States, the [Secretary], or an officer or employee thereof shall be brought under section 1331 [federal question jurisdiction] or 1346 [jurisdiction of claims against federal officials] to recover on any claim under this subchapter." The only way the plaintiffs could obtain review of their constitutional claims was by first presenting the claims to DHHS and then appealing DHHS's decision to the Court of Appeals (if the decision arose from the imposition of monetary fines) pursuant to 42 U.S.C. § 1395i-3 (h)(2)(B)(ii) or to the district court pursuant to 42 U.S.C. § 405 (g) (if it did not involve monetary sanctions). Id. at 20 ("Congress may well have concluded that a universal obligation to present a legal claim first to HHS, though postponing review in some cases, would produce speedier, as well as better, review overall. And this Court crossed the relevant bridge long ago when it held that Congress, in . . . the Medicare Act, insisted upon initial presentation of the matter to the agency.").
Plaintiff argues that DHHS will not consider any constitutional arguments and therefore it should be excused from first bringing its constitutional claims to the DHHS. The plaintiff in Illinois Council of Nursing Homes made the same argument which the Supreme Court rejected: "[A] court reviewing an agency determination under § 405(g) has adequate authority to resolve any statutory or constitutional contention that the agency does not, or cannot, decide, including, where necessary, the authority to develop an evidentiary record." Id. at 23-24. "Proceeding through the agency in this way provides the agency the opportunity to reconsider its policies, interpretations, and regulations in light of those challenges." Id. at 24.
The federal defendants argue that plaintiff never raised any constitutional arguments in the DHHS proceedings. In any event, plaintiff could only have done so in connection with its appeal of the monetary sanction since that is the only matter that plaintiff has presented to DHHS. See id. ("[A]t a minimum, the matter must be presented to the agency prior to review in a federal court."). Thus, to the extent plaintiff properly makes a constitutional challenge it must be made in the context of its appeal of the DAB decision and thus, in this case, it must be heard by the Court of Appeals and not this Court. Accordingly, the federal defendants' motion to dismiss the Second Cause of Action must be granted.
Plaintiff does not dispute that this Court may not have jurisdiction of some of its claims; instead, it states that at a minimum it should be allowed to amend its complaint to separate the claims that may be properly made before this Court pursuant to 42 U.S.C. § 405 (g) and those that must be filed directly in the Court of Appeals. Plaintiff fails to explain, however, which claims should have been filed in the Court of Appeals and which claims it contends were properly filed here. Nonetheless, the Court has determined that plaintiffs claims related to the imposition of the monetary sanctions (the First, Third and Fourth Causes of Action) belong in the Court of Appeals. The Second Cause of Action must be dismissed because it does not arise from the monetary sanctions and therefore has not been presented first to DHHS.
D. Transfer to-the Court of Appeals
The remaining issue, then, is how to treat plaintiff's appeal of the decision of the Appellate Division of the DHHS since this Court is without jurisdiction to hear that appeal. Plaintiff asks the Court to transfer those claims that belong in the Court of Appeals to the Court of Appeals pursuant to 28 U.S.C. § 1631. That statute provides:
Whenever a civil action is filed in a court . . ., including a petition for review of administrative action, is noticed for or filed with such a court and that court finds that there is a want of jurisdiction, the court shall, if it is in the interest of justice, transfer such action or appeal to any other such court in which the action or appeal could have been brought at the time it was filed.
Section 1631 "serves to aid who were confused about the proper for review." In re McCauley, 814 F.2d 1350, 1351-52 (9th Cir. 1987) (internal citation and quotation omitted). "Normally transfer will be in the interest of justice because normally dismissal of an action that could have been brought elsewhere is `time-consuming and justice-defeating.'"Miller v. Hambrick, 905 F.2d 259, 262 (9th Cir. 1990) (internal citation omitted).
The federal defendants respond that it would not be in the interest of justice to transfer plaintiff's appeal because the DAB Appellate Division decision does not constitute a "final decision" and thus is not appealable. See Matlock v. Sullivan, 908 F.2d 492 (9th Cir. 1990). As plaintiff points out, however, the DAB Appellate Division notice to plaintiff of its decision specifically advised plaintiff that the decision was binding unless plaintiff sought judicial review within 60 days. The Ninth Circuit Court of Appeals, the court with jurisdiction of plaintiff's appeal, will have to decide whether the DAB Appellate Division's decision is an appealable final decision. As it appears plaintiff mistakenly filed its appeal in this Court, the Court will transfer plaintiff's appeal of the DAB decision to the Ninth Circuit Court of Appeals. See Woodstock Care Center, 161 F. Supp. at 817 (transfering appeal of DHHS imposition of monetary sanction to Court of Appeals).
CONCLUSION
For the reasons stated the Court rules as follows:
1. The state defendants' motion to dismiss is GRANTED without leave to amend;
2. The federal defendants' motion to dismiss the Second Cause of Action is GRANTED;
3. Plaintiff's appeal of the February 4, 2002 DHHS decision (First, Third and Fourth Causes of Action) is hereby TRANSFERRED to the Ninth Circuit Court of Appeals.