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Blue Valley Hospital, Inc. v. Azar

United States Court of Appeals, Tenth Circuit

March 27, 2019

BLUE VALLEY HOSPITAL, INC., Plaintiff - Appellant,
ALEX M. AZAR, II, in his official capacity as Secretary, United States Department of Health and Human Services; SEEMA VERMA, Administrator for the Center of Medicare and Medicaid Services; JEFF HINSON, Regional Administrator for (Region 7) the Center for Medicare and Medicaid Services, Defendants - Appellees.

          Appeal from the United States District Court for the District of Kansas (D.C. No. 2:18-CV-02176-JAR-GLR)

          Curtis L. Tideman (Andrew J. Ricke with him on the briefs), Lathrop Gage LLP, Overland Park, Kansas, for Plaintiff-Appellant.

          Robin R. Anderson, Assistant United States Attorney (Stephen R. McAllister, United States Attorney, and Christopher Allman, Assistant United States Attorney, with her on the brief), Office of the United States Attorney, Kansas City, Kansas, for Defendants-Appellees.

          Before LUCERO, HARTZ, and CARSON, Circuit Judges.

          LUCERO, Circuit Judge.

         Blue Valley Hospital, Inc., ("BVH") appeals the district court's dismissal of its action for lack of subject matter jurisdiction. On April 11, 2018, the Department of Health and Human Services ("HHS") and the Centers for Medicare and Medicaid Services ("CMS") terminated BVH's Medicare certification. The next day, BVH sought an administrative appeal before the HHS Departmental Appeals Board and brought this action. In this action, BVH seeks an injunction to stay the termination of its Medicare certification and provider contracts pending its administrative appeal. In effect, the injunction would provide BVH a pre-termination hearing. The district court dismissed, holding the Medicare Act requires BVH exhaust its administrative appeals before subject matter jurisdiction vests in the district court.

         BVH acknowledges that it did not exhaust administrative appeals with the Secretary of HHS prior to bringing this action, but argues: (1) the district court had federal question jurisdiction arising from BVH's constitutional due process claim; (2) BVH's due process claim presents a colorable and collateral constitutional claim for which jurisdictional exhaustion requirements are waived under Mathews v. Eldridge, 424 U.S. 319 (1976); and (3) the exhaustion requirements foreclose the possibility of any judicial review and thus cannot deny jurisdiction under Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667 (1986). We disagree. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.


         BVH is an acute care hospital in Overland Park, Kansas, that provides a range of medical services, specializing in bariatric surgery and intervention services. CMS certified BVH as a hospital provider under the Medicare and Medicaid programs from 2015 until April 11, 2018.[1]

         For a treatment facility to retain hospital classification under the Medicare and Medicaid programs the facility must be "primarily engaged" in providing care to "inpatients." 42 U.S.C. § 1395x(e)(1). Hospital classification allows BVH to receive payment through the Medicare and Medicaid programs for treatment it provides. 42 C.F.R. § 488.3(a)(1). To ensure healthcare providers comply with the statutory and regulatory Conditions of Participation in the programs, CMS conducts surveys through state survey agencies. 42 C.F.R. §§ 488.20(b), 488.26(c).

         These surveys identify a facility's failures to meet certain participation requirements under the Medicare Act, termed deficiencies. 42 C.F.R. § 488.301. If a facility's deficiencies are serious or extensive enough, CMS may determine it is not in compliance with the Conditions of Participation. See 42 C.F.R. § 482.11. And if a facility is in violation of the Conditions of Participation, the Secretary may deny that facility further payments under the Medicare Act by terminating its provider agreement. 42 U.S.C. § 1395cc(b)(2). Following termination of a provider agreement, a facility can avail itself of an appeal process that includes: (1) a hearing before an Administrative Law Judge ("ALJ") under 42 C.F.R. § 498.5(b); (2) review of the ALJ decision by the HHS Departmental Appeals Board under 42 C.F.R. § 498.5(c); and (3) judicial review of the Departmental Appeals Board's decision under 42 C.F.R. § 498.5(c) and 42 U.S.C. § 405(g).

         Pursuant to this regulatory framework, CMS, through the Kansas Department of Health and Environment, conducted an unannounced onsite survey of BVH on November 13 and 14, 2017. On February 2, 2018, CMS sent BVH a noncompliance notice detailing the deficiencies the onsite survey uncovered. The notice states that BVH did not meet the Conditions of Participation for hospitals because it was not "primarily engaged" in providing "inpatient services." Specifically, CMS analyzed BVH's historical data and determined that the facility did not meet either the two-patient average daily census requirement or the two-night average length of stay requirement. CMS had issued these criteria in an administrative guidance document, "S&C Memo 17-44," on September 6, 2017.

         In the notice of noncompliance, CMS indicated it would terminate BVH's provider agreement on May 3, 2018, unless BVH presented a Plan of Correction to resolve the observed deficiencies. BVH timely submitted a Plan of Correction on February 12, 2018. In a termination notice dated March 27, 2018, CMS rejected the proposal as aspirational and moved forward the termination date of BVH's Medicare and Medicaid provider agreement to April 11, 2018. CMS terminated BVH's provider agreement on that date.

         The following day, BVH submitted a request for an expedited appeal to the HHS Departmental Appeals Board. BVH also filed this action against the following defendants: (1) the Secretary of HHS, Alex M. Azar, II; (2) the Administrator for CMS, Seema Verma; and (3) the Regional Administrator for (Region 7) of CMS, Jeff Hinson. BVH sought an injunction to prevent CMS from terminating its provider agreement pending the administrative appeal process. Defendants moved to dismiss the action for lack of subject matter jurisdiction, but ...

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