Seventh Circuit Holds That Secretary May Not Unilaterally Reopen an Administrative Proceeding After Judicial Review Has Been Initiated

On July 16, 2010, the Seventh Circuit Court of Appeals issued a decision in Doctors Nursing and Rehabilitation Center v. Sebelius (09-2226). The court held that the U.S. Department of Health and Human Services (HHS) does not have the unilateral authority to reopen an administrative proceeding once judicial review of the agency’s final decision has begun.

The provider, a skilled nursing facility, furnished pulse-oximetry tests, which were used to test oxygen levels in the blood. For Medicare residents who were not in a covered Part A stay, the provider billed the tests to Medicare Part B, which reimbursed for such tests under the physician fee schedule. The provider asserted that the per-procedure payment level was unlawfully low, and further claimed that the rate should not be based on the physician fee schedule. The provider presented its claims through the administrative appeals process for Medicare claims, first through a request for redetermination by the fiscal intermediary, followed by a request for reconsideration by a Qualified Independent Contractor (QIC). The QIC concluded that the provider’s appeal involved an appeal of the physician fee schedule payment, and dismissed the appeal. The QIC informed the provider that its decision was final and was not subject to any further review.

The provider then sued in federal district court, complaining that Medicare had underpaid it for the pulse-oximetry tests by illegally reducing the rate under the applicable fee schedule. The provider also contended that the rate should not be based on the physician fee schedule in the first place. In the meantime, HHS decided that its contractors had erred in terminating the administrative review process. It concluded that the provider was entitled to additional administrative process before HHS and sought to reopen the administrative proceedings. HHS filed a motion to dismiss the federal district court case for lack of jurisdiction because there was no longer a final decision to review. The district court dismissed the case for want of jurisdiction, and the provider appealed.

In the Seventh Circuit, the provider argued that the general rule is that subject matter jurisdiction is determined at the time of filing. It asserted that HHS may not deprive the courts of jurisdiction simply by unilaterally reopening an administrative proceeding after a lawsuit is filed. Thus, if there was a final decision that provided subject matter jurisdiction at the time the lawsuit was filed, the administrative agency may not disturb that jurisdiction.

HHS argued that it had authority under its regulations to reopen the administrative proceedings and that once it did so, there was no longer a final administrative decision for the courts to review. Therefore, any suit based on the earlier administrative decision must be dismissed for want of jurisdiction.

The Seventh Circuit noted that it had never specifically considered the question of whether HHS can reopen a Medicare claim and thereby destroy federal jurisdiction. For three reasons, the court held that when a lawsuit is filed under Section 405(g) of the Social Security Act, HHS may not divest the federal courts of jurisdiction by unilaterally reopening its administrative proceedings.

The court first noted that the general rule is that courts analyze jurisdiction based on the events at the time that the case is brought. Second, the court noted that the Social Security Act specifically provides a method whereby HHS can reopen its administrative proceedings after judicial review has begun, through the filing of a motion for good cause shown before the agency files its answer, to remand the case to the agency for further action. Third, the court held that determining whether a final decision exists at the time of filing comports with the normal procedures of appellate review. Ordinarily, when one tribunal properly takes a case on appeal, the inferior tribunal transfers authority over the case.

The court noted that under HHS’ approach, an administrative agency could strip jurisdiction from federal courts seemingly at any state of the proceeding, for any reason. If the agency became concerned that a court might issue a decision adverse to its interests, it could reopen its proceedings and have the case removed from the court, regardless of the amount of resources that had already been expended or the advanced state of the case. The court found that this would be highly inefficient and would allow the agency to manipulate federal jurisdiction to frustrate litigants by increasing the time and expense required to pursue claims and prevent or at least postpone into perpetuity unfavorable precedent. The court noted that there was no evidence that HHS was actively manipulating the court’s jurisdiction, but that under HHS’ theory its decisions would effectively be unreviewable because the courts would have no jurisdiction over a case once the agency’s final decision had been reopened.

Therefore, the Seventh Circuit held that HHS may not, during the pendency of judicial review, reopen and revise a final decision without permission from the court.

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