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From Health Law Daily, April 6, 2015

Cert denied after Part B beneficiaries failed to exhaust administrative remedies

By Kathryn S. Beard, J.D.

By declining to act, the Supreme Court finalized a district court decision that a group of Medicare Part B beneficiaries failed to exhaust administrative remedies prior to filing a federal lawsuit against HHS and the Social Security Administration (SSA) for alleged premium calculation errors. Because federal agencies should primarily determine the calculation of premiums, the District of Minnesota determined that beneficiaries must navigate the entirety of the administrative appeals process before bringing a challenge to court. The Eighth Circuit upheld that decision; on April 6, 2015, the Supreme Court denied the beneficiaries’ petition for writ of certiorari.

Premium calculation challenges. The Medicare Part B medical insurance program provides coverage for some of the cost of physicians' services, home health care, outpatient therapy, and other health care. The program is financed through contributions from the federal government and monthly premiums paid by beneficiaries. The amount of the premium is determined by a calculation method set by statute at 42 U.S.C. §1395r. The Medicare Act provides a procedure by which a beneficiary can challenge the calculation of premiums in 42 U.S.C. §1395ff(b)(1)(A). Another statute, 42 U.S.C. §405(g), is incorporated by reference into the Medicare Act and grants subject matter jurisdiction to a district court regarding a benefits decision only after the SSA Commissioner has issued a final decision after a hearing to which the plaintiffs were parties.

Exception. In Mathews v. Eldridge (U.S., February 24, 1976), the Supreme Court held that the exhaustion of remedies requirement may only be waived where the beneficiary’s district court claims are collateral to their claim for benefits, irreparable injury will result absent a waiver, and exhaustion would otherwise be futile (the Eldridge factors).

Background. Charles Degnan filed a putative class action lawsuit alleging that the SSA’s calculation of the class’ Part B enrollment premiums conflicted with the Medicare Act and the plain language of 42 U.S.C. §1395r, which resulted in the class members overpaying on their premiums (Degnan v. Sebelius, D. Minn., September 28, 2009). The court held that Degnan individually had inappropriately overpaid his premiums, but declined to grant relief to a broader class. As a result, the SSA recalculated Degnan’s premiums from 2004 through 2010 and issued him a refund.

Because Degnan believed that Part B premium calculations in 2011 and 2012 were calculated using the faulty methodology that prompted his first lawsuit, he filed another suit on behalf of a putative class. HHS conceded that the premiums were incorrect; however, after a correction by HHS, Degnan maintained the lawsuit, contending that the correction was still flawed. Degnan and other named plaintiffs filed a second amended complaint alleging that their late enrollment penalty calculations conflict with the Medicare Act. HHS and the SSA filed a motion to dismiss, arguing that the court lacked subject matter jurisdiction because the class members had not exhausted their administrative remedies.

The district court agreed with the agencies and dismissed the action (Degnan v. Sebelius, D. Minn., July 31, 2013; see Beneficiaries’ challenge to Part B premium calculation dismissed for failure to exhaust administrative remedies, August 2, 2013); Degnan and the class appealed the dismissal.

The Eighth Circuit agreed with the district court and held that there was neither subject matter jurisdiction for the class members’ claims nor reason to waive the exhaustion of remedies requirement. The appellate court adopted the district court’s reasoning that Degnan’s claims were not collateral to the claim of benefits, and reasoned that prior to challenging the premium calculation in court, Degnan and the class were obligated to exhaust all available administrative remedies. The Eighth Circuit rejected Degnan’s request that the Eldridge factors be weighed as a whole, making clear that the policies underlying the Eldridge factors also weighed in favor of dismissal, and determining that the very purpose of the administrative appeal process was to establish the validity of determinations like premium calculations. Accordingly, the court held that the administrative process would be undermined if the court were to render a decision before HHS and the SSA were given a full opportunity to remedy any errors and establish a factual record of the dispute (Degnan v. Burwell, 8th Cir., August 25, 2014; see Part B premium challenge exhausted by failure to exhaust remedies, August 26, 2014).

Petition denied. On November 24, 2014, Degnan filed a petition for writ of certiorari with the Supreme Court, presenting the question of “Whether futility, alone, may be a sufficient basis to waive the general requirement that Medicare Part B claimants must exhaust the administrative process before filing a civil action, particularly where an agency has adopted a system-wide policy that is materially inconsistent with a federal statute.” The petition argued that the Supreme Court’s precedent demonstrates that the Eldridge factors are disjunctive, rather than conjunctive, and that the Eighth Circuit’s interpretation is inconsistent with long-recognized exceptions to the exhaustion requirement.

The Supreme Court denied Degnan’s petition without comment, as is customary for the Court. Since the Court will not review the Eighth Circuit’s decision, the district court’s dismissal of the action for failure to exhaust administrative remedies is the final and binding decision for the suit.

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