Avon Nursing & Rehabilitation, Plaintiff-Appellant v. Becerra, Defendant-Appellee*
Plaintiffs-Appellants are a group of nursing homes that participate in both the Medicare and Medicaid programs, making them “dually participating facilities.” They challenge the legality of a Final Rule issued by the U.S. Department of Health and Human Services that permits survey teams conducting certain inspections of nursing homes not to include a registered nurse. The United States District Court for the Southern District of New York (Swain, J.) dismissed Plaintiffs’ claims, brought under the Medicare and Medicaid Acts, for lack of subject-matter jurisdiction based on claim-channeling and jurisdiction-stripping provisions governing claims arising under the Medicare Act. We conclude, however, that the district court has jurisdiction under 28 U.S.C. §1331 over Plaintiffs’ claim arising under the Medicaid Act, which does not incorporate the same claim-channeling and jurisdiction-stripping provisions as the Medicare Act. The Medicare Act’s review provisions do not preclude Plaintiffs from challenging the Final Rule in federal court because their challenge is independently rooted in the Medicaid Act. REVERSED and REMANDED for further proceedings. MICHAEL PARK, C.J. Plaintiffs-Appellants are a group of nursing homes that participate in both the Medicare and Medicaid programs, making them “dually participating facilities.” They challenge the legality of a U.S. Department of Health and Human Services (“HHS”) regulation that permits survey teams conducting certain inspections of nursing homes not to include a registered nurse. See Survey Team Composition, 82 Fed. Reg. 36,530, 36,623-25, 36,635-36 (Aug. 4, 2017) (the “Final Rule”). The United States District Court for the Southern District of New York (Swain, J.) dismissed Plaintiffs’ claims for lack of subject-matter jurisdiction based on claim-channeling and jurisdiction-stripping provisions governing claims arising under the Medicare Act. We conclude, however, that the district court has jurisdiction under 28 U.S.C. §1331 over Plaintiffs’ claim arising under the Medicaid Act, which does not incorporate the same claim-channeling and jurisdiction-stripping provisions as the Medicare Act. The Medicare Act’s review provisions do not preclude Plaintiffs from challenging the Final Rule in federal court because their challenge is independently rooted in the Medicaid Act. We reverse the judgment of the district court and remand for further proceedings. I. BACKGROUND A. Statutory Context and the Final Rule Congress created the Medicare and Medicaid programs in 1965. See Social Security Amendments of 1965, Pub. L. No. 89-97, §§102, 121, 79 Stat. 286, 291, 343. Medicare, set forth in subchapter XVIII of the Social Security Act, is a federally funded health-insurance program for the aged and disabled. 42 U.S.C. §1395c. Medicaid, set forth in subchapter XIX, is a cooperative federal-state medical assistance program for individuals “whose income and resources are insufficient to meet the costs of necessary medical services.” Id. §§1396-1, 1396a. The programs cover certain stays in nursing facilities, and the vast majority of nursing facilities participate in both Medicare and Medicaid,1 making them “[d]ually participating facilit[ies].” 42 C.F.R. §488.301. State health agencies are responsible for conducting periodic inspections, or “surveys,” and “certifying…the compliance of” nursing facilities with the requirements of the Medicare and Medicaid Acts. 42 U.S.C. §§1395i-3(g)(1)(A), 1396r(g)(1)(A).2 Both Acts direct States to “maintain procedures and adequate staff to…investigate complaints of violations of requirements by” nursing facilities. Id. §§1395i-3(g)(4), 1396r(g)(4). “A State may maintain and utilize a specialized team (including an attorney, an auditor, and appropriate health care professionals) for the purpose of identifying, surveying, gathering and preserving evidence, and carrying out appropriate enforcement actions against substandard” nursing facilities. Id. §§1395i-3(g)(4), 1396r(g)(4). HHS has interpreted this provision to authorize States to conduct “complaint surveys” based on substantial allegation[s] of noncompliance.” 42 C.F.R. §488.30. Both the Medicare and Medicaid Acts provide that surveys “shall be conducted by a multidisciplinary team of professionals (including a registered professional nurse).” 42 U.S.C. §§1395i-3(g)(2)(E)(i), 1396r(g)(2)(E)(i). In 2017, HHS promulgated the Final Rule, which permits survey teams conducting complaint surveys of nursing homes not to include a registered nurse. See Survey Team Composition, 82 Fed. Reg. 36,530, 36,624-25, 36,635-36 (Aug. 4, 2017). The Final Rule “clarif[ied]” the agency’s view that the inclusion of a registered nurse on survey teams is not required for “ those surveys conducted to investigate complaints or to monitor compliance on-site under sections 1819(g)(4) [Medicare] and 1919(g)(4) [Medicaid] of the [Social Security] Act.” 82 Fed. Reg. at 36,531. The Final Rule thus amended HHS’s prior regulations to state that only “[s]urveys under sections 1819(g)(2) [Medicare] and 1919(g)(2) [Medicaid] of the Social Security Act [i.e., standard, extended, and special surveys] must be conducted by an interdisciplinary team of professionals, which must include a registered nurse.” Id. at 36,636 (codified at 42 C.F.R. §488.314). The Final Rule was promulgated following administrative proceedings involving one of the Plaintiffs, Avon Nursing & Rehabilitation (“Avon”). See Avon Nursing Home, DAB No. CR4670 (2016). In 2013, Avon reported to the New York State Department of Health an incident involving a resident who had sustained a burn after spilling soup on her lap. The State agency sent a survey team consisting of two dieticians and no registered nurse to conduct an abbreviated standard survey of the facility. The survey team found that Avon was not in substantial compliance with Medicare participation requirements and imposed a penalty. Avon challenged the noncompliance determination and penalty before an administrative law judge (“ALJ”). As relevant here, the ALJ concluded that “the state agency violated” the Medicare Act “by permitting a survey team with no registered nurse participating to conduct the survey.” Id. at 16. That decision was vacated by the Appellate Division of the Departmental Appeals Board, see Avon Nursing Home, DAB No. 2830 (2017), and the parties eventually settled. HHS proposed the Final Rule to address the regulatory question presented by Avon’s administrative proceedings. B. Medicare and Medicaid Review Procedures The Medicare Act incorporates claim-channeling and jurisdiction-stripping provisions from the Social Security Act. First, claim-channeling (section 405(g)): The Medicare Act provides that a facility dissatisfied with a determination that it “fails to comply substantially with the provisions of…[the Medicare Act] and the regulations thereunder,” 42 U.S.C. §1395cc(b)(2)(A), “shall be entitled to a hearing” before an ALJ and “to judicial review of the Secretary’s final decision after such hearing as is provided in section 405(g)” of the Social Security Act, id. §1395cc(h)(1)(A). Section 405(g) states that a party, “after any final decision of the [Secretary] made after a hearing[,]…may obtain a review of such decision…in [federal] district court.” Id. §405(g). The Medicare Act’s claim-channeling provision thus requires a facility dissatisfied with a determination by the Secretary to seek administrative review before going to court. Id. §1395cc(h)(1) (incorporating section 405(g)). Second, the Medicare Act incorporates the Social Security Act’s jurisdiction-stripping provision (section 405(h)). This provision states that “[n]o action against the United States, the [Secretary], or any officer or employee thereof shall be brought under section 1331 [federal-question jurisdiction] or 1346 [jurisdiction over the United States as a defendant] of Title 28 to recover on any claim arising under [the Medicare Act].” Id. §405(h). Section 405(h) is incorporated into the Medicare Act through section 1395ii, which broadly applies the jurisdiction-stripping provision to the entire Medicare Act. Id. §1395ii. Together, sections 405(g) and (h) “channel[] most, if not all, Medicare claims through th[e] special review system” described in section 405(g). Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 5 (2000). Unlike the Medicare Act, the Medicaid Act does not incorporate sections 405(g) or (h). Although the Medicaid Act incorporates certain provisions of the Social Security Act relating to subpoenas, see 42 U.S.C. §1396q (incorporating sections 405(d) and (e)), it does not contain provisions mirroring the Medicare Act’s incorporation of sections 405(g) and (h) — at least not for claims brought by nursing facilities. Another section of the Medicaid Act does incorporate the claim-channeling provision (section 405(g)), but its application is limited to “intermediate care facilit[ies] for the mentally retarded”; it does not apply to dually participating facilities. Id. §1396i(b)(2). C. Procedural History After publication of the Final Rule, Avon and over thirty other dually participating facilities sued the government in the United States District Court for the Southern District of New York seeking vacatur of the rule and declaratory and injunctive relief. Plaintiffs’ complaint asserts a cause of action under the Administrative Procedure Act (“APA”), challenging the Final Rule “as applied to Medicaid” and “as applied to Medicare.” Compl.
