Cochran v. U.S. Health Care Financing Administration

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
MAY 16, 2002
No. 01-13608
THOMAS K. KAHN
________________________ CLERK
D.C. Docket No. 00-01607-CV-T-N

JESSIE D. COCHRAN, for herself and all
other persons from whom Defendant has
or will demand, under 42 USC 1395y (b) (2),
subrogation for medical payments out of
non-medical portions of their recoveries
from personal injury lawsuits or settlements,
Plaintiffs-Appellants,
versus

U.S. HEALTH CARE FINANCING
ADMINISTRATION, of the U.S. Department
of Health and Human Services, which operates the
Medicare program (MEDICARE),
Defendant-Appellee.

__________________________

Appeal from the United States District Court for the
Middle District of Alabama
_________________________
(May 16, 2002)

Before CARNES and FAY, Circuit Judges, and HUNT*, District Judge.

________________________
* Honorable Willis B. Hunt, Jr., U.S. District Judge for the Northern District of Georgia, sitting
by designation.
CARNES, Circuit Judge:

This appeal brings us a paradoxical twist on the conventional argument that

exhaustion of administrative remedies should not be required where it would be

futile. We have before us a litigant who contends that she should be allowed to

circumvent the administrative remedies available to her not because resort to them

would be futile, but because it might well be successful. She fears that the agency

she has sued would give her administratively everything to which she claims to be

entitled, thus mooting her lawsuit and depriving her of the opportunity for victory

through litigation. Her position is that the likelihood – she says it is a near

certainty – that she would succeed in the administrative appeals process should

excuse her from having to resort to it. Believing that what this litigant fears is one

of the principal reasons for and benefits of the requirement that administrative

remedies be exhausted, we reject her novel argument.

I. BACKGROUND

Jesse Cochran, a 70-year-old woman, was injured by an elevator door at the

Tuscaloosa County Courthouse in Tuscaloosa, Alabama. She received medical

treatment for those injuries, and is likely to require continued treatment for them.

Her medical expenses, $ 7.659.88 at one point, have been paid by Medicare. She

brought suit in state court against the company responsible for maintaining the

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elevator that injured her, seeking to recover for her medical expenses as well as for

her pain and suffering and mental anguish. She also sued the County, but the state

court dismissed that part of her case. Once Ms. Cochran brought her state court

lawsuit, the United States Health Care Financing Administration (HCFA)1 sent her

a letter informing her that it was statutorily subrogated to her right of recovery

against the elevator company. HCFA also later sent two letters to her lawyer

asserting its subrogation rights, and telling him that he was required to send HCFA

a copy of his representation agreement with Cochran.

HCFA’s subrogation rights are defined by the Medicare Act, 42 U.S.C. 1395

et seq., and the regulations interpreting it. Section 1395y(b)(2), known as the

Medicare Secondary Payer statute, makes Medicare the secondary payer for

medical services provided to Medicare beneficiaries whenever payment is available

from another primary payer; primary payers include the beneficiary’s private

insurer or the private insurer of someone liable to the beneficiary. This means that

if payment for covered services has been or is reasonably expected to be made by

someone else, Medicare does not have to pay. In order to accommodate its

beneficiaries, however, Medicare does make conditional payments for covered

1
The HCFA has since changed its name to the Center for Medicare Services, but because
HCFA was the name of the agency when Cochran brought her suit that is what we will call it.

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services, even when another source may be obligated to pay, if that other source is

not expected to pay promptly. 42 U.S.C. § 1395y(b)(2)(A)(ii). Medicare’s

conditional payments are “conditioned on reimbursement [to Medicare] when

notice or other information is received that payment for such item or service has

been . . . made.” 42 U.S.C. § 1395y(b)(2)(B)(i).

The way the system is set up the beneficiary gets the health care she needs,

but Medicare is entitled to reimbursement if and when the primary payer pays her.

Among other avenues of reimbursement, Medicare is subrogated to the

beneficiary’s right to recover from the primary payer. 42 U.S.C. §

1395y(b)(2)(B)(iii). Medicare regulations extend that subrogation right to any

judgments or settlements “related to” injuries for which Medicare paid medical

costs, thereby casting the tortfeasor as the primary payer. 42 C.F.R. § 411.37

(2002). Those same regulations also provide that, when Medicare is reimbursed

out of a judgment or settlement, the amount of money it takes is reduced by a pro-

rata share of the “procurement costs,” which include attorney’s fees of the

judgment or settlement. 42 C.F.R. § 411.37(c) (2002). That is why Medicare asks

attorneys handling any related tort suits for its beneficiaries to supply the agency

with a copy of the agreement setting out the share of the recovery they are to

receive.

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 Once Cochran’s lawyer received the letters from HCFA informing him of its

statutory subrogation rights, he put Cochran’s state court case, which was still in its

pretrial stages, temporarily on hold.2 He then brought this federal declaratory

judgment lawsuit seeking to have the Medicare subrogation statute, or,

alternatively, HCFA’s regulations interpreting that statute, declared

unconstitutional. The complaint, which sought class action status, alleged that it

would be unconstitutional for Medicare to recover its costs from Cochran’s entire

personal injury settlement or judgment instead of from only that portion allocated –

it did not say how or by whom – to medical expenses. The complaint also alleged

that Cochran’s lawyer was being forced into “involuntary legal servitude” by

Medicare’s statutory right to subrogation, that Medicare’s requests for information

on the case from the lawyer’s files impermissibly interfered with the attorney-

client relationship, and that Medicare should have to pay all of Cochran’s

attorney’s fees in the case, rather than just the pro-rata share prescribed by current

regulations.

The district court denied class certification early on, and Cochran does

2
After the district court ruled in this case, Cochran settled with the elevator company,
which paid with a check made out to her, her lawyer, and Medicare. She does, however, still
have an appeal pending in the state courts involving her claim against Tuscaloosa county, which
was dismissed by the state trial court.

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contest that denial. The district court then granted HCFA’s motion to dismiss on

the grounds that Cochran’s suit was not yet ripe. Cochran contends that the court

erred in failing to conduct an evidentiary hearing on the standing issue prior to

ruling on HCFA’s motion to dismiss, and that it erred in dismissing the suit for

lack of ripeness. HCFA, in addition to meeting Cochran’s two contentions head

on, also argues that her lawsuit should have been dismissed for lack of subject

matter jurisdiction, because she brought it without first exhausting the

administrative remedies as required by the Medicare statute.3 It is this latter

ground on which we affirm the district court’s dismissal of Cochran’s lawsuit.4

II. DISCUSSION

The Medicare statute requires that any lawsuit which seeks “to recover on

any claim arising under” it must first be brought through the Department of Health

and Human Services’ administrative appeals process before it can be taken to

3
HCFA did not make this argument to the district court, but it is not foreclosed from
making it here, because lack of subject matter jurisdiction may be raised at any time, Scarfo v.
Ginsberg, 175 F.3d 957, 960 (11th Cir. 1999), and we may affirm for any reason supported by the
record, even if not relied on by the district court, United States v. $121,000 in United States
Currency, 999 F.2d 1503, 1507 (11th Cir. 1999).
4
As a result, we have no reason to consider Cochran’s contention that the district court
erred in dismissing her lawsuit without an evidentiary hearing on the ripeness issue, and in
concluding that her claims were not yet ripe.

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federal court. See 42 U.S.C. § 1395ii (adopting the Social Security statute 42

U.S.C. § 405(h), which strips federal courts of primary federal-question subject

matter jurisdiction over Medicare claims); 42 U.S.C. § 1395ff(b)(1) (adopting the

Social Security statute 42 U.S.C. § 405(g), which confers on federal courts the

jurisdiction to hear Medicare claims after administrative review has been

exhausted).

Until a claimant has exhausted her administrative remedies by going through

the agency appeals process, a federal district court has no subject matter

jurisdiction over her lawsuit seeking to “recover on any claim arising out of” the

Medicare Act. This is true even when her claim includes a challenge to the

constitutionality of the statute or the regulations interpreting it. See, e.g., Shalala

v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 12, 120 S.Ct. 1084, 1092

(2000); Weinberger v. Salfi, 422 U.S. 749, 762 (1975).

HCFA has broad discretion to waive the right of subrogation when pursuing

it “would defeat the purposes of the Medicare Act or the Social Security Act or

would be against equity and good conscience.” 42 U.S.C. § 1395gg(c). To

exhaust her administrative appeals, Cochran would first have to request that the

agency exercise its discretion to waive its right to collect from the proceeds of her

tort suit the medical expenses it had paid on her behalf. If HCFA denied

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Cochran’s request for a waiver, she would then have to seek review of that denial

at a hearing before an administrative law judge, and request review of any

unfavorable ALJ decision by the Department of Health and Human Services

Appeals Board. 42 C.F.R. §§ 405.720, 405.724. During that process she could

raise any constitutional objections she has to HCFA’s subrogation practices. See

Illinois Council, 529 U.S. at 12, 120 S.Ct. at 1093. After Cochran exhausted her

remedies through that administrative appeals process, she could bring her claims to

federal court. 42 U.S.C. § 1395ff(b)(1). That assumes, of course, that she would

lose administratively. The problem according to Cochran is that she would not

lose.

Cochran concedes that her claim is subject to the exhaustion requirement

contained in the Medicare statute.5 Her one and only argument that she should be

allowed to forego exhaustion of her administrative remedies is that the agency

charged with carrying out the Medicare statute should not be allowed to give her

5
Because of this concession, we do not have occasion to decide (and express no view on)
this issue of first impression in our circuit: whether a beneficiary’s effort to avoid paying over to
Medicare part of a tort judgment is subject to the administrative appeals process because it is a
suit “to recover on any claim arising under” the Medicare act. 42 U.S.C. § 1395ii (emphasis
added); cf. United States v. Blue Cross and Blue Shield of Alabama, Inc., 156 F.3d 1098 (11th
Cir. 1998) ( noting that previous Supreme Court cases interpreting the exhaustion requirement
“involved suits brought by beneficiaries against the United States . . . to recover benefits not
previously paid.”)(emphasis added). Consistent with Cochran’s concession, we assume for
present purposes that it is.

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administratively what she is seeking in litigation. At oral argument, with lectern-

pounding zeal and room-filling volume, Cochran’s attorney railed against the

injustice of allowing the agency to buy off his client by waiving any subrogation

rights it might have against her, thereby depriving her of the right to have its

subrogation “scheme” exposed in a lawsuit and declared unconstitutional to the

benefit of others who may find themselves in the same position. It is, he made

abundantly clear, a matter of principle with his client and him. Matters of principle

are important in the promulgation of law, but once it is promulgated law is the

basis on which courts decide cases. And the law insists that Cochran exhaust her

administrative remedies before bringing this lawsuit.

It is true that in some contexts, administrative exhaustion requirements are

tempered by judge-made exceptions, chief among which are that exhaustion of

administrative remedies sometimes is not required if resort to them would be futile,

or if the remedy they offer is inadequate. Alexander v. Hawk 159 F.3d 1321, 1326

(11th Cir. 1998). Those judge-made exceptions do not apply, however, to a

statutorily-mandated exhaustion requirement like the one involved in this case.

Weinberger v. Salfi, 422 U.S. 749, 766, 95 S.Ct. 2457, 2467, 45 L.Ed.2d 522

(1975) (holding that where exhaustion is a statutorily specified jurisdictional

prerequisite, “the requirement ... may not be dispensed with merely by a judicial

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conclusion of futility”); Hawk 159 F.3d at 1326 (“Mandatory exhaustion is not

satisfied by a judicial conclusion that the requirement need not apply”). Besides,

no court has ever held, so far as we know, that there is a non-futility or fear-of-

success exception to any exhaustion of administrative remedies requirement. We

decline to be the first.

III. CONCLUSION

Because Cochran failed to exhaust her administrative remedies before filing

her lawsuit in federal court, the district court lacked subject matter jurisdiction over

the case. Accordingly, the district court’s dismissal of Cochran’s lawsuit is

AFFIRMED.

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