Hospital Must Exhaust Administrative Remedies Before Filing Suit in Federal Court


Select Specialty Hospital-Ann Arbor, the Plaintiff in the present action, filed suit in federal court against the Secretary of Health and Human Services, Defendant, after treating a Medicare-covered patient, Milda Matilla (“Matilla”), and not receiving reimbursement for treatment rendered. Medicare maintains treatment was not reimbursed because Plaintiff did not file a valid claim for reimbursement and the deadline to do so expired.

In October 2012, Matilla received a contaminated injection at the Plaintiff’s facility, which led to substantial additional treatment. Matilla then filed suit against the manufacturer of the contaminated injection, who filed bankruptcy before a judgment could be rendered in that case. In June of 2013, approximately eight months after Matilla received the injection, Novitas, a Medicare contractor, received an electronically submitted claim from Plaintiff requesting a conditional payment for Matilla’s treatment, on the assumption that Medicare would be repaid for the treatment out of any lawsuit proceeds. The claim for reimbursement was subsequently rejected due to a coding discrepancy. Plaintiff did not file a corrected request for reimbursement and is unable to do so, as the one-year deadline has expired. Plaintiff contends they did not file a corrected request within the applicable timeframe based on a Novitas employee’s assertion that the action would be futile. Plaintiff then filed a reimbursement request in February of 2014, well after the expiration of the one-year deadline, and waited eight months before filing the present action, after not receiving a response from Novitas.

Defendant moved to dismiss the present action claiming lack of subject matter jurisdiction, arguing that (1) diversity jurisdiction does not exist because United States agencies are not citizens of any states for purposes of 28 USSC §1332 and (2) the court is prevented from exercising federal question jurisdiction, as the Plaintiff did not exhaust its administrative remedies. The United States District Court found that the Defendant must be given an opportunity to apply its policies and regulations before the Court intervenes on Plaintiff’s behalf. As such, the Court agreed with Defendant and dismissed the claim for lack of subject matter jurisdiction, a that “a Plaintiff that ignores the available administrative procedures may not simply choose its own path to federal court.”

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