On Friday, December 23, 2012, the U.S. Court of Appeals for the D.C. Circuit held that Winston & Strawn client, the Council for Urological Interests (CUI)—a national organization of physician-owned joint ventures—does not have to exhaust administrative remedies to proceed with a court challenge to 2008 changes in the federal Stark Law regulations. CUI, whose members had long been permitted to receive Medicare reimbursements for providing surgical laser equipment and technicians to hospitals, filed suit in federal District Court to challenge as unlawful the 2008 regulations’ effective prohibition on such reimbursements. The United States moved to dismiss for lack of subject matter jurisdiction on the grounds that CUI had not exhausted the administrative review the Medicare Act typically requires as a predicate to court action. The District Court granted the dismissal, holding that although neither CUI nor its members could pursue agency review of the regulations, they were required to wait for hospitals to do so before a court could consider the case.
Reversing the District Court, the Court of Appeals reaffirmed “the fundamental principle” that “judicial review of a final agency action by an aggrieved person will not be cut off unless there is persuasive reason to believe such was the purpose of Congress.” Applying this principle, the Court rejected the government's argument that Congress intended the Act’s administrative exhaustion requirements to foreclose businesses, like CUI’s members, that are “directly and substantially” affected by Medicare regulations from challenging those regulations in court.
The D.C. Circuit went on to hold that CUI could proceed with its case in District Court because the so-called “Illinois Council” exception to administrative exhaustion “applies and the association may invoke the district court's general federal question jurisdiction without first seeking administrative review under the Medicare Act." The exception, stemming from the Supreme Court’s 2000 decision in Shalala v. Illinois Council on Long Term Care Inc., applies when the exhaustion requirement "would not lead to a channeling of review through the agency, but would mean no review at all." The Court cited several reasons, set forth in CUI's briefs and complaint, for why a hospital would not bring an action and highlighted that in the three years since the Stark changes went into effect, none of the 5,795 hospitals in the country has challenged the regulations.
The Winston & Strawn Washington, D.C.-based team representing CUI included partners Elizabeth Papez, who argued the appeal, Tom Mills, Gordon Coffee and Marion Goldberg.
This case garnered interest in various media outlets including a Law360 article titled "Docs' Businesses Can Challenge Medicare Rule: DC Circ." In the article, Mr. Mills said: "The most important thing is the court recognized that [HHS] cannot by administrative fiat both preclude an effective party from the administrative review and, by that, preclude them also from going to court," adding that the HHS rule "effectively ran our clients out of business."