Marsaw v. Trailblazer Health Enters.,
No. CIV.A. G-01-633 (S.D. Tex. March 28, 2002)

The owner of eleven physical rehabilitation centers brought suit against its Medicare Part B carrier and the Secretary of HHS in federal court after successfully appealing more than 300 Medicare claims denials and still having more than a thousand to appeal. The plaintiff sought to enjoin any further administrative proceedings before the Secretary and alleged causes of action for violations of its equal protection and due process rights under the U.S. Constitution and breach of contract. The plaintiff claimed that it had received a document from a former employee of the Medicare carrier indicating that the carrier was discriminating against clinics that were owned by minorities, and that the Medicare carrier denied the plaintiff's claims in retaliation for the plaintiff refusing to return that document to the carrier. The carrier's explanation was that the claims were denied because the billings were for services that were medically unnecessary or fraudulent.

The federal district court granted the defendants' motion to dismiss, concluding that the plaintiff's constitutionally-based claims were "‘inextricably intertwined' with a "substantive claim of administrative entitlement," such that it was required to exhaust its administrative remedies under the Medicare Act. The court therefore lacked subject matter jurisdiction. The court likewise dismissed the plaintiff's §1981 claim for racial profiling, ruling that the Secretary was immune under the doctrine of sovereign immunity and the Medicare carrier was acting under color of federal law, not state law, so §1981 did not apply to it. The plaintiff's Title VII claims were dismissed because Title VI does not apply to programs administered directly by a federal agency.