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The Chimerical Medicare Bar on Bankruptcy Jurisdiction

posted by John Pottow

Statutory interpretation enthusiasts: prepare to nerd out on an issue on which the Court has a cert petition pending.  The question involves the federal jurisdictional bar to Medicare challenges.  Let’s start with the text:

 “No action against the United States, the [Secretary of Health and Human Services, see 42 U.S.C. § 1395ii], or any officer or employee thereof shall be brought under section 1331 or 1346 of title 28 to recover on any claim arising under [the Medicare Act, see § 1395ii].”

Bankruptcy types—and quite frankly, all lucid readers of English—might well think that this jurisdictional bar does not apply to bankruptcy jurisdiction under section 1334.  Not so, say a surprising number of courts.

What could possibly justify reading what’s clearly only a bar of federal question jurisdiction (1331) and federal officer jurisdiction (1346) as a bar to bankruptcy jurisdiction (1334) as well?  In In re Bayou Shores, the subject of the pending cert petition, the Eleventh Circuit offered an argument based on congressional intent.  Until 1984, the precursor to the above-quoted statute did bar bankruptcy jurisdiction.  But it did so obliquely, by way of a statutory cross-reference to a subsequently dismantled omnibus jurisdictional grant in the Judicial Code.  So for a few decades after the dismantlement, the Medicare bar was a cross-reference to a no-longer-existing passage of the Judicial Code that formerly encompassed virtually all grants of jurisdiction to the district courts, including bankruptcy.

When Congress finally got around to updating the bar in the 1980s, it enacted the text above.  Without more, that would just be Congress changing the law from a broad bar cross-referencing all jurisdictional grants to a specific bar covering only two grants.  But there was more: Congress did so as part of a package of self-styled “technical corrections.”  And of these corrections, Congress wrote a proviso that “none . . . shall be construed as changing or affecting any right, liability, status or interpretation which existed (under the provisions of law involved) before [their effective] date.”  To read the amended bar as written would appear to violate this admonition.  The Eleventh Circuit (and others) thus read the proviso to justify junking the statute’s text in favor of the perceived congressional intent not to change anything.


What to make of a statute that unambiguously changes the law on the one hand and instructs courts it isn’t to be construed to change the law on the other is, to say the least, a vexing paradox that cannot be addressed here. (If you want to see my thoughts on the matter, see pages 15–24 of the amicus brief I co-authored with Asher Steinberg in a case I argued at the Seventh Circuit two weeks ago.)  But here’s the punchline: that heady issue is irrelevant, because the proviso has been misread by the Eleventh Circuit and every other court to read it as precluding substantive change. The full proviso is actually just a banal timing rule, not the paradox-creating mindwarp many courts have thought it was.  Here’s the proviso’s complete text, which for some reason has never been fully quoted or addressed in any of the court opinions (hence the need for amici to jump in):


SEC. 2664. (a) Except as otherwise specifically provided, the amendments made by sections 2661 and 2662 shall be effective as though they had been included in the enactment of the Social Security Amendments of 1983 (Public Law 98–21).

(b) Except to the extent otherwise specifically provided in this subtitle, the amendments made by section 2663 [the section containing the amendment to the Medicare jurisdictional bar] shall be effective on the date of the enactment of this Act; but none of such amendments shall be construed as changing or affecting any right, liability, status, or interpretation which existed (under the provisions of law involved) before that date.

Read in context, the underlined language, on which Bayou Shores all but exclusively relies, is nothing more than a mere grandfathering clause, one which locked in vested rights “which existed” in particular cases in the pipeline on the date of enactment, notwithstanding the immediate effect language of subsection (b) (and retrospective effect language of subsection (a)).  It did nothing to undermine the substantive text of other parts of the statute.  This is plainly apparent for four reasons:

  1. Congress addresses timing rules in clauses entitled “EFFECTIVE DATES.” It does not bury substantive interpretive commands in such provisions.   
  1. The word “but” suggests that the underlined language is a carve-out from the amendments’ immediate effect expressed in the prior clause. A grandfathering clause provides an exception to immediate effect, and hence naturally links with a “but,” “however,” etc., as here.
  1. Grandfathering clauses are often drafted in terms of locking in some right or entitlement that vested “before that [effective] date” or “before such [effective] date” or similar timing language; on the other hand, disclaimers of substantive change usually contain more explicit wording like “without substantive change.”
  1. Locking in a series of four kinds of things “which existed” in some concrete sense on the date of enactment is an incredibly odd, roundabout, and riskily underinclusive way to say that the law itself wasn’t intended to change. But it’s a perfectly sensible way to grandfather vested rights, liabilities, statuses, or “vested” interpretations in the form of opinion letters or interpretations in pending cases.

If this conclusion is right, Medicare hasn’t a leg to stand on; its sole basis for asking courts to take the extraordinary step of atextually reading § 1334 jurisdiction back into the Medicare jurisdictional bar 33 years after Congress amended it to take § 1334 out is nothing more than a grandfathering clause that has been repeatedly misread.*  There is a circuit split, so the Court may take this petition, but other cases are still bouncing around the circuit courts in the appellate pipeline, so the Court may wait for a bit.  But it will surely have to confront the issue.

* There is a non-jurisdictional question whether Medicare providers must exhaust their administrative remedies before pursuing Medicare in bankruptcy court.  Bayou Shores, in petitioning for certiorari, takes the position that no exhaustion’s required when a provider gets into court through a jurisdictional hook, like § 1334, that’s independent of the Medicare Act’s Medicare-specific jurisdictional grant, which comes packaged with various exhaustion procedures.  I have argued in my Seventh Circuit briefing that the fairest reading of the statute and case law is that debtors do have to exhaust—subject, however, to the normal excuses for dispensing with administrative exhaustion that the Supreme Court has recognized in a century’s worth of precedents.  One of these excuses, the futility of raising an issue before an agency that lacks the competence to address it, has particular force in bankruptcy disputes with Medicare.  (Medicare, for its part, denies that the normal excuses apply.)  Practitioners fighting off Medicare motions to dismiss could try making both Bayou’s aggressive argument that exhaustion is not required and my more moderate one that exhaustion is required but readily excusable under the traditional tests.


Yet another example of courts acting as Humpty Dumpty on statutory interpretation: "When I interpret a statute, it means just what I choose it to mean, neither more nor less." Quelle surprise. Why is it exactly we're using legislative history to interpret an unambiguous statute, especially when the history is ambiguous?

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