United States v. 2020-10-16 | 19-55036 | SENSORY NEUROSTIMULATION, INC. V. ALEX AZAR, II | precedential | opinion |

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

SENSORY NEUROSTIMULATION, INC.,
a California corporation,
Plaintiff-Appellant,

and

FRED BURBANK, MD, CEO,
President, Board Chairman, and
stock holder,
Plaintiff,

v.

A
LEX M. AZAR II, in his official
capacity as Secretary of the United
States Department of Health and
Human Services; U.S.
DEPARTMENT
OF
HEALTH & HUMAN SERVICES;
CENTERS FOR MEDICARE &
MEDICAID SERVICES,
Defendants-Appellees,

and

SEEMA VERMA, Administrator
Centers for Medicare and Medicaid
Services; D
EMETRIOS KOUZOUKAS,
Principal Deputy Administrator
Centers for Medicare and Medicaid
No. 19-55036

D.C. No.
8:18-cv-00180-
CJC-JDE

OPINION

2 SENSORY NEUROSTIMULATION V. AZAR

Services; LAURENCE WILSON,
Centers for Medicare and Medicaid
Services; PETER J. GURK, MD,
Medical Director, DME MAC,
Jurisdiction D; ROBERT D. HOOVER,
JR., MD, MPH, FACP, Medical
Director, DME MAC, Jurisdiction C;
S
TACEY V. BRENNAN, M.D., FAAFP,
Medical Director, DME MAC,
Jurisdiction B; WILFRED MAMUYA,
MD, PHD Medical Director, DME
MAC, Jurisdiction A,
Defendants.

Appeal from the United States District Court
for the Central District of California
Cormac J. Carney, District Judge, Presiding

Argued and Submitted May 13, 2020
Pasadena, California

Filed October 16, 2020

Before: Mary M. Schroeder and Daniel P. Collins, Circuit
Judges, and Michael M. Baylson,
*
District Judge.

Opinion by Judge Baylson

*
The Honorable Michael M. Baylson, United States District Judge
for the Eastern District of Pennsylvania, sitting by designation.

SENSORY NEUROSTIMULATION V. AZAR 3

SUMMARY
**

Medicare

The panel affirmed the district court’s dismissal for lack
of jurisdiction of a lawsuit brought by a medical device
supplier seeking to have Medicare “cover” the supplier’s
product.

Medical devices classified as “durable medical
equipment” may be eligible for Medicare reimbursement.
42 U.S.C. § 1395m(a)(2). Devices considered “personal
comfort items” are categorically not covered. 42 U.S.C.
§ 1395y(a)(6). A nationwide determination by the Centers
for Medicare and Medicaid Services (“CMS”) as to whether
Medicare will reimburse beneficiaries for the purchase of the
device is a “national coverage determination” (“NCD”). The
Medicare statute eliminates federal question jurisdiction
over lawsuits brought to “recover on any claim arising
under” Medicare. 42 U.S.C. § 405(h). This “channeling
requirement” forces plaintiffs to exhaust pertinent
administrative channels. The channeling requirement does
not apply where its application would mean no review at all.

Plaintiff-appellant Sensory NeuroStimulation, Inc. sells
a prescription leg massager called “Relaxis,” and it is
seeking a favorable NCD that Medicare will reimburse
beneficiaries for the purchase of Relaxis. Sensory applied to
CMS for an NCD, which determined that Relaxis was a
personal comfort item but did not make a formal NCD.

**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.

4 SENSORY NEUROSTIMULATION V. AZAR

Sensory filed this action, and the district court granted the
government’s motion to dismiss based on its finding that
Medicare’s channeling requirement applied and had not
been met.

The panel held that this lawsuit arose under Medicare
such that the administrative channeling requirements
applied. The panel also held that Sensory was not entitled to
a waiver of the statute’s exhaustion requirement. The panel
further held that applying the exhaustion requirement would
not mean “no review at all.” Finally, the panel held that the
exception to the exhaustion requirement articulated in
Bowen v. Michigan Academy of Family Physicians, 476 U.S.
667 (1986), did not apply because another party – medical
device suppliers – could bring the same claim through the
existing administrative channel, and therefore some review
was available. The panel concluded that § 405(h)’s
administrative channeling requirement applied, and
therefore there was no subject matter jurisdiction to hear
Sensory’s claim.

COUNSEL

Linda T. Coberly (argued), Winston & Strawn LLP,
Chicago, Illinois; Diana Leiden and Saul S. Rostamian,
Winston & Strawn LLP, Los Angeles, California; Lauren
Gailey, Winston & Strawn LLP, Washington, D.C.; for
Plaintiff-Appellant.

Karen Y. Paik (argued), Assistant United States Attorney;
David M. Harris, Chief, Civil Division; Nicola T. Hanna,
United States Attorney; United States Attorney’s Office, Los
Angeles, California; for Defendants-Appellees.

SENSORY NEUROSTIMULATION V. AZAR 5

OPINION
BAYLSON, District Judge:
I. Introduction
The issue in this case is whether the district court
correctly decided it lacked subject matter jurisdiction over a
lawsuit brought by a medical device supplier seeking to have
Medicare “cover” the supplier’s product. We conclude that
the lawsuit is subject to Medicare’s administrative
channeling requirements, that Plaintiff-Appellant Sensory
NeuroStimulation, Inc. (“Sensory”) has not met those
requirements, that there exists a way to satisfy those
requirements, and that these conclusions do not completely
preclude judicial review so as to trigger a key exception to
the channeling requirements. We therefore affirm the
district court.
II. Background
A. Statutory Background
Medicare is a half-century-old federal health insurance
program for elderly and disabled Americans. Social
Security Amendments of 1965, Pub. L. 89-97, 79 Stat. 286.
As of 2019, it insured 61.2 million people. 2020 Annual
Report of the Boards of Trustees of the Federal Hospital
Insurance and Federal Supplementary Medical Insurance
Trust Funds 6 (2020). These federal insureds are known
generally as Medicare “beneficiaries.” The program is
administered by the Centers for Medicare and Medicaid
Services (“CMS”), an agency housed in the United States
Department of Health and Human Services (“HHS”).
Medicare administrative contractors (“MACs”) help CMS

6 SENSORY NEUROSTIMULATION V. AZAR

administer Medicare benefits in specific geographic regions.
See 42 U.S.C. § 1395u.
Medicare is governed by an intricate statutory scheme,
codified at 42 U.S.C. §§ 1395–1395lll. This case involves
two parts of the statutory scheme: (1) provisions addressing
how medical devices become covered, and (2) provisions
defining the availability of judicial review.
1. Medicare’s Coverage for Medical Devices
Medicare covers a limited universe of medical devices.
Relevant here, devices classified as “durable medical
equipment” may be eligible for Medicare reimbursement,
subject to an exception that does not apply here. 42 U.S.C.
§ 1395m(a)(2). Devices considered “personal comfort
items,” on the other hand, are categorically not covered. Id.
§ 1395y(a)(6). Durable medical equipment is equipment
that “[c]an withstand repeated use,” “has an expected life of
at least 3 years,” “[i]s primarily and customarily used to
serve a medical purpose,” “[g]enerally is not useful to an
individual in the absence of an illness or injury,” and “[i]s
appropriate for use in the home.” 42 C.F.R. § 414.202.
Devices may be covered nationally, regionally, or on a
case-by-case basis. A nationwide determination by CMS as
to whether Medicare will reimburse beneficiaries for the
purchase of the device is a “national coverage
determination” (“NCD”). See 42 U.S.C. § 1395y(l)(6)(A).
NCDs may be favorable or unfavorable.
1
Id. NCDs bind

1
The Medicare statute sometimes distinguishes “national coverage
determinations,” which mandate nationwide coverage, from “national
noncoverage determinations,” which bar coverage nationwide. See
42 U.S.C. § 1395ff(f)(4)(A) (discussing the issuance of “national
coverage or noncoverage determination[s]”). Other times, it combines

SENSORY NEUROSTIMULATION V. AZAR 7

MACs. See id. § 1395ff(c)(3)(B)(ii)(I); 42 C.F.R.
§ 405.1060(a)(4). In the absence of an NCD, MACs may
also issue “local” coverage determinations that apply to their
own subsequent decisions. See 42 U.S.C. § 1395ff(f)(2)(B).
In the absence of a national or local coverage determination,
MACs deciding whether to reimburse particular claims
make case-by-case decisions “based on applicable
information, including clinical experience and medical,
technical, and scientific evidence.” Id.
§ 1395ff(c)(3)(B)(ii)(III).
There are several pathways for CMS to initiate an NCD
evaluation process. CMS may initiate an NCD process on
its own initiative. Medicare Program; Revised Process for
Making National Coverage Determinations, 78 Fed. Reg.
48164, 48167 (Aug. 7, 2013). Alternatively, beneficiaries,
medical professional societies, businesses such as medical
device manufacturers, and others can request CMS initiate
an NCD process through a written, “formal” request. Id. at
41166.
When there is no NCD for particular medical services or
devices, individual beneficiaries “in need of the items or
services” can request that CMS initiate a coverage
determination process and are ordinarily entitled to receive
a decision within ninety days. 42 U.S.C. § 1395ff(f)(4)–(5).
Such beneficiaries in need are known as “aggrieved parties.”
Id. If the aggrieved party finds CMS’s decision

both under the label “national coverage determinations.” Id.
§ 1395ff(f)(1)(B) (“For purposes of this section, the term ‘national
coverage determination’ means a determination . . . with respect to
whether or not a particular item . . . is covered nationally under”
Medicare.). Here, we refer to national coverage and noncoverage
determinations together as NCDs. Where the distinction matters, we
refer to “favorable” or “unfavorable” NCDs.

8 SENSORY NEUROSTIMULATION V. AZAR

unsatisfactory—i.e., if CMS ultimately decides not to issue
an NCD or issues an unfavorable NCD—the aggrieved party
may appeal to the Departmental Appeals Board of HHS. Id.
§ 1395ff(f)(1)(A). The result of that appeal is a final agency
action subject to judicial review. Id. § 1395ff(f)(1)(A)(v).
No NCD requestors other than aggrieved parties have the
same or even similar statutory rights to a decision and
appeal, and aggrieved parties may not assign their rights. Id.
§ 1395ff(f)(1)(A)(iii); 42 C.F.R. § 426.320.
The heart of this case is about what, if any, rights to
appeal are available to NCD requestors like Sensory who are
not Medicare beneficiaries.
2. Medicare’s Limitation on Judicial Review: The
“Channeling” Requirement
The Medicare statute eliminates federal question
jurisdiction over lawsuits brought “to recover on any claim
arising under” Medicare. See 42 U.S.C. § 405(h) (“No
action against the United States . . . or any officer or
employee thereof shall be brought under section 1331 or
1346 of title 28 to recover on any claim arising under this
subchapter.”); id. § 1395ii (incorporating § 405(h) into the
Medicare statute). This is known as § 405(h)’s “channeling
requirement” because it forces plaintiffs to exhaust pertinent
administrative channels. Shalala v. Ill. Council on Long
Term Care, Inc., 529 U.S. 1, 19 (2000). In practice, the
channeling requirement “assures the agency greater
opportunity to apply, interpret, or revise policies,
regulations, or statutes without possibly premature
interference by different individual courts.” Id. at 13.
The Medicare statute creates administrative channels
specifically designed for Medicare. As discussed earlier,
under 42 U.S.C. § 1395ff(f)(1)(A)(iii), when an aggrieved

SENSORY NEUROSTIMULATION V. AZAR 9

party is unhappy with the agency’s NCD, that aggrieved
party may appeal that decision to the Departmental Appeals
Board of HHS, and that Appeals Board’s decision
“constitutes a final agency action and is subject to judicial
review.” 42 U.S.C. § 1395ff(f)(1)(A)(v). Some of the
administrative channels are adapted from other statutory
schemes. For example, beneficiaries’ challenges to adverse
benefits determinations “shall be entitled to reconsideration
of the determination, and . . . a hearing thereon by the
Secretary to the same extent as is provided in” 42 U.S.C.
§ 405(b). Id. § 1395ff(b)(1)(A).
When a claim arises under Medicare, § 405(h) eliminates
federal question jurisdiction and the plaintiffs must first
exhaust the appropriate administrative channels before
seeking judicial review. The Supreme Court has held that a
wide range of claims “arise under” Medicare. See
Weinberger v. Salfi, 422 U.S. 749 (1975); Ill. Council,
529 U.S. at 13–14. Of course, § 405(h)’s channeling
requirement applies in “a typical Social Security or Medicare
benefits case, where an individual seeks a monetary benefit
from the agency (say, a disability payment, or payment for
some medical procedure), the agency denies the benefit, and
the individual challenges the lawfulness of that denial.” Ill.
Council, 529 U.S. at 10. § 405(h) also requires that plaintiffs
channel claims that advance “general legal” arguments just
as much as claims that advance “fact-specific” arguments;
claims that are “collateral” to a benefits determination just
as much as claims that are not; claims based on a “potential
future” just as much as claims rooted in the “actual present”;
and claims for declaratory, injunctive, or monetary relief. Id.
at 13–14.
There is an important exception to the broad channeling
requirement, however. The channeling requirement does not

10 SENSORY NEUROSTIMULATION V. AZAR

apply where its “application . . . would mean no review at
all.” Id. at 19 (interpreting Bowen v. Mich. Acad. of Fam.
Physicians, 476 U.S. 667 (1986)) (known as the “Michigan
Academy exception”). In Michigan Academy, a group of
physicians brought statutory and constitutional challenges to
a regulation promulgated under Part B of the Medicare
statute. 476 U.S. at 668–69. That regulation determined
rates at which physicians could recover for certain services.
See 42 C.F.R. § 405.504(b) (1985). The Court explained
that, because plaintiffs could not bring their challenges
through any administrative channel, applying § 405(h)’s
channeling requirement would have meant the plaintiffs
could not obtain judicial review of their claims at all. Mich.
Acad., 476 U.S. at 681. The Court, applying the “‘strong
presumption that Congress did not mean to prohibit all
judicial review’ of executive action,” thus concluded that
§ 405(h) did not divest the federal courts of jurisdiction. Id.
at 680–81 (quoting Dunlop v. Bachowksi, 421 U.S. 560, 567
(1975)).
In assessing whether requiring channeling would result
in “no review at all,” id. at 680, “the question is whether, as
applied generally to those covered by a particular statutory
provision, hardship likely found in many cases turns what
appears to be simply a channeling requirement into complete
preclusion of judicial review.” Ill. Council, 529 U.S. at 22–
23 (citing McNary v. Haitian Refugee Ctr., 498 U.S. 479,
496–97 (1991)).
Taking these statutory provisions and cases together, it
becomes clear that assessing whether a court has subject
matter jurisdiction to hear a claim related to Medicare
requires a three-step analysis.
1. In the first step, the court must decide whether
the claim “arises under” Medicare such that

SENSORY NEUROSTIMULATION V. AZAR 11

§ 405(h)’s administrative channeling
requirement applies. If it does not, the plaintiff
may proceed in court. If it does, the court moves
on to the second step.
2. In the second step, the court must decide whether
the plaintiff has satisfied the channeling
requirements by properly presenting the claim
and exhausting the appropriate administrative
channel. If the plaintiff has done so, or
alternatively, has satisfied the requirements for
judicial waiver of the exhaustion requirement,
the plaintiff may proceed in court. If the plaintiff
has not, the court moves on to the third and final
step.
3. In this last step, the court must decide whether
the administrative channeling requirement would
mean that there would be “no review at all” of the
plaintiff’s claim. If it would, the plaintiff may
proceed in court under 28 U.S.C. § 1331 or some
other jurisdictional predicate. If not, the
plaintiff’s claim cannot proceed and must be
dismissed for lack of subject matter jurisdiction.
As explained below, this case implicates all three of the
above steps.
B. Factual Background
Appellant Sensory Neurostimulation, Inc. sells a
prescription leg massager called “Relaxis” specifically
designed to treat Restless Leg Syndrome (“RLS”). The
company’s founder, Dr. Fred Burbank, is an RLS sufferer
and Medicare beneficiary. Sensory is ultimately seeking a
favorable NCD—that is, a binding nationwide determination

12 SENSORY NEUROSTIMULATION V. AZAR

that Medicare will reimburse beneficiaries for the purchase
of Relaxis.
In November of 2015, Sensory asked CMS to make an
informal “benefit category determination” (“BCD”) for
Relaxis—in other words, to decide whether Relaxis is
durable medical equipment eligible to be covered by
Medicare. A CMS employee decided that Relaxis is a
personal comfort item, categorically ineligible for coverage,
on the grounds that it could serve a non-medical purpose.
The employee then suggested that Relaxis ask Noridian, the
California MAC, for a “local” BCD. A few months later,
Noridian also decided that Relaxis is a personal comfort
item.
In June of 2016, Sensory formally applied to CMS for an
NCD. CMS informed Sensory by letter dated March 20,
2017 that it had determined that Relaxis is a personal
comfort item. The determination was not a formal NCD, so
it did not bind the MACs. A few months later, Sensory met
with Dr. Demetrios L. Kouzoukas, Principal Deputy
Administrator of CMS and Director for the Center of
Medicare, to try to persuade him otherwise. CMS took no
action for six months, at which point Dr. Burbank sued HHS
in his own name. On February 16, 2018, Dr. Kouzoukas sent
Sensory a brief letter affirming the March 20, 2017 letter.
Sensory filed the First Amended Complaint, which
substituted Sensory for Dr. Burbank as plaintiff, on
September 28, 2018.
C. District Court Proceedings
The Government moved under Federal Rule of Civil
Procedure 12(b)(1) to dismiss the First Amended Complaint
on October 25, 2018. The Government argued that the
District Court lacked subject matter jurisdiction because

SENSORY NEUROSTIMULATION V. AZAR 13

Sensory’s lawsuit arose under Medicare such that § 405(h)’s
channeling requirement applied and Sensory had not gone
through the appropriate administrative channels. In its
response brief, Sensory argued that it was entitled to judicial
review because there was no further appropriate channel that
it was required to follow. Either the channeling requirement
did not apply, Sensory argued, or Sensory had satisfied it.
The district court agreed with the Government. It found
that Medicare’s channeling requirement applied and had not
been met. Consequently, it dismissed the case without
prejudice, and without leave to amend.
First, the district court decided that there was “little
question that Sensory’s claim substantively ‘ar[o]se under’
the Medicare statute.” “[An NCD] merely codifies the
Secretary’s position on whether Medicare will approve
individual claims for that item or service. Accordingly . . .
Sensory’s claims [are] ‘inextricably intertwined with a claim
for benefits . . . .’” (quoting Heckler v. Ringer, 466 U.S. 602,
614–15 (1984)). Thus, the channeling requirement applied.
Next, the district court considered whether the
channeling requirement would effectively result in “no
review at all” such that the channeling requirement should
be ignored. The court concluded that Sensory could still
pursue its interests by either accepting assignments of
beneficiaries’ claims to benefits or by recruiting an
aggrieved party to file a request for an NCD determination
pursuant to 42 U.S.C. § 1395ff(f)(1)(A). The court held it
irrelevant that Sensory could not receive an NCD by
accepting assignments of individuals’ claims, because it is
“action[s],” not “particular contention[s],” that must be
channeled through the agency. (quoting Ill. Council,
529 U.S. at 23) (internal quotation marks omitted).

14 SENSORY NEUROSTIMULATION V. AZAR

Finally, the district court considered whether it could
waive the need for Sensory to exhaust possible
administrative remedies. It concluded that Sensory’s lawsuit
met none of the three requirements for waiver. The lawsuit
was not “collateral” to a claim of entitlement under
Medicare, as it arose under Medicare; any harm was not
“irreparable,” because harm could be remedied with money
damages; and administrative procedures were not “futile,”
because further proceedings would serve the purposes of
exhaustion by enabling the agency to fulfill its role “without
possibly premature interference.” (quoting Ill. Council,
529 U.S. at 13) (internal quotation marks omitted).
The district court dismissed the suit without prejudice
and denied leave to amend on grounds of futility.
D. The Parties’ Arguments on Appeal
The parties dispute three issues in this appeal. First,
whether the lawsuit “arises under” Medicare such that the
channeling requirement of 42 U.S.C. § 405(h) applies.
Second, whether Sensory has met the requirements to sue
under 42 U.S.C. § 405(g). And third, whether, if the lawsuit
arises under Medicare and there is no jurisdiction under
42 U.S.C. § 405(g), that means that there is “no review at
all” such that Sensory may bypass § 405(h)’s channeling
requirement altogether.
For the reasons stated below, we agree with the
Government that this lawsuit arises under Medicare, that
Sensory is not entitled to waiver of the statute’s exhaustion
requirement, and that applying the exhaustion requirement
here would not mean “no review at all.”

SENSORY NEUROSTIMULATION V. AZAR 15

III. Standard of Review
Our review of questions of subject matter jurisdiction is
de novo. Do Sung Uhm v. Humana, Inc., 620 F.3d 1134,
1140 (9th Cir. 2010) (citing Sommatino v. United States,
255 F.3d 704, 707 (9th Cir. 2001)).
IV. Discussion
A. Section 405(h)’s channeling requirement applies.
Section 405(h)’s channeling requirement eliminates
federal question jurisdiction for lawsuits “arising under” the
Medicare statute. Because Sensory’s lawsuit arises under
Medicare, it applies here.
In interpreting the phrase “arising under,” we are not
writing on a “blank slate.” P.R. Ass’n of Physical Med. &
Rehab., Inc. v. United States, 521 F.3d 46, 48 (1st Cir. 2008).
The Supreme Court has provided considerable guidance in
this area. We briefly review three key cases below.
Weinberger v. Salfi, a Social Security case, interpreted
the scope of § 405(h)’s administrative channeling
requirement. In Salfi, a widow and her child had been denied
survivorship benefits on the grounds that the widow’s
marriage to her late husband was too brief. 422 U.S. at 753–
54. They brought a § 1331 (federal question) suit seeking
monetary, declaratory, and injunctive relief against the
Social Security Administration on behalf of themselves and
a putative class of others similarly situated. Id. at 755. The
Supreme Court held that § 405(h)’s administrative
channeling requirement applied to the suit, barring § 1331
jurisdiction, notwithstanding the fact that the plaintiffs’
claims were constitutional rather than statutory. Id. at 760–
61. The Court explained that, “not only is it Social Security

16 SENSORY NEUROSTIMULATION V. AZAR

benefits which appellees seek to recover, it is the Social
Security Act which provides both the standing and the
substantive basis for the presentation of their constitutional
contentions.” Id. Ultimately, the Supreme Court held that
because the complaint did not allege that the putative class
members had even sought administrative remedies, the class
allegations should have been dismissed for failure to exhaust
administrative remedies. Id. at 764. In contrast, the named
plaintiffs had exhausted their remedies and were allowed to
proceed to the merits. Id. at 764–67. Although Salfi dealt
with the Social Security Act, “Salfi’s interpretation of
§ 405(h) is directly applicable to conflicts arising under the
Medicare Act and the courts have applied Salfi to a broad
variety of disputes arising under the Medicare Act.”
Drennan v. Harris, 606 F.2d 846, 850 (9th Cir. 1979).
After Salfi came the important 1984 case of Heckler v.
Ringer. In Heckler, four Medicare beneficiaries sued the
Government under inter alia § 1331 to obtain coverage for a
particular surgical procedure. 466 U.S. at 604–05. The
beneficiaries sought declaratory and injunctive relief only.
Id. at 615, 620. Despite the beneficiaries’ choice not to seek
monetary relief, the Supreme Court held that the suit arose
under Medicare and that § 405(h)’s administrative
channeling requirement applied. Id. at 615–16, 621–22. The
channeling requirement even applied to the claim for
declaratory relief brought by one beneficiary who had not
yet undergone the procedure and so could not have had a
claim for reimbursement pending at the time of the suit. Id.
at 621–22.
Finally, the Supreme Court further clarified the scope of
the administrative channeling requirement in Illinois
Council. There, the Court considered how § 405(h) affected
§ 1331 lawsuits brought by plaintiffs “who might later seek

SENSORY NEUROSTIMULATION V. AZAR 17

money or some other benefit from (or contest the imposition
of a penalty by) the agency[,] challeng[ing] in advance . . .
the lawfulness of a policy, regulation, or statute that might
later bar recovery of that benefit (or authorize the imposition
of the penalty)[.]” 529 U.S. at 10. After reviewing Heckler
and Salfi, the Court concluded:
Those cases themselves foreclose
distinctions based upon the “potential future”
versus the “actual present” nature of the
claim, the “general legal” versus the “fact-
specific” nature of the challenge, the
“collateral” versus “noncollateral” nature of
the issues, or the “declaratory” versus
“injunctive” nature of the relief sought. Nor
can we accept a distinction that limits the
scope of § 405(h) to claims for monetary
benefits . . . . There is no reason to
distinguish among them in terms of the
language or in terms of the purposes of
§ 405(h).
Id. at 13–14.
As Illinois Council makes clear, Sensory’s lawsuit arises
under Medicare. Sensory contends that it is seeking to create
an entitlement to benefits for others, but not for itself. In
other words, its argument is that its suit is “collateral,”
addresses “general legal” issues, is aimed at “potential
future” outcomes, seeks no particular monetary benefits, and
is third-party. But Illinois Council held that a lawsuit’s
“collateral,” “general legal,” or “potential future” nature, as
well as the fact that the plaintiff is not seeking damages, are
all immaterial to the “arising under” analysis. Id. That
leaves only one way in which this case can be distinguished

18 SENSORY NEUROSTIMULATION V. AZAR

from one in which channeling can be required under Illinois
Council: that Sensory, as a medical device supplier, is a third
party to the relationship between Medicare beneficiaries and
the government. We are unpersuaded that this distinction
matters for two reasons.
First, stating that Sensory is a third party simply restates
two of the other four immaterial distinctions. Its lawsuit is
collateral to claims for benefits and seeks no particular
monetary benefits precisely because Sensory is a third
party—specifically, a medical device supplier. Given that
the prior two derivative distinctions are immaterial, the
distinction that that the lawsuit is brought by a third party
must be as well.
Second, allowing Sensory to proceed because it is a third
party would enable plaintiffs to circumvent Medicare’s
administrative channeling scheme. Such circumvention is
disfavored. See Heckler, 466 U.S. at 621–22. One of the
Heckler plaintiffs had not yet undergone the surgery at issue
and so sought prospective relief. Id. at 620. This
distinguished him from his co-plaintiffs, who had undergone
the surgery and sought retroactive relief. Id. at 613. The
Supreme Court held that he could not proceed in court
without first exhausting his claim before the agency, because
it would “invit[e] [beneficiaries] to bypass the exhaustion
requirements of the Medicare Act by simply bringing
declaratory judgment actions in federal court before they
undergo the medical procedure in question.” Id. at 621
(citing Att’y Registration & Disciplinary Comm’n v.
Schweiker, 715 F.2d 282, 287 (7th Cir. 1983)). Similarly,
allowing providers or device suppliers to sue where
beneficiaries cannot could enable beneficiaries to bypass
§ 405(h)’s administrative channeling requirement by having
third-party providers or suppliers bring declaratory

SENSORY NEUROSTIMULATION V. AZAR 19

judgment actions in federal court before the beneficiaries
undergo the medical procedure or obtain the device in
question.
The role the Heckler beneficiaries’ physician played in
their case demonstrates that such circumvention is a real
possibility. In Heckler, all the beneficiaries were treated by
the same physician, a specialist in the surgery in question,
who also served as a co-plaintiff representing the
beneficiaries. Id. at 609 & n.6. As the Court noted, the
physician brought no individual claims; he merely served as
a representative of his patients, who were the actual
claimants. Id. at 609 n.6. The physician was therefore a
third party in all but name. The Court concluded that
because there was no jurisdiction as to the patients, there
necessarily was no jurisdiction as to the physician. Id.
To summarize: Illinois Council, Salfi, and Heckler
dictate that Sensory’s lawsuit arises under Medicare even
though the lawsuit may be third-party or otherwise
distinguishable from a typical benefits appeal. Because
Sensory’s lawsuit arises under Medicare, § 405(h)’s
administrative channeling requirement applies. Unless
Sensory has exhausted an appropriate administrative
channel or can show that applying the administrative
channeling requirements would mean “no review at all,” it
cannot proceed.
Before discussing those issues, we note that the First
Circuit came to the same conclusion in 2008 when faced
with a lawsuit much like this one. An association of physical
therapists had sued to overturn a regulation prohibiting
Medicare reimbursements for services provided by physical
therapists who did not meet certain educational and training
requirements. P.R. Ass’n, 521 F.3d at 47–48. Applying

20 SENSORY NEUROSTIMULATION V. AZAR

Illinois Council, the First Circuit concluded the lawsuit arose
under Medicare:
Although [the association’s] suit challenges a
regulation and does not directly request
payment for a specific service, it seeks at its
heart the extension of Medicare benefits;
accordingly, it would appear barred by
section 405(h) as construed by the Supreme
Court. The regulation being challenged is
simply a limitation on the claims that
Medicare will pay and so foreshadows the
denial of such claims.
Id. at 48. Like Sensory, the plaintiff in Puerto Rican Ass’n
was a third party suing to create coverage for medical care
that it could provide. The First Circuit held that that lawsuit
arose under Medicare. We hold the same as to Sensory’s.
B. Section 405(g) does not provide an alternative
basis for jurisdiction.
Sensory contends that, even if federal question
jurisdiction is unavailable, it has met the requirements to
bring suit under 42 U.S.C. § 405(g), which provides for
judicial review of final agency actions that have been
presented to the Secretary of HHS. We disagree.
Even assuming arguendo that the Medicare statute
incorporated § 405(g) for claims like Sensory’s, Sensory
could not proceed under § 405(g) in this case. Parties
proceeding under § 405(g) must obtain a “final decision”
from the Secretary. 42 U.S.C. § 405(g); Johnson v. Shalala,
2 F.3d 918, 921 (9th Cir. 1993). Sensory has not done so.

SENSORY NEUROSTIMULATION V. AZAR 21

There are two components to a final decision under
§ 405(g): “the presentment of a claim to the Secretary and
the exhaustion of administrative remedies.” Johnson, 2 F.3d
at 921. Of these elements, only the exhaustion requirement
is judicially waivable. See Haro v. Sebelius, 747 F.3d 1099,
1112 (9th Cir. 2014) (“Exhaustion is waivable, presentment
is not.” (citing Kaiser v. Blue Cross of Cal., 347 F.3d 1107,
1115 (9th Cir. 2003))). Sensory has not exhausted
administrative remedies, so § 405(g) only provides
jurisdiction if the exhaustion requirement in this case can be
judicially waived.
Waiver is warranted if the claim is “(1) collateral to a
substantive claim of entitlement (collaterality); (2) colorable
in its showing that denial of relief will cause irreparable
harm (irreparability); and (3) one whose resolution would
not serve the purposes of exhaustion (futility).” Johnson,
2 F.3d at 921 (citing Briggs v. Sullivan, 886 F.2d 1132, 1139
(9th Cir. 1989)). The third of these elements—futility—has
not been satisfied, so we cannot waive the exhaustion
requirement.
Futility is established if exhausting administrative
remedies “would not serve the policies underlying
exhaustion.” Cassim v. Bowen, 824 F.2d 791, 795 (9th Cir.
1987). “In most cases, the exhaustion requirement allows
the agency to compile a detailed factual record and apply
agency expertise in administering its own regulations. The
requirement also conserves judicial resources. The agency
will correct its own errors through administrative review.”
Johnson, 2 F.3d at 922.
Requiring Sensory to seek administrative review of
CMS’s decision that Relaxis is a personal comfort item
would serve all these policies. There are at least two ways
for Sensory to seek administrative review. Sensory can

22 SENSORY NEUROSTIMULATION V. AZAR

either accept assignment of an individual claim for benefits
and pursue that claim or recruit an aggrieved party to file a
request for an NCD then challenge an adverse decision
through the HHS appeals process. Either of these
proceedings might result in the agency changing its mind
and providing coverage for Relaxis, so further proceedings
would serve the policy of allowing the agency to “correct its
own errors through administrative review.” Id. And either
of these proceedings might result in an administrative record
that could assist in any subsequent judicial review. This is
simply not a case where “there [i]s nothing to be gained from
permitting the compilation of a detailed factual record, or
from agency expertise.” Bowen v. City of New York,
476 U.S. 467, 485 (1986) (citing McKart v. United States,
395 U.S. 185, 200 (1969)). For these reasons, further
administrative proceedings would not be futile.
Because further administrative proceedings would not be
futile, exhaustion should not be waived.

And because
exhaustion should not be waived, Sensory has not obtained
a “final decision” within the meaning of § 405(g). As a
result, even if claims like Sensory’s could proceed under
§ 405(g) in theory, Sensory could not proceed under
§ 405(g) in this case.
C. Applying § 405(h)’s channeling requirement will
not result in “no review at all,” so the Michigan
Academy exception does not apply.
There is an important exception to § 405(h)’s
administrative channeling requirement. Sensory contends
that it applies here.
As explained above, the Supreme Court first articulated
this exception in Bowen v. Michigan Academy of Family
Physicians. In that case, applying § 405(h)’s channeling

SENSORY NEUROSTIMULATION V. AZAR 23

requirement would have meant the plaintiff could obtain “no
[judicial] review at all of substantial statutory and
constitutional challenges to the Secretary’s administration of
Part B of the Medicare program.” 476 U.S. at 680. The
Court, applying the “‘strong presumption that Congress did
not mean to prohibit all judicial review’ of executive action,”
concluded that § 405(h) did not apply. Id. at 680–81
(quoting Dunlop v. Bachowksi, 421 U.S. 560, 567 (1975)).
The Court later clarified the sweep of the Michigan
Academy exception in Illinois Council. There, an
association representing nursing homes challenged a
Medicare regulation that dictated what agencies were to do
when they found that a nursing home was violating
substantive standards. 529 U.S. at 6. The association argued
that the Medicare statute only allowed review when the
Secretary terminated a nursing home agreement, but not
when the Secretary imposed a lesser sanction. Id. at 20.
Relying on the Secretary’s assurances that nursing homes
could obtain review of most decisions by incurring a minor
penalty, the Court concluded that channeling was required
and that § 405(h) barred review. Id. at 22. The Court
explained that in deciding whether channeling “mean[s] no
review at all,” “the question is whether, as applied generally
to those covered by a particular statutory provision, hardship
likely found in many cases turns what appears to be simply
a channeling requirement into complete preclusion of
judicial review.” Id. at 19, 22–23 (citing Haitian Refugee
Ctr., 498 U.S. at 496–97). If such complete preclusion of
judicial review occurs, § 405(h)’s channeling requirement
does not apply. Id. at 22–23.
The Supreme Court has not revisited the Michigan
Academy exception since Illinois Council. This Circuit has
rarely encountered it, but we did find that the exception

24 SENSORY NEUROSTIMULATION V. AZAR

applied in Haro v. Sebelius, 747 F.3d 1099, 1115 (9th Cir.
2014). In Haro, an attorney for a Medicare beneficiary sued
to overturn a Medicare policy that distinctly affected
attorneys for Medicare beneficiaries. Id. at 1104. The panel
observed that the attorney could not follow the
administrative channels open to beneficiaries, that it was
“unaware of any other path to administrative review of the
policy that [the attorney] challenge[d], and [that] the parties
cite[d] none.” Id. at 1115. Because there was no
administrative channel through which the attorney (or
anyone else) could bring his claim, the panel concluded that
“the claim falls within the very narrow Michigan Academy
exception, and the district court had federal question
jurisdiction under § 1331 to adjudicate it.” Id. (citation
omitted).
The Fifth and D.C. Circuits have both considered the
exception at greater length. Both have ruled that the
Michigan Academy exception does not apply where another
party is able to pursue the same claim through an appropriate
administrative channel and is incentivized to do so. See
Fam. Rehab., Inc. v. Azar, 886 F.3d 496, 505 (5th Cir. 2018)
(“[W]e have required channeling so long as ‘there
potentially were other parties with an interest and a right to
seek administrative review.’”) (quoting Physician Hosps. of
Am. v. Sebelius, 691 F.3d 649, 657 (5th Cir. 2012)); Am.
Chiropractic Ass’n v. Leavitt, 431 F.3d 812, 816–17 (D.C.
Cir. 2005) (holding Michigan Academy exception did not
apply because chiropractors’ association, although unable to
proceed in its own name, could recruit enrollee to proceed
through administrative channels); cf. Council for Urological
Interests v. Sebelius, 668 F.3d 704, 712 (D.C. Cir. 2011)
(“Although we agree that the [Michigan Academy] exception
is primarily concerned with whether a particular claim can
be heard through Medicare Act channels, we see nothing in

SENSORY NEUROSTIMULATION V. AZAR 25

the case law requiring us to disregard factors that speak to a
potential proxy’s willingness and ability to pursue the
plaintiff’s claim.”); P.R. Ass’n, 521 F.3d at 49–50 (holding
Michigan Academy exception did not apply because
“doctors and therapists certainly have ample economic
incentive to frame and support a test case”). American
Chiropractic, for example, concerned the American
Chiropractic Association’s attack on a Medicare rule
allowing HMOs to require that patients receive a referral
from a non-chiropractor before seeking chiropractic
services. 431 F.3d at 814–15. Although there was no
administrative channel through which the Association could
attack the rule, the D.C. Circuit concluded that applying the
channeling requirement would not mean “no review at all”
because a beneficiary could receive chiropractic services
without a referral, have his or her claim for benefits denied
by his or her HMO, and then proceed through the
administrative process. Id. at 816–17.
These out-of-circuit cases address the basic question
here: does the Michigan Academy exception apply when an
administrative channel exists for review of a certain category
of claims, but is closed to the particular plaintiff bringing the
lawsuit? They conclude that if another party can bring the
same claim through the existing administrative channel, and
is sufficiently incentivized to do so, then some review is
available, and the Michigan Academy exception does not
apply. We agree, and we reach the same conclusion here.
In this case, an administrative channel for review exists.
2

Indisputably, 42 U.S.C. § 1395ff(f) provides an
administrative channel for “aggrieved parties” to request

2
This feature distinguishes this case from Haro, where no
appropriate administrative channel existed. 747 F.3d at 1115.

26 SENSORY NEUROSTIMULATION V. AZAR

NCDs and challenge unsatisfactory results. The difficulty
for Sensory (and similarly situated suppliers) is that it is not
an “aggrieved party” within the meaning of the statute.
Because it is not an “aggrieved party,” it cannot directly
avail itself of this administrative channel. However, Sensory
(or a similarly situated supplier) could indirectly avail itself
of this channel. That is enough to take this case out of the
Michigan Academy exception.
It may not be easy for a particular supplier to find an
agreeable proxy, but particular suppliers’ difficulties do not
affect the analysis. Whether there would be “no review at
all” is an objective inquiry. See Ill. Council, 529 U.S. at 22–
23 (“[T]he question is whether, as applied generally . . .
hardship likely found in many cases turns what appears to
be simply a channeling requirement into complete preclusion
of judicial review.” (first and second emphasis added)). A
particular supplier’s difficulty finding a proxy does not
amount to “hardship likely found in many cases . . . [causing]
complete preclusion of judicial review.” Id. (first emphasis
added).
Although the government contends otherwise, the fact
that Dr. Burbank is an RLS sufferer and Medicare
beneficiary does not inform the “no review at all” inquiry
either. Again, the Michigan Academy inquiry is objective.
Id. Circumstances that make recruiting proxies easier for
particular medical device suppliers are no more pertinent to
that inquiry than circumstances that make recruiting proxies
more difficult for others. This case’s unusual feature—that
Sensory’s CEO, President, Board Chairman, and
stockholder is himself capable of becoming “aggrieved”—is
simply not “likely found in many cases,” id., and cannot
relieve Sensory from the channeling requirements.

SENSORY NEUROSTIMULATION V. AZAR 27

Ultimately, because medical device suppliers seeking
NCDs can be expected to recruit proxies to exhaust the
administrative channel provided in 42 U.S.C. § 1395ff(f),
they can effectively obtain judicial review. Because medical
device suppliers can effectively obtain judicial review, the
Michigan Academy exception does not apply in this suit.
And because the Michigan Academy exception does not
apply, the district court correctly dismissed this lawsuit for
lack of subject matter jurisdiction.
V. Conclusion
The district court correctly held that § 405(h)’s
administrative channeling requirement applied and that it
therefore had no subject matter jurisdiction to hear Sensory’s
claims. AFFIRMED.