An allegedly secret HHS policy for administering and denying Medicare beneficiary payment claims may violate beneficiaries’ due process rights, a federal district court held. The court reasoned a Medicare beneficiary’s allegation—that the secret HHS policy led to an improperly low claim approval rate—was sufficient to survive a motion to dismiss. The court also granted a motion for class certification to allow the executor of a Medicare beneficiary’s estate represent a class of Medicare beneficiaries whose claims were also erroneously denied as a result of the alleged policy (Sherman v. Burwell, August 8, 2016, Meyer, J.).
Claim denial. When a home health agency (HHA) informed a patient that Medicare would no longer cover the physical therapy or skilled nursing visits he was receiving as part of his home health care, the beneficiary appealed the decision through four levels of Medicare review. CMS denied the beneficiary’s challenge at the first three levels of review. Meanwhile, the beneficiary continued to receive the physical therapy and skilled nursing visits, paying for them out of pocket. While awaiting the fourth level of review, the beneficiary filed a complaint in federal court challenging HHS claim approval policies. Prior to receiving the final review decision, the beneficiary died. Subsequently, the physical therapy provider requested a "demand bill" from Medicare and was paid for the therapy sessions that were not originally covered.
Review process. The Medicare appeals process has four tiers: (1) a "paper review" by the CMS contractor that made the original decision; (2) a reconsideration paper review by a Qualified Independent Contractor (QIC); (3) a hearing before an administrative law judge (ALJ); and (4) paper review by the Medicare Appeals Council. Previously, before 2010, the second level of review was a hearing before an ALJ or another type of hearing officer.
Complaint. Because the earlier review process included a true hearing at the second level of review, and not a second "paper hearing," the beneficiary asserted that the earlier appeal process resulted in more favorable redeterminations for beneficiaries. The beneficiary’s complaint also alleged that high ALJ reversal rates demonstrated that the HHS policy for claim approval at the lower tiers was resulting in improper claim denials. Specifically, the complaint alleged that, during some periods of time, the HHS claim review policy resulted in claim denial to the extent that only 1 percent of reviewed claims received payment.
Motion to dismiss. HHS moved to dismiss the complaint, asserting that the court lacked jurisdiction to decide the issue because (1) the beneficiary failed to exhaust administrative remedies; and (2) the claim was mooted when the claims were paid. The agency also challenged the class certification motion and argued that the beneficiary failed to properly state a claim.
Exhaustion. The court waived the exhaustion requirement despite the fact that the beneficiary did not fully exhaust the available administrative remedies prior to filing the complaint. The court reasoned that because the claim challenged the validity of the agency’s policies generally—and not how they were applied to beneficiary, in particular—the claim was collateral to a demand for benefits. Additionally, the court held exhaustion would be futile because the procedural rights the beneficiary sought were not remedied by subsequent payment. Finally, the court explained the complaint sufficiently alleged "a colorable claim of irreparable harm" that would result if the beneficiary’s estate was forced to exhaust administrative remedies prior to pursuing the lawsuit.
Mootness. The individual beneficiary’s claim was rendered moot when reimbursement was received for the home health services. However, the court held that the class action could still survive, under the relation-back doctrine, because the class was designed to represent individuals whose claims would likely be rendered moot—due to resolution through other channels—if brought as individual claims. Without class representation, the court explained, such claims could be capable of repetition and escape review.
Due process. The court held that the beneficiary’s complaint plausibly asserted a due process violation for the deprivation of a property right. The court explained, at least for the purposes of surviving a motion to dismiss, the beneficiary’s estate established sufficient facts show a "secret practice" that, in effect, mandated a specific administrative outcome, and, therefore, led to a due process violation. The court explained that the high reversal rates at the ALJ level of review suggested "the first two levels of review could have plausibly contained defects."
Class certification. The court reasoned the proposed class met certification requirements. The class met the commonality requirement by consisting of "all Medicare beneficiaries who have been or will be denied at the initial determination stage." The court rejected HHS’ arguments that the class was too general because it consisted of beneficiaries who had claims denied for several different reasons. The court held that the agency’s argument mischaracterized the class certification requirements. The court explained it was sufficient that the putative class included beneficiaries that all suffered the same harm by having a secret policy applied to them.
The case is No. 3:15-cv-01468 (JAM).
Attorneys: Alice Bers (Center for Medicare Advocacy) for Ruth Sherman. Justin M. Sandberg, U.S. Department of Justice, for Sylvia Mathews Burwell, Secretary, U.S. Department of Health and Human Services.
Companies: U.S. Department of Health and Human Services
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