Health Law Daily Exhaustion of administrative remedies includes escalation procedures
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Monday, October 28, 2019

Exhaustion of administrative remedies includes escalation procedures

By Rebecca Mayo, J.D.

A district court does not have subject matter jurisdiction over an administrative appeal where a provider failed to avail itself of the escalation process to exhaust all administrative remedies.

Where an escalation process that would allow a provider to properly bring its appeal to the district court within a year, it cannot claim that the three- to five-year backlog renders exhaustion futile. A district court granted CMS’s motion to dismiss a provider’s motion for a preliminary injunction to keep CMS from continuing recoupment of overpayment. The court found that the provider had the ability to escalate the appeals and properly reach the court within a year, which negates the argument that exhaustion was futile and would result in irreparable harm (In Touch Home Health Agency, Inc. v. Azar, October 24, 2019, Pallmeyer, R.).

Overpayment. In Touch Home Health Agency, Inc. provides in-home nursing and therapy services to homebound patients. In 2017, Uniform Program Integrity Contractors (UPICs) reviewed a random sample of In Touch’s Medicare claims from 2013 to 2017 and extrapolated an alleged overpayment of approximately $3.75 million. A Medicare Administrative Contractor (MAC) then rendered an initial determination formally notifying In Touch of the alleged $3,749,178 overpayment. In Touch requested a redetermination and then a reconsideration, which both resulted in a partially favorable decision that reduced the overpayment amount slightly. In Touch then timely filed a request for de novo review by an ALJ, however due to the backlog of appeals, In Touch is unlikely to receive an ALJ hearing and decision for at least three and perhaps as long as five years.

While In Touch was working its way through the appeal process, CMS began to recoup the alleged overpayment by withholding all of In Touch’s Medicare payments. The recoupment reduced In Touch’s revenue to zero. In Touch filed a lawsuit asserting procedural due process and ultra vires claims and requesting a preliminary injunction enjoining CMS from recouping its Medicare payments until In Touch has received an ALJ hearing and decision. CMS moved to dismiss, arguing that the court lacked subject matter jurisdiction because In Touch had not exhausted its administrative remedies.

Exhaustion. The court may hold that the exhaustion requirement is waived where the claimant raises a colorable constitutional challenge that it is entirely collateral to its claim of entitlement and the claimant’s interest in having the issue resolved promptly is so great that deference to the agency’s judgement is inappropriate. The court noted that it need not decide whether the claims were collateral or colorable because the claims fail for other reasons. However, it did find that the claims were collateral because the proposed relief from repaying a Medicare debt has nothing to do with the actual merits of a pending appeal. It also found that the claims are not colorable because In Touch lacked a property interest in the Medicare funds at issue due to CMS’s statutory authority to recoup them. Further, In Touch failed to show that the risk of erroneous deprivation was high based on the record of the redetermination and reconsideration which both upheld the overpayment determination.

Futility. The exhaustion requirement may be waived "if it would be futile, that is, if there is no reasonable prospect that the applicant could obtain any relief by pursuing administrative remedies." The court noted that after the ALJ’s 90-day deadline for conducting a hearing and rendering a decision passed, In Touch could have escalated its appeal to the DAB. If the DAB had failed to act within 180 days of escalation, In Touch could have escalated its appeal to federal district court. Therefore, had In Touch availed itself of the escalation procedures, it could have brought its claim to federal district court within 275 days of the second-stage decision. While this process does not offer procedural protections identical to those available at the ALJ stage of appeal, obtaining relief in federal court is possible. Because escalation would allow In Touch to reach federal court in less than a year, which is less than the three- to five-year delay on which it bases its claims, the court held that escalation would not be futile.

Irreparable harm. The court must assess whether the provider would suffer irreparable harm if required to move through the administrative procedure before obtaining relief. According to In Touch, the recoupment caused it to lose its entire revenue stream, it has other debt obligations, and it was forced to discharge most of its patients and laid off most of its employees. In Touch claims it would be forced to go out of business before obtaining relief. However, the court noted that In Touch claimed this in previous documents as this process has proceeded and continues to operate. Further, had In Touch escalated its appeal nine months ago, when it had that option, the process would have been started and In Touch may not have gone out of business before the appeals process was complete.

The case is No. 19 C 1545.

Attorneys: Adam Bird (Calhoun Bhella & Sechrest LLP) and Patrick John Ruberry (Litchfield And Cavo, LLP) for In Touch Home Health Agency, Inc. Valerie Rebecca Raedy, U.S. Attorney's Office, for Alex M. Azar, II.

Companies: In Touch Home Health Agency, Inc.

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