Health Law Daily HHS’ two-step recoupment process constituted due process for HHA
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Tuesday, September 22, 2020

HHS’ two-step recoupment process constituted due process for HHA

By Jeffrey H. Brochin, J.D.

By seeking an injunction instead of the statutorily prescribed escalation procedures, the provider could not complain that it was denied due process. The procedure it received was constitutionally adequate and did not violate its due process rights.

A federal appeals court in Louisiana has affirmed the decision of a district court that dismissed the lawsuit brought by a Medicare provider who alleged that it was denied due process after HHS entered a reimbursement recoupment order against it. The provider elected to file a lawsuit seeking injunctive and other relief rather than avail itself of HHS’s escalation procedures, and the procedures available to it were deemed constitutionally adequate to protect the provider’s due process rights (Sahara Health Care, Incorporated v. Azar, September 18, 2020, Elrod, J).

Years-long backlog. Sahara Health Care, Incorporated (Sahara) is a home health agency that depends on Medicare reimbursements for about 75 percent of its revenue. In 2017, a Medicare contractor audited a sample of Sahara’s claims and calculated that HHS had overpaid it about $3.6 million. Sahara disputed the findings, and after two levels of administrative review, Sahara successfully reduced the recoupment amount down to about $2.4 million. However, Sahara believed that amount was still excessive, and it exercised its statutory right to an ALJ hearing within 90 days of its request. Unfortunately, the massive administrative backlog for ALJ hearings resulted in a three-to-five year wait for a hearing, and Sahara opted to file suit seeking injunctive relief as well as asserting claims of due process violation and that HHS acted ultra vires as to its statutory authority. The district court dismissed Sahara’s claims, and the appeals court affirmed that decision.

Two-step administrative review process. The first phase of administrative review is a "redetermination" from an HHS contractor, after which a provider can seek "reconsideration" from a qualified independent contractor. At steps one and two, a provider may submit additional evidence and must submit a written explanation of its disagreement with the initial determination, and, if it wants to submit evidence, that is the time. Redetermination at step one and reconsideration at step two result in reasoned, written decisions.

However, Congress also provided a third step, pursuant to which a provider is entitled to a hearing and decision from an ALJ, who must render a decision on such hearing by not later than the end of the 90-day period after the request was timely filed. Congress specified what happens when an ALJ misses that deadline: "In the case of a failure by an administrative law judge to render a decision by the end of the period described in paragraph (1), the party requesting the hearing may request a review by [the HHS Departmental Appeals Board (DAB)] notwithstanding any requirements for a hearing for purposes of the party’s right to such a review." The DAB then has 90 days to conduct a de novo review and issue a decision, or 180 days if the case was "escalated" to skip the step-three hearing. Congress anticipated that the DAB deadline might pose some problems, and the instant case arises from the conflict between the statutory right to a hearing within 90 days and the administrative reality that no such hearing occurs for years.

No protected property interest. Because of the well-known Appeals Board backlog, four days after it requested an ALJ hearing, Sahara filed a lawsuit for injunctive relief. However, the district court dismissed the lawsuit, holding that Sahara had no protected property interest in the recoupment or forestalling of the recoupment. Furthermore, the district court concluded that Sahara received constitutionally adequate process, and that the ultra vires claim asserted only conclusory statements, and that the Medicare backlog argument fell outside the court’s jurisdiction.

A "constitutionally adequate" process. Because the appeals court concluded that HHS provided Sahara with adequate process, the court declined to decide the property interest question. The constitutional minimum of due process guarantees that notice and an opportunity to be heard be granted at a meaningful time and in a meaningful manner. There was no dispute that Sahara received notice, and the only issue to be determined was whether it received a meaningful opportunity to be heard.

The court noted that Sahara’s claims were reviewed by a panel of clinical experts consisting of a physician, a licensed health care professional, and a statistician who evaluated the validity of the statistical sampling and extrapolation. This was not an exercise in rubber stamping, and those two reviews lowered Sahara’s overpay amount from $3,573,595.61 to $2,416,157.10. Furthermore, the two steps were part of a comprehensive whole that included an opportunity for timely judicial review. Sahara did not explain why the first two steps, standing alone, failed to satisfy the constitutional requirement, but rather focused on the procedural additions of the step-three ALJ hearing.

No real value to live hearing. Although it was true that a step-three hearing might offer the opportunity to have a live hearing, present testimony, cross-examine witnesses, and submit written statements of law and fact, Sahara failed to demonstrate what value the hearing would add to the process Sahara already received or was otherwise entitled to receive, and a step-three hearing would not permit a provider to compel discovery beyond the administrative record that was compiled at steps one and two.

Based on the foregoing, the appeals court concluded that Sahara was not denied due process after being provided hearings at step one and step two, and the court accordingly affirmed the district court’s dismissal.

The case is No.: 18-41120.

Attorneys: Mark S. Kennedy (Kennedy, Attorneys & Counselors at Law) for Sahara Health Care, Inc. Joshua Marc Salzman, U.S. Department of Justice, for Alex M. Azar, II.

Companies: Sahara Health Care, Inc.

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