Health Law Daily Medicare enjoined from recouping $8 million in overpayments while delaying appeals process for years
Wednesday, January 22, 2020

Medicare enjoined from recouping $8 million in overpayments while delaying appeals process for years

By Harold Berman, J.D.

A health care provider was entitled to a permanent injunction against Medicare for recoupment of $8 million in alleged overpayments because Medicare could not provide an appellate hearing for several years, by which time the provider would be forced to close.

A home health care provider in Texas merited a permanent injunction against Medicare for recoupment of nearly $8 million in alleged overpayments for Medicare reimbursements, a federal district court in Texas ruled. Medicare could not provide an appellate hearing to the provider for several years, but wished to recoup its payments in the meantime, which would put the provider out of business. The government’s proposed actions violated the provider’s procedural due process rights because its current process would deprive the provider of a property interest in Medicare payments, and in its very existence (Family Rehabilitation, Inc. v. Azar, January 15, 2020, Kinkeade, E.).

Background. A Texas home healthcare provider obtained the majority of its revenue from Medicare-reimbursable services. In 2016, private auditors contracted by CMS audited various sample claims made by the healthcare provider to CMS, and determined that the healthcare provider overbilled over 90 percent of them. The auditors alleged that in many cases, the healthcare provider did not properly certify its patients as "home-bound" and thus eligible for home healthcare.

The auditors then determined that, based on the sampled claims, the healthcare provider was overpaid nearly $8 million in total, and issued a demand for that amount. The healthcare provider began the Medicare appeals process, alleging its patients were properly certified as home-bound.

After the initial stage of the appeals process, Medicare, through its private contractors responsible for processing and making Medicare reimbursements, indicated it intended to recoup the nearly $8 million. The healthcare provider then advanced to the next stage of the appeals process, seeking de novo review before an ALJ in the Office of Medicaid Hearings and Appeals. However, the healthcare provider was informed that the backlog of Medicare appeals would prevent the provider from obtaining an ALJ hearing for three to five years.

The healthcare provider then sued in federal district court for a temporary restraining order and an injunction to prevent Medicare’s private contractors from recouping the alleged overpayments until the end of the administrative appeal. The healthcare provider claimed that, absent a restraining order and injunction, the contractor’s imminent recoupment of the $8M would force it to close.

Following several procedural decisions by the district court and the Fifth Circuit, the healthcare provider moved for summary judgment on its request that the government be permanently enjoined from recouping overpayment until the provider received a hearing with the ALJ.

Success on the merits. The court first found that the government’s failure to provide an ALJ hearing before recouping overpayment would force the provider to close, and consequently violated the provider’s right to procedural due process.

The provider had a substantial private interest in receiving Medicare reimbursement for covered services it rendered under the framework of the Medicare Statute, which impacted its private interest in business survival in the face of imminent recoupment. A provider would not give services to a Medicare patient absent a reasonable expectation of reimbursement by Medicare. If the provider did not have a property interest in reimbursement, as the government contended, then it would be in the untenable situation of having no reasonable expectation of payment, and so could not operate as a business.

The court rejected the government’s contention that the provider had no property interest because the requested reimbursements were merely "bad claims." Rather, the court was considering the provider’s underlying challenge that the government did not provide sufficient process in first concluding that the requested reimbursements were "bad claims."

The provider sought Medicare reimbursement for rendered services, but would be forced out of business following the government’s intended recoupment because the Medicare appeals system would effectively deprive the provider of funds permanently by delaying a hearing for several years. Nor was there any allegation that the provider knew its services were not covered, or attempted to commit fraud.

Additionally, the high rate at which lower administrative decisions regarding Medicare reimbursements were overturned created a substantial risk of erroneous deprivation should the provider be denied an ALJ hearing. Between 2017 and 2019, approximately 40 percent of cases decided by ALJs on the merits were fully favorable to providers. The ALJ would be the only opportunity given to the provider to receive a de novo review and compile a full record, yet the provider would be forced out of business long before receiving an ALJ hearing.

Nor was the government’s interest in efficient administration and preserving the Medicare fund substantially harmed by delaying recoupment. Because the provider would be forced to close if the government proceeded with recoupment, the provider’s interest was greater than in a typical claim dispute, and the threat to the government of failing to collect after an ALJ hearing was not substantial.

Irreparable injury. The court next found that failure to grant the requested injunction would result in irreparable injury to the provider. The closing of the provider’s business would be permanent, and the government’s proposed repayment plan was not a viable way to avoid irreparable harm.

Competing injuries. The injury to the provider absent an injunction outweighed the burden to the government in delaying recoupment. Although going out of business was irreparable and severe, the government’s harm was minimal because it could later recoup the alleged overpayments should the ALJ rule in its favor.

The case is No. 3:17-CV-3008-K.

Attorneys: Wes Loegering (Jones Day) for Family Rehabilitation Inc. Nicholas Cartier, Department of Justice, for the Seema Verma.

Companies: Family Rehabilitation Inc.

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