What’s Past Is Prologue: District Court Halts Medicare Recoupments After Fifth Circuit Rules That Courts Are Empowered to Halt Medicare Recoupments

Medicare’s implementation of post-payment review through overly aggressive private contractors, combined with an ineffective review process at the first two levels of the administrative appeal process (redetermination and reconsideration), a severe backlog of providers waiting to present their case at a hearing before an independent Administrative Law Judge (ALJ)(the third level of the Medicare administrative appeals process), and the contractors’ recoupment of Medicare “overpayments” even while the providers wait extended periods of time for an ALJ decision, have combined to create a perfect storm for Medicare providers whose claims are retrospectively denied. In a prior article, we explained the Medicare payment, post-payment audit, appeal, and recoupment processes, how flaws in those processes can result in the improper and premature recoupment of millions of dollars in Medicare payments, and how we helped one hospice provider fight back. In a subsequent article, we summarized a decision of the Fifth Circuit Court of Appeals holding that district courts have the power (i.e., jurisdiction) to resolve constitutional procedural due process and statutory abuse of power (also called, “ultra vires”) claims that seek to prevent premature recoupment pending completion of the administrative appeals process.

Following the Fifth Circuit’s remand of that case, the district court entered a temporary restraining order (TRO) halting further recoupments. This article discusses that order – Family Rehabilitation, Inc. v. Azar, Civil Action No. 3:17-CV-3008-K (N.D. Tex. June 4, 2018) – and our observations about these types of cases.

A.  The Fifth Circuit’s Family Rehabilitation Decision

The Fifth Circuit’s decision held that that the district court had jurisdiction to adjudicate the provider’s due process and abuse of power claims. And it accordingly remanded the case to the district court for that adjudication. In the context of deciding the jurisdictional issues, the Fifth Circuit summed up the provider’s plight and the district court proceedings as follows:

[The provider] was assessed for about $7.6 million in Medicare overpayments. It appealed under Medicare’s Byzantine four-stage administrative appeals process but has completed only the second stage, at which point its Medicare revenue became subject to recoupment; it timely requested a hearing before an administrative law judge (“ALJ”), i.e., the third stage. Yet there is a massive backlog in Medicare appeals. [The provider] likely will not receive an ALJ hearing for at least three years and soon will go bankrupt if recoupment continues. Accordingly, [the provider] sued for an injunction against recoupment until it receives an ALJ hearing. The district court dismissed for lack of subject-matter jurisdiction.

Family Rehabilitation, No. 17-11335 (5th Cir. Mar. 27, 2018), at 1-2. As to the prospects for remedying the constitutional and abuse of power violations after exhaustion of administrative appeal, the Fifth Circuit determined that the provider had “raised at least a colorable argument” that retroactive payments would not suffice. Id. at 11. The Court noted that “[t]he combined threats of going out of business and disruption to Medicare patients are sufficient for irreparable injury.” Id. The Fifth Circuit’s decision, while solely determining jurisdiction and remanding to the district court for a determination on the merits, appeared to signal the appropriate result on the merits.

B.  The District Court’s Grant of TRO

On remand, the district court noted the four requirements for issuance of a TRO – “(1) a substantial likelihood of success on the merits; (2) a substantial threat of immediate and irreparable harm for which it has no adequate remedy at law; (3) that greater injury will result from denying the temporary restraining order than if it is granted; and (4) that a temporary restraining order will not disserve the public interest.” Family Rehabilitation, 3:17-cv-03008-K (N.D. Tex. June 4, 2018), at 4. The court found that each of these factors weighed in the provider’s favor.

1. Substantial Likelihood of Success on the Merits

   The court found that the provider was likely to succeed at least on its procedural due process claims. In this regard, the court noted that the agency had not met the procedural safeguards mandated by statute, which require among other things “that an ALJ ‘shall conduct and conclude a hearing on a decision of a qualified independent contractor’ and issue that decision ‘not later than the end of the 90-day period’ from the date a request was made.” Id. at 6 (quoting 42 U.S.C. § 1395ff(d)(1)(A)). The provider had requested an ALJ hearing on October 24, 2017 – more than seven months prior to the district court’s decision. Despite the failure to comply with the statutory directive to provide a timely ALJ decision, the defendants had already begun recoupment and intended to continue that recoupment. Thus, the district court determined that the provider was likely to succeed on its due process claims.

2. Irreparable Injury
   Unfortunately, although the provider promptly filed its complaint and sought a TRO on October 31, 2017, the district court, believing that it lacked jurisdiction, dismissed the temporary restraining order. Thus, prior to the issuance of the June 4, 2018 TRO (and apparently despite the ultimately successful appeal of the jurisdictional issue), the defendants had already begun withholding Medicare reimbursements. “As a result of this financial impact, Family Rehab has laid off 39 employees, almost 89% of its former staff. Family Rehab now provides home healthcare services to only eight of its previous 289 patients.” Family Rehabilitation, 3:17-cv-03008-K, at 4. The court found that this harm that had already occurred, combined with continued recoupment, would force the provider to permanently close its doors. This sufficiently established a substantial threat of immediate and irreparable harm.
3. Balance of Injury to the Parties
   The court found that the defendants would not be harmed by the granting of a TRO “because they will have the opportunity to recoup any overpayments if the ALJ reaches a decision in their favor.” Id. at 7. On the other hand, the failure to grant a TRO would mean that the provider would “shutter its doors, employees will lose their employment, and patients will lose their home healthcare.” Id. Balancing these harms, the court held that the harm to defendants of granting the TRO did not outweigh the harm to the provider of denying a TRO.
4. Public Interest
   The court noted that granting the TRO would not negatively affect the public interest. In this regard, the court noted that there was no challenge to the quality of the provider’s services and that the public would benefit from the continued availability of these services.

C.  AGG’s Observations

The overly aggressive post-payment claim denials, the ineffective review process at the redetermination and reconsideration levels of administrative appeal, the severe backlog at ALJ level of administrative appeal, and the contractors’ determination to effectuate overly inflated “overpayments” through recoupment while providers await long overdue ALJ hearings have not abated in the three years since our earlier article. In fact, AGG was one of the first in the country to obtain a similar ruling for its client; yet, there have been few other successful cases since. The district court’s TRO on remand illustrates the factors that district courts apply in resolving these cases on the merits. Unless it is extended, the TRO will expire on June 18, 2018. Prior to the expiration of the TRO, the district court will conduct a preliminary injunction hearing at which the parties will present evidence regarding one or more of the four factors considered by the court in granting the TRO. The court will then decide whether to issue a preliminary injunction.

Please contact Jerad Rissler or Jason Bring with any questions.