Momentum is Building: Another Federal Court Stops Recoupment During a ZPIC Appeal, Citing Backlog in Medicare Appeals Process as Potential Denial of Due Process

Medicare’s implementation of post-payment review through overly aggressive zone program integrity contractors (ZPICs) and unified program integrity contracts (UPICs), 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 nightmare 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 against a recoupment stemming from a ZPIC audit. 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. And most recently, we explained how a federal district court implemented the Fifth Circuit’s opinion and entered a temporary restraining order (TRO) to halt further recoupments.

Now, yet another federal court (again in Texas) has enjoined the government from recouping while a provider awaits its ALJ appeal during the long backlog in the appeals process. A copy of the decision is available here. This article discusses the progression of these decisions and the outlook for staying recoupments during ZPIC and other Medicare appeals.

A. Hospice Savannah TRO and Settlement

Providers across the country are suffering at the hands of ZPICs and UPICs that seek inflated “overpayments” through overly-aggressive post-payment reviews. At the lower levels of the audit appeals process before the Office of Medicare Hearings and Appeals (OMHA), providers are able to stay or prevent the government and its contractors from taking back the alleged overpayment through the self-help measure known as recoupment—deducting payments from a provider’s Medicare receivables for more recent services. But once the claims reach the ALJ level of appeal (where providers have the most success in getting the denials overturned), the government is authorized to start recouping against current receivables prior to the ALJ hearing. By statute, the ALJ process is supposed to take just 90 days. Because of the volume of appeals, however, the backlog for obtaining an ALJ hearing now takes years, often five or more. Recoupments during such a protracted process, along with crippling interest rates, can put a provider out of business, unless the courts intervene.

In 2015, AGG was one of the first in the country to obtain relief from these recoupments for its client, Hospice Savannah, which was facing a multi-million dollar recoupment that would have forced this not-for-profit hospice provider out of business. At the hearing on the preliminary injunction, we were able to show that the hospice had not received sufficient procedural due process to protect it from an erroneous deprivation of its property under Mathews v. Eldridge, 424 U.S. 319 (1976). We were able to demonstrate through government reports that the only pre-recoupment administrative review that the hospice had received up to that point was so systemically flawed that approximately 70% of the overpayment determinations that remain after these reviews are reversed at the next level of review. In addition, we showed that the overpayment determinations, as well as the statistical methodology used, were likely to be reversed in an ALJ hearing. We established that, due to the backlog of ALJ appeals, the hospice would not receive an ALJ decision within 90 days of request as required by statute, but would instead be forced to wait at least three to five years for a decision. Finally, we demonstrated the catastrophic harm that would result to the hospice if recoupment were allowed to proceed as well as the harm to the hospice’s patients and the community at large if the hospice were forced to close.

At the close of the hearing, the Court implored all parties to reach a resolution that would permit the hospice to remain open continue to serve its community while it pursued its administrative appeals. Ultimately, CMS agreed to a significantly reduced payment schedule that was more reflective of the likelihood that the underlying overpayment determinations would be reversed and, most importantly, that was sufficiently manageable for the hospice to allow it to continue to deliver high-quality services to its hospice patients while it awaits its ALJ hearing.

B. The Fifth Circuit’s Family Rehabilitation Decision

Earlier this year, the Fifth Circuit Court of Appeals (one of the thirteen appeals courts below the United States Supreme Court) held that that a federal district court has 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.

C. 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.

D. Adams EMS – The Most Recent TRO

Following in the footsteps of the courts in Hospice Savannah and Family Rehabilitation, on July 11, 2018, another federal court in the Southern District of Texas granted a TRO in favor of an ambulance provider facing recoupment. Adams EMS, Inc. v. Azar, 4:18-cv-01443-H (S.D. Tex. July 11, 2018). In Adams EMS, the district court cited extensively to the Family Rehab decision finding that the provider “has a property interest in receiving the Medicare payments it has earned” and “[t]hat interest is violated by HHS’s failure to provide the procedures for, and to timely adjudicate, Adams EMS’s administrative appeal from the overpayment finding.” Finding that the provider was facing bankruptcy or closure as a result of the recoupments, the court concluded that the “only remedy that will adequately protect Adams EMS is ordering HHS to suspend its recoupment efforts.” The court noted that the public interest is served by preventing the recoupments, because the government never asserted that the ambulance provider provided poor or inadequate services to Medicare patients.

E. AGG’s Observations

Congress and CMS continue to fund and encourage ZPICs, UPICs, and other contractors to aggressively audit and deny claims. But Congress has failed to address the ever-growing backlog of appeals that stem from these overly-aggressive reviews. The only option left for many providers is to seek relief from the courts, which are beginning to listen and understand the dilemma. The momentum is building in favor of providers, but this is a highly technical area and one which must be navigated with care.

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