On January 15, 2020, Judge Kincaide granted Family Rehabilitation Inc.’s (“Family Rehab”) Summary Judgment Motion on its Application for Permanent Injunctive Relief finding that Family Rehab (1) achieved success on the merits of its underlying claim that the failure to provide an appeal within 90 days while recouping millions of dollars violated Family Rehab’s right to due process; (2) demonstrated that recoupment would result in an irreparable injury consisting of being put out of business; (3) demonstrated that the “door-closing impact” of recoupment outweighed the burden on the government caused by a delayed recoupment; and (4) continued provision of services while awaiting an administrative law judge (“ALJ”) hearing to test the merits of recoupment was not a disservice to the public interest. In so ruling, the Court reinforced the critical nature of the ALJ hearing in decreasing the risk of erroneous deprivation caused by the extraordinary backlog currently facing providers accused of receiving multi-millions of dollars in overpayments based on a small sampling of claims totaling typically no more than a hundred thousand dollars.
Specifically, the Court found that “the failure to provide an ALJ hearing before engaging in recoupment that would put Family Rehab out of business violates its right to procedural due process.” The Court laid out in detail the property interest providers have in receiving Medicare payments for services rendered, particularly where there is no allegation of fraud. The Court rejected the government’s characterization of the claims as “bad” based on nothing more than the overpayment dispute. The Court pointed out that the “collateral challenge here is that [the government] failed to provide sufficient process in reaching the conclusion that the requested reimbursements are ‘bad claims.’” The Court further rejected a process requiring courts to accept the bare assertion that the claims were “bad,” an assertion which itself was being challenged in the provider’s administrative appeal. The Court found such a process to constitute a “back-door deprivation” leaving the government “free to provide even less protections (or none at all).”
The Court property interest analysis considered not just the Medicare payments themselves, but also the impact caused by the “magnitude of the attempted recoupment,” which the Court found virtually guaranteed the provider would go out of business. “Depriving Family Rehab of its existence would essentially be a greater deprivation of property (the business) that would result from the narrower deprivation of property such as withheld payments.” Building on this deprivation, the Court noted that the extraordinary delay in obtaining a de novo ALJ review, elevated the impact not only on Family Rehab, but on other similarly positioned providers. The Court held that these relevant circumstances called for elevated safeguards to providers’ due process rights.
Turning to the issue of erroneous deprivation, the Court relied upon the statistics published by the Office of Medicare Hearings and Appeal (“OMHA”) which documented the “high rate at which lower administrative decisions are fully overturned” by the ALJ. Based on the OMHA statistics, revealing between a 38 and 44% reversal rate, the Court held that denying Family Rehab an ALJ hearing created a substantial risk of erroneous deprivation. In addition to discussing the obvious merits of an ALJ hearing that are not present upon escalation to the Departmental Appeals Board (“DAB”) or the federal courts, Judge Kincaide found that the ALJ hearing was the congressionally-sanctioned step designed to decrease the risk of erroneous deprivation. Because escalation requires a provider to give up its right to an ALJ hearing and permits the DAB to rely solely upon the QIC record, the Court found escalation to be an insufficient remedy against the risk of erroneous deprivation.
Finally, the Court rejected the government’s argument that a delay in recouping alleged overpayments would affect the government’s interest in efficient administration and preservation of the Medicare fund, noting that Family Rehab was a viable business prior to the recoupment and was able to rebuild and resume operations once Medicare was enjoined from recouping the overpayment. Finding that going out of business was an irreparable injury, the Court noted that a payment plan option did not nullify the risk of irreparable injury and was in fact nothing more than a “prolonged termination.” As to the government’s argument that Family Rehab’s decision to not pursue a payment plan constituted a “self-inflicted injury,” the Court noted that the government was attempting to have it both ways. In essence, the government’s argument resulted in exempting itself from compliance while penalizing the provider for not electing an option provided by the statute. In describing the argument as based on a double-standard, the Court cited the Fifth Circuit decision granting Family Rehab jurisdiction to seek injunctive relief: “We must ‘be especially sensitive’ to irreparable injury where the Government seeks to require claimants to exhaust administrative remedies merely to enable them to receive the [rights] they should have been afforded in the first place.” Family Rehab., Inc., 886 F.3d at 504 (citing Bowen, 476 U.S. 467, 484 (1986)).
In conclusion, the Court found that the ALJ stage was critical to decreasing the risk of erroneous deprivation, and the impact on Family Rehab’s private interest (its very existence) was substantially greater than that of the government such that precluding Family Rehab from the ALJ hearing before recoupment violates its right to procedural due process.