When the Centers for Medicare and Medicaid Services (CMS), through a Medicare contractor, conducts a post-payment audit of a provider’s Medicare reimbursements and determines that the provider may have received an overpayment, the agency can suspend, offset, or recoup the amount of the overpayment. Likewise, if CMS or the Medicare contractor suspects fraud, it can—after consultation with the Department of Health and Human Services’ Office of Inspector General (OIG) and, if necessary, the Department of Justice (DOJ)—suspend a provider’s Medicare reimbursements until resolution of the fraud investigation, even as the agency or contractor proceeds with a determination as to whether an overpayment exists.
Pursuant to the Medicare Act’s strict jurisdictional limits, before a provider can challenge CMS’s overpayment determinations in federal court, the provider must first exhaust all administrative remedies by completing Medicare’s four-stage administrative appeals process. Yet, in cases of suspension, the provider cannot even begin the appeals process until CMS issues an overpayment determination.
In response to a more than five (5) year backlog in ALJ appeals, providers across the country have sought federal court intervention, seeking to enjoin CMS from engaging in the practice of recouping alleged overpayments before the provider reaches the third stage of the appeals process—a full evidentiary hearing before an administrative law judge (ALJ). Typically, providers in such cases argue, among other claims, that CMS’s pre-hearing recoupment practices violate the provider’s procedural due process right to have a hearing prior to the deprivation of any constitutionally protected interests (in this case, Medicare payments). Until recently, federal judges generally dismissed such cases due to lack of subject-matter jurisdiction because the provider had not yet completed the administrative appeals process. Last year, however, in Family Rehabilitation Inc. v. Azar, the Fifth Circuit Court of Appeals, applying a long-standing exception to the exhaustion requirement, issued a landmark ruling that the provider’s procedural due process claim was “entirely collateral” to the issues to be decided through the administrative appeals process. Thus, the Fifth Circuit held that the provider’s request for an injunction could proceed on procedural due process grounds.
Unfortunately for providers, as Judge Truncale of the Eastern District of Texas indicated in an opinion issued on July 22, 2019, the logic of Family Rehab’s holding may not extend to cases involving CMS payment suspensions. In that case, True Health Diagnostics, LLC v. Azar, CMS had suspended 100% of Medicare payments to diagnostic services provider True Health Diagnostics (“THD”) based on “credible allegations of fraud” in May 2017. THD submitted a rebuttal statement, but CMS refused to lift the suspension. During the pendency of the 2017 suspension, in June 2019 CMS implemented a second suspension of THD’s Medicare payments based on new fraud allegations. Although THD again submitted a rebuttal statement, it also brought suit against CMS on July 2, 2019, alleging (1) procedural due process violations; (2) substantive due process violations; (3) violations of the Administrative Procedure Act; (4) mandamus; and (5) declaratory judgment. CMS moved to dismiss on July 5, 2019, for lack of subject-matter jurisdiction.
In analyzing CMS’s motion to dismiss, Judge Truncale first noted that “[t]he Medicare [A]ct severely restricts the authority of federal courts by requiring ‘virtually all legal attacks under the Act be brought through the agency [i.e., through the administrative appeals process].’” Indeed, with respect to claims “arising under” the Medicare Act, Sections 405(g) and (h) of the Act grants federal courts subject-matter jurisdiction only on appeal from a “final decision” of the Secretary of Health and Human Services (HHS). Moreover, according to the Court, a claim is said to “arise under” the Medicare Act for purposes of jurisdiction when the claim is “inextricably intertwined with a claim for Medicare benefits.” Thus, a federal court is only vested with jurisdiction to hear a Medicare billing dispute if the provider (1) “presented” a claim for Medicare reimbursement to HHS/ CMS, and (2) exhausted administrative review.
As the Fifth Circuit reiterated in Family Rehab, although the “presentment” prong may never be waived, a court may nevertheless deem the “exhaustion” requirement “waived if (a) the claims are ‘entirely collateral’ to a substantive agency decision, and (b) ‘full relief cannot be obtained at a post-deprivation hearing.’” As Judge Truncale explained in granting CMS’s motion to dismiss, THD failed to satisfy either exception.
First, THD’s claims, unlike the claims brought in Family Rehab, were not “entirely collateral” because its claims were “inextricably intertwined” with its substantive claims relating to its suspension. Whereas the provider in Family Rehabhad sought to enjoin CMS from recouping overpayments prior to the ALJ hearing—which has been delayed by three to five years due to a massive backlog of Medicare appeals—THD requested that the court lift the 2019 suspension before the agency had even made an overpayment determination. The Court found that unlike the provider in Family Rehab, who had sought relief that it could not obtain through the administrative appeals process, THD’s request was “the exact substantive, permanent relief that THD can seek through the agency appeals process.” Indeed, said Judge Truncale, in order to determine whether CMS violated THD’s due process rights by issuing the 2019 suspension on the basis of claims that were part of the 2017 suspension, as THD claimed, “the Court would need to immerse itself in the substance of the underlying Medicare claim or demand a factual determination as to the application of the Medicare Act—thus making THD’s claim not collateral.”
Second, THD also failed to demonstrate that it could not obtain full relief at a post-deprivation hearing. Citing to Family Rehab, the court noted that “[t]o demonstrate such deprivation, THD needs to raise a colorable claim that erroneous recoupment will damage it in a way not recompensable through retroactive payments.” Again, unlike the provider in Family Rehab whose Medicare reimbursements made up 94 percent of its revenues, the recoupment of which threatened to put the provider out of business prior to the ALJ hearing, THD only relied on Medicare for 30 percent of its revenues.
As such, Judge Truncale noted that “THD made the business decision to continue participating in Medicare” and “after more than two years [since the initial suspension], [THD] cannot require this Court to redress its business decision by threatening imminent bankruptcy.” Furthermore, unlike the home health and skilled nursing services offered by the provider in Family Rehab, the Court found that the loss of THD’s diagnostic services in the event of bankruptcy or liquidation “will cause less disruption to Medicare patients . . . because patients using THD’s services seek diagnostic testing and not an immediate health service.” Accordingly, the court could not deem the exhaustion requirement waived and dismissed THD’s complaint for want of subject-matter jurisdiction.
As the THD case demonstrates, CMS’s invocation of its suspension authority may not afford the same opportunities as an overpayment demand to challenge CMS’s pre-hearing deprivations in federal court. Indeed, as Judge Truncale indicates, the key difference between overpayment appeal cases (such as Family Rehab) and suspension appeal cases (such as THD) is the provider’s articulation of the injunctive relief sought. In overpayment appeal cases, the provider requests that the court enjoin CMS from recouping alleged overpayments prior to the ALJ hearing, a matter that cannot and will not be resolved at the ALJ hearing. Indeed, to enjoin CMS’s pre-hearing recoupment practices until after the hearing, the court need not determine the validity of CMS’s overpayment determination. That issue will still be resolved by the ALJ. However, in suspension appeal cases, the provider seeks relief in the form a request that the court lift the suspension. To do so, the court would need to delve into an analysis of the validity of the suspension itself, a matter to be resolved by the ALJ. Although the provider can still challenge CMS’s pre-hearing recoupments once the agency ultimately issues an overpayment demand, for now, the suspension decision itself cannot be challenged in federal court.
Importantly, the case law in this area remains underdeveloped and, given the right set of facts and circumstances, another judge may be inclined to issue a ruling contrary to Judge Truncale’s. AGG continues to monitor provider challenges to CMS’s pre-hearing recoupment and suspension activities and will update this advisory with any new developments.