Courts Recognize Irreparable Injury Caused by Medicare Appeals Backlog
January 16, 2019
As providers and suppliers with pending requests for Office of Medicare Hearings and Appeals (OMHA) Administrative Law Judge (ALJ) hearings are acutely aware, there persists a significant backlog of appeals pending at the ALJ stage of appeal.
Presently, there are 426,594 appeals pending and awaiting OMHA adjudication. Despite a statutory mandate to "conduct and conclude a hearing… and render a decision on such hearing by not later than the end of the 90-day period beginning on the date a request for hearing has been timely filed," the average processing time for OMHA appeals is presently 1,142.0 days (over 3 years). Unfortunately for appellants, there are significant financial repercussions resulting from adjudicators' failures to adhere to their statutory mandates for timely appeals adjudication. Delays in appeals processing not only violate the Social Security Act, but also create financial hardship for appellants.
In 2003, Section 935 (f) (2) (A) of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) (Public Law 108-173) became law and amended Section 1893 of the Social Security Act (42 U.S.C. § 1395ddd). This statute prohibits Medicare contractors from recouping an alleged overpayment until after a reconsideration decision is issued. Provided that expedited appeals timeframes are satisfied, an alleged overpayment is not withheld or recouped during the appeals process until after a reconsideration decision is issued; however, interest will continue to accrue against the alleged overpayment. Following issuance of a partially favorable or unfavorable reconsideration decision, CMS will begin recoupment activities while an appellant awaits an ALJ hearing and decision.
The delay in appeals adjudication creates significant cash flow issues for appellants. These cash flow interruptions can be particularly troublesome for smaller providers and suppliers faced with significant overpayment demands resulting from post-payment audits. Cash flow interruptions are also problematic for larger providers and hospital systems. Some providers and suppliers have been at risk of closure due to these cash flow interruptions while awaiting hearing.
B.Possibilities for Court-Mandated Relief from Recoupment while Awaiting Hearing
It is difficult for an appellant to obtain jurisdiction to sue the federal government. Pursuant to 42 U.S.C. § 405(g) and (h), federal district courts have jurisdiction only over a "final decision" of the Secretary. In other words, the default rule is that an appellant may only appeal a claim against the federal government to federal district court after it exhausts the administrative appeals process (i.e., redetermination, reconsideration, OMHA ALJ review, and Council review). This concept is known as the "channeling requirement." Three primary exceptions exist to the channeling requirement (which would allow an appellant to sue the federal government to obtain injunctive relief without exhausting the administrative appeals process): (1) Collateral claims exception; (2) Illinois Council exception; and (3) Requests for mandamus relief.
1.Collateral claims exception
Under the collateral claims exception to the channeling requirement, a federal district court has jurisdiction over a claim (a) that is "entirely collateral" to a substantive agency decision, and (b) for which "full relief cannot be obtained at a post-deprivation hearing." The exhaustion requirement may be waived and administrative finality deemed to have occurred, "when a plaintiff asserts a collateral challenge that cannot be remedied after the exhaustion of administrative review." If a court must examine the merits of an underlying dispute, the claim is not collateral. Further, if an appellant is requesting benefits to be permanently reinstated, the claim is not collateral. However, appellants are not precluded from bringing claims that arise only from constitutional or procedural law and requesting that benefits be maintained temporarily until the agency follows its statutorily or constitutionally required procedure.
2.Illinois Council exception
A claim may be brought against the federal government under the Illinois Council exception to the channeling requirement if exhausting the administrative appeals process "would not simply channel review through the agency, but would mean no review at all." The Illinois Council exception is narrow and applies only to "complete" preclusion of review. However, at least one court has also found Illinois Council jurisdiction where the appellant faced "a serious practical roadblock to having [its] claims reviewed in any capacity, administratively or judicially."
Under Section 1361 of the Social Security Act, jurisdiction exists over "any action in the nature of mandamus to compel an officer or employee of the United states or any agency thereof to perform a duty owed to the plaintiff." While requesting mandamus relief is not directly relevant to the recoupment issue that is the primary focus of this article, the American Hospital Association (AHA), together with three plaintiff hospitals, has famously sought (and received) mandamus relief to require OMHA to provide appellants with OMHA ALJ review within the statutorily required timeframes.
4.Recent Cases Applying Exceptions to the Channeling Requirement
Recognizing the irreparable injury caused to appellants by the OMHA ALJ adjudication delays, in two recent cases, courts have allowed preliminary injunctions against CMS (enjoining CMS from recouping or withholding alleged overpayments while the appellants were awaiting OMHA ALJ adjudication) based on collateral claims alleging inadequate procedural due process.
a.Family Rehabilitation Inc. v. Azar
Family Rehabilitation, Inc. (Family Rehab) is a Medicare-certified home health agency in Texas. Family Rehab previously employed over 40 nurses and staff and rendered services to 289 patients in their homes. In 2016, Family Rehab underwent a post-payment review by a zone program integrity contractor (ZPIC), which found that Family Rehab had been overpaid by over $7.5 million. Family Rehab appealed the overpayment determination through the redetermination and reconsideration stages of appeal, and on October 24, 2017, it appealed the alleged overpayment to the OMHA ALJ stage of appeal. On November 1, 2017, CMS began to recoup the alleged overpayment by withholding Medicare reimbursements from Family Rehab. Family Rehab was forced to lay off 39 of its 40 employees and terminate services for 281 of its 289 patients. Family Rehab filed suit in federal district court seeking to obtain a preliminary injunction against CMS from withholding its Medicare reimbursements until such time as an ALJ hearing could be conducted.
In order to be entitled to a preliminary injunction, the movant must establish: (1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable injury; (3) that the threatened injury to the movant outweighs the threatened harm to the party sought to be enjoined; and (4) that granting injunctive relief will not disserve the public interest.
In the Family Rehabilitation, Inc. case, the court found the following:
•Family Rehab had a substantial likelihood of success on the merits of its collateral procedural due process claim. Family Rehab alleged that CMS's failure to follow the statutory timeframes for adjudication resulted in inadequate procedural due process.
•Family Rehab had a substantial threat of irreparable injury (i.e., business closure) if recoupment of the alleged overpayments continued.
•The threatened injury to Family Rehab (i.e., business closure, loss of jobs for Family Rehab's providers, loss of a high-quality health care provider for the patients served by Family Rehab) outweighed the threatened harm to CMS (i.e., delayed recoupment until after an ALJ hearing and decision could be issued).
•Finally, granting injunctive relief did not disserve the public interest. In fact, the court found that the public would benefit from continued access to quality home health services.
On June 28, 2018, the court ordered that CMS was prohibited from withholding Medicare payments from Family Rehab until such time as an ALJ hearing on Family Rehab's appeal of the overpayment determination could be held and a decision issued.
b.Accident, Injury and Rehabilitation, P.C. v Azar
The U.S. District Court for the District of South Carolina Florence Division applied a similar analysis in deciding the case of Accident, Injury and Rehabilitation, P.C. v. Azar. Accident, Injury and Rehabilitation, P.C. (AIR) is a supplier of chiropractic and holistic care. Prior to 2015, AIR earned annual gross revenues of approximately $6.8 million, of which 31 percent constituted revenues from Medicare. Following two ZPIC post-payment medical reviews, in 2015, the ZPIC alleged that AIR had been overpaid by a total of over $6.5 million. AIR appealed the subject denials through the administrative appeals process, submitting requests for ALJ hearing in March and April of 2016. Afterwards, CMS withheld over $1.8 million. AIR filed suit in federal district court, alleging that it had been deprived procedural due process, based on CMS's failure to provide an ALJ hearing during the mandated timeframe. AIR sought to obtain a preliminary injunction against CMS from withholding additional Medicare reimbursements until such time as ALJ hearing could be held.
In Accident, Injury and Rehabilitation, P.C., the court found that:
•AIR was likely to prevail on its underlying procedural due process claim because CMS continued to recoup large sums of money without affording AIR with an ALJ hearing during the required timeframe. The court considered the private interest that would be affected by CMS's actions (AIR's existence and financial stability); the risk of an erroneous deprivation of such interest through the procedures used (the court noted the high percentage of ZPIC alleged overpayments overturned at the OMHA ALJ stage of appeal); and CMS's interest (in this case, AIR was not seeking any additional or substitute safeguards that would lead to administrative or financial burdens against CMS). In summary, the court found, "Plaintiff has presented a compelling case that its procedural due process rights are being violated by the combination of the outrageous delay in its administrative appeals and Defendants' ongoing recoupment."
•AIR had a substantial threat of irreparable injury (e.g., bankruptcy and severe financial damage).
•The substantial threat of irreparable injury to AIR (i.e., business closure, loss of jobs for AIR's providers, loss of a high-quality health care provider for the patients AIR served) outweighed the threatened harm to CMS (i.e., delayed recoupment until after an ALJ hearing and decision could be issued).
•Finally, granting injunctive relief did not disserve the public interest. Similar to the Family Rehab case, the court found that the Medicare population would be served from continued access to quality health care services.
On September 27, 2018, the court granted AIR's motion for preliminary injunction and ordered that CMS be enjoined from attempting to recoup the alleged overpayment until an ALJ hearing could be held and decision issued.
For appellants awaiting OMHA ALJ adjudication of their cases, recent case law is helpful to demonstrate that courts are now acknowledging the irreparable injury Medicare recoupment for an extended period of time may cause to a health care business. Although in the past, many health care attorneys may have advised appellants that the likelihood of success bringing a lawsuit would be low due to the jurisdictional bar (i.e., the channeling requirement), given today's appeals environment, recent case law opens the door for impacted appellants to pursue injunctive relief. Faced with the alternatives of shutting doors or filing a case for injunctive relief, appellants may now wish to seriously consider the latter.
JESSICA L. GUSTAFSON is a founding shareholder with The Health Law Partners, P.C. Ms. Gustafson represents hospitals, health systems, hospices, home health agencies, physicians and other health care providers and suppliers in an array of health care legal matters. Ms. Gustafson devotes a substantial portion of her practice to representing providers in the Recovery Audit ("RAC") and Medicare audit appeals process. She also regularly assists clients with compliance and reimbursement matters, overpayment refunds, Medicare enrollment matters, as well as other health care regulatory matters.
Ms. Gustafson is a member of the American Health Lawyers Association, American Bar Association (Health Law Section) and Michigan Bar Association (Health Care Law Section). She is actively involved in the ABA Health Law Section, serving as Chair of the Physician Issues Interest Group, a Co-Chair of the Membership Committee, and as a Vice-Chair of the Editorial Board of the publication ABA Health eSource. She also serves as a member of the Advisory Board to the American College of Physician Advisors.
While in law school, Ms. Gustafson served as a member of the Wayne Law Review Editorial Board as a Senior Articles Editor. She also served as a judicial intern to the Honorable Robert H. Cleland, United States District Court, Eastern District of Michigan.
ABBY PENDLETON is a founding shareholder of The Health Law Partners, P.C. Ms. Pendleton has been practicing healthcare law since 1996. She regularly provides counsel to healthcare providers and organizations in a number of areas, including but not limited to: compliance, Recovery Audit Contractors ("RAC"), Medicare and other payor audits, fraud and abuse, reimbursement matters, and HIPAA Privacy and Security, and physician staff privilege and licensure matters. Ms. Pendleton also specializes in legal issues impacting billing and management companies, anesthesia and pain management providers, hospice providers and mental health agencies.
Ms. Pendleton is a member of the State Bar of Michigan (Member, Health Care Law Section) and State Bar of New York (Member, Health Law Section); the American Bar Association; the American Health Lawyer's Association; the Health Care Compliance Association; the Medical Group Management Association and the Michigan Medical Group Management Association.