A ‘Win’ for Providers: Injunction Against Recoupment of Money

An appellate decision from the Fifth Circuit Court of Appeals offers good news for providers caught in ‘no man’s land.’

NOTE: This article first appeared in Medtrade’s Medtrade Monday e-newsletter and comes courtesy of author Jeff Baird and our friends at Medtrade. Baird will be presenting in multiple conference sessions at this year’s Medtrade event, which runs Oct. 15-17 at Atlanta’s Georgia World Congress Center.

Baird also recently presented "Removing Fraud Landmines from Your Referral Network," an HME Business webinar that is available as a recorded archive.

As discussed in a March 27 Medtrade Monday article, the Fifth Circuit Court of Appeals handed down an appellate decision that is good news for DME suppliers and other healthcare providers caught in the “no man’s land” between reconsideration and the Administrative Law Judge (ALJ). 

If a DME supplier timely appeals an adverse audit decision to the redetermination stage, then during this stage the MAC will not recoup the money that CMS claims is due. Likewise, if a DME supplier timely appeals an adverse redetermination decision to the reconsideration stage, then during this stage, the MAC will not recoup money. Unfortunately, the same is not true when the supplier appeals an adverse reconsideration decision to the ALJ. The law says that the ALJ must render its decision within 90 days. In fact, because of the huge appeals backlog, it is taking ALJs three to four years to render decisions. While the DME supplier is waiting for the ALJ’s decision, the MAC will go on ahead and recoup the amount that CMS claims is owed. If the supplier is ultimately successful at the ALJ stage, then it will mean that the supplier will have had to wait several years for its money to be returned.

In Family Rehab, Inc. v. Azar, No. 17-11337 (5th Cir. March 27, 2018), Family Rehab (a home health agency) was assessed a $7.6 million overpayment. Family Rehab unsuccessfully appealed to the redetermination and reconsideration stages. After the reconsideration stage, Family Rehab timely requested a hearing before the ALJ which, as noted above, is supposed to “conduct and conclude a hearing…and render a decision…not later than” 90 days after a timely request. 42 U.S.C. 1395ff(d)(1)(A). Family Rehab discovered that it would take three to four years for its ALJ appeal to be heard.

Therefore, Family Rehab sued in federal District Court for a temporary restraining order (“TRO”) and an injunction to prevent the MAC from recouping the overpayment until the administrative appeal is concluded. In requesting the TRO and injunction, Family Rehab asserted that it would have to shut down because of a lack of funds. In its pleading, Family Rehab asserted (i) violations of its rights to procedural due process; (ii) violations of its substantive due process; (iii) an “ultra vibes” cause of action; and (iv) an entitlement to a “preservation of rights” injunction under the Administrative Procedure Act. The District Court held sua sponte that it lacked subject matter jurisdiction because Family Rehab had not exhausted its administrative remedies. Family Rehab then appealed to the federal Fifth Circuit Court of Appeals.

The Fifth Circuit reversed and remanded the procedural due process and ultra vires claims and sent the case back to the federal District Court (the trial court) with the instructions that it has the jurisdiction (i.e., the “right”) to issue a TRO if it determines that the facts justify such an issuance.

Subsequently, on June 4, 2018, the District Court issued a TRO…blocking CMS from recouping the alleged overpayment. This set the stage for a June 26, 2018 hearing during which the District Court listened to arguments from both sides. On June 28, 2018, the District Court issued an order converting the TRO into a temporary injunction, stating that “[b]ecause Plaintiff Family Rehabilitation, Inc. has demonstrated a likelihood of success on the merits of its procedural due process claim and irreparable harm, the Court GRANTS the motion for preliminary injunction.” Before rendering its decision, the District Court pointed out the following:

  1. During the first two levels of the review process, home health agencies can avoid recoupment by requesting appeals within specified time frames. 42 U.S.C. 1395ddd(f)(2). However, the statute does not provide a way to avoid recoupment during the third or fourth levels of the review process. Thus, CMS has the discretionary authority to recoup the alleged overpayment while the appeal is pending before an ALJ.
  2. There is a massive backlog in Medicare appealsFamily Rehab alleges that as of September 1, 2017, there were 595,000 outstanding claims for adjudication. Family Rehab contends that its appeal will not be heard by an ALJ for three to five years.”
  3. In 2016, a ZPIC began the post-payment review process for some of Family Rehab’s services by reviewing 43 claims. The ZPIC found that Family Rehab was not entitled to receive payment for certain services, amounting to $124,107.53 in overpayments. The ZPIC then used an allegedly unproven extrapolation method based on those 43 claims to find that CMS had overpaid Family Rehab roughly $7.8 million. On January 27, 2017, the MAC issued an Overpayment Demand Letter for $7,885,803.23 based on the ZPIC’s determination. Family Rehab timely requested a redetermination of the denial of the claims at issue. When the MAC only slightly decreased the amount owed in the overpayment, Family Rehab timely appealed the MAC’s redetermination to the QIC. The QIC affirmed all but one of the claims it reviewed. On September 27, 2017, Family Rehab received a final Overpayment Demand Letter for the amount of $7,622,122.31. Throughout this process, Family Rehab never requested a repayment plan because it alleges such a plan would still require too high of a monthly payment to be feasible.
  4. On October 24, 2017, Family Rehab timely requested an ALJ hearing regarding (i) the individual claim denials and (ii) the statistical methodology the ZPIC used to calculate the alleged overpayments. As of June 28, 2018, eight months later, no hearing has occurred and no hearing has even been set despite the statutory requirement that a hearing before an ALJ occur within 90 days of the request. On November 1, 2017, CMS began recouping the alleged $7.6 million in overpayments by withholding Medicare reimbursements to Family Rehab. Prior to the recoupment, Family Rehab relied on Medicare reimbursements for approximately 88% to 94% of Family Rehab’s revenues. Since recoupment, Family Rehab has been forced to lay off 39 employees (89% of its staff) and to terminate healthcare services for 281 of its 289 patients.
  5. On October 31, 2017, Family Rehab filed its complaint and emergency motion for temporary restraining order, seeking to enjoin CMS from beginning the recoupment process until after Family Rehab’s case has been heard and determined by the ALJ. The District Court reluctantly dismissed the initial temporary restraining order for lack of jurisdiction based on its understanding of binding Fifth Circuit case law and prior decisions from the District Court. Family Rehab appealed to the Fifth Circuit. In reversing the District Court’s decision, the Fifth Circuit noted “these [collateral-claim exception] requirements have led to disharmony among our district courts” and took the opportunity to clarify the relevant case law. Family Rehab, Inc. 886 F. 3d at 502. On remand, Family Rehab has now filed an amended motion for temporary restraining order and preliminary injunction. Having granted the temporary restraining order and held a hearing on the preliminary injunction, the District Court now considers Family Rehab’s motion for preliminary injunction.
  6. The purpose of a preliminary injunction is to preserve the status quo and thus prevent irreparable harm until the respective rights of the parties can be ascertained during a trial on the merits. The decision to grant or deny a preliminary injunction is discretionary with the District Court. To be entitled to a preliminary injunction, the movant must satisfy each of the following equitable factors: (i) a substantial likelihood of success on the merits; (ii) a substantial threat of irreparable injury; (iii) the threatened injury to the movant outweighs the threatened harm to the party sought to be enjoined; and (iv) granting the injunctive relief will not disserve the public interest. None of the four requirements has a fixed quantitative value. Therefore, in applying the four part test, a sliding scale is utilized that takes into account the intensity of each in a given calculus. This requires a delicate balancing of the probabilities of ultimate success at the final hearing with the consequences of immediate irreparable injury that possibly could flow from the denial of preliminary relief. As long as the District Court cannot say there is no likelihood of prevailing on the merits, but finds the factor of substantial likelihood of success present to some degree, then the party seeking the injunction has met its burden.


With the above facts and legal guidelines in mind, the District Court then rendered the following decision:

Family Rehab Has a Substantial Likelihood of Success on the Merits of its Procedural Due Process Claim
Family Rehab bases its motion for preliminary injunction on its procedural due process claim and contends it is “likely, if not certain, to prevail” on this claim because CMS’s discretionary recoupment has begun without first providing Family Rehab the procedural due process mandated under the statute. CMS argues that Family Rehab is not likely to succeed on the merits of its due process claim because the statute allows CMS to begin recouping overpayments at the third level of the appeals process, the hearing before the ALJ, and provides Family Rehab an alternative to receive meaningful, independent review when an ALJ cannot hear the case within the prescribed 90 days.

When the other factors weigh strongly in favor of an injunction, a showing of some likelihood of success on the merits will justify temporary injunctive relief. However, no matter how severe and irreparable the threatened harm and irrespective of the hardships in which a preliminary injunction or lack of one might cause the parties, the injunction should never issue if there is no chance that the movant will eventually prevail on the merits. The District Court looks to standards provided by the substantive law to determine the likelihood of success on the merits. The substantive law to be considered here is procedural due process.

Procedural due process protects against governmental deprivation of a liberty or property interest. Family Rehab does not argue that the statutory appeals process does not provide adequate due process but that CMS’s failure to follow Congress’s mandated procedures results in inadequate procedural due process.

Family Rehab has a property interest in the Medicare payments for services rendered. The District Court then considers whether there is a high risk of an erroneous deprivation of Family Rehab’s property interest under the current appeals process due to the extreme backlog of cases before the ALJs. Family Rehab contends it will go out of business before receiving the procedural due process it is owed and that is statutorily provided by way of an evidentiary hearing before an ALJ. Family Rehab alleges that 60% – 72% of cases are overturned at the ALJ hearing stage of the review process, making it highly likely the ALJ will overturn the finding of alleged overpayments in this case. CMS responds that the statute allows it to begin recoupment at this stage and that the sole remedy to delays in receiving an ALJ hearing is escalation of the claims to the Appeals Council.

The statutory language requiring an ALJ to hear an appeal and render a decision within 90 days is clearly mandatory. On the other hand, the statutory language allowing a party to escalate its appeal to the Appeals Council if an ALJ has not rendered a decision in 90 days is discretionary. 
Family Rehab alleges that the Office of Medicare Hearing and Appeals’ own data shows alleged overpayments are overturned at the ALJ level 60% – 72% of the time. Approximately 94% of Family Rehab’s revenue comes from Medicare. By beginning to recoup alleged Medicare overpayments, CMS is essentially forcing Family Rehab to subsist off a small fraction of its usual revenue. A home health agency may be able to float its expenses and survive for the statutorily imposed 90 day period for an ALJ to hear and decide the appeal even while its alleged overpayments are in recoupment. However, it is unreasonable to expect a home health agency to scrape by for three to five years waiting for a hearing and decision while CMS recoups the alleged overpayments.

While the statute allows CMS to begin recouping the alleged overpayments before the ALJ renders a decision, Congress likely did not anticipate that decision being delayed much longer than the statutorily prescribed 90 days and certainly not a delay of three to five years. Allowing CMS to continue recouping the alleged overpayments while Family Rehab waits for a hearing effectively forces Family Rehab to close its business without providing the statutorily mandated procedural due process. The District Court finds that forcing Family Rehab to wait three to five years for an ALJ hearing while overpayments are in recoupment creates a high risk of erroneous deprivation of Family Rehab’s property interest.

The District Court must determine whether escalating its appeal provides Family Rehab sufficient procedural due process for CMS to begin recoupment of alleged overpayments before an ALJ has heard the appeal and rendered a decision. If Family Rehab chose to escalate its appeal, it would never receive the opportunity to be heard and present witnesses at an evidentiary hearing. The Appeals Council would simply review the record that was before the QIC and any further appeal to the federal District Court would similarly be limited to that written record. Escalation does not provide a remedy to the backlogged ALJs because it does not provide adequate procedural due process.

The District Court finds that CMS’s interest will not be adversely affected by delaying the recoupment of alleged overpayments until the ALJ hearing and determination, assuming that the decision is in CMS’s favor. CMS argues that if the recoupment is delayed and CMS is successful at the ALJ state, Family Rehab will declare bankruptcy and not repay the alleged overpayments. While the court is sympathetic to this argument, this hypothetical risk makes a number of assumptions and does not outweigh Family Rehab’s ongoing deprivation of its property interest without sufficient procedural due process.

The District Court determines that Family Rehab has established a substantial likelihood of success on the merits of its procedure as due process claim. There is a high risk that Family Rehab will be erroneously deprived of its property interest because CMS will continue recouping overpayments from Family Rehab without providing the statutorily mandated ALJ hearing. Because an ALJ hearing will not occur for three to five years, Family Rehab will be forced to close its business before ever receiving the procedural due process it is owed.

Family Rehab Has a Substantial Threat of Irreparable Injury If the Recoupment of Alleged Overpayments Continues
To establish the threat of irreparable harm in a preliminary injunction, Family Rehab must show (i) a significant threat of injury from the impending action, (ii) that the injury is imminent, and (iii) that money damages would not fully repair the harm. In the Medicare withholding context, going out of business can be sufficient evidence of irreparable injury.

CMS argues that Family Rehab fails to establish a substantial threat of irreparable injury because it has other options besides waiting three to five years for a hearing, such as escalating its appeal or entering into a repayment plan. Neither of these options, however, establishes that Family Rehab has no substantial threat of irreparable injury. Under CMS’s theory, what is an alternative appeals process under the statute would instead become a mandatory appeals process, which was not the intended purpose of escalation. Also, escalating its appeal deprives Family Rehab of an evidentiary hearing and offers inadequate procedural due process. Family Rehab alleges the 60 month repayment plan would not provide relief because the required monthly payments, while feasible based on its prior revenue, are no longer feasible given Family Rehab’s dramatically reduced number of patients and much reduced revenue stream.

The Threatened Injury to Family Rehab Outweighs the Threatened Harm to CMS
The balance of harm in granting the preliminary injunction between Family Rehab and CMS weighs in favor of granting the relief. Family Rehab will shutter its doors, employees will lose their jobs, and patients will lose their home healthcare provider while waiting for the statutorily mandated ALJ hearing if the preliminary injunction is not granted. On the other hand, CMS will not suffer harm from granting the injunctive relief because it will have the opportunity to later recoup any overpayments if the ALJ reaches a decision in its favor.

Granting the Injunctive Relief Does Not Disserve the Public Interest
The quality of healthcare services Family Rehab provides to patients is not at issue, only the reimbursements for those services. No public interest would be adversely affected by granting the preliminary injunction. If anything, the public would benefit from continued access to Family Rehab’s home health services.

What This Means For DME Suppliers
There are 13 federal Courts of Appeal. These are the courts that are just under the United States Supreme Court. The Fifth Circuit covers Texas, Louisiana and Mississippi. Unless overturned by the United States Supreme Court, the Family Rehab case is the “law of the land” in Texas, Louisiana and Mississippi. If the same type of lawsuit is filed in federal District Court in another circuit, the plaintiff can cite the Family Rehab case as precedent. It is then up to the federal District Court as to whether or to follow the Family Rehab case. For the Family Rehab case to be the “law of the land” throughout the United States, then either (i) all of the circuits must adopt the Family Rehab ruling or (ii) the United States Supreme Court must affirm the Family Rehab ruling. Potentially, there can be a “split” among the circuits where some circuits adopt the Family Rehab ruling while other circuits take the opposite position.

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