Medicare Providers Receive No Interim Relief from Recoupment Despite “Colossal Backlog” of Appeals for Substantive Claims

On March 15, 2020, the Fifth Circuit issued an unpublished decision holding that a provider facing recoupment during the course of a Medicare claims appeal could not obtain federal question jurisdiction under 28 U.S.C. § 1331 (“Section 1331”) to obtain district court review of CMS’s overpayment finding, notwithstanding the fact that the provider was forced to wait years before being heard on its administrative appeal. Supreme Home Health Services, Inc. v. Azar, Case No. 19-30480 (5th Cir. May 15, 2020).

Supreme Home Health Services, Inc. (“Supreme”) sought relief from the district court’s grant of CMS’s motion to dismiss, which the district court converted to a motion for summary judgment, on several grounds.  Although Supreme alleged procedural due process and ultra vires claims, which the district court denied on the merits, Supreme also claimed that general federal question jurisdiction under Section 1331 should apply to its claims.  Supreme argued that the backlog of ALJ hearing requests currently pending at the Office of Medicare Hearings and Appeals, which, in Supreme’s situation was exceeding three (3) years, effectively denied any review of its overpayment appeal.

Addressing the procedural due process and ultra vires issues, the Fifth Circuit reaffirmed its holding in Family Rehab, Inc. v. Azar, finding that “the collateral exception allows courts to entertain not-yet-exhausted procedural due process and ultra vires claims when (1) the claims are ‘entirely collateral’ to a substantive agency decision and (2) the party assuming the claims cannot obtain ‘full relief’ at a post-deprivation hearing.” Without addressing the merits of the claims, the Fifth Circuit found that the district court had correctly determined it had subject matter jurisdiction over the procedural due process and ultra vires claims and in fact, had determined that Supreme’s claims should be dismissed on their merits.¹   Notwithstanding, and because the district court had assumed jurisdiction and afforded Supreme the opportunity to present evidence, the Fifth Circuit found that the district court had not erred in dismissing Supreme’s procedural due process and ultra vires claims on the merits.

In response to Supreme’s claim that general federal question jurisdiction should apply, the Fifth Circuit explained that the matter was governed by Supreme Court precedent, which has made clear that lawsuits arising from Medicare appeals are barred from review under federal question jurisdiction and instead must go through the administrative review process, unless doing so would result in “complete preclusion of judicial review.” Family Rehab, 886 F.3d at 504-05 (quoting Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 23 (2000)). Ultimately, the Court upheld the district court’s determination dismissing Supreme’s substantive due process claims, without prejudice, based on its own precedent, that the delay caused by the “colossal backlog of Medicare appeals is not enough to provide jurisdiction.”

Although one of several cases looking to the appellate court for relief from recoupments that risk bankrupting providers while CMS works through its colossal backlog of Medicare appeals, this case forces providers to read the tea leaves as to its implication going forward. Unfortunately, the Fifth Circuit was in a position to only address the jurisdictional issues, though it seemingly went out of its way to that state that it was not deciding the underlying merits. Perhaps Supreme abandoned these arguments because of the uphill battle it had to climb in order to demonstrate irreparable harm caused by the recoupment, particularly when the district court made clear its position that Supreme’s survival for several years undercut its argument of impending bankruptcy.

As to the more critical issues for providers currently facing recoupment, the tea leaf reading is even less clear, in part because the Fifth Circuit was also limited to a review of the lower court’s decision for plain error.  Had the Fifth Circuit been in a position to review the decision under an abuse of discretion standard, it arguably could have examined the more general evidence relied upon by the district court.  For example, the district court’s finding that only 16 to 18 percent (16 – 18%) of the claims are found favorably for the provider is misleading when one reviews the actual OMHA statistics from which this number derives.  Indeed, the OMHA statistics themselves demonstrate that approximately 50 to 60% of the claims are dismissed before reaching an ALJ.  In other words, far from evidencing a low rate of provider successes, the 16 to 18% number shows that approximately 40% of those claims heard at the ALJ stage are overturned.

An accurate understanding of these statistics is crucial, particularly when the Magistrate in the district court decision relied upon those statistics, and dare say was persuaded by those statistics, to find that a provider is not deprived of safeguards designed by the statute itself to protect providers from these types of outcomes.  Certainly, any provider can survive 90 days, but few if any, can survive a 5 year recoupment of millions of dollars.

Moreover, and although we are again only tea leaf reading, had the Fifth Circuit had the ability to review under an abuse of discretion standard we might have learned the Fifth Circuit’s position on whether a property interest in today’s Medicare reimbursement exists such that yesterday’s alleged overpayments cannot be recouped without affording the provider its due process right to a hearing within the 90 day time frame laid out in the very statute CMS relies upon for its discretionary authority to recoup.

[1] The Fifth Circuit did not address the merits because Supreme had abandoned those issues in its opening brief.