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Maxmed Healthcare, Inc. v. Price

United States Court of Appeals, Fifth Circuit

June 22, 2017


         Appeal from the United States District Court for the Western District of Texas

          Before JONES and OWEN, Circuit Judges, and ENGELHARDT, District Judge. [*]

          EDITH H. JONES, Circuit Judge.

         The Secretary of Health and Human Services determined that the Medicare program overpaid plaintiff-appellant Maxmed Healthcare, Inc., by almost $800, 000 for home health care services rendered to Medicare beneficiaries. Maxmed sought judicial review, arguing principally that the overpayment calculation was in error to the extent it extrapolated from a group of noncompensable services to estimate an overpayment three times larger. The district court granted summary judgment to the Secretary and denied Maxmed's motion to amend or alter the judgment. We AFFIRM.


         The Medicare program reimburses health care providers who render services to Medicare beneficiaries. Congress created the Medicare Integrity Program through which the Secretary contracts with private entities "for the purpose of identifying underpayments and overpayments and recouping overpayments[.]" See 42 U.S.C. § 1395ddd(a), (h)(1).

         Extrapolation is one permissible method of calculating overpayments. In particular, Congress authorized Medicare contractors to "use extrapolation to determine overpayment amounts" if the Secretary determines that "there is a sustained or high level of payment error." Id. § 1395ddd(f)(3)(A).

         The Centers for Medicare and Medicaid Services (CMS), the agency responsible for administering Medicare, has issued two key documents that govern the use of extrapolation. One document, Ruling 86-1, provides that sampling for extrapolation purposes "only creates a presumption of validity as to the amount of an overpayment which may be used as the basis for recoupment." Following an overpayment determination based on extrapolation, the burden shifts to the Medicare provider, who "could attack the statistical validity of the sample, or [] could challenge the correctness of the determination in specific cases identified by the sample[.]" The second document is the Medicare Program Integrity Manual, which sets out "[t]he major steps in conducting statistical sampling, " and articulates a number of criteria that govern the specifics of each step in the extrapolation process. See Medicare Program Integrity Manual (MPIM) §; see also id. §§ (Period for Review), (Composition of the Universe), (Sample Unit), (Sample Size).[1]

         Providers who dispute an overpayment determination may challenge it in a lengthy appeal process. At the outset, a Medicare Administrative Contractor makes an "initial determination" regarding the overpayment amount. See 42 C.F.R. § 405.920. A provider who is displeased with the Medicare Administrative Contractor's initial determination may then seek a "redetermination"-the first step in a five-step appeal process. Id. §§ 405.940- .958. The redetermination is conducted by employees of the Medicare Administrative Contractor who were not involved in the initial determination. Id. § 405.948. Second, if the provider remains dissatisfied, the provider may request a "reconsideration." Id. § 405.960. A Qualified Independent Contractor, another private contractor, conducts the "independent" reconsideration. Id. § 405.968. Third, if the provider still remains dissatisfied, the provider may request a hearing before an administrative law judge (ALJ). Id. § 405.1000(a). The ALJ reviews the case de novo. Id. § 405.1000(d). Fourth, either the provider or CMS, through its contractors, may request that the Medicare Appeals Council (Council) review the ALJ's decision. Id. § 405.1100(a). The Council, like the ALJ, reviews the case de novo, and its decision constitutes the Secretary's final decision. Id. § 405.1000(c). Fifth, if all else fails, the provider is entitled to "judicial review of the Secretary's final decision . . . as is provided in section 405(g) of this title." 42 U.S.C. § 1395ff(b)(1)(A).

          Over the past six years, Maxmed navigated the appeal process from start to finish. Maxmed is a home health agency that provided home health services to Medicare beneficiaries. Maxmed submitted claims for services to its Medicare Administrative Contractor, Palmetto GBA, and received payments accordingly. In 2011, however, Palmetto GBA informed Maxmed that it calculated overpayments between April 2008 and March 2010. Palmetto GBA explained that Health Integrity, LLC, a private contractor charged with investigating potential overpayments, determined that Maxmed had been "overpaid in the amount of $773, 967.00." Health Integrity reviewed a sample of 40 claims, submitted on behalf of 22 beneficiaries during that period, and determined all but one noncompensable either because the patients were not homebound or the services provided were not medically necessary. See 42 U.S.C. § 1395f(a)(2)(C) (requiring a physician's certification that "in the case of home health services, such services are or were required because the individual is or was confined to his home . . . and needs or needed skilled nursing care"). This was an "error" rate exceeding 97%. The overpayment amount attributable to the disapproved claims was $264, 584.51. Health Integrity then statistically extrapolated to a universe of 130 claims, which yielded a total overpayment amount of $773, 967. Palmetto GBA instructed Maxmed to repay the larger amount.

         Maxmed invoked the five-step appeal process to challenge the overpayment determination. Maxmed challenged both the denial of coverage for the claims and the extrapolation to 130 overpayments. Maxmed lost at the redetermination and reconsideration levels before prevailing after an ALJ hearing.

         In a 106-page ruling, the ALJ thoroughly examined each of the cases of the 22 beneficiaries and found nearly all of their claims noncompensable or overpaid. She ruled in favor of Maxmed on only one of the individual claims. The ALJ then took up multiple challenges to Health Integrity's statistical sampling methodology and relied heavily on a report by an independent statistician, not retained by Maxmed, who disagreed with the overpayment calculations. Ultimately, the ALJ found that Health Integrity's extrapolation methodology was fatally flawed in a number of ways, including (1) the failure to record the random numbers used in the sample as required by the MPIM; (2) the failure to properly define sampling units; (3) the failure to demonstrate the sampling units' independence; and (4) the failure to demonstrate average overpayment was normally distributed. The ALJ invalidated the extrapolation methodology and the overpayment amounts based on the methodology.

         CMS referred the ALJ's decision to the Council, as it is entitled to do, seeking "own-motion" review. The Council, ruling de novo, affirmed the ALJ's assessment that the 22 beneficiaries' individual cases were (with one exception) not eligible for Medicare coverage, but reversed the ALJ's determinations about extrapolation and sampling. Like the ALJ, the Council noted that an appeal challenging the validity of the sampling methodology must be predicated on the actual statistical validity of the sample as drawn and conducted. See MPIM § Further, like the ALJ, the Council noted Maxmed's burden was to overcome the presumption of validity of the sampling and extrapolation methodology. CMS Ruling 86-1. The Council concluded that the ALJ "erred as a matter of law in her application of CMS Ruling 86-1 and MPIM guidance and erred as a matter of fact by concluding that the evidence of record establishes that the statistical sampling and extrapolation were invalid." The Council addressed numerous generic and specific challenges to Health Integrity's sampling and extrapolation methodology. Pertinent to this appeal, the Council held that "the MPIM does not require that the list of random numbers be provided, " because the sample selected by Health Integrity could be replicated by other means. Further, the Council rejected Maxmed's contention that the sampling units were not independent because (1) the record did not prove this assertion; (2) multiple claims pertaining to individual beneficiaries were "independent" because they were generated in separate 60-day increments; and (3) the MPIM expressly contemplates the use of "claims, individual claims, or clusters of claims (e.g. a beneficiary)" as the sampling units. MPIM, ch. 3, §[2] Finally, finding no authority for Maxmed's "sweeping proposition, " the Council summarily rejected Maxmed's "additional" argument that extrapolation violates the agency's "Rule of Thumb, " which, according to Maxmed, requires individualized review of each beneficiary's medical record.

         Maxmed sought judicial review of the Council's decision. The company no longer challenges its liability to repay over $250, 000 based on services that were found not medically reasonable and necessary, nor does it raise many of the technical issues concerning extrapolation that were covered in its briefing before the ALJ and the Council. In federal court, Maxmed raised various issues challenging the Council's decision and contended that it was deprived of due process because it was denied timely, critical information about the extrapolation methodology. The district court granted summary judgment to the Secretary. The court affirmed the Council's resolution of the extrapolation issues for essentially the same reasons invoked by the Council. The court found no due process violation because Maxmed had an "encrypted CD [with] an explanation and details of the findings" for the entire duration of the appeal process, and Maxmed had all relevant information at least "prior to the hearing before the ALJ."

         Maxmed moved to amend or alter the judgment, attaching four complaints in different lawsuits filed by Maxmed's counsel that were presented as "new evidence" demonstrating arbitrary extrapolation. The district court denied the motion because "the[] complaints [did] not adequately inform the Court as to the parties' evidence, records, testimony, and statistical sampling, and whether they are exactly the same as those at issue in this case."

         Now, six years after the Secretary first demanded repayments, Maxmed appeals the district court's grant of summary judgment and denial of the motion to amend or alter the judgment.

         STANDARD ...

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