FAMILY REHABILITATION, INCORPORATED, Doing Business as Family Care Texas, Doing Business as Angels Care Home Health, Plaintiff-Appellant,
ALEX M. AZAR, II, Secretary, U.S. Department of Health and Human Services; SEEMA VERMA, Acting Administrator for the Centers for Medicare and Medicaid Services, Defendants-Appellees.
from the United States District Court for the Northern
District of Texas
REAVLEY, SMITH, and OWEN, Circuit Judges.
E. SMITH, CIRCUIT JUDGE.
Rehabilitation, Incorporated ("Family Rehab"), a
Medicare services provider, was assessed for about $7.6
million in Medicare overpayments. It appealed under
Medicare's Byzantine four-stage administrative appeals
process but has completed only the second stage, at which
point its Medicare revenue became subject to recoupment; it
timely requested a hearing before an administrative law judge
("ALJ"), i.e., the third stage. Yet there is a
massive backlog in Medicare appeals. Family Rehab likely will
not receive an ALJ hearing for at least three years and soon
will go bankrupt if recoupment continues. Accordingly, Family
Rehab sued for an injunction against recoupment until it
receives an ALJ hearing. The district court dismissed for
lack of subject-matter jurisdiction. We reverse and remand in
regard to Family Rehab's procedural due process and
ultra vires claims; in all other respects, we
Rehab provides home healthcare services to patients in Texas,
serving approximately 280 patients as of October 2017. Nearly
all of its revenue-between 88 and 94 percent-comes from
Medicare-reimbursable services. To be reimbursed, Family
Rehab is required to perform an initial home health
certification for each patient in conformity with various
regulatory requirements. 42 C.F.R. § 424.22.
Centers for Medicare and Medicaid Services ("CMS")
is a division of the U.S. Department of Health and Human
Services ("HHS") and is responsible for overseeing
the Medicare program. CMS contracts with Medicare
Administrative Contractors ("MACs"), which are
private government contractors, to process and make these
reimbursements. See 42 U.S.C. § 1395kk-1; 42
C.F.R. §§ 405.904(a)(2), 405.920-405.928. Such
payments may then be audited by Zone Program Integrity
Contractors ("ZPICs"). When a ZPIC identifies an
overpayment, it notifies the relevant MAC, which then issues
a demand letter to the provider.
2016, Family Rehab's ZPIC audited 43 claims and
determined that Family Rehab had overbilled Medicare on 93%
of them, primarily a result of documentary deficiencies
related to the initial home health certification. The ZPIC
then used a statistical method to extrapolate the alleged
overbilling rate and concluded that Family Rehab had received
$7, 885, 803.23 in excess reimbursements. Family Rehab's
MAC sent it a demand for that amount, and Family Rehab
entered the harrowing labyrinth of Medicare appeals.
provider must go through a four-level appeals process. First,
it may submit to the MAC a claim for redetermination of the
overpayment. 42 U.S.C. § 1395ff(a)(3)(A). Second, it may
ask for reconsideration from a Qualified Independent
Contractor ("QIC") hired by CMS for that purpose.
Id. § 1395ff(c), (g); 42 C.F.R. §
405.904(a)(2). If the QIC affirms the MAC's
determination, the MAC may begin recouping the overpayment by
garnishing future reimbursements otherwise due the provider.
42 U.S.C. § 1395ddd(f)(2); 42 C.F.R. §
the provider may request de novo review before an
ALJ within the Office of Medicare Hearings and Appeals
(OMHA), an agency independent of CMS. 42 U.S.C. §
1395ff(d); 42 C.F.R. § 405.1000(d). The ALJ stage
presents the opportunity to have a live hearing, present
testimony, cross-examine witnesses, and submit written
statements of law and fact. 42 C.F.R. § 405.1036(c)-(d).
The ALJ "shall 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). Fourth, the
provider may appeal to the Medicare Appeals Council
("Council"), an organization independent of both
CMS and OMHA. 42 C.F.R. § 405.1100. The Council reviews
the ALJ's decision de novo and is similarly
required to issue a final decision within 90 days.
Id. Furthermore, if the ALJ fails to issue a
decision within 90 days, the provider may
"escalate" the appeal to the Council, which will
review the QIC's reconsideration. Id.
Rehab, challenging both the initial audit results and the
extrapolation methodology, exhausted the first two stages of
that administrative appeals process. It sought
redetermination from the MAC and reconsideration from a QIC,
which calculated its liability as $7, 622, 122.31. After the
MAC indicated it intended to begin recoupment on November 1,
2017, Family Rehab, on October 24, 2017, timely requested an
ALJ hearing is not forthcoming-not within 90 days, and not
within 900 days. According to Family Rehab-and effectively
conceded by the government-it will be unable to obtain an ALJ
hearing for at least another three to five years.
And based on HHS's own admissions to a federal judge, the
logjam of Medicare appeals shows no signs of abating anytime
soon. Thus, the earliest Family Rehab could
complete administrative review would be through
escalation-which could be as late as July 24, 2018, or 270
days after October 24, 2017.
Family Rehab sued for a temporary restraining order and an
injunction to prevent the MAC from recouping the overpayments
until its administrative appeal is concluded. Family Rehab
alleges that, well before the end of its administrative
appeal, it will be forced to shut down from insufficient
revenues because of the MAC's recoupment. This situation,
Family Rehab asserts, (1) violates its rights to procedural
due process, (2) infringes its substantive due-process
rights, (3) establishes an "ultra vires"
cause of action, and (4) entitles it to a "preservation
of rights" injunction under the Administrative Procedure
Act, 5 U.S.C. §§ 704-05.
district court sua sponte held that it lacked
subject-matter jurisdiction because Family Rehab had not
exhausted administrative remedies. See 42 U.S.C.
§ 405(g). Family Rehab appeals.
review jurisdictional issues de novo. Physician
Hosps., 691 F.3d at 652. The proponent of jurisdiction
has the burden of establishing it. Id. Because the
district court dismissed at the Rule 12(b)(1) stage, Family
Rehab only need "allege a plausible set of facts
establishing jurisdiction." Id.
42 U.S.C. § 405(g) and (h), federal courts are vested
with jurisdiction over only a "final decision" of
HHS when dealing with claims "arising under" the
Medicaid Act. Ordinarily, this means that a provider may
come to district court only after either (1) satisfying all
four stages of administrative appeal, i.e., after the Council
has rendered a decision, or (2) after the provider has
escalated the claim to the Council and the Council acts or
fails to act within 180 days. Id. §§
405(g), (h); 42 C.F.R. § 405.1132. Neither has occurred
here, and Family Rehab concedes that its claims "arise
under" the Medicare Act.
both the Supreme Court and this court have recognized
exceptions to the channeling requirements of § 405,
which Family Rehab now invokes as bases for jurisdiction.
First, Family Rehab claims that its procedural due-process
and ultra vires claims are collateral to the
agency's appellate process, invoking Mathews v.
Eldridge, 424 U.S. 319, 326-32 (1976). Second, Family
Rehab insists that § 405 "would not simply channel
review through the agency, but would mean no review at all,
" thereby reasoning that jurisdiction is proper under 28
U.S.C. § 1331. See Ill. Council, 529 U.S. at
19. Third, Family Rehab maintains that the court has mandamus
jurisdiction. See Randall D. Wolcott, M.D., P.A. v.
Sebelius, 635 F.3d 757, 764 (5th Cir. 2011).
first to the collateral-claim exception, first articulated in
Eldridge, 424 U.S. at 330. There, the Court held
that jurisdiction may lie over claims (a) that are
"entirely collateral" to a substantive agency
decision and (b) for which "full relief cannot be
obtained at a postdeprivation hearing." Id. at
330-32. As the Court explained, HHS has the power to
"waive the exhaustion requirement" and determine
when finality has occurred. Id. at 330. Thus,
"when a plaintiff asserts a collateral challenge that
cannot be remedied after the exhaustion of administrative
review, " courts shall deem ...