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Family Rehabilitation, Inc. v. Azar

United States Court of Appeals, Fifth Circuit

March 27, 2018

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.

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

          Before REAVLEY, SMITH, and OWEN, Circuit Judges.


         Family 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 affirm.


         Family 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.

         The 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.[1] 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.

         In 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.

         A 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. § 405.371(a)(3).[2]

         Third, 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.

         Family 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.

         Yet 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.[3] 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.

         Accordingly, 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.

         The 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.


         We 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.


         Under 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.[4] 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.[5]

         Yet 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).[6] 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).


         We turn 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 ...

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