United States District Court, W.D. Louisiana, Monroe Division
SUPREME HOME HEALTH SERVICES, INC. AND EMILY WINSTON, PRESIDENT
ALEX M. AZAR, II, SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, ET AL.
TERRY A. DOUGHTY
REPORT AND RECOMMENDATION
L. HAYES UNITED STATES MAGISTRATE JUDGE
the undersigned magistrate judge, on reference from the
District Court, are two motions: 1) a motion to dismiss for
lack of subject matter jurisdiction and for failure to state
a claim upon which relief can be granted [doc. # 26] filed by
defendants, Alex M. Azar, II, Secretary of the U.S.
Department of Health and Human Services, and Seema Verma,
Administrator for the Centers for Medicare & Medicaid
Services; and 2) a motion to dismiss [doc. # 28] filed by
defendant, Palmetto, GBA, L.L.C. for improper service
pursuant to Rules 12(b)(2), (5), and 4(m), or alternatively,
to dismiss for failure to state a claim upon which relief can
be granted, including the claims of plaintiff, Emily Winston,
for lack of standing. For reasons assigned below, it is
recommended that Azar and Verma's motion be
GRANTED-IN-PART and DENIED-IN-PART, and that Palmetto's
motion be DENIED, as moot.
Home Health Services, Inc. (“Supreme”) is a home
health agency located in Monroe, Louisiana. Supreme has been
in business for thirty-eight years and employs 99 people who
provide skilled nursing care, physical therapy, occupational
therapy, speech therapy, nursing home health aid, medical
social work, and other medical social services to patients in
their homes, assisted living facilities, and retirement
communities. Of the approximately 175 patients served in
eight parishes, between 76 and 86% are covered under the
enrolled in the Medicare Program in 1983, and has remained so
enrolled.Under the Medicare Act, no payment may be
made for items or services, “which . . . are not
reasonable and necessary for the diagnosis or treatment of
illness or injury or to improve the functioning of a
malformed body member . . .” See 42 U.S.C.
§ 1395y. Unlike private insurance plans, Medicare pays
most claims first and audits only some claims after
payment. The Secretary of Health and Human Services
(“Secretary”) has a statutory, regulatory, and
quasi-contractual duty to recoup payments for non-covered
services. See 42 U.S.C. § 1395g(a) (Secretary
shall determine amount due “with necessary adjustments
on account of previously made overpayments.”); 42
C.F.R. § 405.373(A).
enrollment, Supreme, through Winston, expressly agreed
“to return any moneys incorrectly collected from any
person or to dispose of overpayments as specified in
Regulations.” [doc. # 27-10, Exh. J]. Again, in
February 2012, Supreme, through Winston, agreed “to
abide by the Medicare laws, regulations and program
instructions that apply to this Provider” and that the
“payment of a claim by Medicare is conditioned upon the
claim and the underlying transaction complying with such
laws, regulations, and program instructions. . .” [doc.
# 27-6, Exh. F, at pgs. 2-3]. Winston further certified that,
“I agree that any existing or future overpayment made
to the provider by the Medicare program may be recouped by
Medicare through the withholding of future payments.”
Id. Finally, Winston signed the official document
and attested, “[m]y signature legally and financially
binds this provider to the laws, regulations, and program
instructions of the Medicare program.” Id.
October 17, 2012 letter, AdvanceMed, a Zone Program Integrity
Contractor (“ZPIC”) notified Supreme that a
post-payment audit of some 318 claims had revealed that
Supreme had submitted Medicare claims in the amount of $1,
739, 569.00 for non-covered services. AdvanceMed found that
some of the care provided was not reasonable and necessary
based on the medical documentation submitted. AdvanceMed then
used statistical sampling to extrapolate an overpayment from
all codes billed by Supreme from January 1, 2009, through
July 31, 2011. [doc. # 1-8 at pg. 10].
October 23, 2012 letter, Palmetto GBA, LLC
(“Palmetto”), the Medicare Administrative
Contractor (“MAC”), requested that Supreme repay
the overpayment amount immediately or face recoupment. [doc.
# 1-9 at pgs. 1-2]. Palmetto also notified Supreme that
recoupment could be stopped during the first two levels of
the administrative appeal process and resumed after
completion of the second level. [doc. # 1-9 at pg. 3].
November 2012, Supreme requested a redetermination decision
from Palmetto at the first level of the administrative
process. [doc. #s 1-1 at pgs. 10-11 and 1-13, at pg. 1]. The
redetermination request stayed recoupment.
January 31, 2013, Palmetto issued an unfavorable decision.
March 2013, Supreme appealed the redetermination decision to
the second level of the administrative process by requesting
reconsideration by a Qualified Independent Contractor
(“QIC”), which again caused recoupment to be
February 4, 2014, the QIC issued a “partially
favorable” decision. [doc. # 1-6, at pg. 1].
Thereafter, Supreme submitted additional evidence, and QIC
found good cause to reopen and reprocess the appeal.
8, 2015, the QIC issued a reconsideration decision in which
it went through each denied claim by reviewing the medical
documentation that Supreme had provided in support of medical
necessity. [doc. # 27-2]. The QIC's decision was
“partially favorable, ” finding that many of
Supreme's claims were only partially covered by Medicare.
Id. at 1. As a result, the overpayment determination
was reduced by $20, 741.27 to $1, 718, 827.73. [doc. # 1-6 at
1; see doc. 1-1 at 11].
10, 2015, Supreme appealed the reconsideration decision to
the third level of the administrative review process by
requesting a hearing before an Administrative Law Judge
(“ALJ”). [doc. # 1-14 at pg. 1].
1, 2016, Palmetto sent Supreme an overpayment demand letter,
advising that payments totaling $2, 357, 657.83 (principal of
$1, 718, 827.73, plus interest of $638, 830.10) were due by
July 1, 2016, and that, absent payment, Palmetto could begin
recouping the overpayment after the lapse of 30 days. [doc. #
1-6 at pgs. 1-2]. On July 17, 2016, Supreme requested a
five-year (60-month) extended repayment schedule - the
longest term permitted by statute - which CMS (Centers for
Medicare and Medicaid Services) ultimately approved. [doc. #s
27-3, Exh. C, at pg. 2, 1-10 at pgs. 1-3]. Under the terms of
the schedule, Supreme was required to make monthly payments
from October 2016 through September 2021. [doc. # 1-10 at
pgs. 1-3]. The initial payments (from October 2016 through
September 2017) were in the amount of $69, 337.83.
Id. The remaining monthly payments from October 2017
through the end of the schedule declined to $43, 904.11.
January 24, 2018, CMS approved a revised extended repayment
schedule that lowered Supreme's payments to $30, 000
through January 2019. [doc. # 27-4, Exh. D, at pgs. 1-3].
Under this schedule, the payment amounts are expected to rise
by increments of $10, 000 every six months, maxing out at
$80, 000 in February 2021. Id. As of November
13, 2018, CMS has recouped $7, 353.12 from Supreme of the $1,
739, 569.00 overpayment, plus $817, 194.31 in interest.
(Decl. of Joseph Strickland; [doc. # 27-11, Exh. K]).
on October 19, 2018, Supreme and Winston (collectively,
“Supreme”) filed the instant complaint for a TRO
and preliminary injunction against Alex M. Azar, II, in his
official capacity as the Secretary of HHS; Seema Verma, in
her official capacity as the Administrator for CMS; and
Palmetto - the Medicare Administrative Contractor
(“MAC”). The complaint seek an injunction
“to prevent Defendants from recouping approximately $1,
700, 000.00 in alleged overpayment and $653, 725.47 in
interest . . . from Supreme - which would bankrupt Supreme
and cause it to go out of business- before Plaintiffs have
the opportunity to be heard by the . . . ALJ.” [doc. #
1, pgs. 1-2].
further asserted that recoupment violated its due process
rights while a “backlog of hundreds of thousands of
claims [are] pending before the HHS Office of Medicare
Hearings and Appeals will irreparably harm Plaintiffs through
the destruction of their business and the ensuing certain
closure of its operations.” Id. at pg. 2. In
addition, Supreme alleged that the extraordinary delays
violated the plain terms of the statute. Id. at pg.
2, ¶ 8. Ultimately, the suit specifies four counts: 1)
procedural due process; 2) substantive due process; 3) ultra
vires; and 4) preservation of rights under § 704 of the
Administrative Procedure Act
February 15, 2019, defendants filed two motions to dismiss.
Azar and Verma joined in one motion and petitioned for
dismissal of the entire suit for lack of subject matter
jurisdiction, or alternatively, for failure to state a claim
upon which relief can be granted. Whereas, Palmetto filed the
second motion to dismiss on the grounds that it was not
properly served, Emily Winston lacked standing to sue for
alleged injuries sustained by Supreme, and because the
complaint failed to state a claim for relief against
Palmetto. By standing order, the District Court referred the
motions to dismiss to the undersigned for report and
filed its oppositions to the motions to dismiss on March 1,
2019. [doc. #s 32-33]. Palmetto filed its reply brief on
March 8, 2019. [doc. # 34]. Azar and Verma did not file a
reply, and the time to do so has lapsed. See Notice
of Motion Setting [doc. # 29]. Thus, the matter is ripe.
Subject Matter Jurisdiction
United States, as sovereign, is immune from suit except in
the manner and degree sovereign immunity is waived.
United States v. Testan, 424 U.S. 392, 96 S.Ct. 948
(1976). The so-called doctrine of sovereign immunity renders
“the United States, its departments, and its employees
in their official capacities as agents of the United States
immune from suit except as the United States has consented to
be sued.” Williamson v. U.S. Dep't of
Agric., 815 F.2d 368, 373 (5th Cir.1987) (citations
omitted). In the absence of an express congressional
waiver of immunity, an action against the United States or
its agencies does not fall within the judicial power of the
federal courts. See Glidden Co. v. Zdanok, 370 U.S.
530, 82 S.Ct. 1459 (1962). In other words, the court lacks
subject matter jurisdiction to entertain the suit. See
United States v. Sherwood, 312 U.S. 584, 587, 61 S.Ct.
767, 770 (1941).
proceeding further, the court pauses to observe that Congress
authorized the HHS Secretary to enter into contracts with any
eligible entity to serve as a medicare administrative
contractor (“MAC”). 42 U.S.C. §
1395kk-1(a)(1). Palmetto is a MAC. (Compl., ¶ 34).
However, Medicare fiscal intermediaries, such as Palmetto,
act as agents of the HHS Secretary. Peterson v.
Weinberger, 508 F.2d 45, 51-52 (5th Cir.1975). Palmetto,
which was acting within the scope of its official duties, is
entitled to the same official immunity as officers or
employees of the United States. Marsaw v. Thompson,
133 Fed.Appx. 946, 949 (5th Cir.2005). Therefore, the real
party in interest in this suit is the United States.
case is properly dismissed for lack of subject matter
jurisdiction when the court lacks the statutory or
constitutional power to adjudicate the case.” Home
Builders Ass'n of Miss., Inc. v. City of Madison,
143 F.3d 1006, 1010 (5th Cir. 1998) (citation omitted). The
party seeking to invoke jurisdiction bears the burden of
demonstrating its existence. See Ramming v. United
States, 281 F.3d 158, 161 (5th Cir. 2001); Howery v.
Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001).
The court can resolve a motion to dismiss for lack of subject
matter jurisdiction “based on (1) the complaint alone;
(2) the complaint supplemented by undisputed facts evidenced
in the record; or (3) the complaint supplemented by
undisputed facts plus the court's resolution of disputed
facts.” Enable Mississippi River Transmission,
L.L.C. v. Nadel & Gussman, L.L.C., 844 F.3d 495, 497
(5th Cir.2016) (citations and internal quotation marks
alleged that the court enjoys jurisdiction pursuant to the
federal question statute, 28 U.S.C. § 1331, the mandamus
statute, 28 U.S.C. § 1361; the All Writs Act, 28 U.S.C.
§ 1651; the Social Security Act, 42 U.S.C. §
405(g), as extended to Medicare, 42 U.S.C. § 1395ii; and
the Administrative Procedures Act, 5 U.S.C. § 705.5.
(Compl., ¶ 19). However, “[t]he Medicare Act
severely restricts the authority of federal courts by
requiring ‘virtually all legal attacks' under the
Act be brought through the agency.” Physician
Hosps. of Am. v. Sebelius, 691 F.3d 649, 653 (5th
Cir.2012) (citation omitted).
third sentence of 42 U.S.C. § 405(h) declares that
§ 405(g) is the sole avenue for judicial review for all
“claim[s] arising under” the Medicare Act, even
to the exclusion of 28 U.S.C. § 1331. Heckler v.
Ringer, 466 U.S. 602, 614-15, 104 S.Ct. 2013, 2021
(1984) (citation omitted). Therefore, if the suit
“arises under” the Medicare Act, 42 U.S.C. §
1395 et seq., federal courts may not exercise general federal
question jurisdiction under 28 U.S.C. § 1331. Faith
Home Health Servs. Inc. v. Shalala, 166 F.3d 341 (5th
Cir.1998) (citation omitted).
“claim arising under” language is to be construed
quite broadly to include any claims in which “both the
standing and the substantive basis for the
presentation” of the claims is the Medicare/Social
Security Act. Ringer, supra (citing Weinberger
v. Salfi, 422 U.S. 749, 760, 95 S.Ct. 2457, 2464,
(1975)). Here, there is little question that Supreme
(including Winston's) claims arise under the Medicare
Act. It makes no difference if, like here, plaintiffs seek
only injunctive or declarative relief. Ringer,
review for claims “arising under” the Medicare
Act normally becomes available only after a party first
presents the claim to the Secretary and receives a
final decision. Physician Hosps. of Am., 691 F.3d at
653. In other words,
jurisdiction under section 405(g) is determined under a two
prong test. First, there must have been a presentment to the
Secretary . . . This element can never be waived and no
decision of any type can be rendered if this requirement is
not satisfied. . . . Second, the claimant must have exhausted
his administrative review.
Affiliated Prof'l Home Health Care Agency v.
Shalala, 164 F.3d 282, 285 (5th Cir.1999) (citing
Mathews v. Eldridge, 424 U.S. 319, 328, 96 S.Ct. 893
government's protestations notwithstanding, the court
readily finds that Supreme presented its claim to the
Secretary, if not by initiating the administrative appeals
process, then by requesting review before an ALJ.
See discussion, infra.
§ 405(g)'s exhaustion prong, a provider like Supreme
“may come to district court only after either (1)
satisfying all four stages of administrative appeal, i.e.,
after the [Medicare Appeals] Council has rendered a decision,
or (2) after the provider has escalated the claim to the
[Medicare Appeals] Council and the Council acts or fails to
act within 180 days.” Family Rehab., Inc. v.
Azar, 886 F.3d 496, 501 (5th Cir.2018) (citations
Supreme acknowledged that it did not exhaust the
administrative process. Therefore, it must establish that it
meets an exception to exhaustion. The courts have recognized
three narrow exceptions to excuse the foregoing
administrative exhaustion requirement: “(1) the
Eldridge collateral-claim exception under §
405(g); (2) the preclusion-of-judicial-review exception under
28 U.S.C. § 1331; and (3) mandamus jurisdiction under 28
U.S.C. § 1361.” Adams, supra (citing
Family Rehab., 886 F.3d at 501; Mathews v.
Eldridge, 424 U.S. 319, 330-31 (1976); Shalala v.
Illinois Council on Long Term Care, Inc., 529 U.S. 1,
19, 120 S.Ct. 1084, 1097 (2000); and Randall D. Wolcott,
M.D., P.A. v. Sebelius, 635 F.3d 757, 764 (5th Cir.
2011). The court will address each in turn.
Collateral Claim Exception
Eldridge collateral claim exception to the
administrative exhaustion requirement has two requirements:
1) the claims must be “entirety collateral” to a
substantive agency decision; and 2) for which “full
relief cannot be obtained at a postdeprivation
hearing.” Family Rehab, 886 F.3d at 501. Under
the first inquiry, a claim may be collateral if it does not
require the court to “immerse itself” in the
substance of the underlying Medicare claim or demand a
“factual determination” as to the application of
the Medicare Act. Id. (citing Affiliated
Prof'l, 164 F.3d at 285-86). The claim also cannot
seek relief that would be “‘administrative,'
i.e., the substantive, permanent relief that the plaintiff
seeks or should seek through the agency appeals
process.” Id. Rather, “the claim must
seek some form of relief that would be unavailable through
the administrative process.” Id.
procedural due process and ultra vires claims
asserted by Supreme in this case mimic the claims in
Family Rehab, that the Fifth Circuit found to be
collateral. In Family Rehab, the Fifth Circuit
observed that like the Eldridge case, Family Rehab
only requested a hearing before the government initiated
recoupment of medicare revenues. Family Rehab, 886
F.3d at 503. In turn, Supreme, like the plaintiff in
Family Rehab, does not seek a determination that the
recoupment is wrongful under the Medicare Act. Accordingly,
the court will not have to wade into the Medicare Act or its
regulations. Instead, Supreme seeks only a temporary
suspension of recoupment until after it has had a hearing
before an ALJ. Id. Given the similarity between this
suit and the Family Rehab case, the court
necessarily finds that Supreme's procedural due process
and ultra vires claims are collateral to the outcome
of the agency proceedings. Family Rehab, supra;
Sahara Health Care, Inc. v. Azar, 349 F.Supp.3d 555,
565 (S.D. Tex.2018).
Family Rehab, the Fifth Circuit further found that
plaintiff “raised at least a colorable claim”
that erroneous recoupment would “damage [it] in a way
not recompensable through retroactive payments.”
Family Rehab, supra (quoting Eldridge, 424
U.S. at 331, 96 S.Ct. 893). In so finding, the court noted
that plaintiff alleged that if recoupment continued before it
obtained an ALJ hearing, then it would go out of business,
which also would adversely affect employees and patients.
Id. The combined threats of going out of business
and disruption to Medicare patients sufficed to establish
irreparable injury - at least at the pleading stage.
allegations in Supreme's complaint are akin to those in
in Family Rehab, as here, the government argued that
plaintiff would not face irreparable injury if it either
escalated its claim to the Appeals Council or sought a
repayment plan. Family Rehab, 886 F.3d at 504, n16.
The court discounted the availability of those avenues of
relief because of the infeasibility of a viable ...