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Supreme Home Health Services Inc v. Azar

United States District Court, W.D. Louisiana, Monroe Division

April 8, 2019





         Before 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.


         Supreme 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 Medicare Program.

         Supreme enrolled in the Medicare Program in 1983, and has remained so enrolled.[1]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).

         Upon 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.

         In an 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].

         In an 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].

         In 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.

         On January 31, 2013, Palmetto issued an unfavorable decision.

         In 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 stayed.

         On 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.

         On May 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].

         On July 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].

         On June 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. Id.

         On 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.[2] 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]).

         Meanwhile, 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].

         Supreme 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 (“APA”).[3]

         On 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 recommendation.

         Supreme 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.

         Law and Analysis

         I. Subject Matter Jurisdiction

         The 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).[4] 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).

         Before 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. Peterson, supra.

         “A 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 omitted).

         Supreme 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).

         The 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).

         The “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, supra.

         Judicial 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 (1976)).

         The 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.[5]

         As to § 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 omitted).[6]

         Here, 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.

         a) The Collateral Claim Exception

         The 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.

         The 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).[7]

         In 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. Id.

         The allegations in Supreme's complaint are akin to those in Family Rehab.

         Furthermore, 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 ...

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