Courts Recognize Irreparable Injury Caused by Medicare Appeals Backlog

This is a summary of the article Courts Recognize Irreparable Injury Caused by Medicare Appeals Backlog written by Jessica L. Gustafson, Esq. and Abby Pendleton, Esq., published in the January/February 2019 issue of BC Advantage.

Presently, there are 426,594 appeals pending and awaiting OMHA adjudication. Despite a statutory mandate to “conduct and conclude a hearing…and render a decision on such hearing by not later than the end of the 90-day period beginning on the date a request for hearing has been timely filed,” the average processing time for OMHA appeals is presently 1,142 days (over 3 years). Unfortunately for appellants, there are significant financial repercussions resulting from adjudicators’ failures to adhere to their statutory mandates for timely appeals adjudication. Delays in appeals processing not only violate the Social Security Act, but also create financial hardship for appellants.

Specifically, Medicare contractors are allowed to begin recouping an alleged overpayment after a reconsideration decision is issued. Following issuance of a partially favorable or unfavorable reconsideration decision, CMS will begin recoupment activities while an appellant awaits an Administrative Law Judge (ALJ) hearing and decision.

It is difficult for an appellant to obtain jurisdiction to sue the federal government. A concept known as the “channeling requirement” requires appellants to exhaust the administrative appeals process before being able to appeal a claim against the federal government to federal district court. Three primary exceptions exist to the channeling requirement: (1) Collateral claims exception; (2) Illinois Council exception; and (3) Requests for mandamus relief.

1. Under the collateral claims exception to the channeling requirement, a federal district court has jurisdiction over a claim (a) that is “entirely collateral” to a substantive agency division, and (b) for which “full relief cannot be obtained at a post-deprivation hearing.” If a court must examine the merits of an underlying dispute, the claim is not collateral. Further, if an appellant is requesting benefits to be permanently reinstated, the claim is not collateral. However, if appellants are not precluded from bringing claims that arise only from constitutional or procedural law and requesting that benefits be maintained temporarily until the agency follows its statutorily or constitutionally required procedure.
2. A claim may be brought against the federal government under the Illinois Council exception to the channeling requirement if exhausting the administrative appeals process “would not simply channel review through the agency, but would mean no review at all.” However, at least one court has also found Illinois Council jurisdiction where the appellant faced “a serious practical roadblock to having [its] claims reviewed in capacity, administratively or judicially.”
3. Under Section 1361 of the Social Security Act, jurisdiction exists over “any action in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff.” While requesting mandamus relief is not directly relevant to the recoupment issue, the American Hospital Association (AHA), together with three plaintiff hospitals, has famously sought (and received) mandamus relief to require OMHA to provide appellants with OMHA ALJ review with the statutorily required timeframes.

Recognizing the irreparable injury caused to appellants by the OMHA ALJ adjudication delays, in two recent cases, courts have allowed preliminary injunctions against CMS (enjoining CMS from recouping or withholding alleged overpayments while the appellants were awaiting OMHA ALJ adjudication) based on collateral claims alleging inadequate procedural due process.

In Family Rehabilitation Inc. v. Azar, Family Rehabilitation, Inc. (Family Rehab), a Medicare-certified home health agency in Texas, underwent a post-payment review by a zone program integrity contractor (ZPIC) in 2016. The review found that Family Rehab had been overpaid by over $7.5 million. On November 1, 2017, CMS began to recoup the alleged overpayment by withholding Medicare reimbursements from Family Rehab, who was then forced to lay off 39 of its 40 employees and terminate services for 281 of its 289 patients. Family Rehab filed suit in federal district court seeking to obtain a preliminary injunction against CMS. On June 28, 2018, the court ordered that CMS was prohibited from withholding Medicare payments from Family Rehab until such time as an ALJ hearing on Family Rehab’s appeal of the overpayment determination could be held and a decision issued.

The U.S. District Court for the District of South Carolina Florence Division applied a similar analysis in deciding the case of Accident, Injury and Rehabilitation, P.C. v. Azar. Accident, Injury and Rehabilitation, P.C. (AIR) is a supplier of chiropractic and holistic care. Prior to 2015, AIR earned annual gross revenues of approximately $6.8 million, of which 31% constituted revenues from Medicare. Following two 2015 ZPIC post-payment medical reviews, the ZPIC alleged the AIR had been overpaid by a total of over $6.5 million. AIR appealed the subject denials through the administrative appeals process, submitting requests for ALJ hearing in March and April of 2016. Afterwards, CMS withheld over $1.8 million. AIR filed suit in federal district court, seeking to obtain a preliminary injunction against CMS. On September 27, 2018, the court granted AIR’s motion and ordered that CMS be enjoined from attempting to recoup the alleged overpayment until an ALJ hearing could be held and a decision issued.

For appellants awaiting OMHA ALJ adjudication of their cases, recent case law is helpful to demonstrate that courts are now acknowledging the irreparable injury Medicare recoupment for an extended period of time may cause to a health care business. Although in the past, many health care attorneys may have advised appellants that the likelihood of success bringing a lawsuit would be low due to the jurisdictional bar (i.e., the channeling requirement), given today’s appeals environment, recent case law opens the door for impacted appellants to purse injunctive relief. Faced with the alternatives of shutting doors or filing a case for injunctive relief, appellants may now wish to seriously consider the latter.

For more information regarding Medicare appeals, please contact Jessica L. Gustafson, Esq. or Abby Pendleton, Esq.