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Family Rehabilitation Inc. v. Azar

United States District Court, N.D. Texas, Dallas Division

June 28, 2018

FAMILY REHABILITATION, INC., d/b/a FAMILY CARE TEXAS, d/b/a ANGELS CARE HOME HEALTH, Plaintiff,
v.
ALEX M. AZAR, II, SECRETARY of the UNITED STATES DEPARTMENT of HEALTH and HUMAN SERVICES; and SEEMA VERMA, ADMINISTRATOR for the CENTERS for MEDICARE and MEDICAID SERVICES, Defendants.

          MEMORANDUM OPINION AND ORDER

          ED KINKEADE UNITED STATES DISTRICT JUDGE.

         Before the Court is Plaintiff Family Rehabilitation, Inc.'s Verified Amended Complaint (Doc. No. 27) and Motion for Temporary Restraining Order and Preliminary Injunction (Doc. No. 34). The Court has carefully considered the motion, the response, the reply, the amicus curiae brief in support of the motion, the parties' arguments at the preliminary injunction hearing before the Court on June 26, 2018, and the law. Because Plaintiff Family Rehabilitation, Inc., has demonstrated a likelihood of success on the merits of its procedural due process claim and irreparable harm, the Court GRANTS the motion for preliminary injunction.

         I. Factual and Procedural Background

         Plaintiff Family Rehabilitation, Inc. (“Family Rehab”) is a Medicare-certified home health agency in Waxahachie, Texas, that, until recently, provided medical services to 289 patients in their homes, assisted living facilities, and retirement communities. Family Rehab employed over 40 nurses and staff. Defendants Alex M. Azar, II, Secretary of the United States Department of Health and Human Services and Seema Verma, Administrator for the Centers for Medicare and Medicaid Services (“Defendants” or “CMS”) allege further investigation indicates Family Rehab is associated with and managed by AngMar Medical Holdings, Inc., which also manages other home health agencies in eight states. Reimbursements from CMS for medical services provided to Medicare beneficiaries made up approximately 94% of Family Rehab's revenue stream. A post-payment review process by a third-party contractor determined CMS overpaid Family Rehab for services. Based on that determination, CMS informed Family Rehab it owed over $7.5 million in overpayments.

         A. An Overview of the Medicare Payment System, Post-Payment Review, and the Appeals Process

         Under the Medicare program enacted in 1965 under Title XVIII of the Social Security Act, the Medicare program reimburses Medicare providers with payments for covered claims. 42 U.S.C. § 1395 et seq. CMS, acting as the administrator of the Medicare program, contracts with Medicare Administrative Contractors (“MACs”) to process and make payments on claims. See 42 U.S.C. §§ 1395u(a), 1395kk-1(a), 1395dd. While MACs typically pay the Medicare claims up front, the payments may later be subject to substantive review. MACs submit some claims for post-payment review, at which point a third party contractor audits the MACs decision to pay the claims and often reverses the MAC's decision.

         Zone Program Integrity Contractor (“ZPIC”) is a particular type of third-party contractor that performs post-payment reviews. ZPICs identify cases of suspected fraud, investigate them, and take action to recoup any Medicare payments that were improperly paid out. ZPICs generally use statistical sampling to calculate an estimated amount of overpayments, which Family Rehab alleges often results in a large overpayment amount derived from a relatively small number of claims. Defendants allege similar “[s]tatistical sampling has been used by the Medicare program since 1972 as an accepted method of estimating Medicare overpayments….” Doc. No. 36 at 5-6. ZPICs are paid on a contractual basis and have the opportunity to earn all or part of an “award fee” based on CMS's evaluation of the ZPIC's performance. CMS determines whether to extend a ZPIC's contract based on its evaluation of the ZPIC's performance. Family Rehab alleges that this contract and payment structure incentivizes ZPICs to overturn the MAC's original payment decisions. Family Rehab alleges ZPICs' claim denials were overturned on appeal 72% of the time in the first quarter of 2013. See Doc. No. 28 at 7.

         A healthcare agency can appeal post-payment claim denials through a four-level administrative appeals process before seeking judicial review. See 42 U.S.C. § 1395ff.

         First, a MAC reviews the denied claim for redetermination and is required to issue its decision within 60 days of receiving the request for review. Id. at § 1395ff(a)(3).

         Second, the healthcare agency can appeal the MAC's redetermination to a Qualified Independent Contractor (“QIC”) within 180 days of receiving the redetermination decision. Id. at § 1395ff(c). The QIC is statutorily required to issue its decision within 60 days of its receipt of the reconsideration request. Id.

         Third, the healthcare agency can appeal the QIC reconsideration decision within 60 days of receiving the decision by requesting a hearing before an ALJ. Id. at § 1395ff(d)(1)(A). The statute requires the ALJ to hold the requested hearing and render its decision within 90 days of the request for hearing. Id. Family Rehab alleges ALJs grant relief to healthcare providers and find against ZPICs in 60% to 72% of cases. If an ALJ does not hear the case and render a decision within the required 90 day period, the healthcare agency may escalate its appeal to the fourth level of review before the Medical Appeals Council, using the record established in the previous levels of review. Id. at § 1395ff(d)(3)(A). The Appeals Council must render a decision or remand the case within 180 days of a timely review request. 42 C.F.R. § 405.1100(d).

         Fourth, within 60 days of an ALJ decision, a dissatisfied party may appeal its claim to the Medicare Appeals Council (“Appeals Council”) within the Health and Human Services Departmental Appeals Board. 42 U.S.C. § 1395(d)(2). The independent council must render a decision or remand the case to the ALJ within 90 day of the request for review. Id.

         Finally, if a party is still dissatisfied, the party may request judicial review in federal district court.

         During the first two levels of the review process, healthcare agencies can avoid recoupment by requesting appeals within specified time frames. 42 U.S.C. § 1395ddd(f)(2). However, the statute does not provide a way to avoid recoupment during the third or fourth levels of the review process. Id. Thus, CMS has the discretionary authority to recoup the alleged overpayment while the appeal is pending before an ALJ. Id.

         “[T]here is a massive backlog in Medicare appeals.” Family Rehab., Inc. v. Azar, 886 F.3d 496, 498 (5th Cir. 2018). Family Rehab alleges that as of September 1, 2017, there were 595, 000 outstanding claims for adjudication. Family Rehab ...


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