United States District Court, N.D. Texas, Dallas Division
FAMILY REHABILITATION, INC., d/b/a FAMILY CARE TEXAS, d/b/a ANGELS CARE HOME HEALTH, Plaintiff,
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
KINKEADE UNITED STATES DISTRICT JUDGE.
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
Factual and Procedural Background
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
An Overview of the Medicare Payment System, Post-Payment
Review, and the Appeals Process
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
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.
healthcare agency can appeal post-payment claim denials
through a four-level administrative appeals process before
seeking judicial review. See 42 U.S.C. §
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).
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.
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).
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
if a party is still dissatisfied, the party may request
judicial review in federal district court.
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.
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