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 are (1) Plaintiff's Motion for Summary Judgment
on Its Application for Permanent Injunctive Relief (Doc. No.
79) and (2) Defendants' Motion for Summary Judgment (Doc.
No. 82). The Court considered the motions, briefs, responses,
replies, and applicable law. Because the Court finds that
denying Family Rehab a hearing before an Administrative Law
Judge (“ALJ”) prior to implementing recoupment
that would result in the end of its business violates Family
Rehab's right to procedural due process, the Court
GRANTS Plaintiff's Motion for Summary
Judgment on its Application for Permanent Injunctive Relief.
Because the Court grants Family Rehab's motion but finds
no grounds for an ultra vires action or mandamus
relief, Defendants' Motion for Summary Judgment is
GRANTED IN PART and DENIED IN
Factual and Procedural History
Rehab provides home healthcare services to patients in Texas,
serving approximately 280 patients as of October 2017. Nearly
all of its revenue-between 88 and 94 percent-comes from
Medicare-reimbursable services. To be reimbursed, Family
Rehab is required to perform an initial home health
certification for each patient in conformity with various
regulatory requirements. 42 C.F.R. § 424.22.
Alex M. Azar II (“Azar”) is the Secretary of the
U.S. Department of Health and Human Services
(“HHS”). The Centers for Medicare and Medicaid
Services (“CMS”) is a division of HHS and is
responsible for overseeing the Medicare program. CMS
contracts with Medicare Administrative Contractors
(“MACs”), which are private government
contractors, to process and make these reimbursements.
See 42 U.S.C. § 1395kk-1; 42 C.F.R.
§§ 405.904(a)(2), 405.920-405.928. These payments
may then be audited by Zone Program Integrity Contractors
(“ZPICs”), again private contractors working for
CMS. When a ZPIC identifies an overpayment, it notifies the
initial private contractor (the MAC), which then issues a
demand letter to the provider.
2016, Family Rehab's ZPIC audited 43 claims as an alleged
representative sample of the hundreds of thousands of claims
filed by Family Rehab between August 5, 2014 and April 12,
2016. The ZPIC determined that Family Rehab had overbilled
Medicare on 93% of them and was overpaid $124, 107.53 on the
sampled claims. Notably, the ZPIC based a substantial
majority of the findings on Family Rehab's alleged
failure to properly certify its patients as
“home-bound” and thus eligible for home health
care. See CMS IOM, Publication 100-02, MBPM, Ch. 7,
§ 30.1.1 (The patient's physician must provide
certification that a patient is homebound. A patient is
considered “homebound” if (i) the patient needs
the assistance of a supportive device (e.g., a
wheelchair) or the assistance of another person to leave the
home, or has a condition making leaving the home medically
contraindicated; and (ii) a normal inability to leave the
home exists, and leaving the home would require a
considerable and taxing effort). The ZPIC then used a
statistical method to extrapolate the alleged overbilling
rate for all of Family Rehab's billing and concluded that
Family Rehab had received $7, 885, 803.23 in excess
reimbursements. Family Rehab's MAC sent it a demand for
that amount, and Family Rehab began the Medicare appeals
process, claiming that its patients were adequately certified
as “home-bound” which meant it did not overbill.
provider must go through a four-level appeals process. First,
it may submit to the MAC a claim for redetermination of the
overpayment. 42 U.S.C. § 1395ff(a)(3)(A). Second, it may
ask for reconsideration from another private contractor known
as a “Qualified Independent Contractor”
(“QIC”) hired by CMS for that purpose.
Id. § 1395ff(c), (g); 42 C.F.R. §
405.904(a)(2). If the QIC affirms the MAC's
determination, the private contractor MAC may begin recouping
the overpayment by garnishing future reimbursements otherwise
due the provider. 42 U.S.C. § 1395ddd(f)(2); 42 C.F.R.
the provider may request de novo review before an
ALJ within the Office of Medicare Hearings and Appeals
(OMHA), an agency independent of CMS. 42 U.S.C. §
1395ff(d); 42 C.F.R. § 405.1000(d). The ALJ stage
presents the opportunity to have a live hearing, present
testimony, cross-examine witnesses, and submit written
statements of law and fact. 42 C.F.R. § 405.1036(c)-(d).
The ALJ shall conduct and conclude a hearing ... and render a
decision ... not later than 90 days after a timely
request. 42 U.S.C. § 1395ff(d)(1)(A) (emphasis
added). Fourth, the provider may appeal to the Medicare
Appeals Council (“Council”), an organization
independent of both CMS and OMHA. 42 C.F.R. § 405.1100.
The Council reviews the ALJ's decision de novo
and is similarly required to issue a final decision within 90
days. Id. If the ALJ fails to issue a decision
within 90 days, the provider may “escalate” the
appeal to the Council, which will review the QIC's
Rehab, challenging both the initial audit results and the
extrapolation methodology, exhausted the first two stages of
that administrative appeals process. It sought
redetermination from the MAC and reconsideration from a QIC,
which calculated its liability as $7, 622, 122.31. After the
MAC indicated it intended to begin recoupment on November 1,
2017, Family Rehab, on October 24, 2017, timely requested an
an overwhelming backlog of appeals, Family Rehab was informed
at the outset that it would be unable to obtain an ALJ
hearing for at least three to five years. And based on
HHS's own admissions in open court and in its pleadings,
the logjam of Medicare appeals shows no signs of abating
October 31, 2017, Family Rehab sued for a temporary
restraining order and an injunction to prevent the MAC from
recouping the overpayments until its administrative appeal is
concluded. Family Rehab alleges that, well before the end of
its administrative appeal, it will be forced to shut down
from insufficient revenues because of the MAC's
recoupment. This situation, Family Rehab asserted, (1)
violated its rights to procedural due process, (2) infringed
its substantive due-process rights, (3) established an
“ultra vires” cause of action, and (4)
entitled it to a “preservation of rights”
injunction under the Administrative Procedure Act, 5 U.S.C.
Court held that it lacked subject-matter jurisdiction because
Family Rehab had not exhausted administrative remedies.
See Family Rehab., Inc. v. Hargan, No.
3:17-CV-3008-K, 2017 WL 6761769, at *3 (N.D. Tex. Nov. 2,
2017)(Kinkeade, J.), aff'd in part, rev'd in part
sub nom. Family Rehab appealed and the Fifth Circuit
reversed in part, holding that the Court has jurisdiction to
hear a collateral challenge on both procedural due process
grounds as well as an ultra vires action. Family
Rehab., Inc. v. Azar, 886 F.3d 496, 504 (5th Cir. 2018).
The Fifth Circuit affirmed the Court's finding that it
lacked federal question jurisdiction. Id. at 505-06.
On remand, the Court granted a preliminary injunction
enjoining Azar from recouping any payment until further
proceedings could be completed. Family Rehab., Inc. v.
Azar, No. 3:17-CV-3008-K, 2018 WL 3155911, at *7 (N.D.
Tex. June 28, 2018) (Kinkeade, J.).
Rehab was granted leave to amend the mandamus request in its
complaint (Doc. No. 27) and now moves for summary judgment on
its Application for Permanent Injunctive Relief. Family Rehab
alleges that Azar violated its right to procedural due
process and acted ultra vires when attempting
recoupment without providing an ALJ hearing within the
statutory timeframe. Family Rehab also argues that it is
entitled to a mandamus that orders a hearing in a timely
manner. Azar responds that Family Rehab is provided two
levels of administrative review prior to recoupment, which is
more than the Constitution requires, and is not entitled to a
live hearing in order to satisfy its procedural due process
rights. It also argues that any risk of error that arises
from depriving Family Rehab of an ALJ hearing is ameliorated
by Family Rehab's right to escalate the case to the
Council and then to Federal District Court.
judgment is appropriate when the pleadings, affidavits, and
other summary-judgment evidence show that no genuine issue of
material fact exists and the moving party is entitled to
judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). A
“material fact” is a fact that under the
applicable substantive law “might affect the outcome of
the suit.” Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). A dispute of “a material fact
is ‘genuine' . . . if the evidence is such that a
reasonable jury could return a verdict for the nonmoving
party.” Id. All evidence and reasonable
inferences must be viewed in the light most favorable to the
nonmovant, and all disputed facts resolved in favor of the
nonmovant. See United States v. Diebold, Inc., 369
U.S. 654, 655 (1962); Boudreaux v. Swift Transp.
Co., 402 F.3d 536, 540 (5th Cir. 2005).
moving party bears the burden of identifying those portions
of the record it believes demonstrates the absence of a
genuine issue of material fact. Celotex, 477 U.S. at
322-25. Once a movant makes a properly supported motion, the
burden shifts to the nonmovant to show the existence of a
genuine fact issue for trial; however, the nonmovant may not
rest upon allegations in the pleadings to make such a
showing. Anderson, 477 U.S. at 256-57. Conclusory
allegations, unsubstantiated assertions, or a mere scintilla
of evidence cannot defeat a motion for summary judgment.
See Id. at 249-52; Boudreaux, 402 F.3d at
540. “Where critical evidence is so weak or tenuous on
an essential fact that it could not support a judgment in
favor of the nonmovant, or where it is so overwhelming that
it mandates judgment in favor of the movant, summary judgment
is appropriate.” Alton v. Tex. A&M Univ.,
168 F.3d 196, 199 (5th Cir. 1999). If the nonmovant fails to
make a sufficient showing to prove the existence of an
essential element to the case and on which the nonmovant will
bear the burden of proving at trial, summary judgment must be
granted. Celotex, 477 U.S. at 322. The nonmovant
must cite specific facts in the record to survive a motion
for summary judgment, as “Rule 56 does not impose upon
the district court a duty to sift through the record in
search of evidence to support a party's opposition to
summary judgment.” Adams v. Travelers Indem. Co. of
Conn., 465 F.3d 156, 164 (5th Cir. 2006) (quoting
Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458
(5th Cir. 1998)); see Fed. R. Civ. P. 56(c)(3).
Rehab requests that the Court permanently enjoin Azar from
recouping payment until Family Rehab has received a hearing
with the ALJ. The party seeking a permanent injunction must
satisfy a four-part test: it must show (1) success on the
merits; (2) the failure to grant the injunction will result
in irreparable injury; (3) the injury outweighs any damage
that the injunction will cause the opposing party; and (4)
the injunction will not disserve the public interest.
United Motorcoach Ass'n, Inc. v. City of Austin,
851 F.3d 489, 492-93 (5th Cir. 2017).
determine whether a permanent injunction is warranted, the
Court first looks to see if the requesting party has
established success on the merits of the underlying claim.
Id. at 492. In its Motion for Summary Judgment on
its Application for Permanent Injunctive Relief, Family Rehab
specifically relies on its procedural due process claim.
While the statutory timelines are relevant, a procedural due
process inquiry does not turn on the agency's adherence
to its own guidelines. See Califano v. Yamasaki, 442
U.S. 682, 696 (1979) (referring to the Due Process Clause as
“more tolerant” than the relief provided by
statute); Wells v. Dallas Indep. Sch. Dist., 793
F.2d 679, 682 (5th Cir. 1986) (“If a state or local
government demands that its officials afford a more elaborate
process than the Constitution requires, its demands alone
cannot expand the boundaries of what concerns us here: