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Family Rehabilitation, Inc. v. Azar

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

January 15, 2020




         Before 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 PART.

         I. Factual and Procedural History

         Family 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.

         Defendant 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.

         In 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.

         A 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. § 405.371(a)(3).

         Third, 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 reconsideration. Id.

         Family 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 ALJ hearing.

         Due to 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 anytime soon.

         On 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. §§ 704-05.

         This 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.).

         Family 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.

         II. Applicable Law

         Summary 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).

         The 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).

         Family 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).

         III. Analysis

         To 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: ...

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