Federal Court Prohibits CMS from Recouping Provider’s Medicare Payments while it Awaits its ALJ Hearing

A Dallas-area home health agency has secured a court order that allows it to continue receiving Medicare reimbursement while it awaits a hearing before an Administrative Law Judge (ALJ) to contest a multi-million dollar overpayment determination. On June 28, 2018, the U.S. District Court for the Northern District of Texas issued a preliminary injunction preventing the Centers for Medicare and Medicaid Services (CMS) from recouping the provider’s Medicare payments during the pendency of its appeal. The injunction represents a rare victory for providers attempting to stave off recoupment of their Medicare payments while they languish in the 3-5 case backlog at the Office of Medicare Hearings and Appeals (OMHA).

Background – Medicare Overpayments and Recoupment

In the event that CMS determines a provider has been overpaid by Medicare, the provider generally has three options: (1) repay the overpayment in full; (2) request an extended repayment plan to repay the overpayment in installments; or (3) appeal the overpayment. In cases where overpayments are extremely large (such as those calculated through the use of statistical sampling), many providers may not be in a position to repay a large overpayment in a lump sum. Most providers, therefore, typically appeal the overpayment and request a repayment plan with CMS at some point during the pendency of the appeal. Due to the extraordinary backlog of cases pending at the ALJ level of review and the exorbitant interest rates assessed by CMS, this strategy has become less viable for many providers.

Medicare Appeals

As many providers know, CMS has created a five-step appeals process for providers to challenge overpayments. These five steps consist of redetermination, reconsideration, a hearing before an ALJ, review by the Medicare Appeals Council, and judicial review in Federal District Court.

If a provider files its redetermination request within 30 days of the overpayment demand letter, then CMS may notinitiate any collection actions until after the redetermination process is complete. The provider may then submit its request for reconsideration within 60 days of the date it receives notice of the revised overpayment amount following redetermination, which will also forestall recoupment during the pendency of that review. Once a reconsideration decision is issued, however, CMS may initiate recoupment (or, as explained below, the provider may request an extended repayment plan) regardless of whether the provider continues to appeal the overpayment.

The law generally requires that ALJ hearing requests must be adjudicated within 90 days of submission. As most providers know, an enormous backlog of hundreds of thousands of appeals has developed at the ALJ level of review. Delays in processing most providers’ appeals have ballooned to 3-5 years. In the absence of additional resources allocated by Congress, CMS and OMHA have generally maintained that they will not be able to substantially reduce the backlog in the near to medium term. The bottom line is that appeals from most providers languish for years – in a process that Congress intended to only take 90 days – while their Medicare payments are withheld.

Extended Repayment and Debt Collection

The law requires that CMS assess simple interest on overpayments beginning 30 days after the date of the initial overpayment letter. These annual interest rates are extraordinarily high and usually hover around 10%. Interest is assessed on overpayments regardless of whether the provider appeals.

As an alternative to repaying an overpayment in a lump sum, CMS permits providers to request an extended repayment plan and make monthly installment payments. As long as the provider remits the monthly payments determined by CMS, its Medicare payments will not be subject to withholding. Any amortization schedule for an extended repayment plan may not exceed 60 months.

While a repayment plan may seem like an attractive option to many providers, it is an exceedingly onerous arrangement in practice for the following reasons:

• There is no room for negotiating the monthly payment amounts. CMS will usually require the provider to repay the overpayment in equal installments over the course of the approved amortization. For example, if CMS approves a 60-month repayment plan then the provider’s monthly payments will usually equal 1/60 of the overpayment amount.
• CMS often “front loads” the accrued interest to the first 3 months of payments. In cases where a large interest balance has accrued by the time the provider asks for a repayment plan, this has the effect of astronomically increasing the first three months of payments.
• The provider does not have discretion to select the length of the amortization period; this is determined by CMS based on what it believes the provider can reasonably afford.

If a provider misses two consecutive payments under a repayment plan, it will be in default and its Medicare payments will be subject to immediate recoupment.

Background – The Role of Federal Courts and Injunctions

The federal judiciary is one the three branches of our federal government. Agencies such as CMS (along with contractors that act on CMS’ behalf and ALJs who adjudicate Medicare appeals) are part of the executive branch of the government. Our system of government was designed so that each of the three branches would operate to place “checks and balances” on the others.

An injunction is an order from a court requiring a person to do something or stop doing something. A court can grant an injunction on an emergency basis, which is known as a temporary restraining order (TRO). Courts typically issue TROs when the harm alleged is imminent and there is not enough time to hold a hearing. After the issuance of a TRO, the court may decide to convert the order into a preliminary injunction. A preliminary injunction is a court order that remains in effect while the parties litigate the underlying dispute in court. To show it is entitled to a preliminary injunction, a party must meet four requirements: (1) there is a substantial likelihood the party will prevail as to the underlying dispute; (2) the party faces irreparable harm; (3) the harm caused to the non-moving party does not outweigh the injury alleged by the moving party; and (4) the injunction does not contravene the public interest.

Historically, many Medicare providers have gone to federal court in an effort to obtain an injunction requiring or prohibiting CMS from doing something. In virtually every case until now, those providers have been unsuccessful. The reason is because of how our legal system is designed. According to Supreme Court precedent, parties who are involved in disputes with federal agencies must exhaust the process made available by the agency before it is entitled to federal court review. In the Medicare claim appeals context, this usually means that a provider must receive a final decision from the Medicare Appeals Council before a court will have jurisdiction to decide the case. For most providers, this rule is problematic due to the overwhelming backlog of cases pending before ALJs and the Appeals Council and the fact that CMS may begin recoupment before providers even file their ALJ appeals.

Family Rehabilitation, Inc. v. Azar

Family Rehabilitation, Inc., a Dallas-area home health provider, underwent an audit by a Zone Program Integrity Contractor (ZPIC), which extrapolated an alleged Medicare overpayment of approximately $8 million. The overpayment amount remained largely intact following the redetermination and reconsideration stages of review. Around the time it filed its ALJ hearing request, Family Rehab also filed a complaint in federal court seeking an injunction preventing the recoupment of its Medicare payments while it awaited its ALJ hearing. The federal district court initially dismissed the case, concluding that Family Rehab had not exhausted the appeals process made available by CMS. On review, the federal appeals court reversed the district court’s decision that it did not have jurisdiction to issue an injunction and remanded the case so that the district court could consider whether an injunction was appropriate.

After the case was remanded, Family Rehab filed for – and the district court immediately issued – a TRO on June 4, 2018. Following more detailed briefing from the parties, the court converted the TRO into a preliminary injunction on June 28, 2018. The injunction prevents CMS from withholding any of Family Rehab’s Medicare payments until the underlying dispute regarding the multi-million dollar alleged overpayment can be resolved.

Impact on Other Providers

The court decisions in the Family Rehab case do not mean that all Medicare providers will be entitled to injunctions preventing any recoupment of their Medicare payments while they await appeal decisions. Courts consider requests for injunctions on a case-by-case basis. However, the federal appeals court’s decision in Family Rehab means that district courts within the appellate court’s jurisdiction of Texas, Louisiana, and Mississippi will at least have jurisdiction to consider those injunctions. Providers based in other states can potentially seek injunctions using these cases as persuasive authority.

The Family Rehab cases are cause for optimism among providers with significant Medicare reimbursement facing large overpayment demands while languishing in the administrative appeals process. To stem the potential tide of injunctions around the country, CMS may become more open to negotiating reasonable repayment terms with providers that allow them to remain in business while pursuing their appeals. This would be the most beneficial outcome for both sides.

Conclusion

Providers with large Medicare overpayment cases that pose an existential threat to their continued operations should carefully consider whether it would be in their best interests to attempt to obtain an injunction, as Family Rehab did. There are several benefits and drawbacks to this approach. Providers facing similar circumstances should contact experienced counsel to discuss their options to identify a solution that is tailored to the unique needs.

Adam Bird is a partner in the healthcare practice group at Calhoun Bhella & Sechrest LLP. Please contact him at (202) 804-6031 or abird@cbsattorneys.com to set up a consultation.