Many Medicare-participating providers may be familiar with the appeals process when challenging government findings or overpayment calculations. If so, they are likely familiar with the well-publicized backlog of appeals, causing extensive delays in the process. They may not, however, realize that the government may recoup a determined overpayment before a hearing even occurs. And because of the current backlog, the hearing may not occur for years down the road. The backlog has caused some providers, in an effort to stay in business, to challenge the government’s ability to recoup such payments. Recent cases are helpful in understanding some of the considerations involved in bringing forth such challenges.
I. The Appeals Process
The Medicare appeals process is lengthy and can be confusing for those who are not constantly mired in it. The first step is referred to as the “initial determination.” A Medicare Administrative Contractor (“MAC”) makes an initial determination whether to pay or deny a claim after it is submitted. An initial determination can also occur when a MAC, or any one of many authorized Medicare contractors, conducts an audit and provides notice of its findings to the provider.
Once the provider receives notice of the initial determination, there is an administrative appeal process of up to four levels that follows:
- Redetermination – The provider has 120 days from the date of the initial determination to file the first level of appeal, known as “redetermination.” This appeal is filed with the Medicare contractor and must contain certain information required by federal regulation.
- Reconsideration – If the redetermination decision is unfavorable, in whole or in part, the provider has 180 days from the date of notice of that decision to file a request for “reconsideration.” This appeal is submitted to a different Medicare contractor, known as the Qualified Independent Contractor (“QIC”).
- Administrative Law Judge – The next level consists of a hearing before an Administrative Law Judge (“ALJ”), the request for which must be submitted within sixty days after notice of the QIC decision. The ALJ serves as an impartial judge who works for the Office of Medicare Hearings and Appeals (“OMHA”), the office of the Department of Health and Human Services that administers the ALJ hearing program.
The ALJ has 90 days from the request date to issue a decision, dismissal order, or remand. The provider may escalate the case to the next level if the ALJ fails to meet this deadline.
- Medicare Appeals Council – A provider may appeal an ALJ’s determination to the Medicare Appeals Council within sixty days after receiving the ALJ decision or dismissal. This Council is the final administrative governing body to hear the appeal. After its decision, the provider may seek judicial review in Federal District Court.
II. The ALJ Appeal Backlog
The current backlog of ALJ appeals is well-documented and the topic of much discussion within the health care community. It is largely the result of increased Medicare payment audit scrutiny. The Medicare Recovery Audit Program (“MRAP”) was implemented on a permanent nationwide basis at the beginning of 2010. Prior to that, it operated as a demonstration program in six states between March 2005 and March 2008. Under MRAP, the “number of entities that are involved in the evaluation of claims both pre-claim payment and post-claim payment has increased dramatically, as has the number of claims being scrutinized.” These auditing entities include the Medicare Administrative Contractors, Zone Program Integrity Contractors, Medicare Audit Recovery Contractors, and the Comprehensive Error Rate Testing Program.
The increased number of appeals was quick and staggering. In a hearing before Congress, the executive from the government’s QIC contractor noted that in February 2010 they received 4,900 Medicare Part A appeals. Just two years later, in February 2012, they received 12,000 appeals—an increase of 159%. In February 2015, they received 45,000 appeals, a 253% increase from February 2012 and an 815% increase from 2010.
This increased number of claims blasted through the appeals process to the ALJ level where they sat in an incredibly long line of other appeals waiting for a limited number of ALJs. This backlog became the subject of a 2014 lawsuit filed by the American Health Association and several other providers. In that case, a federal judge ordered the Department of Health and Human Services to eliminate the pending appeals before ALJs by the end of 2020. While some efforts have been made to clear the backlog, it continues to be staggering, leaving providers without the ability to have an ALJ hearing for up to 3-5 years.
At one point, OMHA was receiving “more than a years’ worth of appeals work every 24 weeks.” While HHS has taken measures to decrease the backlog, it means very little for those providers submitting appeals today. According to OMHA, the average processing time for an ALJ appeal thus far in FY 2018 is 1,142 days, or just more than three years. That is just over a month longer than the average processing time at the end of FY 2017.
III. Family Rehab and Procedural Due Process
CMS may begin recoupment of a determined overpayment if, after the second level of appeal (the Reconsideration level), the QIC upholds a MAC’s determination. Meaning, a MAC could determine an overpayment in the millions of dollars, which the QIC affirms, and CMS can immediately begin offsetting the amount against future Medicare claim payments before an ALJ hearing occurs. This can be devastating for some providers, particularly those with a high percentage of Medicare beneficiaries in their patient census.
Some providers have recently challenged CMS’s ability to recoup payments before the ability to have an ALJ hearing in light of the current backlog. In these cases, the provider requests a temporary restraining order and preliminary injunction to stop the recoupment until an ALJ hearing can be held. The outcome and analysis in these cases demonstrates important considerations in navigating the appeals process and the underlying claim serving as the basis for this request.
For example, in Family Rehabilitation, Inc. v. Azar, the United States District for the North District of Texas granted the provider’s motion for such a preliminary injunction. In that case a post-payment review by a CMS contractor determined the provider had a $7.5 million overpayment. The provider went through the appropriate administrative appeal process and the QIC affirmed the original determination. Even though the provider appealed the QIC’s decision to the ALJ, a hearing would not have taken place for three to five years down the road. And CMS already began recouping the determined overpayment amount. A full recoupment of the determined overpayment would have caused financial peril for Family Rehab because approximately 94% of its patients were Medicare beneficiaries. In fact, the court noted that Family Rehab had already laid off 89% of its staff and terminated services for 97% of its patients.
Because its main revenue stream was at risk and its very existence was at stake, the provider filed a lawsuit to enjoin the recoupment until after the ALJ hearing. Courts consider four factors when considering a preliminary injunction: (1) substantial likelihood of success on the merits, (2) a substantial threat of irreparable injury, (3) the threatened injury outweighs the threatened harm to the party sought to be enjoined, and (4) granting injunctive relief will not disserve the public interest. Family Rehab based its motion for a preliminary injunction on a procedural due process claim. It argued that it would likely prevail on this claim because the discretionary recoupment began without Family Rehab’s ability to have an evidentiary hearing before an impartial adjudicator, as mandated by the relevant statute.
While the court analyzed each of these factors, the key was whether the provider had a substantial likelihood of success on the merits of its due process claim. In considering this factor, the court focused on some important facts. First, the statute requiring an ALJ to hear an appeal and render a decision within ninety days is mandatory. Second, cases brought to the ALJ are overturned 60-72% of the time. Third, the ALJ hearing is the provider’s only chance to have an evidentiary hearing regarding the determined overpayment. The provider does have the option to escalate the case to the Medicare Appeals Council, but it will review the record established at the QIC level of appeal. Ultimately, the court granted the preliminary injunction, allowing Family Rehab a chance to survive fiscally while it waits over three years for the hearing.
Another Texas court, in Adams EMS, Inc. v. Azar, recently arrived at a similar conclusion as in Family Rehab under similar facts. In Adams, the provider appealed an alleged $418,000 overpayment resulting from extrapolated audit findings. After losing in the first two levels of appeal, the provider submitted an ALJ hearing request, but also requested a preliminary injunction in the South District of Texas to prevent recoupment. The court’s analysis followed that in Family Rehab point by point:
- Substantial Likelihood on the Merits - There was a substantial likelihood of success on the merits of the provider’s due process claim. The court noted, “[the provider’s] right to escalate the appeal from the [ALJ] level to the Medicare Appeals Council . . . does not cure the government’s due process violation.” Escalation does not protect the procedural safeguards provided to the appealing party. The ALJ hearing delay, which compromises those procedural safeguards, causes due process concerns.
- Irreparable Injury – The court found that there was enough evidence demonstrating that waiting 3-5 years for an ALJ hearing “will cause [the provider] to close its doors.” The provider demonstrated that it would no longer be financially viable if recoupment were to occur before the ALJ hearing.
- Balancing the Injury to the Provider Against the Harm to the Government – The court found that the harm to the provider was severe and irreparable, but the harm to the government was minimal. The government would not be prejudiced by the delay in recoupment.
- Public Interest – There was a significant public interest in the provider keeping its doors open to render needed health care services to its patients.
After conducting this analysis, the court granted the preliminary injunction, prohibiting the government from recouping the alleged overpayment until after the ALJ hearing.
Likewise, the United States District Court for the District of South Carolina granted a preliminary injunction in Accident, Injury and Rehabilitation, PC v. Azar. The underlying basis for the preliminary injunction motion was a violation of the provider’s procedural due process in recouping funds before the long-awaited ALJ hearing. The court noted, “Plaintiff is simply asking that the Government not deprive it of money that it has earned when the Government cannot comply with its own procedural requirements in a timely manner.” Like in Family Rehab, the government argued that the provider is afforded due process because it could have bypassed the ALJ hearing and escalated its case to the Medicare Appeals Council. In response, the court noted that relying on this escalation procedure does not necessarily afford due process because the ALJ hearing inherently contains important procedural safeguards, namely the opportunity for an evidentiary hearing before an independent arbiter.
Perhaps the benefit of waiting for the ALJ appeal rather than escalating to the Medicare Appeal Council is demonstrated in Inland Family Practice Center, LLC v. Azar. In that case, the provider appealed an overpayment determination by a CMS contractor through the first two administrative levels. After waiting almost a year for an ALJ hearing, it could no longer bear the financial impact of ongoing CMS recoupment. Therefore, it chose to escalate its case to the Medicare Appeals Council, which resulted in a partially favorable decision, but which still left a significant amount owed by the provider.
By submitting to the escalation process, the provider bypassed its opportunity for an evidentiary hearing. It had no ability to call expert witnesses or present other relevant evidence to the Medicare Appeals Council. Therefore, the provider filed a lawsuit requesting a preliminary injunction on further recoupment until after the next level of appeal, which was judicial review in a federal district court. The provider’s argument about substantial likelihood of success, however, was not based on a procedural due process claim like it was in both Family Rehab and Adams. Rather, it centered around the underlying claim that the government’s extrapolation methodology was flawed. Denying the motion on this consideration, the court noted that the overpayment calculation met the minimum standards. Therefore, the provider did not have a substantial likelihood of winning on the merits.
IV. Conclusion and Takeaways
For Medicare-participating providers, the increased scrutiny and backlogged administrative process is a stark reality. It is too early to tell if Family Rehab is the beginning of more providers attempting to stop recoupment prior to an ALJ hearing. Regardless, the ability to do so may be the difference in some providers remaining viable during that waiting period. Here are a few takeaways from comparing and contrasting these cases:
- Each case is different, so providers in this situation must thoughtfully evaluate their case and whether escalation to the Medicare Appeals Council is the proper course.
- The merits of the actual findings and overpayment calculation are of little import in seeking the preliminary injunction. The underlying basis should be a deprivation of procedural due process for the government’s failure to allow a hearing within the time mandated by statute.
- Notwithstanding, the outcome may be different if the alleged overpayment is the result of findings related to patient harm or inadequate care. It may be more difficult to overcome the “public interest” factor in the preliminary injunction analysis. The court in Adams pointed out that the provider was not under scrutiny for “providing poor or inadequate services to Medicare patients.”
- The provider must be prepared to show irreparable financial harm to the business if recoupment were to occur before an ALJ. The provider should be prepared to show financials and the overall affect that cutting off the Medicare revenue stream would have on the business.
 42 U.S.C. § 1395ff(d)(3)(A).
 42 C.F.R. § 405.1102.
 Hearing, Committee on Finance US Senate 114th Congress, 4/28/15, p.21
 42 U.S.C. § 1395ddd(f)(2); 42 C.F.R. § 405.371(a)(3).
 2018 WL 3155911 (N.D. Tex. June 28, 2018).
 2018 WL 5264244 (S.D. Tex. Oct. 23, 2018).
 2018 WL 3980212 (D. S.C. August 21, 2018).
 2018 WL 4289624 (S.D. Sept. 7, 2018).