Adams Ems, Inc. v. Azar, CIVIL ACTION NO. H-18-1443

• Decision Date: 23 October 2018
• Docket Number: CIVIL ACTION NO. H-18-1443
• Parties: ADAMS EMS, INC., Plaintiff, v. ALEX M. AZAR II, SECRETARY, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES Defendant.
• Court: U.S. District Court — Southern District of Texas

ADAMS EMS, INC., Plaintiff, v. ALEX M. AZAR II, SECRETARY, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES Defendant.

CIVIL ACTION NO. H-18-1443

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

October 23, 2018

MEMORANDUM AND OPINION

In May 2018, Adams EMS, Inc. sued Alex M. Azar II, the Secretary of the United States Department of Health and Human Services ("HHS"), over a Medicare reimbursement dispute. (Docket Entry No. 1). Adams seeks an injunction, a declaratory judgment, mandamus relief, attorney fees, and costs. (Docket Entry No. 1 at ¶ 89). In July 2018, the court temporarily restrained the government from recouping the alleged overpayment to Adams. (Docket Entries No. 17, 21, 22). The parties argued the government's motion to dismiss for lack of subject-matter jurisdiction and Adams's request for a preliminary injunction in August 2018. (Docket Entry No. 35). In September, Adams supplemented its financial disclosures, the government responded, and Adams replied. (Docket Entries No. 36, 43, 46).

Based on the parties' briefs, counsels' arguments, the record, and the applicable law, the court denies the government's motion to dismiss. The court also enjoins the government from withholding any Medicare receivables from Adams to recoup the alleged overpayments in the claim pending an administrative-law-judge hearing. The reasons are set out in detail below.

I. Background

A. Medicare Program and Appeal of Audited Payment Decisions

Medicare Administrative Contractors reimburse beneficiaries' ambulance transport when other transport means are unavailable or inadvisable. See 42 U.S.C. § 1395x(s)(7); 42 C.F.R. § 410.40(d). HHS hires contractors, known as Zone Program Integrity Contractors, to complete post-payment review of reimbursements to identify and investigate cases of suspected fraud. See 42 U.S.C. § 1395kk-1. "When a [Zone Program Integrity Contractor] identifies an overpayment, it notifies the relevant [Medicare Administrative Contractor], which then issues a demand letter to the provider." Family Rehab., 886 F.3d at 499. Ambulance suppliers participating in Medicare can appeal a Zone Program Integrity Contractor's adverse audit. 42 U.S.C. § 1395ff. This audit and related appeals are at issue in this case.

The Fifth Circuit recently explained the four-step administrative appeals process available to providers like Adams:

First, [a provider] may submit to the [Medicare Administrative Contractor] a claim for redetermination of the overpayment. Second, it may ask for reconsideration from a Qualified Independent Contractor . . . hired by [HHS's Centers for Medicare and Medicare Services] for that purpose. If the [Qualified Independent Contractor] affirms the [Medicare Administrative Contractor's] determination, the [Medicare Administrative Contractor] may begin recouping the overpayment by garnishing future reimbursements otherwise due the provider.

Third, the provider may request de novo review before an [administrative law judge] within the Office of Medicare Hearings and Appeals[,] an agency independent of [the Centers for Medicare and Medicaid Services]. The [administrative-law-judge] stage presents the opportunity to have a live hearing, present testimony, cross-examine witnesses, and submit written statements of law and fact. The [administrative law judge] "shall conduct and conclude a hearing . . . and render a decision . . . not later than" 90 days after a timely request. Fourth, the provider may appeal to the Medicare Appeals Council[,] an organization independent of both [the Centers for Medicare and Medicaid Services] and [the Office of Medicare Hearings andAppeals]. The [Medicare Appeals] Council reviews the [administrative law judge's] decision de novo and is similarly required to issue a final decision within 90 days. Furthermore, if the [administrative law judge] fails to issue a decision within 90 days, the provider may "escalate" the appeal to the [Medicare Appeals] Council, which will review the [Qualified Independent Contractor's] reconsideration.

Family Rehab., 886 F.3d at 499-500 (footnotes and citations omitted).

When a party escalates the appeal to the Medicare Appeals Council under 42 C.F.R. § 405.1016, the Council must issue a final decision, dismiss the claim, or remand the case to the chief administrative law judge within 180 days of receiving the escalation. 42 C.F.R. § 405.1100. Because escalated appeal can occur only after the administrative law judge has failed to issue an order within 90 days, and because the Council has 180 days to issue a decision, it can take a party 270 days, or more, to receive a decision after requesting review before an administrative law judge.

Adams alleges that a large and growing backlog of Medicare appeals from an increased number of claims has slowed the time for a supplier to complete the Medicare appeals process. (Docket Entry No. 1 at ¶¶ 15-16). From January to September 1, 2017, 167,899 new claims for adjudication had been filed, but only 76,000 of a total of 595,000 outstanding claims were adjudicated. (Id. at ¶ 20). The predicted wait times between obtaining a reconsideration decision from a Qualified Independent Contractor and appearing before an administrative law judge is between three to five years, and sometimes longer. (Id. at ¶ 22); Family Rehab, 886 F.3d at 500 ("According to [the plaintiff]—and effectively conceded by the government—it will be unable to obtain an administrative-law-judge hearing for at least another three to five years."). The government admits that "it is uncertain when Adams will receive an [administrative-law-judge] hearing." (Docket Entry No. 9 at 6).

B. Facts

On December 27, 2016, Health Integrity, L.L.C., a Zone Program Integrity Contractor, determined that Adams had received $418,035 in overpayments for reimbursement claims submitted from July 17, 2012, to January 15, 2016. (Docket Entry No. 1 at ¶ 26). The known overpayment was $14,846; the $418,035 amount was extrapolated through statistical sampling. (Id.). Novitas Solutions, a Medicare Administrative Contractor, notified Adams of the alleged overpayment and recoupment obligation. (Id. at ¶ 27). Adams claims that the notice "was not accompanied by any of the essential statistical data used to calculate the overpayment, nor did it include critical evidence regarding the audit." (Id.).

On February 7, 2017, Adams initiated the first step of the Medicare appeals process by asking Novitas Solutions for a redetermination of Health Integrity's overpayment determination. (Id. at ¶ 28). Adams argued that Health Integrity failed to adhere to the statutory and regulatory guidelines in denying the claims comprising the extrapolation sample. (Id. at ¶ 29). Adams also argued that the extrapolation was not accurate because Health Integrity's statistical sampling methodology did not conform to statutory and regulatory guidelines. (Id.). On April 5, 2017, Novitas Solutions sustained the overpayment determination. (Id. at ¶ 30).

On June 9, 2017, Adams initiated the second step of the appeals process by asking a Qualified Independent Contractor to reconsider the Novitas Solutions decision. (Id. at ¶ 31). On August 15, 2017, the Qualified Independent Contractor, C2C Innovative Solutions, Inc., affirmed the Novitas Solutions redetermination, stating that "the sample size used by [Health Integrity] was not adequate to justify this demand amount," and that Health Integrity "would have had to recalculate the demand amount based on a different (more conservative) extrapolationmethodology." (Id. at ¶ 32). On December 15, 2017, C2C Innovation Solutions reopened its August 15 decision and revised it as "partially favorable." (Id. at ¶ 33). Adams still lost on each individual claim in the C2C Innovation Solutions' revised decision, which again stated that the sample size used by Health Integrity was inadequate to justify the demand amount. (Id. at ¶ 34). Health Integrity then issued a reconsideration decision, but that decision did not recalculate the overpayment amount. (Id. at ¶¶ 34-35).

On February 12, 2018, Adams requested a hearing before an administrative law judge, arguing that C2C Innovation Solutions failed to adhere to the statutory and regulatory guidelines when it denied the sample claims, and that the statistical sampling methodology was improper. (Id. at ¶ 36). Adams alleges that, "[b]ased on Defendant's recent reports, the hearing and decision that is required within 90 days may not be available for at least another three to five years due to the serious backlog of agency appeals." (Id. at ¶ 37).

Novitas Solutions recalculated the recoupment amount and reduced Adams's liability to $401,611.80 from $418,035, stating that it had used a new methodology.¹ (Id. at ¶ 38). Adams alleges that, because the use of statistical sampling was invalidated, Novitas Solutions should have limited its overpayment and recoupment to $14,846, the actual overpayment amount. (Id.). Instead, HHS has threatened to collect $418,035, the original overbilling estimate. (Id. at ¶ 39).

Federal courts have jurisdiction over a "final decision" of HHS "arising under" the Medicaid Act. 42 U.S.C. § 405(g)-(h); 42 U.S.C. § 1395ff(b)(1)(A). Although Adams did not escalate its case to the Medicare Appeals Council, the final level of administrative appeals, Adams claims it hasexhausted administrative remedies because HHS failed to provide a hearing before an administrative law judge within 90 days, as required. (Docket Entry No. 1 at ¶ 40).

Adams claims that if the government initiated recoupment of the $418,035, "[a] successful business valued at $1 million would be destroyed. Twelve valuable employees would be terminated." (Id. at ¶ 1). To prevent that injury, Adams seeks injunctive relief, a declaratory judgment, attorney fees, and costs. (Id. at ¶ 89). Adams also requests mandamus relief, arguing that the court must compel HHS to issue another reconsideration...