In Touch Home Health Agency, Inc. v. Azar

Citation414 F.Supp.3d 1177
Decision Date24 October 2019
Docket NumberCase No. 19 C 1545
Parties IN TOUCH HOME HEALTH AGENCY, INC., Plaintiff, v. Alex M. AZAR II, Secretary of the United States Department of Health and Human Services and Seema Verma, Administrator of the Centers for Medicare and Medicaid Services, Defendants.
CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)

414 F.Supp.3d 1177

IN TOUCH HOME HEALTH AGENCY, INC., Plaintiff,
v.
Alex M. AZAR II, Secretary of the United States Department of Health and Human Services and Seema Verma, Administrator of the Centers for Medicare and Medicaid Services, Defendants.

Case No. 19 C 1545

United States District Court, N.D. Illinois, Eastern Division.

Signed October 24, 2019


414 F.Supp.3d 1179

Adam Bird, Calhoun Bhella & Sechrest LLP, Washington, DC, Patrick John Ruberry, Cole G. Dunnick, Litchfield and Cavo, LLP, Chicago, IL, for Plaintiff.

Valerie Rebecca Raedy, United States District Court for the Northern District of IL, AUSA, United States Attorney's Office (NDIL - Chicago), Chicago, IL, for Defendant.

REBECCA R. PALLMEYER, United States District Judge

414 F.Supp.3d 1180

MEMORANDUM OPINION AND ORDER

Plaintiff In Touch Home Health Agency, Inc. is a Medicare-certified home health agency in Chicago Ridge, Illinois, that provides in-home nursing and therapy services to homebound patients. In December 2017, the Centers for Medicare and Medicaid Services (CMS)—the federal agency within the Department of Health and Human Services (HHS) that is responsible for administering the Medicare program—assessed In Touch for an alleged Medicare overpayment of approximately $3.75 million. In Touch has appealed the assessment under the first two stages of the Medicare Act's four-stage administrative appeals process. Those efforts reduced the alleged overpayment only slightly, to approximately $3.4 million. In October 2018, following completion of the second stage of the administrative appeals process, CMS began recouping the alleged overpayment as permitted by relevant regulations. In Touch, for its part, timely sought to initiate the third stage of the administrative appeals process: a de novo hearing before an administrative law judge (ALJ).

The Medicare Act provides that 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). But due to an enormous backlog in adjudicating Medicare appeals, In Touch will in fact have to wait three to five years to receive an ALJ hearing and decision. In Touch expects to go bankrupt if recoupment continues while it waits for the ALJ to act. In Touch filed this lawsuit on March 4, 2019, asserting procedural due process and ultra vires claims against Alex M. Azar II, the Secretary of HHS, and Seema Verma, the Administrator of CMS (collectively, Defendants). In Touch also asserts a "preservation-of-status" claim against Defendants under Section 705 of the Administrative Procedure Act, 5 U.S.C. § 705. In Touch requests a preliminary injunction "enjoining Defendants from recouping [its] Medicare payments until such time as [In Touch] has received an ALJ hearing and decision." (Compl. [1], Prayer for Relief ¶ 1.)

Defendants have moved to dismiss In Touch's complaint under Federal Rule of Civil Procedure 12(b)(1), arguing that the court lacks subject matter jurisdiction because In Touch has not exhausted its administrative remedies. Defendants have also moved to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. As discussed below, Defendants' motion to dismiss for lack of subject matter jurisdiction is granted and In Touch's motion for a preliminary injunction is denied as moot, as is Defendants' motion to dismiss under Rule 12(b)(6).

BACKGROUND

The court takes the following allegations from In Touch's complaint, except where otherwise indicated. For purposes of Defendants' motion to dismiss under Rule 12(b)(1), which is the only motion the court will decide, the court accepts as true all well-pleaded factual allegations and draws all reasonable inferences in favor of In

414 F.Supp.3d 1181

Touch. See Ctr. for Dermatology & Skin Cancer, Ltd. v. Burwell , 770 F.3d 586, 588 (7th Cir. 2014).

A. Audits of In Touch and the resulting overpayment determination

In Touch has been providing in-home nursing and therapy services to homebound patients in the Chicago area since 2012. (Compl. ¶ 2; see Ex. A to Compl., Decl. of Hatem M. Khatab, Sole Owner of In Touch ("Khatab Decl.") [1-1] ¶ 2.) From January 1, 2018 to December 31, 2018, all of In Touch's patients were Medicare beneficiaries; thus, all of In Touch's revenue during that time came from Medicare reimbursements. (Compl. ¶ 2; see Khatab Decl. ¶ 4.)1

Medicare is a federal health insurance program for the elderly and disabled. (Compl. ¶ 19; see 42 U.S.C. § 1395 et seq. ) It covers, among other things, "home health services rendered to beneficiaries who are confined to their homes as a result of illness or injury." (Compl. ¶ 20.) Relatedly, it reimburses healthcare providers like In Touch for covered services rendered to eligible beneficiaries. (Id. ¶ 22.) CMS, a division of HHS, is responsible for overseeing the operation of the Medicare program. (Id. ¶¶ 10-11.) Due to the high volume of claims the Medicare program processes each year, most claims "are not subject to review before they are processed and paid." (Id. ¶ 22; see also Defs.' Mem. in Supp. of Mot. to Dismiss and in Opp. of Mot. for Prelim. Inj. ("Defs.' Br.") [23], 3.) That is, "CMS generally pays Medicare claims upfront." (Defs.' Br. 3; see Compl. ¶ 22.) CMS or its private contractors, however, can "request and review medical records in support of claims submitted for payment." (Compl. ¶ 23.) Unified Program Integrity Contractors (UPICs) are CMS private contractors that assist with these audits. (Id. ¶¶ 21, 25.)

In February 2017 and July 2017, a UPIC called AdvanceMed Corporation requested medical records from In Touch concerning 42 claims for home care services that In Touch billed to the Medicare program from 2013 to 2017. (Id. ¶¶ 3, 50-52.)2 These claims represented 3.2 percent of all claims In Touch billed to the program during that timeframe. (Id. ¶ 3.) AdvanceMed determined that some of the claims reflected overpayments of Medicare funds to In Touch. (Id. ¶ 52.)3 In addition, it asserted that the 42 claims it audited "constituted a statistically valid random sample of In Touch's Medicare claims." (Id. ¶ 55.) On December 13, 2017, AdvanceMed notified In Touch that it had extrapolated an alleged overpayment of approximately $3.75 million from that sample. (Id. )4 In Touch alleges that AdvanceMed's

414 F.Supp.3d 1182

extrapolation technique was improper but acknowledges that, due to the high volume of claims submitted to Medicare each year, CMS allows UPICs to use "statistical sampling methodologies to extrapolate alleged Medicare overpayments." (Id. ¶ 27.) On December 18, 2017, another private contractor for CMS—a Medicare Administrative Contractor (MAC) called Palmetto GBA—"rendered an initial determination formally notifying In Touch of the alleged $3,749,178 overpayment." (Id. ¶¶ 21, 56.)

B. The Medicare Act's administrative appeals process

The Medicare Act establishes a four-stage administrative appeals process for a provider to challenge an initial adverse determination on a claim. See 42 U.S.C. § 1395ff. First, a provider may submit a claim for "redetermination" to the MAC, which is usually the contractor that made the initial claim determination. Id. § 1395ff(a)(3) ; see 42 C.F.R. §§ 405.904(a)(2), 405.940 - 958. Redetermination "shall be concluded" within 60 days of receiving the provider's request. 42 U.S.C. § 1395ff(a)(3)(C)(ii). If the provider is not satisfied with the decision on redetermination, it can file a second-level appeal ("reconsideration") with a Qualified Independent Contractor (QIC). 42 U.S.C. § 1395ff(c) ; see 42 C.F.R. §§ 405.904(a)(2), 405.960 - 978. With certain exceptions, a QIC "shall conduct and conclude" the reconsideration within 60 days of the provider's request. 42 U.S.C. § 1395ff(c)(3)(C)(i). At both the redetermination and reconsideration stages, a provider submits written evidence and the MAC and QIC reviewers must explain in writing why they agree or disagree with the previous determination. See 42 U.S.C. § 1395ff(a)(5), (c)(3)(E) ; 42 C.F.R. §§ 405.946, 405.956(b), 405.966, 405.968(a), 405.976(b). If the QIC upholds an overpayment determination on reconsideration, CMS can begin recouping the overpayment even though the administrative appeals process is not complete. See 42 U.S.C. § 1395ddd(f)(2).

Meanwhile, the provider may request a third-stage appeal: de novo review before an ALJ within the Office of Medicare Hearings and Appeals (OMHA). 42 U.S.C. § 1395ff(d)(1)(A) ; see 42 C.F.R. §§ 405.904(a)(2), 405.1000-58. At this stage, the provider is entitled to a live hearing and can present testimony, cross-examine witnesses, and submit written statements of law and fact. See 42 C.F.R. § 405.1036(c) - (d). The ALJ "shall conduct and conclude a hearing on a decision of a [QIC] ... and render a decision ... not later than" 90 days after the timely filing of a request. 42 U.S.C. § 1395ff(d)(1)(A). The fourth and final level of administrative appeal is a de novo review of the ALJ's decision before the Medicare Appeals Council, which is part of the Departmental Appeals Board (DAB) within HHS. Id. § 1395ff(d)(2)(A) ; see 42 C.F.R. §§...

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