Supreme Home Health Servs., Inc. v. Azar, CIVIL ACTION NO. 18-1370

CourtUnited States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Western District of Louisiana
Writing for the CourtMAG. JUDGE KAREN L. HAYES
PartiesSUPREME HOME HEALTH SERVICES, INC. AND EMILY WINSTON, PRESIDENT v. ALEX M. AZAR, II, SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, ET AL.
Docket NumberCIVIL ACTION NO. 18-1370
Decision Date08 April 2019

SUPREME HOME HEALTH SERVICES, INC. AND EMILY WINSTON, PRESIDENT
v.
ALEX M. AZAR, II,
SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, ET AL.

CIVIL ACTION NO. 18-1370

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF LOUISIANA MONROE DIVISION

April 8, 2019


JUDGE TERRY A. DOUGHTY

MAG. JUDGE KAREN L. HAYES

REPORT AND RECOMMENDATION

Before the undersigned magistrate judge, on reference from the District Court, are two motions: 1) a motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted [doc. # 26] filed by defendants, Alex M. Azar, II, Secretary of the U.S. Department of Health and Human Services, and Seema Verma, Administrator for the Centers for Medicare & Medicaid Services; and 2) a motion to dismiss [doc. # 28] filed by defendant, Palmetto, GBA, L.L.C. for improper service pursuant to Rules 12(b)(2), (5), and 4(m), or alternatively, to dismiss for failure to state a claim upon which relief can be granted, including the claims of plaintiff, Emily Winston, for lack of standing. For reasons assigned below, it is recommended that Azar and Verma's motion be GRANTED-IN-PART and DENIED-IN-PART, and that Palmetto's motion be DENIED, as moot.

Background

Supreme Home Health Services, Inc. ("Supreme") is a home health agency located in Monroe, Louisiana. Supreme has been in business for thirty-eight years and employs 99 people

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who provide skilled nursing care, physical therapy, occupational therapy, speech therapy, nursing home health aid, medical social work, and other medical social services to patients in their homes, assisted living facilities, and retirement communities. Of the approximately 175 patients served in eight parishes, between 76 and 86% are covered under the Medicare Program.

Supreme enrolled in the Medicare Program in 1983, and has remained so enrolled.1 Under the Medicare Act, no payment may be made for items or services, "which . . . are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member . . ." See 42 U.S.C. § 1395y. Unlike private insurance plans, Medicare pays most claims first and audits only some claims after payment. The Secretary of Health and Human Services ("Secretary") has a statutory, regulatory, and quasi-contractual duty to recoup payments for non-covered services. See 42 U.S.C. § 1395g(a) (Secretary shall determine amount due "with necessary adjustments on account of previously made overpayments."); 42 C.F.R. § 405.373(A).

Upon enrollment, Supreme, through Winston, expressly agreed "to return any moneys incorrectly collected from any person or to dispose of overpayments as specified in Regulations." [doc. # 27-10, Exh. J]. Again, in February 2012, Supreme, through Winston, agreed "to abide by the Medicare laws, regulations and program instructions that apply to this Provider" and that the "payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with such laws, regulations, and program instructions. . ." [doc. # 27-6, Exh. F, at pgs. 2-3]. Winston further certified that, "I agree that any existing or

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future overpayment made to the provider by the Medicare program may be recouped by Medicare through the withholding of future payments." Id. Finally, Winston signed the official document and attested, "[m]y signature legally and financially binds this provider to the laws, regulations, and program instructions of the Medicare program." Id.

In an October 17, 2012 letter, AdvanceMed, a Zone Program Integrity Contractor ("ZPIC") notified Supreme that a post-payment audit of some 318 claims had revealed that Supreme had submitted Medicare claims in the amount of $1,739,569.00 for non-covered services. AdvanceMed found that some of the care provided was not reasonable and necessary based on the medical documentation submitted. AdvanceMed then used statistical sampling to extrapolate an overpayment from all codes billed by Supreme from January 1, 2009, through July 31, 2011. [doc. # 1-8 at pg. 10].

In an October 23, 2012 letter, Palmetto GBA, LLC ("Palmetto"), the Medicare Administrative Contractor ("MAC"), requested that Supreme repay the overpayment amount immediately or face recoupment. [doc. # 1-9 at pgs. 1-2]. Palmetto also notified Supreme that recoupment could be stopped during the first two levels of the administrative appeal process and resumed after completion of the second level. [doc. # 1-9 at pg. 3].

In November 2012, Supreme requested a redetermination decision from Palmetto at the first level of the administrative process. [doc. #s 1-1 at pgs. 10-11 and 1-13, at pg. 1]. The redetermination request stayed recoupment.

On January 31, 2013, Palmetto issued an unfavorable decision.

In March 2013, Supreme appealed the redetermination decision to the second level of the administrative process by requesting reconsideration by a Qualified Independent Contractor

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("QIC"), which again caused recoupment to be stayed.

On February 4, 2014, the QIC issued a "partially favorable" decision. [doc. # 1-6, at pg. 1]. Thereafter, Supreme submitted additional evidence, and QIC found good cause to reopen and reprocess the appeal.

On May 8, 2015, the QIC issued a reconsideration decision in which it went through each denied claim by reviewing the medical documentation that Supreme had provided in support of medical necessity. [doc. # 27-2]. The QIC's decision was "partially favorable," finding that many of Supreme's claims were only partially covered by Medicare. Id. at 1. As a result, the overpayment determination was reduced by $20,741.27 to $1,718,827.73. [doc. # 1-6 at 1; see doc. 1-1 at 11].

On July 10, 2015, Supreme appealed the reconsideration decision to the third level of the administrative review process by requesting a hearing before an Administrative Law Judge ("ALJ"). [doc. # 1-14 at pg. 1].

On June 1, 2016, Palmetto sent Supreme an overpayment demand letter, advising that payments totaling $2,357,657.83 (principal of $1,718,827.73, plus interest of $638,830.10) were due by July 1, 2016, and that, absent payment, Palmetto could begin recouping the overpayment after the lapse of 30 days. [doc. # 1-6 at pgs. 1-2]. On July 17, 2016, Supreme requested a five-year (60-month) extended repayment schedule - the longest term permitted by statute - which CMS (Centers for Medicare and Medicaid Services) ultimately approved. [doc. #s 27-3, Exh. C, at pg. 2, 1-10 at pgs. 1-3]. Under the terms of the schedule, Supreme was required to make monthly payments from October 2016 through September 2021. [doc. # 1-10 at pgs. 1-3]. The initial payments (from October 2016 through September 2017) were in the amount of

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$69,337.83. Id. The remaining monthly payments from October 2017 through the end of the schedule declined to $43,904.11. Id.

On January 24, 2018, CMS approved a revised extended repayment schedule that lowered Supreme's payments to $30,000 through January 2019. [doc. # 27-4, Exh. D, at pgs. 1-3]. Under this schedule, the payment amounts are expected to rise by increments of $10,000 every six months, maxing out at $80,000 in February 2021. Id.2 As of November 13, 2018, CMS has recouped $7,353.12 from Supreme of the $1,739,569.00 overpayment, plus $817,194.31 in interest. (Decl. of Joseph Strickland; [doc. # 27-11, Exh. K]).

Meanwhile, on October 19, 2018, Supreme and Winston (collectively, "Supreme") filed the instant complaint for a TRO and preliminary injunction against Alex M. Azar, II, in his official capacity as the Secretary of HHS; Seema Verma, in her official capacity as the Administrator for CMS; and Palmetto - the Medicare Administrative Contractor ("MAC"). The complaint seek an injunction "to prevent Defendants from recouping approximately $1,700,000.00 in alleged overpayment and $653,725.47 in interest . . . from Supreme - which would bankrupt Supreme and cause it to go out of business— before Plaintiffs have the opportunity to be heard by the . . . ALJ." [doc. # 1, pgs. 1-2].

Supreme further asserted that recoupment violated its due process rights while a "backlog of hundreds of thousands of claims [are] pending before the HHS Office of Medicare Hearings and Appeals will irreparably harm Plaintiffs through the destruction of their business and the ensuing certain closure of its operations." Id. at pg. 2. In addition, Supreme alleged that the

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extraordinary delays violated the plain terms of the statute. Id. at pg. 2, ¶ 8. Ultimately, the suit specifies four counts: 1) procedural due process; 2) substantive due process; 3) ultra vires; and 4) preservation of rights under § 704 of the Administrative Procedure Act ("APA").3

On February 15, 2019, defendants filed two motions to dismiss. Azar and Verma joined in one motion and petitioned for dismissal of the entire suit for lack of subject matter jurisdiction, or alternatively, for failure to state a claim upon which relief can be granted. Whereas, Palmetto filed the second motion to dismiss on the grounds that it was not properly served, Emily Winston lacked standing to sue for alleged injuries sustained by Supreme, and because the complaint failed to state a claim for relief against Palmetto. By standing order, the District Court referred the motions to dismiss to the undersigned for report and recommendation.

Supreme filed its oppositions to the motions to dismiss on March 1, 2019. [doc. #s 32-33]. Palmetto filed its reply brief on March 8, 2019. [doc. # 34]. Azar and Verma did not file a reply, and the time to do so has lapsed. See Notice of Motion Setting [doc. # 29]. Thus, the matter is ripe.

Law and Analysis

I. Subject Matter Jurisdiction

The United States, as sovereign, is immune from suit except in the manner and degree sovereign immunity is waived. United States v. Testan, 424 U.S. 392, 96 S.Ct. 948 (1976). The so-called doctrine of sovereign immunity renders "the United States, its...

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