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Andrew Ivanchenko, M.D., P.C. v. Burwell

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

November 30, 2016

ANDREW IVANCHENKO, M.D., P.C., an Illinois corporation, and ANDREW IVANCHENKO, M.D., individually Plaintiffs,
SYLVIA MATHEWS BURWELL, Secretary of Health and Human Services, and ANDREW SLAVITT, Acting Administrator for the Centers for Medicare and Medicaid Services, Defendants.


          Virginia M. Kendall U.S. District Court Judge.

         Plaintiffs, a suburban Chicago doctor and his medical practice, sued the Secretary of the Department of Health and Human Services (HHS) and the Acting Administrator for the Centers for Medicare & Medicaid Services (CMS) seeking: (1) a preliminary injunction[1] enjoining the agency from recouping approximately $14, 000 in Medicare funds per week while they await a de novo hearing by an Administrative Law Judge (ALJ) into Plaintiffs' alleged overbillings; and (2) a writ of mandamus ordering the Secretary to ensure that Plaintiffs and other healthcare providers receive such a decision by an ALJ within the 90-day time frame outlined in the Medicare Act. (Dkt. 1 at 12.) Defendants have moved to dismiss the suit pursuant to Rule 12(b)(1), arguing that the Court lacks subject-matter jurisdiction to consider Plaintiffs' plea for relief because they have failed to exhaust their administrative remedies. For the reasons discussed herein, Plaintiffs' complaint [1] is dismissed.


         In evaluating a motion filed pursuant to Rule 12(b)(1), the Court must “accept as true all well-pleaded factual allegations and draw all reasonable inferences in favor of the plaintiff.” Evers v. Astrue, 536 F.3d 651, 656 (7th Cir. 2008) (citation omitted). Plaintiff Andrew Ivanchenko, a physician, has operated a medical clinic providing pain relief services in Chicago's suburbs for over 10 years. (Dkt. 1 ¶ 12.) Over 40% of his practice's income (approximately $14, 000 per week) is derived from the treatment of Medicare Part B patients. (Id. ¶ 15.) Without the revenue received from treating Medicare patients, Ivanchenko's practice cannot remain in operation. (Id. ¶ 16.)

         In September 2013, CMS retained Cahaba Safeguard Administrators, LLC (Cahaba), a Medicare contractor, to perform an audit of Plaintiffs' Medicare billings. (Dkt. 1 ¶ 18.) Cahaba's review of Plaintiffs' Medicare billing was routine and not prompted by any allegations of wrongdoing. (Id.) Cahaba, which was paid on a contingent basis, [2] audited 30 patient files and determined that all of the claims included overbillings and should have been denied. (Id. ¶¶ 19-20.) Cahaba then extrapolated the 100% overbilling rate from the sample of patient files it reviewed to all of Plaintiffs' Medicare billings between January 2010 and August 2013, and determined that Plaintiffs should repay HHS $2, 794, 380.84. (Id.) Plaintiffs submitted a first-level administrative appeal - a redetermination of the overbilling by the contractor, which was denied. (Id. ¶ 22.) Plaintiffs then filed a timely second-level administrative appeal for reconsideration, which was considered by a different contractor, which upheld the initial findings of overbillings but resulted in the application of a different recoupment formula and a slightly lower repayment amount. (Id. ¶¶ 23-24.) Following the denial of the second-level administrative appeal, HHS informed Plaintiffs that it would start recouping the overpayments by withholding approximately $14, 000 per week in Medicare reimbursements from Plaintiffs. (Id. ¶ 26.) Then, in June 2016, Plaintiffs' timely filed their third-level administrative appeal, seeking a de novo review of the overbilling determination by an HHS ALJ. (Id. ¶ 26.) Although the Medicare Act details that ALJ decisions should be rendered within 90 days of receiving an appeal, the Agency's ALJs have been inundated with similar administrative appeals and the Plaintiffs' third-level administrative appeal will apparently not be heard for several years. (Id. ¶¶ 8-10, 34.) Because recoupment payments have already started, Plaintiffs assert that the medical practice will close long before the administrative appeal will be heard, necessitating the injunction halting the recoupment of approximately $14, 000 per week. (Id. ¶¶ 30-31.) Plaintiffs also request that the Court issue a writ of mandamus prohibiting Defendants from continuing to operate an administrative scheme that deprives them and other providers of the opportunity to a timely decision by an ALJ, and that the Court order the Defendants to take immediate action to ensure that Plaintiffs and similarly situated providers receive decisions from an ALJ with 90 days of receiving a request for a hearing. (Id. at 12.)


         Defendants assert that the Court lacks jurisdiction and must dismiss the suit pursuant to Federal Rule of Civil Procedure 12(b)(1). “Motions to dismiss under Rule 12(b)(1) are meant to test the sufficiency of the complaint, not to decide the merits of the case.” Ctr. for Dermatology & Skin Cancer, Ltd. v. Burwell, 770 F.3d 586, 588 (7th Cir. 2014). “In all cases, the party asserting federal jurisdiction has the burden of proof to show that jurisdiction is proper.” Travelers Prop. Cas. v. Good, 689 F.3d 714, 722 (7th Cir. 2012) (citing McNutt v. Gen. Motors Acceptance Corp., 289 U.S. 178, 189 (1936)).


         Medicare, a federal health insurance program for the elderly and disabled, processes over a billion claims for payment each year. Due to the volume of claims, Medicare claims are often paid up front, and sometime later, Medicare contractors may conduct post-payment audits to ensure payments were made in compliance with Medicare's payment criteria. If the audit determines that Medicare overpaid a provider for some reason, the money is recouped from subsequent payments paid to the provider.

         The Medicare Act establishes a four-level administrative appeals process for providers and beneficiaries to challenge adverse initial determinations made by the contractors. 42 U.S.C. § 1395ff. After receiving an initial adverse determination, a healthcare provider can file their first level administrative appeal before the Medicare Administrative Contractor, which is typically the contractor that made the initial determination. 42 U.S.C. § 1395ff(a)(3). If unsatisfied with the redetermination, the provider can file a second-level administrative appeal, the “reconsideration.” Reconsiderations are conducted by Qualified Independent Contractors (QIC)-contractors that did not take part in the initial determination. Id. § 1395ff(c). If the healthcare provider wishes to appeal the reconsideration, it may submit a third-level administrative appeal-a de novo review and hearing by an ALJ. Id. § 1395ff(b)(1)(E)(i), (b)(1)(E)(iii), (d)(1)(A). The Medicare Act directs the agency to conduct and render ALJ decisions within 90 days of the request for a hearing. Id. § 1395ff(d)(1)(A). The fourth and final administrative level of Medicare appeals is another de novo review by the Departmental Appeals Board (DAB), which can also conduct hearings. Id. § 1395ff(d)(2). The Act stipulates that the DAB should render a final decision or remand the case to the ALJ for reconsideration within 90 days of the request for appeal, or 180 days in cases where there was no ALJ decision and the case was escalated to the DAB. 42 C.F.R. § 405.1100. Finally, after completing this four-level administrative appeal process, healthcare providers may seek judicial review. 42 U.S.C. § 1395ff(b)(1)(E)(i), (b)(1)(E)(iii); 42 C.F.R. § 405.1006(c).

         The Medicare Act also provides for “consequences of failure to meet” several of the administrative appeal deadlines, by allowing claimants to escalate their appeal to the next level of the administrative appeals process if the relevant reviewing body does not comply with the time frame set forth in the Act. For instance, if the ALJ fails to render a decision within 90 days of the request for an appeal, the claimant may escalate its appeal to the fourth-level DAB appeal. 42 U.S.C. § 1395ff(d)(3)(A). Similarly, if the DAB does not render a timely decision, the claimant may escalate its appeal to the district court. Id. § 1395ff(d)(3)(B). The Act precludes claimants from filing actions in district court until they have received a final decision from the DAB or escalated their appeal after not receiving a timely decision from the DAB. See Id. § 1385ff(d)(3)(B); 42 U.S.C. § 405(g)-(h); 42 C.F.R. § 405.1130.

         I. Preliminary Injunction

         Plaintiffs seek a preliminary injunction on the basis that the Secretary's delay in rendering a timely ALJ decision violates the Medicare Act and the Due Process Clause of the Fifth Amendment. While the Court sympathizes with Plaintiffs' plight, the Court lacks subject-matter jurisdiction to consider their request for injunctive relief because they have failed to exhaust their administrative remedies. “Judicial review of claims arising under the Medicare Act is available only after the Secretary renders a ‘final decision' on the claim.” Heckler v. Ringer, 466 U.S. 602, 605 (1984) (emphasis added); 42 U.S.C. §§ 405(g)(h). This means that parties whose claims “arise under” the Medicare Act can seek judicial review only after exhausting the full four-step administrative review process, or escalating their claims after the statutory periods for review have elapsed because “Title 42 U.S.C. § 405(h), to the exclusion of 28 U.S.C. § 1331 (federal-question jurisdiction), makes § 405(g) the sole avenue for judicial review of all “claim[s] arising under” the Medicare Act.” Id. at 2013-15; see also Michael Reese Hosp. & Med. Ctr. v. Thompson, 427 F.3d 436, 440 (7th Cir. 2005) (“Section 405(h) precludes federal question jurisdiction unless the Medicare program's administrative review process has been exhausted.”).

         The Medicare Act's “exhaustion requirement serves an important purpose, preventing the premature interference with agency processes so that the agency can function efficiently and can correct its own errors, as well as affording the parties and the courts the benefit of the agency's experience and expertise and compiling a record which is adequate for judicial review.” Michael Reese Hosp. & Med. Ctr., 427 F.3d at 441. The Supreme Court has held that the Medicare Act's administrative procedures are the sole remedy when an “individual seeks a monetary benefit from the agency (say, a disability payment, or payment for some medical procedure), the agency denies the benefit, and the individual challenges the lawfulness of that denial, ” as is the case here. Shalala v. Illinois Council on Long Term Care, ...

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