United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
REBECCA R. PALLMEYER, UNITED STATES DISTRICT JUDGE.
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).
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. , Prayer for Relief
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).
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 Touch. See Ctr. for
Dermatology & Skin Cancer, Ltd. v. Burwell, 770 F.3d
586, 588 (7th Cir. 2014).
Audits of In Touch and the resulting overpayment
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.)
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.") , 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.)
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.) 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. ¶
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.) In Touch alleges
that AdvanceMed's 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.)
The Medicare Act's administrative appeals
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).
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.
§§ 405.904(a)(2), 405.1100-40. The Council must
issue a final decision within 90 days of receiving the
request for review. 42 U.S.C. § 1935ff(d)(2)(A). The
Council's decision is the final decision of the
Secretary. 42 C.F.R. § 405.1130. After completing the
four-stage administrative appeals process, a provider may
file suit in federal district court. 42 U.S.C. §§
1395ff(b)(1)(A) (incorporating 42 U.S.C. § 405(g));
see 42 C.F.R. §§ 405.904(a)(2), 405.1130.
Assuming the adjudicator at each stage meets the statutory
deadline for rendering a decision, a provider can complete
the administrative appeals process within about one year.
Medicare Act establishes consequences for administrative
reviewers' "failure to meet deadlines."
See, e.g., 42 U.S.C. § 1395ff(d)(3). Through a
process called escalation, a provider whose case has been
pending in certain stages of the appeals process for longer
than the statutory time limits may move the appeal to the
next stage. See, e.g., 42 U.S.C. §
1395ff(d)(3)(A); 42 C.F.R. § 405.1100(b). In relevant
part, if the ALJ fails to issue a decision, dismissal order,
or remand to the QIC within 90 days of a provider's
timely request for a hearing, the provider can file a request
to escalate the appeal to the DAB stage. 42 U.S.C. §
1395ff(d)(3)(A); 42 C.F.R. §§ 405.1016(a), (e),
(f), 405.1100(b). The ALJ then has five calendar days to
issue a decision, order a dismissal or remand, or advise the
provider that it cannot issue a decision or order. 42 C.F.R.
§ 405.1016(f)(2). If the ALJ cannot issue a decision or
order, the appeal bypasses the ALJ stage and the DAB must
review the QIC's reconsideration decision. Id.
Separately, if the DAB fails to issue a decision, dismissal
order, or remand concerning an appeal from an ALJ decision
within 90 days-or within 180 days if the appeal was escalated
to the DAB-a provider can escalate the appeal to a federal
district court. 42 U.S.C. § 1395ff(d)(3)(B); 42 C.F.R.
§§ 405.1106(b), 405.1100(d), 405.1132.
In Touch's administrative appeal
Touch concedes that it has completed only the first two
stages of the Medicare Act's administrative appeals
process. It also concedes that it has not availed itself of
the Act's escalation provisions. In Touch's appeal
efforts began soon after the MAC (Palmetto) rendered its
initial determination notifying In Touch of the alleged $3,
749, 178 overpayment. (Compl. ¶ 56.) That determination
issued in December 2017. (Id.) In February 2018, In
Touch submitted a first-stage appeal: a request for
redetermination of the alleged overpayment from Palmetto.
(Id. ¶ 58.) Palmetto's redetermination
decision "was partially favorable in that three claim
denials were overturned in whole or in part."
(Id.) "Based on this decision, the alleged
overpayment was recalculated to be $3, 485, 692."
(Id.) In July 2018, In Touch submitted a
second-stage appeal: a request for reconsideration from a QIC
called Maximus Federal Services, Inc. (Id. ¶
60.) Maximus rendered a "partially favorable
reconsideration decision" in August 2018. (Id.)
Specifically, it "revers[ed] the denial of one claim but
otherwise affirm[ed] the overpayment assessment."
(Id.) Maximus thus recalculated the assessment to be
$3, 402, 858. (Id.) In Touch timely sought to
initiate the third stage of its appeal by filing a request
for de novo ALJ review on October 22, 2018.
(Id. ¶ 62.) The ALJ's 90-day deadline to
hold a hearing and issue a decision was January 20, 2019.
(Id.) As of September 9, 2019, the date this court
last held a hearing on the parties' motions, In Touch has
not received ALJ review.
Backlog for ALJ and MAC review
Touch alleges, and Defendants concede, that In Touch is
unlikely to receive an ALJ hearing and decision for at least
three and perhaps as long as five years. (Id. ¶
5.) For various reasons, including a "dramatic
increase" in "pre- and post-payment reviews of
Medicare claims," the workload of ALJs has risen
significantly since approximately 2010. (Id.
¶¶ 37-38.) "In 2013, OMHA suspended assignment
of hearing requests to ALJs because the ALJs were unable to
accommodate the growing number of appeals on their
dockets." (Id. ¶ 39.) The assignment
suspension was in effect when In Touch filed this lawsuit.
(See id.) "At the end of the 2018 fiscal year,
there were approximately 426, 000 backlogged appeals pending
before OMHA." (Id. ¶ 40.) "Similar
processing delays plague the" DAB's Medicare Appeals
Council. (Id. ¶ 42.) "For example, at the
end of fiscal year 2016, there were 22, 707 appeals pending
before the Council." (Id.) During the same
year, the MAC adjudicated "only 3, 723 appeals."
(Id.) Although HHS is working to alleviate the
problem, "the average processing time for ALJ hearing
requests increased slightly from 1, 108 [days] in fiscal year
2017 to 1, 142 [days] in fiscal year 2018."
(Id. ¶ 43.) HHS "forecasts that [it] will
not be able to eliminate the backlog of pending appeals and
bring OMHA into compliance with statutory processing times
until 2022 at the earliest." (Id. ¶ 44;
see Defs.' Br. 8 (similar).)
In Touch's financial hardship
about October 29, 2018, CMS began to recoup the alleged
overpayment by withholding all of In Touch's Medicare
payments. (Compl. ¶ 63; Khatab Decl. ¶ 10;
see 42 C.F.R. § 405.370 (the government recoups
an overpayment "by reducing present or future Medicare
payments" to the provider "and applying the amount
withheld to the indebtedness"); see also 42
C.F.R. § 405.371(a)(3).) In Touch estimates that CMS
"has recouped approximately $240, 000 in Medicare
receivables to date." (Khatab Decl. ¶ 10.)
"The recoupment has reduced In Touch's revenue to
$0." (Id.) To remain in business, In Touch
"has laid off three of its 16 employees and
converted" its remaining employees to part-time status.
(Compl. ¶ 64.) It has also "drawn on an existing
line of credit and taken out loans." (Id.) In
Touch "has approximately $160, 000 in outstanding debt
obligations unrelated to the alleged Medicare
about January 3, 2019, In Touch filed a request with Palmetto
to establish an extended repayment schedule (ERS).
(Id. ¶ 65; see 42 U.S.C. §
1395ddd(f)(1)(A) (providing that if repaying the overpayment
within 30 days "would constitute a hardship" as
defined in the Act, HHS "shall," with some
exceptions, "enter into a plan with the provider . . .
for the repayment" to occur "over a period of at
least 6 months but not longer than 3 years," or
"not longer than 5 years in the case of extreme hardship
. . . .").) In Touch submitted "detailed financial
documentation" to Palmetto; explained that it could not
afford to "make monthly payments in equal installment
amounts over the course of" five years; and
"proposed a graduated repayment arrangement within
the" five-year timeframe. (Compl. ¶ 65.) Had the
proposed ERS been approved, In Touch would have been
reimbursed for new Medicare claims while it continued making
monthly payments. (See In Touch Mem. in Supp. of
Mot. for Prelim. Inj. ("Pl.'s Br.") , 6.)
In a letter dated January 14, 2019, Palmetto informed In
Touch that the documentation it supplied was
"insufficient" to support its request and gave In
Touch an opportunity to submit additional documentation.
(See Compl. ¶ 65; January 2019 Palmetto Ltr.,
Ex. J to Compl. [1-10].) On or about May 14, 2019, In Touch
submitted a second ERS request. (See Notice of ERS
Denial .) Palmetto concluded that In Touch's
financial submissions confirmed that In Touch lacks "the
ability to pay current liabilities as they become due,"
and therefore denied the second ERS request. (Id.)
On August 20, 2019, In Touch informed the court that it
"continues to suffer irreparable harm and will be forced
to cease operations in the immediate future absent [court]
intervention." (August 2019 Notice , 1.)
Touch asks the court for a preliminary injunction ordering
CMS to stop recouping its new Medicare payments until it
receives an ALJ hearing and decision. The court can grant a
preliminary injunction only if it has subject matter
jurisdiction over this case. See Medlock v. Trs. of Ind.
Univ., 683 F.3d 880, 882 (7th Cir. 2012) (if a court
"lack[s] subject-matter jurisdiction," it
"must dismiss" the case). Defendants argue that the
court lacks subject matter jurisdiction and have therefore
moved to dismiss all claims under Rule 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, 770
F.3d at 588. "[T]he 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). In assessing a motion to dismiss
under Rule 12(b)(1), the court "accept[s] as true the
well pleaded factual allegations, drawing all reasonable
inferences in favor of the plaintiff." Ctr. for
Dermatology, 770 F.3d at 588 (internal quotation marks
omitted). "When subject-matter jurisdiction is
disputed," however, the court "may properly look
beyond the jurisdictional allegations of the complaint and
view whatever evidence has been submitted on the issue to
determine whether in fact subject matter jurisdiction
exists." Miller v. Fed. Deposit Ins. Corp., 738
F.3d 836, 840 (7th Cir. 2013) (internal quotation marks
omitted). If the court dismisses a complaint for lack of
subject-matter jurisdiction, it does so without prejudice.
Love v. Supreme Court of Ill., 723 Fed.Appx. 366,
367 (7th Cir. 2018) (citing Lennon v. City of Carmel,
Ind., 865 F.3d 503, 509 (7th Cir. 2017)).
argue that the court lacks subject matter jurisdiction over
this case because In Touch has failed to exhaust its
administrative remedies under the Medicare ...