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In Touch Home Health Agency, Inc. v. Azar

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

October 24, 2019

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.



         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).


         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 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 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. §§ 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.

         The 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.

         C. In Touch's administrative appeal

         In 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.

         D. Backlog for ALJ and MAC review

         In 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).)

         E. In Touch's financial hardship

         On or 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 overpayment." (Id.)

         On or 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.") [11], 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 [32].) 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 [33], 1.)


         In 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)).


         Defendants argue that the court lacks subject matter jurisdiction over this case because In Touch has failed to exhaust its administrative remedies under the Medicare ...

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