Sahara Health Care, Inc. v. Azar

975 F.3d 523

SAHARA HEALTH CARE, INCORPORATED, Plaintiff—Appellant,

v.Alex M. AZAR, II, Secretary, U.S. Department of Health and Human Services; Seema Verma, Administrator for the Centers for Medicare and Medicaid Services, Defendants—Appellees.

No. 18-41120

United States Court of Appeals, Fifth Circuit.

FILED September 18, 2020

Mark S. Kennedy, Esq., Joanna Hojdus Martin, Kennedy, Attorneys & Counselors at Law, Dallas, TX, for Plaintiff - Appellant.

Joshua Marc Salzman, U.S. Department of Justice, Civil Division, Appellate Section, Washington, DC, for Defendants - Appellees.

Before Elrod, Willett, and Oldham, Circuit Judges.

Jennifer Walker Elrod, Circuit Judge:^*

Congress devised an intricate procedure for medical providers to dispute Medicare recoupment: four layers of administrative review, followed by review in a federal court. But over a period of five years, administrative appeals for Medicare recoupment grew twelve-fold. At its peak, the backlog of appeals grew to a ten-year wait. This logjam resulted in a remarkable opinion by the D.C. Circuit, in which that court told Congress that it would likely mandamus the Secretary of Health and Human Services if the political branches "failed to make meaningful progress within a reasonable period of time—say, the close of the next full appropriations cycle." See Am. Hosp. Ass'n v. Burwell , 812 F.3d 183, 193 (D.C. Cir. 2016). As they say, the best laid plans of mice and men oft go awry.¹

Sahara Health Care is a provider stuck in this bureaucratic mire. The government told Sahara that past Medicare reimbursements had been overpaid and were ripe for recoupment. After step two of the four-step administrative review process (with fifth-step judicial review), HHS began to recoup overpayments from Sahara's present and future reimbursements. Although the statute requires an ALJ hearing and decision within 90 days of a request, the current ALJ backlog results in a typical three-to-five year wait.

Sahara sought injunctive relief, asserting that its statutory and due process rights were violated and that the government acted ultra vires by recouping payments without providing a timely ALJ hearing. The district court granted the government's motion to dismiss, holding alternatively that Sahara lacked a protected property interest in forestalling the recoupment and that the government had provided adequate process. It also concluded that the government had not exceeded its statutory authority. Because we agree that the government provided Sahara adequate process and complied with the statute, we AFFIRM.

I.

The Medicare program processes over a billion claims each year. CTRS. FOR MEDICARE & MEDICAID SERVS. , The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of the 3-Year Demonstration at 9 (2008). It cannot inspect each claim as it comes. Instead, it generally pays facially valid claims, and conducts post-payment audits to detect overpayments. See 42 U.S.C. § 1395ddd ; see generally Palomar Med. Ctr. v. Sebelius , 693 F.3d 1151, 1156–57 (9th Cir. 2012) (outlining the operation of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108–173, 117 Stat. 2066, (2003), which governs recoupment). Providers who wish to challenge an overpayment determination have access to four phases of administrative review culminating in a phase five judicial review. See 42 U.S.C. § 1395ff.

Sahara Health Care is a home health agency that depends on Medicare reimbursements for about 75% of its revenue. In 2017, a Medicare contractor audited a sample of Sahara's claims and, after analysis and extrapolation, calculated that HHS had overpaid it about $3.6 million. The government wanted that money back. Sahara objected. After two levels of administrative review, Sahara had successfully reduced that number down to about $2.4 million (excluding interest). Sahara believed that was still excessive. It exercised its statutory right to an ALJ hearing within 90 days of a request. Unfortunately for Sahara, the massive administrative backlog resulted in a three-to-five year wait for a hearing. See Cumberland Cty. Hosp. Sys., Inc. v. Burwell , 816 F.3d 48, 50–51 (4th Cir. 2016). This case arises from the conflict between the statutory right to a hearing within 90 days and the administrative reality that no such hearing occurs for years.

A.

The first phase of administrative review is a "redetermination" from an HHS contractor. See 42 U.S.C. § 1395ff(a)(3) ; 42 C.F.R. § 405.948. Second, a provider can seek "reconsideration" from a qualified independent contractor. See 42 U.S.C. § 1395ff(b) – (c), (g) ; 42 C.F.R. §§ 405.902, 405.904(a)(2). At steps one and two, a provider may submit additional evidence and must put forth a written explanation of its disagreement with the initial determination. 42 C.F.R. §§ 405.946(a) ; 405.966(a). If it wants to submit evidence, that is the time: "A provider of services or supplier may not introduce evidence" after step two "unless there is good cause which precluded the introduction of such evidence at or before that reconsideration." 42 U.S.C. § 1395ff(b)(3) ; 42 C.F.R. § 405.966(a)(2). Redetermination at step one and reconsideration at step two result in reasoned, written decisions. See 42 U.S.C. § 1395ff(a)(5) (requiring "written notice" with "specific reasons" at step one); 42 C.F.R. § 405.956(b) (detailing content of step one decision); 42 U.S.C. § 1395ff(c)(3)(E) (requiring "a detailed explanation of the decision" at step two); 42 C.F.R. § 405.976(b) (detailing content of step two decision). The process does not end there.

At step three, a provider is entitled to a hearing and decision from an ALJ, who must "render a decision on such hearing by not later than the end of the 90-day period" after the request was timely filed. 42 U.S.C. § 1395ff(d)(1)(A). Congress specified what happens when an ALJ misses that deadline:

In the case of a failure by an administrative law judge to render a decision by the end of the period described in paragraph (1), the party requesting the hearing may request a review by [the HHS Appeals Board] notwithstanding any requirements for a hearing for purposes of the party's right to such a review.

42 U.S.C. § 1395ff(d)(3)(A).

The Appeals Board then has 90 days to conduct a de novo review and issue a decision, or 180 days if the case was "escalated" to skip the step-three hearing. 42 U.S.C. § 1395ff(d)(2)(A) ; 42 C.F.R. §§ 405.1100(c) (de novo review); 405.1100(d) (180 days if escalated). Congress anticipated that the Appeals Board deadline might pose some problems. After 180 days have passed without a board decision, the statute permits a party to "seek judicial review, notwithstanding any requirements for a hearing for purposes of the party's right to such a judicial review." 42 U.S.C. § 1395ff(d)(3)(B).

B.

Recoupment is "the recovery by Medicare of any outstanding Medicare debt by reducing present or future Medicare payments and applying the amount withheld to the indebtedness." 42 C.F.R. § 405.370. Congress prohibited HHS from recouping payments during the first two stages of administrative review. 42 U.S.C. § 1395ff(f)(2)(A). After those two appeals, however, if a provider is still found to have been overpaid, "recoupment remains in effect." 42 C.F.R. § 405.379(d)(4)–(5). HHS must provide an overpaid provider with notice and an opportunity to respond in writing. 42 C.F.R. §§ 405.373(a), (b)(1).

If repayment of an overpayment would constitute an "extreme hardship, as determined by the Secretary," the agency "shall enter into a plan with the provider" for repayment "over a period of at least 60 months but ... not longer than 5 years." 42 U.S.C. § 1395ddd(f)(1)(A). That hardship safety valve has some exceptions that work against insolvent providers. If "the Secretary has reason to believe that the provider of services or supplier may file for bankruptcy or otherwise cease to do business or discontinue participation" in the Medicare program, then the extended repayment plan is off the table. 42 U.S.C. § 1395ddd(f)(1)(C)(i). A provider that ultimately succeeds in overturning an overpayment determination receives the wrongfully recouped payments with interest. 42 U.S.C. § 1395ddd(f)(2)(B).

C.

A years-long administrative logjam helps explain why Sahara filed this lawsuit. Between 2009 and 2014, the number of ALJ appeals increased more than 1,200 percent. OMHA, HHS, Fiscal Year 2017 Justification of Estimates for Appropriations Committee 8 (FY 2017 Budget). The agency's budget did not receive a similar increase. Cases piled up. At its peak in 2016, HHS had almost ten years of appeals pending. See Cumberland Cty. Hosp. , 816 F.3d at 50–51. The agency has since received a funding increase, and currently expects to clear the backlog by 2022. See Am. Hosp. Ass'n v. Azar , No. 14-cv-851, 2018 WL 5723141 (D.D.C. Nov. 1, 2018). In fact, the Secretary is under a mandamus order requiring such a timetable. See id. at *1. But 2022 is still a ways off, and multi-year waits are abundant.

D.

Sahara was notified of a $3.5 million overpayment determination in February 2017. It appealed. At step one ("redetermination"), after multiple requests and corrected decisions, the overpayment determination was partially upheld. Sahara went to step two ("reconsideration"), and ultimately received a revised overpayment demand of $2.4 million in July 2018. In June 2018, Sahara timely requested an ALJ hearing.² The next month, it requested an extended repayment schedule to pay down the debt over ten years. The agency denied the request, noting that it lacked statutory authority to extend schedules longer than five years. Sahara was financially unable to accept a five-year plan, which "would have had a devastating impact on the business’ [sic] financial well-being."³

Four days after it requested an ALJ hearing, Sahara filed a lawsuit for injunctive relief in the Southern District of Texas. The district court granted the government's motion...