Two United States District Courts in Louisiana and Illinois issued split decisions within two weeks of each other on the dire financial issues facing providers every day under the discretionary “penal recoupment” system the Centers for Medicare and Medicaid Services (CMS) imposes on ordinary overpayment determinations. As Judge Drell in the Western District of Louisiana stated, relief is appropriate, particularly where “the government is clearly shirking its statutorily required responsibility to hold a hearing before an ALJ and issue a decision within 90 days.”

When the Centers for Medicare and Medicaid Services (CMS), through a Medicare contractor, conducts a post-payment audit of a provider’s Medicare reimbursements and determines that the provider may have received an overpayment, the agency can recoup the amount of the overpayment. Pursuant to the Medicare Act’s strict jurisdictional limits, before a provider can challenge CMS’s overpayment determinations in federal court, the provider must first exhaust all administrative remedies by completing Medicare’s four-stage administrative appeals process.

Unfortunately, since 2009, the number of ALJ hearing requests have increased to almost 500,000 cases creating a three to five year backlog, during which the government seeks to recoup extrapolated overpayments, oftentimes in the tens of millions of dollars. Moreover, although there are two prior levels of review, those consist of paper submissions reviewed by government contractors who are at least indirectly incentivized to find against the provider, and with no right to present or examine witnesses. It is only the ALJ hearing that grants providers the right to a live hearing in which witnesses can present evidence.

In 2018, the Fifth Circuit Court of Appeals, applying a long-standing exception to the exhaustion requirement, changed the landscape for providers, and ruled that this exhaustion requirement could be waived, particularly when the claims presented to the court are wholly collateral to a substantive agency decision. Capitalizing on the Fifth Circuit’s Family Rehab decision, providers have turned to the courts in an attempt to seek relief from what Judge Drell, in his November 5, 2019, decision in APMC v. Azar, refers to as “penal recoupment”. Citing to what may be considered obvious, the Western District found the exhaustion requirement waived, “especially where the claims amounts are so significant, exhaustion is in the Defendants’ hands, is significantly and prejudicially delayed by Defendants, and [the provider] has no other remedy.”

Although most provider-friendly court rulings have granted injunctive relief, Judge Drell reserved ruling on APMC’s request for injunctive relief to allow the Fifth Circuit to answer the question of whether a provider has a property interest in its reimbursement claims. Notwithstanding, Judge Drell granted APMC’s request for mandamus finding that APMC had a clear right to a hearing before an ALJ, which, pursuant to the regulations, was required to be held and a decision rendered within 90 days. Judge Drell further found that no other adequate remedy existed to supplant the ALJ hearing.

Judge Drell’s finding on the adequacy of other remedies is in stark contrast to the October 24, 2019 decision rendered by Judge Pallmeyer in a Northern District of Illinois decision, In Touch Home Health Agency, Inc. v. Azar. In the In Touch decision, Judge Pallmeyer granted the government’s motion to dismiss on jurisdictional grounds finding that In Touch was unable to demonstrate that the remedies offered through escalation would be futile. The escalation process, which is entirely discretionary, consists of the Departmental Appeal Board reviewing the paper-only provider submissions and decisions issued by incentivized government contractors. Notwithstanding arguments that the DAB review failed to grant the provider the right to present witnesses before an unbiased arbiter, Judge Pallmeyer found that by utilizing the escalation process, In Touch could have brought its claims to federal district court within 275 days of the QIC’s second-stage decision. Although escalation does allow the provider to ultimately escalate its appeal to the federal district court, it is important to note that the federal district court is prohibited from conducting a de novo review, thus, placing APMC in the very same position as with DAB review, i.e., without the right to a live hearing.

In so ruling, Judge Pallmeyer chose speed over substance and placed all the responsibility for developing a record in the hands of the provider, while at the same time, handicapping the provider’s ability to develop a fair record through a live ALJ hearing. Unfortunately relying upon very misleading statistics, Judge Pallmeyer found that favorable decisions were issued in only 18% of ALJ cases. However, a careful review of the statistics introduced by the government reveals that the number of favorable ALJ decisions is much closer to 50% of the cases. Indeed, a review of the statistics reveals that 60% of the cases are dismissed, most likely as a result of the government’s many settlement programs which were put in place to comply with a D.C. District Court mandamus decision designed to drastically reduce the current three to five year backlog. A careful review of the statistics reveals that roughly half of the 40% that are not settled, are decided favorably for the provider.

It is not only misleading statistics that is concerning, however. Judge Pallmeyer’s ruling stands for the premise that the government’s discretionary authority to engage in recoupment should overrule the statute’s mandatory due process requirements that an ALJ hearing with live witnesses be held and a decision made within 90 days. Indeed, unlike Judge Drell’s decision in APMC, Judge Pallmeyer’s decision disregards the government’s role in creating the situation giving rise to providers’ dire financial circumstances. And although Judge Pallmeyer refers to the fact that an ultimately favorable decision would result in the payment of interest, the receipt of interest would require the provider to survive a multi-million dollar recoupment, something few providers are equipped to withstand.

Judge Pallmeyer further relies upon a congressional intent argument, utilizing support from termination cases that are no longer applicable to these types of action, while at the same time ignoring Congress’s mandate (i.e., intent) that an ALJ hearing and decision occur within 90 days. Perhaps more concerning is Judge Pallmeyer’s reliance upon speculative arguments as to CMS’s future ability to reimburse Medicare claims upfront were it required to halt discretionary recoupment actions during the three to five year “logjam.” In so doing, Judge Pallmeyer ignores the party responsible for this “logjam,” which is certainly not the provider.

Finally, Judge Pallmeyer rejects the only two circuit decisions to address providers’ procedural due process claims arising from the fact that it is the government’s failure to meet its statutorily mandated requirements that has resulted in these causes of action; both of which have found in favor of the provider.