An Arizona District Court judge held last week that the court lacked subject-matter jurisdiction over a home health agency’s (HHA) procedural due process claim because the HHA had failed to present its claim to HHS first and had not exhausted its administrative remedies before seeking judicial review. The court granted the HHS Secretary’s motion to dismiss and denied the HHA’s motion for preliminary injunction.

While waiting for an Administrative Law Judge (ALJ) hearing, the Arizona-based HHA filed a complaint alleging a procedural due process violation and motion for preliminary injunction in federal court to stop HHS from recouping approximately $2.8 million in alleged overpayments while the HHA awaited an ALJ hearing. Due to a backlog of Medicare appeals, the wait time for an ALJ decision is approximately three to five years. Once a qualified independent contractor affirms the Medicare Administrative Contractors’ initial coverage determination and before the ALJ renders a decision, HHS can recoup overpayments from a provider. The HHA in its complaint alleged a procedural due process violation based on the statutory requirement that an ALJ hearing must be provided within 90 days of a request and sought a stay of the Secretary’s recoupment of overpayments before the ALJ hearing.

The Secretary must issue a “final decision” before a federal court has subject-matter jurisdiction over claims arising under the Medicare Act pursuant to 42 U.S.C. § 405(g). In Matthews v. Eldridge, 424 U.S. 319 (1976), the Supreme Court stated that a “final decision” has two conditions: (1) a nonwaivable element that the claim must be presented to the Secretary (the presentment requirement) and (2) a waivable element that the administrative remedies must be exhausted (the exhaustion requirement).

Presentment Requirement
The first issue that the court addressed was whether the HHA presented the claim to the Secretary. The defendant argued that the HHA did not present its constitutional due process claim to the Secretary and the HHA argued that it only needed to present its overpayment claim not its constitutional claim to the Secretary. Both parties’ arguments were based on conflicting interpretations of the Ninth Circuit’s decision in Haro v. Sebelius, 747 F.3d 1099 (2014). The HHA argued that it did not need to bring its procedural due process claim because a constitutional claim is different from the claims against an agency’s policies that were raised in Haro and required to be presented to the agency first. Ultimately, the court found this argument unpersuasive and held that the HHA’s due process claim was collateral to its overpayment claim and, therefore, must be presented to the agency before being brought in federal court. The court noted that other circuits, including the Fifth Circuit, have found that the federal court has jurisdiction over due process claims similar to the HHA’s constitutional claim, but that the district court was bound by the Ninth Circuit’s limiting interpretation of the Eldridge presentment requirement set forth in Haro.

Exhaustion Requirement
The court also held that even if the HHA had met the presentment requirement, the court still lacked jurisdiction because HHA had not met the second and third prongs of Eldridge’s three part test for waiving the administrative exhaustion requirement – making a colorable showing that denial of relief would cause the HHA irreparable harm and futility of pursuing administrative remedies. The HHA argued that it would face irreparable harm if the overpayment amount was recouped before the ALJ hearing because it would face bankruptcy. Although the HHA asserted in its pleadings that it would face certain bankruptcy and have to lay off its staff while awaiting the ALJ hearing, the court found that the HHA’s failure to apply to CMS for an extended repayment plan and not providing the court with financial statements or evidence of impending financial ruin undercut HHA’s showing of irreparability. In addition, the court noted that the HHA’s decision not to escalate its appeal and bypass the ALJ backlog further undermined the HHA’s argument that the administrative appeals process would be futile and cause irreparable harm.

A copy of the opinion is available here.