Recent Litigation Underscores Continued Difficulties with the 'Logjam' of the 'Colossal' Medicare Claim Appeals Backlog

Baker Ober Health Law

Baker Ober Health Law

Although newly released data from the Office of Medicare Hearings and Appeals (OMHA) suggests that the Medicare claim appeals backlog might be decreasing, OMHA's case processing time and recent litigation challenging the rules regarding recoupment still present challenges.

Navigating the complex maze of coverage and reimbursement rules governing the Medicare benefits program can be taxing on its own. But regularly assessing what the Fifth Circuit aptly described as the "harrowing labyrinth," "byzantine four-stage administrative appeals process," and "logjam," that is the Medicare claim appeals process is another matter altogether. Certainly, the claim appeals process did not get those depictions for nothing; there is indeed a "redundant, time-consuming, and costly" hurdle involved in appealing claim denials. This hurdle is the "colossal" backlog at the Office of Medicare Hearings and Appeals (OMHA). See Family Rehab, Inc. 866 F.3d 496, 505 (5th Cir. 2018); Maxmed Healthcare, Inc. v. Price, 860 F.3d 335, 344-45 (5th Cir. 2017).

What is the OMHA Backlog Today?

Currently, the third-level administrative review by OMHA of Medicare claims, where a provider or supplier is afforded an opportunity to have its appeal heard by an Administrative Law Judge (ALJ), has a 1,473 day average processing time delay for appeals adjudicated during the second quarter of FY 2020 (January 2020 – March 2020). This means it took four years from the time those claims were appealed to the ALJ level of review to be adjudicated and reach disposition. By statute, this process is supposed to take 90 days.

This backlog in the adjudication process can be a significant burden for providers and suppliers. Recoupment of the monetary amount at issue for claims arising from an initial determination under 42 C.F.R. § 405.920 begins after the reconsideration decision, or the second-level of administrative review. Providers and suppliers must pay back any remaining overpayment amounts for amounts that remain denied after the reconsideration decision. The overpayments are subject to the accrual of interest during the first two levels of administrative appeal. The interest rate is set by the Secretary of Treasury and charged by the Secretary of the Department of Health and Human Services (Department), which is currently 9 5/8 percent. If the overpayment is not repaid after the second level of appeal, the amounts are subject to recoupment and possible referral to the Department of Treasury for collection. As a result, some providers or suppliers with substantial or projected overpayments may be forced to shut down and/or face bankruptcy while waiting four years for possible relief at the ALJ level of review.

This has led to significant litigation against the Department to reduce the backlog. In perhaps the most influential action to date, litigation against the Department by the American Hospital Association and its member hospitals resulted in a requirement of the Department to file annual deadline-based status reports to show that the Department is addressing the problem. See American Hospital Ass'n., et al., v. Azar, No. 1:14-cv-00851 (D.D.C. Nov. 1, 2018). Of course, efforts have also been made by OMHA and CMS to reduce the backlog; these include, inter alia: settlement conference facilitation, a statistical sampling initiative, and the QIC Telephone Discussion and Reopening Process Demonstration. Unfortunately, these are not one-size-fits-all solutions and providers and suppliers often face unique hurdles when following these alternatives to reach disposition.

However, in some good news on the topic, the most recent status report in the AHA litigation, shows a total of 242,995 appeals remaining pending at OMHA, which, according to the Department, is "a 43% reduction from the starting number of appeals identified in the Court's order (426,594 appeals)."Am. Hosp. Assoc., et. al. v. Azar, Defendant's Status Report, Case No. 1:14-cv-00851 (Filed June 26, 2020). The status report includes an attached "Dashboard" that also shows a marked decrease in the number of appeals received, from 240,360 in FY 2015, to approximately 44,000 in FY 2019. This decrease of approximately 200,000 appeals will surely be felt at some point. Unfortunately, until the average case processing time is reduced from four years, relief from recoupment will continue to be a problem since payback for the monetary amount at issue must begin prior to final disposition.

Recent Litigation

Providers and suppliers have sought respite from this recoupment through litigation in federal court. See Family Rehab., 886 F.3d at 496-507. While this has led to some success, the most recent case heard by the Fifth Circuit in Supreme Home Health Servs., Inc. v. Azar, Case No. 19-30480 (5th Cir. May 15, 2020), did not lead to relief for the home health agency that filed the action. As demonstrated by Supreme, these cases often involve steering through tricky procedural and constitutional law issues and can also take time and expense to work their way through the federal courts.

Supreme Home Health Services (Supreme) was facing a total overpayment amount of $1,739,569, which was reduced by $20,741.27 after pursuing the first two levels of administrative review. According to the court, Supreme filed its request for an ALJ hearing in July 2015 and faced the overpayment amount plus interest, for a total of $2,357,657.83, which it was paying in monthly installments under a payment plan. As described by the Fifth Circuit, the "immense" backlog of Medicare appeals meant that Supreme would be waiting for years for its claims to be adjudicated. Thus, Supreme sought a temporary restraining order and preliminary injunction requiring CMS to stop collecting the overpayment without an ALJ hearing, arguing a number of constitutional and due process arguments, which included the following: (1) violation of procedural due process, (2) violation of substantive due process, (3), ultra vires action, and (4) preservation of its rights under §§ 704 and 705 of the Administrative Procedures Act (APA).

The district court denied the temporary restraining order and dismissed Supreme's substantive due process and APA claims for lack of subject-matter jurisdiction without prejudice. Although it found it had jurisdiction over the procedural due process and ultra vires claims, the district court nonetheless dismissed the claims on their merits after converting the Department's motion to dismiss into one for summary judgment and dismissed those claims on their merits.

Supreme then appealed to the Fifth Circuit, asserting that the district court erred because it had subject matter jurisdiction over the procedural due process and ultra vires claims. Supreme also argued that the court had federal question jurisdiction over all of its claims pursuant to 28 U.S.C. § 1331. Unfortunately for Supreme, even though the Fifth Circuit agreed that the district court had subject matter jurisdiction over Supreme's procedural due process and ultra vires claims, it concluded that the district court's summary judgment was appropriate because Supreme abandoned those issues in its opening brief. Through what appears to be a technicality in the way Supreme responded to the Department's briefing before the Fifth Circuit, the Fifth Circuit reviewed the federal question issue under a "plain error" standard instead of a "de novo" standard of review, which led to its conclusion that there was no finding that "channeling a claim through the agency would result in the 'complete preclusion of judicial review.'" Thus, the Fifth Circuit concluded that the district court's determination that federal-question jurisdiction did not exist was not in error and "certainly not plain error." Id. at 8-9.

Where Are We Now?

Although certainly not the outcome for which Supreme and other similarly-situated providers and suppliers may have hoped, the Fifth Circuit decision in Supreme does not necessarily preclude future claims asserting that enforcement of recoupment prior to final disposition on Medicare claim appeals and a delay of years outside of their control violate due process principles. And, perhaps this case can be distinguished based on the challenges presented to the Fifth Circuit related to technicalities in filings and briefings.

However, given the recent data regarding noteworthy reductions in receipts and pending appeals at OMHA, the landscape may be changing, albeit slowly, to one where case processing time at OMHA could materially decrease. The recent OMHA data suggests yes, but until that processing time is reduced from a whopping four years to a time frame that is closer to the 90 days required by statute, providers and suppliers will be forced to factor this delay at OMHA and recent litigation in the courts into their determinations of whether to pursue Medicare claim appeals.

Payment Matters Editors:

  • Leslie Demaree Goldsmith,
  • Tracy E. Weir

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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