Seventh Circuit Upholds Dismissal of Medicare Overpayment Lawsuit Brought by Home Health Agency for Failing to Complete Administrative Review

King & Spalding

On June 3, 2021, the Seventh Circuit upheld a decision by the U.S. District Court of the Northern District of Illinois to dismiss a home health agency’s lawsuit against a Medicare integrity contractor for temporarily suspending Medicare payments because the home health agency did not complete the administrative review process. The Seventh Circuit held in an unsigned, unpublished decision, that federal courts lacked jurisdiction over claims “arising from” the Medicare Act until after a final appeal to the Medicare Appeals Council leads to a final decision for the Secretary of HHS, subject to judicial review.

In April 2017, AdvanceMed Corporation (AdvanceMed), a Medicare contractor for HHS, notified plaintiff home health provider, Simply Home Health Care, LLC (Simply Home), that it was temporarily suspending Simply Home’s Medicare reimbursements pending investigation into suspected overpayments. Initially, AdvanceMed said the suspension was to investigate possible overpayments, but in response to rebuttal letters submitted by Simply Home to appeal the temporary suspension, AdvanceMed represented it was investigating for fraud.

Under Medicare regulations, Simply Home could not further dispute the temporary suspension at that time because the determination of a Medicare contractor in response to a provider’s statement in rebuttal to a suspension of payment is “not appealable.” 42 C.F.R. § 405.375(c). AdvanceMed ultimately lifted the suspension after concluding the investigation and determining that Simply Home was overpaid by about $5.5 million.

Simply Home filed a purported class action suit under the Medicare Act against the Secretary of the HHS and AdvanceMed, alleging AdvanceMed changed the basis for suspension from an overpayment investigation to a fraud investigation without cause. The District Court dismissed the lawsuit for lack of jurisdiction under the Act because Simply Home had not exhausted administrative remedies.

The Seventh Circuit upheld the District Court’s decision, reiterating the Medicare Act’s four-step administrative appeals process: (1) appealing to the contractor, (2) seeking reconsideration from a second administrative contractor, (3) appealing to an Administrative Law Judge, then (4) appealing to the Medicare Appeals Council, which renders a final decision for the Secretary of HHS that is subject to judicial review. Simply Home had completed the first two steps of this process only.

The Seventh Circuit rejected arguments by Simply Home that AdvanceMed’s decision to continue suspending Medicare reimbursement was “not appealable” under the Act, and that further appeals were “futile” as a result, reasoning that the temporary suspension was just one step of the process leading to the overpayment determination. The Seventh Circuit further noted that “this court has never recognized futility alone as a reason to waive the Act’s exhaustion requirement.”

A copy of the Seventh Circuit’s opinion, Simply Home Health Care, LLC v. AdvanceMedCorp., et al., 7th Cir. No. 20-1542, unpublished 6/3/21, can be found here.

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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