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Palm Valley Health Care, Inc. v. Azar

United States Court of Appeals, Fifth Circuit

January 15, 2020

PALM VALLEY HEALTH CARE, INCORPORATED, Plaintiff-Appellant
v.
ALEX M. AZAR II, SECRETARY, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES;PALMETTO GBA, L.L.C., Defendants-Appellees

          Appeal from the United States District Court for the Southern District of Texas

          Before OWEN, Chief Judge, and HAYNES and COSTA, Circuit Judges.

          GREGG COSTA, CIRCUIT JUDGE

         With annual spending topping half a trillion dollars, Medicare is the largest recipient of federal funds after Social Security and defense.[1] With so many tax dollars at stake, Congress created an administrative process through which Medicare can recover overpayments. Because of the massive number of claims, an audit of each one is not feasible. So federal law allows Medicare to investigate a select number of claims from a provider. If the audit of that sample reveals "a sustained or high level of payment error," Medicare can extrapolate that overpayment rate to a larger number of similar claims. 42 U.S.C. § 1395ddd(f)(3)(A).

         An audit of Palm Valley Health Care, a home health care provider, revealed that a significant percentage of the sampled claims did not meet Medicare coverage requirements. Extrapolating that overpayment rate to all claims paid over the relevant time period resulted in a repayment demand of more than $12 million. Palm Valley brings constitutional, statutory, and evidentiary challenges to that decision. Finding no error, we AFFIRM.

         I.

         The Department of Health and Human Services (HHS), acting through a Medicare contractor, audited claims Palm Valley submitted between July 1, 2006, and January 31, 2009. Palm Valley was selected for review because it had submitted an unusually large number of claims involving five or more consecutive home health care episodes. An episode is sixty days long and the typical claim involves two consecutive episodes. During the audit period, Palm Valley submitted 10, 699 Medicare claims.

         Out of those thousands, the contractor sampled 54 and concluded that 29 of them provided services to beneficiaries who were not eligible for home health care. Medicare will cover home health services if the beneficiary is homebound, under the care of a physician, in need of skilled services, and under a plan of care. 42 C.F.R. § 409.42. Based on interviews of beneficiaries and their friends and families, as well as a review of medical records, the contractor concluded that the 29 beneficiaries either were not homebound or did not need skilled care.[2] As a general matter, an individual is homebound if she has a condition restricting her ability to leave home without assistance. 42 U.S.C. § 1395f(a). The overpayment for those 29 claims was $81, 681.03. Extrapolation turned that figure into a total repayment demand of $12, 589, 185.

         Palm Valley sought review of the overpayment finding. It argued that the beneficiaries qualified as homebound and thus were eligible for home health services. It also challenged the sample the auditor used and the extrapolation methodology used to reach the $12 million repayment figure. Notably, however, Palm Valley did not press a defense Medicare allows for a provider that "did not know, and could not reasonably have been expected to know" that it was receiving overpayments.[3] 42 U.S.C. § 1395pp(a)(2); see also Caring Hearts Pers. Home Servs. v. Burwell, 824 F.3d 968, 970 (10th Cir. 2016) (Gorsuch, J.) (calling this "[a] sort of good faith affirmative defense").

         For the arguments Palm Valley was asserting, it had many opportunities to make them. Administrative review of overpayment decisions has several stages. The first allows a provider to seek a redetermination from the auditor. 42 U.S.C. § 1395ff(a)(3)(A). The auditor must complete its redetermination within 60 days. Id. § 1395ff(a)(3)(C)(ii). If the redetermination is unfavorable, the provider may then seek reconsideration from a qualified independent contractor, which likewise has a 60-day deadline. Id. § 1395ff(c)(3)(B)(i), (c)(3)(C)(i). The next step is an appeal to an administrative law judge (ALJ), who holds a hearing and reviews the overpayment finding de novo. See id. § 1395ff(d)(1)(A). The ALJ must render a decision within 90 days. Id. An unfavorable ALJ decision may be appealed to the Medicare Appeals Council, which also faces a 90-day deadline. Id. § 1395ff(d)(2)(A). If the provider fails at this fourth and final stage of administrative review, it may seek review in federal district court. Id. § 1395ff(b)(1)(A).

         Although each stage of administrative review has a statutory deadline, HHS routinely fails to meet those dates. From start to finish, the average appeal takes about five years, far in excess of the statute's approximately one year. Maxmed Healthcare, Inc. v. Price, 860 F.3d 335, 344-45 (5th Cir. 2017). The statute recognizes that the agency may not meet the deadlines. If HHS fails to meet the review deadline at any stage, a provider may escalate its appeal and immediately jump to the next stage of review. 42 U.S.C. §§ 1395ff(c)(3)(C)(ii), (d)(3)(A)-(B).

         Palm Valley appealed through the entire administrative process. At the redetermination stage, the contractor determined that one partial denial among the 29 was in error. At the reconsideration stage, the independent contractor found that Medicare did not cover the claims for 29 beneficiaries. The ALJ subsequently reviewed the overpayment determinations and concluded that 27 claims in the sample of 54 should not have been paid. The Medicare Appeals Council mostly affirmed the ALJ's decision, but concluded that the claims for two beneficiaries previously found to be uncovered were eligible claims. Full administrative review thus reduced the number of ineligible claims from 29 to 25, shaving a meaningful amount off the $12 million that Palm Valley originally owed.

         Consistent with recent practice, the ALJ and Medicare Appeals Council issued their decisions roughly one-and-a-half years and three years after Palm Valley sought their review. Although HHS did not come close to meeting either 90-day deadline, Palm Valley did not escalate its appeal.

         Palm Valley finally sought review in district court. The court affirmed the ...


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