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The Massive Medicare Appeals Backlog is Significantly Harming Providers, What You Can Do To Stop It

Few occurrences in healthcare billing and coding will bring instant anxiety as receiving an overpayment demand from one of CMS’ contractors.  We all know that we are lucky if we make it through the first two levels of appeal (Redetermination-Level 1 and Reconsideration-Level 2) with 100% success on all claims, even if every claim was billed correctly.  Fortunately, during these first two levels of appeal, we are able to stop claim recoupment by timely filing our appeals. Unfortunately, as many people who routinely handle government claim appeals know, recoupment on the alleged overpayment cannot be stopped after a decision is rendered at Level 2.  This means that recoupment can begin while three (3) additional stages of appeal remain to be exhausted. See MLN Matter Number: MM6183, as revised.

To make this unfortunate occurrence even worse is that the backlog for the 3rd level of appeal (ALJ review) currently ranges from 3-5 years. This means that while your appeal is waiting to be decided by the ALJ, CMS’ contractors will likely recoup the entire, alleged overpayment amount, resulting in a significant impact on your practice’s revenue, and possibly resulting in closure or bankruptcy.

Summing up this entire issue, pursuant to federal regulations, CMS is required to conduct an ALJ hearing and render a decision within 90 days of submission of the request to the ALJ. CMS and its contractors are in violation of federal law by creating a backlog of 3-5 years, to the detriment of its providers, many of whom correctly billed the claims at issue.

To combat this injustice, providers are fighting back by filing for injunctions against CMS’ and its contractors. These injunctions, in part, are based on the April 2018 decision from the Fifth Circuit Court of Appeals in Family Rehabilitation, Inc. v. Azar No. 17-11337, which held that district courts are authorized to enjoin CMS and its contractors from recouping alleged overpayments prior to the completion of the administrative appeal process as a result of the massive backlog.

In this case, Family Rehabilitation, a Texas home health provider, received approximately 94% of its revenue from Medicare claims. In 2016, ZPIC audited claims and determined that Family Rehabilitation was overpaid on 93% of the 43 claims submitted for review. The ZPIC extrapolated this amount and rendered an ultimate overpayment decision of $7.89 million. Family Rehabilitation timely appealed to the MAC, which upheld the overpayment, and the Level 2 appeal was ultimately ruled unfavorable. We all know that fully unfavorable decisions are not uncommon at the first two levels as contractors are routinely paid based on the number of overpayments that they find, creating an incentive to uphold overpayment findings.

Thereafter, Family Rehabilitation timely appealed the denials to the Administrative Law Judge who, because of an enormous backlog of appealed claims, determined that it would be at least 3 to 5 years before Family Rehabilitation’s appeal could be heard and decided. In the interim, Medicare was authorized to begin recoupment on the $7.89 million, essentially preventing any payment to Family Rehabilitation by Medicare until the entire $7.89 million was repaid.

Because of the backlog, by the time the ALJ issued a decision, Family Rehabilitation would likely be bankrupt or closed because of the lack of payments from Medicare. Therefore, Family Rehabilitation filed for a restraining order and preliminary injunction preventing recoupment because of the backlog. On appeal, the Fifth Circuit decided that Family Rehabilitation could proceed with its motion for injunctive relief, staying the overpayment recoupment, under the “collateral-claim” judicial exception, ultimately waiving the requirement to exhaust administrative remedies.

Although the Fifth Circuit’s decision does not require any district court to grant an injunction on overpayment recovery, this decision does give providers a path to seek injunctive relief while they wait for their claims to be heard by the ALJ. If injunctive relief is granted, it may stop the recoupment of claims while appeals are pending before the ALJ. In fact, other federal courts are following the lead and permitting injunctions on recoupment. See A1 Diabetes & Medical Supply v. Azar, et al., Case No. 2:18-cv-02612 (W.D. Tenn. 2018); Med-Cert Home Care, LLC v. Azar, et al., Case No. 3:18-cv-02372 (N.D. Texas 2018); Accident Injury and Rehabilitation, P.C. v. Azar, et al., Case No. 4:18-cv-02173-DCC (D.S.C. 2018); Angels of Care Home Health, Inc. v. Azar, et al., Case No. 3:18-cv-03268-S-BK (N.D. Texas 2018). There are countless other cases that have been decided and many other cases waiting be decided.

However, as mentioned, there is no guarantee that a district court will grant an injunction to stay recoupment, despite the massive backlog. See PHHC, LLC vs. Azar, et al., Case No. 1:18-cv-01824 (N.D. Ohio 2018) (holding that the provider did not have a due process right to enjoin recoupment). Therefore, as the backlog continues to remain, if not increase, as there is no guarantee an injunction can be obtained, it is now more important than ever before that providers are victorious at Levels 1 and 2 of the appeal process. Failure to obtain at least partially favorable results and/or have an extrapolation disqualified may result in a provider having to close or file bankruptcy because of recoupment while they wait their turn for an ALJ process, which may take 3 to 5 years.

For many providers who are not victorious at Levels 1 or 2, by the time the ALJ renders a decision, the recoupment will have significantly and negatively impacted the operation budget of the practice. Therefore, especially with the increase in the use of extrapolation, it is now more important than ever before that providers retain attorneys and consultants who are very knowledgeable regarding healthcare billing and the intricacies of the appeal process.

Recently, recognizing the difficulty in obtaining an injunction against recoupment in the Northern District of Ohio as a result of the PHHC decision, we obtained a partially favorable award, including a ruling that an extrapolation was statistically invalid, at Level 1. This resulted in a reversal of a $3.6 Million overpayment finding, likely saving the client from certain closure and/or bankruptcy if the case proceeded through the appeal process without an injunction on recoupment. The matter is now moving to Level 2 with an amount in controversy of approximately $100,000, rather than $3.7 Million.

This case highlights the importance of securing victory at Levels 1 or 2 of the appeal process.

If you have any questions concerning the recoupment process, the administrative appeal process, or your options for filing for an injunction to avoid recoupment while your Request for ALJ Hearing sits in the massive backlog, please contact Bryan E. Meek, Esq. (330-253-5586 or, who is an attorney in Brennan, Manna & Diamond’s Provider Relations, Audits, and Appeals Unit, a division of BMD’s Healthcare Department.

 Published:  2019 March Edition, NAMAS Monthly Health Law Bulletin - The Verdict

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