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Healthcare Essentials

August 6, 2018

Fifth Circuit Reverses Dismissal of Complaint Seeking Injunction to Prevent Medicare Recoupment Prior to Conclusion of Administrative Appeal based on Violation of Procedural Due Process

By Michael D. Lessne

On March 27, 2018, the Fifth Circuit Court of Appeals in Family Rehabilitation, Inc. v. Alex Azar, II, Sec. U.S. Dept. of Health & Human Services, No. 17-11337, 2018 WL 1478052, at *1 (5th Cir. Mar. 27, 2018), reversed the decision of a Northern Texas district court, thereby permitting a plaintiff home health agency to proceed with a complaint seeking a temporary restraining order and injunction against recoupment of more than $7.6 million in Medicare overpayments pending the completion of the plaintiff’s administrative appeal. 

The district court had sua sponte dismissed the case for lack of subject matter jurisdiction because the plaintiff’s hearing before an Administrative Law Judge (“ALJ”) was pending and the plaintiff had accordingly not yet exhausted its administrative remedies.  See 42 U.S.C. § 405(g) and (h).  In reversing, the Fifth Circuit recognized that the plaintiff’s ultra vires claims and its claims based on the government’s violation of its procedural due process established jurisdiction under the “collateral-claim” exception to the channeling requirements of 42 U.S.C. § 405. Under the exception, first recognized in Mathews v. Eldridge, 424 U.S. 319 (1976), a court may have jurisdiction over claims (a) that are “entirely collateral” to a substantive agency decision and (b) for which full relief cannot be obtained at a post-deprivation hearing. 

Since the plaintiff sought only to have recoupment suspended until a hearing, and because it raised claims that were unrelated to the merits of the recoupment, the Fifth Circuit determined that the plaintiff’s claims were collateral. Additionally, since the plaintiff alleged that it would go out of business if recoupment continued before the ALJ hearing, the Fifth Circuit determined that there would be irreparable injury to the plaintiff. Accordingly, the Fifth Circuit held that it had jurisdiction to hear the procedural due process and ultra vires claims. The Fifth Circuit dismissed two other avenues to jurisdiction sought by the plaintiff: first determining that there was no jurisdiction under 28 U.S.C. § 1331 because of futility, and second determining that there was no basis for mandamus jurisdiction because the plaintiff did not request that the government provide it with a timely ALJ hearing. 

This case may leave the door open for healthcare providers/suppliers who may be put out of business by Medicare recoupment as they await a three- to five-year ALJ hearing through a constitutional procedural due process challenge and by seeking mandamus. The Eleventh Circuit, in In re Bayou Shores SNF, LLC, 828 F.3d 1297 (11th Cir. 2016), cert. denied sub nom.  137 S. Ct. 2214 (2017), held that the bankruptcy court lacked subject matter jurisdiction to enjoin the termination of the debtor skilled nursing facility’s provider agreement because the debtor had not exhausted its administrative remedies.  However, the Eleventh Circuit did not consider the collateral claims exception and declined to consider mandamus jurisdiction. Seeking temporary relief and a timely ALJ hearing may be sufficient to impart jurisdiction on the district court while the healthcare business awaits adjudication through the administrative process that the Fifth Circuit in Family Rehabilitation described as a “harrowing labyrinth.”



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