Mid-Atlantic Health Law TOPICS

Under federal law, health care providers that want to contest the government’s recoupment of Medicare overpayments, or a termination of their Medicare provider agreement, must exhaust their administrative remedies within the Medicare bureaucracy before going to court. 

Unfortunately, due to delay in the administrative review process, many providers are forced to discontinue their operations for lack of income before administrative remedies can be exhausted. The result is that even if the provider eventually prevails against the government, that victory is often hollow. 

Some providers have actually gone into bankruptcy hoping that a federal bankruptcy court will stop a termination of a Medicare provider agreement before administrative remedies are exhausted. While the case law on a bankruptcy court’s power to do just that is continuing to develop, the most recent appellate decision on that issue held that a bankruptcy court does not have that power.

However, a March 27, 2018 decision by a federal appellate court has given providers a new legal basis to stop recoupment of Medicare overpayments pending the exhaustion of administrative remedies.

A.  Family Rehabilitation v. Azar

In Family Rehabilitation v. Azar, a Medicare services provider contested the government’s assessment of a $7.6 million overpayment.  Before the provider could exhaust its administrative remedies, the government began to recoup the alleged overpayment amounts. 

The provider filed suit to stop the government’s recoupment action pending the provider’s exhaustion of its administrative remedies. The provider introduced undisputed evidence that it would take three to five years before remedies are exhausted as a result of the backlog of Medicare appeals, and that recoupment of the overpayments during this time would force the provider to shut down its business. 

While the trial court held that it did not have the power to stop the government’s collection effort, on appeal, a federal appellate court concluded otherwise. 

The appellate court held that the federal law barring a court from exercising jurisdiction over a Medicare dispute until after administrative remedies are exhausted is subject to the “collateral claim” exception. Under that exception, a federal court has jurisdiction over a claim that is “entirely collateral” to a substantive agency decision. 

The court ruled that the government should be stopped from recouping the alleged overpayments pending the provider’s exhaustion of its administrative remedies because (1) it was not necessary for the trial court to decide the merits of the overpayment dispute, and (2) the evidence showed that the provider’s Constitutional due process rights were being violated.

B.  A New Door Opening

The Family Rehabilitation decision opens the door for other health care providers to stall a government action involving a Medicare dispute that cannot be administratively resolved in a timely manner. While it is not known whether this decision will be followed by other courts, the decision potentially eliminates the Hobson’s choice faced by a Medicare provider who wants to pursue the administrative process to dispute an assessment of an overpayment, or a termination of its provider agreement, without filing for bankruptcy or shutting down its business.

Lawrence D. Coppel
410-576-4238 • lcoppel@gfrlaw.com

A version of this article was published by The Daily Record on December 6, 2018.