Dominion Ambulance, L.L.C. v. Azar, No. 17-50855 (5th Cir. July 31, 2020) (Owen, Dennis, Southwick)

This case is about whether a physician's certification that non-emergency, scheduled, repetitive ambulance services are medically necessary is sufficient to establish "medical necessity" for purposes of coverage under Medicare Part B. HHS amended the regulations that address that issue in 2012 to clarify that physician certification is necessary but not sufficient to establish medical necessity. See 42 C.F.R. § 410.40(d)(2)(ii)(2012). Because Dominion provided the services at issue before 2012, however, the 2002 iteration of the regulations controlled in this case. 42 C.F.R. § 410.40(d)(2) (2002). A discussion the 2012 amendments is therefore essential background.

The 2002 and 2012 Regulations

Both the 2002 and 2012 versions of Section 410.40(d) made physician certification necessary to establish coverage for the services in question. Unlike the current regulation, however, the 2002 version didn't make clear that such certification was not sufficient to establish medical necessity. Id. It did, however, expressly disclaim the sufficiency of physician certification for establishing the medical necessity of another closely related service. See id. § 410.40(d)(3) (2002) (physician certification “does not alone demonstrate" the medical necessity of "nonemergency ambulance services that are either unscheduled or that are scheduled on a nonrepetitive basis”).

Procedural History and Other Relevant Law

Dominion provides ambulance services in southwest Texas. During the pre-2012 period in question, it submitted claims to Medicare and was reimbursed. On May 11, 2010, however, a "Zone Impact Integrity Contractor" (ZPIC)--the entities that audit the Medicare payment determinations of HHS's regional contractors--notified Dominion that it was auditing a random sample of forty claims drawn from a group of over 12,000 for which Dominion had received reimbursement.

By regulation, ZPICs may reopen otherwise final payment determinations and identify instances of overpayment. 42 C.F.R. § 405.980.  If the ZPIC determines that the sample shows a “sustained or high level of payment error,” it may extrapolate the error rate to determine the total overpayment. 42 U.S.C. § 1395ddd(f)(3). The ZPIC then notifies the appropriate regional contractor, who issues a demand letter to the provider. See Family Rehab., Inc. v. Azar, 886 F.3d 496, 499 (5th CIr. 2018).  The provider may then engage in four levels of administrative appeals. Id.

On April 25, 2012, the ZPIC found that thirty-eight of the forty claims it had audited were improperly paid (a 95% error rate). It determined that the sample contained a “high level of payment error” and extrapolated from that sample to calculate a total overpayment rate and amount. Dominion appealed that determination to the agency, eventually succeeding in getting several of the ZPIC’s findings reversed, reducing the number of rejected claims to twenty-six (a 65% error rate).

Each of the rejected claims was for nonemergency, scheduled, repetitive ambulance services that HHS determined was not medically necessary despite being supported by a physician certification statement of necessity. Without determining that the revised 65% error rate constituted a “high level of payment error,” HHS re-extrapolated the sample and ordered dominion to return $1,321,933 in wrongful Medicare reimbursements to the federal government. This lawsuit followed.

Dominion and the Secretary filed cross-motions for summary judgment. Dominion argued that

  1. a physician certification statement was sufficient under the 2002 version of 42 C.F.R. § 410.40(d)(2) to demonstrate medical necessity;
  2. the ZPIC improperly reopened seven of the forty claims because the four-year regulatory limitations period had expired;
  3. the use of extrapolation was inappropriate given that HHS had failed to make a high-error-level determination after revising the error rate in the sample; and
  4. the use of extrapolation violated Dominion’s due process rights because (a) the methodology used was statistically unsound and should not have been applied when the medical necessity of claims was at issue, and (b) it rendered Dominion unable to identify and recoup payment from patients for claims that were disallowed.

The district court granted the Secretary’s motion for summary judgment. It agreed with the Secretary that a physician certification statement is not dispositive of medical necessity and concluded it lacked jurisdiction to consider Dominion’s arguments that the ZPICs decision to reopen was time-barred and that HHS couldn't extrapolate without first making the high-error-level determination. The district court refused to consider Dominion’s constitutional claims because Dominion hadn't raised them at the agency level.

The Fifth Circuit's Opinion

The Fifth Circuit affirmed. Regarding the first two issues, the Court deferred to the Secretary's interpretation of the relevant regulations under Auer. On the third, the Court concluded that it need not "decide if a second [high-error-rate] determination [wa]s required" because the record left no doubt that if the court remanded the case for the Secretary to make a second determination ... the result would not change." As for Dominion's constitutional claims, the Fifth Circuit "assume[d], without deciding, that Dominion did not waive [them]," but proceeded to reject them on the merits.

The remainder of this post focuses on the first two issues and, in particular, the Fifth Circuit's holdings that HHS's interpretations of two of its regulations were entitled to Auer deference.

Auer Deference for the Secretary's Interpretation of Section 410.40(d)(2) (2002)

Dominion argued that under the 2002 version of Section 410.40(d)(2), a physician's certification that non-emergency, scheduled, repetitive ambulance services were medically necessary was sufficient on its own to establish the medical necessity of such services. It rested that contention primarily on the disparate exclusion/inclusion canon of construction. In the statutory context, that rule holds that "where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion." United States v. Wong Kim Bo, 472 F.2d 720, 722 (5th Cir. 1972).

Applied here, Dominion insisted, that canon powerfully supported its view that a physician's certification was enough on its own to establish medical necessity for non-emergency, scheduled, repetitive ambulance services. After all, a nearby subsection of the same regulation that addresses "nonemergency ambulance services that are either unscheduled or that are scheduled on a nonrepetitive basis, see 42 C.F.R. § 410.40(d)(3) (emph. added), specifies that a doctor's certification "does not alone demonstrate that the ambulance transport was medically necessary." Under the disparate exclusion/inclusion canon, Dominion insisted, HHS's failure to include a similar disclaimer in Section 410.40(d)(2) proves that it didn't intend for one to apply. Likewise, the fact that HHS amended Section 410.40(d)(2) in 2012 to add a similar disclaimer confirms that when HHS intended such a disclaimer to apply, it said so.  

The Fifth Circuit rejected those arguments, emphasizing that "Dominion's invocation of the disparate inclusion/exclusion canon does not render its interpretation unambiguously correct. According to the Court, because the 2002 version of Section 410.40(d)(2) didn't "explicitly state state[] that such a statement establishes medical necessity," the Court had to defer to HHS's view of the regulation under Auer.

Auer Deference for the Secretary's Interpretation of 42 C.F.R. § 405.980(b)

Dominion argued that the ZPIC's decision to reopen its claims was untimely. Under 42 C.F.R. § 405.980(b), “[a] contractor may reopen an initial determination or redetermination on its own motion . . . [w]ithin 1 year from the date of the initial determination or redetermination for any reason,” “[w]ithin 4 years . . . for good cause,” or “[a]t any time if there exists reliable evidence . . . that the initial determination was procured by fraud or similar fault.”

Recall that the ZPIC notified Dominion that it was going to audit Dominion's claims on May 10, 2010, and issued its revised determination that thirty-eight of the forty claims it had audited were improperly paid (a 95% error rate) on April 25, 2012. According to Dominion, Section 405.980(b) unambiguously establishes that “reopening” doesn't occur until the ZPIC issues a revised determination. If that were true, the ZPIC's "reopening" of several of Dominion's claims was time-barred.

According to the Secretary, however, a claim is "reopened" when the ZPIC’s review begins (May 10, 2010 in this case). Under that interpretation of the regulation, the reopening at issue here was timely.

The Fifth Circuit agreed with the Secretary:

In case you're wondering, the discussion of Dominion's timeliness argument spans pages 11 through 13 of the Court's opinion, but the vast majority of that discussion deals with tangential issues not relevant to the deference holding. The two sentences in the screenshot above comprise the entirety of the Court's rationale for deferring under Auer.

Oh Kisor Where Art Thou?

When I first read this opinion, I was shocked the Court didn't even cite Kisor. After some digging, though, I think I finally understand why.

Notice the case number (17-50855). That "17" at the beginning means Dominion filed its notice of appeal in 2017--October 2, 2017 to be precise. Briefing was complete on March 6, 2018, and the Court heard oral argument on September 7, 2018. That means the case was submitted, and the parties' wait for an opinion began almost 100 days before the Supreme Court granted James Kisor's Petition for a Writ of Certiorari to the Federal Circuit (December 10, 2018), and nearly 300 days before the Supreme Court decided Kisor (June 26, 2019). And according to Pacer, neither party filed a Rule 28(j) letter with the Fifth Circuit to notify the panel of Kisor's implications on the case. As a result, it seems the panel just decided the case based on the authorities cited in the parties' briefing, which, because of the long delay between the oral argument and the release of the opinion, didn't mention--and couldn't have mentioned--Kisor.

My question for you is: Do you think the Court's treatment of and ultimate conclusions regarding the appropriateness of deferring to the Secretary's interpretations of 42 C.F.R. §§ 410.40(d)(2) and 405.980(b) under Auer would have changed if the panel had applied Kisor in this case? Tell me what you think in the comments.  

Dominion Ambulance, L.L.C. v. Azar, No. 17-50855 (5th Cir. July 31, 2020)
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