Sahara Health Care, Inc. v. Azar, No. 18-41120 (5th Cir. Sept. 18, 2020) (Elrod, Willett, Oldham) (Oldham, J., concurring in the judgment only)

Warning: This post discusses Medicare Act cases, so if you're not very comfortable with acronyms, it's probably not the one for you.

To get paid for Medicare services, providers submit reimbursement claims to a private contractor retained by HHS to make an initial determination regarding whether and in what amount the claim should be paid. 42 U.S.C. §§ 1395ff(a)(1)-(2), 1395kk-1(a); 42 C.F.R. §§ 405.904(a)(2), 405.920-405.928. If this private contractor--called a Medicare Administrative Contractor (MAC)--denies a provider's reimbursement claim claim, the Medicare Act provides a four-level administrative appeal process, followed by judicial review.

Once upon a time, this administrative-review scheme was functional and relatively efficient. Between 2009 and 2014, however, the number of appeals grew twelve-fold, and HHS was overwhelmed. By 2016, it had descended into a full-blown administrative hellscape.

As the backlog swelled, so did HHS's delays at each stage of the review process. Delays at stage three--where, according to the statute at least, providers are entitled to an ALJ hearing and decision within ninety days--were especially harmful to hospitals. That's because HHS starts recouping funds from providers at stage three. 42 U.S.C. § 1395ddd(f)(2)(A). Providers capable of waiting it out often succeeded at the ALJ stage. But many will face bankruptcy long before the end of their administrative appeal due to the MAC's recoupment.

When Sahara Health found itself caught in this bureaucratic Venus Flytrap, it turned to the courts.

Administrative Review of Medicare Reimbursement Decisions

As already mentioned, to get reimbursement for Medicare services, providers must submit claims to their MAC. See 42 U.S.C. §§ 1395ff(a), 1395kk-1(a). The MAC's decision may, under a program that Congress established in 2010, be audited by a different third-party government contractor, known as a Recovery Audit Contractor (RAC). See id. § 1395ddd(h)(3). Congress created this audit program to serve “the purpose of ... recouping overpayments,” and it incentivized the Recovery Audit Contractors by paying them “on a contingent basis for collecting overpayments.” Id. § 1395ddd(h)(1). Healthcare providers wishing to challenge these initial MAC or RAC determinations must navigate the Fire Swamp of administrative law that is HHS's four-step administrative review scheme:

Step One. Redetermination from the original MAC. See id. § 1395ff(a)(3).

Step Two. Reconsideration by a Qualified Independent Contractor (QIC), another third-party government contractor retained to independently “review the evidence and findings upon which the [previous determination was] based.” 42 C.F.R. § 405.968(a)(1); 42 U.S.C. § 1395ff(c). The QIC may receive and consider “any additional evidence the parties submit or that the QIC obtains on its own.” 42 C.F.R. § 405.968(a)(1).

HHS's Centers for Medicare & Medicaid Services (CMS) oversees these first two stages of the process.

Step Three. Hearing before an ALJ. See 42 U.S.C. § 1395ff(d)(1); 42 C.F.R. § 405.1000. This stage is overseen by HHS's Office of Medicare Hearings and Appeals (OMHA). HHS established OMHA to fulfill Congress's mandate to create an “administrative office that is organizationally and functionally separate from [Centers for Medicare & Medicaid Services]” to “assure the independence of administrative law judges.” See Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, § 931, 117 Stat. 2066.  

Step Four. De novo review before the Medicare Appeals Council, a division of the Departmental Appeals Board (DAB). See 42 U.S.C. § 1395ff(d)(2). The DAB's decision becomes the final decision of the Secretary, which may then be reviewed in court. See id. § 1395ff(b)(1)(A); 42 C.F.R. § 405.1130.

To prevent appeals from lingering unresolved, the statute includes specific time frames for each step of the process. In particular, redetermination by the MACs “shall be concluded” within sixty days, 42 U.S.C. § 1395ff(a)(3)(C)(ii), and, with exceptions not relevant here, QICs “shall conduct and conclude” reconsiderations within sixty days, id. § 1395ff(c)(3)(C)(i). Similarly, ALJs “shall conduct and conclude a hearing . . . and render a decision” within ninety days, id. § 1395ff(d)(1)(A), although the appealing provider may “waive” this “deadline,” id. § 1395ff(d)(1)(B). And finally, the DAB “shall conduct and conclude a review . . . and make a decision or remand the case to the administrative law judge for reconsideration” within ninety days. Id. § 1395ff(d)(2)(A). If the process stays on track, appeals work their way through the administrative scheme in about a year.

The statute also prescribes “consequences of failure to meet” the statutory “deadlines.” In a process called “escalation,” a provider that has been waiting for longer than the statutory time limit may advance its appeal to the next stage. See id. §§ 1395ff(c)(3)(C)(ii), 1395ff(d)(3)(A), 1395ff(d)(3)(B).

Sahara Enters the Labyrinth

Sahara achieved some success in the first two stages of the administrative-review process, convincing the agency to reduce its overpayment demand from $3.6 million to $2.4 million. Still dissatisfied, Sahara requested an ALJ hearing in June 2018. Four days later, Sahara filed a lawsuit in federal district court. The district court granted the Secretary's motion to dismiss and denied Sahara's motions for a preliminary injunction and temporary restraining order. Sahara appealed, and the Fifth Circuit affirmed. Judge Elrod wrote the panel opinion, which Judge Willett joined. Judge Oldham concurred in the judgment only.

I'm sure some of you are expecting me to report that Sahara's failure to exhaust administrative remedies was its undoing in this case. After all, 42 U.S.C. § 405(g) and (h), vests federal courts with jurisdiction over only “final [HHS] decision[s]” when dealing with claims “arising under” the Medicaid Act. Sahara's claims arise under the Medicare Act, and it's still waiting for ALJ review of its claims, so there obviously isn't a "final decision" from HHS subject to judicial review under § 405(g) and (h) yet.

Yet, exhaustion of administrative remedies wasn't Sahara's undoing. Why? The collateral-claim exception to the Medicare Act's administrative-exhaustion requirement. Don't know what that is? Read Judge Smith's opinion for the Court in Family Rehabilitation, Inc. v. Azar, 886 F.3d 496, 504 (5th Cir. 2018) (Reavley, Smith, Owen). Satisfied that it had jurisdiction, the Court proceeded to the merits.

Sahara asserted one count of procedural due process and one count of ultra vires acts. To succeed on its constitutional due process claim, Sahara needed to demonstrate that the balance of the private interest, government interest, and value of additional procedure weighed in its favor. See Mathews v. Eldridge, 424 U.S. 319, 335 (1976). In its ultra vires claim, Sahara argued that the government acted without statutory authority by recouping payments before it had provided Sahara an ALJ hearing. The Fifth Circuit rejected both claims. Like the panel opinion, I address Sahara's constitutional claim first.

Sahara claimed a constitutionally protected property interest "Medicare payments it has earned for services rendered on properly billed claims." Judge Elrod noted that the Fifth Circuit "has rejected a similar theory, where providers argued that they had 'a property interest in legitimately earned, current [Medicaid] reimbursements that are not subject to investigation.'” (quoting Pers. Care Prods., Inc. v. Hawkins, 635 F.3d 155, 159 (5th Cir. 2011)). But, she explained, "because we conclude that the government provided Sahara adequate process, we decline to decide the property interest question." (citing Accident, Injury & Rehab., PC v. Azar, 943 F.3d 195, 204 (4th Cir. 2019) (Wilkinson, Niemeyer, Agee) (rejecting identical due process claim while declining to determine whether provider had protected property interest)).

In balancing the Mathews factors, Judge Elrod acknowledged that "Sahara's private interest in adding a hearing outweighs the government's interest in efficient recoupment administration." But the combination of the sufficiency of the current procedures and "the minimal benefit of the live hearing" Sahara requested was enough to foreclose Sahara's due process claim.

Regarding the sufficiency of the current procedures, Judge Elrod emphasized that "Sahara has already received two meaningful opportunities to be heard":

At step one, it could submit a written statement and additional evidence. 42 U.S.C. § 1395ff(a)(3); 42 C.F.R. § 405.948. The independent contractor provided a written, reasoned decision. 42 U.S.C. § 1395ff(a)(5). At step two, a different independent contractor delivered a reasoned, written decision after Sahara had the opportunity to provide additional evidence and written arguments of fact and law. 42 U.S.C. § 1395ff(c)(3)(E); 42 C.F.R. § 405.976(b). Sahara’s claims were reviewed by a “panel of clinical experts consisting of a physician and a licensed health care professional” and a “statistician who evaluated the validity of the statistical sampling and extrapolation.” This was not an exercise in rubberstamping: those two reviews lowered Sahara’s overpay amount from $3,573,595.61 to $2,416,157.10. And these two steps were just a part of the “comprehensive whole that ends with an opportunity for timely judicial review.” See Accident, Injury & Rehab., 943 F.3d at 204.

Regarding the minimal benefit of a live hearing, "Sahara fail[ed] to demonstrate what value the hearing would add to the process Sahara has already received or is otherwise entitled to receive." Sahara conceded the hearing would not develop the factual record. It didn't argue that it could demonstrate the "good cause" required under 42 U.S.C. § 1395ff(b)(3) to submit additional evidence beyond stage two of the administrative-review process. And HHS regulations that Sahara didn't challenge prohibit providers from compelling discovery beyond the administrative record that was compiled at stages one and two. See 42 C.F.R. § 405.1036(f)(1); id. §§ 405.1012, 405.1037(a).

Nor did Sahara explain how cross-examination would help its cause, particularly given that credibility wasn't in issue:

Indeed, Sahara does not identify a single point of inquiry it would pursue or a single dispute of material fact that it would address if given the opportunity to cross-examine the government’s witnesses. Cf. Plummer v. Univ. of Houston, 860 F.3d 767, 783 (5th Cir. 2017) (Jones, J., dissenting) (“[A]dditional or substitute safeguards would have enhanced the quality of factfinding and adjudication by providing a confrontation right if material fact issues existed.”) (emphasis added). In short, Sahara does not explain what, in this case, cross-examination would add.

Finally, Judge Elrod emphasized that "even if Sahara received the hearing it request[ed], it is unlikely that it would even receive the opportunity to cross-examine a witness." That is so because under another HHS regulation that Sahara didn't challenge, the ALJ “may not issue a subpoena to CMS or its contractors, on his or her own initiative or at the request of a party, to compel an appearance, testimony, or the production of evidence.” 42 C.F.R. § 405.1036(f)(1). Or, as Judge Elrod put it: "[C]ross examination is only available if HHS chooses it to be."

Putting all this together, Judge Elrod concluded that the Mathews factors didn't favor Sahara's procedural due process claim:

Next, the panel addressed Sahara's ultra vires argument--that injunctive relief was appropriate because “[t]he government ... initiated recoupment of Sahara’s current payments” even though it “failed to provide an administrative appeal in accordance with 42 U.S.C. § 1395ff. Judge Elrod made short work of this one, explaining that "[t]he statute entitles a provider to two steps of administrative review before the government recoups funds," and "Sahara received that review." Because "[s]tatute does not prohibit recoupment after step two," the "Secretary and the Administrator acted within their statutory limits." Accordingly, the Fifth Circuit "affirm[ed] the district court’s dismissal of Sahara’s ultra vires claim."

Sahara's invocation of the D.C. Circuit's decision in American Hospital Association v. Burwell, 812 F.3d 183 (D.C. Cir. 2016) (Tatel, Kavanaugh, Srinivasan), didn't change the analysis. True, Judge Tatel, in his opinion for the Court in that case, remarked that "nothing suggests that Congress intended escalation to serve as an adequate or exclusive remedy where, as here, a systemic failure causes virtually all appeals to be decided well after the statutory deadlines." See Am. Hosp. Ass’n¸ 812 F.3d at 191. But, Judge Elrod noted, that part of the opinion was dicta.

Notably, Judge Elrod's opinion begins and ends with American Hospital. In the opening paragraph of Sahara Health, she dubs American Hospital "a remarkable opinion by the D.C. Circuit, in which that court told Congress that it would likely mandamus the Secretary of Health and Human Services if the political branches 'failed to make meaningful progress within a reasonable period of time—say, the close of the next full appropriations cycle.'" (quoting Am. Hosp. Ass'n, 812 F.3d at 193). And she returns to American Hospital again at the very end of the panel opinion, describing it as "a very unusual case":

A couple of questions for my brilliant readers:

  1. Why do you think Judge Elrod found the American Hospital case so "remarkable"?
  2. Why do you think Judge Oldham concurred in the judgment only?

Sahara Health Care, Inc. v. Azar, No. 18-41120 (5th Cir. Sept. 18, 2020)
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