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Putting the Brakes on Government Recoupment of Medicare Overpayments - What This Means to Health Care Providers

February 2019

By: Matthew C. Nelson

Maryland health care providers need to know that a new option may be on the horizon for those involved in a dispute with Medicare.  Under a decision recently issued from the United States Court of Appeals for the Fifth Circuit, a health care provider may seek assistance from the court to stall government recoupment efforts involving a Medicare overpayment that cannot be administratively resolved in a timely manner.

Traditionally, a health care provider that wanted to challenge the government’s recoupment of Medicare overpayments must first attempt to resolve their dispute with Medicare directly before turning to the courts.  Unfortunately, health care providers in this predicament are faced with chronic delays in the administrative review process.  This often results in the government attempting to withhold other Medicare payments before the provider has the opportunity to address the dispute with an administrative law judge.  This delay has caused some health care providers to close their practices or declare bankruptcy due to the lack of Medicare income while their dispute remains pending.  Even if the provider ultimately prevailed, and was found not to have been overpaid, it was often too little too late as the victory came after the provider’s business had closed and its patients had turned elsewhere for care.

Luckily for health care providers facing this business uncertainty while seeking Medicare administrative remedies, this administrative “purgatory” may soon cease to exist.  In March 2018, the court issued a decision that gave health care providers a new legal basis to halt the recoupment of Medicare overpayments pending the exhaustion of administrative remedies.

In a recent case, Family Rehabilitation, Inc. (“Family”), a home health care services provider in Texas, was assessed approximately $7.6 million in Medicare overpayments.  It appealed this assessment under Medicare’s administrative review process.  Although Family actively sought administrative review and was waiting for a hearing, the government began to withhold Family’s Medicare payments to recoup the overpayment.  Due to the massive backlog of Medicare appeals, it became unlikely that Family would receive a hearing for at least three to five years.  Because Family would soon go into bankruptcy if the government’s recoupment efforts continued, it sued for an injunction to halt those efforts until it received its hearing.  After the trial court determined that it lacked jurisdiction to stop the government’s recoupment efforts, Family appealed to the appellate court.

Overturning the trial court’s decision, the appellate court held that a court has jurisdiction over an administrative claim when the dispute is “entirely collateral” to the agency’s decision; that is, the court can step in to halt the recoupment efforts when the court is not being asked to resolve the merits of the dispute, interpret the applicable statutes and regulations, or make findings of fact related to the dispute.  Exercising its jurisdiction through this exception, the court stopped the government from recouping the alleged overpayments through withholding other funds until the administrative proceeding ended.  The court’s ruling was based on the fact that it was not deciding the merits of the overpayment claim – i.e., it was not making a determination as to whether there had been an overpayment.  And, the evidence showed that Family’s due process rights were being violated by the severe backlog of Medicare appeals and inability to receive a timely hearing.

Although the extent to which this decision will be followed by the other federal circuits has yet to be determined, this decision may protect a health care provider that finds itself on the receiving end of Medicare withholding payment.

For more information, please contact Matt Nelson or any member of the Tydings health care practice group.

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