Moving the HME Industry Forward


Recoupment of Money – 5th Circuit Decision

Jeffrey S. Baird, JD • May 6, 2018

AMARILLO, TX – On March 27, 2018, the 5th Circuit Court of Appeals handed down an appellate decision that is good news for DME suppliers and other health care providers caught in the “No Man’s Land” between reconsideration and the Administrative Law Judge (“ALJ”). If a DME supplier timely appeals an adverse audit decision to the redetermination stage, then during this stage the MAC will not recoup the money that CMS claims is due.

Likewise, if a DME supplier timely appeals an adverse redetermination decision to the reconsideration stage, then during this stage, the MAC will not recoup money. Unfortunately, the same is not true when the supplier appeals an adverse reconsideration decision to the ALJ. The law says that the ALJ must render its decision within 90 days.

In fact, because of the huge appeals backlog, it is taking ALJs three to four years to render decisions. While the. DME supplier is waiting for the ALJ’s decision, the MAC will go on ahead and recoup the amount that CMS claims is owed. If the supplier is ultimately successful at the ALJ stage, then it will mean that the supplier will have had to wait several years for its money to be returned.

In Family Rehab., Inc. v. Azar, No. 17-11337 (5th Cir. March 27, 2018), Family Rehab (a home health agency) was assessed a $7.6 million overpayment. Family Rehab unsuccessfully appealed to the redetermination and reconsideration stages. After the reconsideration stage, Family Rehab timely requested a hearing before the ALJ which, as noted above, is supposed to “conduct and conclude a hearing…and render a decision…not later than” 90 days after a timely request. 42 USC 1395ff(d)(1)(A). Family Rehab discovered that it would take three to four years for its ALJ appeal to be heard.

Therefore, Family Rehab sued in federal district court for a temporary restraining order (“TRO”) and an injunction to prevent the MAC from recouping the overpayment until the administrative appeal is concluded. In requesting the TRO and injunction, Family Rehab asserted that it would have to shut down because of a lack of funds.

In its pleadings, Family Rehab asserted (i) violations of its rights to procedural due process; (ii) violations of its substantive due process; (iii) an “ultra vires” cause of action; and (iv) an entitlement to a “preservation of rights” injunction under the Administrative Procedure Act, 5 USC 704-05. The district court held sua sponte that it lacked subject matter jurisdiction because Family Rehab had not exhausted its administrative remedies. Family Rehab then appealed to the federal 5th Circuit Court of Appeals.

The 5th Circuit reversed and remanded the procedural due process and ultra vires claims and affirmed on the other claims. In so doing, the 5th Circuit stated:

  1. Under 42 USC 405(g) and (h), federal courts have jurisdiction only over a “final decision” of HHS when dealing with claims “arising under” the Medicare Act…which normally means that a provider may go to the federal district court only after either (i) satisfying all four stages of the the administrative appeal process (redetermination, reconsideration, ALJ, and Medicare Appeals Council) or (ii) after the provider has escalated the claim to the Medicare Appeals Council (“Council”) and the Council acts or fails to act within 180 days. Neither of these steps occurred in the Family Rehab case.
  2. The U.S. Supreme Court has recognized exceptions that Family Rehab argues as the basis for jurisdiction: (i) Family Rehab claims that its procedural due process and ultra vires claims are collateral to HHS’s appellate process; (ii) Family. Rehab asserts that 42 USC 405 “would not simply channel review through HHS, but would mean no review at all,” meaning jurisdiction is proper under 28 USC 1331; and (iii) Family Rehab maintains that the court has mandamus jurisdiction.
  3. Under the “collateral claim” exception, jurisdiction is given over claims (i) that are “entirely collateral” to a substantive agency decision and (ii) for which full relief cannot be obtained at a post-deprivation hearing. Family Rehab met both requirements.

a) Claims That Are “Entirely Collateral” – If a court must examine the merits of the underlying dispute, delve into the statute and regulations, or make independent judgments as to the plaintiff’s eligibility under a statute, then the claim is notcollateral. Family Rehab’s procedural due process and ultra vires claims will not require the federal district court to wade into the Medicare Act or regulations…those claims only require the district court to determine how much process is required under the Constitution and federal law before recoupment. Family Rehab was only asking that recoupment be suspended until a hearing, and because it raises claims unrelated to the merits of the recoupment (procedural due process and ultra vires claims), its claims are collateral.

b) Claims For Which Full Relief Cannot Be Obtained – Family Rehab alleged that if recoupment continues, it would go out of business and would disrupt its employees and Medicare patients. The combined threats of going out of business and the disruption to Medicare patients are sufficient for irreparable injury. Therefore, the district court has jurisdiction over Family Rehab’s procedural due process and ultra viresclaims.

  1. Family Rehab asserts that 42 USC 405 “would not simply channel review through [HHS], but would mean no review at all,” meaning that jurisdiction is proper under 28 USC 1331. The 5th Circuit disagrees, stating: (i) this exception is narrow and applies only when channeling a claim through HHS would result in the complete preclusion of judicial review; (ii) Family Rehab must show either that bringing a claim administratively is a legal impossibility or that it faces a practical roadblock to having its claims reviewed in any capacity, administratively or judicially; and (iii) it is not enough to assert that judicial review will be delayed and that Family Rehab would be prejudiced by that delay…thus, 28 USC 1331 is unavailable.
  2. Family Rehab maintains that the district court has mandamus jurisdiction. The 5th Circuit disagrees, stating: (i) 28 USC 1361 provides that mandamus jurisdiction exists over “any action in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff;” (ii) this jurisdiction is limited to requests that the district court order the defendant to complete affirmative actions – 28 USC 1361 does not provide jurisdiction over requests “for other types of relief – such as injunctive relief;” and (iii) while Family Rehab is not required to exhaust all administrative avenues for relief before seeking mandamus relief, Family Rehab is seeking injunctive relief, not mandamus relief, by requesting that the court enjoin HHS from recouping Family Rehab’s payments; Family Rehab’s complaint asks the court to prohibit the defendants from acting in a certain manner rather than compel the defendants to affirmatively perform a presently existing duty; as such, 28 USC 1361 does not confer jurisdiction because Family Rehab’s complaint does not seek mandamus relief.

The 5th Circuit reversed and remanded the procedural due process and ultra vires claims back to the trial court and affirmed the trial court’s ruling on the other claims.

There are 13 federal courts of appeal. These are the courts that are just under the U.S. Supreme Court. The 5th Circuit is one of the 13. The 5th Circuit covers Texas, Louisiana, and Mississippi. Thus far, none of the other circuits have addressed this specific issue. Unless overturned by the U.S. Supreme Court, the Family Rehab case is the “law of the land” in Texas, Louisiana and Mississippi. If the same type of lawsuit is filed in a federal district court in another circuit, the plaintiff can cite the Family Rehab case as precedent. It is then up to the federal district court as to whether or not to follow the Family Rehab case. For the Family Rehab case to be the “law of the land” throughout the United States, then either (i) all of the circuits must adopt the Family Rehab ruling or (ii) the U.S. Supreme Court must affirm the Family Rehab case. Potentially, there can be a “split” among the circuits where some circuits adopt the Family Rehab ruling while other circuits take the opposite position.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or