Moving the HME Industry Forward

Billing/Reimbursement

Seeking Bankruptcy Protection Against Overpayment

May 1, 2017

AMARILLO, TX – When it comes to the collection of overpayments by CMS, DME suppliers are caught in an Orwellian time warp. Here is what I mean:

• The CMS contractor audits the supplier and determines that an overpayment exists. Too often, medical necessity is clear but the contractor denies the claims for “technical” reasons.
• The supplier timely appeals to the redetermination stage thereby preventing recoupments. Assume that the supplier is only marginally successful at this stage, meaning that an overpayment still exists.
• The supplier timely appeals to the reconsideration stage … again preventing recoupments. As is the case with the redetermination stage, the supplier is marginally successful, resulting in an overpayment.
• This is when the supplier enters “no man’s land.” The supplier appeals to the ALJ but the appeal will not be heard for three to four years. During this time, the supplier cannot stop recoupments so the only way to prevent offsets is to enter into an extended repayment plan (“ERP”). ERPs are limited to a five year time frame; therefore, if the overpayment is large, then such recoupments might put the supplier under water.

The DME supplier may want to consider filing a Chapter 11 bankruptcy to stop the recoupments. A Chapter 11 is a reorganization, not a liquidation which occurs with a Chapter 7. In considering filing a Chapter 11, the key question is whether the bankruptcy court has jurisdiction over the overpayment (and, hence, the recoupments) … or whether such jurisdiction arises only after the DME supplier has “exhausted its administrative remedies.”

Said another way, before the bankruptcy court can assert jurisdiction over the overpayment and recoupments, must the supplier go all the way through the ALJ stage? If the answer is yet, then the supplier will have to wait three to four years to seek bankruptcy relief.

Medicare Administrative Remedies – Exhausted Before Access to Federal Court
Judicial review is authorized for claims arising under the Medicare Act only after a “final decision” of the Secretary “made after a hearing.” 42 U.S.C. § 405(g). “Any individual, after any final decision of the [Secretary] made after a hearing to which he was a party … may obtain a review of such decision by a civil action commenced within sixty days after the mailing to him of notice of such decision …” Id. The U.S. Supreme Court has held this expressly requires exhaustion of administrative remedies before a claim can go before a federal court. Weinberger v. Salfi, 422 U.S. 749, 757-58 (1975).

Also, “No finding of fact or decision of the [Secretary] shall be reviewed by any person, tribunal, or governmental agency except as herein provided.” 42 U.S.C. § 405(h).  The requirement that “no tribunal” may review a decision of the Secretary “except as herein provided” purports to make exclusive the judicial review method set forth in § 405(g). Moreover, § 405(h) “demands the ‘channeling’ of virtually all legal attacks through the agency,” making § 405(g) the “sole avenue for judicial review for all ‘claim[s] arising under’ the Medicare Act.” Shalala v. Illinois Counsel on Long Term Care, Inc., 529 U.S. 1 (2000).

The policies for requiring exhaustion of administrative remedies include: (1) to prevent premature interference with agency processes; (2) to permit the agency to function efficiently; (3) to allow the agency an opportunity to correct its own errors before the courts are asked to expend judicial resources; (4) to afford parties and the courts the benefit of the agency’s experience and expertise; and (5) to compile a record which is adequate for judicial review. See Weinberger.

Therefore, any claims arising under the Medicare Act are not subject to review by a federal court, including a federal bankruptcy court, until the claim has exhausted the entire CMS appeal process and the Secretary has made a final decision on the matter.

A recent case reflects how the courts will treat these matters. Bayou Shores SNF LLC (Bayou) operated a Florida skilled nursing facility that had a provider agreement for Medicare and Medicaid. After being cited for program noncompliance, Bayou received notification that its Medicare provider agreement was being terminated. Two days before the termination date, Bayou filed a lawsuit in federal court seeking an injunction to prohibit the termination of the provider agreements. The federal district court initially entered a temporary restraining order, but at its expiration, the court then held that it lacked subject-matter jurisdiction because Bayou had not exhausted its administrative duties pursuant to § 405(h) before bringing a claim under the Medicare statute in the district court. Bayou then filed for a Chapter 11 bankruptcy with an emergency motion in the bankruptcy court seeking to prohibit any actions by CMS or the ACHA to terminate the debtor’s Medicare and Medicaid provider agreements. The bankruptcy court entered an order granting the motion and the United States of America, on behalf of the secretary of HHS and ACHA, appealed.

On July 11, 2016, the Eleventh Circuit held that the bankruptcy court erred as a matter of law when it exercised subject-matter jurisdiction over certain Medicare provider agreements. By virtue of Medicare’s jurisdictional bar provided by § 405(h), the bankruptcy court could not exercise jurisdiction under 28 U.S.C. § 1334 over claims arising under the Medicare Act and lacked jurisdiction to issue orders enjoining the termination of provider agreements and ordering the assumption of the provider agreements. In re Bayou Shores SNF, LLC, (11th Cir. 2016). The Court affirmed the district court’s holding on appeal that, “[t]here is no jurisdiction for a court to interpose itself in a provider’s termination from the Medicare and Medicaid programs except to provide judicial review under § 405(g) after administrative remedies have been exhausted and the Secretary has issued a final agency decision.” In re Bayou Shores SNF, LLC, 533 B.R. 337 (M.D. Fla. 2015).

Bankruptcy Court Has Jurisdiction Over Inability to Pay Medicare Overpayments
Assume that the DME supplier does not ask the bankruptcy court to review CMS’ findings of an overpayment nor asks for an injunction of any actions by CMS. Assume that the supplier will stipulate that a Medicare overpayment exists and the amount owed, which it simply cannot afford to pay, and seeks relief pursuant to a Chapter 11 bankruptcy.

Said another way, assume that the supplier is not seeking the bankruptcy court to review a dispute of the accuracy of CMS’ overpayment amount, a claim that would arise under the Medicare Act. Instead, the supplier simply asserts the inability to pay the overpayment amount and seeks relief under the bankruptcy court’s jurisdiction.

The Third Circuit found that claims arose under the Bankruptcy Code, not the Medicare Act, where both parties stipulated to the amount of the overpayments; and the debtor’s adversary proceeding was based on the contention that HHS violated the automatic stay through recoupment. In re University Medical Center, 973 F.2d 1065 (3d Cir. 1992). The court found that § 405(h) was inapplicable to the debtor’s claims because there was “no system of administrative review in place to address the issues brought by [the debtor] in its adversary proceeding.”

Further, if a bankruptcy court hears the supplier’s claim regarding a Chapter 11 bankruptcy, it will not go against the policies behind requiring administrative exhaustion before courts should hear a case. There will be no interference with the CMS appeal process because the overpayment will be stipulated to and a there is no argument for a stay on the termination of the supplier as a Part B DMEPOS supplier. An argument can be made that foregoing an appeal to the ALJ or the Appeals Council will increase the efficiency of the agency because the supplier will not continue to dispute that the overpayment is owed at the various appeals level. The bankruptcy court will not be asked to expend resources reviewing the decision or correcting any errors by the agency. Lastly, CMS does not have expertise to add to a bankruptcy case; and the record of the arguments regarding overpayment will not be necessary for a bankruptcy court to review.

However, if the DME supplier is going to argue that the overpayment amount to be recouped for bankruptcy purposes should be the actual, and not the extrapolated, amount then the CMS appeal process will likely need to be exhausted regarding this matter. While a bankruptcy court may review this issue, it will likely only be after the supplier has exhausted the administrative remedies to appeal the overpayment amount due. If the bankruptcy court stepped in and made the determination of the overpayment amount prior to the supplier exhausting the appeal process, it would be interposing itself into a question that comes under the Medicare Act and, therefore, would not have subject-matter jurisdiction under § 405(h).

Bankruptcy May Not Avoid Medicare Recoupment Under Some Situations
It should also be noted that many courts have held that recoupment is a defense to payment and does not violate the automatic stay. See Beaumont v. Dep’t of Veterans Affairs (In re Beaumont), 586 F.3d, 776, 777 (10th Cir. 2009). The Medicare Act requires HHS to recoup overpayments to determine the “amount which should be paid” to providers, by making “necessary adjustments [to payments] on account of previously made overpayments or underpayments.” 42 U.S.C. § 1395g(a). Under Medicare Part A reimbursement methodology, providers are generally paid up front, with claims later audited and reconciled on a cost report allowing providers to be paid quickly; but overpayments are determined later, sometimes several years after the fact. The majority of federal circuits have found that the Medicare system of estimated payments and later adjustments qualifies as a single transaction for purposes of recoupment and, thus, Medicare’s right of recoupment is not barred by the automatic stay. See In re TLC Hospitals, Inc., 224 F.3d 1008 (9th Cir. 2000); United States v. Consumer Health Services of America, Inc., 108 F.3d 390 (D.C. Cir. 1997); and In re Slater Health Center, Inc., 398 F.3d 98 (1st Cir. 2005).

Some courts have held that amounts subject to recoupment are not a “debt” as defined in the Bankruptcy Code (11 U.S. Code section 523 – Exceptions to discharge) see In re Keisler, 176 B.R. 605, 607 (Bankr. M.D. Fla. 1994). Other courts have held that recoupment of pre-petition Medicare overpayments allow Medicare adjustments to ongoing payments to recover prior overpayments and are not subject to the automatic stay. In re St. Johns Home Health Agency, Inc., 173 B.R. 238 (Bankr. S.D. Fla. 1994). Yet, other courts have held that the Medicaid relationship is not appropriate for recoupment. Courts have also held “yes” and “no” to allow the setoff and recoupment based on statistical sampling.

It is important to seek the bankruptcy court’s determination of the supplier’s Medicare overpayment as a “debt” as defined under the Bankruptcy law and seek to stay the recoupment.  

If the Medicare overpayment is deemed to be recoupment, which is not subject to the automatic stay, the recoupment for the prior overpayment will be made from ongoing payments outside of bankruptcy. Lowry Hospital Ass’n v. Blue Cross, 415 F. Supp. 589 (E.D. Tenn. 1976)  

Conclusion
Once the supplier stipulates to the overpayment amount owed and no longer seeks to have the decision of CMS reviewed, there are no more remedies to be sought under the agency’s administrative appeal process. A bankruptcy filing that will merely list the stipulated overpayment to CMS as a debt owed is a claim brought under the Bankruptcy Code, not the Medicare Act. A bankruptcy court will likely have subject-matter jurisdiction over such a claim, even if it is brought after only two of the four stages of the CMS appeal process have been completed. However, even once the bankruptcy court’s automatic stay is implemented, CMS will likely still be able to recoup the overpayment from ongoing payments outside of bankruptcy without violating the stay.

Jeff Baird and Lisa Smith will be presenting the following webinar:
AAHOMECARE’S EDUCATIONAL WEBINAR
Oxygen: When Do the 36 Months Start Over?
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Lisa K. Smith, Esq., Brown & Fortunato, P.C.

Tuesday, May 9, 2017
2:30-4:00 p.m. EASTERN TIME
When a DME supplier provides an oxygen concentrator to a Medicare beneficiary, Medicare will pay the supplier for the first 36 months and then the supplier will be obligated to service the beneficiary’s oxygen needs, for very little compensation, for the next 24 months. Occasions may arise when the beneficiary’s continuous use of the concentrator is interrupted. This interruption may be caused by one of the following: (i) the concentrator is lost, stolen, or damaged beyond repair; (ii) there is an extended break in need of greater than 60 days; (iii) the supplier sells its assets to another supplier; (iv) the supplier goes out of business; (v) the supplier files bankruptcy; or (vi) the beneficiary relocates outside the supplier’s service area. When one of these events occurs, and afterwards the beneficiary subsequently starts using a concentrator provided by the initial supplier or a concentrator provided by a new supplier, the question becomes: Can the 36 month rental period start over?

Register for Oxygen:  When Do the 36 Months Start Over? on Tuesday, May 9, 2017, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., and Lisa K. Smith, Esq., of  Brown & Fortunato, PC.

Please contact Ika Sukh at ikas@aahomecare.org if you experience any difficulties registering.

FEES: Member: $99.00    
Non-Member: $129.00

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. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or jbaird@bf-law.com.