Court Opinion

ID: 4534910
Source: CourtListenerOpinion
Date Created: 2020-05-16 00:00:29.45528+00
Date Added: 2024-06-11T12:38:24.640942
License: Public Domain

Case: 19-30480        Document: 00515418511       Page: 1    Date Filed: 05/15/2020

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                           United States Court of Appeals
                                                                                    Fifth Circuit

                                                                                  FILED
                                       No. 19-30480                           May 15, 2020
                                                                             Lyle W. Cayce
SUPREME HOME HEALTH SERVICES, INCORPORATED;                                       Clerk
EMILY WINSTON,

               Plaintiffs - Appellants

v.

ALEX M. AZAR, II, SECRETARY, U.S. DEPARTMENT OF HEALTH AND
HUMAN SERVICES; SEEMA VERMA, Administrator, on behalf of Centers
for Medicare and Medicaid Services; PALMETTO GBA, L.L.C.,

                Defendants - Appellees

                     Appeal from the United States District Court
                        for the Western District of Louisiana
                               USDC No. 3:18-CV-1370

Before KING, JONES, and COSTA, Circuit Judges.
EDITH H. JONES, Circuit Judge: * 1
       Supreme Home Health Services, Inc. (“Supreme”) appeals the dismissal
of its claims against Alex M. Azar, Secretary of the U.S. Department of Health
and Human Services (“HHS”); Seema Verma, Administrator of the Centers for

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
       1   Judge Costa concurs in the judgment.
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                                     No. 19-30480
Medicare and Medicaid Services (“CMS”); 2 and Palmetto GBA, L.L.C. For the
following reasons, we AFFIRM.
                                 I. Background
      Supreme, a home health service provider, has been enrolled as a
Medicare provider since 1983. In 2012, AdvanceMed, a Zone Program Integrity
Contractor (“ZPIC”), reviewed a sample of 318 Medicare claims submitted by
Supreme after receiving an anonymous complaint about Supreme. The ZPIC
found “numerous billing errors,” including claims where the medical
documentation did not support the medical necessity of the services provided
and codes that were inappropriately billed at a higher level than needed. The
ZPIC determined that 66.37% of Supreme’s claims were inappropriately billed
and, after extrapolating the sample, calculated a total overpayment of
$1,739,569.00.
      Under Medicare regulations, a party may challenge a ZPIC’s initial
determination through four different stages of administrative review:
(1) redetermination      by      a        contractor,       42 C.F.R. §§ 405.940–.958;
(2) reconsideration by a Qualified Independent Contractor (“QIC”), id.
§§ 405.902, 405.960–.978; (3) a hearing in front of an Administrative Law
Judge (“ALJ”); id. §§ 405.902, 405.1000–1058; and (4) review by the Medicare
Appeals Council (the “Council”), id. §§ 405.1100–.1140.
      In November 2012, Supreme requested redetermination of the
overpayment, which stayed recoupment of the overpayment amount.
Palmetto, the Medicare contractor, issued an unfavorable redetermination in
January 2013.

      2 CMS is an agency within HHS.       We collectively refer to both as “HHS” when
addressing the governmental defendants.
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      In March 2013, Supreme appealed to the second level of the
administrative process by seeking reconsideration, again staying recoupment.
The following February, the QIC issued a “partially favorable” decision. After
Supreme submitted additional evidence, the QIC determined that Supreme
had shown good cause to reopen the appeal. Then, in May 2015, the QIC issued
a partially favorable decision determining that some of the claims did not meet
the Medicare coverage criteria but that some of the previously denied claims
should be covered. Supreme’s overpayment amount was consequently reduced
by $20,741.27.
      In July 2015, Supreme filed an appeal to an ALJ. If a provider challenges
an overpayment determination, then CMS may begin recouping the
overpayment after a QIC issues a reconsideration decision but before an ALJ
hearing. See 42 U.S.C. § 1395ddd(f)(2)(A). Further, as a Medicare Services
provider, Supreme had previously certified that any overpayments it received
could “be recouped by Medicare through the withholding of future payments.”
While Supreme awaited an ALJ hearing, CMS began recouping the
overpayment amount plus interest, for a total of $2,357,657.83, 3 in monthly
installments under a payment plan. 4
      The Medicare statute provides specific timeframes for each stage of the
appeals process: redetermination shall be concluded within sixty days,
42 U.S.C. § 1395ff(a)(3)(C)(ii); reconsideration shall generally conclude within
sixty days, id. § 1395ff(c)(3)(C)(i); an ALJ shall conduct a hearing and render
a decision within ninety days, id. § 1395ff(d)(1)(A); and the Council shall
review the ALJ’s decision within ninety days, id. § 1395ff(d)(2)(A).

      3   Supreme owed a principal of $1,718,827.73, plus interest of $638,830.10.

      4  Supreme requested and received a five-year extended repayment schedule—the
longest term permitted by statute—which CMS approved.
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Unfortunately, HHS currently faces an immense backlog of Medicare appeals,
and these deadlines are routinely missed. Providers wait years before getting
a hearing before an ALJ, and the Council’s review is similarly fraught with
delay. “[I]f the ALJ fails to issue a decision within 90 days,” the statute permits
“the provider” to “‘escalate’ the appeal to the Council, which will review the
QIC’s reconsideration.”     Family Rehab., Inc. v. Azar, 886 F.3d 496, 500
(5th Cir. 2018); 42 C.F.R. § 405.1100. Supreme did not seek escalation.
      More than three years after requesting an ALJ hearing, Supreme filed
suit in federal district court in October 2018. Supreme raised four counts:
(1) violation of procedural due process, (2) violation of substantive due process,
(3) ultra vires action, and (4) preservation of its rights under §§ 704 and 705 of
the Administrative Procedure Act (“APA”).         Supreme sought a temporary
restraining order and a preliminary injunction requiring CMS to stop
collecting the overpayment without an ALJ hearing.
      HHS moved to dismiss for lack of subject-matter jurisdiction and failure
to state a claim upon which relief could be granted. Palmetto also moved to
dismiss for failure to state a claim, lack of standing, and improper service.
      The district court denied the TRO and referred the motions to dismiss to
the magistrate judge. The magistrate judge recommended that the district
court dismiss without prejudice Supreme’s substantive due process and APA
claims for lack of subject-matter jurisdiction.             The magistrate judge
determined that it had subject-matter jurisdiction over the procedural due
process and ultra vires claims. It then converted the motion to dismiss into
one for summary judgment and dismissed those claims on their merits. The
district court considered the parties’ written objections and then adopted the
report and recommendation in full.
      Supreme now appeals. It asserts that the district court has subject-
matter jurisdiction over its procedural due process and ultra vires claims, erred
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when it considered a declaration submitted by HHS, and has federal question
jurisdiction over all of its claims pursuant to 28 U.S.C. § 1331.
                                II. Discussion
A. Supreme’s Procedural Due Process and Ultra Vires Claims
      Courts generally may not assume jurisdiction over a Medicare
overpayment determination until the administrative appeals process is
complete. See Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 5,
24 (2000). But the collateral-claims exception allows courts to entertain not-
yet-exhausted procedural due process and ultra vires claims when (1) the
claims are “‘entirely collateral’ to a substantive agency decision” and (2) the
party assuming the claims cannot obtain “full relief” at a post-deprivation
hearing.   Family Rehab, 886 F.3d at 501 (quoting Mathews v. Eldridge,
424 U.S. 319, 330–32 (1976).
      Supreme erroneously contends that the district court erred in dismissing
its claims after concluding that Supreme failed to satisfy the Eldridge
collateral-claim exception.    In fact, the court determined that Supreme
satisfied the exception and that the court therefore had subject-matter
jurisdiction over the procedural due process and ultra vires claims. Because
the court concluded that it had subject matter jurisdiction, Supreme’s
arguments on this matter are misplaced.
      Before affirming the district court’s grant of summary judgment on the
merits, we independently assess whether subject-matter jurisdiction exists
over these claims and conclude that it does. Supreme’s allegations closely
mirror those that this court found jurisdiction over in Family Rehab. There, a
Medicare contractor informed Family Rehab, a Medicare provider, that it
planned to begin recoupment. Family Rehab, 886 F.3d at 500. An ALJ hearing
was years away. Family Rehab sought injunctive relief in federal court to
suspend the recoupment until its ALJ hearing occurred. Id. at 503. Because
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                                  No. 19-30480
Family Rehab’s procedural due process and ultra vires claims were unrelated
to the merits of its case, we held them to be collateral. Id. Additionally, Family
Rehab alleged that it faced bankruptcy due to the recoupment, which would
not only shut down the business but also affect its employees and patients. Id.
at 504. These allegations amounted to a “colorable claim” that Family Rehab
faced “irreparable injury.” Id. (internal quotation marks and citation omitted).
      Supreme similarly seeks to pause recoupment until it receives a hearing
without asking for any substantive determination about the overpayment
dispute. Its claims are accordingly collateral. Supreme also alleged in its
complaint that it would be “force[d] out of business” and that its closing would
harm its patients.    As in Family Rehab, this raises a colorable claim of
irreparable harm. For these reasons, we agree that the district court had
subject-matter jurisdiction over Supreme’s procedural due process and ultra
vires claims. We also affirm the district court’s grant of summary judgment
without reaching the merits because Supreme abandoned those issues in its
opening brief. Yohey v. Collins, 985 F.2d 222 (5th Cir. 1993).
B. The District Court’s Consideration of Evidence and Conversion to
Summary Judgment
      Supreme avers that the district court erred when it considered a
declaration submitted by HHS before granting summary judgment on the
procedural due process and APA claims. According to Supreme, the court
inappropriately took judicial notice of or incorporated by reference documents
not referred to in its complaint. Supreme further contends that the district
court erred in considering evidence to convert HHS’s motion to one for
summary judgment. It is not entirely clear whether Supreme believes that the
district court erred in its subject-matter jurisdiction analysis or when it
considered the claims on the merits, but we find no error at either stage.

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         When considering subject-matter jurisdiction, the district court
concluded that Supreme satisfied the collateral-claim exception with regard to
its procedural due process and ultra vires claims. The district court did note
that evidence in the record cast doubt on whether Supreme would truly be in
such a precarious financial position that its injuries could not be remedied at
a post-deprivation hearing.       Notwithstanding this evidence, the court
recognized that “limited to the allegations of the complaint,” it must find the
collateral-claim exception satisfied. Accordingly, the district court’s actual
holding on subject-matter jurisdiction was based solely on the face of the
complaint without consideration of the documents at issue. The district court’s
holding on this issue did not rely on extrinsic evidence, and we find no error.
         Having determined that subject-matter jurisdiction existed, the court
went on to consider the merits. At that point, it converted HHS’s Rule 12(b)(6)
motion into one for summary judgment and dismissed the claims on their
merits. If matters outside the pleadings are presented in connection with a
Rule 12(b)(6) motion and the court does not exclude them, then the court must
treat the motion as one for summary judgment, provided that the parties are
given the opportunity to present pertinent materials. FED. R. CIV. P. 12(d);
Fernandez-Montes v. Allied Pilots Ass’n, 987 F.2d 278, 283 (5th Cir. 1993).
Supreme does not allege that the district court failed to provide an opportunity
to present pertinent evidence, and our precedent supports finding that the
court did so. See Hager v. NationsBank N.A., 167 F.3d 245, 247 n.1 (5th Cir.
1999) (plaintiff received notice that the court could view defendant’s motion as
one for summary judgment when defendant filed its motion with an attached
affidavit, and the district court did not rule on the motion for over two months).
Thus, Supreme has not shown that the court’s conversion of the motion was in
error.

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                                   No. 19-30480
C. Federal Question Jurisdiction
      Supreme also contends that general federal-question jurisdiction should
exist over its claims pursuant to 28 U.S.C. § 1331 because the Medicare
appeals backlog effectively denies any review.
      This court ordinarily reviews a dismissal for lack of subject-matter
jurisdiction de novo. Wolcott v. Sebelius, 635 F.3d 757, 762 (5th Cir. 2011). But
if a party was advised that it must file written objections to a magistrate
judge’s recommendation and failed to do so, then we review only for plain error.
Quinn v. Guerrero, 863 F.3d 353, 358 (5th Cir. 2017). To succeed under plain
error review, a party “must show (1) an error; (2) that is plain or obvious;
(3) that affects [its] substantial rights.” Id.
      Here, the parties were advised that objections to the report and
recommendation must be filed. Though Supreme filed some written objections,
it failed to object to the dismissal of its substantive due process and APA claims
for lack of jurisdiction under § 1331. Accordingly, we review for plain error.
      The Supreme Court has made clear that 42 U.S.C. § 405(h), as
incorporated by 42 U.S.C. § 1395ii, generally bars suits arising under the
Medicare laws from being brought under federal-question jurisdiction.
Ill. Council, 529 U.S. at 5 (requiring providers to proceed “through the special
review channel that the Medicare statutes create”). Claims must first be
“channeled through” the administrative review process. Id. at 23. A plaintiff
may invoke § 1331 in a particular set of cases, however, where the bar against
jurisdiction “would not lead to channeling of review through the agency but
would mean no review at all.” Id. at 17. “This exception is narrow and applies
only when channeling a claim through the agency would result in the ‘complete
preclusion of judicial review.’” Family Rehab, 886 F.3d at 504–05 (quoting
Ill. Council, 529 U.S. at 23). But we recently held that the delay caused by the
“colossal backlog in Medicare appeals” is not enough to provide jurisdiction
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under § 1331. Family Rehab, 886 F.3d at 505. Based on our precedent, the
district court’s determination that federal-question jurisdiction did not exist
was not in error (and was certainly not plain error).
                             III. CONCLUSION
      For the foregoing reasons, we AFFIRM the district court’s dismissal of
Supreme’s claims.

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