On June 28, 2018, the United States District Court for the Northern District of Texas entered a judgment granting Family Rehab, a home health agency, a preliminary injunction against the Centers for Medicare and Medicaid Services (CMS), restraining the agency from withholding Medicare payments and receivables until Family Rehab’s overpayment appeal could be heard in front of an Administrative Law Judge (ALJ).² While this decision ended a long legal saga between Family Rehab and CMS, the decision by the district court, and the 5th Circuit before it, has opened a Pandora’s Box across the country in regards to how courts are treating similar cases. One year later, there is a divisive split among the circuit and district courts. Several courts have found that they have jurisdiction to hear motions for injunctive relief and often grant TROs and preliminary injunctions against CMS to stop recoupments. However, just as many have found that they lack jurisdiction and therefore cannot hear the issue, leaving providers to resolve their issues through the administrative process. Broken down even further, there appears to be one central issue at question: Do health care facilities possess a property interest in Medicare payments or Medicare agreements?

When a health care provider is notified by a CMS contractor that it has been overpaid by CMS, the provider may enter what the Fifth Circuit has described as “the harrowing labyrinth of Medicare appeals.”³ First, the provider may submit to a Medicare Administrative Contractor (MAC) a claim for redetermination of the overpayment.⁴ Second, it may seek reconsideration from a Qualified Independent Contractor (QIC) hired by CMS.⁵ If the QIC affirms the MAC’s determination, CMS may, and often does, begin recouping the alleged overpayment by garnishing future reimbursements to the provider.⁶ Third, the provider may request a de novo review before an independent ALJ, where the provider presents testimony, crossexamines witnesses and submits statements of law and fact.⁷ By statute, the ALJ “shall conduct and conclude a hearing ... and render a decision ... not later than” 90 days after a timely request.⁸ Forth, a provider may request an appeal to the Medicare Appeals Council, who reviews the ALJ’s decision de novo and is bound by a similar 90 day timeline.⁹ If the ALJ does not issue a decision within the allocated 90 days, the provider may “escalate” the appeal to the Council, which reviews the QIC’s decision.¹⁰ However, the current backlog of appeals within the Department of Health and Human Services has created a delay of three to five years before a provider may get a hearing with an ALJ.¹¹

Federal courts, under U.S.C. § 405(g) and (h), are vested with jurisdiction over claims “arising under” the Medicare Act only after a final decision has been rendered by HHS.¹² However, under the “collateral-claim exception,” jurisdiction may lie over claims (a) that are “entirely collateral” to a substantive agency decision and (b) for which “full relief cannot be obtained at a postdeprivation hearing.”¹³ The Fifth Circuit was the first court to find that a provider met both exceptions, holding that, because Family Rehab only sought to have recoupment suspended until an ALJ hearing and the likelihood of irreparable harm if recoupment continued, their claims were collateral, and the court could exercise jurisdiction over them.¹⁴ Prior to this ruling, similar cases were dismissed for failure to exhaust administrative remedies.¹⁵

In order for a due process claim to succeed, there needs to be an asserted property or liberty interest.¹⁶ The Fifth Circuit, in deciding Family Rehab, did not declare whether Family Rehab actually possessed a property interest in Medicare payments. However, the court held that because Family Rehab only requested to suspend the recoupment until an ALJ hearing, rather than “wade into the Medicare Act or regulations,” it raised collateral claims. Further, they raised a “colorable claim” that erroneous recoupment would “damage [it] in a way not recompensable through retroactive payments.”¹⁷ Therefore, the Fifth Circuit held, the court had jurisdiction to hear Family Rehab’s procedural due process and ultra vires claims.¹⁸ On remand, the District Court, without explanation, held that Family Rehab held a property interest in “Medicare payments for services received.”¹⁹ Additionally, the court granted Family Rehab’s TRO because the court found that Family Rehab had a substantial likelihood of success on the merits of its procedural due process claim and faced a substantial threat of irreparable injury if the recoupments continued.²⁰ Shortly thereafter, the Southern District of Texas followed, holding that an ambulance service also had a property interest, again without explanation.²¹ In September of 2018, the Western District of Tennessee granted a preliminary injunction for a medical equipment company, after finding that it possessed liberty and property rights in Medicare payments for supplies provided to patients.22 At the same time, the District of South Carolina held that the private interest affected by recoupment before an ALJ hearing is the Plaintiff’s “very existence and financial stability.”²³ Quoting the Supreme Court, the court declared that “[i]t is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined.”²⁴

On the opposite side of the argument, many courts have held that medical providers do not possess a property interest in Medicare payments. The District of Kansas has held that the patient, rather than the provider, is the intended beneficiary of the Medicare program, and a provider’s interest is on “uninterrupted payments.”²⁵ Even within the Fifth Circuit, courts are split on the issue.²⁶ The court in Angels of Care Home Health held that the provider had a property interest in Medicare payments for services rendered, while the court in Sahara Health found that the unprotected interest was in the reimbursement of “bad claims.”²⁷ The Northern District of Ohio reasoned that, because CMS determines the amount to be paid to providers and has the authority to make adjustments to payments, there can be no protected property interest in the overpayments.²⁸ Quoting the Northern District of Ohio, the Middle District of Florida quickly followed.²⁹ Finally, in June of 2019, the Southern District of California held that because a plaintiff submitted only the underlying claim to CMS, rather than the due process claim, they had not exhausted their administrative remedies. The court also acknowledged that Medicare Act’s channeling requirement “comes at a price, namely, occasional individual, delay-related hardship.”³⁰

These cases suggest momentum is building amongst courts, which are beginning to understand certain providers should be offered injunctive relief as they await the backlog of Medicare appeals. While this offers providers a framework for obtaining injunctive relief, they still have significant hurdles to prove while seeking a TRO, including financial ruin of their businesses if recoupment payments continue. Nevertheless, these cases provide a precedent that was not previously available to providers and, if used correctly under the right circumstances, may shelter needy providers and their employees while they await their day in court.

1 Robby Morris, Juris Doctorate Candidate, Georgetown University, 2020, assisted with the drafting of this article.

2 Family Rehab., Inc. v. Azar, No. 3:17-CV-3008-K, 2018 WL 3155911, at *7 (N.D. Tex. June 28, 2018).

3 Family Rehab., Inc, v. Azar, 886 F.3d 496, 499-500 (5th Cir. 2018). 

4 42 U.S.C. § 1395ff(a)(3)(A).

5 Id. § 1395ff(c), (g); 42 C.F.R. § 405.904(a)(2).

6 Family Rehab, Inc., 886 F.3d at 500.

7 Id.

8 42 U.S.C. § 1395ff(d)(1)(A).

9 Family Rehab, Inc., 886 F.3d at 500.

10 Id.

11 Infinity Healthcare Servs., Inc. v. Azar, 349 F. Supp. 3d 580, 584 (S.D. Tex. 2018); see also Family Rehab, 886 F.3d at 500 (“an ALJ hearing is not forthcoming--not within 90 days, and not within 900 days. According to Family Rehab--and effectively conceded by the government--it will be unable to obtain an ALJ hearing for at least another three to five years. And based on HHS’s own admissions to a federal judge, the logjam of Medicare appeals shows no signs of abating anytime soon.”).

12 Family Rehab., Inc., 886 F.3d at 500 (noting that Although § 405(g) is a provision of the Social Security Act, it has been made applicable to Medicare by 42 U.S.C. § 1395ff(b)(1)(A)).

13 Id., citing Mathews v. Eldridge, 424 U.S. 319, 326–32, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976).

14 Id. Note that while the court did claim jurisdiction on the procedural due process and ultra vires claims, they did not extend jurisdiction under 28 U.S.C. § 1331 or mandamus jurisdiction, as the Plaintiff was not requesting the government provide it with a timely ALJ hearing.

15 See Affiliated Prof’l Home Health Care Agency v. Shalala, 164 F.3d 282, 285-86 (5th Cir. 1999); Haro v. Sebelius, 747 F.3d 1099 (9th Cir. 2014).

16 Sahara Health Care, Inc. v. Azar, 349 F. Supp. 3d 555, 572 (S.D. Tex. 2018) (“a due process claim fails when there is no property interest.”); PHHC, LLC v. Azar, No. 1:18CV1824, 2018 WL 5754393, at *7 (N.D. Ohio Nov. 2, 2018) (“in order to prevail on either a substantive or procedural due process claim, Plaintiff must establish a protectable liberty or property interest.”)

17 Family Rehab., Inc., 886 F.3d at 504.

18 Id.

19 Family Rehab., Inc. v. Azar, No. 3:17-CV-3008-K, 2018 WL 3155911, at *4 (N.D. Tex. June 28, 2018).

20 Id.

21 Adams EMS, Inc. v. Azar, No. CV H-18-1443, 2018 WL 3377787, at *4 (S.D. Tex. July 11, 2018)

22 A1 Diabetes & Med. Supply v. Azar, No. 218CV02612JTFCGC, 2018 WL 7283329, at *4 (W.D. Tenn. Sept. 21, 2018)

23 Accident, Injury & Rehab., PC v. Azar, No. 4:18-CV-02173-DCC, 2018 WL 4625791, at *7 (D.S.C. Sept. 27, 2018)

24 Id., quoting Bd. of Regents of State Colleges v. Roth, 408 U.S. 564, 577 (1972).

25 Blue Valley Hosp., Inc. v. Azar, 322 F. Supp. 3d 1149, 1167 (D. Kan. 2018), aff’d, 919 F.3d 1278 (10th Cir. 2019).

26 See Angels of Care Home Health, Inc. v. Azar, 2019 WL 1101286, at *2 (N.D. Tex. Feb. 13, 2019), report and recommendation adopted, No. 3:18-CV-3268-SBK, 2019 WL 1099028 (N.D. Tex. Mar. 8, 2019) (“[p]recedent makes clear that [Plaintiff] has a valid property interest in receiving Medicare payments for services rendered.”); but see Sahara Health Care, Inc. v. Azar, 349 F. Supp. 3d 555, 572 (S.D. Tex. 2018)(“Plaintiff’s claim and related arguments fail because they are based on the existence of a property interest Plaintiff does not have”).

27 Id.

28 PHHC, LLC v. Azar, 2018 WL 5754393, at *8 (N.D. Ohio Nov. 2, 2018).

29 Alpha Home Health Sols., LLC v. Sec’y of United States Dep’t of Health & Human Servs., 340 F. Supp. 3d 1291, 1302 (M.D. Fla. 2018)

30 Id.