MedEnvios Healthcare, Inc. v. United States Department of Health and Human Services

United States District Court

for the

Southern District of Florida

MedEnvios Healthcare, Inc., )

Plaintiff, )

)

v. )

Civil Action No. 23-20068-Civ-Scola

)

Xavier Becerra, in his official )

capacity as Secretary, United States )

Department of Health and Human )

Services, Defendant. )

Order on Cross Motions for Summary Judgment

This matter is before the Court on the parties’ cross motions for

summary judgment. The Defendant Secretary of Health and Human Services

filed a motion for summary judgment (ECF No. 68) and statement of material

facts (ECF No. 69), to which the Plaintiff MedEnvios Healthcare, Inc. responded

(ECF Nos. 74, 75). The Defendant filed a reply. (ECF No. 76.) MedEnvios filed

its own motion for summary judgment (ECF No. 70) and statement of material

facts (ECF No. 71) to which the Defendant responded (ECF Nos. 72, 73), and

MedEnvios replied (ECF No. 78). MedEnvios also filed a notice of supplemental

authority (ECF No. 80), and the Defendant responded (ECF No. 81). In addition

to holding a hearing, the Court has considered the extensive briefing, the

record, and the relevant legal authorities. For the below reasons, the Court

grants in part and denies in part the Defendant’s motion for summary

judgment (ECF No. 68), grants in part and denies in part MedEnvios’s

motion for summary judgment (ECF No. 70), and vacates the extrapolated

overpayment demands at issue.

1. Background

The federal Medicare program is administered by the Department of

Health and Human Services (“HHS” or “the Department”) through the Centers

for Medicare & Medicaid Services (“CMS”). The Department through CMS and

its contractors relies on post-payment audits to identify problems with

Medicare claims made by healthcare providers and suppliers because pre-

payment review of the over 1 billion claims received annually would be

untenable. See Fla. Med. Ctr. of Clearwater, Inc. v. Sebelius, 614 F.3d 1276,

1279 n.4 (11th Cir. 2010) (“For reasons of administrative efficiency, carriers

typically authorize payment on claims immediately upon receipt of claims, so

long as the claims do not contain glaring irregularities.”) “CMS contractors may

conduct a post-payment audit of providers to ensure that the Medicare services

that providers are billing are medically necessary and meet the requirements of

the Medicare program.” Gen. Med., P.C. v. Azar, 963 F.3d 516, 519 (6th Cir.

2020) (citing 42 U.S.C. § 1395ddd(b)). “In a post-payment audit CMS

contractors review a random sample of a provider's Medicare claims. CMS

contractors will review the records and then calculate an error rate based on

the review. If there is a sustained or high level of payment error, the CMS

contractor will extrapolate that error rate over the provider’s total Medicare

claims to determine a total amount of overpayment.” Id. (cleaned up) (citing 42

U.S.C. § 1395ddd(f)(3)-(4)).

The Plaintiff, MedEnvios, is a Florida supplier of durable medical

equipment, prosthetics, orthotics, and supplies enrolled in the Medicare

program. This is a dispute over two post-audit determinations by HHS that the

Department overpaid MedEnvios for Medicare-covered medical equipment. The

two determinations resulted in three levels of administrative appeals and

culminated with final agency decisions by administrative law judges (“ALJs”).

MedEnvios appealed each final agency decision to the district court, and this

Court consolidated the two cases on MedEnvios’s unopposed motion to do so,

noting the two common legal questions between them. (ECF No. 29.) In both

appeals processes, MedEnvios has received partially favorable decisions

resulting in a reduction of the total demanded overpayment amount. However,

the reviewer at each level has upheld the general design of the audits and their

sampling in both appealed matters. Both parties have now moved for summary

judgment, and the Court held a hearing on the motions on March 21, 2024.

2. Legal Standard

42 U.S.C. § 405(g) provides the basis for the court’s jurisdiction to review

final decisions of the Secretary of HHS. 42 U.S.C. § 405(h); Heckler v. Ringer,

466 U.S. 602, 614-15 (1984) (“42 U.S.C. § 405(h), made applicable to the

Medicare Act[,] . . . provides that § 405(g), to the exclusion of 28 U.S.C. § 1331,

is the sole avenue for judicial review for all ‘claim[s] arising under’ the Medicare

Act.”). Judicial review of an ALJ decision under § 405(g) is “limited to an

inquiry into whether there is substantial evidence to support the findings of the

[ALJ], and whether the correct legal standards were applied.” Wilson v.

Barnhart, 284 F.3d, 1219, 1221 (11th Cir. 2002). Whether the ALJ applied the

correct legal standards is a question of law, which this Court reviews de novo.

Graham v. Bowen, 790 F.2d 1572, 1575 (11th Cir. 1986). “Substantial evidence

is more than a scintilla and is such relevant evidence as a reasonable person

would accept as adequate to support a conclusion.” Crawford v. Comm’r of Soc.

Sec., 363 F.3d 1155, 1158 (11th Cir. 2004) (quoting Lewis v. Callahan, 125

F.3d 1436, 1439 (11th Cir. 1997)). “[A] court reviewing an agency

determination under § 405(g) has adequate authority to resolve any statutory

or constitutional contention that the agency does not, or cannot, decide,

including, where necessary, the authority to develop an evidentiary record.”

Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 23-24 (2000).

3. Analysis

MedEnvios argues that it is entitled to summary judgment because the

Defendant has violated its due process rights in two ways. First, according to

MedEnvios, the Defendant improperly excluded “zero-paid” claims from the

statistical sampling and extrapolation process when evaluating whether and to

what extent the Department overpaid MedEnvios. Second, MedEnvios claims

that the Department and its contractors’ failure to provide certain evidence

supporting the recalculated overpayment amounts violated MedEnvios’s

procedural due process rights.

“The fundamental requirement of due process is the opportunity to be

heard ‘at a meaningful time and in a meaningful manner.’” Mathews v.

Eldridge, 424 U.S. 319, 333 (1976) (quoting Armstrong v. Manzo, 380 U.S. 545,

552 (1965)). “[I]ndividuals whose property interests are at stake due to

government actions are entitled to notice of the proceedings and an opportunity

to be heard.” Mesa Valderrama v. United States, 417 F.3d 1189, 1196 (11th Cir.

2005) (citing Dusenbery v. United States, 534 U.S. 161, 167–68 (2002)). “‘Due

process, unlike some legal rules, is not a technical conception with a fixed

content unrelated to time, place and circumstances.” Cafeteria Workers v.

McElroy, 367 U.S. 886, 895 (1961). The concept “is flexible and calls for such

procedural protections as the particular situation demands.” Morrissey v.

Brewer, 408 U.S. 471, 481 (1972).

When evaluating an alleged due process violation, courts consider “three

distinct factors: First, the private interest that will be affected by the official

action; second, the risk of an erroneous deprivation of such interest through

the procedures used, and the probable value, if any, of additional or substitute

procedural safeguards; and finally, the Government’s interest, including the

function involved and the fiscal and administrative burdens that the additional

or substitute procedural requirement would entail.” Mathews, 424 U.S. at 335.

Before delving into the Mathews test, MedEnvios argues that it has a

protected property interest in Medicare reimbursements for services rendered

to beneficiaries because the extrapolated overpayment amounts are “over and

above” the actual amounts contractors calculated and therefore invade

MedEnvios’s protected property rights in its own funds, or alternatively, its

assigned property rights of Medicare beneficiaries. (Pl.’s Mot. at 13-14.1) While

not directly addressed in the Secretary’s briefing, the Defendant disagreed with

this argument on the record at the hearing because of the contingent nature of

the interest MedEnvios has in claims paid by the Medicare program—i.e., that

MedEnvios was aware that any payments received pursuant to the program

could be recouped upon the determination that claims should not have been

paid.

The Court agrees with MedEnvios that it does have a protected property

interest in the funds subject to the extrapolated overpayment demands. While

the Eleventh Circuit has acknowledged that providers do not have a property

interest in disputed overpayments subject to recoupment, they do have a

property interest in their own money. Zen Grp., Inc. v. Agency for Health Care

Admin., 80 F.4th 1319, 1326 (11th Cir. 2023) (holding that the plaintiff “had at

least a due-process right to challenge a $276,067.95 fine because the fine

would deprive [the plaintiff] of money on top of the recoupment of Medicaid

payments for services rendered.”) Similar to the fine discussed in Zen Group,

the extrapolated overpayments reflect amounts over and above the actual

overpayments confirmed in claim sampling, therefore implicating MedEnvios’s

own money. MedEnvios’s property interests are therefore at stake in this

appeal of the Department’s overpayment demands.

A. Failure to include “zero-paid” claims in sampling

Moving to the alleged violations, MedEnvios argues that its due process

rights were violated because HHS failed to comply with the procedures set forth

in statute, regulation, and “sub-regulatory guidance” that mandate “certain

due process minimum protections be provided to health care suppliers in the

statistical sampling and extrapolation process.” (Pl.’s Resp. at 9.) Specifically,

MedEnvios objects to the Defendant’s exclusion of claims for which the

Department never made a payment to MedEnvios from the sampling frame.

MedEnvios assumes that if those claims had been part of the sampling frame,

the calculated overpayment amount could have been lower because claims that

should have been paid but were not may have lowered the net overpayment.

While this is likely true, the question is whether the Department’s exclusion of

these claims violated MedEnvios’s due process rights because the Department

was required to include them by law.

MedEnvios says yes, and the Defendant says no. The three principal

sources of authority that MedEnvios cites are the statute, regulations, and

1 The Court references the page numbers reflected in document headers rather than internal

numbering.

administrative manual relevant to the administration of Medicare integrity

reviews. The relevant statute reads that:

Under the Program, the Secretary shall enter into contracts with

recovery audit contractors in accordance with this subsection for

the purpose of identifying underpayments and overpayments

and recouping overpayments under this subchapter with respect

to all services for which payment is made under this subchapter.

42 U.S.C. § 1395ddd(h)(1) (emphasis added).

The Medicaid Recovery Audit Contractors Program subpart of the Code of

Federal Regulations states:

As used in this subpart— Medicaid RAC program means a recovery

audit contractor program administered by a State to identify

overpayments and underpayments and recoup overpayments. 42

C.F.R. § 455.504.

MedEnvios interprets the mention of underpayments in these provisions

to mean that “Medicare auditors are required by statute to identify both

overpaid and underpaid claims when conducting post-payment reviews.” (Pl.’s

Mot. at 19 (emphasis added).) According to MedEnvios, this establishes a due

process minimum by which the post-payment audits must take place. In

addition to the statute and the Code of Federal Regulations, the Medicare

Program Integrity Manual (“MPIM”) references underpayments and “over- or

underpaid” claims for inclusion in contractors’ calculation of a supplier’s

overpayment amount, seemingly demanding inclusion of “zero-paid” claims in

every audit. (Pl.’s Mot. at 19-20 (citing MPIM §§ 8.4.1.3, 8.4.5.2, 8.4.4.4.3.)

However, the MPIM elsewhere instructs that “[t]he universe shall consist of all

fully and partially paid claims[,]” seemingly excluding these “zero-paid” claims.

(Id. at 20 (citing MPIM § 8.4.3.2.1.) In order to explain this divergence,

MedEnvios relies heavily on the distinction between “zero-paid” and “unpaid”

claims—“unpaid” purportedly meaning “un-adjudicated” and therefore

permissible to exclude and “zero-paid” meaning adjudicated with a payment

amount of zero. (Pl.’s Mot. at 19-20.) This statutory scheme, taking into

account the regulations and the MPIM, according to MedEnvios, shows that

due process requires the inclusion of “zero-paid” claims in the audits’

statistical sampling and extrapolation in order to avoid bias against the

supplier (in this case, MedEnvios).

The Department reads the statute and its progeny differently, contending

that there is no requirement for Medicare contractors to include unpaid or

“zero-paid” claims in sampling frames to avoid running afoul of procedural due

process rights. Rather, the statute merely establishes a framework for

performing post-payment reviews, and “left it to the Secretary to establish the

methodology for selecting samples of Medicare claims for audit[.]” (Def.’s Reply

at 3.) “For this purpose the Secretary, through his agency CMS, published

methodological guidelines in the Medicare Program Integrity Manual (“MPIM”),

CMS Publication No. 100-08, at Chapter 8 (“Administrative Actions and

Statistical Sampling for Overpayment Estimates”).” (Id. at 4.) And the relevant

MPIM provision clearly instructs that “once the program integrity contractor

has defined the universe for audit, the composition of that universe ‘shall

consist of all full and partially paid claims.’” MPIM, Ch. 8, § 8.4.3.2.1.B. This,

by the Department’s reading, excludes “zero-paid” claims because they are

claims that “were not paid in full; they were not paid in part; they were paid

$0.” (Def.’s Reply at 5.)

On balance, the Court agrees with the Secretary that the language of the

statute does not permit the Court to make the logical jump that all Medicare

program integrity contractors are required to include these claims in all of their

audits. Both parties agree that “there are several different types of Medicare

contractors that are tasked with performing retrospective reviews of Medicare

payments” (Pl.’s Reply at 7.) Some contractors in some audits may include

what MedEnvios refers to as “zero-paid” claims in their samples, but not all

contractors are required to do so regardless of the purpose of the audit.

The Department also points out that this interpretation of the statutory

and regulatory authority is consistent with the relevant Medicare contractors’

mission, which is to “audit waste”—they were after all called “zone program

integrity contractors.” (Def.’s Resp. at 5 (citing Dominion Ambulance, L.L.C. v.

Azar, 968 F.3d 429, 441-42 (5th Cir. 2020).) This demonstrates that the

contractor’s principal concern was to audit fully and partially paid claims—not

claims that the Department never paid and by definition could not have

resulted in overpayment. Due process “‘does not require perfect process’” nor

does it “entail a right to ‘choose the precise process [one might] desire.’”

Thibodeaux v. Bordelon, 740 F.2d 329, 338 (5th Cir. 1984); FDIC v. Morley, 915

F.2d 1517, 1522 (11th Cir. 1990)). In this particular case, the process was

potentially imperfect but reasonably tailored to the aims of the audit.

Importantly, in addition to allowing the Department to fill in the details

on the conduct of Medicare audits, Congress provided for a separate process

for suppliers to challenge determinations that incorrectly result in “zero-paid”

claims. See 42 U.S.C. § 1395ff(a)(3). Providers and suppliers who believe a

claim has been improperly denied have a calendar year following the date of

service to appeal the determination. 42 C.F.R. § 424.44. This way, the party

with the greatest interest in vindicating claims that the Department should

have reimbursed has a clear recourse, separate and apart from the

Department’s own investigation and recoupment of its potentially wasteful

spending. This process therefore accounts for the “zero-paid” claims, and the

Department need not account for them again in post-payment audits. The

Department therefore has not violated MedEnvios’s procedural due process

rights by excluding “zero-paid” claims from the sampling universe in the two

relevant post-payment audits.

B. Failure to provide evidence supporting recalculated

overpayments

Second, MedEnvios argues that the Defendant failed to provide sufficient

documentation to support overpayments recalculated following partially

favorable appellate decisions, allegedly depriving MedEnvios of notice.

Following partially favorable decisions on appeal, the relevant contractor must

“effectuate” the decision by recalculating the extrapolated overpayment amount

to be recouped from the supplier based upon the revised decisions on

individual sampled Medicare claims. The contractor then sends the supplier a

revised demand letter reflecting the new overpayment amount. Without the

underlying documentation showing how the contractor arrived at the new

amount, MedEnvios claims that it lacked “the information necessary to mount

a meaningful challenge to those recalculations.” (Pl.’s Reply at 5.) MedEnvios

further expanded on this argument at the March 21, 2024 hearing, explaining

that it could not independently replicate the calculations, including to

determine which reductions in the calculated overpayments had been applied

to the principal versus the (now very substantial) accrued interest. According to

MedEnvios, it therefore could not accurately determine whether and on what

basis to appeal the determinations.

Applying the Mathews test to this deprivation, the Court agrees that

MedEnvios’s procedural due process rights were violated. Without the ability to

verify the contractor’s calculations, “a provider does not have the information

and data necessary to mount a due process challenge to the statistical validity

of the sample, as is its right . . . .” Global Home Care, Inc. v. Nat’l Gov’t Servs.,

Dkt. No. M-11-116, HHS-Department Appeals Board, Order of MAC (Jan. 11,

2011). “An appeal challenging the validity of the sampling methodology must be

predicated on the actual statistical validity of the sample as drawn and

conducted.” Maxmed Healthcare, Inc. v. Price, 860 F.3d 335, 339 (5th Cir. 2017)

(citing MPIM § 8.4.1.1).

MedEnvios was and is prejudiced by the unavailability of the

recalculation worksheets because MedEnvios did not receive three of the four

relevant recalculation worksheets within enough time to satisfy its procedural

due process rights by recreating the recalculations to verify the revised

extrapolated amounts. For the audit underlying case 23-20068, MedEnvios did

not receive either recalculation worksheet until the latest appeal was already

before this Court. At that time, the Department provided the recalculation

sheet for the post-partially favorable reconsideration decision (the first appeal).

(Pl.’s Mot. at 26-27.) For the audit underlying case 23-20065, MedEnvios did

receive the documents supporting the post-reconsideration recalculation in

advance of the ALJ hearing, and received the documentation for the post-ALJ

recalculation on November 2, 2023. (Id. at 27; Pl.’s Statement of Material Facts,

ECF No. 71 ¶¶ 47, 53.) MedEnvios did not receive any of this documentation

contemporaneously with the revised overpayment demands.

Further, under the third Mathews factor, the prejudice to MedEnvios in

having to mount appeals without reviewing the contractors’ effectuation work

easily outweighs any administrative difficulty of timely providing the

worksheets. Provision of this information should be a negligible burden on the

Department and its contractors. The MPIM already instructs that

“[d]ocumentation shall be kept in sufficient detail so that the sampling frame

can be re-created should the methodology be challenged. The contractor shall

keep an electronic copy of the sampling frame.” MPIM § 8.4.4.4.1. Thus,

contractors are already required to maintain this information, and the added

burden of providing the information on request would be minimal. The Court

therefore concludes that the Department has run afoul of MedEnvios’s

procedural due process rights by failing to provide the documentation

supporting the recalculated overpayment amounts.

4. Conclusion

For the above reasons, the Court grants in part and denies in part the

Defendant’s motion for summary judgment (ECF No. 68) and grants in part

and denies in part MedEnvios’s motion for summary judgment (ECF No. 70)

because the Department violated MedEnvios’s due process rights by failing to

timely provide the documents showing how the revised overpayment demands

were calculated. The extrapolated overpayment demands implementing the ALJ

decisions are therefore vacated.

Done and ordered at Miami, Florida on March 25, 2024.

wats N. Scola, Jr.

United States District Judge