Simply Home Healthcare v. AdvanceMed Corporation ( 2021 )

NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Submitted June 2, 2021 *
Decided June 3, 2021
Before
DAVID F. HAMILTON, Circuit Judge
MICHAEL B. BRENNAN, Circuit Judge
THOMAS L. KIRSCH II, Circuit Judge
No. 20-1542
SIMPLY HOME HEALTH CARE, LLC, Appeal from the United States District
Plaintiff-Appellant, Court for the Northern District of Illinois,
Eastern Division.
v.
No. 19 C 2313
ADVANCEMED CORPORATION & XAVIER
BECERRA, Secretary of the United States Harry D. Leinenweber,
Department of Health and Human Services, †
Judge.
Defendants-Appellees.
ORDER
Plaintiff Simply Home Health Care, LLC provided services to Medicare
beneficiaries. AdvanceMed, a quality-control contractor for the federal Department of
Health and Human Services, temporarily suspended plaintiff’s Medicare
reimbursements because of potential overpayment. Later communications, however,
*
We have agreed to decide this case without oral argument because the briefs
and record adequately present the facts and legal arguments, and oral argument would
not significantly aid the court. FED. R. APP. P. 34(a)(2)(C).
† We substitute the current officeholder under FED. R. APP. P. 43(c)(2).
No. 20-1542 Page 2
referred to suspected fraud. After an investigation, AdvanceMed determined that
plaintiff had been overpaid by about $5.5 million. Plaintiff then filed a purported
class-action suit under the Medicare Act, alleging that AdvanceMed changed the basis
for providers’ suspensions without cause, tortiously interfering with their Medicare
contracts and violating their due-process rights. Because the plaintiff had not exhausted
its administrative remedies, the district court concluded that it lacked jurisdiction under
the Act. We affirm the dismissal on that ground.
Plaintiff provided skilled nursing and other services to home-bound beneficiaries
of Medicare—a health insurance program administered by the Department’s Centers
for Medicare and Medicaid Services (“CMS”)—and billed Part A of the program.
See 42 U.S.C. §§ 1395c, 1395hh(a)(1); 42 C.F.R. § 424.22. CMS uses a prospective payment
system for home health services: It pays providers half of their anticipated reimbursable
costs at the beginning of a 60-day period and the other half at the end. See 42 C.F.R.
§§ 484.200–484.265. It uses “integrity” contractors to ensure that beneficiaries receive the
services for which providers prospectively charge Medicare and to investigate
providers for fraud, waste, and abuse. 42 U.S.C. §§ 1395ddd, 1395kk-1.
AdvanceMed is one of those contractors. It notified plaintiff in April 2017 that,
because it had reliable information that plaintiff had been overpaid, it was temporarily
suspending plaintiff’s Medicare reimbursements under 42 C.F.R. § 405.371(a)(1). In a
rebuttal letter, plaintiff asserted that the suspension was erroneous. See § 405.372(b)(2).
AdvanceMed replied with two letters informing plaintiff that the suspension would
remain in place. But those letters cited § 405.371(a)(2) as the ground for the suspension;
that provision pertains to suspected fraud, while § 405.371(a)(1) covers suspected
overpayment. Although plaintiff alleges that this change was intentional, a member of
AdvanceMed’s staff declared that the citations to the fraud regulation were accidental.
Under either regulation, plaintiff could not further dispute the temporary suspension at
that time. See § 405.375(c). AdvanceMed lifted the suspension within the 180-day limit
for overpayment investigations, see § 405.372(d)(1), having determined that plaintiff
owed about $5.5 million in overpayments.
To challenge an overpayment determination, a provider can pursue a
progressive four-part administrative process. See § 405.904. First, it can seek a
redetermination from an administrative contractor charged with collecting its payment.
See 42 U.S.C. § 1395ff(a)(3); 42 C.F.R. § 405.940. Second, it can seek reconsideration from
a second administrative contractor. 42 U.S.C. § 1395ff(c); 42 C.F.R. § 405.960. Third, it
can appeal to an Administrative Law Judge. 42 U.S.C. § 1395ff(d); 42 C.F.R. § 405.1002.
No. 20-1542 Page 3
And fourth, it can appeal an adverse decision to the Medicare Appeals Council, which
would render a final decision for the Secretary of the Department, which is subject to
judicial review. 42 U.S.C. § 405(g)–(h) (incorporated to the Medicare Act by §§ 1395ii,
1395ff(b)(1)); 42 C.F.R. §§ 405.1100, 405.1136. Plaintiff took only the first two steps,
through which the amount it owed to Medicare was reduced slightly. After that,
plaintiff’s debt was referred to a collection agency.
Plaintiff then filed suit against AdvanceMed and the Department on behalf of
itself and all other home healthcare agencies to which AdvanceMed sent suspension
notices based on fraud without consulting with law enforcement (as required by
Medicare regulations, see 42 C.F.R. § 405.371(a)(2)). It alleged that AdvanceMed
tortiously interfered with providers’ contracts with CMS and violated their due-process
rights by initiating suspensions based on suspicions of overpayment and then
baselessly changing the reason to suspicion of fraud. Plaintiff also sought a declaratory
judgment that AdvanceMed’s actions were unlawful. Plaintiff cited the Medicare Act as
the basis of federal subject-matter jurisdiction over its claims.
The defendants moved to dismiss the case for lack of subject-matter jurisdiction.
See FED. R. CIV. P. 12(b)(1). They argued that, because plaintiff had failed to pursue the
last two levels of administrative review, it had not exhausted its administrative
remedies as required for the court to have subject-matter jurisdiction over any claims
under the Act. See 42 U.S.C. §§ 405(g)–(h), 1395ii, 1395ff(b)(1). The district court agreed
and, because plaintiff could present no alternate jurisdictional basis, dismissed the case.
On appeal, plaintiff principally argues the merits of its claims and asserts that
AdvanceMed’s representatives lied in attesting that a clerical error accounts for the
change in the reason for plaintiff’s suspension. But the question of subject-matter
jurisdiction must come first. On that issue, plaintiff contends that, because it could not
further appeal its temporary suspension after sending its rebuttal letter, it exhausted the
only administrative remedies available to challenge that decision.
The district court correctly concluded that it lacked jurisdiction over plaintiff’s
claims. When a provider brings a claim “arising under” the Act against the Department
or its contractors, as the plaintiff did here, the Act precludes federal courts from
exercising jurisdiction under 28 U.S.C. § 1331 or § 1346. See 42 U.S.C. §§ 405(h), 1395ii.
The Act itself provides the only basis for federal subject-matter jurisdiction. 42 U.S.C.
§ 405(g)–(h); Heckler v. Ringer, 466 U.S. 602, 614–15 (1984). And it states that a Medicare
provider may challenge only a final decision by the Secretary in federal court. 42 U.S.C.
No. 20-1542 Page 4
§§ 405(g)–(h). Thus, for a federal court to have subject-matter jurisdiction over a
provider’s claims, the provider first must exhaust the administrative procedures
necessary to obtain a final decision. Id. § 405(g)–(h); Mathews v. Eldridge, 424 U.S. 319,
328 (1976). Because plaintiff did not complete administrative review and never obtained
a final decision from the Secretary, it cannot sue under the Act.
Nor does the fact that AdvanceMed’s decision, after reviewing plaintiff’s
rebuttal, to continue suspending plaintiff’s payments while it investigated was “not
appealable,” 42 C.F.R. § 405.375(c), exempt plaintiff from obtaining a final decision.
Although we do not appear to have considered § 405.375(c), we addressed a similar
regulation in Homewood Pro. Care Ctr., Ltd. v. Heckler, 764 F.2d 1242 (7th Cir. 1985).
There, a Medicare contractor had temporarily suspended payments to a provider based
on suspected fraud, and the provider sued in federal court, alleging that the suspension
was wrongful. Id. at 1244–45. But the provider could challenge the contractor’s process
and reasons for the suspension in an administrative appeal of the final fraud and
payment determinations. Id. at 1248. Thus, we held, the provider had to exhaust that
administrative procedure and receive a final decision from the Secretary before filing
suit. Id. at 1248–50. Here too, the temporary suspension of plaintiff’s reimbursements
was one step in an investigatory process to determine whether plaintiff owed CMS
money. See §§ 405.370–405.379. Plaintiff could have challenged that process in an
administrative appeal of the final overpayment determination and received an
appealable final decision. Because it failed to do so, judicial review was not available.
Couching the claim as a challenge to just the temporary suspension does not relieve
plaintiff of the exhaustion requirement, unless its claims were grounded in something
other than the Medicare Act.
Alternatively, plaintiff argues that this court should waive the Act’s exhaustion
requirement based on futility. We decline to do so for two reasons. First, plaintiff
appears to argue that § 405.375(c) barred it from challenging the suspension process in
an administrative appeal of the final overpayment determination. Yet plaintiff provides
no support for that argument, and we find no indication that plaintiff could not have
raised these issues before the Department. See Shalala v. Ill. Council on Long Term Care,
Inc., 529 U.S. 1, 22–23 (2000). In any event, because an action, not particular arguments,
must be “channeled through” the administrative process, whether the plaintiff could
have obtained relief from the temporary suspension is “beside the point.” Id. at 23.
Plaintiff had to receive a final decision from the Secretary with respect to the action the
Department advanced against it, at which time it could seek judicial review and raise
any argument against the suspension process. Id.No. 20-1542 Page 5
Second, this court has never recognized futility alone as a reason to waive the
Act’s exhaustion requirement. See Home Care Providers, Inc. v. Hemmelgarn, 861 F.3d 615,
624 (7th Cir. 2017); Health Equity Res. Urbana, Inc. v. Sullivan, 927 F.2d 963, 966 (7th Cir.
1991). And we need not consider whether futility is sufficient here, as the single
non-binding authority on which plaintiff relies is inapposite. See Am. Hosp. Ass’n v.
Azar, 348 F. Supp. 3d 62 (D.D.C. 2018), rev’d on other grounds, 967 F.3d 818 (D.C. Cir.
2020). That court waived exhaustion because those plaintiffs raised a purely legal
question concerning the scope of the Secretary’s statutory authority; there were no
factual issues in dispute. Id. at 75. In contrast, plaintiff’s claims rest on factual issues—
such as whether and why AdvanceMed changed its reason for suspending plaintiff’s
payments—on which a record should have been developed through the administrative
process.
Finally, plaintiff contends that the district court had jurisdiction because plaintiff
sought a declaratory judgment under 28 U.S.C. § 2201(a). But that statute “provides no
independent source of federal subject-matter jurisdiction.” Manley v. Law, 889 F.3d 885,
893 (7th Cir. 2018) (citing Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950)).
AFFIRMED