John Balko & Associates, Inc. v. Secretary U.S. Department of Health & Human Services

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 13-1568
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JOHN BALKO & ASSOCIATES, INC.,
doing business as
SENIOR HEALTHCARE ASSOCIATES,
Appellant
v.
SECRETARY U.S. DEPARTMENT OF HEALTH
AND HUMAN SERVICES
______________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civ. No. 2-12-cv-00572)
Honorable Arthur J. Schwab, District Judge
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Submitted under Third Circuit LAR 34.1(a)
December 20, 2013
BEFORE: JORDAN, VANASKIE, and GREENBERG, Circuit Judges
(Filed: February 12, 2014)
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OPINION OF THE COURT
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GREENBERG, Circuit Judge.
I. INTRODUCTION
This matter comes on before this Court on an appeal by John Balko and
Associates, Inc. (“Balko”) from the District Court‟s order for summary judgment entered
on December 28, 2012, in favor of the Secretary of the Department of Health and Human
Services (the “Secretary”). Balko is a Medicare provider offering services to elderly
patients in nursing homes. SafeGuard Services (“SafeGuard”), a central entity in this
case, is a Medicare contractor undertaking auditing services for Medicare on behalf of the
Secretary. SafeGuard, after initially finding that Balko had been reimbursed for claims
that Medicare did not cover, audited Balko‟s claims and confirmed that Medicare had
paid many of Balko‟s claims that were ineligible for Medicare payment. In reaching its
conclusion SafeGuard used extrapolation—a statistical method which notes patterns in a
small sample of data and infers the existence of similar patterns in larger amounts of
data—to calculate the amount of overpayment that Balko owed.
Following several levels of review, the Secretary determined that Balko was
liable for $641,437 in Medicare overpayments. Balko unsuccessfully appealed from this
decision to the District Court and it now appeals from the District Court‟s order
upholding the Secretary‟s decision. Balko argues that SafeGuard failed to satisfy 42
U.S.C. § 1395ddd(f)(3), which requires an administrative finding that a provider had a
sustained or high level of payment error or a determination that documented educational
intervention had failed to lead the provider to correct the payment error, before an auditor
can use extrapolation to calculate the overpayment that a provider owes to Medicare.
2
Balko also argues that there was not substantial evidence supporting the Secretary‟s
decision.
We are unpersuaded by Balko‟s arguments and will affirm the District Court‟s
order upholding the Secretary‟s decision. We lack jurisdiction under the plain language
of 42 U.S.C. § 1395ddd(f)(3) to review the determination that a provider had a sustained
or high rate of payment error before an auditor is justified in using extrapolation. We
also conclude that there is substantial evidence supporting the Secretary‟s decision.
II. BACKGROUND
Medicare provides health care benefits to patients who, for the most part, are over
65 years of age. In order to expedite claims processing, Medicare reimburses providers
for services before reviewing the medical records associated with the claims and
verifying that the claims are valid. Medicare contractors, such as SafeGuard, then review
and audit providers to ensure that payments are made properly. See 42 U.S.C. 13951(e).
This case centers on a post-payment audit of Balko, a Medicare provider offering
certain services to nursing home residents, in particular services pertaining to podiatry,
audiology, and optometry.1 In early 2008, SafeGuard observed that Balko was both the
highest-paid provider rendering services to residents at nursing homes in Pennsylvania,
and appeared to be providing certain services on a scheduled, periodic basis not eligible
for Medicare payment. Consequently, SafeGuard made a further investigation of Balko‟s
1
Balko submitted its claims to Highmark Medicare Services, a Medicare fiscal
intermediary, but Highmark is not directly involved in this case.
3
claims, during which its representatives visited Balko‟s offices and various nursing
homes at which Balko serviced residents. Based on its investigation, SafeGuard
concluded that Balko was providing services that were not eligible for Medicare payment
and, consequently, that Balko must repay Medicare to the extent it had been reimbursed
for these ineligible claims.
During the auditing process, SafeGuard followed the procedures laid out in the
Medicare Program Integrity Manual (“MPIM”), and used statistical sampling. First,
SafeGuard identified a “universe” of 5,445 Medicare beneficiaries associated with
particular claims which it then narrowed to a random sample of 81 beneficiaries,
encompassing a total of 581 claims. SafeGuard then conducted a detailed review of the
medical documentation associated with these claims, and found that 99.85% of these
claims had been paid improperly. The Department of Health and Human Services
(“HHS”), which oversees the Medicare program and the auditing process, understandably
considered 99.85% to be a high error rate and directed SafeGuard to extrapolate an
estimate of the amount Balko had been overpaid. After adjusting for potential statistical
error, SafeGuard calculated that Medicare had overpaid Balko $857,109.07.
The auditing process includes several levels of administrative appeal, and Balko
availed itself of all of them. Balko first requested that Safeguard reconsider its
determination, a request that met with partial success as SafeGuard reduced the amount
of the overpayment for which Balko was responsible. Then Balko appealed this
determination to a Medicare Qualified Independent Contractor. Balko presented
evidence that many of the payments contained in SafeGuard‟s sample had been paid
4
properly. Following these appeals, the overpayment rate was reduced to 77% and the
demand for repayment was reduced to $641,437.
Balko appealed from the determination that it was liable for the reduced amount to
an administrative law judge (“ALJ”). Among other contentions, Balko argued that
SafeGuard improperly had used statistical extrapolation to calculate its overpayment.
Under 42 U.S.C. § 1395ddd(f)(3), Medicare contractors may use extrapolation to
determine an overpayment amount in only two circumstances: if (1) there is a finding of
“a sustained or high level of payment error,” or (2) there is evidence that the provider was
informed of the payment error but failed to correct it. Balko regarded SafeGuard‟s use of
extrapolation as inappropriate because SafeGuard failed to find a high error rate “prior to
conducting the audit”—essentially, Balko claimed that SafeGuard violated the statute by
using the same sample to determine a high error rate and then to extrapolate an
overpayment amount. Balko also appealed from the overpayment determinations on
specific claims.
The ALJ in an October 20, 2011 decision invalidated SafeGuard‟s use of statistical
sampling and extrapolation, but sustained the overpayment findings on specific claims.
The ALJ reasoned that there was no documentation to support a finding either that Balko
had a high level of payment error or had been educated regarding any alleged payment
errors prior to SafeGuard‟s extrapolation of an overpayment amount. Accordingly, the
ALJ ruled that Balko only should be liable for the specific overpayments identified in
SafeGuard‟s sample without extrapolation.
5
The Medicare Appeals Council (“MAC”) reviewed the ALJ‟s ruling on its own
motion.2 MAC reversed the ALJ‟s holding that SafeGuard‟s statistical sampling and
extrapolation were invalid. First, MAC vacated the ALJ‟s ruling because it found that,
under 42 U.S.C. § 1395ddd(f)(3), the ALJ lacked jurisdiction to consider SafeGuard‟s
determination that there had been a high level of payment error. Second, MAC found
that the original 99.85% error rate was sufficient to permit extrapolation of
overpayments, and explained that the Medicare statute did not require its contractors to
determine that there was a high error rate before undertaking audits, which can include
statistical sampling. In light of these rulings, MAC sustained SafeGuard‟s calculations
and assessed a $641,437 overpayment against Balko.
Balko appealed MAC‟s determination to the District Court, which granted
summary judgment in favor of the Secretary on December 28, 2012, upholding MAC‟s
determination. The Court concluded that under 42 U.S.C. § 1395ddd(f)(3) it lacked
jurisdiction to review the determination that there had been a high rate of error. The
Court also held that there was substantial evidence supporting the Secretary‟s final
decision. Balko then timely appealed to this Court.
III. STATEMENT OF JURISDICTION AND STANDARD OF REVIEW
2
42 C.F.R. § 405.1110(a) authorizes MAC to review an ALJ‟s decision on its own
motion, and 42 C.F.R. § 405.1110(b) provides that the “[Centers for Medicare and
Medicaid Services] or any of its contractors may refer a case to the MAC [to] review the
case on its own motion.” MAC earlier had vacated a prior decision in this case and had
remanded the case to the ALJ for further proceedings. The ALJ incorporated his vacated
original decision in his October 20, 2011 opinion.
6
The District Court had jurisdiction under 42 U.S.C. § 1395ff(b)(1)(A) and 42
U.S.C. § 405(g), and we have jurisdiction under 28 U.S.C. § 1291. We review the
District Court‟s grant of summary judgment de novo, applying the same standards that
the District Court used in granting summary judgment. Thus, we may set aside the
Secretary‟s decision “only if it is „unsupported by substantial evidence,‟ is „arbitrary,
capricious, an abuse of discretion, or [is] otherwise not in accordance with law.‟” Mercy
Home Health v. Leavitt, 436 F.3d 370, 377 (3d Cir. 2006) (alteration in original) (quoting
5 U.S.C. § 706(2)(A), (E)). Substantial evidence requires “more than a mere scintilla,”
and “means such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion.” Albert Einstein Med. Ctr. v. Sebelius, 566 F.3d 368, 372 (3d Cir.
2009) (citation and quotation marks omitted). If a party contends that we do not have
jurisdiction, we apply a de novo standard of review in considering that contention. See In
re Caterbone, 640 F.3d 108, 111 (3d Cir. 2011).
IV. DISCUSSION
Balko advances two principal arguments on appeal. It reads Section
1395ddd(f)(3) to require a two-step process for using extrapolation to calculate
overpayment amounts: the Medicare contractor first must find a high error rate, and, if it
does, then it can move on to use extrapolation in making its determination. In Balko‟s
view, SafeGuard violated this provision by using the same 81-patient sample for the dual
purposes of calculating a high error rate and extrapolating the amount of the
overpayment. Balko next contends that there is not substantial evidence to support
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MAC‟s decision, and it challenges MAC‟s credibility findings. The Secretary reads
Section 1395ddd(f)(3) differently. She argues that the provision precludes any review of
high-error-rate determinations, and further that SafeGuard‟s use of a single sample for
calculating both high error rate and extrapolation was entirely appropriate. The Secretary
also argues that there is substantial evidence supporting her decision.
We will affirm the December 28, 2012 order that, by granting the Secretary‟s
motion for summary judgment, upheld MAC‟s decision. We are satisfied that the plain
language of Section 1395ddd(f)(3) precludes judicial review of the Secretary‟s high-
error- rate determination and, accordingly, that, as was true for the adjudicators in the
administrative proceedings we have described, we lack jurisdiction to review the
substance of Balko‟s claims. Finally, we find that there is substantial evidence in the
record to support MAC‟s decision.
A. Extrapolation Under 42 U.S.C. § 1395ddd(f)(3)
In 1996, Congress created the Medicare Integrity Program to strengthen the
Secretary‟s ability to deter fraud and abuse. See Health Insurance Portability and
Accountability Act of 1996, Pub. L. No. 104-191, §§ 201-02, 110 Stat. 1936, 1992-98
(codified at 42 U.S.C. §§ 1395i(k)(4), 1395ddd). Under this program, Medicare
providers must maintain records to support their claims, and Medicare contractors are
authorized to audit providers in order to determine what payment is appropriate. 42
U.S.C. § 13951(e). Providers bear the burden of maintaining and producing information
to support their payment claims. 42 U.S.C. § 13951; 42 C.F.R. § 424.5(a)(6).
8
In 2003, Congress amended the statutory provisions governing overpayment
recovery in the Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (“Medicare Modernization Act”), Pub. L. No. 108-173, §§ 911, 935, 117 Stat. 2066,
2378-86, 2407-11 (codified at 42 U.S.C. §§ 1395kk-1, 1395ddd). As relevant to this
appeal, the Medicare Modernization Act placed restrictions on the circumstances in
which contractors could use extrapolation to calculate the amount a provider had been
overpaid:
(3) Limitation on use of extrapolation
A medicare contractor may not use extrapolation to determine
overpayment amounts to be recovered by recoupment, offset, or
otherwise unless the Secretary determines that—
(A) there is a sustained or high level of payment error; or
(B) documented education intervention has failed to correct the
payment error.
There shall be no administrative or judicial review under section
1395ff of this title, section 1395oo of this title, or otherwise, of
determinations by the Secretary of sustained or high levels of payment
errors under this paragraph.
42 U.S.C. §1395ddd(f)(3) (emphasis added).3 We agree with the Secretary that this
provision precludes review of the high-error-rate determination.
3
Although the statute states that “the Secretary” must find that there is a “sustained or
high rate of payment error,” the Secretary properly may delegate this authority to
Medicare contractors. See 42 U.S.C. § 1395kk(a) (permitting Secretary to perform “any
of his functions” directly or through contract); Gentiva Healthcare Corp. v. Sebelius, 723
F.3d 292, 295-97 (D.C. Cir. 2013) (approving Secretary‟s interpretation that it may
delegate determinations of high payment error to contractors).
9
As we have indicated, we exercise de novo review over challenges to our
jurisdiction to adjudicate a particular matter. See Caterbone, 640 F.3d at 111. Here, we
conclude—as did MAC and the District Court—that Section 1395ddd(f)(3)
unambiguously bars review the of the “high level of payment error” that enabled
SafeGuard to use extrapolation to calculate overpayment amounts. The statute clearly
states that “[t]here shall be no administrative or judicial review . . . of determinations by
the Secretary of sustained or high levels of payment errors.” 42 U.S.C. § 1395ddd(f)(3).
We agree with a determination of the Court of Appeals for the District of Columbia
Circuit that this provision precludes a court of appeals‟ review of the Secretary‟s
determination that there has been a high level of payment error. Gentiva Healthcare
Corp. v. Sebelius, 723 F.3d 292, 297 (D.C. Cir. 2013) (“We read the statute‟s directive,
that „[t]here shall be no administrative or judicial review . . . ,‟ as clearly precluding our
review.”).
Balko‟s attempts to escape the operation of this jurisdictional bar are unavailing.
First, Balko refers to legislative history but those references are irrelevant given that the
statutory language is unambiguous. See In re Phila. Newspapers, 599 F.3d 298, 304 (3d
Cir. 2010) (“Where the statutory language is unambiguous, the court should not consider
statutory purpose or legislative history.”).4 Second, Balko argues that a determination
that there had been a high level of payment error in this case is reviewable because Balko
4
Further undermining Balko‟s argument is the circumstance that the “legislative history”
to which it cites is a statement from a witness who was not a member of Congress. Such
statements are not entitled to any weight in statutory interpretation. See Circuit City
Stores, Inc. v. Adams, 532 U.S. 105, 120, 121 S. Ct. 1302, 1311 (2001).
10
challenges the procedures used in arriving at the determination rather than the merits of
the determination itself. But we reject that argument because the statute precludes
judicial and administrative review without the qualification that Balko advances.
B. Substantial Evidence Supports MAC‟s Decision
Although Balko challenges MAC‟s reading of the record on two grounds with
respect to the sufficiency of the evidence, neither is persuasive. First, Balko claims that
MAC unjustifiably “overturned” the ALJ‟s credibility determinations. Balko
misunderstands the review process in these proceedings. Although MAC is limited to
considering only the record before it, its review of the ALJ‟s findings is de novo and
MAC “is not obligated to defer to the outcomes of prior decisions below.” Almy v.
Sebelius, 679 F.3d 297, 310 (4th Cir. 2012), cert. denied, 133 S. Ct. 841 (2013); see also
42 U.S.C. § 1395ff(d)(2)(B) (“In reviewing a decision . . ., [MAC] shall review the case
de novo.”); 42 C.F.R. § 405.1110(d) (explaining that the MAC “may adopt, modify or
reverse the [ALJ‟s] decision, [or] may remand the case to an ALJ for further
proceedings”).5 Therefore even if the ALJ had made credibility findings, MAC
justifiably could have reached a different conclusion under its mandate to apply de novo
5
It is difficult to understand how MAC could have overturned the ALJ‟s credibility
findings because, contrary to what Balko believes, the ALJ did not base his result on
credibility findings. Though we recognize that two experts who testified were at odds at
the hearing before the ALJ regarding the validity of the statistical sampling and
extrapolation methodology, the ALJ based his decision on an evaluation of the record as
a whole, and not on either witness‟s credibility. Although Balko indicates in its brief that
“the ALJ‟s decision was based both on legal principles and on credibility
determinations,” appellant‟s br. at 5, arguably it later almost concedes the point that this
is not a witness credibility case, for it indicates that the ALJ “had to have implicitly
believed Dr. Cox instead of Ms. Bendinsky,” id. at 41, but does so without identifying
specific credibility findings.
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review. Indeed, inasmuch as we are concerned on this appeal, as was the District Court,
with a review of MAC‟s decision, we do not review the ALJ‟s findings, and Balko‟s
arguments addressing those findings are irrelevant. See International Rehab. Scis. Inc. v.
Sebelius, 688 F.3d 994, 1001-02 (9th Cir. 2012) (confining appellate review to whether
“the agency decision on direct review” is supported by substantial evidence, not to
compare that “decision with other agency decisions not on review”).
Second, Balko contends that the MAC ruling was flawed because it did not
identify or cite to specific record evidence to support its conclusion that the sampling and
extrapolation were valid. Contrary to Balko‟s assertion, however, MAC‟s decision is
well-reasoned and well-supported by citations to the administrative record, which MAC
reviewed in its entirety. Thus, MAC explained that it “reviewed the record that was
before the ALJ, including [Balko‟s] submissions.” JA-ADD-77. Further, because
SafeGuard complied with applicable Medicare rulings and the MPIM, Balko bore a
heavy burden of showing that the sample was statistically invalid, and not merely that
“another statistician might construct a different or more precise sample.” Id. at 93. MAC
concluded that Balko had failed to carry this burden, and Balko does not identify any
portion of the record which even hints that this conclusion was erroneous. MAC‟s
decision accordingly was supported by substantial evidence.
V. CONCLUSION
We conclude that 42 U.S.C. § 1395ddd(f)(3) precludes any judicial review of the
Secretary‟s determination that Balko had a high rate of payment error, and the remainder
12
of the MAC‟s opinion is supported by substantial evidence in the record. For these
reasons, we will affirm the District Court order of December 28, 2012.
13