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Cumberland County Hospital System, Inc. v. Burwell

United States District Court, E.D. North Carolina, Western Division

March 18, 2015

CUMBERLAND COUNTY HOSPITAL SYSTEM, INC., d/b/a CAPE FEAR VALLEY HEALTH SYSTEM, Plaintiff,
v.
SYLVIA M. BURWELL, in her official capacity as SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant.

ORDER

W. EARL BRITT, Senior District Judge.

Before the court is a motion to dismiss filed by defendant Sylvia M. Burwell, in her official capacity as Secretary of Health and Human Services ("defendant"). (DE #11.) Plaintiff Cumberland County Hospital System, Inc., d/b/a Cape Fear Valley Health System ("plaintiff") filed a response, (DE #12), to which defendant replied, (DE #20). Plaintiff additionally filed a surreply. (DE #23.) Fund for Access to Inpatient Rehabilitation filed an amicus curiae brief in support of plaintiff's opposition to defendant's motion. (DE #24.) This matter is ripe for disposition.

I. BACKGROUND

Plaintiff seeks a declaratory judgment and a writ of mandamus compelling defendant to resolve plaintiff's administrative appeals before the Office of Medicare Hearings and Appeals ("OMHA") within 90 days of the filing of such appeals. (Compl., DE #1, ¶¶ 64-74.) OMHA, an office of the United States Department of Health and Human Services ("HHS"), administers Medicare appeals hearings. (Id. ¶ 7.) In recent years, the number of Medicare appeals has skyrocketed, and OMHA is presently overwhelmed with an ever-growing backlog of appeals. (Id. ¶¶ 29-34.) Plaintiff, a healthcare provider in Cumberland County, North Carolina, has hundreds of appeals currently stagnating in the backlog. (Id. ¶¶ 11-12.)

A. The Medicare Appeals Process

To obtain reimbursement for rendering service to a Medicare beneficiary, healthcare providers must submit a claim to a Medicare Administrative Contractor ("MAC"). (Compl., DE #1, ¶ 20.) See also 42 U.S.C. § 1395ff(a). Claims that are initially paid by MACs may be subsequently audited by third-party government contractors who determine whether the payment was justified. (Compl., DE #1, ¶ 21.) One such contractor is known as a Recovery Audit Contractor ("RAC"). (Id.)

The Medicare statute establishes a four-tier process for appealing unfavorable Medicare claim determinations. If a claim is initially denied by a MAC or initially paid but later overturned by a RAC's post-payment review, the healthcare provider's first avenue for appeal is to resubmit the claim to the MAC for redetermination. 42 U.S.C. § 1395ff(a)(3)(A). If unsuccessful at this first level of review, a provider can appeal the MAC's decision to a Qualified Independent Contractor ("QIC"), id. § 1395ff(c)(1), who must issue a decision within sixty days from the time the appeal is filed, id. § 1395ff(c)(3)(C)(i). The first two stages of the appeals process are overseen by the Centers for Medicare and Medicaid Services ("CMS"). (Compl., DE #1, ¶ 18.)

If unsatisfied with the QIC's determination, a provider may proceed to the third level of the appeals process and request a hearing before an Administrative Law Judge ("ALJ"). 42 U.S.C. § 1395ff(d)(1)(A). The statute directs the ALJ to render a decision within 90 days from the time the appellant requests a hearing. Id. As noted above, OMHA oversees this third level of review. (Compl., DE #1, ¶ 18.) Lastly, a provider may appeal the ALJ's decision to the Department Appeals Board ("DAB")[1] which must either render a decision or remand the appeal to the ALJ for further proceedings within 90 days. 42 U.S.C. § 1395ff(d)(2)(A). Unlike the ALJ, the DAB is not required to conduct a hearing. 42 C.F.R. § 405.1108(a).

For the second through fourth levels of appeal, the Medicare statute allows a party to "escalate" an appeal to the next level of review if the relevant decision-maker fails to issue a decision within the applicable timeframe. If a QIC does not render a decision within 60 days from the date a request for reconsideration was filed, a party can escalate the appeal to an ALJ. 42 U.S.C. § 1395ff(c)(3)(C)(ii). Likewise, a party may bypass the ALJ and escalate the appeal to the DAB if the ALJ does not act within 90 days. Id. § 1395ff(d)(3)(A). Finally, if the DAB fails to review the ALJ's determination within 90 days, a party may seek judicial review. Id. § 1395ff(d)(3)(B). On an appeal escalated past the ALJ stage, the DAB has 180 days to render a decision before a party can seek judicial review. 42 C.F.R. § 405.1100(d).

B. The Current Backlog

Plaintiff focuses its complaint on the delays at the third level - the "ALJ stage" - of the appeals process. Undoubtedly, OMHA faces a staggering backload of appeals. Plaintiff states that "[i]n just two years (2012 and 2013), the backlog of ALJ-level appeals quintupled, from 92, 000 to 460, 000 pending claims." (Compl., DE #1, ¶ 29 (emphasis in original).) Defendant concedes that "[t]he magnitude of the increase to OMHA's workload far exceeds the ALJs' ability to keep up with the surge of incoming appeals." (DE #11-1, at 7.) For example, in fiscal year 2013, ALJs decided only 79, 372 out of 384, 151 filed appeals. (DE #12-2, at 9.) In fiscal year 2014, the average processing time for an appeal at the ALJ stage was 414.8 days. Id. at 16.

In December 2013, Nancy Griswold ("Griswold"), OMHA's Chief ALJ, informed Medicare appellants that the "average wait time for a hearing before an [ALJ] has risen to 16 months and is expected to continue to increase...." (Griswold Mem., DE #11-4, at 1.) She further stated that OMHA would temporarily suspend assignment of most new requests for hearings and "[did] not expect general assignments to resume for at least 24 months...." (Id.) Plaintiff contends that the situation has further deteriorated, and as of February 2014, 480, 000 appeals were pending assignment to an ALJ. (Compl., DE #1, ¶ 33.) Plaintiff states that the DAB is also experiencing backlogs which make timely decisions at that stage of appeal unlikely. (Id. ¶¶ 35-37.)

Plaintiff lays the blame for the extraordinary backlog at the feet of "overzealous" RAC auditors who "in recent years have become increasingly aggressive." (Id. ¶¶ 3, 8.) The government compensates RACs based on the value of improper Medicare payments they recover. (Id. ¶ 22.) Plaintiff argues that this perversely incentivizes RACs to overturn initial MAC payment decisions. (Id.) It cites data showing that appealed RAC denials are overturned by ALJ's at a rate of 72%. (Id. ¶ 24.) Plaintiff states that RACs are particularly motivated to overturn initial MAC decisions "for more expensive services, such as inpatient rehabilitative care, " which result in greater compensation. (Id. ¶ 22.)

Plaintiff suggests that RACs have singled out its inpatient rehabilitation facility ("IRF") for especially aggressive auditing. (Id. ¶¶ 51-53.) RACs have audited 1, 169 claims from plaintiff's IRF and have reversed payment in 940 of them. (Id. ¶ 53.) After unsuccessfully appealing the RACs' reversals at the first two levels of review, plaintiff returned $12.3 million to CMS. (Id. ¶¶ 57-62.) Plaintiff now complains that those funds - which "approximate[] one year's revenue for the [IRF]" - are stuck in an appeals process that offers no meaningful prospect for recoupment. (Id. ¶¶ 13, 62.) It alleges that defendant has violated a statutory duty to provide it a hearing in front of an ALJ within 90 days of filing its appeals. (Id. ¶ 13.) Plaintiff urges this court to intervene and compel defendant to process its appeals in accordance with the timeline Congress established. (Id. ¶¶ 64-70.)

II. LEGAL STANDARD

Defendant moves to dismiss plaintiff's mandamus claim pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction. (DE #11-1, at 2-3.) In response to a 12(b)(1) motion, the plaintiff bears the burden of showing that federal jurisdiction is appropriate. Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999) (citation omitted). A district court should allow a Rule 12(b)(1) motion to dismiss "only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law." Id. When ruling on a 12(b)(1) motion, the "court is to regard the pleadings as mere evidence on the issue, and may consider evidence outside the pleadings...." Id. (internal quotation omitted).

Defendant also moves, pursuant to Rule 12(b)(6), to dismiss plaintiff's declaratory judgment claim. (DE #11-1, at 3.) This rule permits a court to dismiss an action for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). To state a claim, a complaint need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). A 12(b)(6) motion should only be granted if "it appears certain that the plaintiff cannot prove ...


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