Medicare Claims Appeals: D.C. Circuit Reverses and Remands in Case Seeking Relief From Processing Delays

On August 11, 2017, the D.C. Circuit reversed the district court and held that the district court abused its discretion by ordering the Secretary of HHS to clear the backlog of administrative appeals of denied Medicare reimbursement claims within four years, because it failed to seriously test the Secretary’s assertion that this result was impossible. The underlying action demanded relief to address the Secretary’s inability to keep up with “an unexpected and dramatic uptick in appeals [that] produced a jam in the process” starting in fiscal year 2011.

In the initial proceedings, a group of hospitals sought a judicial order compelling the Secretary to provide relief from what they considered to be unreasonable delays in resolving Medicare claims appeals at the administrative appeals level.  The federal district court for the District of Columbia granted the Secretary’s motion to dismiss for lack of jurisdiction, but the D.C. Circuit reversed. The Circuit Court remanded the case back to the district court, with instructions to consider the merits of appeal, i.e., whether relief should be granted and if so the form of the relief.

The Four-Year Plan to Reduce the Backlog

In addressing the merits of plaintiffs’ allegations on remand, the district court adopted the hospitals’ so-called four-year plan and ordered the Secretary to reduce the current backlog of cases pending at the Administrative Law Judge level by 30% by the end of 2017; 60% by the end of  2018; 90% by the end of 2019; and 100% by the end of 2020.  The Secretary then appealed the district court’s order to the D.C. Circuit.  On appeal the Secretary argued that it would be impossible to comply with the timetable, because the only means of meeting the timetable would be to pay claims through mass settlements regardless of their merits, which (according to the Secretary) would be in violation of the Medicare statute.

Without finding whether in fact the Secretary would be unable to lawfully comply with the district court’s order, the D.C. Circuit held that because the Secretary represented that lawful compliance with the district court’s order was impossible, the district court committed reversible error by ordering the Secretary to comply with the timetable without first finding that lawful compliance was indeed possible. The Circuit Court also held that it was an error for the district court not to evaluate the Secretary’s assertion that the timetable would increase, not decrease, the number of backlogged appeals, because the timetable would generate an incentive for claimants to file additional appeals and hold out for big payouts.

The Case is Remanded to District Court to Determine Feasibility of Compliance Timetable

The D.C. Circuit therefore remanded the case again to the district court and ordered the district court to determine whether the Secretary’s compliance with the timetable is impossible. However, the Circuit Court noted that the Secretary will bears a “heavy burden to demonstrate the existence of an impossibility.” The Court further noted that if the district court finds on remand that the Secretary failed to carry his burden of demonstrating impossibility, it could potentially reissue its order without modification.

What Does this Decision Mean for Hospitals?

Many Medicare coverage appeals involve a hospital appealing the denial of a short stay on the basis that admission was not medically necessary, and that the patient could be treated as an outpatient. However, because CMS does not allow hospitals to rebill under Part B (except during the one year period following discharge, which in the majority of cases will have expired long before the RAC reopens and denies the inpatient claim), hospitals  believe that they have no choice but to appeal. It is important to keep in mind that although the D.C. Circuit faulted the district court for not considering the issue of whether the Secretary could legally comply with the prescribed timetable, the fact that the Secretary will bear the burden of proof on this issue may mean that the district court may end up issuing the same type of relief as it did before.

We will be following this case as the district court determines whether the Secretary’s compliance with the timetable is legally possible and will follow up once a decision is rendered.