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CHAVES CTY. HOME HEALTH SERVS. v. SULLIVAN

February 12, 1990

CHAVES COUNTY HOME HEALTH SERVICES, INC., et al., Plaintiffs,
v.
LOUIS W. SULLIVAN, Secretary, Department of Health and Human Services, Defendant



The opinion of the court was delivered by: JACKSON

 THOMAS PENFIELD JACKSON, UNITED STATES DISTRICT JUDGE.

 Plaintiffs are home health care providers who render medical and related services to Medicare-eligible patients pursuant to agreements with defendant U.S. Department of Health and Human Services ("HHS"). HHS then pays them the reasonable cost of such of those services as are covered by the Medicare Act, 42 U.S.C. §§ 1395 et seq. ("the Act"). *fn1"

 Plaintiffs' claims for their services are processed and paid initially by a fiscal intermediary (usually an insurance carrier), but plaintiffs are (as are all such providers) liable to the government for reimbursement of payments later found by the intermediary or HHS on post-payment review to have been made for non-covered services. See, generally, Mount Sinai Hospital v. Weinberger, 517 F.2d 329, 338 (5th Cir.), reh'g denied en banc with opinion, 522 F.2d 179 (5th Cir. 1975) (holding that provider may look to patient as source of payment), cert. denied, 425 U.S. 935, 96 S. Ct. 1665, 48 L. Ed. 2d 176 (1976).

 In this case, HHS made redeterminations with respect to 1,261 claims submitted by and paid to plaintiff Chaves County Home Health Services, Inc., ("Chaves County"), 2,460 paid claims of plaintiff Albuquerque Visiting Nurse Services, Inc., ("Albuquerque VNS") and 10,791 paid claims submitted by plaintiff Bayonne Visiting Nurse Association, Inc. ("Bayonne VNA"). It did so, however, relying entirely upon a review of ostensibly representative samples of 200 claims in the case of Chaves County, 200 claims in the Albuquerque VNS case, and 320 claims in the Bayonne VNA case. Having determined that a certain proportion of each sample reflected payments for non-covered services, HHS demanded repayment of $ 46,900 from Chaves County, $ 138,100 from Albuquerque VNS, and $ 1.5 million from Bayonne VNA. When the repayments were not forthcoming, HHS withheld reimbursement to plaintiffs on subsequent claims by way of offset.

 Plaintiffs allege that the use of the statistical sampling method to calculate amounts of overpayment, by which a fraction of the claims submitted by a particular provider is reviewed, and the result projected to the universe of the whole without individual review of each claim, is illegal. They contend that the method operates to deny them due process under the Fifth Amendment; that it is contrary to the terms of the Medicare Act; and that it implements a governmental policy which is not only arbitrary and capricious, but was adopted without the notice-and-comment formalities made obligatory in the case of certain agency rule-makings by the Administrative Procedure Act, 5 U.S.C. § 553 ("APA").

 HHS responds by defending the legality and the mathematical validity of the sampling method, insisting that the logistical impossibility of affording an individual review to every Medicare claim submitted justifies its use as a matter of manifest necessity. It also contends that the Court is without jurisdiction to entertain the case, because the plaintiffs have not fully exhausted all possibilities of administrative relief within HHS. *fn2"

 The case is now before the Court on defendant's motion to dismiss or for summary judgment and plaintiffs' cross-motion for summary judgment. Although the case has been fully -- indeed, fulsomely -- briefed and argued for many months, the Court has delayed decision in hopes that further guidance might be forthcoming from the U.S. Supreme Court or a circuit court of appeals. No such guidance has materialized, however, and it is necessary that the case be decided now on the basis of such scant authority as is extant.

 The clear majority of those few courts having confronted statistical sampling in analogous contexts, while acknowledging its potential for unfairness in the abstract in particular cases, have nevertheless approved its use, primarily as a logistical imperative but also upon the hypothesis that any arbitrariness evens out in the long run. *fn3" In what appears to be the only federal appellate case on the subject, the Seventh Circuit upheld statistical sampling in Illinois Physicians Union v. Miller, 675 F.2d 151 (7th Cir. 1982), as a means to audit physicians receiving reimbursement for medical services provided under the Medicaid program. The court first considered whether the results of its use were arbitrary:

 
We find nothing in this procedure, however, to suggest that extrapolation inherently works to the detriment of the physician. Sampling and extrapolation is no more likely to result in a situation where the physician will be required to return monies when there has been no overpayment than in a situation where the Department will not recoup the full amount overpaid. The audit procedures are not arbitrary, capricious or invidiously discriminatory.

 Id. at 156. The court then went on to consider the physicians' due process argument:

 
There is no merit to [appellant's] contention that the Department procedures do not comport with due process. The process due varies with the circumstances and various factors must be considered when evaluation administrative procedures. These factors are: (1) the private interest affected by the official action; (2) the risk of an erroneous deprivation of that interest; and (3) the governmental interest, including the function involved and the fiscal and administrative burdens that other procedures would entail.
 
We agree with [appellant] that she had a substantial interest in receiving her full statutorily allotted compensation for services actually rendered. However, in balancing the interests of the parties, the balance is heavily weighed in favor of the Department. The Department processes an enormous number of claims and must adopt realistic and practical auditing procedures. We agree with the district court's conclusion that, in view of the ...

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