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Gentiva Healthcare Corp., D/B/A Heritage Home Health v. Katheleen Sebelius

April 6, 2012

GENTIVA HEALTHCARE CORP., D/B/A HERITAGE HOME HEALTH, PLAINTIFF,
v.
KATHELEEN SEBELIUS, SECRETARY, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT.



The opinion of the court was delivered by: James E. Boasberg United States District Judge

MEMORANDUM OPINION

Plaintiff Gentiva Healthcare Corporation provides home health services to beneficiaries under the Medicare program, which reimburses providers like Gentiva. Operating under a contract with Defendant Kathleen Sebelius, the Secretary of the U.S. Department of Health and Human Services, a Medicare contractor in 2007 undertook a review of a subset of Gentiva's claims for such reimbursement. Finding a "sustained or high level of payment error" among Gentiva's claims, the contractor proceeded to calculate Medicare's total overpayment to Gentiva by extrapolating from a sample of 30 claims to the universe of 1,951 claims. After determining that 26 of the 30 claims in the sample had been overpaid, the contractor extrapolated that 85.64% error rate across the total number of claims and sought to recoup from Gentiva the sum of $4,242,452.10 in Medicare overpayments.

Gentiva sought administrative review of the overpayment assessment and eventually succeeded in overturning the contractor's overpayment determination with respect to most of the claims in the sample. The total amount Gentiva owed was correspondingly diminished to approximately $850,000. The Secretary, however, upheld the contractor's finding of a "sustained or high level of payment error" and subsequent use of extrapolation.

In this suit Gentiva claims that the Secretary's decision upholding the contractor's use of extrapolation to calculate its overpayment amount was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" in violation of the Administrative Procedure Act and the Medicare statute. Specifically, Gentiva argues that the Secretary, not a Medicare contractor, must make the "sustained or high level of payment error" determination before a contractor can use extrapolation to calculate a provider's overpayment amount. In the alternative, Gentiva challenges the merits of the contractor's determination that a "sustained or high level of payment error" was present.

Both parties now seek summary judgment. Because the Medicare statute contains a broad authorization for the Secretary to delegate her responsibilities to contractors and in light of the deference to which agencies' interpretations of their own statutes are entitled, the Court finds that the Secretary's determination that a contractor may make the "sustained or high level of payment error" determination was neither arbitrary and capricious nor contrary to law. Furthermore, because Congress expressly precluded judicial review of "sustained or high level of payment error" determinations, the Court lacks jurisdiction to consider Gentiva's challenge to the contractor's finding that such a level of payment error existed here. The Court will thus grant Defendant's Motion for Summary Judgment and deny Plaintiff's.

I.Background

A. Regulatory Framework

Established in 1965 by Title XVIII of the Social Security Act, the Medicare program provides federally subsidized health insurance for elderly and disabled individuals. See 42 U.S.C. § 1395 et seq. The program reimburses participating providers of medical services, including home health services, for the reasonable, actual costs of services rendered to Medicare beneficiaries. See id. § 1395f(b)(1). The Centers for Medicare & Medicaid Services (CMS), a component of HHS, is charged with administering the Medicare program on the Secretary's behalf.

Private entities have long played a role in the administration of Medicare. See, e.g., id. § 1395h(a) (authorizing Medicare contractors, referred to as "intermediaries," to perform processing and payment functions for Part A); id., § 1395u(a) (authorizing contractors, referred to as "carriers," to perform processing and payment functions for Part B); see also 42 C.F.R. 421 et seq. Indeed, Congress has provided the Secretary with the broad authority to "perform any of [her] functions under [the Medicare statute] directly, or by contract . . . as [she] may deem necessary." 42 U.S.C. § 1395kk(a); see also Nat'l Ass'n of Home Health Agencies v. Schweiker, 690 F.2d 932, 943 (D.C. Cir. 1982) (interpreting § 1395kk(a) as "authoriz[ing] the Secretary to perform any of his Medicare functions, including his reimbursement functions, either directly or indirectly").

In 1996 Congress created the Medicare Integrity Program (MIP), pursuant to which the Secretary was required to "promote the integrity of the Medicare program" by engaging contractors to perform a variety of activities aimed at reducing overpayment and fraud. See Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, §§ 201-02, 110 Stat. 1936, 1994-96 (Aug. 21, 1996), codified at 42 U.S.C. §§ 1395i(k)(4), 1395ddd. Congress expanded and amended the MIP when it passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub L. No. 108-173, §§ 911, 935, 117 Stat. 2066, 2409 (Dec. 8, 2003), codified at 42 U.S.C §§ 1395kk-1, 1395ddd(f). Consistent with this initiative, Medicare contractors are empowered to identify instances in which the program overpaid a provider and to recoup any such overpayments on the Secretary's behalf. See generally 42 U.S.C. § 1395ddd.

Congress, however, imposed a limit on contractors' ability to estimate overpayment amounts by extrapolating from a sample of relevant claims (as opposed to evaluating each and every claim individually). Specifically -- and this is the language in dispute here -- the statute provides that "[a] medicare contractor may not use extrapolation to determine overpayment amounts . . . unless the Secretary determines that . . . there is a sustained or high level of payment error . . . or . . . documented educational intervention has failed to correct the payment error."

Id., § 1395ddd(f)(3). Congress further specified that there would be "no administrative or judicial review . . . of determinations by the Secretary of sustained or high levels of payment errors" in this context. Id.

The Secretary promulgated regulations implementing this statutory provision, see 42 C.F.R. § 405.926(p), and also addressed it in the Medicare Integrity Program Manual. See Pub. 1008-08, Trans. 114 (June 10, 2005), available at www.cms.hhs.gov/transmittals/downloads/ R114PI.pdf. While the regulation merely classifies "[d]eterminations by the Secretary of sustained or high levels of payment errors" as an "[a]ction that [is] not [an] initial determination[ ] and [is] not appealable," 42 C.F.R. § 405.926, in comments made during the notice-and-comment rulemaking process the Secretary stated that "Congress required contractors to identify a likelihood of sustained or high level of payment error." 74 Fed. Reg. 65296, 65303 (emphasis added). The Manual provides contractors with guidance concerning how the "sustained or high level of payment error" determination should be made. See Pub. 1008-08, Trans. 114 (June 10, 2005), Requirement No. 3734.2. Specifically, it provides that a contractor may use a "variety of means" to identify the requisite level of payment error, including, for example, sample probes, information from law-enforcement investigations, provider history, and allegations of wrongdoing by current or former employees. See id.

B. Factual and Procedural Background

Operating under the name Heritage Home Health, Gentiva provides home health services to Medicare beneficiaries in Salt Lake City, Utah. See Administrative Record (A.R.) at 57, 392. In January 2007, Cahaba Safeguard Administrators, LLC, operating under a contract with the Secretary pursuant to 42 U.S.C. § 1395ddd, initiated an onsite audit of Heritage Home Health. See id. at 5, 681. After reviewing claims for services provided between July 1, 2005, and November 30, 2006, Cahaba determined that 58% of those claims had been overpaid. See id. at 351, 682. Based on this 58% error-rate determination, Cahaba concluded that Gentiva's Salt Lake City location had a "sustained or high level of payment error" such that Cahaba was entitled to use extrapolation to calculate the total amount Gentiva had been over-reimbursed under § 1395ddd(f)(3). See id. at 351, 682.

Cahaba then proceeded to draw a sample of 30 claims from a universe of 1,951 claims for services rendered by Gentiva during a slightly different time period, November 1, 2005, through November 24, 2006. See A.R. at 3, 682. After reviewing these 30 claims individually, Cahaba determined that 26 of them had been overpaid -- an error rate of approximately 85.64%. See A.R. at 5435, 681-83. In a letter dated October 23, 2008, Cahaba notified Gentiva that, based on its extrapolation of the results of that initial sample to the 1,951 total claims, it would seek to recoup $4,242,452.10 in Medicare overpayments. See id. at 5, 336, 356, 681-83.

Believing that the overpayment assessment was erroneous, Gentiva then began what was to be an extensive appeals process. Consistent with Medicare regulations governing the appeals process, see 42 C.F.R. §§ 405.920, 405.924(b), 405.940-58, Gentiva first sought a redetermination from Cahaba and then sought reconsideration by another Medicare contractor. See A.R. at 467-71, 5348-49. As a result of these preliminary appeals, Cahaba's initial overpayment findings with respect to 10 of the allegedly overpaid claims were reversed. See id. at 467-71, 5348-49. With the number of overpaid claims reduced to 16 out of the sample of 30, the overpayment assessment was correspondingly reduced to $2,112,778. See id. at 467-71, 5349.

Gentiva then requested hearings before an administrative law judge on 10 of the remaining 16 claims, declining to pursue further appeals of the other 6 allegedly overpaid claims. See id. at 5, 529, 388-406. The ALJ ultimately issued ten separate but substantively similar decisions that reversed Cahaba's overpayment determination for all 10 claims on the ground that the services for which Medicare had reimbursed Gentiva had in fact been reasonable and necessary. See id. at 3, 55-75. The ALJ, however, upheld Cahaba's use of sampling and extrapolation. See id. at 3, 20-21, 70-71, 74. The effect of the ALJ's decisions, therefore, was to further reduce the number of overpaid claims in the sample of 30 from 16 to 6 -- the only remaining overpaid claims being those 6 that Gentiva declined to bring to the ALJ's attention -- and, by extrapolation, the amount owed from $2,112,778 to approximately $850,000. See Compl., ¶ 23.

Gentiva appealed each of the ALJ's ten decisions to the Medicare Appeals Council (MAC) of the Departmental Appeals Board. See A.R. at 49-51, 4-5. As the ALJ had found in its favor with respect to each of the overpayment determinations at issue, Gentiva challenged only the portion of her decisions that upheld Cahaba's use of sampling and extrapolation. See id. at 4-5, 21, 24-27, 49-51. Relying on 42 U.S.C. § 1395ddd(f)(3), Gentiva argued that the Secretary -- not Cahaba, a contractor -- was required to identify a "sustained or high level of payment error" before Cahaba was entitled to proceed by extrapolation. See id. at 24-27; 42 U.S.C. § 1395 ddd(f)(3) ("A Medicare contractor may not use extrapolation . . . unless the Secretary determines that . . . there is a sustained or high level of payment error . . . .").

On January 27, 2011, the MAC issued its decision, concluding that Medicare contractors are permitted to make the predicate "sustained or high level of payment error" determination under 42 U.S.C. § 1395ddd(f)(3). See A.R. at 7-8. Cahaba, accordingly, had been entitled to determine Gentiva's overpayment amount by extrapolating from a sample of claims after it had determined that a high level of payment error existed. See id. The MAC's opinion constituted the "final decision" of the Secretary. See 42 C.F.R. § 405.1130.

Seeking review of the MAC's judgment, Gentiva filed a Complaint initiating the instant suit on February 25, 2011. Gentiva first contends that the MAC's decision that Medicare contractors like Cahaba may make the "sustained or high level of payment error" determination is arbitrary and capricious and contrary to 42 U.S.C. § 1395ddd(f)(3). See Compl., ¶¶ 27-28. In the alternative, Gentiva maintains that the MAC acted arbitrarily, capriciously, and without substantial evidentiary support by upholding Cahaba's determination that Gentiva had exhibited a sustained or high level of payment error despite the fact that only 6 of the 30 claims in the sample were ultimately found to have been overpaid. See id., ¶¶ 29-30. In addition, Gentiva seeks a writ of mandamus "requiring the Secretary to order her contractors to make a corrected overpayment determination based solely on the unfavorable determinations in the six claims in the 30-claim sample, without any extrapolation." Id., ¶ 32. Parties have now filed Cross-Motions for Summary Judgment.

II.Legal Standard

Summary judgment may be granted if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Holcomb v. Powell, 433 F.3d 889, 895 (D.C. Cir. 2006). A fact is "material" if it is capable of affecting the substantive outcome of the litigation. Holcomb, 433 F.3d at 895; Liberty Lobby, Inc., 477 U.S. at 248. A dispute is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. See Scott v. Harris, 550 U.S. 372, 380 (2007); Liberty Lobby, Inc., 477 U.S. at 248; Holcomb, 433 F.3d at 895.

Although styled Motions for Summary Judgment, the pleadings in this case more accurately seek the Court's review of an administrative decision. The standard set forth in Rule 56(c), therefore, does not apply because of the limited role of a court in reviewing the administrative record. See Sierra Club v. Mainella, 459 F. Supp. 2d 76, 89-90 (D.D.C. 2006) (citing National Wilderness Inst. v. United States Army Corps of Eng'rs, 2005 WL 691775, at *7 (D.D.C. 2005); Fund for Animals v. Babbitt, 903 F. Supp. 96, 105 (D.D.C. 1995), amended on other grounds, 967 F. Supp. 6 (D.D.C. 1997)). "[T]he function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did." Id. (internal citations omitted). Summary judgment thus serves as the mechanism for deciding, as a matter of law, whether the agency action is supported by the ...


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