Andrew Ivanchenko, M.D., P.C. et al v. Burwell

Filing 20

MEMORANDUM Opinion and Order signed by the Honorable Virginia M. Kendall on 11/30/2016. Civil case terminated. Mailed notice(lk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
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ANDREW IVANCHENKO, M.D., P.C., an
Illinois corporation, and ANDREW
IVANCHENKO, M.D., individually
Plaintiffs,
v.
SYLVIA MATHEWS BURWELL,
Secretary of Health and Human Services, and
ANDREW SLAVITT, Acting Administrator
for the Centers for Medicare and Medicaid
Services,
Defendants.

No. 16 C 9056
Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER
Plaintiffs, a suburban Chicago doctor and his medical practice, sued the Secretary of the
Department of Health and Human Services (HHS) and the Acting Administrator for the Centers
for Medicare & Medicaid Services (CMS) seeking: (1) a preliminary injunction1 enjoining the
agency from recouping approximately $14,000 in Medicare funds per week while they await a de
novo hearing by an Administrative Law Judge (ALJ) into Plaintiffs’ alleged overbillings; and (2)
a writ of mandamus ordering the Secretary to ensure that Plaintiffs and other healthcare
providers receive such a decision by an ALJ within the 90-day time frame outlined in the
Medicare Act. (Dkt. 1 at 12.) Defendants have moved to dismiss the suit pursuant to Rule
12(b)(1), arguing that the Court lacks subject-matter jurisdiction to consider Plaintiffs’ plea for

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In addition to their original request for a preliminary injunction and a writ of mandamus, Plaintiffs also sought a
temporary restraining order. After the parties agreed to a temporary reduction in the amount of funds that would be
recouped by the agency, however, the Court granted Plaintiffs’ oral motion to withdraw their motion for a TRO.
(Dkt. 16.)

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relief because they have failed to exhaust their administrative remedies.

For the reasons

discussed herein, Plaintiffs’ complaint [1] is dismissed.
FACTUAL ALLEGATIONS
In evaluating a motion filed pursuant to Rule 12(b)(1), the Court must “accept as true all
well-pleaded factual allegations and draw all reasonable inferences in favor of the plaintiff.”
Evers v. Astrue, 536 F.3d 651, 656 (7th Cir. 2008) (citation omitted).

Plaintiff Andrew

Ivanchenko, a physician, has operated a medical clinic providing pain relief services in
Chicago’s suburbs for over 10 years. (Dkt. 1 ¶ 12.) Over 40% of his practice’s income
(approximately $14,000 per week) is derived from the treatment of Medicare Part B patients.
(Id. ¶ 15.) Without the revenue received from treating Medicare patients, Ivanchenko’s practice
cannot remain in operation. (Id. ¶ 16.)
In September 2013, CMS retained Cahaba Safeguard Administrators, LLC (Cahaba), a
Medicare contractor, to perform an audit of Plaintiffs’ Medicare billings.

(Dkt. 1 ¶ 18.)

Cahaba’s review of Plaintiffs’ Medicare billing was routine and not prompted by any allegations
of wrongdoing. (Id.) Cahaba, which was paid on a contingent basis,2 audited 30 patient files and
determined that all of the claims included overbillings and should have been denied. (Id. ¶¶ 1920.) Cahaba then extrapolated the 100% overbilling rate from the sample of patient files it
reviewed to all of Plaintiffs’ Medicare billings between January 2010 and August 2013, and
determined that Plaintiffs should repay HHS $2,794,380.84. (Id.) Plaintiffs submitted a firstlevel administrative appeal – a redetermination of the overbilling by the contractor, which was
denied.

(Id. ¶ 22.)

Plaintiffs then filed a timely second-level administrative appeal for

reconsideration, which was considered by a different contractor, which upheld the initial findings
of overbillings but resulted in the application of a different recoupment formula and a slightly

2

In their Reply, Defendants dispute that Cahaba was paid on a contingent basis. (See Dkt. 18 at 5, n.2.)

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lower repayment amount.

(Id. ¶¶ 23-24.)

Following the denial of the second-level

administrative appeal, HHS informed Plaintiffs that it would start recouping the overpayments
by withholding approximately $14,000 per week in Medicare reimbursements from Plaintiffs.
(Id. ¶ 26.) Then, in June 2016, Plaintiffs’ timely filed their third-level administrative appeal,
seeking a de novo review of the overbilling determination by an HHS ALJ. (Id. ¶ 26.) Although
the Medicare Act details that ALJ decisions should be rendered within 90 days of receiving an
appeal, the Agency’s ALJs have been inundated with similar administrative appeals and the
Plaintiffs’ third-level administrative appeal will apparently not be heard for several years. (Id. ¶¶
8-10, 34.) Because recoupment payments have already started, Plaintiffs assert that the medical
practice will close long before the administrative appeal will be heard, necessitating the
injunction halting the recoupment of approximately $14,000 per week. (Id. ¶¶ 30-31.) Plaintiffs
also request that the Court issue a writ of mandamus prohibiting Defendants from continuing to
operate an administrative scheme that deprives them and other providers of the opportunity to a
timely decision by an ALJ, and that the Court order the Defendants to take immediate action to
ensure that Plaintiffs and similarly situated providers receive decisions from an ALJ with 90 days
of receiving a request for a hearing. (Id. at 12.)
LEGAL STANDARD
Defendants assert that the Court lacks jurisdiction and must dismiss the suit pursuant to
Federal Rule of Civil Procedure 12(b)(1). “Motions to dismiss under Rule 12(b)(1) are meant to
test the sufficiency of the complaint, not to decide the merits of the case.” Ctr. for Dermatology
& Skin Cancer, Ltd. v. Burwell, 770 F.3d 586, 588 (7th Cir. 2014). “In all cases, the party
asserting federal jurisdiction has the burden of proof to show that jurisdiction is proper.”

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Travelers Prop. Cas. v. Good, 689 F.3d 714, 722 (7th Cir. 2012) (citing McNutt v. Gen. Motors
Acceptance Corp., 289 U.S. 178, 189 (1936)).
DISCUSSION
Medicare, a federal health insurance program for the elderly and disabled, processes over
a billion claims for payment each year. Due to the volume of claims, Medicare claims are often
paid up front, and sometime later, Medicare contractors may conduct post-payment audits to
ensure payments were made in compliance with Medicare’s payment criteria. If the audit
determines that Medicare overpaid a provider for some reason, the money is recouped from
subsequent payments paid to the provider.
The Medicare Act establishes a four-level administrative appeals process for providers
and beneficiaries to challenge adverse initial determinations made by the contractors. 42 U.S.C.
§ 1395ff. After receiving an initial adverse determination, a healthcare provider can file their
first level administrative appeal before the Medicare Administrative Contractor, which is
typically the contractor that made the initial determination.

42 U.S.C. § 1395ff(a)(3).

If

unsatisfied with the redetermination, the provider can file a second-level administrative appeal,
the “reconsideration.” Reconsiderations are conducted by Qualified Independent Contractors
(QIC)—contractors that did not take part in the initial determination. Id. § 1395ff(c). If the
healthcare provider wishes to appeal the reconsideration, it may submit a third-level
administrative appeal—a de novo review and hearing by an ALJ. Id. § 1395ff(b)(1)(E)(i),
(b)(1)(E)(iii), (d)(1)(A).

The Medicare Act directs the agency to conduct and render ALJ

decisions within 90 days of the request for a hearing. Id. § 1395ff(d)(1)(A). The fourth and final
administrative level of Medicare appeals is another de novo review by the Departmental Appeals
Board (DAB), which can also conduct hearings. Id. § 1395ff(d)(2). The Act stipulates that the

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DAB should render a final decision or remand the case to the ALJ for reconsideration within 90
days of the request for appeal, or 180 days in cases where there was no ALJ decision and the
case was escalated to the DAB. 42 C.F.R. § 405.1100. Finally, after completing this four-level
administrative appeal process, healthcare providers may seek judicial review. 42 U.S.C. §
1395ff(b)(1)(E)(i), (b)(1)(E)(iii); 42 C.F.R. § 405.1006(c).
The Medicare Act also provides for “consequences of failure to meet” several of the
administrative appeal deadlines, by allowing claimants to escalate their appeal to the next level
of the administrative appeals process if the relevant reviewing body does not comply with the
time frame set forth in the Act. For instance, if the ALJ fails to render a decision within 90 days
of the request for an appeal, the claimant may escalate its appeal to the fourth-level DAB appeal.
42 U.S.C. § 1395ff(d)(3)(A). Similarly, if the DAB does not render a timely decision, the
claimant may escalate its appeal to the district court. Id. § 1395ff(d)(3)(B). The Act precludes
claimants from filing actions in district court until they have received a final decision from the
DAB or escalated their appeal after not receiving a timely decision from the DAB. See Id. §
1385ff(d)(3)(B); 42 U.S.C. § 405(g)-(h); 42 C.F.R. § 405.1130.
I.

Preliminary Injunction

Plaintiffs seek a preliminary injunction on the basis that the Secretary’s delay in
rendering a timely ALJ decision violates the Medicare Act and the Due Process Clause of the
Fifth Amendment. While the Court sympathizes with Plaintiffs’ plight, the Court lacks subjectmatter jurisdiction to consider their request for injunctive relief because they have failed to
exhaust their administrative remedies. “Judicial review of claims arising under the Medicare
Act is available only after the Secretary renders a ‘final decision’ on the claim.” Heckler v.
Ringer, 466 U.S. 602, 605 (1984) (emphasis added); 42 U.S.C. §§ 405(g)(h). This means that

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parties whose claims “arise under” the Medicare Act can seek judicial review only after
exhausting the full four-step administrative review process, or escalating their claims after the
statutory periods for review have elapsed because “Title 42 U.S.C. § 405(h), to the exclusion of
28 U.S.C. § 1331 (federal-question jurisdiction), makes § 405(g) the sole avenue for judicial
review of all “claim[s] arising under” the Medicare Act.” Id. at 2013-15; see also Michael Reese
Hosp. & Med. Ctr. v. Thompson, 427 F.3d 436, 440 (7th Cir. 2005) (“Section 405(h) precludes
federal question jurisdiction unless the Medicare program’s administrative review process has
been exhausted.”).
The Medicare Act’s “exhaustion requirement serves an important purpose, preventing the
premature interference with agency processes so that the agency can function efficiently and can
correct its own errors, as well as affording the parties and the courts the benefit of the agency’s
experience and expertise and compiling a record which is adequate for judicial review.” Michael
Reese Hosp. & Med. Ctr., 427 F.3d at 441. The Supreme Court has held that the Medicare Act’s
administrative procedures are the sole remedy when an “individual seeks a monetary benefit
from the agency (say, a disability payment, or payment for some medical procedure), the agency
denies the benefit, and the individual challenges the lawfulness of that denial,” as is the case
here. Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 10 (2000). This “claims
channeling” function extends to constitutional challenges, including Plaintiffs’ due process
challenge and corresponding request for injunctive relief. 3 Id.
Plaintiffs do not dispute that their claims “arise under” the Medicare statute. See Ringer,
466 U.S. at 615; (Dkt. 1 ¶ 5.) Furthermore, there is no question that Plaintiffs have failed to
exhaust their administrative remedies. In fact, Plaintiffs concede that they have only completed

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In addition to alleging that the delay in receiving an administrative hearing violates the Medicare Act, Plaintiffs
also allege that it also violates the Due Process Clause of the Fifth Amendment.

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the first two administrative appeals in the four-level administrative appeals process. They have
not alleged that they have received a final decision from the DAB or escalated their appeal past
the ALJ or DAB appeals stages. Since they filed their request for an ALJ hearing in June, more
than 90 days have elapsed, entitling them to escalate their appeal to the fourth level of the
administrative appeals process – DAB review. If they escalated their administrative appeal to
the DAB and were not heard in another 180 days, they would then have statutory authority to
challenge the adverse determination in federal district court. Because they have not complied
with this process, the Court lacks jurisdiction to consider their plea for injunctive relief. As such,
they are obligated to follow the administrative process outlined in the Medicare Act.
The only opinion that Plaintiffs have cited in support of their jurisdictional argument
came from a district court in the Southern District of Georgia, which recently imposed a
temporary restraining order against the same defendants under similar circumstances.

See

Hospice Savannah, Inc. v. Burwell, No. 415CV00253JRHGRS, 2015 WL 8488432, at *1 (S.D.
Ga. Sept. 21, 2015) (imposing TRO against HHS from recouping $8.6 million in alleged
overbillings based on a review of 100 claims, where Plaintiff completed only two of the four
administrative appeals). Hospice Savannah, however, does not support the implementation of a
preliminary injunction here. First, the Hospice Savannah Court wholly failed to address the
jurisdictional issues that are in central to the current dispute. Second, the Hospice Savannah
Court was not bound by Seventh Circuit law that clearly deprives the Court of jurisdiction to
consider Plaintiffs’ requests.
II.

Mandamus Jurisdiction

In addition to their request for a preliminary injunction, Plaintiffs also seek a writ of
mandamus ordering the Secretary to ensure that Plaintiffs and other providers receive timely ALJ

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decisions.

(Dkt. 1 at 12.)

“Mandamus is a ‘drastic’ remedy that must be reserved for

‘extraordinary situations’ involving the performance of official acts or duties.” Cumberland Cty.
Hosp. Sys., Inc. v. Burwell, 816 F.3d 48, 52 (4th Cir. 2016) (citation omitted). District courts
have original jurisdiction over all actions “in the nature of mandamus to compel an officer or
employee of the United States or any agency thereof to perform a duty owed to the plaintiff.” 28
U.S.C.A. § 1361. “[T]he common-law writ of mandamus, as codified in 28 U.S.C. § 1361, is
intended to provide a remedy for a plaintiff only if he has exhausted all other avenues of relief
and only if the defendant owes him a clear nondiscretionary duty.” Heckler, 466 U.S. at 616.
(reversing circuit court’s determination that district court had jurisdiction over claim for benefits
because administrative appeals had not been exhausted, and also finding that exhaustion would
not be futile).

“If a plaintiff’s allegations survive Ringer’s jurisdictional threshold, three

elements must be met in order for the court to issue a writ: ‘(1) a clear right in the plaintiff to the
relief sought; (2) a plainly defined and peremptory duty on the part of the defendant to do the act
in question; (3) no other adequate remedy available.’” Ctr. for Dermatology & Skin Cancer,
Ltd., 770 F.3d at 589 (quotation omitted).
While the Supreme Court has not addressed whether mandamus relief is available at all
for claims under the Medicare Act, the Seventh Circuit has twice found that the Medicare Act’s
exhaustion requirements applied to and precluded subject-matter jurisdiction in similar requests
for mandamus relief. Heckler, 466 U.S. at 616. In fact, the Seventh Circuit has noted that
“controlling authority from the Supreme Court and this Circuit is airtight that a litigant may not
circumvent the administrative appeals process by seeking mandamus.” Ctr. for Dermatology &
Skin Cancer, Ltd., 770 F.3d at 590.

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One of the cases comprising this controlling and airtight authority is Michael Reese
Hospital and Medical Center v. Thompson. 427 F.3d at 436. There, the Seventh Circuit
affirmed the district court’s determination that it lacked subject-matter jurisdiction over a
hospital’s request for mandamus relief related to the withholding of Medicare repayments
because “exhaustion of administrative remedies is a prerequisite of subject matter jurisdiction
under both the federal question and mandamus theories, and Michael Reese failed to exhaust the
review process for its FY 1986-90 challenges.” Id. at 443.
In a more recent opinion, the Seventh Circuit found that that the district court lacked
subject-matter jurisdiction to consider an indicted doctor’s request for a writ of mandamus
compelling the Secretary to process claims submitted for reimbursement because the doctor had
failed to exhaust his administrative remedies. Ctr. for Dermatology & Skin Cancer, Ltd. 770
F.3d at 590 (“Dr. Kolbusz’s failure to exhaust Medicare’s administrative appeals process
precludes subject-matter jurisdiction of his mandamus action.”). In that case, the doctor filed
suit in federal court after proceeding to the third level in the administrative appeals process, like
the Plaintiffs here. Id. at 589. In an attempt to circumvent the exhaustion requirement, the
doctor argued that his claim was not for benefits, but rather a challenge to the procedures for
processing claims. Id. The Seventh Circuit rejected this argument because “the exhaustion
requirement is still applicable to procedural challenges,” and reiterated that “a litigant may not
circumvent the administrative appeals process by seeking mandamus.” Id. at 590. The Seventh
Circuit also noted that the only time it has issued a writ of mandamus under similar
circumstances was when a party had pursued all possible administrative appeals. Id. The doctor
went on to argue that he effectively exhausted his remedies because the statute required that the
underlying claims be paid within a certain amount of time. Id. The Seventh Circuit found that

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the payment deadline did not apply to claimants like the indicted doctor and noted in dicta that,
“[a]t some point the inaction of Congress or the Secretary may result in a due process violation
where the extraordinary remedy of mandamus is required to compel governmental action.” Id. at
591.
Plaintiffs argue that their circumstance is the one contemplated by Center for
Dermatology and Skin Cancer, Ltd. as appropriate for consideration for mandamus relief because
the Medicare Act requires ALJs to render decisions within 90 days. In support of their argument,
Plaintiffs point to a recent D.C. Circuit opinion, American Hospital Association v. Burwell. 812
F.3d 183, 187 (D.C. Cir. 2016) (AHA). There, an association of hospitals with a significant
amount of money tied up in the same administrative appeals process sought a writ of mandamus
to compel the Secretary to act within the time frames outlined by the statute. Id. at 185.
Applying an analytical framework not employed by the Seventh Circuit, the D.C. Circuit
reversed and remanded the district court’s dismissal of a request for a writ of mandamus for lack
of jurisdiction, and found that the Act’s deadlines for administrative review are mandatory and
that escalation does not provide an adequate remedy because the District Court’s review is
deferential, in comparison to an ALJ’s de novo review. Id. at 190-91.
Although the Court is sympathetic with Plaintiffs’ plight, their failure to exhaust their
administrative remedies precludes jurisdiction to consider their claims for mandamus relief.
First, controlling precedent from the Seventh Circuit has repeatedly and unequivocally found that
claimants in similar situations must exhaust their administrative remedies before proceeding to
district court. See Ctr. for Dermatology & Skin Cancer, Ltd., 770 F.3d at 586; Michael Reese
Hosp. & Med. Ctr., 427 F.3d at 436. Second, Plaintiffs’ failure to exhaust their administrative
remedies cannot be excused here, unlike the potential exception pondered in Center for

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Dermatology and Skin Cancer, Ltd., because the Plaintiffs have alternative administrative
avenues to resolve their claims, and the 90-day deadline for ALJs to render their decisions is not
mandatory. While in AHA, the D.C. Circuit found the deadlines for rendering administrative
appeal decisions to be mandatory, this Court is persuaded that they are not when examining the
comprehensive nature of the regulatory scheme as analyzed in the Fourth Circuit’s recent
opinion, Cumberland County Hospital System, Inc., 816 F.3d at 48. There, the Fourth Circuit
found that the Medicare Act does not guarantee an ALJ decision with 90 days but rather provides
a “comprehensive administrative process—which includes deadlines and consequences for
missed deadlines—that a healthcare provider must exhaust before ultimately obtaining review in
the United States District Court.” Id. at 50. By setting a 90-day deadline for ALJ decisions,
Congress encouraged “the process to proceed expeditiously,” but Congress also provided
claimants the opportunity to escalate their administrative appeals and thus “anticipated that the
90–day deadline might not be met and provided its chosen remedy. . . . Congress clearly did not
authorize healthcare providers to go to court at this stage of the administrative process.” Id. at 55
(affirming the dismissal of a request for mandamus relief by a hospital system seeking to
circumvent the administrative appeals process).
Additionally, AHA does not support the imposition of mandamus relief, as it distinguishes
between cases involving challenges to the implementation of the administrative appeals process
generally, and those that involve challenges to specific claims, like the Plaintiffs do here,4 where
relief would result in their claim “jump[ing] the line, functionally solving their delay problem at
the expense of other similarly situated applicants.” Id. at 192. In these cases, the nature of their
claims “foreclose the possibility of mandamus relief for such plaintiffs.” Id.

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Plaintiff requests that the Court order the Secretary . . . to take immediate action to ensure that plaintiff and
providers receive decisions from an ALJ on their appeals within 90 days of the receipt of a timely filing of a request
for hearing. (Dkt. 1 at 12.)

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Even if the Court were to assume jurisdiction over Plaintiffs’ request for mandamus
relief, the extreme remedy of mandamus is not appropriate because Plaintiffs “clearly have an
adequate remedy in § 405(g) for challenging all aspects of the” overbilling determination
through their option to escalate their claims. Heckler, 466 U.S. at 616. As discussed above, the
Medicare Act not only provides a four-level appeals process, but also provides a process for
claimants to escalate their claims to the district court if their appeal is not decided within the
period outlined in the Medicare Act.

Although escalating a claim to the DAB and then

potentially proceeding in federal court is not identical to proceeding before an ALJ, it is an
alternative and adequate avenue of relief, and it is an avenue of relief that Plaintiffs have not yet
taken advantage of.

Furthermore, and as described above, due to the available option of

escalating their administrative appeal, Plaintiffs do not have a “clear right” to an ALJ decision
within 90 days of receiving a request for an appeal. See Cumberland Cty Hosp. Sys., Inc., 816
F.3d at 55-56 (“While the Act gives the Hospital System the clear and indisputable right to this
administrative process, it does not give it a clear and indisputable right to adjudication of its
appeals before an ALJ within 90 days.”).
Lastly, the Court is convinced that issuing a writ of mandamus would unduly interfere
with the regulatory process and cause “the judicial process to replace and distort the agency
process.” Cumberland Cty. Hosp. Sys., Inc., 816 F.3d at 50.
CONCLUSION
As a result of the foregoing, the Court finds that it does not have subject-matter
jurisdiction to consider Plaintiffs’ request for a preliminary injunction or a writ of mandamus.5

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During a hearing on November 28, 2016, the Court found that it lacked subject-matter jurisdiction over Plaintiffs’
complaint and granted Defendants’ motion to dismiss in open court. Plaintiffs’ counsel then made an oral motion
for reconsideration. The only new legal argument presented by Plaintiffs in support of their motion for
reconsideration is that they should be excused from exhausting their administrative remedies because 42 C.F.R. §

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Congress instituted a detailed and comprehensive regulatory scheme to hear their grievance.
That regulatory scheme permits judicial review only after full compliance with the administrative
appeals process and provides options to providers, like Plaintiffs, when delays in the process
occur. In order to bring their suit in a United States District Court, Plaintiffs must first adhere to
the administrative appeals procedures outlined in the Medicare Act.

Date: 11/30/2016

____________________________
Virginia M. Kendall
U.S. District Court Judge

405.1132, the regulation that permits escalation to the district court, could potentially allow for a scenario where
Plaintiffs are denied access to the district court even if they attempt to escalate their appeal. Plaintiffs argue that
because the relevant regulation permits the DAB to remand the matter to an ALJ within five days of receiving a
request for escalation, it is possible that the DAB could do so without the ALJ or DAB considering the substance of
the appeal, placing a claimant in a bureaucratic appeals loop without hope of judicial review. When read in context,
however, it is clear that the provision cited by Plaintiffs is intended to permit the DAB to have a final chance to issue
a substantive ruling, or remand to an ALJ who made substantive findings, before claimants are allowed to escalate to
federal district court. See 42 C.F.R. § 405.1126(a) (the DAB is permitted to remand a case to an ALJ where
“additional evidence is needed or additional action by the ALJ is required”) (emphasis added). This rule is not an
outlet for Defendants to trap claimants in a bureaucratic quagmire that would effectively preclude judicial review.
Additionally, Plaintiffs have failed to escalate their claim to the DAB level or the district court; if they did so and
found themselves effectively precluded from judicial review by Defendants’ misapplication of Section 1132, the
Court would likely view their complaint differently. Because their motion for reconsideration otherwise was
predicated on the arguments contained in briefs, it is denied for the reasons stated herein.

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