Ashli Healthcare, Inc. v. Kennedy

Opinion

----oo0oo---- ASHLI HEALTHCARE, INC., No. 1:23-cv-1443 WBS BAM Plaintiff, v. MEMORANDUM AND ORDER RE: MOTIONS FOR SUMMARY JUDGMENT ROBERT F. KENNEDY, JR.,1 in his official capacity as Secretary, United States Department of Health and Human Services, Defendant. ----oo0oo---- Plaintiff Ashli Healthcare, Inc. (“Ashli” or “plaintiff”) brought this action seeking judicial review of the final decision of the United States Department of Health and Human Services (“defendant” or “Secretary”). (First Amended Compl. (“FAC”) (Docket No. 23).) Both parties have moved for summary judgment. (Docket Nos. 39-40.) The court held hearings 1 Pursuant to Federal Rule of Civil Procedure 25(d), Secretary of Health and Human Services Robert F. Kennedy, Jr., has been substituted for former Secretary of Health and Human Services Xavier Becerra. (Docket No. 56.) on the motions on January 21 and February 20, 2025. I. Medicare Payment and Review “Medicare is a federally funded program that reimburses healthcare providers for delivering medical care to qualifying elderly and disabled individuals.” New LifeCare Hosps. of N.C., LLC v. Becerra, 7 F.4th 1215, 1219 (D.C. Cir. 2021). The Department of Health & Human Services (“HHS”) administers Medicare via the Centers for Medicare and Medicaid Services (“CMS”). Id. The federal government spends about “half a trillion dollars” per year on Medicare.2 Palm Valley Healthcare v. Azar, 947 F.3d 321, 323-24 (5th Cir. 2020). This is in part due to providers and beneficiaries filing “over 1 billion claims” with Medicare every year. MedEnvios Healthcare, Inc. v. Becerra, 725 F. Supp. 3d 1343, 1348-50 (S.D. Fla. 2024), reconsideration denied, No. 23-20068-Civ, 2024 WL 3251329, at *2-3 (S.D. Fla. July 1, 2024).3 Medicare pays about 98% of these claims with minimal review. United States v. Bergman, 852 F.3d 1046, 1054 (11th Cir. 2017); Gulfcoast Med. Supply, Inc. v. Sec’y, Dep’t of Health & Human Servs., 468 F.3d 1347, 1349 (11th Cir. 2006). A provider

2 The court uses the term “Medicare” to refer collectively to the various government agencies and contractors involved with administering the Medicare program, including the Department of Health and Human Services, the Centers for Medicare and Medicaid Services, and the various contractors involved in processing, reviewing, paying, and auditing claims and appeals.

3 Because of the similarities between this action and the MedEnvios action in the Southern District of Florida (which involves the same counsel for plaintiff in this action and many of the same claims), the court will refer to the multiple decisions issued by the court in MedEnvios in this opinion. or supplier dissatisfied with Medicare’s resolution of a particular claim may appeal the decision through an administrative appeals process, and then, after exhausting the administrative process, may seek review by a federal district court. Gulfcoast, 468 F.3d at 1349 (citing 42 U.S.C. § 405, 1395ff(b)(1)(A); 42 C.F.R. § 405.801). A provider or supplier has 120 days to appeal Medicare’s initial decision as to a particular claim, and one year to “reopen” a claim to provide new evidence and get a new determination. 42 C.F.R. §§ 405.942(a), 405.980(c). Because prepayment review of all of the over 1 billion annual Medicare claims would be unfeasible, Medicare relies in part on post-payment audits to ensure the claims are medically necessary and meet the requirements of the Medicare program. MedEnvios, 725 F. Supp. 3d at 1346. To review Medicare claims, Congress created the Medicare Integrity Program, through which Medicare contracts with private entities “for the purpose of identifying underpayments and overpayments, and recouping overpayments.” 42 U.S.C. §§ 1395ddd(a), (h)(1). When Medicare determines via these audits that a provider or supplier has been overpaid for its claims, it may assess an “overpayment” against it. See 42 U.S.C. § 1395ddd(b).4 In other words, Medicare 4 Under Medicare, a “provider of services” or “provider” is “a hospital, critical access hospital, skilled nursing facility, comprehensive outpatient rehabilitation facility, home health agency, hospice program, or . . . a fund.” 42 U.S.C. § 1395x(u). A “supplier” is “a physician or other practitioner, a facility, or other entity (other than a provider of services) that furnishes items or services” to Medicare beneficiaries. 42 U.S.C. § 1395x(d). For purposes of this order, the court uses the terms provider and supplier interchangeably. demands that the provider repay the amount it received in excess of Medicare’s allowed reimbursement. To determine overpayments, federal law authorizes Medicare to investigate a sample of a provider’s Medicare claims. See 42 U.S.C. § 1395ddd(f). If the audit of that sample reveals “a sustained or high level of payment error,” Medicare may take the sample’s overpayment rate and apply to it to a “universe,” or larger number of similar claims, to extrapolate a total overpayment amount. Medicare may then demand that overpayment amount from the Medicare provider. See 42 U.S.C. § 1395ddd(f)(3). II. Ashli’s Audit and Administrative Appeals Ashli is a California corporation which supplies medical equipment, including ventilators and other respiratory equipment, to Medicare beneficiaries. (Administrative Record (“R.”) at 1615.)5 In 2022, a Medicare contractor performed an audit of Ashli’s claims from November 19, 2019, and November 19, 2020.6 (R. at 999-1000.) The contractor took a sample of 90 claims out of the universe of the 5,545 claims submitted by Ashli that Medicare fully or partially paid during that date range, excluding the “zero-paid” claims, meaning those claims for which Ashli received no payment. (Id.) The contractor determined that some of those 90 claims did not meet Medicare requirements, and then extrapolated the amount that plaintiff was overpaid on those

5 Defendant lodged the full administrative record with the court instead of filing it via the court’s electronic case management system. (See Docket No. 24.) 6 The audit was performed by Unified Program Integrity Contractor Qlarant Integrity Solutions, LLC. (R. at 999-1002.) 90 claims to the universe of 5,545 total claims to calculate a total overpayment amount of $1,354,864.00. (R. at 3877-4150 (initial determinations of claims); id. at 999-1002, 3785-808 (statistical extrapolation).) After Medicare informed plaintiff of the overpayment assessment on March 28, 2022, plaintiff requested redetermination of the demanded amount. (R. at 3746.) On this first level of the appeals process, in a lengthy decision, the Medicare Administrative Contractor7 found that some of the disallowed claims from the 90-claim sample met Medicare requirements but upheld the contractor’s sampling method on June 22, 2022, resulting in a reduced overpayment demand.8 (R. at 3745-84.) Ashli then sought reconsideration of the demand from the appropriate Qualified Independent Contractor9 on August 18, 2022. On this second level of the appeals process, through another lengthy decision, the contractor upheld the sampling method used below but allowed some previously disallowed claims 7 The Medicare Administrative Contractor who issued the decision on the first level of appeal was Noridian Healthcare Solutions, LLC. (R. at 3745.) 8 As explained by one court, “[f]ollowing partially favorable decisions on appeal, the relevant contractor must ‘effectuate’ the decision by recalculating the extrapolated overpayment amount to be recouped from the supplier based upon the revised decisions on individual sampled Medicare claims.” MedEnvios, 725 F. Supp. 3d at 1350. Based on this recalculated amount, after each administrative appeal, plaintiff received a partial refund. However, plaintiff did not always receive a new demand letter with the recalculated overpayment amount after each appeal decision.

9 The Qualified Independent Contractor who issued the decision on the second level of appeal was Maximus DME QIC. (R. at 6113.) from the 90-claim sample, which ultimately reduced defendant’s overpayment demand to $1,209,103.00, on October 17, 2022. (R. at 991-92, 6113-69.) Ashli then requested a hearing before an Administrative Law Judge (“ALJ”), the third level of the appeals process, and the hearing was held on April 5, 2023. (R. at 3246-50, 7281.) Plaintiff once again challenged the statistical methodology which the Medicare contractor used to extrapolate its overpayment rate and also challenged some of the determinations as to some of the 90 claims in the sample. (R. at 3246-50.) On May 2, 2023, the ALJ issued a lengthy and thorough decision upholding defendant’s statistical methodology but allowing some of the previously disallowed claims for various elaborated reasons, resulting in a further reduced overpayment demand of $1,091,621.86. (See R. at 353-87.) After the Medicare Appeals Council declined to act on Ashli’s request for review of the ALJ decision (R. at 2-3), Ashli filed the instant action bringing five procedural due process claims against the Secretary in his official capacity. (See FAC ¶¶ 4-6.) Ashli does not challenge the ALJ’s determinations as to any of the individual claims within the 90- claim sample, including those claims which the ALJ held were properly denied. III. Standard of Review The Social Security Act authorizes judicial review of a “final decision” of the Secretary of Health and Human Services “made after a hearing.” See 42 U.S.C. §§ 405(g)-(h). The Medicare Act incorporates this provision of the Social Security Act. See 42 U.S.C. § 1395ff(b). The ALJ decision constitutes the “final decision” of the Secretary where the Medicare Appeals Council has declined to review it. See 42 C.F.R. §§ 405.1048(a)(1), 405.1132. A party may move for summary judgment to seek judicial review of an administrative agency’s final decision. Nw. Motorcycle Ass’n v. USDA, 18 F.3d 1468, 1471-72 (9th Cir. 1994). Since the court “sits as an appellate tribunal” when reviewing an appeal from an ALJ’s decision, it does not apply the ordinary summary judgment standard of Federal Rule of Civil Procedure 56(a). California v. HHS, 473 F. Supp. 3d 992, 1000-01 (N.D. Cal. 2020). Here, the court evaluates whether defendant’s decision is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;” “contrary to constitutional right, power, privilege, or immunity;” “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;” or “without observance of procedure required by law” under the Administrative Procedure Act. 5 U.S.C. § 706(2).10 IV. Discussion Plaintiff argues that the procedures used throughout the overpayment calculation and appeals processes violated its procedural due process rights and brings five related due process claims. The first claim concerns the exclusion of claims where plaintiff did not receive any payment or reimbursement, or “zero-

10 In addition, courts reviewing an ALJ’s decision typically evaluate whether “substantial evidence” supports the ALJ’s factual findings under 42 U.S.C. § 405(g). Because plaintiff is not challenging any of the ALJ’s factual determinations as to the 90 individual claims within the sample, § 405(g) does not apply to any issue before this court. paid” claims, from the universe of claims reviewed by the audit. The second claim concerns defendant’s disclosure of a computer file containing the universe of claims, where the universe excluded zero-paid claims. The third claim concerns defendant’s failure to provide recalculation worksheets after each level of administrative review that resulted in reduced overpayment amounts. The fourth claim alleges improper recoupment of funds, and the fifth claim alleges improper accounting for payments made by plaintiff. The Fifth Amendment provides that a person will not “be deprived of life, liberty, or property, without due process of law.” U.S. Const. amend. V, cl. 4. “A procedural due process claim has two distinct elements: (1) a deprivation of a constitutionally protected liberty or property interest, and (2) a denial of adequate procedural protections.” Brewster v. Bd. of Educ. of Lynwood Unified Sch. Dist., 149 F.3d 971, 982 (9th Cir. 1998). A. Protected Property Interest Neither the Supreme Court nor the Ninth Circuit has addressed whether a Medicare provider has a protected property interest in funds paid by Medicare that are subject to overpayment recoupment. Some lower courts have reasoned that providers “have no property interest in Medicare overpayments,” which constitute “a level of benefits that is greater than Congress has provided.” See, e.g., Sahara Health Care, Inc. v. Azar, 349 F. Supp. 3d 555, 571–72 (S.D. Tex. 2018), aff’d on other grounds, 975 F.3d 523, 533-34 (5th Cir. 2020) (quoting Greater Dallas Home Care All. v. United States, 10 F. Supp. 2d 638, 646 (N.D. Tex. 1998)); In Touch Home Health Agency, Inc. v. Azar, 414 F. Supp. 3d 1177, 1190 (N.D. Ill. 2019); Alpha Home Health Sols., LLC v. Sec’y of U.S. Dep’t of Health & Hum. Servs., 340 F. Supp. 3d 1291, 1303 (M.D. Fla. 2018); see also Pers. Care Prods., Inc. v. Hawkins, 635 F.3d 155, 159 (5th Cir. 2011) (there is no “property right in Medicaid reimbursements to a provider that is the subject of a fraud investigation”). However, that reasoning oversimplifies the issue presented here. Plaintiff is not claiming a property interest in any funds it received in violation of Medicare requirements. Rather, plaintiff “claims an interest for properly billed claims that are now being recouped by the government.” See Med-Cert Home Care, LLC v. Azar, 365 F. Supp. 3d 742, 750-51 (N.D. Tex. 2019) (emphasis added). In other words, plaintiff claims that because of defendant’s alleged sampling and extrapolation errors, defendant has overestimated plaintiff’s overpayment and is therefore demanding recoupment of funds that plaintiff was entitled to receive. A party possesses a protected property interest in a “government benefit” where it has a “legitimate claim of entitlement to it” based on an “independent source” such as a statute or regulation, rather than merely an “abstract need or desire” or “unilateral expectation.” See Gerhart v. Lake County, 637 F.3d 1013, 1019 (9th Cir. 2011) (quoting Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577 (1972)). Such interest has been characterized as “new” property, as contrasted with “old” property such as land or chattels. See Johnson v. Ryan, 55 F.4th 1167, 1191-92 (9th Cir. 2022). The court finds that plaintiff in this case reasonably had such a claim of entitlement to retain the sums at issue here. Specifically, the extensive regulations and guidance promulgated by Medicare establish that if providers comply with the substantive and procedural requirements set out by the agency, they will receive reimbursement for services provided to beneficiaries. See, e.g., 42 U.S.C. §§ 1395k-1395n; 42 C.F.R. § 410.38; Ctrs. for Medicare & Medicaid Servs., No. 100-04, Medicare Claims Processing Manual, https://www.cms.gov/ regulations-and-guidance/guidance/manuals/internet-only-manuals- ioms-items/cms018912. This court’s conclusion is consistent with the decisions of several other courts which have held that Medicare providers possess “a legitimate claim of entitlement to reimbursement at the rate as established under the law.” See, e.g., Rock River Health Care, LLC v. Eagleson, 14 F.4th 768, 774 (7th Cir. 2021) (citing Am. Soc’y of Cataract & Refractive Surgery v. Thompson, 279 F.3d 447, 455 (7th Cir. 2002)); Furlong v. Shalala, 156 F.3d 384, 393 (2d Cir. 1998) (“professionals who provide services under a federal program such as Medicaid or Medicare have a property interest in reimbursement for their services at the ‘duly promulgated reimbursement rate’”); Accident, Inj. & Rehab., PC v. Azar, No. 18-cv-02173, 2018 WL 4625791, at *7 (D.S.C. Sept. 27, 2018) (a provider “certainly has a property interest in the ongoing Medicare payments for services rendered to patients”), vacated on other grounds, 943 F.3d 195, 204-05 (4th Cir. 2019); Morrison v. Sebelius, No. 11-cv-1002, 2013 WL 3288167, at *4 (S.D. Ohio June 28, 2013) (Medicare provider possessed a property interest in “payment for services she actually rendered”). Medicare providers possess this property interest because “the statutes and regulations governing the distribution of benefits ‘meaningfully channel official discretion by mandating a defined administrative outcome.’” See Barrows v. Burwell, 777 F.3d 106, 113 (2d Cir. 2015) (quoting Kapps v. Wing, 404 F.3d 105, 113 (2d Cir. 2005)) (holding that Medicare beneficiaries may possess a property interest in inpatient hospital admission where “the Secretary -- acting through CMS -- has effectively established fixed and objective criteria for when to admit Medicare beneficiaries as ‘inpatients’”); see also Doyle v. City of Medford, 606 F.3d 667, 673–74 (9th Cir. 2010) (“a statute may create a property interest if it mandates a benefit when specific non-discretionary factual criteria are met”); Mustafa v. Clark Cnty. Sch. Dist., 157 F.3d 1169, 1178 (9th Cir. 1998) (quoting Stiesberg v. California, 80 F.3d 353, 356 (9th Cir. 1996)) (a property interest exists where “‘procedural requirements are intended to be a significant substantive restriction on . . . decision making’”). In contrast, some courts have expressed the view that “health care providers ‘are not the intended beneficiaries of the federal health care programs’” and they do not themselves have a property interest in Medicare participation. See Shah v. Azar, 920 F.3d 987, 997–98 (5th Cir. 2019) (quoting Parrino v. Price, 869 F.3d 392, 398 (6th Cir. 2017)) (collecting cases). In none of those cases, however, does it appear that the providers were seeking to recover as assignees of the beneficiaries; rather, the providers in those cases asserted a far more general interest in participation in federal health care programs. One such case was Guzman v. Shewry, in which the Ninth Circuit held, in the context of a provider challenging wholesale suspension from the Medicaid program, that a provider “does not possess a property interest in continued participation in Medicare, Medicaid, or the federally-funded state health care programs.” 552 F.3d 941, 953 (9th Cir. 2009) (citing Erickson v. U.S. ex rel. Dep’t of Health & Hum. Servs., 67 F.3d 858, 861 (9th Cir. 1995)). Similarly, in Parrino, the Sixth Circuit held that there is no property interest in “being a provider in all federal health care programs,” 869 F.3d at 397; in Koerpel v. Heckler, the Tenth Circuit held that there was “no property interest in [a provider’s] continuing eligibility for Medicare reimbursement” where the provider had been excluded entirely from the program, 797 F.2d 858, 865 (10th Cir. 1986); and in Cervoni v. Secretary of Health, Education & Welfare, the First Circuit held that “physicians do not have a protectable property interest in their continuing eligibility to bill for reimbursement” under a particular Medicare classification scheme, which “d[id] not affect specific bills which [the provider] may submit for payment,” 581 F.2d 1010, 1018-19 (1st Cir. 1978). Unlike the providers in those cases, Ashli is not merely asserting a general interest in eligibility for the Medicare program, but rather is acting as the assignee of the individual beneficiaries on whose behalf it submitted specific claims for reimbursement. As the Ninth Circuit held in K.W. ex rel. D.W. v. Armstrong, 789 F.3d 962, 972 (9th Cir. 2015), beneficiaries of federally funded health insurance programs can possess a property interest in those benefits. Because the Medicare statute “permits . . . patients to assign their rights to payment [to providers],” see Furlong, 156 F.3d at 392 (citing 42 U.S.C. §§ 1395u(b)(3)(B)(ii), (h)(1)), Ashli possesses a property interest in its capacity as the assignee of individual Medicare beneficiaries. To be clear, this court does not go so far as to conclude that plaintiff is in fact entitled to all the funds at issue. The validity of the extrapolated overpayment demand is the very subject of dispute between the parties. However, “the Fifth Amendment Due Process Clause protects even disputed interests in property.” Dominion Ambulance, L.L.C v. Azar, 968 F.3d 429, 441 (5th Cir. 2020). Indeed, “‘[a]n interest that gives rise to an entitlement is always a conditional interest,’ because if the plaintiff possessed an absolute right there would be no need for a hearing as there would be no issue to resolve.” Rock River, 14 F.4th at 774-75 (quoting Geneva Towers Tenants Org. v. Federated Mortgage Investors, 504 F.2d 483, 494 (9th Cir. 1974) (Hufstedler, J., dissenting)). “The existence of procedures that would assess the entitlement to that interest is not a basis to deny the existence of the property interest,” nor does “defendant’s belief that the plaintiff cannot succeed on that claim [] eliminate the need to provide due process.” Id. at 775. “‘Property cannot be defined by the procedures provided for its deprivation any more than can life or liberty.’” Armstrong, 789 F.3d at 973 (quoting Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 541 (1985)) (cleaned up). Plaintiff’s asserted claim to Medicare reimbursements goes beyond the abstract. Plaintiff has successfully appealed multiple disallowances of claims, resulting in a lower overpayment amount at each level of review. Based on defendant’s own multi-level review process which showed these erroneous disallowances, plaintiff did, in fact, have a right to some of the funds sought to be recouped based on defendant’s initial overpayment demand. Because the court finds that plaintiff has a protected property right in the funds at issue, it next turns to the question of whether plaintiff was afforded due process. B. Due Process In Mathews v. Eldridge, 424 U.S. 319, 333-35 (1976), the Supreme Court set forth how a court should determine whether a government procedure which deprives someone of a protected property interest satisfies due process. “The fundamental requirement of due process is the opportunity to be heard ‘at a meaningful time and in a meaningful manner.’” Mathews, 424 U.S. at 333 (quoting Armstrong v. Manzo, 380 U.S. 545, 552 (1965)). Determining whether an administrative review process provides a meaningful opportunity to be heard requires balancing “three distinct factors.” Id. at 334-35. The factors are (1) “the private interest that will be affected by the official action;” (2) “the risk of an erroneous deprivation,” including “the probable value, if any, of additional or substitute safeguards;” and (3) “the government’s interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.” Id.; see also Diamond S.J. Enter., Inc. v. City of San Jose, 10 F.4th 1059, 1068-69 (9th Cir. 2024) (applying same test). With these factors in mind, the court now turns to each of plaintiff’s claims. 1. Count 1: Exclusion of Zero-Paid Claims Plaintiff argues that it was denied due process by defendant’s practice of excluding zero-paid claims from both the universe of claims from which it drew the 90-claim sample and the sample itself, thus leading to a higher extrapolated overpayment amount than if those claims had been included. Plaintiff does not challenge generally the use of audits that examine a sample of claims and then extrapolate the findings of that review to a larger group of claims.11 Further, as mentioned above, plaintiff does not challenge any of the ALJ’s findings with respect to any claim within the 90-claim sample. a. Interpretation of Regulatory Guidance

11 The Ninth Circuit has upheld “the use of sampling and extrapolation as part of audits in connection with Medicare and other similar programs.” See Ratanasen v. Cal. Dep’t of Health Servs., 11 F.3d 1467, 1469-71 (9th Cir. 1993); see also United States v. Rite Aid Corp., No. 2:12-cv-1699 KJM EFB, 2020 WL 3970201, at *6-7 (E.D. Cal. July 14, 2020) (“The Ninth Circuit has generally permitted the practice [of statistical extrapolation] when evaluating Medi-Care claims, for some time.”). Every other federal court of appeals to consider the issue has similarly found that CMS’ use of statistical extrapolation is not constitutionally problematic. See, e.g., Ill. Physicians Union v. Miller, 675 F.2d 151, 155-56 (7th Cir. 1982); Chaves Cnty. Home Health Serv., Inc. v. Sullivan, 931 F.2d 914, 922–23 (D.C. Cir. 1991); Yorktown Med. Lab’y, Inc. v. Perales, 948 F.2d 84, 89-90 (2d Cir. 1991); United States v. Lahey Clinic Hosp., Inc., 399 F.3d 1, 18 & n.19 (1st Cir. 2005); Dominion Ambulance, 968 F.3d at 438-42. Initially, plaintiff argues that the exclusion of zero- paid claims from the universe does not comply with the Medicare Program Integrity Manual, which directs HHS how to choose a subset of Medicare claims from which it extrapolates an overpayment rate. See Ctrs. for Medicare & Medicaid Servs., No. 100-08, Medicare Program Integrity Manual (“Manual”) § 8.4.3.2.1.B. (Apr. 21, 2023), https://www.cms.gov/ regulations- and-guidance/guidance/manuals/downloads/pim83c08.pdf. The instruction at issue reads: “The universe shall consist of all fully and partially paid claims submitted by the provider/supplier for the period selected for review and for the sampling units to be reviewed.” Id. The instruction further explains that “[s]ampling units with no final payment made at the time of sample selection should not be included in the sampling frame.” Id. Notwithstanding this guidance, plaintiff contends that the court should not give any deference to defendant’s interpretation of the Manual because the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), overruled Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and its rule that courts should defer to agency interpretations of ambiguous statutes. However, Loper Bright does not apply to the Manual. Chevron only required that a court defer to an agency’s interpretation of an ambiguous statute. Loper Bright, 603 U.S. at 377-80, 396-98. Because the Manual is not a statute, defendant’s interpretation of an ambiguous statute is not at issue here. See id. at 390-91 n.3. “Interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law -- do not warrant Chevron- style deference.” GCIU-Emp. Ret. Fund v. Quad/Graphics, Inc., 909 F.3d 1214, 1218-19 (9th Cir. 2018) (capitalization altered).12 Instead, an agency’s interpretation of its own regulatory manual may receive a different kind of deference under Auer v. Robbins, 519 U.S. 452 (1997). Under Auer, a court gives deference to an administrative agency’s reasonable interpretation of its own rule when that rule is ambiguous. See Kisor v. Wilkie, 588 U.S. 558, 567-68, 572-73 (2019) (plurality opinion). Although Loper Bright overruled Chevron, it did not overrule Auer. See Rana v. Jenkins, 113 F.4th 1058, 1067 (9th Cir. 2024) (stating the Supreme Court did not abrogate Auer when it could have done so in Kisor or Loper Bright), cert. denied, No. 24-550 (U.S. Jan. 21, 2025). Regardless, the court need not defer to defendant’s interpretation of the Manual to resolve the instant action because § 8.4.3.2.1.B of the Manual is not ambiguous in the first place. It directs Medicare contractors to take a sample of claims from a universe which includes only “fully and partially paid claims.” Defendant reimburses these “fully and partially paid” Medicare claims to at least some extent, which means that they are not zero-paid claims. Accordingly, based on the language of the Manual, the overpayment audit is not required to include zero-paid claims in the universe or sample.

12 At the hearing held on January 21, 2025, Ashli’s counsel could not give an example of ambiguous language contained in any of the statutes the parties cited in the briefing. Other district courts addressing this issue have come to the same conclusion. The court in MedEnvios rejected plaintiff’s interpretation of § 8.4.3.2.1.B of the Manual because its language, as read in the context of the underlying statute, “does not permit . . . the logical jump that all Medicare program integrity contractors are required to include [zero-paid] claims in all of their audits.” See MedEnvios, 725 F. Supp. 3d at 1349; see also MedEnvios Healthcare, Inc. v. Becerra, No. 23-20068-Civ, 2024 WL 4894677, at *4-5 (S.D. Fla. Nov. 26, 2024) (reaching same result after renewed cross-motions for summary judgment). The court in Compass Laboratory similarly concluded that based on the language of § 8.4.3.2.1.B of the Manual, “the universe of claims need not include zero-paid claims.” Compass Lab’y Servs., LLC v. Becerra, No. 22-cv-2770, 2024 WL 1289696, at *5 (W.D. Tenn. Mar. 26, 2024); see also John Balko & Assocs. v. Sebelius, No. 12cv0572, 2012 WL 6738246, at *9-10 (W.D. Pa. Dec. 28, 2012) (decision to exclude zero dollar claims from sampling frame was supported by substantial evidence), aff’d sub. nom. John Balko & Assocs., Inc. v. HHS, 555 F. App’x 188, 192-94 (3d Cir. 2014); Superior Home Health Servs., L.L.C. v. Azar, No. 15-cv-00636, 2018 WL 3717121, at *5-8 (W.D. Tex. Aug. 3, 2018) (upholding sampling and extrapolation process excluding zero-paid claims). Thus, Ashli’s interpretation of § 8.4.3.2.1.B is contrary to the plain language of the Manual, and Medicare is not required to include zero-paid claims in its statistical analysis.13 13 The primary case which plaintiff uses to support its argument that zero-paid claims must be included in the universe b. Procedural Due Process To determine whether the exclusion of zero-paid claims violates plaintiff’s right to due process, the court must consider the three factors set forth in Mathews, 424 U.S. at 333- 35. First, defendant’s interest in excluding zero-paid claims is twofold: increasing the efficiency of the claim review process and minimizing waste of government funds. See MedEnvios, 725 F. Supp. 3d at 1349-50. HHS, “like every federal agency, has ample reason to ensure that it does not waste the people’s money . . . . Delayed recoupment of overbilling puts Medicare at risk, and other government programs too.” A1 Diabetes & Med. Supply v. Azar, 937 F.3d 613, 619-20 (6th Cir. 2019). Excluding zero-paid claims allows Medicare to narrow the scope of its post-payment audit and thus reduce the burden of that process. Further, the inclusion of zero-paid claims would contravene the purpose of an overpayment review, which aims to “audit fully and partially paid claims -- not claims that the Department never paid and by definition could not have resulted

of claims is inapposite. See Goose Creek Physical Med., LLC v. Becerra, No. 22-cv-03932, 2024 WL 3992721, at *11 (D.S.C. Aug. 5, 2024), reconsideration denied, 2024 WL 3653639, at *1, *12 (D.S.C. Aug. 29, 2024). There, the court concluded that “the ‘target universe’ . . . includes ‘zero-paid’ claims,” but it only did so as a discovery sanction against defendant before reaching the merits of the provider’s procedural due process claims. Id. Another case where a court ruled against the Secretary under similar circumstances is Central Louisiana Home Health Care, L.L.C. v. Price, No. 17-CV-00346, 2018 WL 7888523, at *20- 21 (W.D. La. Dec. 28, 2018), report and recommendation adopted, 2019 WL 1388773, at *1 (W.D. La. Mar. 27, 2019). But there, the Secretary did not prevail because the agency did not produce a statistical analysis with sufficient precision. See id. at *19- 20. Plaintiff does not raise such an argument here. in overpayment” and therefore have no waste associated with them. See MedEnvios, 725 F. Supp. 3d at 1349-50. Indeed, including zero-paid claims in the sample would incentivize providers to submit frivolous Medicare claims in order to dilute the universe used to extrapolate overpayments, contributing to further inefficiency and waste. See Compass Lab’y, 2024 WL 1289696, at *5-6. Second, plaintiff’s interest in including zero-paid claims is to retain more of its money. See MedEnvios, 725 F. Supp. 3d at 1347-48 (Providers “do have a property interest in their own money.”) (emphasis omitted). If Medicare were to include zero-paid claims in the universe and sample of claims, this alternative process would decrease its extrapolated overpayment demand. This is because “[t]he more total claims that are considered, the less of an impact any overpaid claim will have. The more claims included in the universe for the eventual sample to be selected from, the better the odds of diminishing the extrapolating impact of overpayments for the provider seeking reimbursement.” See Compass Lab’y, 2024 WL 1289696, at *6 (cleaned up). Third, plaintiff contends that if improperly denied zero-paid claims are excluded, the sample would overestimate the amount of overpayment, creating an alleged risk of erroneous deprivation of plaintiff’s property. In other words, any alleged underpayments would balance out some of the overpayments. However, Medicare has already “provided for a separate process for suppliers to challenge determinations that incorrectly result in ‘zero-paid’ claims,” which is distinct from defendant’s “own investigation and recoupment of its potentially wasteful spending.” MedEnvios, 725 F. Supp. 3d at 1350 (citing 42 U.S.C. § 1395ff(a)(3)); see also Compass Lab’y, 2024 WL 1289696, at *6 (citing 42 C.F.R. § 405.921(b)) (same). After receiving a claim, Medicare sends notice of a claim’s initial determination to Ashli, and it must contain “the basis for any full or partial denial determination of services or items on the claim,” “information on the right to a redetermination if the provider or supplier is dissatisfied with the outcome of the initial determination,” and “all applicable claim adjustment reason and remark codes to explain the determination.” 42 C.F.R. § 405.921(b). Thus, plaintiff has always had all the information it needed to appeal the denial of a claim or seek reopening, and if any claims received no payment, plaintiff either did not appeal that denial, failed to get that denial overturned during the administrative appeals process, or failed to seek reopening of that claim.14 Given plaintiff’s ability to appeal initial determinations on zero-paid claims, the exclusion of zero-paid claims from the statistical sample creates little, if any, risk of erroneous deprivation.15 14 The 120-day deadline to appeal any initial claim denials appears to have passed well before defendant began its audit. 15 Ashli argues that these appeal rights are inadequate because an overpayment audit extinguishes its right to appeal initial determinations. However, Ashli provides no authority that supports this proposition, and it points to no particular claim for which its appeal right was extinguished nor any claim determination which it intended to appeal but was unable to because of the audit. For the above reasons, defendant’s exclusion of zero- paid claims from the statistical universe did not violate plaintiff’s procedural due process rights, and summary judgment for defendant will be granted on Count 1.

2. Count 2: Failure to Provide Plaintiff with “Universe” File with Zero-Paid Claims As the court understands plaintiff’s second claim, it is dependent on its first claim. Ashli argues that defendant violated its procedural due process rights by not including zero- paid claims in the spreadsheet it provided to Ashli during the review process that listed all of the claims within the universe of audited claims. It is hard to understand how including such information in the spreadsheet would possibly serve either Medicare’s or the plaintiff’s interests if, as the court has held, the zero-paid claims were properly excluded from the universe. Applying the Mathews factors to this claim, defendant’s interest in disclosing the instant universe of claims is to accurately inform plaintiff of which claims it considered during the sampling and extrapolation process. Plaintiff’s interest is to receive notice of what defendant considered in drawing a sample and conducting its extrapolation. The file provided did precisely that by informing plaintiff which claims Medicare audited, which claims are in the universe, and which claims are in the sample for extrapolation. Providing plaintiff with a list of zero-paid claims would accomplish little. By virtue of the initial claims submission and review process that already took place prior to the audit, plaintiff already knew which of the claims it submitted that were denied and therefore received no payment. Indeed, providing a universe including zero-paid claims would disserve plaintiff’s own interests. If defendant were to include zero-paid claims in the disclosure made to plaintiff without considering them, it would in fact mislead plaintiff, which is contrary to procedural due process. Finally, there was zero risk of erroneous deprivation engendered by the government’s existing process of providing a spreadsheet that accurately reflects the information it considered. Accordingly, the government’s failure to include zero-paid claims in the universe file did not violate procedural due process, and summary judgment for defendant will be granted on Count 2.

3. Count 3: Failure to Provide Recalculation Worksheets16 16 The government contends that plaintiff’s claims regarding the worksheets, recoupment, and accounting were not properly presented below nor were they properly exhausted. The court assumes, without deciding, that these claims were properly presented and exhausted. See, e.g., D&G Holdings, L.L.C. v. Becerra, 22 F.4th 470, 474-478 (5th Cir. 2022) (where overpayment determination was overturned, district court had jurisdiction to resolve dispute regarding amount of improper recoupment because “effectuations” of the agency decision “are inextricably intertwined with the initial exhausted agency action”); see also Mathews, 424 U.S. at 329-30 (failure to raise a constitutional claim at the agency level did not bar plaintiff from raising that constitutional claim later in a district court). But see Pinnacle Peak Neurology, LLC v. Noridian Healthcare Sols., LLC, 773 F. App’x 910, 910-11 (9th Cir. 2019) (amount of payment determined by contractor after ALJ decision “is a new initial determination” under 42 C.F.R. § 405.1046(a)(3) and claim regarding such determination must be presented and exhausted) (emphasis omitted). (See also Docket No. 34 (noting that “[t]he topic of overpayment recalculations was entirely unaddressed by the ALJ’s decision, nor did plaintiff raise it before the ALJ In its third claim, Ashli argues that defendant violated procedural due process by not providing it with recalculation worksheets after each of its administrative appeals where the government’s overpayment demand decreased. See MedEnvios, 725 F. Supp. 3d at 1350-51. Plaintiff is not requesting any worksheets in connection with the initial overpayment demand, because it got those worksheets. Nor is it directly claiming that defendant erred in recalculating the overpayment demand after any of the appeals below. In other words, as the court understands it, plaintiff argues that the defendant should have expended public funds to create a spreadsheet that does not already exist, using data that plaintiff already has. Maybe that would have been of some help to plaintiff, but it certainly was not required by the Due Process Clause of the Constitution. Plaintiff had the information at its disposal to check the recalculated demands with the paperwork produced by the government after each administrative appeal. Each of the three appeal decisions discussed the various claims submitted on behalf of certain beneficiaries on specific dates and listed “CPT codes” for those services, thereby allowing plaintiff to identify which claims within the 90-claim sample were disallowed or allowed in whole or in part at each level.17 beyond a passing reference” and that the overpayment recalculations “were not at issue in any of the decisions through the relevant appeals process, which did not provide calculations of the overpayment owed”).) 17 For illustration, the court provides one example of the review process for one particular claim. Plaintiff received Looking to the Mathews factors, defendant’s interest in not providing recalculation worksheets for each recalculated demand is in maintaining an efficient process to return any money Ashli should have kept in the first place. Requiring defendant to provide new recalculation worksheets with each appeal where the demanded overpayment amount changes would slow down that process and increase the administrative burden of the already lengthy and complicated appeals process. On the other hand, plaintiff’s interest in receiving the recalculation worksheets consists simply in making it a little easier for it ensure that the overpayment recalculations after each level of appeal were correct. See Mathews, 424 U.S. at 333-35. And plaintiff’s access to the underlying decisions that prompted the recalculations, as well as its failure to challenge the ALJ’s findings as to any individual claim, undercut the notion that there is any risk of erroneous deprivation of plaintiff’s

payment for a portable ventilator under procedure code E0466, prescribed to “Beneficiary 4” for “shortness of breath, chronic obstructive pulmonary disease, and chronic respiratory failures,” with a date of service of July 19, 2020. (R. at 3197.) The claim was disallowed during the post-payment review process for insufficient documentation, and on appeal, contractors Noridian and then Maximus also found that there was insufficient documentation of medical necessity and affirmed the disallowance of that claim. (R. at 4460, 6121-22.) The ALJ ultimately disagreed and reversed that disallowance after finding that there was sufficient medical documentation for the ventilator under Medicare regulations, based on his review of the documents. (R. at 378-79.) (The ALJ’s opinion listed the beneficiary as Beneficiary 4, though the decisions by the contractors listed the patient’s actual name, as well as the beneficiary’s Medicare identification number and the claim number.) If the court can put that information together, plaintiff certainly could have done so. The procedural history of this claim is one example among many showing that plaintiff had full notice of which claims were allowed or disallowed at every level of review. property. Therefore, defendant’s failure to provide recalculation worksheets did not violate procedural due process, and summary judgment will be granted for defendant on Count 3.18 4. Count 4: Improper Recoupment In essence, plaintiff’s fourth claim is that because of defendant’s alleged due process violations in Counts One through Three, it is entitled to a suspension of any ongoing recoupment of the alleged overpayment by Medicare and a refund on all improperly recouped amounts. (See FAC ¶¶ 268-72; Pl.’s Mot. for Summ. J. (Docket No. 40-1) at 35-37 (arguing that the recoupment was improper based on the procedures employed during the overpayment calculation and appeals process).) To infer that adds anything to the first three claims would be to give plaintiff too much credit. Because Counts One through Three fail, Count Four fails for the same reasons. Further, even assuming this court had determined that the overpayment demand was improper, plaintiff “is adequately protected . . . because it is entitled to receive back those funds, with interest,” under statute, and thus defendant’s recoupment is not “a corresponding due process violation.” See MedEnvios, 2024 WL 4894677, at *6 (citing 42 U.S.C. § 1395ddd(f)(2)(B)); see also Ramtin Massoudi MD Inc. v. Azar, No. 218CV1087, 2018 WL 1940398, at *9 (C.D. Cal. Apr. 23, 2018) (“[T]he four-level administrative appeals process provides

18 Plaintiff relies in part on MedEnvios, 725 F. Supp. 3d at 1350-51, for the proposition that it is entitled to the recalculation worksheets. The court disagrees with the MedEnvios court’s determination that a provider cannot challenge a statistical sample and extrapolation without the recalculation demand worksheets, for the reasons discussed above. plaintiff with an adequate remedy because, should plaintiff prevail in that process, it will be repaid any amounts that were unnecessarily recouped plus interest.”) (citing 42 U.S.C. § 1395ddd(f)(2)(B)). Accordingly, summary judgment will be granted for defendant on Count 4. 5. Count 5: Accounting Plaintiff’s fifth claim alleges that its due process rights were violated because defendant failed to conduct a proper accounting of the payments made by plaintiff towards the overpayment demand. To the extent plaintiff alleges an accounting is necessary because of the alleged violations discussed in Counts 1 through 4, the claim fails because plaintiff has not shown an underlying violation of its due process rights, for the reasons discussed above. The accounting claim also fails to the extent it seeks to allege an independent due process violation. In terms of the due process factors under Mathews, plaintiff’s private interest is in ensuring that it paid the proper amount of overpayments and that it could seek a refund if necessary. However, plaintiff has its own records and knows how much it paid to Medicare in overpayments and how much was refunded after each level of administrative review. Plaintiff also has the documentation provided by defendant and the administrative decisions identifying which claims within the 90-claim sample were allowed or disallowed, such that it may scrutinize the recalculated overpayment demand, albeit not as conveniently as it would prefer due to not having the worksheets or a formal accounting from Medicare. In contrast, the public interest weighs against the unnecessary expenditure of public resources in providing an accounting, since defendant already provided plaintiff with multiple levels of administrative review and thousands of pages of documentation. Providing an accounting would simply add to the burden of this already extensive review process. The risk of erroneous deprivation is also low because plaintiff does not challenge defendant’s general use of statistical sampling and extrapolation to determine overpayment amounts nor defendant’s determinations as to any of its individual Medicare claims. Nor is plaintiff claiming that the recalculated overpayment demand was calculated incorrectly -- instead, it is simply hypothesizing that defendant may have committed an error. Thus, applying Mathews to the facts of this case, due process does not require defendant to provide an accounting of the payments made by plaintiff on the overpayment demand.19 Accordingly, summary judgment will be granted for defendant on Count 5. IV. Conclusion From the time it received the original overpayment demand, Ashli filed three written appeals and was afforded oral argument before an ALJ in which it had the opportunity to stake 19 The court is only aware of one decision finding that a similarly situated plaintiff was entitled to an accounting of overpayments. However, in that case, the court granted summary judgment for the plaintiff on the accounting claim with no further discussion because the parties agreed at oral argument that the plaintiff was entitled to an accounting. See MedEnvios, 2024 WL 4894677, at *6-7. out its position. In response to those appeals, Ashli received three lengthy and reasoned written decisions, each of which represented a partial victory for Ashli. Beyond that, Ashli had the separate opportunity to seek review of every single claim determination it received, including the zero-paid claims. And it is now exercising its right of further review by this court. To be sure, the process Ashli received was not perfect. But “[d]ue process does not require perfect process.” Thibodeaux v. Bordelon, 740 F.2d 329, 338 (5th Cir. 1984); see also Newman v. Massachusetts, 884 F.2d 19, 24 (1st Cir. 1989) (procedural due process does not establish that a plaintiff is “entitled to ‘perfect’ process”). All that is required is the right to be “heard at a meaningful time and in a meaningful manner.” See Mathews, 424 U.S. at 333 (cleaned up). Ashli has received that several times over. The multiple layers of thorough administrative proceedings gave plaintiff ample, even if imperfect, process, “reasonably tailored to the aims of the audit.” See MedEnvios, 725 F. Supp. 3d at 1350. If Medicare were to undertake an overpayment extrapolation and review process that went beyond the painstaking procedures already provided to Ashli, it would not be long before the costs of administration would, if they do not already, exceed the costs of the care provided to the patients who are the intended beneficiaries of the Medicare program. As the Supreme Court so wisely observed, “the cost of protecting those whom the preliminary administrative process has identified as likely to be found undeserving may in the end come out of the pockets of the deserving since resources available for any particular program of IIE IIE IER III IDE EIEIO IIE OS IEE II IEEE

social welfare are not unlimited.” Mathews, 424 U.S. at 348. For the foregoing reasons, the court finds that the Secretary’s actions were lawful under the standard set forth in 5 U.S.C. § 706(2), and IT IS THEREFORE ORDERED that defendant’s motion for summary judgment (Docket No. 39) be, and the same hereby is, GRANTED, and plaintiff’s motion for summary judgment (Docket No. 40) be, and the same hereby is, DENIED. The Clerk is directed to enter final judgment in favor of defendant and close the case. . - Dated: April 16, 2025 atte A hh be WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE 30