A Farewell to the Administrative Law Judges?

At this point we probably shouldn’t be surprised by the Roberts Supreme Court’s willingness to eviscerate precedent in the name of strict textualism. On the heels of eliminating Chevron deference, the Court added significant limits to the ability of executive agencies to adjudicate claims.

This recent decision, involving a relatively complex Securities and Exchange Commission (SEC) fraud case, held that a defendant facing such a suit must be tried by an Article III court, and not by an executive agency’s administrative tribunal. It based this holding on the Seventh Amendment.

That result alone is excruciatingly uninteresting. But, within days, constitutional and healthcare lawyers began questioning its applicability to other administrative tribunals, including CMS’s Office of Medicare Hearings and Appeals (OHMA). After all, how cool would it be if providers could skip the administrative law judge (ALJ) and Departmental Appeals Board (DAB) hearings and move directly to federal district courts?

To see if this is a dream or merely a pipe dream, we need to look at the decision more closely. The holding was based on the Court’s interpretation of the Seventh Amendment requirement that defendants are entitled to a trial by jury in some instances. Furthermore, curtailment of that right should be, as the Court noted, “scrutinized with the utmost care.” The Court continues, in dicta, to note that in suits at common law, the right to a trial by jury, in the Court’s words, “shall be preserved.” In making the distinction, the Court reasons that the remedy is also a persuasive factor. As part of the analysis, the Court notes that penalties generally do not benefit victims or restore the status quo and are therefore only enforceable in courts of law.

Now, the interesting part: beginning with Health Care Financing Administration (HFCA) Rule 86-1, in 1986, the U.S. Department of Health and Human Services (HHS) has asserted that recoupment is a common-law right of the government. So, if recoupment is, as HHS asserts, a common-law action, under this decision it is not simply eligible for trial in an Article III court; it must be heard by an Article III court.

Moving recoupment claims out of OMHA’s kangaroo courts means that well-established federal rules of evidence, discovery, and procedure would protect litigants. It also means that precedent would be established and defendants might have some reasonable, reliable expectation of outcome. Under the current system, each case, even before the same ALJ, is sui generis. Each case represents the re-discovery of fire or the wheel.

Now, the bottom line. With Jarkesy and Loper Bright, the Court has handed litigants powerful tools to challenge the arbitrary (and occasionally capricious) actions of agencies and their contractors. It might force the Medicare Administrative Contractors (MACs) and Recovery Audit Contractors (RACs) and other members of the enforcement alphabet soup to issue cautious, insightful guidance and enforce with circumspection and restraint.

But until providers begin challenging haphazard regulation, sub-regulatory guidance, and random enforcement, it’s business as usual.

In addition to inpatient status, inpatient-only lists, and observation services, we may be able to add any penalty or action historically rooted in common law. We might add extrapolation, civil monetary penalties (“penalty” is right there in the name), and exclusion. With these two cases, the courts may have served up big help for healthcare providers. It has definitely served up help for healthcare lawyers.