Challenging CMS Recoupment Before Full Adjudication: A Constitutional Perspective

The Centers for Medicare & Medicaid Services (CMS) has the authority to recoup alleged overpayments from healthcare providers before the full adjudication of an appeal.

While this practice is legally sanctioned under federal regulations, it raises significant constitutional concerns, particularly with respect to due process under the Fifth Amendment. And quite frankly, I wish a provider had the means to fight this.

As we know, CMS enforces overpayment recoupment through various audit programs, including Recovery Audit Contractors (RACs) and Medicare Administrative Contractors (MACs). The statutory and regulatory basis for such actions includes the following:

• 42 U.S.C. § 1395ddd(f)(2): This provision grants CMS the authority to collect overpayments identified in audits;
• 42 C.F.R. § 405.379: This regulation outlines CMS’s ability to initiate recoupment before the final resolution of an appeal; and
• CMS Manual System, Pub. 100-06, Chapter 4: Provides operational guidance on recouping alleged overpayments.

Under this framework, CMS can offset overpayments against ongoing Medicare reimbursements, causing significant financial strain on providers that are still exercising their appeal rights.

The primary constitutional issue with CMS’s recoupment process is its potential violation of the Due Process Clause of the Fifth Amendment. Due process requires that individuals and entities be given a fair opportunity to challenge government-imposed deprivations before enforcement.

The U.S. Supreme Court, in Mathews v. Eldridge, established a three-part test to determine the sufficiency of due process protections:

The private interest affected: healthcare providers have a substantial interest in receiving timely Medicare reimbursements, as these funds are crucial for operational viability.

The risk of erroneous deprivation and the value of additional procedural safeguards: the Medicare audit process is highly complex, and errors in overpayment determinations are common. Recoupment before full adjudication increases the risk of an unjust deprivation of funds.

The government’s interest: while CMS has an interest in recouping improperly paid funds, this interest does not necessarily outweigh the due-process rights of providers.

The premature recoupment of alleged overpayments deprives providers of property (reimbursements) without a final adjudication. Unlike cases where the government seizes assets based on a final judgment, CMS’s actions rely on administrative findings that are subject to change upon appeal.

Courts have increasingly scrutinized CMS recoupment practices, but the issue remains contentious. Some key cases include:

• Family Rehabilitation, Inc. v. Azar, 886 F.3d 496 (5th Cir. 2018): The Fifth Circuit held that a provider’s due-process rights were implicated when CMS initiated recoupment before the provider had an opportunity to obtain a hearing; and
• Accident, Injury & Rehabilitation, PC v. Azar, No. 19-2338 (4th Cir. 2020): The court emphasized the financial hardship imposed on providers and suggested that CMS’s approach could warrant judicial intervention.

If a provider wishes to challenge CMS’s recoupment process, a declaratory action under the Declaratory Judgment Act, 28 U.S.C. § 2201, would be an appropriate legal avenue. The lawsuit should argue:

Standing: the provider must demonstrate an actual injury, such as financial distress due to premature recoupment.

Ripeness: since recoupment occurs before full adjudication, the matter is ripe for judicial review.

Due Process Violation: CMS’s recoupment process deprives providers of property without sufficient procedural protections, failing the Mathews v. Eldridge test.

Request for Relief: the provider should seek a declaratory judgment stating that CMS’s recoupment practices violate constitutional due process and an injunction preventing further recoupment until full adjudication.

CMS’s authority to recoup alleged overpayments before the completion of an appeal presents serious due-process concerns. Given the financial strain such recoupment imposes on healthcare providers and the potential constitutional violations, a declaratory action challenging this practice is a viable legal strategy.

A successful challenge could prompt regulatory reform and ensure that providers receive fair procedural protections before their Medicare reimbursements are withheld.