No. 398CV00418 DJS (D.Conn.), filed March 4, 1998

Last Updated: September 21, 2007

Issue: Whether the Secretary of HHS failed to ensure that home health agencies provided sufficient notice and hearing rights to home health patients whose services were cut back or terminated.

Relief sought: Nationwide class alleged.  Plaintiffs sought declaratory and injunctive relief to correct the deficiencies in notice and hearing rights.

Status: The magistrate judge recommended certifying a nationwide class, which the district judge approved on November 13, 1998.  After the parties finished discovery, they filed cross-motions for summary judgment, which were fully briefed b late August 1999.  Magistrate Judge Smith  issued a recommended ruling on February 11, 2000 which suggested declaratory relief for plaintiffs on their notices issues (written, timely, accurate, explain demand bill process, and the right to appeal), but which declined to provide injunctive relief or to deal with the issue of pretermination hearings or expedited review.  2000 WL 303439.  The magistrate judge indicated that there might be additional relief in the future.  The government filed objections, but Judge Squatrito approved the recommendation in an order and amended order on March 1 and 7, 2000.  He also denied the motion to intervene without prejudice.

On August 8, 2001, the magistrate judge, without oral argument, issued another recommended ruling on the merits. In a 48-page opinion, he recommended that plaintiffs receive a declaratory judgment (but not an injunction) on the need and content for the notices, that the notices need not be sent out when the physician allegedly concurs, and that, under the test in Mathews v. Eldridge, plaintiffs were not entitled to pre-deprivation review. Although he found that there was a significant private interest at stake, he concluded that the improved notices probably meant that there was less risk of erroneous deprivation. Over plaintiffs’ objections, the district judge adopted that recommendation, and judgment was entered on September 28, 2001.

On appeal, the plaintiffs argued that both the Medicare statute at 42 U.S.C. § 1395bbb(a)(1)(E) and the due process clause required written notice before any discharge or termination. They contended, and were supported by an amicus brief filed by several doctors, that HHAs often inaccurately claimed that doctors supported the termination or cutback and that there should be no exceptions to when notice was required.

The majority of the three-judge panel agreed, concluding that the statute unambiguously required written notice in all terminations or cutbacks, not just in those involving alleged coverage determinations. In a significant rebuke to the Secretary and implicitly to segments of the home health industry, the majority pointed to a strong policy reason for its resolution: "Our reading of the statute is more consistent not only with the plain language of the statute, but also with the apparent purpose of the [notice] scheme set up by the Secretary, which purports to provide notice to Medicare beneficiaries of adverse coverage determinations and to prevent the arbitrary termination of home health services. To interpret the statute in the manner advocated by the Secretary – so as to exempt HHAs from any written notice requirements as long as the termination is based on profitability considerations or caprice, rather than on a judgment as to Medicare coverage – would render the statute and the [notice] process meaningless. Under such a reading of the statute, HHAs could always avoid issues [notices] simply by terminating coverage for any reason at all, so long as it was not strictly a Medicare coverage determination. Such a loophole undermines the entire [notice] regime and makes little sense."

One judge dissented, contending that the statute was ambiguous and that therefore the court should defer to the Secretary’s interpretation.

All three members of the panel upheld the district court’s refusal to view the due process clause as requiring pre-deprivation review. The burden to the government, the court said, outweighed the risk of erroneous deprivation.  Plaintiffs' petition for rehearing or for rehearing en banc was denied on May 27, 2004.

After a status conference and briefing by the parties on remand, the district court concluded that a declaratory judgment would be sufficient and declined to order injunctive relief.  A declaratory judgment setting out the class members' right to a pre-deprivation written notice explaining how they could seek review in all circumstances of cutback or termination (except those that are de minimis, as indicated by the Court of Appeals) was therefore filed on December 6, 2004, effective immediately.  The Secretary proposed a new notice on May 6, 2005 (70 Fed.Reg. 24048) but did not post the new HHABN until February 2006.

Although the February posting gave May 30, 2006 as the deadline for home health agencies to use the new HHABNs, in late May that deadline was extended to September 1, 2006, the proposed new HHABN was changed, and a new comment period was begun.  After the end of that comment period, the revised HHABN was re-posted as the final version on August 4, 2006, with a statement that the deadline of September 1 would remain in effect.  Plaintiffs had filed a motion for a preliminary injunction seeking to enforce the earlier deadline, but had agreed to stay that motion until the final version of the HHABN was released.  Because of the Secretary's guarantee that the HHABN would become mandatory on September 1, the motion for a preliminary injunction was withdrawn.

The district court awarded fees for most of plaintiffs' attorneys' work on the case.  See 2005 WL 2850163 (D.Conn., Oct. 26, 2005).  On appeal, the Court of Appeals agreed that the government's position was not substantially justified and that therefore plaintiffs were entitled to fees.  But the Court held that the case did not merit "special factor" status and that therefore the district court had erred in basing the fee award on market rates rather than on the EAJA "cap" rate (which is about $150 per hour after cost-of-living increases are factored in).  485 F.3d 63 (2d Cir. 2007).  Neither side sought further review, and the parties reached agreement as to the amount of fees to be paid in light of the Court of Appeals' decision.  The case has thus come to its end after over nine years of litigation.