throbber
Case 4:21-cv-00529 Document 1 Filed 07/09/21 Page 1 of 15 PageID #: 1
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
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`SONAS MEDICAL SUPPLY, INC.,
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`Plaintiff,
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`vs.
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`XAVIER BECERRA, Secretary,
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`UNITED STATES DEPARTMENT
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`OF HEALTH AND HUMAN
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`SERVICES,
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`Defendant.
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`COMPLAINT FOR JUDICIAL REVIEW, ATTORNEY FEES,
`AND EXEMPLARY DAMAGES
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`SONAS MEDICAL SUPPLY, Inc. (hereinafter “Sonas,” “Plaintiff,” or the “Supplier”), by
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` CIVIL ACTION NO. 4:21-cv-529
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`and through its attorneys, hereby files this its Complaint for Judicial Review, Attorney Fees, and
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`Exemplary Damages against Defendant, Xavier Becerra, Secretary of the United States
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`Department of Health and Human Services (“HHS” or the “Agency”), and alleges and avers as
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`follows:
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`INTRODUCTION AND FACTS
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`1.
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`In this case, HHS seeks to collect from Plaintiff an alleged Medicare overpayment.
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`On November 10, 2016, AdvanceMed, a Medicare contractor, sent a letter notifying Plaintiff of
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`an extrapolated overpayment in the amount of $1,339,239.44. According to the contractor, the
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`overpayment stemmed from a review of 45 claims with 59 claim lines submitted by Plaintiff to
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`CMS from May 1, 2012 to July 20, 2015 for payment. AdvanceMed denied payment on all claims,
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`calculating an “actual” overpayment which was then projected over a universe of all claims billed
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`by Plaintiff from May 1, 2012 to July 20, 2015.
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`2.
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` Plaintiff received denial information from AdvanceMed in an attachment which
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`recounted service dates for each of the claims. In the attachment, the dates of service reviewed
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`were included, as was a summary explanation for each denial. However, only cursory information
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`was provided to Plaintiff as to the statistical sampling and extrapolation methodology utilized in
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`projection of the overpayment.
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`3.
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`On November 16, 2016, CGS, a Medicare contractor, issued a formal demand letter
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`notifying Plaintiff of the alleged overpayment and extending appeal rights. The demand letter was
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`received by Plaintiff on or about December 2, 2016.
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`4.
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`Plaintiff submitted a request for redetermination pursuant to 42 C.F.R. § 405.940
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`et seq, and on February 17, 2017, CGS issued an unfavorable redetermination decision. Plaintiff
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`then sought reconsideration in accordance with 42 C.F.R. § 405.968.
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`5.
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`On August 7, 2017, CGS issued an unfavorable reconsideration decision. However,
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`it was not until January 22, 2018, that Plaintiff received notice of the overpayment's recalculation,
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`which finalized the reconsideration decision pursuant to Medicare regulations.
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`6.
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`On March 7, 2018, Plaintiff's Former Counsel drafted a Request for ALJ Hearing
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`on behalf of Plaintiff. However, the request was not mailed until the end of the month and was not
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`received until April 2, 2018. The Honorable ALJ dismissed the request on September 30, 2020.
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`Plaintiff received the notice of dismissal on or about October 8, 2020.
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`7.
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`On or about December 4, 2020, Plaintiff filed its request for review of the ALJ
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`decision by the Medicare Appeals Council (“Council” or “MAC”). On or about May 13, 2021,
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`Plaintiff received a copy of the MAC’s decision which denied the request for review as the Council
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`upheld the ALJ decision which dismissed the request for hearing as it was deemed untimely.
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`(Exhibit A).
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`2
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`8.
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`Plaintiff now files this request for judicial review of the MAC’s decision pursuant
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`to 42 C.F.R. § 405.1136 within 60 days from the date of receipt.
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`PARTIES
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`9.
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`Plaintiff, Sonas Medical Supply, Inc., is a corporation organized under the laws of
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`the State of Texas, a durable medical equipment prosthetics, orthotics, and supplies ("DMEPOS")
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`supplier participating in the Medicare program and is located in Collin County, TX.
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`10.
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`Defendant, Xavier Becerra, is Secretary of the U.S. Department of Health and
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`Human Services (hereinafter “HHS” or “Defendant”), an agency of the United States of America,
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`and he may be served by delivering a copy of the summons and complaint to the United States
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`Attorney for the Eastern District of Texas and by sending a copy of the summons and complaint
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`by certified mail to the Attorney General of the United States in Washington, DC. The Secretary
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`of HHS oversees the Medicare program, and he adopts and issues the final decision made by the
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`Medicare Appeals Council such that the Secretary of HHS becomes the Defendant in appeals for
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`judicial review pursuant to 42 C.F.R. § 405.1136(d).
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`JURISDICTION AND VENUE
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`11.
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`This action arises under the Medicare Act, a part of the Social Security Act at 42
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`U.S.C. §§ 1395 et seq. Plaintiff appeals a decision of the MAC issued on March 22, 2018 and a
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`final decision of the Secretary of Health and Human Services. See 42 C.F.R. § 405.1130.
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`Additionally, the Court has supplemental jurisdiction under 28 U.S.C. § 1367 over a certain
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`number of Plaintiff’s other claims because they are so related to the claims within the Court’s
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`original jurisdiction that they form part of the same case or controversy under Article 3 of the U.S.
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`Constitution. Plaintiff received the final decision of the MAC on or about May 13, 2021. Plaintiff
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`now timely files its original complaint for judicial review in federal district court in the judicial
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`district in which Plaintiff resides on or before the expiration of sixty days (60) from receipt of the
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`final decision. See 42 U.S.C. § 1395ff(b).
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`12.
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`Plaintiff’s principal office is located in Dennison, Texas, therefore, venue is proper
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`in the Eastern District of Texas. See 42 U.S.C. §§ 405(g) and 1395ff(b).
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`APPLICABLE MEDICARE LAW
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`The Medicare Program
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`13.
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`As part of the Social Security Amendments of 1965, Congress established the
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`Medicare program: a national health insurance plan to cover the cost of medical care for the elderly
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`and disabled. See 42 U.S.C. § 1395 et seq. Officially known as “Health Insurance Benefits for the
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`Aged and Disabled,” it provides basic protection against the costs of inpatient hospital and other
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`institutional care. It also covers the costs of physician and other healthcare practitioner services
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`and items not covered under the basic program. In 1997, beneficiaries were extended the option of
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`choosing a managed care plan. More recently, in 2006, the program was expanded further to
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`include a prescription drug benefit.
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`Durable Medical Equipment
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`14. Medicare covers durable medical equipment furnished to beneficiaries by suppliers
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`participating in the program. See 42 U.S.C. § 139x(s)(6); 42 C.F.R. §§ 410(h), 410.38(a). To be
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`reimbursed for such medical equipment, a supplier must receive a signed certificate of medical
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`necessity (“CMN”) from the treating physician. A supplier must have a signed original, faxed,
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`photocopied, or electronic CMN in its records before it can submit a claim for payment to
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`Medicare. Also, it must maintain the supporting documentation and make them available to CMS
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`upon request for seven years from the date of service. See 42 C.F.R. §§ 410.38(g)(5) and
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`424.516(f).
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`4
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`Payment and Audit Functions
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`15. Medicare’s payment and audit functions are performed by various federal
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`contractors. For instance, the payment of durable medical equipment at issue in this case was
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`made by AdvancedMed. Various other contractors, like Qlarant., a Unified Program Integrity
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`Contractor (or “UPIC”), investigate instances of suspected fraud, waste, and abuse as well as
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`identify any improper payments that are to be collected by administrative contractors.
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`Statistical Sampling and Extrapolation of Overpayments
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`16.
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`Congress authorized HHS to “use extrapolation to determine overpayment
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`amounts” if the Secretary determines that “there is a sustained or high level of payment error.” 42
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`U.S.C. § 1395ddd(f)(3)(A); 42 C.F.R. § 405.926(p). Thus, the law allows extrapolation to be used
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`to derive an overpayment from a statistically valid random sample of sampling units applied across
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`the frame of sampling units. See Chaves County Home Health Servs. v. Sullivan, 931 F.2d 914 (D.
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`C. Cir. 1991). Based on the legislature’s instruction, the Secretary promulgated policy and rules
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`on the framework for extrapolation, as permitted by statute. The Secretary’s policy is encapsulated
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`in CMS Rules 86-1-9 and 86-1-10. The Secretary’s guidance, found in the Medicare Program
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`Integrity Manual (“MPIM”), Pub. 100-08, Chap. 3, (eff. 5-10-04, now at MPIM Chap. 8, eff. 06-
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`28-11), provides instructions to ensure that a “statistically valid sample is drawn and that
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`statistically valid methods are used” to project an overpayment from the sample to the audit frame.
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`The MPIM, which is not a statistics text, includes references upon which the theory of sampling
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`and extrapolation are based. However, for an overpayment estimate to be valid, the laws and
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`assumptions of probability and statistics must be met. See Robert D. Messer, M.D. & Assoc.,
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`Docket No. M-11-2534, Medicare Appeals Council (Dec. 11, 2011). In other words, the
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`Secretary’s policy and processes founded in statistics must comport with developed and articulated
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`governing mathematical concepts and principles.
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`Appeal Process
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`17.
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`Durable medical equipment suppliers participating in the Medicare program are
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`entitled to appeal an initial action. See 42 U.S.C. § 1395ff. Federal regulations establish an
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`elaborate administrative appeal process to review the adverse action. See 42 C.F.R. Subpart I –
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`Determinations, Redeterminations, and Appeals Under Original Medicare. A supplier dissatisfied
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`with an initial determination may request a Redetermination by a contractor in accordance with 42
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`C.F.R. §§ 405.940 through 405.958. The Redetermination must be issued within 60 calendar days.
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`If a supplier is dissatisfied with a Redetermination decision, it may request a Reconsideration by
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`a Qualified Independent Contractor (or “QIC”) in accordance with 42 C.F.R. §§ 405.960 through
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`405.986. The Reconsideration must be issued within 60 calendar days. After the issuance of a
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`Reconsideration decision, the supplier is no longer protected from recoupment. In the event the
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`supplier is dissatisfied with the Reconsideration decision, it may request an Administrative Law
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`Judge (or “ALJ”) hearing in accordance with 42 C.F.R. §§ 405.1000 through 405.1054. The ALJ
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`must issue a decision within 90 calendar days. The supplier may request review of the ALJ’s
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`decision by the Medicare Appeals Council in accordance with 42 C.F.R. §§405.1100 through
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`405.1140. The MAC must issue a decision within 90 calendar days. The MAC’s decision is the
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`final agency action, and it is subject to judicial review. See 42 U.S.C. § 1395ff; 42 C.F.R. §§
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`405.1130, 405.1132, 405.1134. See also 42 U.S.C. § 405(g).
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`18. When suppliers appeal overpayments stemming from claim denials, including
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`extrapolations, the decisions are very frequently reversed. The third-stage review by an ALJ is the
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`6
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`first opportunity to obtain a hearing and present testimony evidence to an independent adjudicator,
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`and most suppliers obtain reversals at this level of the appeals process.
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`CONDITIONS PRECEDENT
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`19.
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`20.
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`All conditions precedent have been performed or have occurred.
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`In accordance with 42 C.F.R. § 405.1130, the MAC decision is final and binding
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`on all parties, and it is the Agency’s final action and subject to judicial review. Plaintiff filed
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`requests for review by
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`the various administrative
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`triers of fact
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`in Redetermination,
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`Reconsideration, ALJ hearing, and MAC reviews.
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`21.
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`Accordingly, Plaintiff is filing its complaint for judicial review to contest the MAC
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`decision, which was the final decision of the Secretary of Health and Human Services within 60
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`days of receipt of the decision as set forth in 42 C.F.R. § 405.1130.
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`22.
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`The MAC decision is the final decision of the Secretary of Health and Human
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`Services and it subject to judicial review before this Court in accordance with 42 U.S.C. §
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`1395ff(b), and under 42 C.F.R. § 405.1130 and 42 C.F.R. § 405.1136.
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`CLAIMS FOR RELIEF
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`COUNT I
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`EXCUSABLE NEGLECT EXISTED FOR THE LATE FILING
`AND THE MAC ERRED IN DENYING REVIEW
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`Plaintiff hereby incorporates by reference paragraphs 1 through 22 herein.
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`Plaintiff argues that the MAC erred in dismissing the case as the late filing falls
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`23.
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`24.
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`under the category of “excusable neglect” pursuant to Pioneer Inv. Servs. Co. v. Brunswick Assoc.
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`Ltd., 507 U.S. 380, 395 (1993). The excusable neglect standard is “[T]he determination is at bottom
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`an equitable one, taking account all of the relevant circumstances surrounding the party’s
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`omission. These include … the danger of prejudice …, the length of the delay and its potential
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`impact on judicial proceedings, the reasons for the delay, including whether it was within the
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`reasonable control of the movant, and whether the movant acted in good faith.” Here, Plaintiff’s
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`Former Counsel drafted a cover letter and request on March 7, 2020. It was not mailed on that date
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`which was well before the deadline. However, it was sent and was received only a few days after
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`the deadline had expired. The letter accompanying the request clearly stated that the attorney
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`intended it to be mailed on March 7, 2020. However, it was not due to excusable neglect.
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`Excusable neglect should fall under the category of good cause under 42 C.F.R. § 405.942(b)(3)
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`as it only provides some, but not all, examples of good cause for an extension.
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`COUNT II
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`AGENCY ACTION IS ARBITRARY AND CAPRICIOUS
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`25.
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`Provided the Court finds excusable neglect existed, Plaintiff argues that the
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`decision of the Council was arbitrary and capricious.
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`26.
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`27.
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`Plaintiff hereby incorporates by reference paragraphs 1 through 24 herein.
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`Based upon the administrative record developed before the Agency, the final
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`decision is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.
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`28.
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`Specifically, the Agency failed to adjudicate the appeal in accordance with the
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`requirements of 42 U.S.C. § 1395ff and 42 C.F.R. § 405.900 et seq. The evidence of record
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`supports payment on the denied claims that comprise the sample.
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`29.
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`Notwithstanding the overwhelming evidence favoring Plaintiff, it is clear that
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`Defendant HHS usurps the physician’s role and the medical judgment of physician suppliers in
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`determining that Plaintiff was not entitled to payment for durable medical equipment it had
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`provided.
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`8
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`30.
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`Also, Defendant committed error by applying a non-technical interpretation of
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`statistics outside the range of developed and articulated governing mathematical concepts and
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`principles. Defendant HHS ignored the record evidence of its deficiencies and wrongly concluded
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`the methodology utilized met requirements and that the extrapolation was valid.
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`31.
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`Additionally, Defendant has effectively deprived the Plaintiff of the very
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`administrative process that is required under 42 U.S.C. § 1395ff(b)-(d) due to its egregious delays
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`in adjudicating the case which far exceed the statutory time-frames for adjudication and caused
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`severe harm to Plaintiff. Plaintiff was noticed of the initial determination in 2016. Plaintiff has just
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`now completed the administrative appeals process and it is 2021.
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`32.
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`Defendant committed further error by failing to overturn the statistical sampling for
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`the failure to notice affected beneficiaries as required by its own regulations.
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`COUNT III
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`VIOLATION OF PROCEDURAL DUE PROCESS OF LAW
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`33.
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`Provided the Court finds excusable neglect existed, Plaintiff now argues it has
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`suffered a violation of its procedural due process rights.
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`34.
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`35.
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`Plaintiff hereby incorporates by reference paragraphs 1 through 32 herein.
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`The Fifth and Fourteenth Amendments to the U.S. Constitution guarantee that no
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`person shall be deprived of life, liberty, or property without Due Process of Law.
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`36.
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`Defendant has effectively deprived the Plaintiff of the very administrative process
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`that is required under 42 U.S.C. § 1395ff and 42 C.F.R. § 405.900 et seq. due to its egregious
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`delays in adjudicating the case which far exceed the statutory time-frames for adjudication and
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`9
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`caused severe harm to Plaintiff. Plaintiff was noticed of the initial determination in 2016. Plaintiff
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`has just now completed the administrative appeals process and it is 2021.
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`COUNT IV
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`AGENCY ACTION IS CONTRARY TO CONSTITUTIONAL RIGHT
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`37.
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`Provided the Court finds excusable neglect existed, Plaintiff argues the Agency
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`action is contrary to its constitutional rights.
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`38.
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`39.
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`Plaintiff hereby incorporates by reference paragraphs 1 through 36 herein.
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`Based upon the administrative record developed before the Agency, the final
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`decision is contrary to constitutional right, power, privilege, or immunity.
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`40.
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`Specifically, the Agency failed to adjudicate the appeal in accordance with the
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`requirements of 42 U.S.C. § 1395ff and 42 C.F.R. § 405.900 et seq., or to properly determine the
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`validity of each Medicare claim as well as the statistical sampling methodology.
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`41.
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`Notwithstanding the overwhelming evidence favoring Plaintiff, it is clear that
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`Defendant HHS usurps the physician’s role and the medical judgment of physicians in determining
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`that Plaintiff was not entitled to payment for durable medical equipment it had provided.
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`42.
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`Also, Defendant committed error by applying a non-technical interpretation of
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`statistics outside the range of developed and articulated governing mathematical concepts and
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`principles. Defendant HHS ignored the record evidence of its deficiencies and wrongly concluded
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`the methodology utilized met requirements and that the extrapolation was valid.
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`43.
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`Additionally, Defendant has effectively deprived the Plaintiff of the very
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`administrative process that is required under 42 U.S.C. § 1395ff(b)-(d) due to its egregious delays
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`in adjudicating the case which far exceed the statutory time-frames for adjudication and caused
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`severe harm to Plaintiff.
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`10
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`44.
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`Defendant committed further error by failing to overturn the statistical sampling for
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`the failure to notice affected beneficiaries as required by its own regulations.
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`COUNT V
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`AGENCY ACTION IS IN EXCESS OF STATUTORY AUTHORITY
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`45.
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`Provided the Court finds excusable neglect, Plaintiff also argues that the agency
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`action was in excess of its statutory authority.
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`46.
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`47.
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`Plaintiff hereby incorporates by reference paragraphs 1 through 44 herein.
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`Based upon the administrative record developed before the Agency, the final
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`decision is in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.
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`48.
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`Specifically, the Agency failed to adjudicate the appeal in accordance with the
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`requirements of 42 C.F.R. § 405.1100 et seq., or to properly determine the validity of each
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`Medicare claim as well as the statistical sampling methodology. The evidence of record supports
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`payment on the denied claims that comprise the sample.
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`49.
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`Notwithstanding the overwhelming evidence favoring Plaintiff, it is clear that
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`Defendant HHS usurps the physician’s role and the medical judgment of physicians in determining
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`that Plaintiff was not entitled to payment for durable medical equipment it had provided.
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`50.
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`Also, Defendant committed error by applying a non-technical interpretation of
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`statistics outside the range of developed and articulated governing mathematical concepts and
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`principles. Defendant HHS ignored the record evidence of its deficiencies and wrongly concluded
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`the methodology utilized met requirements and that the extrapolation was valid.
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`
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`51.
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`Additionally, Defendant has effectively deprived the Plaintiff of the very
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`administrative process that is required under 42 U.S.C. § 1395ff(b)-(d) due to its egregious delays
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`11
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`in adjudicating the case which far exceed the statutory time-frames for adjudication and caused
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`severe harm to Plaintiff.
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`52.
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`Defendant committed further error by failing to overturn the statistical sampling for
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`the failure to notice affected beneficiaries as required by its own regulations.
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`COUNT VI
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`AGENCY ACTION IS WITHOUT OBSERVANCE OF PROCEDURE
`AND IS UNSUPPORTED BY SUBSTANTIAL EVIDENCE
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`Provided the Court finds excusable neglect, Plaintiff argues that the Agency action
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`53.
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`is without observance of proper procedure and is unsupported by substantial evidence.
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`54.
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`55.
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`Plaintiff hereby incorporates by reference paragraphs 1 through 52 herein.
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`Based upon the administrative record developed before the Agency, the final
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`administrative decision is without observance of procedure required by law.
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`56.
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`Based upon the administrative record developed before the Agency, the final
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`administrative decision is unsupported by substantial evidence.
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`COUNT VII
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`VIOLATION OF THE STATUTORY LIMITATION ON RECOUPMENT
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`57.
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`Provided the Court finds excusable neglect, Plaintiff argues the Agency violated
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`the statutory limitation on recoupment.
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`58.
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`Plaintiff hereby incorporates by reference paragraphs 1 through 56 herein.
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`59. Defendant has effectively deprived Plaintiff of the very administrative process that
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`is required under 42 U.S.C. § 1395ff and 42 C.F.R. § 405.900 et seq., violated its Due Process
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`rights, and it also has deprived of it of the statutory protections against premature recoupment
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`under 42 U.S.C. § 1395ddd(f)(2).
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`12
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`60.
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`Indeed, Defendant has effectively deprived Plaintiff of its administrative appeal
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`rights and a meaningful opportunity to dispute and contest the alleged overpayment, while
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`collecting the overpayment under threat of illegal recoupment due to its egregious delays in
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`adjudicating the case which far exceed the statutory time-frames for adjudication and caused
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`severe harm to Plaintiff
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`COUNT VIII
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`DAMAGES
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`61.
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`As a direct and proximate result of Defendant’s conduct, Plaintiff suffered the
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`following damages:
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`62.
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`63.
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`a.
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`b.
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`actual damages.
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`lost profits.
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`EXEMPLARY DAMAGES
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`Plaintiff hereby incorporates by reference paragraphs 1 through 61 herein.
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`For Defendant’s egregious conduct towards Plaintiff and reckless disregard of
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`Plaintiff’s Due Process rights under law, Plaintiff seeks exemplary damages.
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`ATTORNEY FEES AND COSTS
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`64.
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`Plaintiff is entitled to an award of attorney fees and costs under the Equal Access
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`to Justice Act, pursuant to 28 U.S.C. § 2412(d)(1)(A), upon showing the applicant is a “prevailing
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`party”; a showing that the applicant is “eligible to receive an award”; and a statement of “the
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`amount sought, including an itemized statement from any attorney . . . stating the actual time
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`expended and the rate” charged. The prevailing party is entitled to such attorney fees unless the
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`government’s position was “substantially justified” or special circumstances make an award
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`unjust.
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`13
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`Case 4:21-cv-00529 Document 1 Filed 07/09/21 Page 14 of 15 PageID #: 14
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`PRAYER
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`65.
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`For these reasons, Plaintiff prays for judgment against Defendants and setting aside
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`the Secretary’s final agency action as unlawful based upon the following reasons:
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`a.
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`b.
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`c.
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`d.
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`e.
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`f.
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`g.
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`h.
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`i.
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`j.
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`k.
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`l.
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`excusable neglect existed and therefore, the MAC should not have denied
`the request for review;
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`the Agency action is arbitrary, capricious, an abuse of discretion, or
`otherwise not in accordance with law;
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`the Agency action is a violation of Plaintiff’s procedural Due Process of
`law;
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`the Agency action is contrary to constitutional right, power, privilege, or
`immunity;
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`the Agency action is in excess of statutory jurisdiction, authority, or
`limitations, or short of statutory right;
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`the Agency action is without observance of procedure required by law;
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`the Agency action is unsupported by substantial evidence;
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`the Agency committed a violation of the statutory limitation on recoupment;
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`assess damages and exemplary damages against Defendant;
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`assess prejudgment and post-judgment interest against Defendant;
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`assess reasonable attorney fees and costs of suit;
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`for such other and further relief as the Court may deem just and proper under
`law.
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`14
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`

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`Case 4:21-cv-00529 Document 1 Filed 07/09/21 Page 15 of 15 PageID #: 15
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`Dated this 9th day of July, 2021.
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`Respectfully submitted,
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`KENNEDY
`Attorneys & Counselors at Law
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`/s/ C. Trey Scott
`__________________________
`MARK S. KENNEDY
`State Bar of Texas No. 24000122
`LURESE A. TERRELL
`State Bar of Texas No. 24008139
`C. TREY SCOTT
`State Bar of Texas No. 24083821
`12222 Merit Drive, Suite 17500
`Dallas, TX 75251
`Telephone: (214) 445-0740
`Fax: (972) 661-9320
`trey@markkennedylaw.com
`
`ATTORNEYS FOR PLAINTIFF
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`15
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`

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