On June 27, 2024, the Supreme Court issued an opinion of potentially vast importance in Securities and Exchange Commission v. Jarkesy, holding that when the Securities and Exchange Commission (SEC) seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial in an Article III federal court. As a result, the Court struck down as unconstitutional the SEC’s administrative adjudication process, wherein the SEC could pursue an action for civil penalties either in federal court, or through the administrative process, where the case would ultimately be decided by an administrative law judge (ALJ) rather than a jury.
As soon as the Court issued its decision in Jarkesy, Mny in the healthcare industry began speculating—might the Court’s reasoning apply equally to Medicare’s administrative appeal process such that it, too, might be unconstitutional? As of this moment, there is no obvious answer to that question, but there are certainly tidbits from the Jarkesy decision that seem to indicate that the Court might extend its reasoning to some types of Medicare appeals.
To better analyze whether the reasoning from Jarkesy would apply in the Medicare appeals context, it is important to understand the reasoning behind the Court’s holding. The Court broke down its analysis in two parts. The first question that the Court addressed was whether the Seventh Amendment applied at all. The Court relied heavily on its 1989 decision in Granfinanciera, S.A. v. Nordberg. In Granfinanciera, the Court held that “[a]ctions by the Government to recover civil penalties under statutory provisions historically had been viewed as a type of debt requiring trial by jury.” Citing Granfinanciera, the Court in Jarkesy explained that to determine whether a monetary penalty is legal in nature, look at whether it is designed to punish or deter the wrongdoer, or, on the other hand, solely to “restore the status quo.” The Court continued: “As we have previously explained, ‘a civil sanction that cannot fairly be said solely to serve a remedial purpose, but rather can only be explained as also serving either retributive or deterrent purposes, is punishment.’”
The Court in Jarkesy concluded that because the civil penalties at issue were designed to “punish and deter” and not to compensate, the Seventh Amendment applied.
Next, the Court rejected the argument that, even if the Seventh Amendment applied, the “public rights” exception to the Amendment also applied. The Court held if a suit is in the nature of an action at common law such as fraud, then the matter presumptively concerns private rights, and adjudication by an Article III court is mandatory. The Court concluded:
A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator. Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch. That is the very opposite of the separation of powers that the Constitution demands. Jarkesy and Patriot28 are entitled to a jury trial in an Article III court. We do not reach the remaining constitutional issues and affirm the ruling of the Fifth Circuit on the Seventh Amendment ground alone.
So, does the Court’s analysis in Jarkesy apply to Medicare administrative appeals? It appears that the question would likely turn on whether the sanctions that Medicare is seeking through their administrative enforcement actions are remedial or punitive in nature. If this is, indeed, the dispositive factor, then the answer to the ultimate question may be that some Medicare administrative actions must be brought in an Article III federal court, while others can be adjudicated through the administrative process.
Specifically, Medicare actions seeking the imposition of civil monetary penalties as well as other administrative sanctions such as revocation of billing privileges and program exclusion for alleged wrongdoing would likely be considered punitive in nature and, therefore, would have to be brought in an Article III court pursuant to the Seventh Amendment. On the other hand, Medicare overpayment appeals, which are also subject to the administrative appeal process, might be subject to different treatment as these could be viewed as remedial in nature; the purpose being to compensate Medicare for the alleged overpayment rather than to punish or deter future misconduct.
At this early stage, it is uncertain what federal courts will say about this issue, and whether the Supreme Court will ultimately be asked to weigh in. In the meantime, in order to test and preserve the issue, attorneys handling Medicare administrative appeals should strongly consider raising a constitutional challenge to the administrative appeal process, citing the Seventh Amendment and Jarkesy in support.
For over 30 years, George W. Bodenger, Esquire has represented healthcare providers and suppliers nationwide in a variety of health law matters, including Medicare administrative appeals George regularly assists providers providers and suppliers in understanding new developments in healthcare law and regulation. If you have any questions, please contact George at <ahref=mailto:”gwb@bodengerlaw.com”>gwb@bodengerlaw.com</a> or 610.212.5031.