The Sixth Circuit Just Ruled for Hospices on the “Safe Harbor”: What It Means for Your Audit Defense

The Sixth Circuit’s decision in In Home Health, LLC v. Kennedy gives hospice providers an important new framework for defending reasonable, good faith eligibility decisions. The ruling rejects the idea that simply knowing an LCD exists automatically creates repayment liability. For hospice owners, the practical priority is to connect clinical reasoning, documentation, audit defense, and buyer readiness before a dispute or transaction exposes avoidable risk.

8/23/20268 min read

This article explains the Sixth Circuit’s July 27, 2026 decision in In Home Health, LLC v. Kennedy and what its Medicare safe harbor ruling means for hospice audit defense. It also shows how the decision may affect documentation priorities, buyer underwriting, valuation, and exit readiness for hospice owners.

Quick Scan Summary

Who this is for

Hospice owners and operators with approximately $2 million to $10 million in annual revenue
Owners facing post payment reviews, repayment demands, or heightened Medicare scrutiny
Hospice entrepreneurs considering a sale, succession plan, or strategic partnership
Leadership teams seeking to reduce compliance risk before buyer diligence

Key takeaways

The Sixth Circuit covers Kentucky, Michigan, Ohio, and Tennessee.
On July 27, 2026, it became the first federal appellate court in the country to address this Medicare limitation on liability question in the hospice context.
A provider’s awareness of a Local Coverage Determination, or LCD, does not automatically eliminate safe harbor protection.
Administrative law judges must evaluate whether the provider’s interpretation was reasonable and made in good faith for each claim and coverage period.
The ruling does not excuse poor documentation, unreasonable billing, fraud, or clearly unsupported hospice eligibility decisions.
A well organized audit record can help protect both reimbursement and enterprise value when a buyer underwrites compliance risk.

The ruling in plain English

The case involved In Home Health, a Medicare certified hospice provider that faced nearly $1 million in alleged overpayments after Medicare contractors denied hundreds of hospice claims.

The disputed claims involved LCD 33393, a Medicare coverage determination describing clinical indicators that may support a terminal prognosis. The LCD includes factors such as functional decline, weight loss, recurring infections, increased dependence with activities of daily living, and other evidence of deterioration.

The administrative law judge upheld coverage denials for 104 claims and rejected the provider’s protection under the Medicare safe harbor. The ALJ reasoned that In Home Health should have known the applicable Medicare guidance and documentation standards.

The Sixth Circuit found that approach legally incorrect. The court vacated the lower court’s judgment and remanded the case for a new safe harbor analysis.

The court’s opinion is available in the official Sixth Circuit decision.

What the Medicare safe harbor protects

The safe harbor is more accurately called Medicare’s limitation on liability provision. Under 42 U.S.C. § 1395pp, a provider may avoid repayment when it did not know, and could not reasonably have been expected to know, that Medicare would not pay for the services.

Congress expressly applied this protection to hospice care when a provider could not reasonably have been expected to know that an individual was not terminally ill.

The statute recognizes a basic reality of hospice care. A terminal prognosis of six months or less is clinically important, but it is not always black and white. The Sixth Circuit described this as a “grey area of prognostication.” Physicians must make decisions based on the patient’s clinical picture at the time of certification and recertification. An auditor may reach a different conclusion after reviewing the record years later.

The safe harbor does not mean every hospice claim is payable. It separates two questions:

Did the patient meet Medicare’s coverage requirements?
If Medicare later determines the patient did not qualify, should the hospice be financially responsible for repayment?

The Sixth Circuit held that the second question cannot be answered merely by stating that the hospice knew an LCD existed.

What the Sixth Circuit changed

The court rejected a blanket rule that a provider’s awareness of an LCD or Medicare notice automatically establishes knowledge of noncoverage.

Instead, an ALJ must ask whether the provider could reasonably have interpreted the relevant notice or local standard of practice as covering the specific claim.

The standard has three important parts.

Clear notice defeats the safe harbor

If Medicare guidance clearly communicated that a particular service or claim was not covered, the provider cannot reasonably argue that the denial was unexpected.

Unreasonable interpretations are not protected

The safe harbor is not a shield for unsupported billing. If a provider’s interpretation of Medicare guidance was objectively unreasonable, limitation on liability protection may not apply.

Reasonable but incorrect interpretations may be protected

If a provider reasonably and in good faith interpreted Medicare notices and clinical standards as supporting a patient’s hospice eligibility, the safe harbor may protect the provider from repayment even if Medicare later disagrees.

As Husch Blackwell explained, the ruling means that “if a provider reasonably, albeit incorrectly, interpreted the Medicare notices and standards as covering a patient’s claim, then the safe harbor saves them from liability.”

The court also made clear that ALJs must conduct individualized, case by case determinations. Generalized statements that a hospice had constructive knowledge are not enough. As Husch Blackwell attorney Zaina Niles put it, “It’s not enough to just give a blanket statement that the provider had constructive notice.”

Why this matters now

Hospice owners are operating in an unusually aggressive enforcement environment. CMS has suspended payments involving hundreds of hospices in connection with suspected fraud, with industry reporting tying the action to approximately 773 hospices and more than $70 million in suspended payments.

Those figures do not mean every affected hospice engaged in fraud. They do show how quickly payment disruption, post payment denials, and regulatory scrutiny can threaten a hospice’s financial stability.

Even agencies with strong clinical documentation and regular compliance education may face review. A retrospective auditor may question a prognosis, interpret an LCD differently, or view a period of clinical stability as inconsistent with terminal eligibility.

The Sixth Circuit ruling gives compliant hospice operators a stronger audit defense framework. It also creates a more useful way to organize the evidence:

What did the clinical team know at the time?
What guidance did the team review?
How did the patient’s condition align with the relevant clinical indicators?
Why was the eligibility decision reasonable at that time?
Was the conclusion documented consistently across physician certifications, nursing notes, recertifications, and interdisciplinary team records?

Documentation priorities for hospice owners

The ruling makes contemporaneous reasoning more important, not less.

A certification that simply states a patient is terminally ill may not be enough. The medical record should connect the prognosis to specific clinical facts and show how those facts changed over time.

Hospice operators should prioritize:

A clear narrative supporting the six month prognosis
Consistent physician certification and recertification language
Trend data for weight, functional status, infections, hospitalizations, and activities of daily living
Reconciliation of conflicting measurements or clinical observations
Documentation of the interdisciplinary team’s reasoning
Evidence that staff reviewed applicable LCDs and Medicare guidance
A written process for identifying stabilization, improvement, or potential discharge
Organized responses to additional documentation requests and prior audits
Records of compliance education and attendance
A claim level index that allows the team to retrieve the relevant evidence quickly

An anonymized example illustrates the difference. Consider an owner whose hospice generates $4 million in annual revenue. The agency has good clinical outcomes, but its recertification notes often repeat the same general language. When an auditor questions eligibility, the owner can explain the clinical decisions but cannot quickly connect each decision to measurable trends in the record.

That agency may ultimately have a defensible position. However, the absence of an organized record creates avoidable uncertainty. A buyer may treat the uncertainty as financial exposure even before a repayment liability is established.

Valuation implications for hospice owners

A legal defense and a buyer’s underwriting process are related, but they are not identical.

The Sixth Circuit’s decision may improve the quality of an audit defense. A buyer will still ask whether the agency has unresolved audits, repayment demands, clinical documentation weaknesses, or a pattern of denials.

Consider this illustrative scenario:

Normalized EBITDA is $1.2 million.
A buyer is prepared to underwrite the hospice at 5 times EBITDA.
The implied valuation is $6 million.
During diligence, the buyer identifies unresolved documentation concerns and assumes additional repayment and integration risk.
The buyer reduces the multiple to 4.25 times EBITDA.
The revised valuation is $5.1 million.

That difference is $900,000.

A stronger record may not eliminate every audit issue, but it can help show that clinical decisions were reasonable, consistent, and made in good faith. If the buyer becomes comfortable underwriting the agency at 5.5 times EBITDA instead, the valuation would be $6.6 million. The difference between 4.25 times and 5.5 times on $1.2 million of EBITDA is $1.5 million.

These are illustrative examples, not a prediction of market multiples. The central point is practical: unresolved compliance uncertainty can affect both the buyer’s view of EBITDA quality and the multiple applied to that EBITDA.

Husch Blackwell partner Joe Diedrich described the ruling as “hugely persuasive for all other pending federal court cases and even ALJ cases.” Bryan Nowicki said the “scales” could be tilting in favor of providers and that the decision may “prove to be a difference maker.”

For owners considering a sale, the decision should prompt preparation rather than complacency.

What buyers will underwrite

A buyer such as Senate Healthcare will distinguish between a defensible clinical judgment and a pattern of weak controls.

During diligence, a buyer is likely to examine:

Audit history and current repayment exposure
Denial rates by review type and payer
The percentage of sampled charts with eligibility gaps
Consistency among certifications, recertifications, nursing notes, and care plans
Live discharge and revocation patterns
The role of the medical director and key clinical leaders
Compliance training records
Reliance on the owner to resolve documentation problems
Whether corrective actions were implemented and tested
Whether potential liabilities are reflected in the financial statements

Owners can review Senate Healthcare’s due diligence readiness checklist before beginning a sale or partnership discussion.

So what should you do now?

Pull a representative sample of 30 to 50 hospice charts and review them against the relevant LCD and Medicare documentation standards.
Create a claim level audit file that explains the clinical reasoning available at certification and recertification.
Separate coverage disputes from liability analysis when responding to an audit or repayment demand.
Disclose known audit exposure early when exploring a transaction and prepare a documented explanation of the agency’s corrective actions.

Partnering with Senate Healthcare

Senate Healthcare is the buyer and strategic partner pursuing hospice agency acquisitions. We are not a broker, agent, or listing service.

We understand that many hospice owners are balancing regulatory pressure, succession concerns, staff retention, and the responsibility of protecting patients and families. Your agency does not need to be perfect before beginning a confidential conversation. What matters is understanding the risks, documenting the facts, and creating a realistic path toward a sale or partnership.

Senate Healthcare works directly with owners to evaluate potential acquisitions, reduce avoidable transaction risk, support continuity of care, and protect the long term value of the business. Learn more about Senate Healthcare’s acquisition and partnership approach.

Plain Language Glossary

ALJ: An administrative law judge who reviews disputes involving Medicare claims and other federal program decisions.
LCD: A Local Coverage Determination. It explains how a Medicare contractor evaluates whether certain services meet coverage requirements.
Limitation on liability: A Medicare rule that may prevent a provider from repaying an overpayment when the provider could not reasonably have known the service would not be covered.
Safe harbor: A common name for the limitation on liability protection under 42 U.S.C. § 1395pp.
Post payment review: An audit conducted after Medicare has already paid a claim.
Buyer underwriting: The process a buyer uses to evaluate financial performance, compliance exposure, future cash flow, and transaction risk.
Normalized EBITDA: A buyer’s estimate of sustainable operating earnings after removing unusual or nonrecurring items.
Multiple: The number applied to EBITDA to estimate enterprise value.

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