United States District Court, District of Columbia
ROSEMARY M. COLLYER United States District Judge.
case before the Court is an action brought by a collection of
insurers operating under the UnitedHealthcare Insurance
Company umbrella (United) which are participating in the
Medicare Advantage Program. Under Medicare Advantage,
insurers provide Medicare insurance coverage in lieu of the
government itself. Defendants are (1) the Secretary for
Health and Human Services in her official capacity; (2) the
Centers for Medicare and Medicaid Services (CMS), a
constituent agency of HHS, which administers the Medicare
Advantage program; and (3) the United States of America. The
Plaintiffs challenge a recent CMS rulemaking concerning the
obligations of Medicare Advantage insurers.
have moved to dismiss for lack of subject matter jurisdiction
under Federal Rule of Civil Procedure 12(b)(1). See
Defs.' Mot. to Dismiss [Dkt 12] (Mot. to Dismiss).
Plaintiffs have opposed, see Pls.' Opp. [Dkt.
14] (Opp.), and Defendants have replied, see
Defs.' Reply [Dkt. 17] (Reply). Plaintiffs sur-replied,
see Pls.' Sur-Reply [Dkt. 19] (Pls.'
Sur-Reply), and Defendants sur-sur-replied, see
Defs.' Sur-Reply [Dkt. 21] (Defs.' Sur-Reply).
Finally, Defendants submitted a Notice of Supplemental
Authority [Dkt. 23], to which Plaintiffs have submitted a
Response [Dkt. 24].
the extensive briefing, the overarching questions before the
Court can be summarized as follows: (1) Has CMS's new
rule imposed a novel legal obligation on Plaintiffs, and, if
so, (2) under the existing circumstances, may Plaintiffs
challenge the rule in this Court without waiting for
Defendants to bring an enforcement action? For the reasons
stated below, the Court answers yes to both questions. It
therefore concludes that Plaintiffs have standing and will
deny Defendants' Motion to Dismiss. At this point, the
merits are not addressed.
Medicare Advantage (MA) program allows Medicare-eligible
individuals to receive healthcare benefits through private
insurance plans that have contracted with CMS. Compl. [Dkt.
1] ¶ 24. A Medicare Advantage insurer must provide, at a
minimum, the same level of benefits provided by Medicare
itself. Id. ¶ 26. Medicare Advantage insurers
reimburse healthcare providers for services to Medicare
beneficiaries covered by a Medicare Advantage insurer; the
Medicare Advantage insurers are reimbursed themselves by CMS
on a pre-set, per-member-per-month basis. Id.
requires CMS to pay Medicare Advantage insurers in a manner
that “ensures actuarial equivalence” between
Medicare and Medicare Advantage plans. Id. ¶
32, see 42 U.S.C. § 1395w-23(a)(1)(C)(i). To do
this, CMS first calculates the average monthly expenditure
for the average Medicare beneficiary. Compl. ¶ 30.
However, because not all Medicare beneficiaries are the same,
CMS then adjusts these baseline repayments according to the
beneficiary profile of particular Medicare Advantage plans.
Id. ¶ 32. To make these adjustments, CMS
gathers demographic data as well as health history data, the
latter of which are primarily provided to CMS by the Medicare
Advantage insurer. Id. ¶ 33. Specifically,
health history data relies on specific diagnostic codes
submitted by the healthcare providers to the Medicare
Advantage insurers. Id. ¶ 34. These diagnostic
codes can vary in granularity and content, and serve as a
rough guide to what services have been provided by healthcare
professionals to a patient. Id. The diagnostic codes
are designated by healthcare providers to reflect patient
conditions and medical needs and then sent to the Medicare
Advantage insurers as part of the billing process.
Id. The Medicare Advantage insurers compile these
codes and submit them to CMS, which uses the data to make
adjustments to its monthly payment based on the relative
health of a particular Medicare Advantage insurer's
enrollees. Id. In theory, if a Medicare Advantage
insurer's enrollee had diagnosis codes that suggested a
20% higher annual coverage cost than the average Medicare
beneficiary, the monthly payment to that Medicare Advantage
insurer would be adjusted upwards to cover that cost.
Id. ¶ 36.
diagnostic codes in healthcare records are often miscoded,
inappropriately added, or otherwise faulty. Medical
professionals often cite incorrect diagnostic codes when
preparing their billing, and Plaintiffs suggest that the
error rate can be as high as 20%. Id. ¶ 38. In
the past, neither CMS nor the Plaintiffs made efforts to
review categorically the diagnostic codes assigned by
healthcare providers to individual patients. Id.
¶ 40. As a result, CMS has treated the diagnostic codes
as conclusively valid for its own payment purposes.
Id. Regulations oblige Medicare Advantage insurers
to certify “based on best knowledge, information and
belief” that the information they provide to CMS,
including the diagnostic codes included in the Medicare
Advantage insurers' risk adjustment data, are
“accurate, complete and truthful.” Id.
¶ 41; 42 C.F.R. § 422.504(l)(2). However,
Plaintiffs allege that neither this preexisting regulation,
nor any other regulation, has in the past obligated Medicare
Advantage insurers to validate diagnostic codes
independently. Compl. ¶ 42. They assert that Medicare
Advantage providers have not heretofor reviewed the
underlying medical information from which particular
diagnostic codes arose, and neither has CMS. Id.
it is widely known that the entry of diagnostic codes by
medical professionals is often faulty. In order to adjust for
mistakes-as well as fraud-CMS conducts what are known as Risk
Adjustment Data Validation (RADV) audits. Id. ¶
45. Every year, CMS selects a group of Medicare Advantage
insurers for audit, id., and reviews the underlying
medical charts for a sample of each insurer's
beneficiaries to determine whether the medical charts justify
the diagnostic codes. Id. ¶¶ 46, 47. To
the extent these adjustments result in a corrected risk
score, monthly payments are adjusted accordingly.
Id. ¶ 47. The results of these audits are
extrapolated for Medicare Advantage insurers generally to
calculate an average estimated error rate for the year.
Id. ¶ 47. If the error rate is positive-if a
Medicare Advantage insurer is being reimbursed for more
services than were provided-the insurer is responsible for
returning any overpayment to CMS. Id. ¶ 48.
past, CMS proposed requiring overpayment returns on an
absolute basis, which would have meant that any errors found
by an audit would be subject to return by the Medicare
Advantage insurer if it resulted in an overpayment.
Id. ¶ 49. Ultimately however, CMS included a
“Fee-For-Service adjuster” (FFS adjuster) arising
from CMS payments to Medicare beneficiaries, which reflects
the expected error rate in the use of diagnostic codes relied
upon by Medicare. The FFS adjuster reflects CMS's own
estimate of the average error in diagnostic codes for its
Medicare participants and essentially acts as a buffer for
overpayments; Medicare Advantage providers are thereby only
responsible for overpaying for any errors above and beyond
CMS's own estimated error rate. Medicare Advantage plans
run the risk of needing to return overpayments if the
diagnostic codes they submit are unusually error-prone
compared to Medicare's reliance on diagnostic codes.
state that the FFS adjuster works to counteract the fact that
initial payments to Medicare Advantage insurers are based on
a less precise set of data than that which is reviewed during
an audit. Plaintiffs also state that the FFS adjuster was
added at the urging of the American Academy of Actuaries to
ensure that CMS would fulfill its statutory obligation to
treat Medicare Advantage insurers with “actuarial
equivalence.” Id. ¶ 50.
this context, Congress passed the Affordable Care Act (ACA)
in 2010. Pub. L. No. 111-148, 124 Stat. 119 (2010). As
relevant here, the ACA imposed an obligation on insurers that
receive federal payments to report and return overpayments
that the insurers discover on their own. See Pub. L.
No. 111-148, § 6402, 124 Stat. at 755-56, codified at 42
U.S.C. § 1320a-7k(d)(1) (2012). This section of the ACA
defines “overpayment” as “any funds that a
person receives or retains under [Medicare] to which the
person, after applicable reconciliation, is not
entitled.” Id. § 1320a-7k(d)(4)(B). It
further requires that any “overpayment . . . be
reported and returned [within] 60 days after the date on
which the overpayment was identified.” Id.
§ 1320a-7k(d)(2). Under the law, if a Medicare Advantage
insurer fails to return an overpayment within 60 days of
identifying it, that failure would render the insurer's
initial but faulty claim for payment a violation of under the
False Claims Act (FCA). Id. §
1320a-7k(d)(3)(“Any overpayment retained by a person
after the deadline for reporting and returning the
overpayment . . . is an obligation (as defined in section
3729 (b)(3) of title 31) for purposes of section 3729 of such
title.”); see False Claims Act, 31 U.S.C.
§ 3729 et seq. (2012). False Claims
Act claims carry with them the potential for treble damages
and civil penalties, and can result in disbarment from
Medicare. See Compl. ¶ 58. Further,
nongovernment qui tam plaintiffs may bring FCA
claims in federal court. Id. ACA § 6402 lays
out a basic statutory framework, but leaves several terms
undefined. For example, it does not defined what
“identified” means for triggering the 60-day
clock, see Compl. ¶ 57, nor state explicitly
whether “overpayments” are intended to
incorporate an FFS adjustor threshold as do RADV audits.
order to implement ACA § 6402, CMS issued a notice of
proposed rulemaking in January 2014. Compl. ¶ 59;
see Medicare Program; Contract Year 2015 Policy and
Technical Changes to the Medicare Advantage and the Medicare
Prescription Drug Benefit Programs, 79 Fed. Reg. 1918 (Jan.
10, 2014). CMS proposed a new regulation, 42 C.F.R. §
422.326, titled “Reporting and Returning Overpayments,
” that was intended to “clarify the statutory
definition of overpayment.” 79 Fed. Reg. at 2055-56,
1996; see Compl. ¶ 59.
engaging in notice and comment, CMS published the final rule
in May 2014, which finalized 42 C.F.R. § 422.326
concerning overpayments (the CMS Rule). See Medicare
Program; Contract Year 2015 Policy and Technical Changes to
the Medicare Advantage and the Medicare Prescription Drug
Benefit Programs, 79 Fed. Reg. 29, 844 (May 23, 2014). Under
the CMS Rule, any inadequately documented diagnostic code not
supported by underlying medical documentation will result in
an overpayment. Id. at 29, 921. Further, the CMS
Rule specified that any overpayment would be considered
“identified” when a Medicare Advantage insurer
determined, or should have determined through
reasonable diligence, that it had received an overpayment.
Id. at 29, 923. CMS further stated that reasonable
diligence would require “at a minimum . . . proactive
compliance activities conducted in good faith by qualified
individuals to monitor for the receipt of payments.”
Id. Plaintiffs allege that these obligations apply a
negligence standard for purposes of False Claims Act
liability. See Compl. ¶ 78. They allege further
that this is a lower standard than that actually required by
the FCA, which contains a recklessness standard.
Id.; see False Claims Act, 31 U.S.C. §
3729(b) (defining “knowing” and
also contend that the CMS Rule, which does not adopt the
“FFS adjuster” buffer that exists in RADV audits,
violates the statute's requirement that Medicare
Advantage insurers be treated with “actuarial
equivalence” to CMS and, instead, subjects them to a
more searching form of scrutiny than CMS applies to its own
enrollee data. Compl. ¶ 80. By requiring Medicare
Advantage insurers to confirm diagnostic codes through review
of underlying medical charts-while not conducting such
reviews under Medicare proper-CMS allegedly will
systematically underpay for beneficiaries' care to
Medicare Advantage insurer plans compared to payments if that
same beneficiary were in a traditional Medicare plan.
Id. ¶ 81. Plaintiffs also argue that, by
applying what amounts to a “negligence” standard
of liability, the CMS Rule “cannot be squared with the
language of the Act.” Id. ¶ 78.
merits of the case are not before the Court at this time. The
present issue is whether the Plaintiffs, as Medicare