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Unitedhealthcare Insurance Co. v. Price

United States District Court, District of Columbia

March 31, 2017

UNITEDHEALTHCARE INSURANCE COMPANY, et al., Plaintiffs,
v.
THOMAS E. PRICE, M.D., Secretary of the Department of Health and Human Services, et al. Defendants.

          MEMORANDUM OPINION

          ROSEMARY M. COLLYER United States District Judge.

         The 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.

         Defendants 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].

         Despite 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.

         I. BACKGROUND

         The 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.

         Congress 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.

         Unfortunately, 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. ¶ 42.

         Nonetheless, 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.

         In the 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.

         Plaintiffs 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.”[1] Id. ¶ 50.

         Within 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.

         In 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.

         After 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 “knowingly”).

         Plaintiffs 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.

         The merits of the case are not before the Court at this time. The present issue is whether the Plaintiffs, as Medicare Advantage ...


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