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Rocky Mountain Health Maintenance Organization, Inc. v. Price

United States District Court, District of Columbia

March 22, 2018

THOMAS E. PRICE, Defendant.


          Amit P. Mehta, United States District Judge

         This case concerns how much federal money Plaintiff Rocky Mountain Health Maintenance Organization is entitled to in reimbursement for delivering Medicare services. Plaintiff is a “cost-reimbursed” Health Maintenance Organization (“HMO”) that contracts with Defendant, the Secretary of Health and Human Services, to provide hospital, doctor, and patient care services to Medicare beneficiaries who are enrolled in its health care plans. Unlike some HMOs, Plaintiff does not directly deliver patient services to enrollees. Rather, it contracts with physicians and other suppliers for that purpose. Defendant reimburses Plaintiff for the “reasonable cost” of those services using a formula that estimates their total price tag.

         The manner in which Plaintiff calculates its federal reimbursement requests is at the heart of this dispute. Defendant takes issue with Plaintiff's inclusion of so-called “carrier-paid claims” within Plaintiff's cost reports that Plaintiff submitted to secure final reimbursement. These types of claims are deviations from the norm. Ordinarily, Plaintiff directly pays health care providers for patient care. In a minority of cases, however, the health care provider bills a Medicare contractor, known as a carrier, who processes the claim and pays the provider directly, thus leaving Plaintiff out of the payment process. This latter situation is known as a “carrier-paid claim.” Plaintiff included carrier-paid claims in its cost reports for a four-year period, which, according to Defendant, resulted in Plaintiff receiving a roughly $15.75 million windfall. Plaintiff, on the other hand, believes that the controlling Medicare regulation, 42 C.F.R. § 417.560(c) (“the Regulation”), allows the inclusion of carrier-paid claims in its reimbursement calculations. Therefore, Plaintiff asserts, it was entitled to receive the amount in dispute.

         In proceedings before the agency, Plaintiff challenged an auditor's decision to reduce Plaintiff's allowed reimbursements by $15.75 million for the four-year period on the ground that carrier-paid claims are not reimbursable. At first, Plaintiff found success. It convinced a panel of two Hearing Officers with the Centers for Medicare & Medicaid Services (“CMS”) that its interpretation of the Regulation was the correct one. Defendant, however, appealed the Hearing Officers' decision to the CMS Administrator, who reversed. The CMS Administrator concluded that Defendant's interpretation of the Regulation was sound and therefore Plaintiff had to repay the government for the overpayment. Plaintiff then filed this action challenging the Administrator's determination, contesting both the substance of the decision and the process used to reach it.

         For the reasons that follow, the court grants Plaintiff's Motion for Summary Judgment in part and remands this matter to Defendant to resolve two issues that Plaintiff raised during the agency proceedings but which the Administrator did not address: (1) whether the Administrator had the authority to review the Hearing Officers' decision; and (2) whether the Administrator's failure to complete its review within 60 days of the Hearing Officers' ruling caused the Hearing Officers' decision to become final. As a result of the decision to remand this matter, the court declines at this time to consider the parties' remaining contested disputes.


         A. Factual Background

         Plaintiff is an HMO that delivers medical services to its enrollees not directly, but through agreements with suppliers, physicians, and physician groups. Joint Appendix, ECF No. 20 [hereinafter JA], at 42.[1] Plaintiff's health care plans include both Medicare enrollees and non-Medicare enrollees. Id. at 154. As described below, Plaintiff's coverage of both types of insureds affects its total Medicare reimbursement.

         Plaintiff participates in the Medicare program as a cost-reimbursed HMO-one of only about 20 such organizations in the country. Id. at 41; see Pl.'s Mot. for Summ. J., ECF No. 14, Mem. in Supp., ECF No. 14-1 [hereinafter Pl.'s Mem.], at 3-4; Def.'s Cross-Mot. for Summ. J., ECF No. 15, Def.'s Mem. in Supp. [hereinafter Def.'s Mem.], ECF No. 15-1, at 5. As a cost-reimbursed HMO, Plaintiff is entitled by statute to reimbursement for the “reasonable cost” of the covered services it provides to its Medicare beneficiaries. See generally 42 U.S.C. § 1395mm(h) (setting terms for “reasonable cost reimbursement contract[s]”). The Medicare Act defines the “reasonable cost” of reimbursable services, in relevant part, as “the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services.” 42 U.S.C. § 1395x(v)(1)(A). The “cost actually incurred” is to “be determined in accordance with regulations establishing the method or methods to be used, and the items to be included.” Id. The Medicare Act also requires that regulations “provide for the making of suitable retroactive corrective adjustments” in instances where a provider's reimbursement under the methodology is “inadequate or excessive.” Id.; see also 42 C.F.R. § 417.576 (containing rules concerning “final settlement” of payments made to HMOs).

         Consistent with the Act, a cost-reimbursed HMO's “cost actually incurred” is determined by a formula. See 42 C.F.R. § 417.560(c). The controlling regulation, 42 C.F.R. § 417.560(c) (“the Regulation”), provides:

Medical services furnished under an arrangement that provides for the HMO . . . to pay on a fee-for-service basis. The Medicare share of the cost of Part B physician and supplier services furnished to Medicare enrollees under arrangements, and paid for by the HMO . . . on a fee-for-service basis, is determined by multiplying the total amount for all such services by the ratio of charges for covered services furnished to Medicare enrollees for the total charges for all such services.

Id. Thus, instead of calculating reimbursement on a “paid claims” basis-that is, billing Medicare for the actual amount the HMO pays to providers for services rendered[2]-the Regulation uses a different approach: It employs “service statistics” to apportion the “costs actually incurred” between Medicare enrollees and non-Medicare enrollees. See JA at 9. To determine the sum for which Medicare is responsible, per the Regulation, a cost-reimbursed HMO begins by calculating the total cost of all services, which includes both: (1) the direct costs associated with furnishing services to Medicare and non-Medicare enrollees, and (2) certain indirect costs, such as enrollment and operations costs. 42 C.F.R. § 417.560(c). That sum is then multiplied by the ratio of charges for covered services furnished to Medicare enrollees relative to the total charges for all covered services. Id. The product of that calculation results in the HMO's reimbursable “costs actually incurred” under the Medicare Act. See JA at 41-42, 46; see also 42 C.F.R. § 417.534(a) (defining “[a]llowable costs”).

         The issue at the heart of this case concerns an exception to the normal billing process for a cost-reimbursed HMO. Typically, physicians and other providers bill the HMO directly for the services rendered to the HMO's Medicare enrollees and, in turn, receive payments from the HMO. JA at 42. (The HMO later is reimbursed for those costs.) In a minority of cases, however, providers send their bills directly to Medicare carriers, rather than the HMO. Id. In these instances, the carriers pay the providers without involvement of the HMO. Id. Thus, the HMO incurs no out-of-pocket costs for those services, except perhaps a residual sum. Instances where a carrier pays providers directly, without the HMO's involvement, are known as “carrier-paid claims.” See, e.g., id.

         This case concerns four years of reimbursement requests-2006 through 2009-during which Plaintiff included carrier-paid claims in its cost reports. See id. at 42, 714-29. To be more precise, for those years, Plaintiff included the costs of carrier-paid claims in both the numerator and the denominator of the ratio discussed above. As a result, Plaintiff's reimbursement requests were larger than they would have been had Plaintiff not included carrier-paid claims in its calculations. See id. at 43, 48.

         B. Procedural Background

         1. Administrative Proceedings

         CMS discovered Plaintiff's inclusion of carrier-paid claims during an audit of Plaintiff's cost reports for the four years in question. Id. at 42-43 & n. 3, 715-29. The auditors deemed the carrier-paid claims not to be a “reasonable cost incurred” and removed them from Plaintiff's reimbursement request for those years, ...

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