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Unitedhealthcare Insurance Co. v. Azar

United States District Court, District of Columbia

August 1, 2018

UNITEDHEALTHCARE INSURANCE COMPANY, et al., Plaintiffs,
v.
ALEX M. AZAR II, in his official capacity as Secretary of the Department of Health and Human Services, et al., Defendants.

          MEMORANDUM OPINION ON MOTION TO SUPPLEMENT THE ADMINISTRATIVE RECORD

          ROSEMARY M. COLLYER UNITED STATES DISTRICT JUDGE

         The UnitedHealthCare Insurance Company challenges a formal rule issued by the Centers for Medicare and Medicaid Services (CMS). When CMS filed the administrative record, Plaintiffs protested the absence of two documents which had been released by CMS under the Freedom of Information Act in another matter. CMS contends that the two documents are not properly part of the administrative record for this rulemaking and that they are privileged by the deliberative process privilege. The Court concludes that the documents, as redacted upon release, are no longer privileged and should be made part of the record here.

         I. BACKGROUND

         Plaintiffs in this case are Medicare Advantage organizations in the United Health Group family of companies, the nation's leading provider of Medicare Advantage health benefits plans (United). Under the Medicare Advantage program (MA), also known as Medicare Part C, private insurance companies provide Medicare insurance coverage to eligible individuals and are reimbursed by CMS on a pre-set, per-member-per-month basis, pegged to a dollar value for health care attributed to each diagnostic code submitted by medical providers, and adjusted based on demographic data. CMS undertakes various efforts to review and audit these reimbursements to ensure their accuracy.

         By law, CMS is to pay MA insurers at rates that ensure “actuarial equivalence” with what Medicare pays directly for similar health care to participants in traditional Medicare, also called “fee-for-service” or FFS Medicare, or Medicare Part A and Part B. 42 U.S.C. § 1395w-23(a)(1)(C)(i). Codes covering all manner of diagnoses are used by Medicare and MA to identify the illnesses or conditions affecting the covered populations. Given the millions of participants in Medicare, it is only to be expected that some diagnostic codes will be reported in error for a patient who does not have that illness or condition; in addition, Medicare suffers from some rate of fraud whereby health care providers intentionally report erroneous diagnoses to increase their repayments. As a result of these two factors, it is inevitable that Medicare experiences an error rate-that is, a proportion of diagnosis codes that are unsupported in underlying medical charts-that can be actuarially calculated and/or predicted.

         CMS sets the rates to be paid to MA insurers according to the amounts Medicare itself pays directly to providers for the same diagnoses, without regard to the Medicare error rate for unsupported diagnoses. In January 2014, CMS published a notice of proposed rulemaking to affect MA insurers. See 79 Fed. Reg. 1918-01 (Jan. 10, 2014). “The proposed rule also include[d] several provisions designed to improve payment accuracy.” Id. at 1918. After receiving comments, CMS published a Final Rule concerning MA overpayments. 79 Fed. Reg. 29844 (May 23, 2014) (2014 Overpayment Rule). The 2014 Overpayment Rule, challenged here, requires MA insurers to return to CMS payments that were based on incorrect diagnostic codes once the insurer discovers, or through reasonable diligence should have discovered, the error in any individual patient's chart. See Id. at 29923-24. Failure to do so exposes an insurer to a charge of having violated the False Claims Act, 31 U.S.C.A. § 3729, which can lead to treble damages, civil penalties, and debarment from federal contracts. Since a similar no-error standard is not applied by CMS in paying traditional Medicare providers, United alleges that MA insurers are not being reimbursed on an actuarially equivalent rate and that the 2014 Overpayment Rule must, perforce, be vacated.

         CMS studied just such an issue in a separate 2012 rulemaking, which concerned an audit program to determine the diagnostic accuracy of medical charts for MA beneficiaries. In these “risk adjustment data validation, ” or RADV, audits, CMS reviews the medical records of a small sample of the patients covered by an MA insurance contract and then extrapolates the error rate of the sample to the entire population covered by that contract to determine whether the insurer had received an aggregate overpayment. As explained by CMS, “RADV audits determine whether the diagnosis codes submitted by MA organizations can be validated by supporting medical record documentation. . . . Diagnoses that cannot be validated contribute to a payment error rate.” Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation Contract-Level Audits (Feb. 24, 2012) (Notice of Final Methodology), AR 005311. On December 20, 2010, CMS posted on its website a request for comments titled “Medicare Advantage Risk Adjustment Data Validation (RADV) Notice of Payment Error Calculation Methodology for Part C Organizations Selected for Contract-Level RADV Audits: Request for Comment.” AR 005020. After receiving more than 500 comments, CMS determined that it needed to include a “Fee-for-Service Adjuster” (FFS Adjuster) in the RADV audit process: when an RADV audit results in a determination that an MA insurer was paid based on unsupported diagnosis codes, the repayment the MA insurer owes to the government is adjusted downwards based on an estimated traditional Medicare payment error rate.[1] CMS explained the rationale for including an FFS Adjuster in auditing payments to MA insurers:

The FFS adjuster accounts for the fact that the documentation standard used in RADV audits to determine a contract's payment error (medical records) is different from the documentation standard used to develop the Part C risk-adjustment model (FFS claims). The actual amount of the adjuster will be calculated by CMS based on a RADV-like review of records submitted to support FFS claims data.

         Notice of Final Methodology, AR 005314-15. This explanation reflected that an RADV audit determines a payment error rate based on actual medical records while the risk-adjustment model on which per-diagnosis rates are developed and paid is based on unaudited FFS claims. In 2012, CMS apparently intended to develop RADV-like audits of its own FFS claims data. As far as the record shows, that has not happened yet.

         The fact that CMS considered and adopted the FFS Adjuster in the context of RADV audits forms the basis for the motion to augment the administrative record for the 2014 Overpayment Rule. United obtained two documents originally disclosed to a third party through a request under the Freedom of Information Act (FOIA), 5 U.S.C. § 552, seeking records comprised of meeting materials in the files of certain named individuals, all but one of whom served as senior decisionmakers at CMS between the years 2011 and 2014 when the RADV audit methodology was under consideration. See Declaration of Daniel Meron (Meron Decl.) [Dkt. 44-1] ¶¶ 9-13; see also Joint Status Report ¶ 5(b), Schulte v. HHS, No. 14-cv-887 (D.D.C. Jan 15, 2016), ECF No. 30 (noting that the request included “meeting materials dated after January 1, 2012” of these decisionmakers).[2] The two FFS Adjuster Documents, a slideshow and a bullet-point-style briefing memorandum, describe the reasoning behind the FFS Adjuster for RADV audits. Neither document is included in the Administrative Record submitted by CMS for the 2014 Overpayment Rule.

         United moves to add both documents to the administrative record. Mot. for Leave to File Suppl. to the Admin. Record (Mot.) [Dkt. 44]. Defendants opposed that motion, Mem. in Opp'n to Mot. for Leave to File a Suppl. to the Admin. Record (Opp'n) [Dkt. 45], to which Plaintiffs replied. Reply to Opp'n to Mot. for Leave to File Suppl. to the Admin. Record (Reply) [Dkt. 48]. Defendants also moved to file a surreply in opposition. Defs.' Mot. for Leave to File a Surreply in Opp'n to Pls.' Mot. to Suppl. the Admin. Record (Surreply Mot.) [Dkt. 54]; Proposed Surreply [Dkt. 54-1].

         II. LEGAL STANDARD

         The Administrative Procedure Act (APA) requires reviewing courts to “set aside agency action, findings, and conclusions found to be . . . arbitrary, capricious, abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706 (2012). When reviewing an agency action under the APA, a court must “review the whole record or those parts of it cited by a party.” Id. Review “is to be based on the full administrative record that was before the [agency] at the time [it] made [its] decision.” Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 420 (1971), abrogated on other grounds by Califano v. Sanders, 430 U.S. 99 (1977). The full administrative record “include[s] all documents and materials that the agency directly or indirectly considered, ” Animal Legal Def. Fund v. Vilsak, 110 F.Supp.3d 157, 159 (D.D.C. 2014), and a court “should have before it neither more nor less information than did the agency when it made its decision.” Walter O. Boswell Mem'l Hosp. v. Heckler, 749 F.2d 788, 792 (D.C. Cir. 1984).

         Because an agency is in the best position to know on what bases it made its decision, “[t]he record that an agency produces ‘is entitled to a strong presumption of regularity.'” Univ. of Colo. Mem'l Hosp. v. Burwell, 151 F.Supp.3d 1, 12 (D.D.C. 2015) (quoting Marcum v. Salazar, 751 F.Supp.2d 74, 78 (D.D.C. 2010)). However, supplementation of the record is appropriate where certain “unusual circumstances” exist. Lee Mem'l Hosp. v. Burwell, 109 F.Supp.3d 40, 47 (D.D.C. 2015). The United States Court of Appeals for the District of Columbia Circuit has found “at least three” circumstances in which such “unusual circumstances” might exist: “(1) the agency deliberately or negligently excluded documents that may have been adverse to its decision; (2) the district court needed to supplement the record with background information in order to determine whether the agency considered all of the relevant factors; or (3) the agency failed to explain administrative ...


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