United States District Court, District of Columbia
ROCKY MOUNTAIN HEALTH MAINTENANCE ORGANIZATION, INC., Plaintiff,
ALEX M. AZAR, II, Defendant.
P. Mehta United States District Court Judge.
Rocky Mountain Health Maintenance Organization challenges an
adverse decision by the Administrator of the Centers for
Medicare & Medicaid Services (“CMS”), finding
that Plaintiff received nearly $16 million in excess Medicare
reimbursement over a four-year period. Following an initial
round of summary judgment briefing, the court declined to
reach the merits of the parties' dispute and instead
remanded the matter to the agency to resolve two issues. The
first was whether the Administrator had the authority to
review and reverse the decision of two CMS Hearing Officers,
who held that CMS had not over-reimbursed Plaintiff. The
second was whether, under the relevant regulations, the
Administrator's failure to complete review of the Hearing
Officers' ruling within 60 days caused the Hearing
Officers' decision to become final. The Administrator
answered the court's first question “yes” and
the second question “no.” In other words, the
Administrator ruled that she possessed the authority to
review the CMS Hearing Officers' decision, but that their
decision did not become final merely because the
Administrator took more than 60 days to overrule it.
case now returns to the court, with Plaintiff also contesting
the Administrator's rulings on the two remanded issues.
Once again, the court does not reach the merits of the
Administrator's decision that Plaintiff received
excessive reimbursement. Instead, the court finds that, under
controlling CMS regulations, the CMS Hearing Officers'
decision became final when the Administrator failed to act
within 60 days of Plaintiff's receipt of the ruling. The
Administrator's reversal determination therefore exceeded
her authority. Consequently, the court grants summary
judgment in favor of Plaintiff and against Defendant.
recitation of the factual background in this matter may be
found in the court's March 22, 2018, Memorandum Opinion
and Order. See March 22, 2018 Mem. Op. and Order,
ECF No. 22 [hereinafter Mem. Op. and Order]. The court sets
forth only an abbreviated factual background section here.
is only one of 20 cost-reimbursed HMOs in the country.
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., ECF No. 15-1 [hereinafter Def.'s Mem.], at
5. Plaintiff does not employ its own health care specialists
to deliver services. Rather, it supplies services to its
members indirectly through agreements with physicians,
physician groups, and other health care specialists, who are
the direct providers of medical services. Joint Appendix, ECF
No. 20 [hereinafter JA], at 42.
members include both Medicare and non-Medicare enrollees. As
a cost-reimbursed HMO, Plaintiff is entitled under the
Medicare Act to reimbursement for the “reasonable
cost” of the covered services it provides to its
Medicare beneficiaries. See generally 42 U.S.C.
§ 1395mm(h). The 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.”
Id. § 1395x(v)(1)(A). A cost-reimbursed
HMO's “cost actually incurred” is determined
by a formula specified by agency regulation. The regulation
in question-the “Cost Apportionment
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 to the
total charges for all such services.
42 C.F.R. § 417.560(c). So, under the Cost Apportionment
Regulation, cost-reimbursed HMOs do not bill Medicare on a
“paid claims” basis, that is, they do not bill
Medicare for the actual amount the HMO pays to providers for
services rendered. Rather, the Regulation takes a different
approach: It employs a ratio to apportion the “costs
actually incurred” between Medicare enrollees and non-
Medicare enrollees. See JA at 9.
this approach, a cost-reimbursed HMO calculates the sum for
which Medicare is responsible by first identifying 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.” See JA at 41-42, 46; see
also 42 C.F.R. § 417.534(a) (defining
dispute at hand concerns a category of costs that Plaintiff
historically has included in its reimbursement calculations.
Ordinarily, a health care supplier that contracts with
Plaintiff will send its bill for services directly to
Plaintiff, which in turn pays the supplier. Sometimes,
however, instead of billing Plaintiff directly for the
services rendered, a health care supplier will send its bill
to a Medicare contractor, known as a “carrier, ”
and the carrier will issue payment without involving
Plaintiff. JA at 42. These direct-bill transactions are known
as “carrier-paid claims.” Id. Since
1986, Plaintiff has understood the Cost Apportionment
Regulation to allow carrier-paid claims to be included in its
cost reports, even though Plaintiff incurs little or no
out-of-pocket expense for these types of claims. See
id. at 42, 714-29. This practice has resulted in larger
reimbursements than if Plaintiff had excluded carrier-paid
claims from the calculus. See id. at 43. Until
recently, CMS had never objected to Plaintiff's inclusion
of carrier-paid claims in its cost reports.
broke its silence in 2013. During an audit of Plaintiff's
cost reports for the 2006- 2009 fiscal years, CMS reviewed
Plaintiff's inclusion of carrier-paid claims and, for the
first time ever, deemed such claims not to be a
“reasonable cost incurred.” The consequence of
this decision was to lower the apportionment ratio and
thereby reduce retroactively the amount of reimbursement due
to Plaintiff during the relevant four years by nearly $16
million. Id. at 42-43 & n. 3, 715-29; Compl.
¶ 4, ECF No. 1 [hereinafter Compl.]. Stunned by this
result, Plaintiff sought its reversal through administrative
recapping the administrative proceedings, some background is
in order. For purposes of appealing an unfavorable
reimbursement decision, the Medicare Act makes a distinction
between “providers of services” and nonproviders
of services. “Provider of services” is a defined
term that includes, among other entities, hospitals, skilled
nursing facilities, rehabilitation facilities, and hospice
programs. 42 U.S.C. § 1395x(u). A provider who is
dissatisfied with a reimbursement determination has a
statutory right of appeal to the Provider Reimbursement
Review Board (“Board”). See generally
Id. § 1395oo. The Administrator of CMS has the
power to reverse or modify the decision of the Board, but it
must do so within 60 days of the provider receiving notice of
the Board's decision, otherwise the Board's decision
becomes final. Id. § 1395oo(f)(1).
cost-reimbursed HMO, Plaintiff does not meet the statutory
definition of “provider of services.” It
therefore cannot seek Board review of an unfavorable
reimbursement determination. Cost-reimbursed HMOs are not
without recourse, however. CMS regulations grant
“nonproviders, ” like Plaintiff, “some
other hearing” to challenge a reimbursement decision.
42 C.F.R. § 405.1801(b)(2)(iii). CMS Hearing Officers
conduct the “some other hearing, ” not the Board.
Yet, the regulations provide that the “procedural rules
for a Board hearing set forth in” subpart R of CMS
regulations apply to nonprovider hearings “to
the maximum extent possible.” Id. §
405.1801(b)(2)(iv). One of the rules set forth in subpart R
is that a Board decision becomes final no later than 60 days
after a provider receives the Board's decision.
Id. §§ 405.1871(b)(1); 405.1875(a)(1). The
Administrator nevertheless takes the position that this
60-day rule does not apply to her review of
nonprovider hearing decisions. Such rulings, unlike
Board rulings, remain non-final even after the passage of 60
days, according to the Administrator.
case, Plaintiff invoked its right to “some other
hearing” and administratively appealed the
auditor's decision to exclude carrier-paid claims from
its reimbursement calculation. Plaintiff received a hearing
before a panel of two CMS Hearing Officers. See JA
at 40-49. In a decision dated September 22, 2016, the Hearing
Officers concluded that a “literal reading” of
the Cost Apportionment Regulation allows carrier-paid claims
to be included in the “ratio of charges for covered
services furnished to Medicare enrollees.” Id.
at 45 (quoting 42 C.F.R. § 417.560(c)). At the same
time, the Hearing Officers rejected Plaintiff's
contention that CMS was aware of Plaintiff's practice of
including carrier-paid claims in its apportionment ratio-an
argument based on CMS' approval of all reimbursement
requests since 1986. See id. at 43 n.3. In the end,
based on their reading of the Cost Apportionment Regulation,
the Hearing Officers ruled in favor of Plaintiff and against
victory turned out to be short-lived. CMS appealed the
Hearing Officers' ruling to the CMS Administrator, who
reversed. In a decision issued on December 8, 2016-77 days
after the Hearing Officers' ruling-the Administrator
found that the auditors had correctly determined that
Plaintiff's inclusion of carrier-paid claims was improper
and that the $16 million adjustment for the four years in
question was appropriate. JA at 2, 14. Although she issued
her ruling more than 60 days after the Hearing Officers'
decision, the Administrator nevertheless stated that she had
conducted her review “during the 60-day period mandated
in § 1878(f)(1) of the Social Security Act [42 U.S.C.
§ 1395oo(f)(1)].” See Id. at 2.
February 3, 2017, Plaintiff filed this action under the
Administrative Procedure Act (“APA”). See
generally Compl. The Complaint advances three grounds
for vacating the Administrator's ruling. See
generally Pl.'s Mem. First, it avers that the
Administrator's interpretation of the Cost Apportionment
Regulation is contrary to the Regulation's plain text and
thus the decision to remove carrier-paid claims from its
reimbursement requests must be overturned. Id. at
24-31. Second, Plaintiff contends that, even if the
Administrator's interpretation of the Cost Apportionment
Regulation is held to be reasonable, the “fair notice
doctrine” forecloses CMS from applying that
interpretation to the four years in question. See
id. at 31-39. Under the “fair notice”
doctrine, before an agency's interpretation can operate
as a penalty, the affected party must have “fair
notice” of that interpretation before its application.
See Howmet Corp. v. EPA, 614 F.3d 544, 553-54 (D.C.
Cir. 2010); Ark. Dep't of Human Servs. v.
Sebelius, 818 F.Supp.2d 107, 120-22 (D.D.C. 2011).
Finally, Plaintiff advances two process challenges to the
Administrator's decision. Plaintiff maintains that the
Administrator lacked the power to overturn the Hearing
Officers' decision, because the Medicare Act does not
expressly provide for such review. Additionally, Plaintiff
avers that the Administrator's failure to act within 60
days rendered the Hearing Officers' decision final and
unreviewable. See Pl.'s Mem. at 39-45. As to the
latter argument, Plaintiff acknowledges that the 60-day rule
reflected in the Medicare Act does not apply directly to
cost-reimbursed HMOs, as such entities do not qualify as
“providers” under the Act; instead, Plaintiff
contends, because CMS regulations make nonprovider hearings
subject to the same procedural rules as Board hearings to the
“maximum extent possible, ” the 60-day time
limitation on Administrator review of Board hearing decisions
likewise applies to review of nonprovider hearing decisions.
the court rests its decision on the Administrator's
failure to act within 60 days, this Memorandum Opinion does
not address any of the other grounds advanced by Plaintiff to
overturn the Administrator's decision.