Case Law Update: California Federal District Court Finds Medicare Is Not Entitled to Reimbursement for Unrelated Care in Bundled Codes

Posted by Rafael Gonzalez on Feb 2, 2017 2:47:48 PM

California Federal District Court Finds Medicare Is Not Entitled to ReimbursementOn January 5, 2017, the United States District Court for the Central District of California published its decision on California Insurance Guarantee Association v. Burwell, finding that the Secretary of Health and Human Services’ interpretation of the Medicare Secondary Payer Act and its relevant regulations are contrary to law and not entitled to deference. The Court concludes that Medicare is not entitled to reimbursement for medical items and services that, although imbedded in bundled codes containing related and unrelated care, are not related to the claim at hand and are therefore not payable under the workers compensation policy administered by the California Insurance Guarantee Association.

Claim and Defenses

The Center for Medicare and Medicaid Services (CMS) paid health benefits on three individuals. These individuals were also insured under several workers' compensation policies administered by the California Insurance Guarantee Association (CIGA). Because Medicare benefits are always secondary to any other applicable insurance, CMS sought reimbursement from CIGA for some of the benefits paid. CIGA alleged, however, that CMS calculated its reimbursement in a manner that is contrary to the Medicare Secondary Payer Act (MSP) and the implementing regulations, resulting in over-inclusive reimbursement demands. CIGA seeks a judicial declaration to that effect, as well as a permanent injunction barring CMS from reapplying the offending practice to future demands against CIGA.

The Department of Health and Human Services (HHS) and its Secretary (Defendants) raise several defenses to this action, including that: (1) CIGA's claims are moot because CMS recently ceased efforts to collect on the three reimbursement demands at issue; (2) CIGA did not make a prima facie case that CMS's demands were over-inclusive; (3) CMS's practice is based on a reasonable interpretation of the MSP and the implementing regulations; (4) CIGA did not adequately plead its request for injunctive relief; (5) an injunction affecting future reimbursement demands effectively (and impermissibly) bypasses the mandatory administrative appeals process; and (6) directing CMS not to use a particular method to calculate reimbursement constitutes an impermissible programmatic attack on Medicare.

Factual Background

“CIGA is a statutorily-created association of insurers admitted to transact certain classes of insurance business in California. CIGA provides a fund from which insureds can obtain financial and legal assistance in the event their insurers become insolvent. To that end, CIGA is generally required to pay insurance claims that are covered under policies issued by insolvent insurers, subject to certain statutory limitations and exceptions.”

“Medicare is a health insurance program run by the federal government that provides benefits to elderly people and people with certain types of disabilities. Where Medicare pays benefits for a loss that is covered under another insurance plan, however, the MSP requires those primary plans to reimburse Medicare. To determine whether a potential primary plan covers a particular medical charge, CMS looks to the medical diagnosis code recorded by the provider for that charge. These codes are commonly used in the medical billing industry to indicate the condition treated and/or procedure used.”

“It is not uncommon for multiple diagnosis codes to appear under a single charge— some of which relate to a medical condition covered by the primary plan, and some of which do not. In those instances, CMS determines if any one code relates to a covered condition. If so, CMS seeks reimbursement for the full amount of the charge, even if some unsegregated portion of the charge is for medical services not covered by the plan.”

Here, CIGA informed CMS that it was paying certain medical costs for three people under three separate workers' compensation policies. CMS determined that it had also paid benefits to those people, and thus sent conditional payment letters to CIGA seeking full reimbursement for each charge containing at least one covered diagnosis code—even though many charges also contained codes that were indisputably not covered. CIGA responded to CMS's letters by raising a host of defenses, including that numerous charges contained diagnosis codes that its policies did not cover. CMS nevertheless issued a formal demand letter for the full amount of each charge.

 

Prior Legal Proceedings and Findings

CIGA first alleged that “workers' compensation plans are not primary plans under the MSP when administered by CIGA.” CIGA also alleged that “it can pay only statutorily-defined covered claims, and that the statutory definition excludes (1) obligations to the federal government, and (2) any claims that are not within the coverage of an insurance policy of the insolvent insurer.” CIGA asserted that “it was obligated to pay claims only if they arose after the date of the issuing-insurer's insolvency, and that CMS made many of the benefit payments before that date.” CIGA sought declaratory and injunctive relief, including an order permanently enjoining Defendants from enforcing the MSP provisions against CIGA with respect to government claims for reimbursement that are not covered claims.

The Court held that “CIGA-administered insurance plans constitute primary plans within the meaning of the MSP, and that the MSP preempted CIGA's prohibition on paying obligations to the federal government.” However, the Court determined that “CIGA had stated a plausible claim to the extent CMS sought reimbursement for claims that were not within the coverage of an insurance policy of the insolvent insurer.”

In its Second Amended Complaint, CIGA reasserted that “CMS was improperly seeking reimbursement for charges that did not fall within the coverage of an insurance policy of the insolvent insurer.” But CIGA also alleged two new theories: “that the payments at issue were not covered claims because (1) CMS did not file timely proofs of claim in the defunct insurer's insolvency proceedings, and (2) CMS was impermissibly asserting claims as an assignee or subrogee of the insured.” Upon motion by Defendants, the Court dismissed these without leave to amend. This left only CIGA's original claim, that the policies it administered did not cover all of the losses for which CMS sought reimbursement.

CIGA last moved for leave to file a Third Amended Complaint to add, among other things, “a request to permanently enjoin Defendants from seeking reimbursement from CIGA for charges that are not covered by the workers compensation insurance policy of any insolvent insurer.” The Court denied the motion, holding that such relief could and should have been plead in prior iterations of its complaint.

Pending Legal Issues

CIGA then moved for partial summary judgment, and Defendants moved for summary judgment. After a hearing on the motions, the Court ultimately took both motions under advisement and ordered the parties to mediate further. Four weeks later, the parties submitted a joint report stating that they were unable to reach a settlement. Defendants indicated that they “recalculated CIGA's liability for the disputed charges and decided to withdraw those demands.” Defendants argued that “this rendered the action moot, and that any new demands for payment would be based on the recalculated amounts, which would be subject to a full administrative appeals process as provided by Medicare regulations.” Defendants requested leave to move to dismiss the action as moot, which the Court granted. Therefore, the parties' summary judgment motions, as well as Defendants' motion to dismiss, were the issues before the Court for a decision.

Since CMS is no Longer Seeking Reimbursement, is Action Moot?

Defendants argue that “because CMS will no longer seek reimbursement for the payments allegedly owed under the three claims, this action is moot and must be dismissed.” CIGA responds that “Defendants' conduct does not make it absolutely clear that CMS will never again reopen these claims or reapply the offending practice, which means the case is not moot.”

A case becomes moot when “the issues presented are no longer live or the parties lack a legally cognizable interest in the outcome.” However, a defendant “cannot automatically moot a case simply by ending its unlawful conduct once sued. Otherwise, a defendant could engage in unlawful conduct, stop when sued to have the case declared moot, then pick up where he left off, repeating this cycle until he achieves all his unlawful ends.” Accordingly, voluntary cessation moots a claim only where “subsequent events make it absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur.”

The Court here concludes that government has not met that burden. “Defendants have not changed their practice with respect to reimbursement calculations; rather, they have simply withdrawn their reimbursement demands for the three particular claims at issue in this lawsuit. The government cannot escape the pitfalls of litigation by simply giving in to a plaintiff's individual claim without renouncing the challenged policy, at least where there is a reasonable chance of the dispute arising again between the government and the same plaintiff.” Indeed, given the timing of the withdrawals (i.e., immediately after a hearing in which the Court made clear that CMS's practice would not withstand scrutiny), “it seems obvious that this is simply a strategic maneuver designed to head off an adverse decision so that CMS can continue its practice in the future.” Thus, the Court concludes that “neither the claim for declaratory relief as to the three reimbursements demands, nor the request for injunctive relief as to future reimbursement calculations, are moot.”

Must CIGA Reimburse CMS for Bundled Covered and Uncovered Medical Codes?

CIGA does not dispute that each charge for which CMS sought reimbursement contained at least one diagnosis code that is covered by CIGA's policies, and Defendants do not dispute that each charge also contained codes that were not covered by those policies. Thus, the parties' arguments center on two main issues: “(1) whether CIGA made a prima facie case to CMS that the reimbursement requests were erroneous; and (2) whether the MSP and the implementing regulations support Defendants' position that CIGA must always fully reimburse CMS for a charge containing one covered code regardless of whatever uncovered codes are also present.”

Defendants argue that “CIGA failed to make a prima facie case to CMS that it was not responsible for the disputed payments.” The Court however disagrees. CMS sent conditional payment letters to CIGA identifying the charges for which it believed CIGA was responsible. For two of the three demands at issue, CIGA disputed its liability for the charges on several grounds—including that they contained diagnosis codes that were not covered by the underlying workers' compensation policies.

Defendants contend that “simply providing a list of purportedly uncovered diagnosis codes is insufficient because this does not prove that the codes were in fact uncovered, and that it does not show how the inclusion of uncovered codes renders CMS's reimbursement demands over-inclusive (or by how much).” The Court again disagrees, indicating that “given the scope of CIGA's argument, identifying the unrelated codes is sufficient.”

As the Court makes clear, CMS sought full reimbursement for the disputed charges because it is CMS's practice to “seek full reimbursement for a conditional payment as long as one diagnosis code was related.” To the extent CIGA is only challenging this blanket practice, “it is sufficient that CIGA identified diagnosis codes that everyone agrees is plainly unrelated to any medical conditions that the workers' compensation policies cover.”

The Court also concludes that “CIGA has no responsibility to make payment for a treatment not covered by its policy just because that treatment is lumped together with other covered treatments on a line-item charge.” Whether a compensation carrier has a responsibility to make payment with respect to an item or service is generally a matter of state law. “California law is clear that where a patient receives multiple treatments for multiple conditions, the compensation carrier is not responsible for the treatments that are not attributable to an industrial accident.” Here, Defendants do not point to anything in the MSP showing that CIGA must reimburse CMS for more than what CIGA is otherwise responsible for paying under California law.

Must CMS be Accorded Deference in its Interpretation of the Act?

Defendants argue at length that “the Court must defer to their interpretation of the MSP and the relevant regulations.” The Court again disagrees. “The relevant regulation (42 C.F.R. § 1003.101) actually supports CIGA's interpretation of the MSP, and thus any deference to it would not help Defendants. Defendants' interpretation of § 1003.101 is not entitled to deference both because it conflicts with CMS's MSP Manual, and because it appears to be just a post hoc rationalization seeking to defend past agency action against attack.”

The Court does however emphasize the limits of its decision. The Court makes it clear that it is “simply holding that if a single charge contains multiple diagnosis codes—some of which relate to a medical condition covered by CIGA's policy and some of which do not—the presence of one covered code does not ipso facto make CIGA responsible for reimbursing the full amount of the charge. Instead, CMS must consider whether the charge can reasonably be apportioned between covered and uncovered codes or treatments. Upon such consideration, CMS might still conclude that apportioning the charge is unreasonable. In addition, even if the charge should be apportioned, the Court takes no position on how CMS should do so (e.g., pro- rata by covered codes versus uncovered codes, or some other method).”

Is CIGA Entitled to Injunctive Relief Barring CMS from Doing Same in Future Claims?

Defendants contend that even if CMS's practice is arbitrary and capricious, CIGA is not entitled to injunctive relief barring CMS from applying the practice for future claims because: “(1) CIGA did not adequately plead the specific type of injunctive relief it now seeks; (2) such relief would constitute an end-run around the mandatory administrative appeals process for future reimbursement disputes; and (3) it would constitutes an impermissible programmatic attack against a federal agency.” The Court however finds none of these reasons show that CIGA is not entitled to injunctive relief.

Here, CIGA gave sufficient notice to Defendants that it sought to enjoin CMS from seeking full reimbursement for charges containing uncovered diagnosis codes. CIGA alleged multiple reasons why CMS's request for reimbursement did not constitute a statutorily-defined covered claim, including “because the payments did not fall within the coverage of an insurance policy of the insolvent insurer.” The Court therefore concludes that Defendants were sufficiently on notice of the specific injunction CIGA now seeks, and thus would not be prejudiced if the Court grants that relief.

Did CIGA Bypass the Mandatory Appeals Process?

Shortly after CIGA filed suit here, CMS created an administrative appeals process that every disputed reimbursement demand must go through before judicial review. See 42 U.S.C. § 1395y(b)(2)(B)(viii); 80 Fed. Reg. 10,611-01; 42 U.S.C. § 405(g); id. Defendants argue that “dictating how CMS must calculate future reimbursement demands effectively bypasses the mandatory appeals process with respect to those demands.”

The Court disagrees, finding that “the problem with Defendants' argument is that it impermissibly separates CIGA's injunctive relief claim from its substantive legal claim. Rather, § 405(h) simply requires the substantive question over the legality of CIGA's practice to be properly before the Court for adjudication—which Defendants do not dispute. Indeed, the purpose of the exhaustion of administrative remedies requirement is simply to give the agency a chance to consider the legal questions presented by the dispute before an Article III court considers them. Once this happens, it is ripe for adjudication (and remediation) by the Court.” In other words, “there is no reason to give CMS a chance to revisit the same legal issue in every single future reimbursement dispute on the off chance that the agency changes its mind somewhere down the line. Nor should the exhaustion requirement be used as a pretext for a policy of nonacquiesence to unfavorable judicial interpretations of statutes and regulations.”

Is CIGA’s Challenge a Broad Programmatic Attack on CMS Reimbursement Program?

Defendants contend that CIGA is impermissibly attempting to institute wholesale changes to the Medicare reimbursement program. The Court however disagrees finding that “CIGA does not seek across-the-board changes to the manner in which Medicare functions; it is attacking one discrete practice that CMS applied to the three reimbursement demands at issue here and has made clear that it intends to apply to future reimbursement demands by CIGA.”

Conclusion

As a result, for the reasons discussed above, the Court denies Defendants' Motion to Dismiss, denies Defendants' Motion for Summary Judgment, and grants CIGA's Motion for Partial Summary Judgment.

This decision is providing the new administration the opportunity to announce its take and position on HHS/CMS’ right of reimbursement. It will be a good test case for the new administration to let auto, no-fault, liability, and work comp primary payers know where it stands on MSP, and how aggressive it will be in seeking such reimbursements. Whether or not it is appealed, however, this decision may be one of the most significant opinions by any federal court on how CMS figures out what amount may due back to the federal government in auto, no-fault, liability, and work comp cases, as it forces CMS to unlock bundled codes and evaluate each of them independently as to its relatedness to the auto, no-fault, liability, or work comp claim.

As always, Flagship will continue to monitor and report on these issues and particularly on this case, should it be appealed. In the interim, we will aggressively seek BCRC and CRC unbundle codes and evaluate each on its own for purposes of relatedness and reimbursability.

Medicare Conditional Payments Resolution Compliance Program

About Rafael Gonzalez

Rafael Gonzalez, Esq. is President of Flagship Services Group, the only national Medicare Secondary Payer services provider focusing on and offering comprehensive mandatory reporting, conditional payments, and set aside allocation compliance services to the property and casualty insurance industry. He speaks and writes on mandatory insurer reporting, conditional payment resolution, set aside allocations, CMS approval, and MSA and SNT professional administration, as well as the interplay and effect of these processes and systems and the Affordable Care Act throughout the country. Rafael blogs on these topics at Medicare Compliance for P&C Insurers at www.flagshipservicesgroup.com/blog. He is very active on LinkedIn, Twitter, Instagram, and Facebook. He can be reached at rgonzalez@flagshipsgi.com or 813.967.7598. 

Topics: Medicare Law