227 F. Supp. 3d 1101
C.D. Cal.2017Background
- CIGA (California Insurance Guarantee Association) paid workers’ compensation claims for three insureds after their insurers became insolvent; CMS had paid Medicare benefits to those same individuals and sought reimbursement from CIGA.
- CMS’s practice: when a single provider charge included at least one diagnosis code related to a primary-plan-covered condition, CMS sought full reimbursement for the entire charge even if other codes on the same charge were unrelated and not covered by the workers’ compensation policy.
- CIGA contested that practice, asserting many charged line items contained diagnosis codes not within the coverage of the insolvent insurers’ policies and sought declaratory and injunctive relief under the APA and Declaratory Judgment Act.
- CMS withdrew the specific demand letters after a hearing, recalculated liabilities, and argued the case became moot; CIGA argued voluntary cessation did not moot the controversy and sought a nationwide injunctive remedy barring CMS’s challenged practice.
- The Court rejected mootness, held CIGA made a prima facie showing that CMS’s demands were over-inclusive, found CMS’s interpretation of the MSP and regulations unlawful and not entitled to deference, granted CIGA partial summary judgment, and denied the government’s motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Mootness of claim after CMS withdrew specific demands | Withdrawal is strategic; voluntary cessation does not make it "absolutely clear" the practice won't recur | Withdrawal moots case because recalculated demands remove controversy | Not moot: government failed heavy burden; withdrawal timed after adverse hearing suggests risk of recurrence |
| Prima facie burden to trigger agency justification | CIGA identified diagnosis codes on charges that are undisputedly not covered; that suffices to show over‑inclusive demands | Listing uncovered codes insufficient; CIGA must quantify apportionment/uncover how full charge is excessive | CIGA met initial burden by identifying unrelated codes; burden shifts to CMS to justify full-charge demands |
| Meaning of "item or service" and apportionment under MSP/regulation | Singular statutory/regulatory language, MSP text, and CMS Manual support treating discrete treatments separately and permit apportionment of a charge between covered and noncovered services | CMS treats any charge containing a covered diagnosis code as a single reimbursable item and seeks full reimbursement; agency practice is reasonable and administratively necessary | Court rejects CMS’s all‑or‑nothing approach: presence of one covered code does not automatically require full reimbursement; CMS must consider reasonable apportionment; CMS’s practice is contrary to law and not entitled to deference |
| Availability of injunctive relief and exhaustion/programmatic attack concerns | Injunctive relief is proper to prevent recurrence of unlawful calculation practice; the suit challenges discrete final agency actions and raises legal questions already before the court | Injunction would bypass Medicare’s administrative appeals, is a programmatic attack beyond APA | Injunctive relief not barred: exhaustion does not prevent judicial resolution of the substantive legal question already presented; challenge is to a discrete agency practice/final actions, not an impermissible programmatic attack |
Key Cases Cited
- Murphy v. Hunt, 455 U.S. 478 (dismissal for lack of standing/mootness principles)
- Already, LLC v. Nike, Inc., 568 U.S. 85 (voluntary cessation and mootness)
- Friends of the Earth v. Laidlaw Envtl. Servs., 528 U.S. 167 (standard for voluntary cessation to moot a case)
- Rosebrock v. Mathis, 745 F.3d 963 (9th Cir.) (government bears heavy burden to show mootness after voluntary cessation)
- City of Arlington v. FCC, 569 U.S. 290 (Chevron framework for agency statutory interpretation)
- Price v. Stevedoring Servs. of Am., 697 F.3d 820 (9th Cir.) (limits on deference to litigation positions)
- United States v. Mead Corp., 533 U.S. 218 (agency interpretations and deference analysis)
- Skidmore v. Swift & Co., 323 U.S. 134 (Skidmore persuasive-weight standard)
- Martin v. Occupational Safety & Health Review Comm’n, 499 U.S. 144 (deference to agency interpretation of its regulations)
- Christopher v. SmithKline Beecham Corp., 567 U.S. 142 (limits on Auer deference where interpretation is plainly erroneous or a post hoc litigation position)
- Lujan v. National Wildlife Federation, 497 U.S. 871 (limits on programmatic APA challenges)