917 F.3d 837
5th Cir.2019Background
- CMS ran a Care Management for High-Cost Beneficiaries Demonstration offering monthly management fees plus contingent extra fees payable only if the program achieved net Medicare cost savings (5% target; reduced to 2% because Texas Tech terminated early).
- Texas Tech Physicians Associates (with partners) won a contract to implement a care-management intervention and agreed to implement the proposal and accept financial responsibility up to the amount of management fees if savings targets were missed.
- CMS contracted with independent evaluators (RTI initially) to design and select a matched control cohort; Texas Tech reviewed and accepted the RTI methodology after months of negotiation and began enrollment in April 2006.
- Early reconciliation showed intervention-group costs exceeded control-group costs; Actuarial Research concluded Texas Tech owed return of roughly $7.99 million in management fees plus failure to meet guaranteed savings.
- Texas Tech challenged the control-group design, sought additional Medicare claims data (Trailblazer), and alleged conflicts of interest and contract defenses; CMS refused or delayed some data access; Texas Tech appealed to HHS’s Departmental Appeals Board and then to the district court under the APA after the Board ruled for CMS.
- The Fifth Circuit affirmed: the agreement was a grant (not a procurement contract), the Board had jurisdiction, and CMS’s actions did not breach the demonstration agreement; common-law contract defenses failed or were rejected as inapplicable to the grant context.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Characterization of the agreement (procurement vs grant) | Agreement is a procurement contract so CDA governs and Board lacked jurisdiction; 6-year limitations may bar CMS | Agreement is a grant transferring value to beneficiaries; CDA does not apply; Board has jurisdiction | Agreement is a grant; Board had jurisdiction |
| Adequacy of matched control group / breach | CMS/RTI failed to provide an appropriately matched control group, breaching the agreement | Agreement required CMS to select an evaluator and allow Texas Tech to review/agree to methodology; that process occurred so no breach | No breach: parties agreed on methodology; selection process satisfied the agreement |
| Access to claims data (Trailblazer) | CMS unlawfully withheld or delayed data needed to monitor performance and construct a pseudo-control | Agreement did not obligate CMS to provide fiscal intermediary data; privacy rules required a data-use agreement; CMS complied | No breach: CMS not required to provide Trailblazer data and privacy rules limited disclosure |
| Conflict of interest / evaluator role after reconciliation | RTI had a conflict evaluating disparities given it designed the control group; CMS’s use of RTI breached implied covenant | Agreement imposed no post-reconciliation duties; using RTI to evaluate concerns was not a breach | No breach: no contractual duty was violated; implied-covenant claim fails |
Key Cases Cited
- Coastal Corp. v. United States, 713 F.2d 728 (Fed. Cir. 1983) (CDA does not cover all government agreements)
- Bennett v. Kentucky Dep’t of Educ., 470 U.S. 656 (U.S. 1985) (grant programs differ from bilateral contracts governed by common-law contract rules)
- Hymas v. United States, 810 F.3d 1312 (Fed. Cir. 2016) (distinguishing direct benefit to the government from grants used to advance agency mission)
- SEC v. Chenery Corp., 332 U.S. 194 (U.S. 1947) (reviewing courts normally confined to agency’s stated reasons)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (U.S. 1983) (arbitrary-and-capricious review of agency action)