330 F. Supp. 3d 173
D.C. Cir.2018Background
- UnitedHealth challenged CMS's 2014 Overpayment Rule, which requires Medicare Advantage (MA) plans to identify and return overpayments within 60 days once they are "determined, or should have determined through the exercise of reasonable diligence."
- CMS sets MA payment rates using unaudited fee-for-service (FFS) Medicare claims (diagnosis codes), but the 2014 Rule defines overpayments by reference to audited medical records for MA enrollees.
- CMS previously adopted an FFS Adjuster in the RADV audit process to offset the mismatch between unaudited FFS data used to set rates and audited chart reviews used in audits; no comparable adjuster appears in the 2014 Overpayment Rule.
- UnitedHealth argued the Rule (1) violates the statutory mandate to ensure "actuarial equivalence" and to use the "same methodology" in setting payments and reconciliation, and (2) unlawfully imposes a negligence/reasonable-diligence standard (broader than FCA "knowing" standard) and changed the meaning of "identified" without adequate notice.
- The court found CMS failed to reconcile the data-source mismatch, did not explain departing from its prior FFS-adjuster policy, imposed a more stringent identification/reporting standard than the FCA/previous CMS rule, and adopted the final rule without adequate notice regarding the expanded definition of "identified."
- Procedurally: UnitedHealth filed suit (complaint 2016); summary judgment briefing followed; court granted UnitedHealth summary judgment, denied CMS cross-motion, and vacated the 2014 Overpayment Rule.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2014 Rule violates the statutory requirement of "actuarial equivalence" | The Rule uses audited MA chart data to find overpayments while payments were set using unaudited FFS data, so payments to MA plans will be systematically lower and not actuarially equivalent | CMS says MA plans are paid an amount equal to CMS's expected FFS cost, so actuarial equivalence exists between expected cost and known payment | Court: Rule fails to ensure actuarial equivalence because it used different data sources without adjustment (no FFS Adjuster) |
| Whether CMS used the "same methodology" required by statute when computing FFS expenditures and payments | CMS must apply the same methodology for payment-setting and reconciliation; using audited data for reconciliation but unaudited data for rate-setting violates this mandate | CMS contends its methodology has always required substantiation of reported diagnoses and is lawful | Court: Rule violates the statutory "same methodology" requirement by departing from prior practice without justification |
| Whether CMS's change from prior policy (FFS Adjuster in RADV) was arbitrary and capricious | The agency adopted the FFS Adjuster for RADV audits recognizing data mismatch; abandoning it for the 2014 Rule is unexplained | CMS offered limited responses and did not adequately justify the departure | Court: Adoption of the 2014 Rule was arbitrary and capricious for failing to explain departure from prior policy |
| Whether the Rule lawfully defines "identified" and imposes a negligence/reasonable-diligence standard (affecting FCA liability) | The Rule imposes a "should have known" / reasonable-diligence standard that is broader than FCA's "knowing" (actual knowledge, deliberate ignorance, or reckless disregard), and the change from the proposed rule lacked adequate notice | CMS contends the Rule prevents willful ignorance and is consistent with prior CMS standards | Court: The Rule unlawfully expanded "identified" to include what insurers "should have determined" without adequate notice and imposed a more onerous standard than the FCA/2000 Rule |
Key Cases Cited
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (summary judgment standard)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (agency must supply reasoned explanation for rule changes)
- Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (scope of arbitrary-and-capricious review)
- Richards v. INS, 554 F.2d 1173 (review on administrative record appropriate at summary judgment)
- Holy Land Found. For Relief & Dev. v. Ashcroft, 333 F.3d 156 (review limited to administrative record)
- City of Olmsted Falls v. FAA, 292 F.3d 261 (burden on challenger in APA review)
- Anglers Conserv. Network v. Pritzker, 809 F.3d 664 (interpreting mandatory "shall")
- Stephens v. U.S. Airways Grp., Inc., 644 F.3d 437 ("actuarial equivalence" requires same actuarial assumptions)
- Berger v. Xerox Corp. Ret. Income Guar. Plan, 338 F.3d 755 (actuarial equivalence concept in ERISA context)
- Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (agency may change course with reasoned justification)
- Republic Airline Inc. v. U.S. Dept. of Transp., 669 F.3d 296 (agency reversal without explanation can be arbitrary)
- United States v. Sci. Applications Int'l Corp., 626 F.3d 1257 (FCA liability is not for mere negligence)
- Allina Health Servs. v. Sebelius, 746 F.3d 1102 (final rule must be a logical outgrowth of proposed rule)
- Nat'l Treasury Emps. Union v. Fed. Labor Relations Auth., 404 F.3d 454 (unexplained departures are arbitrary)