16 F.4th 867
D.C. Cir.2021Background
- Medicare Advantage (Part C) pays private plans monthly capitated rates adjusted for demographic and diagnosis-based risk factors using the CMS HCC regression model derived from traditional Medicare data.
- The Affordable Care Act added a 60-day statutory duty (42 U.S.C. § 1320a‑7k(d)) for providers and MA plans to report and return identified overpayments; CMS implemented that duty via the 2014 Overpayment Rule requiring plans to refund payments tied to diagnoses they learn are unsupported in medical records within 60 days.
- CMS also uses retrospective RADV audits to spot-check MA data and had proposed an FFS Adjuster for contract-level RADV extrapolations to offset analogous errors in traditional Medicare data. Commenters argued actuarial equivalence required such an adjuster.
- UnitedHealth sued, arguing the Overpayment Rule conflicts with the Medicare statute in three ways: it violates the actuarial equivalence requirement, breaches the statutory ‘‘same methodology’’ publication mandate, and is arbitrary and capricious as an unexplained departure from the FFS Adjuster policy. The district court vacated the Rule.
- CMS conducted a 2018 study finding that errors in traditional Medicare claims do not have a systematic effect on CMS-HCC risk scores, and subsequently decided not to use an FFS Adjuster for RADV contract-level audits.
- The D.C. Circuit reversed the district court: holding actuarial equivalence and same methodology do not constrain the statutory overpayment‑refund obligation implemented by the Overpayment Rule, and the Rule was not an arbitrary or capricious unexplained departure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Overpayment Rule violates the statutory requirement of actuarial equivalence (42 U.S.C. § 1395w-23(a)(1)(C)(i)) | UnitedHealth: Actuarial equivalence requires CMS either to audit traditional Medicare data or apply an adjuster (like the FFS Adjuster) before collecting MA overpayments, because using unaudited traditional Medicare data but forcing MA plans to remove unsupported codes yields systematic underpayment | CMS: Actuarial equivalence governs CMSs prospective payment design and does not create a defense to plans returning known overpayments; the two provisions are in different statutory subchapters and serve distinct functions | Held: Actuarial equivalence does not apply to the overpayment‑refund obligation or the Overpayment Rule; UnitedHealth failed to show systematic skew in traditional Medicare data or to challenge the risk model values themselves |
| Whether the Overpayment Rule violates the statutory requirement that CMS publish traditional Medicare average risk factors using the same methodology used to make payments (42 U.S.C. § 1395w-23(b)(4)(D)) | UnitedHealth: The Rule conflicts with the statute because it treats supported codes differently across programs despite the same methodology requirement | CMS: The same methodology clause governs how CMS computes the published averages for bidding and does not define overpayment or constrain refund obligations | Held: The same methodology requirement is limited to CMSs publication method for bidding and does not affect the Overpayment Rule |
| Whether the Overpayment Rule is arbitrary and capricious as an unexplained departure from CMSs prior policy of using an FFS Adjuster in RADV contexts | UnitedHealth: CMS previously proposed an FFS Adjuster for contract-level RADV audits to address actuarial concerns; failing to adopt a similar adjuster for Overpayment Rule enforcement is an unexplained policy flip | CMS: RADV extrapolation and the Overpayment Rule address different problems at different levels; CMS reasonably declined to incorporate an FFS Adjuster in the Overpayment Rule context and later empirical study undermined the need for an adjuster | Held: CMSs decision was not arbitrary or capricious; the contexts are distinguishable and CMS provided a reasonable response |
Key Cases Cited
- United States ex rel. Silingo v. WellPoint, Inc., 904 F.3d 667 (9th Cir. 2018) (illustrating magnitude of unsupported diagnosis payments in MA audits)
- United States ex rel. Swoben v. UnitedHealthcare Ins. Co., 848 F.3d 1161 (9th Cir. 2016) (discussing MA plan certification obligations)
- Stephens v. U.S. Airways Grp., Inc., 644 F.3d 437 (D.C. Cir. 2011) (interpreting actuarial equivalence in ERISA context)
- Abington Crest Nursing & Rehab. Ctr. v. Sebelius, 575 F.3d 717 (D.C. Cir. 2009) (challenger bears burden in APA review)
- Motor Vehicles Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (standard for arbitrary and capricious review)
- UnitedHealthcare Ins. Co. v. Azar, 330 F. Supp. 3d 173 (D.D.C. 2018) (district court decision vacating the Overpayment Rule)