Unitedhealthcare Insurance Company v. Burwell
248 F. Supp. 3d 192
D.D.C.2017Background
- UnitedHealth and affiliated Medicare Advantage (MA) insurers sued CMS and HHS challenging a 2014 CMS regulation (42 C.F.R. § 422.326) implementing ACA § 6402’s reporting-and-return-of-overpayments rule.
- MA plans submit diagnostic codes to CMS for risk-adjusted capitation; CMS uses those codes to set payments but also audits samples (RADV) and applies an FFS adjuster as a buffer in audits.
- CMS’s final rule treats any diagnostic code not supported by underlying medical documentation as an overpayment and defines an overpayment as “identified” when the plan determines, or should have determined through “reasonable diligence,” it received an overpayment; CMS said reasonable diligence requires proactive compliance by qualified individuals.
- Plaintiffs allege the rule (1) imposes new affirmative obligations (a negligence-like proactive monitoring duty) beyond prior regulations and (2) omits the RADV/FFS adjuster buffer, undermining actuarial equivalence and exposing plans to False Claims Act (FCA) liability if they fail to return overpayments within 60 days.
- Defendants moved to dismiss under Rule 12(b)(1) arguing Plaintiffs lack Article III and statutory standing and that administrative channeling under 42 U.S.C. § 405(h) forecloses immediate judicial review.
- The court denied the motion: it found Plaintiffs adequately alleged an injury-in-fact from the rule’s affirmative compliance obligations, that the injury is traceable and redressable, and that § 405(h) does not bar review because no adequate administrative pathway exists to challenge the CMS Rule and any enforcement path (OIG or FCA) would practically preclude meaningful review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Article III standing: does the CMS Rule cause a concrete, imminent injury? | CMS Rule imposes affirmative, new compliance duties ("reasonable diligence"/proactive monitoring) causing concrete costs and exposure. | Plaintiffs already had regulatory duties (due diligence / compliance program regs); no new injury; allegations too general. | Held for Plaintiffs: rule imposes new affirmative obligations sufficient to plead injury-in-fact at pleading stage. |
| Traceability/redressability: are injuries traceable to the CMS Rule and redressable by court? | Yes—if rule struck down, duties and associated costs/exposure would be removed. | Preexisting regulations cause the duties; striking CMS Rule would not change obligations. | Held for Plaintiffs: CMS Rule created novel obligations beyond prior regs, so relief would redress injury. |
| Statutory (jurisdictional) bar under § 405(h): must plaintiffs exhaust administrative remedies? | § 405(h) should not bar review because no administrative path exists to challenge the CMS Rule itself; OIG enforcement and qui tam actions would not allow APA-style review of CMS’s interpretation and would practically deny review. | Illinois Council/Medicare channeling ordinarily requires administrative review; OIG/FCA enforcement provide review paths. | Held for Plaintiffs: § 405(h) does not preclude judicial review here—no viable administrative route and enforcement paths would practically foreclose review. |
| Ripeness / pre-enforcement challenge: may MA plans bring pre-enforcement suit? | Abbott Laboratories and related precedent allow regulated parties to bring pre-enforcement challenges to invalid regulations imposing compliance obligations. | Contends plaintiffs must wait for enforcement or concrete costs/evidence; factual allegations are insufficient. | Held for Plaintiffs: pre-enforcement challenge is ripe; pleading-stage allegations suffice. |
Key Cases Cited
- Abbott Laboratories v. Gardner, 387 U.S. 136 (1967) (regulated parties may bring pre-enforcement challenges to agency regulations)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (Article III standing elements and pleading-stage standards for injury allegations)
- Shalala v. Illinois Council on Long Term Care, 529 U.S. 1 (2000) (§ 405(h) and administrative channeling; "no review at all" exception)
- State Nat. Bank of Big Spring v. Lew, 795 F.3d 48 (D.C. Cir. 2015) (regulated entities generally have standing to challenge obligations that force monitoring/compliance costs)
- Kokkonen v. Guardian Life Insurance Co. of America, 511 U.S. 375 (1994) (party asserting federal jurisdiction bears burden of establishing it)
- Massachusetts v. EPA, 549 U.S. 497 (2007) (standing requires concrete personal stake that sharpens presentation of issues)