By Jeffrey H. Brochin, J.D.
The Administrator’s failure to complete timely review resulted in an HMO receiving a favorable ruling in a dispute over $16 million.
Under controlling CMS regulations, the CMS Hearing Officer’s decision in a case involving a purported $16 million Medicare reimbursement overpayment to Rocky Mountain Health Maintenance Organization (HMO) became final when the CMS Administrator failed to act within 60 days of the HMO receiving a favorable ruling. The CMS Administrator’s subsequent reversal determination therefore exceeded her authority (Rocky Mountain Health Maintenance Organization, Inc. v. Azar April 29, 2019, Mehta, A.).
HMO reimbursements. The HMO is one of 20 cost-reimbursed HMOs in the country, and as such, does not employ its own health care specialists to deliver services. Instead, it supplies services to its members indirectly through agreements with physicians, physician groups, and other health care specialists, who are the direct providers of medical services. Its members include both Medicare and non-Medicare enrollees, and as a cost-reimbursed HMO, it is entitled to reimbursement for the "reasonable cost" of the covered services it provides to its Medicare beneficiaries. That term is defined as the cost actually incurred, excluding any part of incurred cost found to be unnecessary in the efficient delivery of needed health services.
Cost apportionment regulation. A cost-reimbursed HMO’s "cost actually incurred" is determined by a formula specified in CMS’s cost apportionment regulation (42 C.F.R. §417.560(c)). The instant dispute concerns a category of costs that the HMO historically included in its reimbursement calculations. Ordinarily, a health care supplier that contracts with the HMO would send its bill for services directly to the HMO, which in turn would pay the supplier. Sometimes, instead of billing the HMO directly for the services rendered, a health care supplier would send its bill directly to a Medicare contractor (a carrier), and the carrier would issue payment without involving the HMO.Since 1986, the HMO understood that the cost apportionment regulation allowed carrier-paid claims to be included in its cost reports, even though it incurred little or no out-of-pocket expense for that type of claim. Until 2013, CMS had never objected to the inclusion of carrier-paid claims in the cost reports. However, during a 2013 audit of cost reports for the 2006–2009 fiscal years, CMS deemed such claims not to be a reasonable cost incurred, resulting in a retroactive reduction in the amount of reimbursement due to the HMO for the four-year period, by nearly $16 million.
Appeal and CMS review. As a cost-reimbursed entity, the HMO did not meet the statutory definition of "provider of services" and was therefore precluded from seeking Provider Reimbursement Review Board (PRRB) review of an unfavorable reimbursement determination. Cost-reimbursed HMOs are not without recourse, however, because "non-providers" are granted "some other hearing" to challenge a reimbursement decision. Two CMS hearing officers determined that there was no overpayment to the HMO. CMS regulations provide that a PRRB decision becomes final no later than 60 days after a provider receives the PRRB’s decision. The CMS Administrator took the position that the 60-day rule did not apply to the non-provider HMO, and after the expiration of the 60-day period, issued a determination reversing the hearing officers’ ruling.
A flawed reading of the regulations. CMS argued that as long as its interpretation was not plainly erroneous or inconsistent with the regulation, the court was required to accord the agency substantial deference, and its interpretation controlling weight. The court noted, however, that although courts ordinarily must defer to an agency’s interpretation of its own ambiguous regulation, that general rule does not apply in all cases.
Here, CMS’ interpretation of its regulations was found to be fundamentally flawed and therefore required no measure of deference. The court found that the Administrator’s textual analysis was illogical and turned on a critical error of interpretation. The 60-day deadline exists to promote timely and efficient review of reimbursement determinations so that providers can have certainty with respect to fiscal decision-making, and the Administrator’s interpretation failed to recognize that this important policy objective applied with equal force to non-providers. Accordingly, the Administrator’s failure to complete its review within 60 days made the hearing officers’ decision in final and unreviewable, and summary judgment was granted to the HMO.
The case is No.: 1:17-cv-00242-APM.
Attorneys: Christopher L. Keough (Akin Gump Strauss Hauer & Feld LLP) for Rocky Mountain Health Maintenance Organization, Inc. d/b/a Rocky Mountain Health Plans. R. Charlie Merritt, U.S. Department of Justice, for Alex M. Azar, II.
Companies: Rocky Mountain Health Maintenance Organization, Inc. d/b/a Rocky Mountain Health Plans
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