Health Law Daily Court will not reconsider vacated Medicare Advantage overpayment rule
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Thursday, January 30, 2020

Court will not reconsider vacated Medicare Advantage overpayment rule

By Karin Hicks, J.D.

A big win for private insurance companies participating in the Medicare Advantage Program as judge finds that recently supplied empirical data provided by CMS does not qualify as "new evidence" under Rule 60(b).

A U.S. District Court judge for the District of Columbia has denied the government’s motion for partial reconsideration of a decision that vacated the Medicare Advantage Overpayment Rule. The government asked the Court to narrow its decision based on new empirical evidence provided by CMS. In a detailed decision, the judge concluded that CMS did not exercise reasonable diligence as they failed to provide the long-held data during the course of the lengthy litigation. Further, the judge stated that modifying the prior court decision and allowing CMS to amend the vacated rule would set the parties up for future litigation (United Healthcare Insurance Company v. Azar, January 27, 2020, Collyer, R.).

Background. As an alternative to traditional Medicare programs administered by CMS, Medicare offers its beneficiaries a program called Medicare Advantage. The program allows the beneficiaries to choose a private insurance company for their Medicare coverage. Unlike traditional Medicare, CMS pays the private insurers participating in the program a fixed amount for each patient that they enroll. By statute, CMS is required to pay Medicare Advantage insurers in a manner that ensures "actuarial equivalence" with payments in the traditional Medicare scheme. In order to do this, CMS has a complex risk adjustment model, the CMS Hierarchical Condition Category (CMS-HCC) model. Medicare Advantage insurers are paid based on the cumulative risk scores of their patients.

The Medicare Advantage Overpayment Rule requires that the private insurers must return any overpayments back to the government within 60 days of discovery. In its oversight of the program, CMS audits a sample of reimbursement requests from the participating insurers and requires reimbursement of overpayment amounts discovered in the sample. Additionally, CMS requires that the Medicare Advantage insurers return all overpayments across the entire contract based on an extrapolated error rate found in the sample. The Risk Adjustment Data Validation (RADV) audit, which is used to determine the extrapolated error rate, uses audited data from the Medicare Advantage program and unaudited data from the traditional Medicare program. The RADV audit results had to be counterbalanced by a fee-for-service (FFS Adjuster) as the original calculated error rate made Medicare Advantage patients appear to be less healthy and more costly than the traditional Medicare patients. In 2014, CMS finalized a rule which eliminated the FFS Adjuster resulting in larger overpayments returns by private insurers.

Vacated Overpayment Rule. In the ruling that the government seeks to be reconsidered, the judge made three key findings: (1) The court determined that CMS’ use of unaudited data to set payment rates and audited data to determine overpayment violates the actuarial equivalence requirement of 42 U.S.C. §1395w-23(a)(1)(C)(i); (2) CMS failed to use the same methodology for Medicare Advantage and traditional Medicare, as required by statue 42 U.S.C. §1395w-23(b)(4)(D); and (3) CMS failed to provide an adequate explanation as to why the FFS Adjuster was no longer necessary and why it had been eliminated. For these reasons, and stating that the Overpayment Rule was "arbitrary and capricious," the rule was vacated.

Motion to Reconsider. The government provided new empirical evidence and asked the court to reconsider the decision to vacate and narrow the decision to allow for possible amendments to the rule. The government asked for relief under Rule 60(b)(2) and (b)(6). The court first considered the argument that the new empirical evidence should be relevant in the Court’s decision to vacate. The judge dismisses this idea and notes that the "new" empirical data were from the years 2004, 2005, 2008, and 2011 and that government had ample time to analyze and present the data during the course of litigation. The failure to do earlier showed a lack "reasonable diligence." Second, the court addressed the argument that the government should be permitted relief from judgment "for any reason that justifies relief." The court responded that the situation does not meet the standard for "extraordinary circumstances" for a finding under (b)(6). The judge found that denying the motion to reconsider does not result in an unjust outcome and is in the interest of finality as it prevents future litigation on the issue.

The case is No. 1:16-cv-00157-RMC.

Attorneys: Daniel Meron (Latham & Watkins LLP) for UnitedHealthcare Insurance Co., AmeriChoice of New Jersey, Inc. and Arizona Physicians IPA, Inc. James O. Bickford, U.S. Department of Justice, for Alex M. Azar, II., the United States and Centers for Medicare and Medicaid Services.

Companies: UnitedHealthcare Insurance Co.; AmeriChoice of New Jersey, Inc.; Arizona Physicians IPA, Inc.; Centers for Medicare and Medicaid Services

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