Health Reform WK-EDGE HHS’ consideration of Navigator grant applicant’s bankruptcy status reasonable
Friday, April 20, 2018

HHS’ consideration of Navigator grant applicant’s bankruptcy status reasonable

By Victoria Moran, J.D., M.H.A.

An Illinois federal district court has dismissed R&B Receivables Management Corp.’s (R&B) suit against HHS after considering cross motions for summary judgment. R&B’s suit alleged that HHS violated the Administrative Procedure Act (APA) when it declined to award R&B a health insurance marketplace Navigator grant based on press coverage of R&B’s bankruptcy status after HHS had already issued a press release naming R&B as a grant recipient. The court found that HHS’s decision was not arbitrary and capricious, contrary to law, or in excess of its statutory authority. Rather, it was reasonable and permissible for CMS to consider R&B’s bankruptcy in relation to the company’s financial health as part of its review (R&B Receivables Management Corp. d/b/a R&B Solutions v. HHS, April 16, 2018, Kennelly, M.).

Background. R&B is an Illinois corporation that formed to assist uninsured and underinsured individuals with Medicaid enrollment. In 2012, it filed for Chapter 11 bankruptcy. In 2013, R&B was awarded a grant to operate as a Navigator in Wisconsin for the 2013–2014 award period to assist people enrolling in health plans on the exchanges. It applied for a larger grant in 2014, proposing to serve not only Wisconsin, but also Illinois, Iowa, Indiana, and North Carolina for the 2014–2015 period. Neither of the grant applications requested information about bankruptcy.

On September 8, 2014, HHS issued press releases announcing the 2014–2015 grant, including state-specific releases announcing that R&B was awarded grants for Illinois, Indiana, Iowa, and North Carolina. The press releases were issued before HHS sent out official Notices of Awards. The grant to R&B was criticized by an online publication on September 8 or 9, 2014, in part because it was in the middle of bankruptcy reorganization. Individuals at CMS learned of the story and asked R&B for additional information regarding its bankruptcy filing on September 12, 2014. R&B provided CMS with a copy of a court order that confirmed R&B’s first amended reorganization plan, which was filed in March 2014. A letter was sent on September 15, 2014, notifying R&B that it would not be receiving a grant for 2014–2015. Among its reasons, CMS stated that R&B violated the terms and conditions of the 2013–2014 grant because it failed to notify CMS of the bankruptcy reorganization plan within five days of filing its reorganization plan in March 2014. It also stated that CMS had concerns regarding R&B’s financial stability.

R&B filed suit in September 2015, and amended its complaint in April 2016, alleging multiple violations of the Due Process Clause, Takings Clause, the APA, and an "inalienable rights" violation, which it treated as a due process claim. Except for the claim for injunctive and declaratory relief under the APA, all other claims were dismissed. R&B moved for summary judgment on the APA claim. HHS cross-moved for summary judgment; R&B did not file a response.

Decision. In its three-paragraph motion, R&B argued that it did not violate the 2013–2014 grant terms requiring notice to CMS upon "entering into" bankruptcy proceedings, because it had already filed for bankruptcy before receiving the grant. R&B also argued that HHS’s last-minute decision to deny the grant should be set aside because CMS acted arbitrarily and capriciously, contrary to law, and exceeded its statutory authority.

The court was not persuaded by R&B and granted HHS’s cross-motion for summary judgment. Agreeing with HHS, the court noted that even if CMS’s finding that R&B violated the terms of the 2013–2014 grant was wrong, R&B failed to address CMS’s other basis for denying the 2014–2015 grant, which was the financial stability of R&B. Based on the bankruptcy court’s order, CMS was concerned that R&B had not completed the reorganization and been discharged from bankruptcy. Therefore, it was reasonable and permissible for CMS to consider the bankruptcy as part of its review, even it the application did not require such information. The court concluded that CMS’s decision was not arbitrary, capricious, in excess of its statutory authority, or otherwise contrary to law.

The case is No. 15 C 8109.

Attorneys: Roderick Andrew Drobinski (The Law Offices of Roderick A. Drobinski, P.C.) for R&B Receivables Management, Corp. d/b/a R&B Solutions. Susan Willoughby Anderson, Office of the U.S. Attorney, for U.S. Department of Health and Human Services.

Companies: R&B Receivables Management, Corp. d/b/a R&B Solutions; U.S. Department of Health and Human Services

Cases: CaseDecisions AgencyNews GrantNews HealthInsuranceExchangeNews IllinoisNews

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