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Sidley Austin LLP

Court vacates Medicare Advantage overpayment rule and curtails DOJ's pursuit of False Claims Act damages

Newsletters

03 October 2018

Healthcare & Life Sciences USA

Overview
Decision
Comment


Overview

On 7 September 2018 the US District Court for the District of Columbia vacated CMS's 2014 final overpayment rule,(1) applicable to the Medicare Advantage programme, granting summary judgment to UnitedHealthcare that the final rule:

  • violated the Medicare statute;
  • was inconsistent with the Affordable Care Act and the False Claims Act; and
  • violated the Administrative Procedures Act.

Decision

In short, the district court confronted two statutory issues. The first centred on the undisputed fact that the final rule did not account for known errors in the data (from traditional Medicare) used to calculate payments to Medicare Advantage plans. The court found that this failure violated the statutory mandate of 'actuarial equivalence' because, although "payments for care under traditional Medicare and Medicare Advantage are both set annually based on costs from unaudited traditional Medicare records", the final rule "systematically devalue[d] payments to Medicare Advantage insurers by measuring 'overpayments' based on audited patient records". As a result, the court concluded that the final rule established "a system where 'actuarial equivalence' cannot be achieved". On the same basis, the court found that the final rule violated the statutory requirement to use the "same methodology" in calculating expenditures in traditional Medicare and determining payments to Medicare Advantage plans. The final rule failed "to recognize a crucial data mismatch" and, without correction, thus failed to satisfy the Medicare statute.

The second issue pertained to how overpayments are identified. According to the final rule, an overpayment is identified – thus triggering the Affordable Care Act's statutory mandates to return the overpayment and potential damages under the False Claims Act for failure to do so – when a Medicare Advantage plan determines, "or should have determined through the exercise of reasonable diligence", that it had received an overpayment. The final rule further stated that reasonable diligence requires "at a minimum… proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments". The court held that this aspect of the final rule was inconsistent with both the False Claims Act and the Affordable Care Act because it unlawfully imposed a negligence standard on Medicare Advantage insurers to identify and report overpayments:

2014 Overpayment Rule extends far beyond the False Claims Act, and by extension the Affordable Care Act. Not being Congress, CMS has no legislative authority to apply more stringent standards to impose FCA consequences through regulation.

In addition to the statutory violations, the court agreed with UnitedHealthcare that the final rule was arbitrary and capricious under the Administrative Procedures Act. The court noted that CMS had "recognized that actuarial equivalence, mandated by statute, required a [Fee-For-Service] Adjuster for purposes of defining overpayments because of dissimilar data for RADV audits", but failed to provide a "legitimate reason for abandoning that statutory mandate in the context of the 2014 Overpayment Rule". In reaching this conclusion, the court emphasised that UnitedHealthcare was not seeking permission to "knowingly or recklessly" bill CMS for erroneous diagnosis codes, but rather it argued that "it should not be subject to lesser payments, False Claims Act liability, or debarment for errors... that are fewer than those errors made by CMS itself".

Finally, the court found that the final rule violated the Administrative Procedures Act's 'logical outgrowth' requirement by departing from the knowledge standard in the proposed rule. Whereas the proposed rule adopted the familiar definition of 'knowing' from the False Claims Act, the final rule imposed a "distinctly different and more burdensome definition of 'identified' without adequate notice". As a result, the court found that CMS had "pull[ed] a surprise switcheroo on regulated entities" in violation of the Administrative Procedures Act.

Comment

Because the decision vacates the overpayment provisions of the final rule entirely, further rulemaking may be necessary. The court, in footnotes noted that one option would be to overhaul the entire Medicare Advantage HCC model before going on to suggest a more reasonable response might be to propose an overpayment rule that incorporates a fee-for-service adjuster and thus achieves actuarial equivalence. The court's decision should also have a significant impact on DOJ's efforts to bring FCA cases on the basis of potentially unsupported diagnosis codes for Medicare Advantage beneficiaries.

A copy of the court's opinion can be found here.

For further information on this topic please contact Jaime LM Jones, Sean Griffin or Jennifer Haney at Sidley Austin LLP by telephone (+1 202 736 8000) or email (jaime.jones@sidley.com, sgriffin@sidley.com or jhaney01@sidley.com). The Sidley Austin LLP website can be accessed at www.sidley.com.

Endnotes

(1) See Contract Year 2015 Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs, 79 Fed Reg 29,844, 29844-968 (23 May 2014) (2014 Overpayment Rule).

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Authors

Jaime L M Jones

Jaime L M Jones

Sean Griffin

Sean Griffin

Jennifer M Haney

Jennifer M Haney

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