On March 31, 2017, Judge Rosemary Collyer of the United States District Court for the District of Columbia held that plaintiffs UnitedHealthcare Insurance Company et al. (“United”) had standing to challenge CMS’s overpayment rule as it applies to Medicare Advantage organizations (“MAOs”). The Affordable Care Act requires that if a “person” receives a Medicare overpayment, the person must report and return the overpayment within 60 days of its identification or face False Claims Act Liability. Pub. L. No. 111-148, § 6402, codified at 42 U.S.C. § 1320a-7k(d)(1). Judge Collyer’s decision allows United to continue its appeal of CMS’s application of the statute, which, United argues, in effect puts MAOs on the hook for faulty documentation made by Medicare Part C providers and requires more searching review than that which the False Claims Act calls for. Providers should also closely monitor this case, which mirrors potential arguments against requirements for heightened documentation review in the provider overpayment liability context.
MAOs receive a per-member/per-month (“PMPM”) capitated payment from CMS for Medicare beneficiaries, rather than a payment directly tied to services. To ensure “actuarial equivalence” between fee-for-service and MAO services, CMS requires that MAOs submit beneficiary encounter data. CMS then adjusts the PMPM payments based on the relative health of the MAO’s beneficiaries, normalized to fee-for-service experience. See 42 C.F.R. § 422.308(c); Medicare Managed Care Manual, Pub. No. 100-16, Ch. 7. These data points roughly reflect beneficiary medical needs and expected expenditures. CMS also conducts Risk Adjustment Data Validation audits, reviewing medical documentation for a small subset of MAOs. The results of these audits are then extrapolated to MAOs generally, further adjusting PMPM payments.
CMS interprets its finalized MAO overpayment rule, 42 C.F.R. § 422.326, to require that inadequately documented diagnostic codes, even if otherwise accurate, would result in an overpayment. 79 Fed. Reg. 29844, 29921 (May 23, 2014) (“a risk adjustment diagnosis that has been submitted for payment but is found to be invalid because it does not have supporting medical record documentation would result in an overpayment”). “Identification” requires that the MAO “determined, or should have determined through the exercise of reasonable diligence,” that it received an overpayment. 42 C.F.R. § 422.326(c). Similar language (“reasonable diligence”) is also found in the Medicare provider overpayment regulation. See 42 C.F.R. 401.305(a). In both the MAO and provider context, CMS has defined “reasonable diligence” to require “proactive compliance activities conducted in good faith by qualified individuals” with little further clarification. 79 Fed. Reg. at 29923; see also 81 Fed. Reg. 7654, 7661 (Feb. 12, 2016).
During rulemaking, a commenter expressed concern that the MAO overpayment rule “could impose a boundless duty to troll medical records in search of unknown vulnerabilities” and requested that CMS find that MAOs need not proactively search for an overpayment without reason to believe one exists. 79 Fed. Reg. at 29923. Similar arguments have been put forth by providers. See 81 Fed. Reg. at 7663 (expressing concern that the “reasonable diligence” standard requires providers to “be under a duty to investigate every ‘whiff’ of an overpayment”). In both occasions, CMS disagreed and finalized the overpayment rules. United now challenges the MAO overpayment requirements.
The Secretary had argued that the court lacked subject matter jurisdiction; Judge Collyer found that United had Article III and statutory standing to bring the suit. The merits of the underlying claim – whether and how MAOs are required to review the underlying medical documentation prior to submitting data to CMS – may now be litigated.
To that end, United has argued that CMS’s rulemaking is invalid. Most relevant to Medicare providers, United argues thatCMS’s definition of “reasonable diligence” (“proactive compliance activities conducted in good faith by qualified individuals,” 79 Fed. Reg. at 29923) impermissibly subjects MAOs to a negligence standard for purposes of the False Claims Act, whereas the False Claims Act itself imposes a recklessness standard.
Judge Collyer’s opinion in UnitedHealthcare Insurance Company v. Price, No. 16-cv-00157 (D.D.C. March 31, 2017) is available here. Judge Collyer has yet to set a briefing schedule on the merits.
