Appalachian Reg'l Healthcare, Inc. v. Coventry Health & Life Ins. Co.

• Decision Date: 24 April 2013
• Docket Number: Nos. 12–5779,12–5785.,s. 12–5779
• Parties: APPALACHIAN REGIONAL HEALTHCARE, INC. and ARH Mary Breckinridge Health Services, Inc., Plaintiffs–Appellees, v. COVENTRY HEALTH AND LIFE INSURANCE COMPANY (12–5779); Commonwealth of Kentucky, Cabinet for Health and Family Services and Audrey Haynes, sued as, “Secretary, Cabinet for Health and Family Services” (12–5785), Defendants–Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

714 F.3d 424

APPALACHIAN REGIONAL HEALTHCARE, INC. and ARH Mary Breckinridge Health Services, Inc., Plaintiffs–Appellees,

v.COVENTRY HEALTH AND LIFE INSURANCE COMPANY (12–5779); Commonwealth of Kentucky, Cabinet for Health and Family Services and Audrey Haynes, sued as, “Secretary, Cabinet for Health and Family Services” (12–5785), Defendants–Appellants.

Nos. 12–5779, 12–5785.

United States Court of Appeals,Sixth Circuit.

Argued: Jan. 17, 2013.

Decided and Filed: April 24, 2013.

ARGUED:Amy D. Cubbage, McBrayer, McGinnis, Leslie & Kirkland, PLLC, Lexington, Kentucky, for Appellant in 12–5779. Christina M. Heavrin, Cabinet for Health and Family Services, Frankfort, Kentucky, for Appellants in 12–5785. Stephen R. Price, Sr., Wyatt, Tarrant & Combs, Louisville, Kentucky, for Appellees. ON BRIEF:Amy D. Cubbage, Stephen G. Amato, Jason S. Morgan, McBrayer, McGinnis, Leslie & Kirkland, PLLC, Lexington, Kentucky, for Appellant in 12–5779. David Brent Irvin, Cabinet for Health and Family Services, Frankfort, Kentucky, for Appellants in 12–5785. Stephen R. Price, Sr., Carole D. Christian, John W. Woodard, Jr., Allison Brown Vermilion, Wyatt, Tarrant & Combs, Louisville, Kentucky, for Appellees.

Before: SILER, GRIFFIN, and STRANCH, Circuit Judges.

OPINION

JANE B. STRANCH, Circuit Judge.

This appeal arises from Kentucky's transition to the managed-care model of service delivery for its Medicaid program, through which more than half-a-million indigent residents receive healthcare coverage. Kentucky awarded Coventry Health and Life Insurance Company, a managed-care organization, a contract to administer Medicaid services in southeastern Kentucky. Coventry, in turn, entered into a temporary agreement with Appalachian Regional Healthcare, the dominant hospital care provider in that area, to provide its members in-network hospital care and other services in Appalachian's facilities.

Soon after the transition occurred in November 2011, Coventry realized it was losing money on its deal with the state. This was partly because Kentucky required that Coventry's network include Appalachian, whose patients, on average, were sicker and more expensive to treat. Coventry also learned that not all of its competitors were required to contract with Appalachian. Coventry pressed state policymakers to increase its payment rates. Finding no success, it noticed termination of Appalachian's contract, which would have made thousands of low-income Medicaid recipients unable to access their healthcare providers at Appalachian's facilities without first paying (often costly) fees.

Appalachian sued Coventry and various state defendants to prevent termination of its contract. The district court issued a preliminary injunction that required Coventry to keep Appalachian in its network for four months longer than the contract specified. This order expired on November 1, 2012. The court also denied Coventry's motion to require Appalachian to post a security bond. Coventry and the state defendants appeal from the injunction. Coventry alone appeals from the bond denial. Because no recognized exception enables us to review the expired injunction, we DISMISS AS MOOT the parties' appeal as to it. And because the district court did not abuse its discretion in denying bond, we AFFIRM that order.

I. BACKGROUND

For many years, Kentucky provided medical care to its poorest citizens through Medicaid, a cooperative federal-state funding program, using a traditional fee-for-service model. See generally42 U.S.C. § 1396–1. Under it, a state is directly responsible for paying providers for services that Medicaid beneficiaries receive according to a fee schedule the state sets. See id. § 1396a(a)(30)(A). But in November 2011—in response to ballooning Medicaid costs and resulting pressures on the state's budget—Kentucky decided to scuttle its fee-for-service plan and transitioned to a managed-care program.

The theory of managed care is relatively simple. Rather than pay providers directly every time a Medicaid beneficiary receives care, the state instead contracts with managed-care organizations (MCOs) and pays them a flat “capitation rate” each month to provide, within certain limits, all of the care a beneficiary needs. The state pays the same amount regardless of whether the beneficiary receives healthcare services or not. So the MCO bears the risk that the costs of care may exceed the capitation payment. But on the other side, it stands to profit if beneficiaries use fewer services.

In exchange for receiving a capitation payment, an MCO is responsible for three principal tasks: enrolling Medicaid beneficiaries as members; forming a contracted network of healthcare providers to care for its members; and paying providers for their services. An MCO then directs its members to in-network providers, with whom the MCO has negotiated discounted rates. When members go out-of-network, they receive only limited benefits and may pay more for services.

Echoing managed care's many proponents, Kentucky decided that injecting market-based principles into the Medicaid payment model would improve healthcare access and quality by eliminating unnecessary care, enhancing coordination among providers, emphasizing preventative care, and promoting healthy lifestyles. Kentucky also assumed it would save the state money. But see Michael Sparer, Medicaid managed care: Costs, access, and quality of care, Robert Wood Johnson Foundation (Sept. 2012), http:// www. rwjf. org/ content/ dam/ farm/ reports/ reports/ 2012/ rwjf 401106 (examining peer-reviewed academic literature on the effects of Medicaid managed care and finding lower-than-expected fiscal savings, a mixed impact on access to care, and scant evidence of quality-of-care improvements) (last visited April 23, 2013).

Kentucky obtained permission in September 2011 from the Centers for Medicare and Medicaid Services (CMS), the federal agency that administers the Medicaid program, see42 U.S.C. § 1316(a)(1), to transition to managed care. To implement the plan, the Cabinet contracted with three MCOs—Coventry, Kentucky Spirit, and Wellcare—to administer Medicaid benefits to more than 560,000 Kentuckians. The MCOs were to operate in seven of eight Medicaid regions into which the state is subdivided. The Medicaid region involved in this case, Region 8, consists of nineteen counties in eastern and southeastern Kentucky that are among the most economicallydepressed, underserved, and medically needy in the Commonwealth. (They include Bell, Breathitt, Clay, Floyd, Harlan, Johnson, Knott, Knox, Laurel, Lee, Leslie, Letcher, Magoffin, Martin, Owsley, Perry, Pike, Whitley, and Wolfe counties.)

During the initial implementation phase in November 2011, the Cabinet assigned each Medicaid beneficiary to one of the three contracted MCOs. See907 Ky. Admin. Regs. 17:010 § 1(5). Beneficiaries could change their assigned MCO, but only during the first 90 days after they were assigned or annually during an open-enrollment period. Id. § 1(12)(a). Outside of these times, however, a beneficiary could only switch MCOs “for cause.” This would occur, for example, if a beneficiary lacked access to covered services or qualified providers. Id. § 7(7)(g). The timeliness of a “for cause” transfer to another MCO was not guaranteed, though, as the process could take more than 60 days. Id. § 2(6)(a).

A raft of federal and state statutes and regulations, as well as the terms of each MCO's agreement with the Cabinet, create reciprocal obligations between MCOs, the Cabinet, and the federal government. Two are relevant here. The first are the so-called network-adequacy requirements, which obligate an MCO to maintain a provider network that guarantees certain services are accessible to its members within specified times or distances from their homes. Network-adequacy requirements are found in federal and state law. See, e.g.,42 C.F.R. § 438.206(b)(1)(v); 907 Ky. Admin. Regs. 17:015 §§ 2(3)(a), (7). Kentucky's contract with Coventry incorporates several of these network-adequacy requirements. And it also requires Coventry to “strictly adhere to all applicable federal and Commonwealth law (statutory and case law), regulations and standards.” The second obligation relevant in this case requires providers to be paid on a timely basis for claims submitted to MCOs. See, e.g.,42 U.S.C. § 1396n(b)(4); Ky.Rev.Stat. § 304.17A–702. Like the network-adequacy requirements, the prompt-pay requirements also are incorporated into Kentucky's MCO contracts.

The Cabinet entered into an MCO agreement with Coventry in July 2011. Among other things, the agreement required Coventry to establish a provider network to deliver healthcare services to approximately 64,000 beneficiaries in Region 8. To build its network, Coventry contracted with Appalachian, which provided healthcare to an estimated 25,000 beneficiaries in that region. Coventry and Appalachian entered into a temporary agreement that allowed Coventry's members there to receive care at Appalachian's facilities while the two parties negotiated a more complete contract. The temporary agreement was set to expire on June 30, 2012, but allowed the parties to continue it beyond that date or terminate it on 30 days' notice.

The temporary agreement included three provisions pertinent to this appeal. The first required Appalachian and Coventry to “recognize and abide by all applicable Commonwealth and federal laws, regulations and guidelines,” which the agreement “incorporate[d] by reference.” The second relevant provision mirrored the statutory prompt-pay requirements described above and obligated Coventry to pay claims within 30 days of receipt. And the third was a continuation-of-benefits clause that protected certain Coventry members from interruptions in their healthcare in the event the agreement was terminated. This clause required Appalachian to continue providing services to Coventry members who were hospitalized or...