Cal. Ins. Guarantee Ass'n v. Burwell

• Decision Date: 05 January 2017
• Docket Number: Case No. 2:15–cv–01113–ODW (FFMx)
• Citation: 227 F.Supp.3d 1101
• Court: U.S. District Court — Central District of California
• Parties: CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Plaintiff, v. Sylvia Mathews BURWELL, Secretary of Health and Human Services; United States Department of Health & Human Services; and Center for Medicare & Medicaid Services, Defendants.

227 F.Supp.3d 1101

CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Plaintiff,

v.Sylvia Mathews BURWELL, Secretary of Health and Human Services; United States Department of Health & Human Services; and Center for Medicare & Medicaid Services, Defendants.

Case No. 2:15–cv–01113–ODW (FFMx)

United States District Court, C.D. California.

Signed January 5, 2017

Phillip Chan, Locke Lord LLP, Sacramento, CA, Julie L. Young, Steven T. Whitmer, Locke Lord LLP, Chicago, IL, Kelly S. Biggins, Locke Lord LLP, Los Angeles, CA, for Plaintiff.

Lynn Y. Lee, U.S. Department of Justice, Washington, DC, for Defendants.

ORDER ON MOTION TO DISMISS AND MOTIONS FOR SUMMARY JUDGMENT [63, 68, 87]

OTIS D. WRIGHT, II, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

This is an action for judicial review of Medicare reimbursement demands. At various times, the Center for Medicare and Medicaid Services ("CMS")—which administers the federal Medicare program and the Medicare Secondary Payer statute, 42 U.S.C. § 1395y ("MSP")—paid health benefits to three individuals. These individuals were also insured under several workers' compensation policies administered by the California Insurance Guarantee Association ("CIGA"). Because Medicare benefits are always secondary to any other applicable insurance, CMS sought reimbursement from CIGA for some of the benefits paid. CIGA alleges, however, that CMS calculated its reimbursement liability in a manner that is contrary to the MSP and the implementing regulations, resulting in over-inclusive reimbursement demands. CIGA seeks a judicial declaration to that effect, as well as a permanent injunction barring CMS from reapplying the offending practice to future demands against CIGA. Defendants raise a litany of defenses to this action, including that: (1) CIGA's claims are moot because CMS recently ceased efforts to collect on the three reimbursement demands at issue; (2) CIGA did not make a prima facie case that CMS's demands were over-inclusive; (3) CMS's practice is in any event based on a reasonable interpretation of the MSP and the implementing regulations; (4) CIGA did not adequately plead its request for injunctive relief; (5) an injunction affecting future reimbursement demands effectively (and impermissibly) bypasses the mandatory administrative appeals process; and (6) directing CMS not to use a particular method to calculate reimbursement liability constitutes an impermissible "programmatic attack" on Medicare.

Defendants have moved for summary judgment, and CIGA has moved for partial summary judgment. Defendants have also moved to dismiss the action as moot. For the reasons discussed below, the Court rejects each and every argument Defendants advance, and concludes that Defendants' interpretation of the MSP and the relevant regulations are contrary to law and not entitled to deference. Accordingly, the Court DENIES Defendants' Motion to Dismiss (ECF No. 87),¹ DENIES Defendants' Motion for Summary Judgment (ECF No. 63), and GRANTS CIGA's Motion for Partial Summary Judgment (ECF No. 68).

II. BACKGROUND

A. Factual Background

CIGA is a statutorily-created association of insurers admitted to transact certain classes of insurance business in California. Cal. Ins. Code § 1063(a). CIGA provides a fund from which insureds can obtain financial and legal assistance in the event their insurers become insolvent. Id. To that end, CIGA is generally required to pay insurance claims that are covered under policies issued by insolvent insurers, subject to certain statutory limitations and exceptions. See generally id. § 1063.2.

Medicare is a health insurance program run by the federal government that provides benefits to elderly people and people with certain types of disabilities. See generally 42 U.S.C. §§ 1395 et seq. Where Medicare pays benefits for a loss that is covered under another insurance plan, however, the MSP requires those other plans (called "primary plans") to reimburse Medicare. 42 U.S.C. § 1395y(b)(2)(A)(ii), (B)(ii). To determine whether a potential primary plan covers a particular medical charge, CMS looks to the medical diagnosis code recorded by the provider for that charge. These codes are commonly used in the medical billing industry to indicate the condition treated and/or procedure used. (Defs.' SUF 7, 9, ECF No. 75–1; Pl.'s SUF 41, 42, ECF No. 76–1.) It is not uncommon, though, for multiple diagnosis codes to appear under a single charge—some of which relate to a medical condition covered by the primary plan, and some of which do not. In those instances, CMS determines if any one code relates to a covered condition. (Pl.'s SUF 43; Defs.' SUF 9.) If so, CMS seeks reimbursement for the full amount of the charge, even if some unsegregated portion of the charge is for medical services not covered by the plan. (Pl.'s SUF 44–46; Defs.' SUF 9.)

Here, CIGA informed CMS that it was paying certain medical costs for three people under three separate workers' compensation policies. (Defs.' SUF 5.) CMS determined that it had also paid benefits to those people, and thus sent conditional payment letters to CIGA seeking full reimbursement for each charge containing at least one covered diagnosis code—even though many charges also contained codes that were indisputably not covered. (Defs.' SUF 5; Pl.'s SUF 2–4, 6, 9, 15, 25, 26.) For example, under Claim No. 108–7200001951 ("Claim 1"), CIGA's policy covered medical costs incurred by a worker as a result of a slip and fall accident that caused back and leg injuries. (Pl.'s SUF 5.) Although each charge for which CMS sought reimbursement contained at least one diagnosis code related to this injury, several charges also contained codes relating to diabetes, insulin use, and bereavement. (Pl.'s SUF 5–11.) Likewise, under Claim No. 113–OSB80012157 ("Claim 2"), CIGA was paying for medical costs incurred by a worker after he stepped into a hole and injured his left knee, left hip, and spine; yet CMS sought full reimbursement for charges that also contained codes relating to high blood pressure

, bronchitis, tobacco use, and eczema. (Pl.'s SUF 14–21.) Finally, under Claim No. 113–9500002572 ("Claim 3"), CIGA was paying for medical costs incurred by a worker for asbestos exposure, but CMS sought reimbursement for charges that also contained codes relating to stomach ulcers, dizziness, and giddiness. (Pl.'s SUF 24–30.) CIGA responded to CMS's letters by raising a host of defenses, including that numerous charges contained diagnosis codes that its policies did not cover. (Pl.'s SUF 12–13, 22–23, 32–33; Defs.' SUF 8.) CMS nevertheless issued a formal demand letter for the full amount of each charge. (See Pl.'s SUF 66.) This lawsuit soon followed.²

B. The Pleadings

1. First Amended Complaint

In its First Amended Complaint ("FAC"), CIGA asserted several theories that broadly challenged CMS's ability to seek any reimbursement from CIGA.³ (FAC ¶ 29.) First, CIGA alleged that workers' compensation plans are not "primary plans" under the MSP when administered by CIGA. (Id. ¶ 28.) Next, CIGA alleged that it can pay only statutorily-defined "covered claims," Cal. Ins. Code § 1063.2, and that the statutory definition excludes (1) obligations to the federal government, id. § 1063.1(c)(4), and (2) any claims that are not "within the coverage of an insurance policy of the insolvent insurer," id. § 1063.1(c)(1)(A). (FAC ¶¶ 27, 32.) Finally, CIGA asserted that it was obligated to pay claims only if they arose after the date of the issuing-insurer's insolvency, and that CMS made many of the benefit payments before that date. (Id. ¶ 35.) CIGA sought declaratory and injunctive relief, including "an order permanently enjoining Defendants ... from enforcing the MSP provisions against CIGA with respect to government claims for reimbursement that are not ‘covered claims.’ " (FAC, Prayer for Relief ¶ 4.)

Defendants moved to dismiss the FAC. (ECF No. 24.) The Court held that CIGA–administered insurance plans constitute "primary plans" within the meaning of the MSP, and that the MSP preempted the California Guaranty Act's prohibition on paying obligations to the federal government. (Order at 17, ECF No. 38.) However, the Court determined that CIGA had stated a plausible claim to the extent CMS sought reimbursement for claims that were not "within the coverage of an insurance policy of the insolvent insurer." (Id. at 25.) Finally, the Court held that CIGA did not plead sufficient facts in support of its remaining claims and theories, which the Court dismissed with leave to amend. (Id. )

2. Second Amended Complaint

In its Second Amended Complaint ("SAC"), CIGA reasserted its theory that CMS was improperly seeking reimbursement for charges that did not fall "within the coverage of an insurance policy of the insolvent insurer." (SAC ¶¶ 43–47, 48–52, ECF No. 40.) But CIGA also alleged two new theories: that the payments at issue were not "covered claim[s]" because (1) CMS did not file timely proofs of claim in the defunct insurer's insolvency proceedings, and (2) CMS was impermissibly asserting claims as an assignee or subrogee of the insured. (Id. ¶¶ 26–42.) The prayer for relief in the SAC was identical to the prayer in the FAC. (Id. , Prayer for Relief ¶¶ 1–5.) Upon motion by Defendants, the Court dismissed the new theories without leave to amend. (ECF No. 50.) This left only CIGA's original theory that the policies it administered did not cover all of the losses for which CMS sought reimbursement. Defendants answered CIGA's SAC thereafter. (ECF No. 51.)

3. Proposed Third Amended Complaint

In May 2016, CIGA moved for leave to file a Third Amended Complaint to add, among other things, a request to permanently enjoin Defendants from seeking reimbursement from CIGA for "charges ... that are not covered by the workers compensation insurance policy of any insolvent insurer." (ECF No. 55.) The Court denied the motion, holding that such relief could and should have been pleaded in prior iterations of its complaint. (Order...