Ingham Reg'l Med. Ctr. v. United States, 13-821C

• Decision Date: 22 March 2016
• Docket Number: No. 13-821C,13-821C
• Parties: INGHAM REGIONAL MEDICAL CENTER, ET AL., Plaintiffs, v. UNITED STATES, Defendant.
• Court: U.S. Claims Court

INGHAM REGIONAL MEDICAL CENTER, ET AL., Plaintiffs, v. UNITED STATES, Defendant.

No. 13-821C

United States Court of Federal Claims

March 22, 2016

Money-Mandating Statute and Regulation; Failure to State a Claim; Breach of Express and/or Implied in Fact Contract; Release; Mutual Mistake; Breach of the Covenant of Good Faith and Fair Dealing; Statute of Limitations.

Alexander J. Pires, Pires Cooley, Washington, DC, for plaintiffs. Of counsel, Gregory A. Brodek, Duane Morris LLP, Bangor, ME.

Phyllis Jo Baunach, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, Department of Justice, Washington, D.C. With her were Steven J. Gillingham, Assistant Director, Civil Division, Robert E. Kirschman, Jr. Director, Commercial Litigation Branch, and Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Civil Division. Of counsel, Gerald A. Wesley, Associate General Counsel, Defense Health Agency, Department of Defense, Washington, D.C.

OPINION

HORN, J.

Plaintiffs Ingham Regional Medical Center (Ingham), Bay Regional Medical Center (BRMC), McLaren Northern Michigan (McLaren), Gifford Medical Center, Inc. (Gifford), and Lakewood Health System (Lakewood) operate hospitals that participated in the TRICARE program, a federal program providing health care to uniformed service members, retirees, and certain others. Plaintiffs allege that from at least August 1, 2003 to May 1, 2009 (the Relevant Period), the defendant, United States of America, acting through the Secretary of the United States Department of Defense (DoD) in his official capacity as operator of TRICARE, underpaid them for certain services they provided as part of the TRICARE program, which plaintiffs allege resulted in the breach of two contracts and violations of applicable statutory and regulatory provisions.¹ They seek to bring a class action² on behalf of every hospital in the United States that (1) provided outpatient services to individuals enrolled in the TRICARE program during the Relevant Period, and (2) participated in the defendant's Discretionary Payment Process, described below, announced April 25, 2011. Plaintiffs estimate their proposed class size to be approximately 5,200 hospitals.

FINDINGS OF FACT

In 1956, Congress established a military health care system, now known as TRICARE, to "create and maintain high morale in the uniformed services by providing an improved and uniform program of medical and dental care for members and certain former members of those services, and for their dependents." See 10 U.S.C. § 1071 (2012).³ Although the program initially covered only active duty members and their dependents, coverage was later expanded to include retirees, eligible dependents of retirees, and survivors, i.e., certain surviving dependents of deceased service members killed on active duty. See Military Medical Benefits Amendments of 1966, Pub. L. No. 89-614, 80 Stat. at 865; see also 10 U.S.C. § 1086(c) (2012). The law empowers the Secretary of Defense to administer TRICARE and the Secretary has used that power to promulgate regulations and manuals that, together with the underlying statutes, govern the TRICARE program. See 10 U.S.C. 1073(a)(2) (2012); see generally 32 C.F.R. § 199 (2015). Among other provisions, the law provides the Secretary of Defense with the authority to contract with outside providers, such as the plaintiff hospitals, for medical care for dependents of service members, retirees, dependents of retirees, and survivors. See 10 U.S.C. §§ 1079(a), 1086(a) (2012).⁴

TMA/DHA, as part of its management responsibilities, contracts with three managed care support contractors (MCSCs), which in turn are responsible for establishing networks of health care providers in their national region to provide health care services to TRICARE beneficiaries (there are three national regions: North, South, and West) and for receiving and processing individual claims. See 10 U.S.C. § 1072(7) (2012); DoD Directive 5136.13 (September 30, 2013). DHA/TMA does not typically enter into reimbursement contracts directly with medical care providers, including hospitals such as the plaintiffs, but rather with these MCSCs, which in turn receive and process the providers' claims for medical reimbursement. If an individual claim qualifies for payment under the TRICARE Program, then the claim is reimbursed in accordance with the guidelines set forth in 32 C.F.R. § 199.14.

The event which appears to have set in motion the events leading to this lawsuit was the alteration by Congress in 2001 of a single word in the portion of the TRICARE statute governing the reimbursements for outside providers of health care services. Prior to 2001, 10 U.S.C. § 1079(j)(2) stated:

The amount to be paid to a provider of services for services provided under a plan covered by this section may be determined under joint regulations to be prescribed by the administering Secretaries which provide that the amount of such payments shall be determined to the extent practicable in accordance with the same reimbursement rules as apply to payments to providers of services of the same type under title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) [i.e., Medicare].

10 U.S.C. § 1079(j)(2) (2000) (emphasis added). In 2001, Congress altered 10 U.S.C. § 1079(j)(2) by replacing "may be determined under joint regulations" with "shall be determined under joint regulations." National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-107, § 707, 115 Stat. 1012, 1163 (2001); see 10 U.S.C. 1079(j)(2)(2006) (emphasis added).⁵ To implement this change, TRICARE issued an interim final rule on June 13, 2002, see 67 Fed. Reg. 40597-02 (June 13, 2002) (the Interim Final Rule), and then a final rule on October 24, 2005, see 70 Fed. Reg. 61368-79 (Oct. 24, 2005) (the Final Rule). The Interim Final Rule explained that, from 2000 to 2004, Medicare was phasing in a new Outpatient Prospective Payment System (OPPS) methodology for facility charges in hospital outpatient departments and emergency departments. See 67 Fed. Reg. 40597-02, 40601. The Interim Final Rule then stated that the DoD planned to follow the Medicare rule, but that "because of complexities of the Medicare transition process and the lack of TRICARE cost report data comparable to Medicare's, it is not practicable for the Department to adopt Medicare OPPS for hospital outpatient services at this time." Id. Instead, the Interim Final Rule, effective August 12, 2002, adopted new methods of payment for four categories of hospital-based outpatient services, with the anticipation of the "eventual adoption of the Medicare OPPS for most TRICARE hospital outpatient services covered by the Medicare OPPS." Id.; see id. at 40598 (stating effective date of rule). For clinical laboratory services, rehabilitation therapy services, and venipuncture, payments would be based on "the TRICARE-allowable cost method in effect for professional providers," while for outpatient radiology services, a fixed maximum allowable charge, the CHAMPUS Maximum Allowable Charge (CMAC), would be used. Id. at 40601; see id. at 40604-05 (describing additions to be codified at 32 C.F.R. § 199.14(a)(5)).

The 2005 Final Rule repeated the language in the Interim Final Rule regarding the impracticability of fully adopting Medicare OPPS for hospital outpatient services at that time. See 70 Fed. Reg. at 61371. The Final Rule then set forth reimbursement methods for hospital outpatient services that had "established allowable TRICARE charges," including: laboratory services, including clinical laboratory; rehabilitation therapy services; radiology services; diagnostic services; ambulance services; durable medical equipment (DME) and supplies; oxygen and related supplies; drugs administered other than oral method; all professional provider services that are provided in an emergency room, clinic, or hospital outpatient department, etc.; and routine venipuncture. Id.; see also id. at 61378-79 (describing amendments to 32 C.F.R. § 199.14(a)(5)(i)-(xii)). Plaintiffs refer to these categories as "All Outpatient Services." The 2005 Final Rule then explained: "For these services, payments are based on the TRICARE-allowable cost method in effect for professional providers or the CHAMPUS Maximum Allowable Charge (CMAC)." Id. at 61371. All other outpatient hospital services, except for ambulatory surgery services, which had their own payment methodology, were to paid as billed. Id. at 61371-72. The2005 Final Rule made these changes retroactively effective to August 1, 2003. Id. at 61368.

In late 2008, TRICARE introduced a new payment system for hospital outpatient services that was similar to the OPPS rules used by Medicare. The effective date for the new payment system was May 1, 2009 for most hospitals, and January 1, 2010 for small rural hospitals. See 73 Fed. Reg. 74945-74966 (December 10, 2008) (publishing a final rule implementing the TRICARE Hospital OPPS with an effective date of February 9, 2009); see also 74 Fed. Reg. 6228 (February 6, 2009) (extending the effective date of TRICARE's OPPS until May 1, 2009).

Plaintiffs allege that the use of CMAC rates to reimburse hospitals did not approximate Medicare payment rates and resulted in significant underpayment to hospitals that treated TRICARE beneficiaries. According to plaintiffs, "CMAC was intended as a payment methodology used to reimburse 'individual health care providers' (such as doctors) and not institutions, such as hospitals, which invariably have more overhead." (emphasis in original). Thus, plaintiffs allege, CMAC was never intended to be the exclusive reimbursement paid to hospitals for providing hospital outpatient services. Plaintiffs allege that TRICARE's use of CMAC rather than Medicare's hospital reimbursement methodology violated 10 U.S.C §§ 1079(a), (j)(2) and 1086(a), (g), which, according to plaintiffs, required the DoD to reimburse health care providers in accordance with Medicare...