United States ex rel. Kuriyan v. HCSC Ins. Servs. Co., CIV 16-1148 JB/KK

CourtUnited States District Courts. 10th Circuit. District of New Mexico
PartiesUNITED STATES OF AMERICA, ex rel. Jacob Kuriyan and STATE OF NEW MEXICO, ex rel. Jacob Kuriyan, Plaintiffs, v. HCSC INSURANCE SERVICES CO., doing business as BLUE CROSS &BLUE SHIELD OF NEW MEXICO; MOLINA HEALTHCARE OF NEW MEXICO, INC.; PRESBYTERIAN HEALTH PLAN, INC. and UNITEDHEALTHCARE OF NEW MEXICO, INC., Defendants.
Decision Date20 December 2021
Docket NumberCIV 16-1148 JB/KK

UNITED STATES OF AMERICA, ex rel. Jacob Kuriyan and STATE OF NEW MEXICO, ex rel. Jacob Kuriyan, Plaintiffs,
v.

HCSC INSURANCE SERVICES CO., doing business as BLUE CROSS &BLUE SHIELD OF NEW MEXICO; MOLINA HEALTHCARE OF NEW MEXICO, INC.; PRESBYTERIAN HEALTH PLAN, INC. and UNITEDHEALTHCARE OF NEW MEXICO, INC., Defendants.

No. CIV 16-1148 JB/KK

United States District Court, D. New Mexico

December 20, 2021


Bryan J. Davis

Davis & Gilchrist, P.C.

Albuquerque, New Mexico

Sam Bregman

Bregman & Loman, P.C.

Albuquerque, New Mexico

Joel Androphy

Janis G. Gorton

Berg & Androphy

Houston, Texas

Robert L. Lieff

San Francisco, California

Attorneys for the Plaintiff

Fred J. Federici

Acting United States Attorney

Ruth F. Keegan

Assistant United States Attorney

United States Attorney's Office

Attorneys for the United States of America

Hector H. Balderas

New Mexico Attorney General

Zachary Shandler

Assistant Attorney General

New Mexico Office of the Attorney General

Attorneys for the State of New Mexico

Benjamin E. Thomas

Christina M. Gooch

Sutin, Thayer & Browne

Albuquerque, New Mexico

Edwin E. Brooks

Kathryn A. Campbell

Sarah I. Rasid

McGuire Woods, LLP

Steven Hamilton

Jason T. Mayer

Reed Smith, LLP

Chicago, Illinois

Attorneys for Defendant HCSC d/b/a Blue Cross & Blue Shield of New Mexico

Gregory Marshall

Neanne Y Sohn

Snell & Wilmer L.L.P.

Albuquerque, New Mexico

Sandra A. Brown

Snell & Wilmer L.L.P.

Steven Paul Ragland

Julia L. Allen

Simona Agnolucci

Maya Perelman

Keker, Van Nest & Peters, LLP

San Francisco, California

Attorneys for Defendant Molina Healthcare of New Mexico, Inc.

Kimberly N. Bell

Presbyterian Healthcare Services

Charles K. Purcell

Rodey, Dickason, Sloan, Akin & Robb, P.A.

Attorneys for Defendant Presbyterian Health Plan, Inc.

Robert E. Hanson

Matthew Eric Jackson

Peifer, Hanson, Mullins & Baker, P.A.

Mark T. Calloway

Michael R. Hoernlein

Alston & Bird, LLP

Charlotte, North Carolina

Attorneys for Defendant UnitedHealthcare of New Mexico, Inc.

MEMORANDUM OPINION [1]

THIS MATTER comes before the Court on: (i) the United States' and New Mexico's Motion to File a Sur-Reply to Third Motion For Award From Alternative Remedy at 1, filed April 2, 201 (Doc. 198)(“Surreply Motion”); and (ii) the Plaintiff/Relator's Opposed Third Motion for Award from Alternate Remedy, filed February 5, 2021 (Doc. 173)(“Motion”). The Court held a hearing on September 29, 2021. See Clerk's Minutes, filed September 29, 2021 (Doc. 214). The primary issues are: (i) whether the Court should consider the United States and New Mexico's Sur-Reply Relating to Relator's Opposed Third Motion for Award from Alternate Remedy, filed April

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2, 2021 (Doc. 198-1)(“Surreply”), when deciding whether to grant the Motion; (ii) whether the Court should revisit the conclusion of the Honorable James A. Parker, Senior United States District Judge for the United States District Court for the District of New Mexico, that Dr. Kuriyan has “pled a plausible claim that Defendants violated the FCA, ” NMFATA, and the New Mexico Medicaid False Claims Act, N.M.S.A. §§ 27-14-1 through 27-14-15 (“NMMFCA”), Memorandum Opinion and Order at 20, 16, 2020 WL 8079811, filed September 9, 2020 (Doc. 140)(Parker, J.)(“2nd MTD MOO”); and (iii) whether the State of New Mexico's recoupment of funds from Defendants HCSC Insurance Services Co., d/b/a Blue Cross & Blue Shield of New Mexico (“Blue Cross”), Molina Healthcare of New Mexico, Inc. (“Molina Healthcare”), Presbyterian Health Plan, Inc. (“Presbyterian Health”), and UnitedHealthcare of New Mexico, Inc. (“UnitedHealthcare”) (collectively “Defendant MCOs”), all Medicaid Managed Healthcare Organizations (“MCOs”), [2] in June, 2017, is an “alternate remedy, ” as the False Claims Act, 31 U.S.C. § 3730(c)(5)(“FCA”), and the New Mexico Fraud Against Taxpayer Act, N.M.S.A. § 44-9-6(H)(“NMFATA”), define that term. The crux of the second issue is whether the State of New Mexico's recoupment of funds from the Defendants was the result of Plaintiff Dr. Michael Kuriyan informing the New Mexico Human Services Department (“HSD”) that the Defendants had been

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overpaid, because they had not spent eighty-five percent of capitated payments[3] on healthcare costs as their contract required, or whether HSD's recoupments were made pursuant to the terms of the contract that HSD had with the Defendants. The Court concludes that: (i) the Court will consider the arguments in the Surreply; (ii) the Court does not have to revisit Judge Parker's conclusion, but agrees that Dr. Kuriyan plausibly pleads a claim upon which relief can be granted; and (iii) because Dr. Kuriyan's Motion in effect asks the Court to transform Judge Parker's conclusion into a finding that the Defendant MCOs acted fraudulently and that HSD would not have recouped funds but for Dr. Kuriyan alerting them of alleged fraud, the Court will deny the Motion.

FACTUAL BACKGROUND

The Court takes its facts from the Complaint, filed October 18, 2016 (Doc. 1)(“Original Complaint”), Plaintiff/Relator[4] Jacob Kuriyan's Third Amended Complaint, filed October 1, 2020 (Doc. 142)(“Complaint”), the Motion, the United States' and New Mexico's Opposition to Relator's Opposed Third Motion for Award from Alternate Remedy at 9, filed March 12, 2021 (Doc. 195)(“Government Response”), and the Plaintiff/Relator's Reply to United States' & New Mexico's Opposition to his Third Motion for Award From Alternative Remedy, filed March 26, 2021 (Doc. 196)(“Government Reply”). The Court supplies a factual background to assist the parties in knowing what facts the Court uses for this Memorandum Opinion, and not to state these

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facts for their truth. These facts do not bind the parties or the Court at trial. The Court recognizes that, because the Court draws facts from the Original Complaint and the Complaint, these facts largely reflect Dr. Kuriyan's version of events.

1. Background.

Medicaid managed care is an “alternative to traditional fee-for-service arrangements and is believed to manage care costs, quality of care, and utilization more effectively.” Complaint ¶ 38, at 14. MCOs contract with State Medicaid organizations, which pay MCOs a monthly, flatrate “capitation” premium for each enrolled member. Complaint ¶ 38, at 14. State Medicaid agencies are not able to predict precisely the cost of care that the MCOs will provide, so they base their capitation payments on the expected cost of care, which may be greater or lesser than the MCOs' actual costs. See Complaint ¶ 39, at 14. The trouble, and this case's dispute, arises from the mismatch between the State's capitation payments and the MCOs actual costs of managing Medicaid members' healthcare. A series of regulations govern the relationship between the MCOs and State Medicaid organizations to ensure that the MCOs do not gain “excessive profits when the actual medical care costs for their beneficiaries, plus administrative costs, are much less than the capitation payments they receive from the state Medicaid agency.” Complaint ¶ 40, at 15-16. These regulations “also help Medicaid managed care live[] up to its purported cost-effectiveness advantage by ensuring that Medicaid is not paying more than it would under a fee-for-service model.” Complaint ¶ 40, at 15.

When the Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119; Pub. L. No. 111-152, 124 Stat. 1029, expanded Medicaid coverage, states had difficulty predicting costs and premiums. See Complaint ¶ 46, at 12. For example, states could not predict accurately the cost of covering the previously uninsured. See Complaint ¶ 46, at 16. To try to ameliorate this risk, states

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implemented risk corridor provisions that allow a State Medicaid agency to compensate an MCO whose costs exceed the capitation payments. See Complaint ¶ 46, at 16-17. Overpayment is a trickier problem, however. If an MCO's costs are lower than the capitation payments, then either an MCO must detect and report overpayment, or a state-commissioned third-party audit would have to spot the error. See Complaint ¶¶ 47-48, at 17. If neither the MCO nor a third-party audit catches the overpayment, then the MCO “could fraudulently retain that overpayment by ignoring the error and simply ‘signing off' on the audit as-is.” Complaint ¶ 48, at 17 (no citation for quotation). A State Medicaid agency can, pursuant to 42 C.F.R. §§ 438.700(a), (b), and 42 C.F.R. § 438.730, impose sanctions on the MCO or initiate recoupment of excess funds. Before a State can initiate recoupment, however, the State must know about the overpayment. See Complaint ¶ 50, at 17. Because one year's capitation payments are based on the previous year's capitation payments, if an MCO is overpaid, and does not return the excess, then a “vicious cycle of inflation and overpayment ensues, driving up healthcare costs at Medicaid's expense and benefitting the MCOs.” Complaint ¶ 49, at 14.

New Mexico, though its HSD, contracts with the Defendants, who operate MCOs, to “provide healthcare for New Mexico's Medicaid enrollees in exchange for fixed, capitated payments from New Mexico.” Original Complaint ¶ 13, at 6. Consistent with 42 C.F.R. §§ 438.604-438.606, the contract requires the Defendant MCOs to submit periodic reports to the State, so the State has up-to-date data to calculate capitation payments. See Complaint ¶¶ 52-53, at 18. The MCOs have an opportunity to verify the State's calculations before the capitation payments are finalized. See Complaint ¶ 54, at 19 (citing Amended and Restated Medicaid Managed Care Services Agreement Among New Mexico Human Services Department, New Mexico Behavior Health Purchasing Collaborative, and HCSC Insurance Services Company,

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operating as Blue Cross and Blue Shield of New Mexico at 40, filed October...

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