W. Va. Dep't of Health & Human Res. v. Sebelius

• Decision Date: 22 March 2016
• Docket Number: CIVIL ACTION NO. 2:09-cv-01542
• Court: U.S. District Court — Southern District of West Virginia
• Parties: West Virginia Department of Health and Human Resources, Bureau for Medical Services, Plaintiff, v. Kathleen Sebelius, et al., Defendants.

172 F.Supp.3d 904

West Virginia Department of Health and Human Resources, Bureau for Medical Services, Plaintiff,

v.Kathleen Sebelius, et al., Defendants.

CIVIL ACTION NO. 2:09-cv-01542

United States District Court, S.D. West Virginia, Charleston Division .

Signed March 22, 2016

Scott E. Johnson, Mary McQuain, Thomas W. Smith, Office of the Attorney General, Charleston, WV, for Plaintiff.

Thomas D. Zimpleman, Daniel Stephen Garrett Schwei, U.S. Department of Justice, Washington, DC, Gary L. Call, U.S. Attorney's Office, Charleston, WV, for Defendants.

MEMORANDUM OPINION AND ORDER

THOMAS E. JOHNSTON

, UNITED STATES DISTRICT JUDGE

This is a lawsuit by the West Virginia Department of Health and Human Resources (“DHHR”) challenging the withholding of federal Medicaid payments. Named as defendants are the following parties: Kathleen Sebelius, the Secretary of the United States Department of Health and Human Services (the “Secretary”), in her official capacity; the United States Department of Health and Human Services (“HHS”); Charlene Frizzera, the Acting Administrator of the Centers for Medicare and Medicaid Services, in her official capacity; and the Centers for Medicare and Medicaid Services (“CMS”).¹ On October 29, 2009, the Departmental Appeals Board (“DAB”) of HHS issued a ruling sustaining a disallowance of federal financial participation by CMS. On December 23, 2009, DHHR filed a complaint for judicial review of that decision, representing final agency action, pursuant to the Administrative Procedure Act (“APA”). (ECF No. 1.) Currently pending before the Court are the parties' cross motions for summary judgment. (ECF Nos. 29 and 30.) For the reasons discussed herein, Defendants' Motion for Summary Judgment, (ECF No. 29), is GRANTED and Plaintiff's Motion for Summary Judgment, (ECF No. 30), is DENIED .

I. Background

A. Statutory and Regulatory Framework

Medicaid is a cooperative federal-state program established for the purpose of “providing federal financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons.” Harris v. McRae , 448 U.S. 297, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980)

. The Medicaid Act is located in Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq . The Act is designed to allow federal and state governments to “jointly share the cost of providing medical care to eligible low-income and disabled individuals.” Va. Dep't of Med. Assistance Servs. v. Johnson , 609 F.Supp.2d 1, 2 (D.D.C.2009) (citing 42 U.S.C. §§ 1396 and 1396b ). Although participation in the Medicaid program is voluntary, every state has elected to participate and administer that program pursuant to broad federal requirements and the terms of its own state Medicaid plan. See 42 U.S.C. §§ 1396, 1396a. Congress has enumerated a number of conditions to regulate state receipt of these funds, and each state wishing to receive federal Medicaid funds is “required to submit a plan for medical assistance, and the Secretary of the Department of Health and Human Services (“HHS”) must approve the plan before funds are disbursed.” W. Va. Dep't of Health and Human Res. v. Sebelius (West Virginia I ), 649 F.3d 217, 219 (4th Cir.2011) (citing 42 U.S.C. § 1396–1 ). Once the Secretary approves a state plan, the state becomes generally eligible to receive federal matching funds. These funds, defined as “federal financial participation” (“FFP”), are designed to cover a percentage of the amounts “expended ... as medical assistance under the State plan.” 42 U.S.C. § 1396b(a)(1).

FFP grant amounts are based on a given state's Federal Medical Assistance Percentage (“FMAP”), which is the percentage of the state's medical assistance expenditures for which federal reimbursement is available. Id. § 1396d(b); see also 42 C.F.R. § 433.10

. Although federal Medicaid funding is often denoted as reimbursement, it actually operates as a series of advance payments. See 42 U.S.C. 1396b(d) ; Solomon v. Califano , 464 F.Supp. 1203, 1204 (D.Md.1979). At the beginning of every quarter, each participating state submits an estimate to the CMS, in whom the Secretary has delegated the authority to review such submissions, of allowable Medicaid expenditures for that quarter. 42 U.S.C. § 1396b(d)(1)

. In turn, CMS disburses to that state, in advance, an amount equal to the FMAP of the state's estimation “of the total amount expended during such quarter as medical assistance under the State plan.” Id. § 1396b(a)(1). Because the federal funds are paid out in advance, the Medicaid statute builds adjustments into each quarterly disbursement, and the amount received must be “reduced or increased to the extent of any overpayment or underpayment which the Secretary determines was made under this section ... for any prior quarter.” Id. § 1396b(d)(2)(A).

Overpayments may be withheld from future advances or, in the event of a dispute over a disallowance, may be retained by the state at its option pending resolution of the dispute. Id. § 1396b(d)(5)

. When a state discovers that it has made an overpayment, it has one year to attempt to recover such payment.² Once this time period expires, the Secretary is entitled reduce, or make disallowances to, the state's FFP payment to reflect the overpayment. Id. § 1396b(d)(2)(C). The federal government's right to collect overpaid funds in the form of FFP disallowances “operates independent of a state's recovery of funds wrongfully disbursed.” West Virginia I , 649 F.3d at 219 ; see also 42 U.S.C. § 1396b(d)(2)(C) (noting that once recoupment period expires, the Secretary is to make an appropriate adjustment “whether or not recovery was made”). As the Fourth Circuit noted in a companion case to the present litigation, “[t]he sine qua non of a proper disallowance is an overpayment.” Id. at 224 (citing 42 U.S.C. § 1396b(d)(2)(A) ).

The Social Security Act uses the term “overpayment” in “two related senses.” (ECF No. 24 (DAB Decision No. 2185) at 8.) Within § 1396b(d)(2)(C)

, the term refers to payments made by a state Medicaid program “to a provider which is in excess of the amount that is allowable for services furnished” under Title XIX. 42 C.F.R. § 433.304. Because these types of overpayments are based on expenditures that are not allowable under the statute in the first place, CMS is entitled to recoup the share of federal money expended in an unauthorized way. See

West Virginia I , 649 F.3d at 224–25 (noting that CMS is entitled to disallow portions of future funding to recoup overpayments where a third party “cause[s] ‘the amount paid by a Medicaid agency to a provider [to be] in excess of the amount that is allowable [under the Medicaid Act].’ ” (quoting 42 C.F.R. § 433.304 )).

Overpayment is also discussed in 42 U.S.C. § 1396b(d)(3)

, which provides that:

The pro rata share to which the United States is equitably entitled, as determined by the Secretary, of the net amount recovered during any quarter by the State or any political subdivision thereof with respect to medical assistance furnished under the State plan shall be considered an overpayment to be adjusted under this subsection.

42 U.S.C. § 1396b(d)(3)(A)

.

The DAB, the HHS body which reviews CMS disallowance determinations, has determined that this statutory provision “ ‘applies in instances ... where a State has recouped benefits that have been correctly paid to recipients,’ ” and further that “the types of ‘recoveries' covered by [Section 1396b(d)(3)

] are not ‘qualified in any way.’ ” (ECF No. 24 at 19.)

B. Factual Background

The current Medicaid dispute revolves around funds recovered by the State of West Virginia pursuant to a 2004 settlement agreement with Purdue Pharma L.P. (“Purdue”) and other pharmaceutical manufacturing companies. On June 11, 2001, West Virginia, acting through its Attorney General, filed a state court complaint against Purdue and other manufacturers of OxyContin alleging violations of the West Virginia Consumer Credit and Protection Act (“WVCCPA”), common law continuing public nuisance, unjust enrichment, indemnity, negligence, medical monitoring, and violations of the West Virginia Antitrust Act. (ECF No. 1 at 6-7.) These allegations centered on the defendants' efforts to market the prescription drug OxyContin. Specifically, West Virginia alleged that the defendants “manufactured, promoted, and marketed OxyContin for the management of pain by making misrepresentations or omissions regarding the appropriate uses, risks, and safety of OxyContin.” (ECF No. 24, Ex. 6 at 42-43.)

The state alleged that this deceptive marketing campaign rendered “physicians, pharmacists, and patients” unable to properly evaluate the risks associated with the drug and consequently caused the State to spend “millions of dollars each year” on two types of expenditures: (1) excessive prescription costs; and (2) services and programs to treat the “deleterious health effects” caused by OxyContin. (Id. ; see also ECF No. 31 at 5 (state court defendants' improper marketing “resulted in the State incurring costs for ‘excessive and unnecessary’ OxyContin

prescriptions and for health care services to diagnose and treat the adverse consequences of OxyContin use”).)

The original complaint was later modified in two significant ways. First, in response to the defendants' motion to dismiss the lawsuit, West Virginia amended the complaint to add three state agency plaintiffs responsible for paying for OxyContin prescriptions on behalf of eligible citizens. (ECF No. 24, Ex. 6 at 94-125.) The amended complaint named the DHHR (which administers the state Medicaid program through its Bureau for Medical Services), the West Virginia Bureau of Employment Programs (“BEP”) (which administered the West Virginia Worker's Compensation System)³ , and the West Virginia Public Employees Insurance Agency (“PEIA”) (which administers the health insurance program for state, county, and municipal employees). (Id. at 94; ECF No. 31 at 6; ECF No. 1 at 2.) Second, the State dropped...