Health Net of Arizona Incorporated v. Burwell

Filing 52

ORDER ADOPTING 49 Report and Recommendation in its entirety. The Objections (Doc. 50 ) raised by the Plaintiff are OVERRULED. It is further Ordered that Plaintiffs Motion for Summary Judgment (Doc. 41 ) is DENIED. The MAC decision, "the MAO Health Net, is required to pay for the covered inpatient hospitalization services arising from COEs for the enrollees listed in the Master List of Consolidated Appeals," rendered April 20, 2012 is AFFIRMED. This action is terminated. Signed by Senior Judge David C Bury on 2/9/2015. (MFR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF ARIZONA

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Health Net of Arizona, Inc.,

)
)
)
Plaintiff,
)
v.
)
Sylvia Mathews Burwell, Secretary of )
)
Health and Human Services,
)
)
Defendant.
)
______________________________________

CV-13-1433-TUC-DCB

ORDER

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This matter was referred to the United States Magistrate Judge

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pursuant to 28 U.S.C. §636(b)(1)(B) and the local rules of practice of

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this Court for hearing and a Report and Recommendation (R&R) on the

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Plaintiff’s

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Magistrate Judge’s Report and Recommendation on the Plaintiff’s Motion

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for Summary Judgment. The Magistrate Judge recommends, after conducting

19

motion hearing, to the Court that the Motion for Summary Judgment should

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be denied.

21
22

Motion

for

Summary

Judgment.

Before

the

Court

is

the

The Plaintiff has filed Objections to this R&R.
FACTUAL AND PROCEDURAL BACKGROUND

A.

Judicial Review

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The Complaint filed February 19, 2013, reads, as follows: “This is

24

an action for judicial review of the final decision of the Secretary of

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the Department of Health and Human Services brought pursuant to 42 U.S.C.

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§ 405(g). Health Net seeks review of the Secretary's determination that

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it is financially responsible to pay for court ordered mental health

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evaluations on the grounds that Medicare is not liable for payment of

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services when the cost of such services are paid for directly or

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indirectly by another government entity. 42 U.S.C. § 1395y(a)(3); 42

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C.F.R. § 411.8.” (Complaint at 2.) (Lead ALJ Appeal No. 1-719387785; Lead

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Docket No. M-11-1371.)

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Originally assigned to the United States District Court for the

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District of Arizona, Phoenix Division,

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filed an Answer on July 31, 2013 and a scheduling conference was

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conducted on September 27, 2013.

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proper venue for this action was not Phoenix but Tucson.

(CV-13-352-PHX-NVW.)

Defendant

Concerns were then raised that the
On October 21,

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2013, this action was transferred to the Tucson Division and on October

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23, 2013, the action was referred to the Magistrate Judge for pretrial

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management and R&R.

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On December 6, 2013, Plaintiff filed a Motion for Summary Judgment.

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On January 28, 2014, Defendant filed a Response and on February 21, 2014,

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Plaintiff filed a Reply.

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dispositive motion to the Magistrate Judge, who issued a Report and

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Recommendation on July 11, 2014.

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Objections to the Report and Recommendation and on August 14, 2014,

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Defendant filed a response to the Objections.

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B.

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On June 24, 2014, the parties orally argued the

On July 28, 2014, Plaintiff filed

Underlying Administrative Proceedings
On April 20, 2012, the Medicare Appeals Council (MAC) issued a

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consolidated

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decisions from August 13, 2010 and February 29, 2012.

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These decisions concerned coverage under the enrollees’ various MA plans

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offered

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provided to the enrollees at University Physicians Health Care (UPH) from

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April 11, 2008 through May 4, 2011 pursuant to court ordered evaluations.

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2

by

decision

Health

Net

on

multiple

(HN)

for

Administrative

inpatient

Law

Judge

(ALJ)

(ROA 000667.)

hospitalization

services

1

The ALJs issued respectively forty-one (41) fully-favorable decisions for

2

UPH and ten (10) favorable decisions for Health Net.

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appealed.

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facts and involved common legal issues, the parties asked the Medicare

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Appeals

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consolidated decision. Generally, the MAC applied the provisions of 42

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C.F.R. §405, subpart I, to resolve these appeals.

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found that Health Net was required to pay for the inpatient hospital

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services arising from the court ordered mental health evaluations (COEs)

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11

Each decision was

Because the decisions all arose from the same determinative

Council

(MAC)

in all of the appeals.

to

review

the

ALJ’s

actions

and

issue

a

In a nutshell, the MAC

42 C.F.R. §411.8(b)(6).

“The council has reviewed the extensive memoranda and briefings in

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this matter, from both UPH and Health Net.

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materials attached to the appellants’ submissions to the Council are

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duplicative of the documentation that was in the records before the ALJs.

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After reviewing the appellants’ legal arguments and submission, the

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Council concludes that the dispositive issues in this case are (1)

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whether

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hospitalizations arising out of the COEs, thus implicating the provisions

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of 42 C.F.R. 411.8(a), and, if so, (2) whether the exception for services

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paid for by a government entity under 42 C.F.R. 411.8(b)(6) applies to

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UPH.” (000672)

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Pima

County

is

obligated

to

The voluminous exhibits and

pay

for

the

in

patient

On June 14, 2012, Health Net filed a written Request for Reopening

23

the Consolidated Decision of the MAC.

(000303.)

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the MAC denied the request.

The MAC initial decision treated

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the four prongs under 411.8 as the first two had been conceded by all

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parties and then focused on the third and fourth prong to reach its

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decision.

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(000010).

On December 18, 2012,

Health Net asked to reopen the Consolidated Decision taking
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1

the position that it had never conceded to the first two prongs of 411.8,

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Services Paid for by a Government Entity:

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a) Basic rule. Except as provided in paragraph (b) of this
section, Medicare does not pay for services that are paid
for directly or indirectly by a government entity.

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(b) Exceptions. Payment may be made for the following:

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* * *

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(6) Services furnished by a public or private health
facility that--

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(i) Is not a Federal provider or other facility
operated by a Federal agency;

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(ii) Receives U.S. government funds under a Federal
program that provides support to facilities that
furnish health care services;

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(iii) Customarily seeks payment for services not
covered under Medicare from all available sources,
including private insurance and patients' cash
resources; and

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(iv) Limits the amounts it collects or seeks to
collect from a Medicare Part B beneficiary and others
on the beneficiary's behalf to:

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(A) Any unmet deductible applied to the charges
related to the reasonable costs that the facility
incurs in providing the covered services;

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(B) Twenty
charges;

percent

of

the

remainder

20

of

those

(C) The charges for noncovered services.

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The MAC found no good cause to reopen the proceedings.

42 C.F.R.

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405.980(e)(3),

405.986, Good Cause for Reopening:

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a) Establishing good cause. Good cause may be established when--

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(1) There is new and material evidence that--

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(i) Was not available or known at the time of the
determination or decision; and

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(ii) May result in a different conclusion; or

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2
3
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(2) The evidence that was considered in making the
determination or decision clearly shows on its face that an
obvious error was made at the time of the determination or
decision.
(b) Change in substantive law or interpretative policy. A
change of legal interpretation or policy by CMS in a
regulation, CMS ruling, or CMS general instruction, or a
change in legal interpretation or policy by SSA in a
regulation, SSA ruling, or SSA general instruction in
entitlement appeals, whether made in response to judicial
precedent or otherwise, is not a basis for reopening a
determination or hearing decision under this section. This
provision does not preclude contractors from conducting
reopenings to effectuate coverage decisions issued under the
authority granted by section 1869(f) of the Act.
(c) Third party payer error. A request to reopen a claim
based upon a third party payer's error in making a primary
payment determination when Medicare processed the claim in
accordance with the information in its system of records or
on the claim form does not constitute good cause for
reopening.

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The parties stipulated and agreed that the MAC decision not to

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reopen is not subject to appeal or judicial review.

16

V. Sebelius, 693 F.3d 1151 (9th Cir. 2012).

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Palomar Med. Ctr.

STANDARD OF REVIEW

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When objection is made to the findings and recommendation of a

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magistrate judge, the district court must conduct a de novo review.

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United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003).

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The Medicare Act provides for judicial review of a final decision

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made by the Secretary of Health and Human Services regarding amounts paid

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under Medicare. See 42 U.S.C. § 1395ff(b). The reviewing court may

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affirm, modify or reverse the final decision of the Secretary. See 42

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U.S.C. § 405(g) (incorporated by reference in 42 U.S.C. § 1395ff(b)).

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However, the Secretary's decision will be disturbed only if it is not

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supported by substantial evidence on the record as a whole or if it is

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5

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based on legal error. See Tackett v. Apfel, 180 F.3d 1094, 1097 (9th

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Cir.1999). “If the evidence is susceptible to more than one rational

3

interpretation,” a reviewing court is not entitled to substitute its

4

judgment for that of the agency. See Bear Lake Watch, Inc. v. FERC, 324

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F.3d 1071, 1086 (9th Cir.2003). Substantial evidence is “more than a mere

6

scintilla but less than a preponderance,” Tackett, 180 F.3d at 1098, and

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it is “evidence as a reasonable mind might accept as adequate to support

8

a conclusion,” Richardson v. Perales, 402 U.S. 389, 401 (1971). In making

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its determination on review, a court “must consider the record as a

10

whole, weighing both evidence that supports and evidence that detracts

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from the Secretary's conclusion.” Tackett, 180 F.3d at 1098. An agency's

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action is presumed valid and the burden is on the party challenging the

13

action to show that it is arbitrary and capricious. Short Haul Survival

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Comm. v. United States, 572 F.2d 240, 244 (9th Cir.1978).

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PLAINTIFF’S OBJECTIONS

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Plaintiff objects to all of the legal conclusions contained in the

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Report and Recommendation. Defendant objects that the Magistrate Judge’s

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R&R: (1) disregarded the consolidation stipulation setting forth the

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procedures and added additional constraints on Health Net; (2) failed to

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recognize Health Net’s due process rights; (3)erred in concluding Health

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Net was barred from raising a new issue at the Appeals Council level; (4)

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erroneously found waiver; and (5) erroneously found Health Net’s prior

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concession was a judicial admission.

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should reject the Magistrate Judge’s R&R and grant Health Net’s motion

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for summary judgment to remand the action to the Medicare Appeals

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Council.

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Defendant argues that this Court

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Before addressing each objection in turn, this Court is compelled

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to reiterate that none of the objections addressed in the motion to

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reopen or the basis for the pending motion for summary judgment were

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before the ALJs or the MAC for the original consolidated decision.

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Council will limit its review of the ALJs’ actions to the exceptions

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raised by the parties in the requests for review....”

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Decision at 668.)

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between Health Net and UPH arising out of the same set of facts, “as only

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a singular determination by the Council on these issues will be valuable

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“The

(Consolidated

The parties agreed to a consolidation of all matters

to the parties at this juncture.”

(CD at 671.)

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After conducting a de novo review of the record, this Court agrees

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with the Magistrate Judge’s R&R that the issue concerning the second

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prong was never taken up with the MAC:

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the UPH satisfies the first two criteria...”

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changes made but not specifically addressed to the MAC by Health Net do

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not alter this conclusion. (R&R at 5 ¶¶8-20.)

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to be a last minute markedly different change in Health Net’s long term

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concessions as to prong 2 that were never directly addressed to the MAC;

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in fact, just the opposite.

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in support of its position was readily available to Health Net through

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the proceedings.

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was not that UPH received no federal funds, but that the sources of

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federal funds UPH received did not qualify as “Federal program[s] that

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[provide[] support to facilities that furnish health care services:

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within the meaning of the Test.”

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entire basis for judicial review is that the MAC’s Decision did not

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specifically address Health Net’s position in its April Brief that UPH

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“The appellants do not dispute
(CD at 677; AR 34478.)

Any

The April brief appears

In addition, the newly proffered evidence

“The MAC pointed out that HN’s revised legal position

(R&R at 6 ¶¶ 21-25.)

The Plaintiff’s

1

failed to satisfy Prong 2. Plaintiff seeks summary judgment arguing that:

2

“(1) The MAC violated HN’s due process rights by ignoring an outcome-

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determinative procedural rule; (2) the MAC’s decision was not based on

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substantial evidence; and (3) the MAC’s decision was arbitrary and

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capricious.”

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level is especially fatal in light of the regulation governing MAC

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review, which provides in pertinent part: “(1) ...the MAC limits its

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review of the evidence to the evidence contained in the record of the

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proceedings before the ALJ. However, if the hearing decision decides a

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new issue that the parties were not afforded an opportunity to address

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at the ALJ level, the MAC considers any evidence related to that issue

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that is submitted with the request for review. (2) If the MAC determines

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that additional evidence is needed to resolve the issues in the case and

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the hearing record indicates that the previous decision-makers have not

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attempted to obtain the evidence, the MAC may remand the case to an ALJ

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to

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405.1122(a)(1),(2).

obtain

(R&R at 8-9.)

the

evidence

HN’s failure to contest Prong 2 at the ALJ

and

issue

a

new

decision.”

42

C.F.R.

§

(R&R at 10at ¶¶21-28.)

18

At the ALJ level “UPH submitted materials stating that it received

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federal funds that satisfied Prong 2's requirements” (Response, p. 9)

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(citing DSOF, ¶29), and HN conceded the point. Given HN’s concession at

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the ALJ level in every case including the cases at issue in the April

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Briefs that UPH met Prong 2, the ALJ did not decide an issue that the

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parties had not had an opportunity to address. HN had every opportunity

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to challenge Prong 2 before the ALJ, and HN chose not to do so. Thus, on

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this record, section 1122(a)(1) is clear that the MAC was limited to

26

reviewing the evidence that was before the ALJ. (R&R at 11 ¶¶ 5-12.)

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the Secretary points out, “[t]he result was that the MAC had briefs from

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8

As

1

Health Net that both explicitly conceded that Prong 2 was satisfied, and

2

that denied the same proposition. Under the circumstances, the MAC was

3

left to decide what Health Net's position actually was on Prong 2.”

4

(Response, pp. 10-11). The Secretary argues that in light of the fact

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that HN did not repudiate its earlier concession, “[e]ven if the MAC [in

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its Decisions] had noted Health Net's sudden attempted reversal, the

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existing record and the Department's regulations would have inevitably

8

forced the same result.” (Id. at p. 11). (R&R at 12 ¶¶18-24.)

9
10
11
12
13

Finally, this Court wholeheartedly agrees with the conclusion of
the R&R:
On the instant record, HN failed to properly raise its Prong
2 challenge during the administrative proceeding and, thus,
is not entitled to remand in order to do so now.
R&R at 13 ¶¶ 6-7.)

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DISCUSSION

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1. R&R disregarded the consolidation stipulation setting forth the
procedures and added additional constraints on Health Net
The

objection

is

a

mischaracterization

of

the

R&R

and

the

18

consolidation stipulation.

19

issue, it should have notified the MAC of its change of position and

20

explained the last minute drastic change of heart.

21

conversation was started, as follows:

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If Plaintiff was serious about the Prong 2

Initially, the

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I invite you to a brief teleconference about the several
matters pending before the Medicare Appeals Council
involving requests for review of AU decisions regarding
Medicare payment for court-ordered mental health evaluations
in Pima County, Arizona. Specifically, in the interest of
administrative economy, we seek to ensure that we have
received and duly lodged all applicable submissions
(requests for review, requests for briefing, requests to
submit supplemental briefs, etc.), and that the Medicare
Operations Division of the DAB (the staff support arm of the
Council) responds to all outstanding requests. I trust that

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9

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24
25
26

1

with a few moments of your time we can streamline our
internal handling of these appeals and ensure thorough and
fair consideration of full, complete administrative records
in each case.

2
3

(47988)

4
The consolidation stipulation (AR 6449-6550) reads, in pertinent

5
part:

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1.The parties, through counsel, wish all written argument
to be considered as part of the Council's review in each
case, to the extent relevant. The parties agree,
essentially, that the issues before the Council in these
cases are, in the main, not beneficiary-specific and
therefore wish t heir respective arguments to apply to all
of the above-listed appeals even where not specifically
designated by MAC docket number on the face of the
memorandum. Arguments submitted by each party will be copied
to each appeal without further request of the
parties.

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8
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10
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2. One or both of the parties had additional cases coming
through the 3'd level (AU level) of appeals and wished to
extend their arguments to those cases. In addition, one or
both parties desired to submit additional briefs/memoranda.
We agreed that Health Net would submit any additional
material and argument on or before September 23, 2011, and
that UPH would submit any replies on or before September 30,
2011. Both Health Net's and UPH's arguments will be included
in the recently submitted appeals of AU Engelman's September
1, 2011 decisions.

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14
15
16
17
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3. The parties agreed that all outstanding procedural
issues, including requests for hearing/oral argument before
the Council, are considered resolved. Any such requests not
already responded to via letter were addressed during our
teleconference. As a general practice, the Council does not
hold oral argument. However, the Council will address such
specific requests in writing. In addition, the parties have
sent waiver of liability notices to all beneficiaries,
eliminating the need to copy each beneficiary individually
on correspondence and on the Council's decisions.

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20
21
22
23

[AR 6449-6550]

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During a September 13, 2011 teleconference, attorneys from Health

25
Net

and

UPH,

and

Christopher

Randolph,

Director

of

the

Medicare

26
Operations Division (“MOD”) (which provides administrative and staff

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28

10

1

support to the MAC), agreed that Health Net would file its final brief

2

with the MAC by September 23, 2011, and UPH would file its final brief

3

with the MAC by September 30, 2011; it was further agreed that those new

4

briefs and the briefs that both parties had previously filed in COE

5

matters then docketed with the MAC would be deemed cross-filed in each

6

of the pending COE appeals(the Agreement).

7

The email listed the appeals docketed with the MAC at that time [AR

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6449, Parts A.1-A.2], and referenced five additional appeals of ALJ

9

decisions that had been received by the MAC but not yet docketed The

10

email discussed that the parties “wish their arguments to apply to all

11

of the above-listed appeals even where not specifically designated by MAC

12

docket numbers on the face of the memorandum.

13

each party will be copied to each appeal without further request of the

14

parties.” The next paragraph of the email stated that the parties also

15

wished to have their arguments in the above-listed cases apply to

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“additional cases coming through the 3rd level (ALJ level) of appeals”

17

and

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briefs/memoranda.” The paragraph concluded: “We agreed that Health Net

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would submit any additional material and argument on or before September

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23, 2011, and that UPH would submit any replies on or before September

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30, 2011. . . .” The Agreement did not state that any Health Net brief

22

filed after September 23, 2011 would automatically be cross-filed in any

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other COE cases that might be docketed for appeal before the MAC. [Id.]

24

In Part C of the email, the MOD Director noted that the MAC had since

25

received Health Net’s brief of September 23, 2011. [AR 6550, Part C.1]

26

This brief was entitled “Health Net of Arizona, Inc.’s Final Brief to be

27

Filed With All Medicare Appeals Council Dockets Pertaining to UPH v.

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11

that

“one

or

both

parties

desired

Arguments submitted by

to

submit

additional

1

Health Net: M-11-704, M-11-1371, M-11-0060, M-11-805, M-11-1882, M-11-

2

2017, M-11-225[sic], M-11-2387 and the To Be Assigned MAC Docket Number

3

for ALJ Appeal Nos. 1-775058920, 1-775059778, 1-775080392, 1- 775079914

4

and 1-775074356.” [AR 690 (emphasis added).] This list of docket numbers

5

corresponded to the list of specifically-identified docket numbers set

6

forth in the November 10, 2011 email. [AR 6449-6550]

7
8

Finally, the merger cases are not relevant to this analysis.
2. R&R failed to recognize Health Net’s due process rights

9

Section 405(b) of Title 42 of the United States Code provides

10

litigants before an ALJ a right to “notice and opportunity for a

11

hearing.” 42 U.S.C. § 405(b).

12

receive meaningful notice and an opportunity to be heard.

13

Massanari, 245 F.3d 1096, 1099 (9th Cir. 2001).

14

347 U.S. 260 (1954) does not apply here.

15

violation.

16

reasoned and supported by substantial evidence in the record.

17

180 F.3d at 1097.

18

3. R&R erred in concluding Health Net was barred from raising a new issue
at the Appeals Council level

Due process requires that a claimant
Udd v.

Accardi v. Shaughnessy,

The Court finds no due process

By the same token, the decision was not arbitrary, but well
Tackett,

19
Again, this objection is a mischaracterization of the R&R, as well

20
as the facts.

Health Net submitted no new or additional evidence to the

21
MAC. 42 CFR §405.1122(a)(1) The Court agrees with the R&R analysis, as

22
follows:

23

27

The Secretary points out that HN “repeatedly conceded and
never once challenged, UPH’s claim at the ALJ level that UPH
satisfied the first two prongs of the Test”, and by doing
so, HN removed the issue from contention before the ALJ.
(Response, p. 7). Thus, according to the Secretary, HN’s
position in the April Brief that no evidence had been
presented on Prong 2 “was specious in the extreme because
the very reason there was no evidence–beyond UPH’s prior

28

12

24
25
26

1
2
3

submissions and Health Net’s concessions–was that Health Net
had never put the question at issue, and had always conceded
that UPH met Prong 2. Health Net’s acceptance of UPH’s
position meant that there was never any reason or
requirement for UPH to further establish that it met Prong
2.

4
(Response, p. 10). The Secretary further points out that although HN

5
raised the Prong 2 issue in the April Brief, HN did not withdraw or

6
repudiate its prior statements, including statements in other briefs

7
pending

before

the

MAC,

conceding

that

UPH

satisfied

Prong

2.

8
(Id.).”(Doc. 49 at 9.)

9
There was no categorical ban on raising issues for the first time

10
in MAC appeals. The R&R correctly concluded that Health Net was required

11
to raise its Prong 2 objections at the appropriate time and manner

12
prescribed by the Department. See Woodford v. Ngo, 548 U.S. 81- 90-91.

13
4. R&R erroneously found waiver

14
The Court finds substantial evidence to support the conclusion that

15
Plaintiff waived the argument with reference to Prong 2. Cases cited by

16
Plaintiff are not persuasive otherwise, as resolved by both the R&R and

17
the response to the Objections. (Doc. 51 at 4-5.)

The Magistrate Judge

18
properly applied

Mills v. Apfel, 244 F.3d 1.

(Doc. 49 at 10.)

19
20
21

5. R&R erroneously found Health Net’s prior concession was a judicial
admission
This is a mischaracterization of the R&R.

The R&R correctly

22

analyzed and applied Christian Legal Soc. Chapter of the Univ. of Calif.

23

v. Martinez, 561 U.S. 661 (2010) with reference to judicial admissions,

24

as follows:

25

27

It has been long-recognized that “‘[t]he power of the court
to act in the disposition of a trial upon facts conceded by
counsel is as plain as its power to act upon the evidence
produced.’” Christian Legal Soc. Chapter of the Univ. of
Calif. v. Martinez, __ U.S. __, 130 S.Ct. 2971, 2983 (2010)

28

13

26

1

(quoting Oscanyan v. Arms Co., 103 U.S. 261, 263 (1881));
see also Trinidad y Garcia v. Thomas, 683 F.3d. 952, 982
(9th Cir. 2012) (concessions “have the effect of withdrawing
a fact from issue and dispensing wholly with the need for
further proof.”). This is especially so to prevent parties
from “maintain[ing] a contention contrary to the agreed
statement,...or to suggest, on appeal that the facts were
other than as stipulated or that any material fact was
omitted.’” Christian Legal Soc., __ U.S. __, 130 S.Ct. at
2983 (quoting 83 C.J.S., Stipulations § 93 (2000)). On this
record, HN is bound by its concession at the ALJ level. See
Christian Legal Soc., __ U.S. __, 130 S.Ct. at 2983
(rejecting party’s “unseemly attempt to escape from the
stipulation and shift its target....”).

2
3
4
5
6
7
8

(Doc. 49 at 9-10.)

9
The Magistrate Judge properly held that Plaintiff was bound by its

10
repeated Prong 2 concessions.

11
CONCLUSION

12
The R&R concluded that “HN failed to properly raise its Prong 2

13
challenge during the administrative proceeding and, thus is not entitled

14
to remand in order to do so now.”

(R&R at 13.)

Plaintiff

that

This Court agrees.

15
has

failed

to

establish

the

Secretary's

challenged

16
determinations were not supported by substantial evidence or were wrong

17
as a matter of law.

18
Accordingly, after conducting a de novo review of the record,

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IT IS ORDERED that the Court ADOPTS the Report and Recommendation

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(Doc. 49) in its entirety.

The Objections (Doc. 50) raised by the

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Plaintiff are OVERRULED.

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//

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//

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//

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//

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1

IT IS FURTHER ORDERED that Plaintiff’s Motion for Summary Judgment

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(Doc. 41) is DENIED.

3

to pay for the covered inpatient hospitalization services arising from

4

COEs

5

Appeals,” rendered April 20, 2012 is AFFIRMED. This action is terminated.

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for

the

The MAC decision, “the MAO Health Net, is required

enrollees

listed

in

DATED this 9th day of February, 2015.

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the

15

Master

List

of

Consolidated