Appalachian Regional Healthcare, Inc. et al v. Coventry Health and Life Insurance Company et al
Filing
327
OPINION AND ORDER: 1. The motion to remand 274 filed by the Department for Health and Human Services is DENIED as moot; 2. the plaintiffs' motion to require the filing of the administrative record 324 is DENIED; and 3. If the Dept of Health and Human Services wishes to file a response to the Plaintiffs' motion for Summary Judgment 288 it SHALL FILE a response within 30 days from the entry date of this order. The plaintiffs may file a reply pursuant to the Local Rules. Signed by Judge Karen K. Caldwell on 01/08/2016.(LC)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION – LEXINGTON
APPALACHIAN REGIONAL
HEALTHCARE, INC., et al.,
CIVIL ACTION NO. 5:12-114-KKC
Plaintiff,
V.
OPINION AND ORDER
COVENTRY HEALTH AND LIFE
INSURANCE CO.,
UNITED STATES DEPARTMENT OF
HEALTH AND HUMAN SERVICES, et al.,
Defendants.
This matter is before the Court on two related motions.
First, is a motion to remand filed by the defendant United States Department of
Health and Human Services (DE 274) in which it requests that the Court remand this
matter to the department so that it can complete certain administrative proceedings
regarding Kentucky’s Medicaid program. After briefing on that motion was completed, the
department filed notices stating that it has now completed those administrative
proceedings.
The second motion (DE 324) at issue was filed by the plaintiffs after the department
filed the notices stating that it had completed the administrative proceedings which were
the subject of the motion to remand. With their motion, the plaintiffs ask the Court to
require the department to file the administrative record from these latest proceedings.
Because the department has completed the administrative proceedings for which it
sought the remand, the Court will deny as moot the motion to remand. The Court will also
deny the plaintiffs’ motion to require the department to produce the administrative record
of those proceedings. The plaintiffs’ claims are not based on these most recent proceedings
and the plaintiffs have not explained how the requested administrative record is relevant to
their claims in this action.
I.
Background
The plaintiffs in this action – referred to collectively as Appalachian Regional –
provide healthcare in Kentucky. With this action, they challenge certain actions taken by
the state and federal governments and a private managed care organization in the
administration of Kentucky’s Medicaid program.
The purpose of that program is to provide government funding for medical care of
individuals who cannot afford to pay for that care on their own. Arkansas Dept. of Health
and Human Services v. Ahlborn, 547 U.S. 268, 275 (2006). Through the program, the
federal government provides funds to help states provide healthcare to their needy citizens.
Wilder v. Va. Hosp. Ass’n, 496 U.S. 498, 502 (1990). Though states are not required to
participate in Medicaid, they all do. Arkansas Dept. of Health and Human Services, 547
U.S. at 275.
The Department of Health and Human Services is the federal agency that administers
the program. Id. It does so through the Centers for Medicare and Medicaid Services (CMS).
Id. The Court will refer to the federal department and CMS collectively as CMS in this
opinion. The Kentucky Cabinet for Health and Family Services is the state agency that
administers Kentucky's Medicaid program. KRS 194A.030(2). CMS and the state cabinet
are both defendants in this action.
To qualify for federal financial assistance to administer their Medicaid programs, states
must comply with certain federal requirements. Va. Hosp. Ass’n, 496 U.S. at 502. For
example, the state must establish a plan for reimbursing health-care providers for the
medical services they provide to needy citizens. Id.
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Prior to November 1, 2011, the Kentucky state cabinet directly reimbursed doctors and
hospitals for the services they provided to Medicaid recipients pursuant to a fee schedule
set by the state. This is known as a fee-for-services system. See Appalachian Reg’l
Healthcare, Inc. v. Coventry Health and Life Ins. Co., 714 F.3d 424, 426 (6th Cir. 2013).
In 2011, however, CMS approved Kentucky’s application for a waiver that permits the
state to administer its Medicaid program as a managed-care program instead of
reimbursing providers under the traditional fee-for-services model. (DE 274-2, Glaze Dec.
¶ 5.) This was done in an effort to control “ballooning Medicaid costs and resulting
pressures on the state’s budget.” Appalachian Reg’l, 714 F.3d at 426.
Under a managed-care program, the Cabinet no longer directly reimburses doctors and
hospitals for the healthcare services they provide. Instead, the Cabinet now pays a group of
middlemen called managed care organizations (MCOs). Appalachian Reg’l Healthcare, Inc.
v. Coventry Health and Life Ins, Co., 5:12-CV-114, 2012 WL 2359439, at * 1 (June 20, 2012).
The state awards contracts to certain MCOs, which are charged with managing healthcare
services for Medicaid beneficiaries who sign up to become “members” of one of the MCOs.
Id.
The Cabinet pays each MCO a flat monthly fee – called a capitation payment – for the
healthcare of each of the MCO’s members who is a Medicaid recipient. Id. The capitation
payment is a set fee that the Cabinet pays for each MCO member, whether or not the
member actually receives any health services that month. 42 C.F.R. § 438.2. The MCO then
pays the healthcare providers for the healthcare services actually rendered to the MCO’s
members. “So the MCO bears the risk that the costs of care may exceed the capitation
payment. But on the other side, it stands to profit if beneficiaries use fewer services.”
Appalachian Reg'l Healthcare, Inc., 714 F.3d at 426.
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The reason that the state converted to the managed-care model was to “improve
healthcare access and quality by eliminating unnecessary care, enhancing coordination
among providers, emphasizing preventative care, and promoting healthy lifestyles.” Id. The
state also believed that the conversion would save the state money. Id.
CMS must approve both the state’s contracts with the MCOs and the capitation
payments to be paid to the MCOs. 42 C.F.R. §§ 438.6(a), 438.806(c). The capitation
payments are set forth in the contracts between the Cabinet and each MCO.
The Cabinet awarded contracts to three MCOs: Coventry Health and Life Ins. Co.,
Kentucky Spirit Health Plan, Inc., and Wellcare of Kentucky, Inc. Appalachian Reg’l
Healthcare, Inc., 714 F.3d at 426. The MCOs were charged with administering healthcare
in seven of the state’s eight Medicaid regions. One of those regions is Region 8 which is
made up of 19 counties in eastern and southeastern Kentucky that “are among the most
economically depressed, underserved, and medically needy in the Commonwealth.” Id. at
426-27.
As part of the waiver approval, CMS reviewed the contracts for compliance with the
Medicaid Act and regulations. 42 U.S.C. §1396b(m); 42 C.F.R. § 438.806. CMS approved
each of the contracts, including the designated capitation rates, for the period of November
1, 2011 to June 30, 2014. (DE 135-3, CMS Letter Oct. 28, 2011; DE 274-2, Glaze Decl. ¶¶ 712.) These initial MCO contracts expired on June 30, 2014. (DE 274-2, Glaze Decl. ¶10.)
The MCOs, in turn, contract with healthcare providers who make up each MCO’s
healthcare-provider “network.” Appalachian Reg’l Healthcare, Inc., 2012 WL 2359439, at
*1. Coventry entered into a letter agreement with Appalachian Regional making
Appalachian Regional a provider in Coventry’s provider network. Appalachian Reg’l
Healthcare, Inc., 714 F.3d at 426-27. Appalachian Regional operates hospitals and other
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medical facilities that serve citizens in Region 8. Id. at 427. Its patients are sicker than
other Medicaid patients, meaning it costs MCOs more to provide healthcare for
Appalachian Regional’s patients. Id. a 428. As the Sixth Circuit explained, “[h]aving
Appalachian in its network caused Coventry to lose money, as the capitation rate it
negotiated with Kentucky was insufficient to cover the costs of these members' care.” Id.
Thus, on March 28, 2012, Coventry notified Appalachian Regional that it was
terminating the letter agreement effective May 4, 2012. Id. Coventry further explained that
it would only enter into a new contract with Appalachian Regional if the new agreement
allowed Coventry to pay Appalachian Regional less for its healthcare services than the
letter agreement had permitted. (DE 8–8, p. 2, ¶ 5.)
Appalachian Regional then filed this action, at first asserting claims against only
Coventry and the Cabinet. It later amended its complaint to assert claims against CMS.
(DE 135, Second Amended Complaint.) The only claims at issue on the two motions
currently before the Court are Appalachian Regional’s claims against CMS.
In its complaint against CMS, Appalachian Regional asserts that it brings its claims
against CMS to “challenge the decision of the Secretary of the Department of Health and
Human Services made though its Centers for Medicare and Medicaid Services to approve
the Section 1915(b) Waiver for the Kentucky Medicaid Program.”(DE 135, Second Amended
Complaint at 3.)
II.
Analysis
In its motion to remand, CMS asks the Court to remand Appalachian Regional’s claims
against it to CMS for further administrative proceedings.
This is the only relief that CMS has properly requested with its motion to remand. In its
memorandum, it states that this matter should be remanded only if the Court does not
dismiss Appalachian Regional’s claims against it. (DE 274-1, Mem. at 13.) It refers the
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Court to a footnote in in its memorandum in which it states that it disagrees with an
opinion by the late Judge Karl Forester that denied CMS’s motion to dismiss the claims
against it. (DE 274-1, Mem. at 11 n.5.) This case was initially assigned to Judge Forester
and was later transferred to the undersigned.
With this motion to remand, CMS has not asked the Court to reconsider Judge
Forester’s decision or in any other way properly moved for the Court to dismiss the claims
against it. See Fed. R. Civ. P. 7 (b) (stating that a “request for a court order must be made
by motion” and must “state with particularity the grounds for seeking the order.”)
Accordingly, the Court addresses only CMS’s request to remand this matter back to the
agency. In the motion to remand, CMS argued that Appalachian Regional’s claims against
it are based on its approval of Kentucky’s waiver program and its approval of the initial
MCO contracts. That approval occurred in 2011 and there is no dispute that those contracts
are now expired. CMS asserted that it was in the process of reviewing Kentucky’s MCO
contracts for fiscal years 2015 and 2016. It asked the Court to remand this matter to it for
final agency action on those contracts. (DE 305, Reply at 2; DE 325, Response at 4.)
The request for a remand is now moot. After the briefing on the motion to remand was
completed, CMS filed a status report (DE 322) stating that it has already approved
Kentucky’s MCO contracts for fiscal years 2015 and 2016 ending June 30, 2016. CMS filed
a second status report (DE 323) stating that it has also approved Kentucky’s application to
renew its managed-care waiver program. The renewed waiver is effective until October 31,
2017. Thus, this matter need not be remanded in order for CMS to complete these
proceedings as CMS requested. It has already completed them.
As to Appalachian Regional’s motion to require CMS to file the administrative
record regarding these most recent proceedings, CMS argues that these materials are not
relevant to Appalachian Regional’s claims. CMS argues that Appalachian Regional’s claims
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are based on CMS’s approval of Kentucky’s initial waiver and MCO contracts that occurred
in 2011. CMS has already filed the administrative record regarding those proceedings. CMS
argues that, because Appalachian Regional has not asserted any claims against CMS based
on its most recent waiver and contract approvals, the administrative record of those
proceedings is irrelevant to these claims.
In order to address the request for the administrative record, it is necessary to
understand precisely what claims Appalachian Regional is asserting against CMS.
On this motion to remand, Appalachian Regional describes its claims against CMS
as like a pair of scissors, consisting of two “blades.” (DE 301, Response at 1.) First,
Appalachian Regional asserted in its complaint that CMS failed to fulfill its obligation to
determine whether the capitated payments that the state proposed to pay the MCOs were
made on an “actuarially sound basis.” (DE 301, Response at 1; DE 135, Second Amended
Complaint ¶ 53, 74.) Appalachian Regional now concedes that this portion of its claim is
moot. In fact, it states that the capitated rates are “more than adequate and actuarially
sound now.” (DE 301, Response at 2.)
Appalachian Regional asserts that the second “blade” of its claim against CMS is
that CMS has failed to comply with its obligation to ensure that each MCO has an
“adequate” network of providers. (DE 301, Response at 1; DE 135, Second Amended
Complaint, ¶¶ 26-52.) It argues that, in order to be deemed a “Medicaid managed care
entity,” under the Medicaid statute, an MCO must maintain a network of healthcare
providers that ensures its members have access to the same healthcare services that they
would have under the fee-for-service model and under state commercial insurance laws.
(DE 135, Second Amended Complaint, ¶¶ 28-31, 33.) Appalachian Regional argues that
none of the three MCOs qualified as “Medicaid managed care entities” at the time that
CMS approved the waiver in 2011. (DE 135, Second Amended Complaint, ¶34.)
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Appalachian Regional further argues that “since the very beginning of the Waiver
and at all times since, the Cabinet and CMS have allowed the MCOs to establish network
adequacy by simply promising to send their Members to out-of-network hospitals.” (DE 135,
Second Amended Complaint ¶ 38.) It argues that “MCOs have been able to operate without
adequate networks and are able to terminate provider contracts with hospitals and other
providers across the state in this manner because neither the Cabinet nor CMS has
required that network adequacy standards be followed.” (DE 135, Second Amended
Complaint ¶ 52.)
In the opinion that permitted Appalachian Regional to amend its complaint to assert
these claims against CMS, Judge Forester sorted through the kinds of claims that
Appalachian Regional can assert against a federal agency. First, he determined that
aggrieved parties can “challenge the affirmative approval of state Medicaid plan
amendments or waivers.” Appalachian Reg’l Healthcare v. Coventry Health and Life Ins,
Co., 5:12-CV-114, 2013 WL 1293793, at * 2 (March 28, 2013). Judge Forester distinguished
such a claim from a claim that CMS failed to take some sort of action against the state,
such as imposing sanctions against it. He recognized that CMS’s decision “whether to bring
an enforcement action against the Commonwealth is an action committed to agency
discretion by law and is not subject to court review.” Id. (quoting Concilio de Salud Integral
de Loiza, Inc. v. U.S. Department of Health and Human Services, 538 F.Supp.2d 139, 14546 (D.D.C. 2008)).
Judge Forester permitted Appalachian Regional’s claims against CMS to proceed only
after finding that they “are premised on CMS’s failure to comply with specific federal
statutory, mandatory prerequisites when approving the Waiver, rather than some
discretionary function.” Id. Thus, Judge Forester determined, Appalachian Regional’s
claims are “grounded in federal agency action that may be reviewed under the APA.” Id.
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In a later opinion, Judge Forester again recognized that “an agency’s decision not to
prosecute or enforce is a decision generally committed to an agency’s absolute discretion.”
(DE 183, Opinion at 3.) Judge Forester denied CMS’s motion to dismiss the claims against
it finding that “Plaintiffs in the present case . . . are not seeking review of a refusal to
prosecute or enforce. Instead, they seek review of an affirmative action by the agency to
grant a waiver.” (DE 183, Opinion at 3.) In making this finding, Judge Forester noted that
the complaint against CMS specifically states that is brought to “challenge the decision of
the Secretary . . .to approve the Section 1915(b) Waiver for the Kentucky Medicaid
Program.” (DE 183, Opinion at 3 n1; DE 135, Second Amended Complaint at 3.) Judge
Forester again distinguished the Appalachian Regional’s claims from claims seeking to
compel a federal agency to commence an enforcement action. (DE 183, Opinion at 4.)
Appalachian Regional has never contested Judge Forester’s findings regarding the
claims it asserts against CMS. Nor has it asserted a claim based on CMS’s most recent
administrative proceedings. Because Appalachian Regional’s claims against CMS are based
only on the 2011 approvals and on the MCO contracts existing at that time, the Court must
deny the motion to require CMS to file the administrative record from its most recent
proceedings. Appalachian Regional has not demonstrated how the record is relevant to its
claims in this action.
III.
Conclusion
For all these reasons, the Court hereby ORDERS as follows:
1) the motion to remand (DE 274) filed by the Department for Health and
Human Services is DENIED as moot;
2) the plaintiffs’ motion to require the filing of the administrative record (DE
324) is DENIED; and
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3) if the Department of Health and Human Services wishes to file a response to
the plaintiffs’ motion for summary judgment against (DE 288), it SHALL
FILE a response within 30 days from the entry date of this order. The
plaintiffs may file a reply pursuant to the Local Rules.
Dated January 8, 2016.
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