Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_13-cv-01433/USCOURTS-azd-4_13-cv-01433-1/pdf.json

Nature of Suit Code: 899
Nature of Suit: Other Statutes - Administrative Procedure Act/Review or Appeal of Agency Decision
Cause of Action: 42:405 Review of HHS Decision (SSID)

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UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

Health Net of Arizona, Inc.,

Plaintiff,

v.

Sylvia Mathews Burwell, Secretary of

Health and Human Services,

Defendant.

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CV-13-1433-TUC-DCB

ORDER

This matter was referred to the United States Magistrate Judge

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

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

Plaintiff’s Motion for Summary Judgment. Before the Court is the

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

for Summary Judgment. The Magistrate Judge recommends, after conducting

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

be denied. The Plaintiff has filed Objections to this R&R. 

FACTUAL AND PROCEDURAL BACKGROUND

A. Judicial Review

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

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

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

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

it is financially responsible to pay for court ordered mental health

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

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

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

Docket No. M-11-1371.) 

Originally assigned to the United States District Court for the

District of Arizona, Phoenix Division, (CV-13-352-PHX-NVW.) Defendant

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

conducted on September 27, 2013. Concerns were then raised that the

proper venue for this action was not Phoenix but Tucson. On October 21,

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

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

management and R&R. 

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

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

Plaintiff filed a Reply. On June 24, 2014, the parties orally argued the

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

Recommendation on July 11, 2014. On July 28, 2014, Plaintiff filed

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

Defendant filed a response to the Objections.

B. Underlying Administrative Proceedings

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

consolidated decision on multiple Administrative Law Judge (ALJ)

decisions from August 13, 2010 and February 29, 2012. (ROA 000667.)

These decisions concerned coverage under the enrollees’ various MA plans

offered by Health Net (HN) for inpatient hospitalization services

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

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

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

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

appealed. Because the decisions all arose from the same determinative

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

Appeals Council (MAC) to review the ALJ’s actions and issue a

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

C.F.R. §405, subpart I, to resolve these appeals. In a nutshell, the MAC

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

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

in all of the appeals. 42 C.F.R. §411.8(b)(6).

“The council has reviewed the extensive memoranda and briefings in

this matter, from both UPH and Health Net. The voluminous exhibits and

materials attached to the appellants’ submissions to the Council are

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

After reviewing the appellants’ legal arguments and submission, the

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

whether Pima County is obligated to pay for the in patient

hospitalizations arising out of the COEs, thus implicating the provisions

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

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

UPH.” (000672)

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

the Consolidated Decision of the MAC. (000303.) On December 18, 2012,

the MAC denied the request. (000010). The MAC initial decision treated

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

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

decision. Health Net asked to reopen the Consolidated Decision taking

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

Services Paid for by a Government Entity: 

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.

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

* * *

 (6) Services furnished by a public or private health

facility that--

 (i) Is not a Federal provider or other facility

operated by a Federal agency;

 (ii) Receives U.S. government funds under a Federal

program that provides support to facilities that

furnish health care services;

(iii) Customarily seeks payment for services not

covered under Medicare from all available sources,

including private insurance and patients' cash

resources; and

(iv) Limits the amounts it collects or seeks to

collect from a Medicare Part B beneficiary and others

on the beneficiary's behalf to:

(A) Any unmet deductible applied to the charges

related to the reasonable costs that the facility

incurs in providing the covered services;

(B) Twenty percent of the remainder of those

charges;

(C) The charges for noncovered services.

The MAC found no good cause to reopen the proceedings. 42 C.F.R.

405.980(e)(3), 405.986, Good Cause for Reopening:

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

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

(i) Was not available or known at the time of the

determination or decision; and

(ii) May result in a different conclusion; or

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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.

The parties stipulated and agreed that the MAC decision not to

reopen is not subject to appeal or judicial review. Palomar Med. Ctr.

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

STANDARD OF REVIEW

When objection is made to the findings and recommendation of a

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

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

The Medicare Act provides for judicial review of a final decision

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

whole, weighing both evidence that supports and evidence that detracts

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

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

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

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

PLAINTIFF’S OBJECTIONS

Plaintiff objects to all of the legal conclusions contained in the

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

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

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

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

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

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

concession was a judicial admission. Defendant argues that this Court

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

for summary judgment to remand the action to the Medicare Appeals

Council.

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Before addressing each objection in turn, this Court is compelled

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

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

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

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

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

Decision at 668.) The parties agreed to a consolidation of all matters

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

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

to the parties at this juncture.” (CD at 671.) 

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

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

prong was never taken up with the MAC: “The appellants do not dispute

the UPH satisfies the first two criteria...” (CD at 677; AR 34478.) Any

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

not alter this conclusion. (R&R at 5 ¶¶8-20.) The April brief appears

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

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

in fact, just the opposite. In addition, the newly proffered evidence

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

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

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

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

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

within the meaning of the Test.” (R&R at 6 ¶¶ 21-25.) The Plaintiff’s

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

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

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

“(1) The MAC violated HN’s due process rights by ignoring an outcomedeterminative procedural rule; (2) the MAC’s decision was not based on

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

capricious.” (R&R at 8-9.) HN’s failure to contest Prong 2 at the ALJ

level is especially fatal in light of the regulation governing MAC

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

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

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

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

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

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

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

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

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

to obtain the evidence and issue a new decision.” 42 C.F.R. §

405.1122(a)(1),(2). (R&R at 10at ¶¶21-28.)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

existing record and the Department's regulations would have inevitably

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

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.)

DISCUSSION 

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

consolidation stipulation. If Plaintiff was serious about the Prong 2

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

explained the last minute drastic change of heart. Initially, the

conversation was started, as follows:

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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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.

(47988)

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

part:

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.

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.

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.

[AR 6449-6550]

During a September 13, 2011 teleconference, attorneys from Health

Net and UPH, and Christopher Randolph, Director of the Medicare

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

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

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

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

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

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

of the pending COE appeals(the Agreement).

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

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

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

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

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

docket numbers on the face of the memorandum. Arguments submitted by

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

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

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

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

and that “one or both parties desired to submit additional

briefs/memoranda.” The paragraph concluded: “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. . . .” The Agreement did not state that any Health Net brief

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

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

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

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

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

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

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

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

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

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

corresponded to the list of specifically-identified docket numbers set

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

Finally, the merger cases are not relevant to this analysis.

2. R&R failed to recognize Health Net’s due process rights

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

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

hearing.” 42 U.S.C. § 405(b). Due process requires that a claimant

receive meaningful notice and an opportunity to be heard. Udd v.

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

347 U.S. 260 (1954) does not apply here. The Court finds no due process

violation. By the same token, the decision was not arbitrary, but well

reasoned and supported by substantial evidence in the record. Tackett,

180 F.3d at 1097.

3. R&R erred in concluding Health Net was barred from raising a new issue

at the Appeals Council level

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

as the facts. Health Net submitted no new or additional evidence to the

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

follows: 

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

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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. 

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

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

repudiate its prior statements, including statements in other briefs

pending before the MAC, conceding that UPH satisfied Prong 2.

(Id.).”(Doc. 49 at 9.)

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

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

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

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

4. R&R erroneously found waiver

The Court finds substantial evidence to support the conclusion that

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

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

the response to the Objections. (Doc. 51 at 4-5.) The Magistrate Judge

properly applied Mills v. Apfel, 244 F.3d 1. (Doc. 49 at 10.)

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

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

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

as follows: 

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)

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(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....”). 

(Doc. 49 at 9-10.) 

The Magistrate Judge properly held that Plaintiff was bound by its

repeated Prong 2 concessions.

CONCLUSION

The R&R concluded that “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.) This Court agrees.

Plaintiff has failed to establish that the Secretary's challenged

determinations were not supported by substantial evidence or were wrong

as a matter of law.

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

IT IS ORDERED that the Court ADOPTS the Report and Recommendation

(Doc. 49) in its entirety. The Objections (Doc. 50) raised by the

Plaintiff are OVERRULED.

//

//

//

//

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IT IS FURTHER ORDERED that Plaintiff’s 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.

DATED this 9th day of February, 2015.

Case 4:13-cv-01433-DCB Document 52 Filed 02/10/15 Page 15 of 15