Opinion ID: 867899
Heading Depth: 2
Heading Rank: 2

Heading: CMS’s Demand for Immediate Repayment of the

Text: Prorated Portion of the Monthly Advance Was In Accord With the Controlling Regulation and Resort to Common Law Setoff Was Not Required Fox contends that even if the immediate termination was proper, CMS was not entitled to demand immediate repayment of advanced funds. It challenges CMS’s action in demanding repayment of the prorated portion of the amount CMS had advanced to Fox for obligations Fox would have incurred in March had its contract not been terminated. Demand was made pursuant to 42 C.F.R. § 423.509(b)(2)(i) (2008). That regulation provides as follows: “If termination is effective in the middle of a month, CMS has the right to recover the prorated share of the capitation payments made to the Part D plan sponsor covering the period of the month following the contract termination.” 42 C.F.R. § 423.509(b)(2)(i) (2008). The regulation applies specifically to the termination of a contract where there is an imminent and serious risk to enrollees’ health, and thus tracks the circumstances under which CMS may terminate a contract immediately without notice or hearing. See 42 U.S.C. § 1395w-27(h)(2). The regulation authorizes CMS to recover, and hence to demand, FOX INS. CO. V. CENTERS FOR MEDICARE/MEDICAID 25 immediate repayment of funds that will not be utilized by the contractor after the termination. Fox essentially denies that § 423.509 applies and, not surprisingly, would prefer to keep the funds over the period of many months before there is a final reconciliation of the obligations of the parties. Fox says the applicable regulation is the one that applies to the final reconciliation, 42 C.F.R. § 423.343.3 The substance of that regulation constitutes technical instructions for accountants who manage the reconciliation process. It applies generally to all Medicare contractors who have performed during the course of the year and must settle their financial relationship with CMS at the end of each year. We deal with a situation, however, that the Medicare statute regards as exceptional. The provision for repayment after immediate termination is expressly directed to a specific situation in which a contractor has been paid in anticipation of services that it will not perform as a result of the termination. The fundamental problem with Fox’s position is that it ignores the specific regulation that applies to its situation. That regulation authorizes repayment. Our law requires this court to give effect to all of a regulation’s sections where possible. Barboza v. Cal. Ass’n of Prof’l Firefighters, 651 F.3d 1073, 1078 (9th Cir. 2011); Boeing Co. v. United States, 258 F.3d 958, 967 (9th Cir. 2001). In doing so, we favor the application of a specific provision over a general one. See Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445 (1987) (stating that 3 42 C.F.R. § 423.343 provides the procedures for “Retroactive adjustments and reconciliations.” 26 FOX INS. CO. V. CENTERS FOR MEDICARE/MEDICAID absent clear intention otherwise, “a specific statute will not be controlled or nullified by a general one”) (internal quotation and citations omitted). We cannot accept Fox’s interpretation of the general provision without ignoring the existence of the more specific provision. Fox’s misinterpretation is evidenced by its reliance on the preamble to the general regulation, which states that reconciliation includes “any difference between the actual number . . . of enrollees and the number . . .on which [CMS] had based the organization’s advance monthly payments.” 70 Fed. Reg. 4194, 4315 (Jan. 28, 2005). This does not refer to a mid-month termination, and therefore does not by its terms delay the contractor’s repayment of the prorated amount until an end of the year reconciliation. The language of the preamble contemplates the routine month-bymonth reconciliation process for all contractors, independent of the demand for immediate repayment of prorated amounts from a contractor that has been terminated. Indeed it would make little sense for a government concerned about the expenditure of taxpayer funds to permit a delinquent contractor to keep overpayments for a period of months, without demanding repayment. This is particularly true when a contractor who has been paid for the entire month is terminated before the month is over, so that some overpayment is virtually certain to have been made. Fox also contends that CMS cannot rely on § 423.509(b)(2)(i) because the regulation does not apply the common law principle of setoff. Courts read statutes and regulations to preserve common law principles, like setoff, absent an evident statutory purpose to the contrary. See United States v. Texas, 507 U.S. 529, 533–34 (1993). FOX INS. CO. V. CENTERS FOR MEDICARE/MEDICAID 27 Fox’s argument is unconvincing. The annual reconciliation process provides an opportunity for Fox to assert any claims that the government owes it money. See 42 C.F.R. § 423.343. That administrative process is ongoing as to Fox. This case therefore does not present the issue whether the Medicare regulations broadly abrogate the common law setoff principle. The only question here is more limited: who holds the excess capitation payments when CMS terminates a contract mid-month pending the final results of the reconciliation process. The applicable regulation, 42 C.F.R. § 423.509(b)(2), answers that circumscribed question clearly and in the government’s favor, reflecting Congress’s intent to bring a quick end to the government’s relationship with contractors whose malfeasance has created a serious risk to the health of Medicare enrollees.