Court Opinion

ID: 4501747
Source: CourtListenerOpinion
Date Created: 2020-01-27 17:00:56.960641+00
Date Added: 2024-06-11T13:37:00.178516
License: Public Domain

UNITED STATES DISTRICT COURT
                            FOR THE DISTRICT OF COLUMBIA
__________________________________
                                        )
UNITEDHEALTHCARE INSURANCE )
COMPANY, et al.,                        )
                                        )
                Plaintiffs,             )
                                        )
       v.                               )    Civil Action No. 16-157 (RMC)
                                        )
ALEX M. AZAR II, Secretary of the       )
Department of Health and Human          )
Services, et al.,                       )
                                        )
                Defendants.             )
__________________________________ )

                                 MEMORANDUM OPINION

               This Court vacated a final rule issued by the Centers for Medicare & Medicaid

Services (CMS) to determine when certain private insurers were overpaid by Medicare because it

did not comply with the statutory requirement of “actuarial equivalence.” UnitedHealthcare Ins.

Co. v. Azar, 330 F. Supp. 3d 173, 176 (D.D.C. 2018). The government moves for

reconsideration. Although the government does not ask to reinstate the rule, it does ask the

Court to narrow its decision based on new empirical analysis. Because the data underlying that

analysis has long been in CMS’ possession but was not litigated and because the analysis does

not persuade, the Court will deny the motion.

                                     I.   BACKGROUND

               A more robust description of the statutory scheme, regulatory scheme, and facts

of this case can be found in the Court’s previous decision. See id. at 176-83. A brief recap is

necessary for context.

               Under the Medicare Advantage program, Medicare-eligible beneficiaries can elect

to receive health insurance coverage through private insurance companies instead of through

                                                 1
traditional Medicare programs administered by CMS. CMS reimburses hospitals participating in

traditional Medicare a fixed amount based on each patient’s diagnosis at discharge, and it

reimburses doctors a fixed amount based on the specific services provided. By comparison,

CMS reimburses insurers participating in Medicare Advantage a fixed amount for each patient

they enroll, based in part on various risk factors including diagnosis on discharge.

               Although different reimbursement schemes are at play, by statute CMS must pay

Medicare Advantage insurers in a manner that ensures “actuarial equivalence” with payments to

traditional Medicare providers. See 42 U.S.C. §1395w-23(a)(1)(C)(i). CMS accomplishes this

feat by using a complex risk-adjustment model, the CMS Hierarchical Condition Category

(CMS-HCC) model, to regress total traditional-Medicare expenditures onto traditional-Medicare

beneficiaries’ risk factors. The output of this model is a marginal dollar cost associated with

each risk factor, reduced to a “normalized” risk coefficient that takes as its starting point the

“average beneficiary.”1 Medicare Advantage insurers are paid based on the cumulative risk

scores of their patients.2 The underlying logic is that developing risk coefficients from

traditional Medicare data, and then adjusting a Medicare Advantage beneficiary’s risk score, will

render the cost to CMS under traditional Medicare and the cost to the insurer under Medicare

Advantage actuarily equivalent.

               As part of its oversight of the Medicare Advantage program, CMS audits a sample

of reimbursement requests submitted by Medicare Advantage insurers. Costs associated with

1
  For example, the model might determine that the average beneficiary receives $10,000 per year
in reimbursable expenses and that the marginal cost of a given risk factor is $2,000. By
definition the average beneficiary has a risk score of 1.0, so the risk factor would have a
normalized risk coefficient of 0.2.
2
 For example, a patient with a cumulative risk score of 1.2 costs 20% more than the average
beneficiary and the Medicare Advantage insurer would be reimbursed 120% the average
benchmark rate.

                                                  2
unsupported diagnoses must be reported to CMS. But reimbursement is not limited to only those

audited cases. As of 2008, CMS applies a “Risk Adjustment Data Validation” (RADV) audit to

extrapolate the error rate in the audited sample across an entire insurance contract, and the

insurer is responsible for returning all overpayments calculated based on that extrapolated rate.

               RADV audits introduce a complication in this payment scheme. RADV audits

extrapolate an error rate based on audited data from a Medicare Advantage insurer, but Medicare

Advantage payment rates are based on data drawn from traditional Medicare, which is itself

unaudited and admittedly prone to some degree of error. This has the effect of making

traditional Medicare patients appear healthier, and cost less per diagnosis code, than their

Medicare Advantage counterparts.3 For years CMS counterbalanced this effect by implementing

a fee-for-service adjuster (FFS Adjuster), which estimated the error rate present in traditional

Medicare diagnoses; insurers were only responsible for repayment of RADV audit errors

exceeding the estimated traditional Medicare error rate. In early 2014, however, CMS finalized

a rule which eliminated the FFS Adjuster and upset this balance. See 79 Fed. Reg. 29,844 (May

23, 2014) (Overpayment Rule). UnitedHealthcare challenged the Overpayment Rule in January

2016. See Compl. [Dkt. 1].

               This Court made three findings relevant to the instant motion when it ruled on

summary judgment. First, the Court determined that “two figures are actuarially equivalent

when they share the same set of actuarial assumptions.” UnitedHealthcare, 330 F. Supp. 3d at

186 (citing Stephens v. U.S. Airways Grp., Inc., 644 F.3d 437, 440 (D.C. Cir. 2011)). “Different

assumptions behind the elements of a calculation would, necessarily, result in actuarially non-

3
 This is because the CMS regresses total Medicare expenditures onto both audited and unaudited
diagnosis codes. Put another way, costs are spread out among a larger set of diagnoses, such that
each individual diagnosis takes up a smaller share of the costs.

                                                 3
equivalent results.” Id. Thus, an “inevitable” result of relying on unaudited data to set payment

rates but audited data to determine overpayment is that CMS “will pay less for Medicare

Advantage coverage because,” unlike traditional Medicare settings, “essentially no errors would

be reimbursed.” Id. at 187. This violates the actuarial equivalence requirement of 42 U.S.C.

§ 1395w-23(a)(1)(C)(i).

               Second, the statutory scheme requires CMS to establish risk factors for Medicare

Advantage patients “using the same methodology as is expected to be applied in making

payments under” traditional Medicare. 42 U.S.C. § 1395w-23(b)(4)(D). However, beneficiary

risk factors in traditional Medicare were developed using unaudited diagnoses. So, for the same

reason, the Court determined that CMS failed to use the “same methodology” and violated this

statutory requirement when it subsequently applied RADV audits to Medicare Advantage

payments without accounting for the “crucial data mismatch” between audited and unaudited

data. UnitedHealthcare, 330 F. Supp. 3d at 187.

               Third, CMS stated as part of prior rulemaking that the FFS Adjuster was

necessary to “account[] for the fact that the documentation standard used in RADV audits to

determine a contract’s payment error (medical records) is different from the documentation

standard used to develop the [Medicare Advantage] risk-adjustment model (FFS claims).” Id. at

188 (quoting RADV Final Methodology at AR5314-15) (emphasis and internal quotations

omitted). Although “Medicare Advantage insurers should [not] be permitted knowingly or

recklessly to bill CMS for erroneous diagnosis codes,” id. at 189, the Court determined that this

concern did not adequately explain why, as a technical matter, the FFS Adjuster was no longer

necessary and why the agency had changed its position. This absence of adequate explanation

                                                4
rendered the Overpayment Rule arbitrary and capricious. Id. (citing Republic Airline Inc. v. U.S.

Dept. of Transp., 669 F.3d 296 (D.C. Cir. 2012)).

               For each of these three reasons, the Court vacated the Overpayment Rule. Id. at

192. Sixty days later, the government moved for partial reconsideration under Federal Rule of

Civil Procedure 60(b). See Defs.’ Rule 60(b) Mot. for Partial Recons. (Mot.) [Dkt. 76]. The

government does not dispute that the Overpayment Rule failed to explain the shift in policy, was

arbitrary and capricious, and should remain vacated. Id. at 1. But the government notes that just

weeks after the Court’s decision, CMS finalized an FFS Adjuster Study which concluded that, as

an empirical matter, “diagnosis error in FFS claims data does not lead to systematic payment

error” in the Medicare Advantage program. CMS, Fee for Service Adjuster & Payment Recovery

for Contract Level Risk Adjustment Data Validation Audits at 6 (Oct. 26, 2018) (FFS Adjuster

Study), available at https://tinyurl.com/ve3737d; see also 83 Fed. Reg. 54,982 (Nov. 1, 2018)

(publishing FFS Adjuster Study and soliciting comments on its conclusions). The government

contends that this conclusion calls into question the Court’s own findings regarding the

“inevitable” consequences of a data mismatch between audited and unaudited records, and

further asks the Court, as a matter of judicial prudence, to reconsider its opinion and reserve a

decision on the necessity of the FFS Adjuster until CMS has an opportunity to further investigate

the issue through regular rulemaking processes.

               UnitedHealthcare signaled its intent to oppose, but briefing was stayed pending

the release of the data underlying the FFS Adjuster Study. See 12/20/2018 Minute Order. CMS

publicly released some data on April 25, 2019. Shortly thereafter, CMS noticed its intentions to

release “[a]dditional data . . . to all parties who have entered in an applicable data use agreement”

and to “replicate” the FFS Adjuster Study and publish the results. 84 Fed. Reg. 18,215, 18,216

                                                  5
(Apr. 30, 2019). CMS published that replicated study—which explained certain methodological

decisions and confirmed the FFS Adjuster Study’s conclusions—on June 28, 2019, and further

extended the comment period for the FFS Adjuster Study. See Defs.’ Reply in Supp. of Their

Rule 60(b) Mot. for Partial Recons. (Reply), Ex. A, FFS Adjuster Study Addendum [Dkt. 97-1];

see also 84 Fed. Reg. 30,983 (June 28, 2019) (2019 FFS Adjuster Study Rule). Although that

rulemaking process has not yet completed, briefing resumed and the motion is now ripe for

review.4

                                 II.   LEGAL STANDARD

              The government asks the Court for relief pursuant to Federal Rule of Civil

Procedure 60(b). Rule 60(b) provides as follows:

              On motion and just terms, the court may relieve a party or its legal
              representative from a final judgment, order, or proceeding for the
              following reasons:

              (1) mistake, inadvertence, surprise, or excusable neglect;

              (2) newly discovered evidence that, with reasonable diligence,
                  could not have been discovered in time to move for a new trial
                  under Rule 59(b);

              (3) fraud (whether previously called intrinsic or extrinsic),
                  misrepresentation, or misconduct by an opposing party;

              (4) the judgment is void;

              (5) the judgment has been satisfied, released, or discharged; it is
                  based on an earlier judgment that has been reversed or vacated;
                  or applying it prospectively is no longer equitable; or

              (6) any other reason that justifies relief.

4
 See Mot.; United’s Brief in Opp’n to Defs.’ Rule 60(b) Mot. for Partial Recons. (Opp’n) [Dkt.
91]; Reply [Dkt. 97].

                                                 6
Fed. R. Civ. P. 60(b). The government specifically moves for relief under provisions (b)(2) and

(b)(6).

               “In considering a Rule 60(b) motion, the district court ‘must strike a delicate

balance between the sanctity of final judgments . . . and the incessant command of a court’s

conscience that justice be done in light of all the facts.’” PETA v. HHS, 901 F.3d 343, 354-55

(D.C. Cir. 2018) (quoting Twelve John Does v. District of Columbia, 841 F.2d 1133, 1138 (D.C.

Cir. 1988)) (internal quotations omitted). To that end, a district court considering a Rule 60(b)

motion “is vested with a large measure of discretion.” Id. at 355. Notwithstanding, “[m]otions

for reconsideration are ‘disfavored,’” Walsh v. Hagee, 10 F. Supp. 3d 15, 18 (D.D.C. 2013)

(citation omitted), and the D.C. Circuit has cautioned that Rule 60(b) “should be only sparingly

used.” PETA, 901 F.3d at 355.

                                      III.   ANALYSIS

           A. Rule 60(b)(2)

               The government first argues that its Rule 60(b) motion is appropriate because the

FFS Adjuster Study constitutes “new evidence” that would have been relevant to the Court’s

decision. UnitedHealthcare responds that the data underlying the FFS Adjuster Study has been

in CMS’ possession for many years now and that the agency has not shown that with “reasonable

diligence” the study “could not have been discovered” before judgment. In turn, the government

does not contest the age of the data but asserts that the study is the culmination of an extended

review, that it is commonplace for agencies to review previous decisions, and further that the

agency is entitled to a presumption of regularity when performing such a review. See Allied

Mech. Servs., Inc. v. NLRB, 668 F.3d 758, 770-71 (D.C. Cir. 2012).

               The government’s response misses the mark. Although CMS is entitled to a

presumption of regularity in its review of prior decisions, the development of facts central to this

                                                 7
litigation does not call merely for regularity—it calls for the exercise of “reasonable diligence.”

Compare Reasonable Diligence, Black’s Law Dictionary (11th ed. 2019) (“A fair degree of

diligence expected from someone of ordinary prudence under the circumstances like those at

issue.”), with Ordinary Diligence, Black’s Law Dictionary (11th ed. 2019) (“The diligence that a

person of average prudence would exercise in handling his or her own affairs.”). Here, CMS

was aware of actuarial criticisms of the Overpayment Rule when it first responded to comments.

See Overpayment Rule at 29,844. It was similarly aware that those criticisms were at the heart

of this lawsuit when the Complaint was filed in early 2016. See generally Compl. And it

remained aware of the importance of this issue through over two years of litigation in this Court.

               By contrast, the underlying data sets CMS used for its FFS Adjuster Study were

developed in 2004, 2005, 2008, and 2011, respectively. See 2019 FFS Adjuster Study Rule at

30,983. The FFS Adjuster Study itself is only sixteen pages long. There is no indication in the

record or from the government that the timeline for completion of the FFS Adjuster Study was

informed in any way by its potential evidentiary value in this litigation. After CMS received

criticisms of the FFS Adjuster Study, it only took some four months for the agency to replicate

that study. See 2019 FFS Adjuster Study Rule. Given the years available to CMS, the Court

cannot conclude that the completion of the FFS Adjuster Study after the 11th hour is the result of

“reasonable diligence” under the circumstances. See In re Neurontin Mkg. & Sales Practices

Litig., 799 F. Supp. 2d 110, 114-15 (D. Mass. 2011) (holding a new meta-analysis of existing

scientific studies was not new evidence because the defendant “could have performed a similar

meta-analysis prior to the trial”); see also Good Luck Nursing Home, Inc. v. Harris, 636 F.2d
572, 577 (D.C. Cir. 1980) (“[A] party that . . . has not presented known facts helpful to its cause

when it had the chance cannot ordinarily avail itself on [R]ule 60(b) after an adverse judgment

                                                 8
has been handed down.”); cf. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 596-97

(1993) (“Yet there are important differences between the quest for truth in the courtroom and the

quest for truth in the laboratory. Scientific conclusions are subject to perpetual revision. Law,

on the other hand, must resolve disputes finally and quickly.”). 5

           B. Rule 60(b)(6)

               The government argues that relief is nonetheless warranted under Rule 60(b)(6),

which permits relief from judgment for “any other reason that justifies relief.” Fed. R. Civ. P.

60(b)(6). But not just any reason will do; such relief is reserved for “extraordinary

circumstances.” Ackermann v. United States, 340 U.S. 193, 199 (1950). This is a weighty

burden that is best satisfied when “the interest that litigation must someday end [is] only slightly

impinged, while the countervailing interest that justice be done [is] seriously at stake.” Good

Luck Nursing Home, 636 F.2d at 577-78. For example, “[w]hen a party timely presents a

previously undisclosed fact so central to the litigation that it shows the initial judgment to have

been manifestly unjust, reconsideration under [R]ule 60(b)(6) is proper even though the original

failure to present that information was inexcusable.” Id. at 577 (emphasis added). And for the

reasons below, the Court finds these criteria are not satisfied.

               1. Unjust Outcome

               In response to the government’s motion, UnitedHealthcare has gone to great

lengths to explain why the conclusions of the FFS Adjuster Study are incorrect. For its part, the

government has done little to substantiate the findings of the FFS Adjuster Study to the Court.

Without getting too much into the weeds, UnitedHealthcare argues:

5
  As the government suggests, provision (b)(2) is an odd fit with the administrative record and
rulemaking process because there is no “evidence”; analysis under provision (b)(6) may be more
appropriate. See Reply at 10-11.

                                                  9
               First, that the FFS Adjuster Study answers the wrong question. The FFS Adjuster

Study concluded that “errors in FFS claims data do not have any systematic effect on the risk

scores calculated by the CMS-HCC risk adjustment model, and therefore do not have any

systematic effect on the payments made to [Medicare Advantage] organizations.” FFS Adjuster

Study at 5. But problems with the Overpayment Rule arise because it operates in two steps: (1)

payment to insurers; and (2) recoupment of overpayment by CMS. The Court determined that

the Overpayment Rule created a “crucial data mismatch” between the first step and the second.

UnitedHealthcare, 330 F. Supp. 3d at 187. That is, unaudited data was used to develop risk

coefficients for the first step, but audited data was used to determine when insurers had been

overpaid. The FFS Adjuster Study addresses only the effect of audited data on the development

of risk factor coefficients for payments, i.e., only the first step. It does not examine the effect of

using only audited data to determine overpayment amounts to Medicare Advantage insurers, i.e.,

the second step, and so does not speak to the “crucial data mismatch” identified by the Court.

               Second, and more fundamentally, that the FFS Adjuster Study mixes audited and

unaudited data when analyzing payments to insurers and so actually negates its authors’

conclusions. Simplified, the CMS-HCC risk model also proceeds in two steps: (1) regression of

total Medicare Parts A and B expenditures for each beneficiary onto all risk factors, producing a

marginal dollar cost for each risk factor; and (2) normalization of those marginal costs against

the average beneficiary cost, producing a risk coefficient. While the FFS Adjuster Study used

audited data to generate the marginal dollar costs in step one, it then normalized those

coefficients against unaudited data. See CMS, Fee for Service Adjuster and Payment Recovery

for Contract Level Risk Adjustment Validation Audits - Technical Appendix at 13 (Oct. 26,

2018), available at https://tinyurl.com/rte2b6l (“In the next step, we take the new coefficients

                                                  10
and apply them on the original FFS data set.”). This was accomplished by mathematically

correcting—i.e., adjusting downwards—the results using audited data to conform to the results

using unaudited data. Without this correction, the coefficients over predict total Medicare costs,

which is exactly what one would expect if higher marginal dollar costs generated from only

audited diagnoses were applied to a beneficiary population that includes both audited and

unaudited diagnoses. But this correction plays the same role as the FFS Adjuster, only proving

the FFS Adjuster’s necessity in the payment scheme. See Opp’n, Ex. 7, Decl. of Julia Lambert

[Dkt. 91-7] ¶¶ 40-42.

               The Court need not linger on the details of these arguments. On a motion to

reconsider, it is sufficient to say that the arguments are fully explained and the government does

not adequately respond. Indeed, the government asserts that it would be improper to “fully

address United’s criticisms outside of the rulemaking process.” Reply at 23. Instead, the

government offers the FFS Adjuster Study not “for the validity of its conclusions, which are still

tentative, but rather as evidence that the Court’s conclusions may not necessarily be accurate,

[and] to demonstrate the technical complexity of the questions that the study addresses.” Id. at

24.

               In the regular course of rulemaking pending comments, the government is entitled

to withhold its final conclusions until its review process is completed. But the government

cannot be coy when it seeks extraordinary relief. Having already argued and lost its case after

two years of litigation and careful consideration by the Court, merely hinting at possible

inaccuracies and suggesting technical complexity is not enough to now convince the Court that

the interests of justice are “seriously at stake” or that the outcome was “manifestly unjust.” True,

this case is technically complex, but it did not somehow become more technically complex after

                                                11
the Court’s decision than it was before. In the face of robust argument that the Court’s initial

decision was correct—which itself followed only after extensive briefing from both parties—the

government’s new arguments to the contrary must be both convincing and definitive.

               2. Interest of Finality

               On the other hand, the stakes for Plaintiffs are high. As the government itself

previously argued, merely vacating the Overpayment Rule without addressing the merits of the

CMS methodology “would provide plaintiffs no relief” because it “would not necessitate any

change to the Secretary’s risk adjustment methodology.” Defs.’ Mem. of P. & A. in Supp. of

Their Mot. to Dismiss for Lack of Subject Matter Jurisdiction [Dkt. 12-1] at 19. The government

motion for reconsideration demonstrates the problem: without the finality of a decision, the

government seems intent on re-litigating the Court’s findings.

           C. Deference to the Regulatory Process

               The government nonetheless counsels deference to the CMS administrative

process and asks the Court to give UnitedHealthcare “time . . . to ‘convince the agency to alter a

tentative position’” and provide the agency “‘an opportunity to correct its own mistakes and to

apply its expertise,’ potentially eliminating the need for (and costs of) judicial review.” Am.

Petroleum Inst. v. EPA, 683 F.3d 382, 387 (D.C. Cir. 2012) (quoting Pub. Citizen Health

Research Grp. v. FDA, 740 F.2d 21, 30-31 (D.C. Cir. 1984)). But the factors discussed in

American Petroleum Institute do not support reconsideration when applied to this case.

               In American Petroleum Institute, EPA promulgated a final rule that exempted

some hazardous materials from regulation, but not others. The petitioners argued that the final

rule should have exempted a broader range of materials. During the pendency of litigation,

however, EPA backtracked and proposed a rule eliminating the exemption entirely which, if

adopted, would have mooted the petitioners’ claims. Alternatively, the comment process on the

                                                12
proposed rule gave the petitioners another avenue to argue their case to the agency, before any

judgment by the court. Accordingly, the D.C. Circuit held the case in abeyance, reasoning that

“waiting to resolve this case allows EPA to apply its expertise and correct any errors, preserves

the integrity of the administrative process, and prevents piecemeal and unnecessary judicial

review.” Id. at 388.

               Essentially all those facts cut in the opposite direction here. For one, CMS is no

longer writing on a blank slate: UnitedHealthcare had plenty of time to convince CMS and the

Court of its position; CMS had plenty of time to consider and finalize its interpretation; and

whatever the costs of judicial review, after two years of litigation, multiple rounds of briefing,

and three decisions by the Court, they have already been expended. For another, if the Court

modifies its decision and CMS adopts its proposed rule, the effect would be to expand the scope

of litigation, not contract it. That is, the proposed rule is not a “complete reversal of course” by

the agency that might otherwise end this litigation. Id. To the contrary, CMS is doubling down

on its position. Thus, instead of mooting UnitedHealthcare’s claims, CMS seeks to re-open a

matter which has already been decided. Further, this expansion would occur even if the Court

modifies its decision and CMS does not adopt the proposed rule. Under those circumstances, the

most that could be said is that the regulatory landscape would revert to the same condition as

before any of this litigation began, setting the parties up for another four years of conflict.

               “Put simply, the doctrine of prudential ripeness ensures that Article III courts

make decisions only when they have to, and then, only once.” Id. at 387. The government does

not contest that this matter was properly ripe when it was litigated or when it was decided. The

Court carefully considered the matter and issued its decision, and that decision was crafted to

give practical, not merely nominal, relief to the prevailing party. Having lost, the government

                                                  13
now seeks to reset the process. But “an agency [cannot] stave off judicial review of a challenged

rule simply by initiating a new proposed rulemaking that would amend the rule in a significant

way.” Id. at 388. By that same token, an agency clearly cannot undo judicial review of a

challenged rule by initiating proposed rulemaking after an adverse decision has already been

handed down.

                                   IV.   CONCLUSION

               For the reasons stated, the Court will deny the government’s Rule 60(b) Motion

for Partial Reconsideration, Dkt. 76. A memorializing Order accompanies this Memorandum

Opinion.

Date: January 27, 2020
                                                            ROSEMARY M. COLLYER
                                                            United States District Judge

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