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California Insurance Guarantee Association v. Price

United States District Court, C.D. California

May 3, 2017





         In January 2017, the Court granted Plaintiff California Insurance Guarantee Association's (“CIGA”) motion for partial summary judgment and denied Defendants' motion to dismiss and motion for summary judgment. (Order, ECF No. 94.) Following that Order, the parties submitted briefing on the relief to which CIGA is entitled, if any. (ECF Nos. 97-99.) For the reasons discussed below, the Court concludes that CIGA is entitled to (1) an order vacating and setting aside the three reimbursement demands at issue in this lawsuit and (2) a judicial declaration that the Center for Medicare and Medicaid Services' (“CMS”) interpretation of the Medicare Secondary Payer statute (“MSP”) with respect to reimbursement of conditional payments is unlawful. However, the Court declines to enjoin CMS from continuing its billing and reimbursement practices at this time.[1]


         The Court has recited at length in prior orders the facts underlying this dispute, and thus the Court recounts only the salient facts here. Where Medicare pays benefits for a loss that is also covered by another insurance plan, the MSP requires those other plans (called “primary plans”) to reimburse Medicare. 42 U.S.C. § 1395y(b)(2)(A)(ii), (B)(ii). To determine whether a potential primary plan covers a particular line-item charge on a payment summary form, CMS looks to the medical diagnosis code recorded by the provider for that charge. Where a single charge corresponds to multiple diagnosis codes, CMS determines if any one code relates to a condition covered by the primary plan. If so, CMS seeks reimbursement from the primary plan for the full amount of the charge.

         Here, CIGA was paying medical costs on behalf of three people for work-related injuries under three separate workers' compensation policies. CMS determined that it had also paid benefits to those people, and thus sent conditional payment letters to CIGA seeking full reimbursement for each charge containing at least one diagnosis code covered by CIGA's policies. Many of those charges, however, also contained numerous codes that all parties agreed were unrelated to any condition covered by the policy. CIGA argued that it should not be held responsible for the full amount of each line-item charge if it contained uncovered diagnosis codes, but CMS nonetheless issued a formal demand letter for the full amount of each charge. This lawsuit soon followed.[2]

         In its Second Amended Complaint, which is now the operative complaint, CIGA brought claims under the (1) the Administrative Procedure Act, 5 U.S.C. § 702; (2) the Medicare Act, 42 U.S.C. § 1395ii; and (3) the Declaratory Judgment Act, 28 U.S.C. § 2201. (ECF No. 40.). CIGA alleged, among other things, that CMS improperly sought reimbursement for charges that did not fall “within the coverage of an insurance policy of the insolvent insurer.” (Id. ¶¶ 43-47, 48-52.)[3] CIGA moved for partial summary judgment on its APA claim, and Defendants moved for summary judgment on the entire action. (ECF Nos. 63, 68.) After the Court heard oral argument, Defendants withdrew the three demand letters and moved to dismiss the case as moot. (ECF No. 87.)

         The Court subsequently issued an order on the motion to dismiss and the motions for summary judgment. (ECF No. 94.) Because there may be some misunderstanding as to the scope of the Court's ruling, the Court will summarize it in detail. First, the Court held that because Defendants simply withdrew the reimbursement demands without renouncing their allegedly unlawful policy, no part of CIGA's claims were moot. (Order at 7-9.) Second, insofar as CIGA sought simply to challenge CMS's blanket practice of seeking reimbursement from primary plans for the full amount of a charge that contained uncovered diagnosis codes, CIGA met its burden simply by identifying codes that all parties agree are uncovered. (Id. at 12-14.) Third, the Court held that one statutory “item or service” does not as a matter of law equate to whatever medical procedure(s) are billed for in a single line-item charge on a payment summary form; rather, a statutory “item or service” simply refers to one indivisible medical item, device, medical supply, or service, regardless of how it is billed. (Id. at 14-15.) Whether a particular line-item charge contains more than one indivisible “item or service” is a factual question that needs to be resolved on a case-by-case basis. (See Id. at 16 n.8.) Fourth, in the event that a single line-item charge contains one covered “item or service” and one uncovered “item or service, ” CIGA does not have a responsibility to make payment for the uncovered “item or service” just because it was lumped together with a covered “item or service.” (Id. at 15-17.) Finally, the Court also notes what it did not decide. The Court did not decide: (1) whether the cost of a single indivisible “item or service” must be apportioned among multiple diagnosis codes;[4] or (2) whether each individual line-item charge in this lawsuit in fact consisted of multiple “items or services.”[5]

         Following the issuance of this order, the parties indicated that they could not agree on the relief to which CIGA was entitled. (ECF No. 95.) The parties therefore submitted briefing on the matter, which is now before the Court for decision. (ECF Nos. 97-99.)


         CIGA seeks the following relief: (1) an order vacating and setting aside CMS's demand that CIGA reimburse it for $119, 122 of conditional payments; (2) a judicial declaration that CMS's three prior demands to CIGA, as well as CMS's billing practice, is unlawful; and (3) a permanent injunction prohibiting CMS from sending future reimbursement demands to CIGA based on the unlawful billing practice. (CIGA Br. at 1-2, ECF No. 97; Proposed Order and Final Judgment at 3-4, ECF No. 97-1.) Defendants contend that the Court should not award any of the foregoing relief. The Court addresses each form of relief in turn.

         A. Setting Aside CMS's Demands

         Of the three reimbursement demands at issue (which total over $300, 000), CIGA alleged in this lawsuit that it was not responsible for reimbursing conditional payments amounting to $119, 122. (See CIGA Not. of Mot. for Partial Summ. J. at 2, ECF No. 68.) Defendants do not dispute that the Court has the authority under the Administrative Procedure Act to “hold unlawful and set aside” the three final reimbursement demands that form the basis of this lawsuit. See 5 U.S.C. § 706(2). Defendants argue, however, that the Court should not do so because CMS has already withdrawn those demands and has no intention of collecting on those demands in the future. (Defs.' Br. at 3-4, ECF No. 98.) As CIGA points out, this essentially repeats Defendants' prior argument that those three demands are moot-which the Court previously rejected. Moroever, Defendants appeared to suggest in prior filings that CMS might issue new reimbursement demands in the future based on the same underlying charges. (See Joint Report at 5-6 (“Accordingly, CMS has withdrawn the original demands. Any new demands would be based on the recalculated amounts [and] would be subject to a full administrative appeals process . . . .”), ECF No. 83.) Because of this, it is particularly appropriate for the Court to enter a judgment setting aside the disputed portions of the demands as unlawful. In the event CMS issues further reimbursement demands for any portion of the $119, 122 in conditional payments, CMS will need to determine whether some sort of apportionment of the charges is warranted, and if so, by how much.

         B. Declaratory Relief

         Defendants argue that the Court need not declare the prior reimbursement demands unlawful for the same reason that the Court should not set them aside: it would be superfluous given that CMS no longer intends to seek reimbursement for the underlying payments. (Defs.' Br. at 4-5.) Defendants further argue that the Court should not enter declaratory relief with respect to any future demands for reimbursement because doing so would “impinge on the [new] administrative procedures” for challenging such demands. (Id. at 5.)

         1. Standard for Awarding ...

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