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Date: 08-30-2024
Case Style:
United States of America, ex rel. and the Stae of New Mexico, et al. v. HCSC Insurance Services, et al.
Case Number: 1:16-cv-01148
Judge: James O. Browning
Court: United States District Court for the District of New Mexico (Bernalillo County)
Plaintiff's Attorney:
Click Here For The Best Albuquerque Qui Tam Lawyer Directory
Defendant's Attorney: Benjamin E. Thomas, Christina Muscarella Gooch, Edwin E. Brooks, Steven Hamilton
Description:
Albuquerque, New Mexico False Claims Act qui tam lawyers represented the Plaintiffs.
Medicaid managed care is an “alternative to traditional fee-for-service arrangements and is believed to manage care costs, quality of care, and utilization more effectively.” Complaint ¶ 38, at 14. MCOs contract with State Medicaid organizations, which pay MCOs a monthly, flatrate “capitation” premium for each enrolled member. Complaint ¶ 38, at 14. State Medicaid agencies are not able to predict precisely the cost of care that the MCOs will provide, so they base their capitation payments on the expected cost of care, which may be greater or lesser than the MCOs' actual costs. See Complaint ¶ 39, at 14. The trouble, and this case's dispute, arises from the mismatch between the State's capitation payments and the MCOs actual costs of managing Medicaid members' healthcare. A series of regulations govern the relationship between the MCOs and State Medicaid organizations to ensure that the MCOs do not gain “excessive profits when the actual medical care costs for their beneficiaries, plus administrative costs, are much less than the capitation payments they receive from the state Medicaid agency.” Complaint ¶ 40, at 15-16. These regulations “also help Medicaid managed care live[] up to its purported cost-effectiveness advantage by ensuring that Medicaid is not paying more than it would under a fee-for-service model.” Complaint ¶ 40, at 15.
When the Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119; Pub. L. No. 111-152, 124 Stat. 1029, expanded Medicaid coverage, states had difficulty predicting costs and premiums. See Complaint ¶ 46, at 12. For example, states could not predict accurately the cost of covering the previously uninsured. See Complaint ¶ 46, at 16. To try to ameliorate this risk, states implemented risk corridor provisions that allow a State Medicaid agency to compensate an MCO whose costs exceed the capitation payments. See Complaint ¶ 46, at 16-17. Overpayment is a trickier problem, however. If an MCO's costs are lower than the capitation payments, then either an MCO must detect and report overpayment, or a state-commissioned third-party audit would have to spot the error. See Complaint ¶¶ 47-48, at 17. If neither the MCO nor a third-party audit catches the overpayment, then the MCO “could fraudulently retain that overpayment by ignoring the error and simply ‘signing off' on the audit as-is.” Complaint ¶ 48, at 17 (no citation for quotation). A State Medicaid agency can, pursuant to 42 C.F.R. §§ 438.700(a), (b), and 42 C.F.R. § 438.730, impose sanctions on the MCO or initiate recoupment of excess funds. Before a State can initiate recoupment, however, the State must know about the overpayment. See Complaint ¶ 50, at 17. Because one year's capitation payments are based on the previous year's capitation payments, if an MCO is overpaid, and does not return the excess, then a “vicious cycle of inflation and overpayment ensues, driving up healthcare costs at Medicaid's expense and benefitting the MCOs.” Complaint ¶ 49, at 14.
New Mexico, though its HSD, contracts with the Defendants, who operate MCOs, to “provide healthcare for New Mexico's Medicaid enrollees in exchange for fixed, capitated payments from New Mexico.” Original Complaint ¶ 13, at 6. Consistent with 42 C.F.R. §§ 438.604-438.606, the contract requires the Defendant MCOs to submit periodic reports to the State, so the State has up-to-date data to calculate capitation payments. See Complaint ¶¶ 52-53, at 18. The MCOs have an opportunity to verify the State's calculations before the capitation payments are finalized. See Complaint ¶ 54, at 19 (citing Amended and Restated Medicaid Managed Care Services Agreement Among New Mexico Human Services Department, New Mexico Behavior Health Purchasing Collaborative, and HCSC Insurance Services Company, operating as Blue Cross and Blue Shield of New Mexico at 40, filed October 1, 2020 (Doc 142-2)(“BCBS Contract”)
The contract between the State and the Defendant MCOs indicates that the Defendant MCOs
[s]hall spend no less than eighty-five percent (85%) of net Medicaid line of business Net Capitation Revenue, defined in Section [7.2.2] of this Agreement, on direct medical expenses defined in Section [7.2.2] of this Agreement on an annual basis. [The State] reserves the right, in accordance with and subject to the terms of this Agreement to reduce or increase the minimum allowable for direct medical services over the term of this Agreement, provided that any such change (i) shall only apply prospectively, (ii) exclude any retroactive increase to allowable direct medical services and (iii) shall comply with federal and state law.
Original Complaint ¶ 14, at 6 (quoting BCBSNM Contract ¶ 186)(brackets in Original Complaint). This provision is known as a Medical Expense Ratio (“MER”) provision, see Original Complaint ¶ 14, at 6, or Medical Loss Ratio (“MLR”), Motion ¶ 25, at 9. Under the contract's terms, if one of the Defendants' MCOs does not meet the eighty-five percent MLR threshold, the MCO must remit the overpayment to New Mexico or otherwise comply with New Mexico's instructions about the overpayment. See Original Complaint ¶ 15, at 6. The remaining fifteen percent covers the MCO's administrative costs, including overhead, profit, and all non-medical-care costs. See Motion ¶ 27, at 9.
The MLR is the ratio between various medical expenses and the net capitation revenue. See Original Complaint ¶ 16, at 7. The ratio's numerator, “‘Medical Expense (net of reinsurance) and care coordination expenses . . . incurred during the annual period' as well as any other specific medical costs identified in the contract, ” includes three components: (i) medical expenses; (ii) the cost of the Patient-Centered Medical Home Initiative; and (iii) the Care Coordination Expense. Original Complaint ¶ 17, at 7. The contract “expressly excludes” from the numerator “over 30 categories of costs . . . by deeming them administrative costs.” Original Complaint ¶ 18, at 7. The contract also requires that the value of any subrogation recoveries reduce the numerator. See Original Complaint ¶ 18, at 7-8. The ratio's denominator is the “[p]rospective capitation premium minus Premium Tax minus NMMIP Assessments paid during the annual period.” Original Complaint ¶ 16, at 7. Because taxes and assessments make up approximately five percent of the prospective capitation premium, the net capitation revenue is roughly ninety-five percent of the prospective capitation premium. See Original Complaint ¶ 16, at 7.
If the MLR is less than 0.85, then the MCOs have been overpaid, because the MCOs' direct medical expenses are less than eighty-five percent of premiums. See Complaint ¶ 58, at 20. In other words, if the MLR is less than 0.85, then the State Medicaid agency has “paid more to the MCOs than it would have under a fee-for-service model.” Complaint ¶ 58, at 20. The New Mexico HSD employs actuaries to calculate the MLR. See Complaint ¶ 59, at 20. MLR calculations are finalized by the 180th day of the year. See Complaint ¶ 59, at 20. “The actuary can calculate MLR using encounter/claims data alongside HSD's own capitation premium payment data.” Complaint ¶ 59, at 20.
Beginning in 2014, New Mexico implemented Risk Corridor (“RC”) provisions in its MCO contracts to cover Medicaid expansion risk. See Complaint ¶ 60, at 21. While MLR covers the entire Medicaid population, the RC applies only to the Medicaid expansion population. See Complaint ¶ 62, at 21. Under the RC provision, “HSD shares in losses and profits when the actual cost of care for the expansion population either exceeds or falls below the capitation payments, yielding excess profits or losses for the MCO.” Complaint ¶ 60, at 21. Under the contracts' terms, for the non-expansion population, when profits -- referred to here as “underwriting gain” -- exceed three percent of total payments, the MCO must share the profit equally with HSD. Complaint ¶ 61, at 21. The underwriting gain applies only to the non-Medicaid-expansion population. Complaint ¶ 62, at 21. The contracts also have “a multitude of requirements in place to ensure compliance” both with the contract, and with all applicable laws and regulations, including hiring a Contract Manager to ensure contract compliance, and maintaining a “comprehensive fraud and abuse compliance program and policy.” Complaint ¶ 63, at 22.
Outcome: 08/30/2024 455 MEMORANDUM OPINION AND ORDER ADOPTING 409 REPORT AND RECOMMENDATIONS by District Judge James O. Browning OVERRULING in part and SUSTAINING in part 414 Objections, OVERRULING in part and SUSTAINING in part 413 Objections, DENYING 417 Notice, GRANTING in part and DENYING in part 303 MOTION for Summary Judgment on the Public Disclosure Bar, GRANTING 305 MOTION for Summary Judgment on Relator's Demand For An Alternate Remedy, and DISMISSING 142 Amended Complaint. (gr) (Entered: 08/30/2024)
08/30/2024 456 FINAL JUDGMENT by District Judge James O. Browning. (gr) (Entered: 08/30/2024)
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