Appalachian Reg'l Healthcare, Inc. v. Coventry Health

APPALACHIAN REGIONAL HEALTHCARE, INC., et al., Plaintiff, v. COVENTRY HEALTH AND LIFE INSURANCE CO.,UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants.

CIVIL ACTION NO. 5:12-114-KKC

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY CENTRAL DIVISION - LEXINGTON

January 8, 2016

OPINION AND ORDER

This matter is before the Court on two related motions.

First, is a motion to remand filed by the defendant United States Department of Health and Human Services (DE 274) in which it requests that the Court remand this matter to the department so that it can complete certain administrative proceedings regarding Kentucky's Medicaid program. After briefing on that motion was completed, the department filed notices stating that it has now completed those administrative proceedings.

The second motion (DE 324) at issue was filed by the plaintiffs after the department filed the notices stating that it had completed the administrative proceedings which were the subject of the motion to remand. With their motion, the plaintiffs ask the Court to require the department to file the administrative record from these latest proceedings.

Because the department has completed the administrative proceedings for which it sought the remand, the Court will deny as moot the motion to remand. The Court will also deny the plaintiffs' motion to require the department to produce the administrative record of those proceedings. The plaintiffs' claims are not based on these most recent proceedings and the plaintiffs have not explained how the requested administrative record is relevant to their claims in this action.

I. Background

The plaintiffs in this action - referred to collectively as Appalachian Regional - provide healthcare in Kentucky. With this action, they challenge certain actions taken by the state and federal governments and a private managed care organization in the administration of Kentucky's Medicaid program.

The purpose of that program is to provide government funding for medical care of individuals who cannot afford to pay for that care on their own. Arkansas Dept. of Health and Human Services v. Ahlborn, 547 U.S. 268, 275 (2006). Through the program, the federal government provides funds to help states provide healthcare to their needy citizens. Wilder v. Va. Hosp. Ass'n, 496 U.S. 498, 502 (1990). Though states are not required to participate in Medicaid, they all do. Arkansas Dept. of Health and Human Services, 547 U.S. at 275.

The Department of Health and Human Services is the federal agency that administers the program. Id. It does so through the Centers for Medicare and Medicaid Services (CMS). Id. The Court will refer to the federal department and CMS collectively as CMS in this opinion. The Kentucky Cabinet for Health and Family Services is the state agency that administers Kentucky's Medicaid program. KRS 194A.030(2). CMS and the state cabinet are both defendants in this action.

To qualify for federal financial assistance to administer their Medicaid programs, states must comply with certain federal requirements. Va. Hosp. Ass'n, 496 U.S. at 502. For example, the state must establish a plan for reimbursing health-care providers for the medical services they provide to needy citizens. Id.

Prior to November 1, 2011, the Kentucky state cabinet directly reimbursed doctors and hospitals for the services they provided to Medicaid recipients pursuant to a fee schedule set by the state. This is known as a fee-for-services system. See Appalachian Reg'l Healthcare, Inc. v. Coventry Health and Life Ins. Co., 714 F.3d 424, 426 (6th Cir. 2013).

In 2011, however, CMS approved Kentucky's application for a waiver that permits the state to administer its Medicaid program as a managed-care program instead of reimbursing providers under the traditional fee-for-services model. (DE 274-2, Glaze Dec. ¶ 5.) This was done in an effort to control "ballooning Medicaid costs and resulting pressures on the state's budget." Appalachian Reg'l, 714 F.3d at 426.

Under a managed-care program, the Cabinet no longer directly reimburses doctors and hospitals for the healthcare services they provide. Instead, the Cabinet now pays a group of middlemen called managed care organizations (MCOs). Appalachian Reg'l Healthcare, Inc. v. Coventry Health and Life Ins, Co., 5:12-CV-114, 2012 WL 2359439, at * 1 (June 20, 2012). The state awards contracts to certain MCOs, which are charged with managing healthcare services for Medicaid beneficiaries who sign up to become "members" of one of the MCOs. Id.

The Cabinet pays each MCO a flat monthly fee - called a capitation payment - for the healthcare of each of the MCO's members who is a Medicaid recipient. Id. The capitation payment is a set fee that the Cabinet pays for each MCO member, whether or not the member actually receives any health services that month. 42 C.F.R. § 438.2. The MCO then pays the healthcare providers for the healthcare services actually rendered to the MCO's members. "So the MCO bears the risk that the costs of care may exceed the capitation payment. But on the other side, it stands to profit if beneficiaries use fewer services." Appalachian Reg'l Healthcare, Inc., 714 F.3d at 426.

The reason that the state converted to the managed-care model was to "improve healthcare access and quality by eliminating unnecessary care, enhancing coordination among providers, emphasizing preventative care, and promoting healthy lifestyles." Id. The state also believed that the conversion would save the state money. Id.

CMS must approve both the state's contracts with the MCOs and the capitation payments to be paid to the MCOs. 42 C.F.R. §§ 438.6(a), 438.806(c). The capitation payments are set forth in the contracts between the Cabinet and each MCO.

The Cabinet awarded contracts to three MCOs: Coventry Health and Life Ins. Co., Kentucky Spirit Health Plan, Inc., and Wellcare of Kentucky, Inc. Appalachian Reg'l Healthcare, Inc., 714 F.3d at 426. The MCOs were charged with administering healthcare in seven of the state's eight Medicaid regions. One of those regions is Region 8 which is made up of 19 counties in eastern and southeastern Kentucky that "are among the most economically depressed, underserved, and medically needy in the Commonwealth." Id. at 426-27.

As part of the waiver approval, CMS reviewed the contracts for compliance with the Medicaid Act and regulations. 42 U.S.C. §1396b(m); 42 C.F.R. § 438.806. CMS approved each of the contracts, including the designated capitation rates, for the period of November 1, 2011 to June 30, 2014. (DE 135-3, CMS Letter Oct. 28, 2011; DE 274-2, Glaze Decl. ¶¶ 7-12.) These initial MCO contracts expired on June 30, 2014. (DE 274-2, Glaze Decl. ¶10.)

The MCOs, in turn, contract with healthcare providers who make up each MCO's healthcare-provider "network." Appalachian Reg'l Healthcare, Inc., 2012 WL 2359439, at *1. Coventry entered into a letter agreement with Appalachian Regional making Appalachian Regional a provider in Coventry's provider network. Appalachian Reg'l Healthcare, Inc., 714 F.3d at 426-27. Appalachian Regional operates hospitals and othermedical facilities that serve citizens in Region 8. Id. at 427. Its patients are sicker than other Medicaid patients, meaning it costs MCOs more to provide healthcare for Appalachian Regional's patients. Id. a 428. As the Sixth Circuit explained, "[h]aving Appalachian in its network caused Coventry to lose money, as the capitation rate it negotiated with Kentucky was insufficient to cover the costs of these members' care." Id.

Thus, on March 28, 2012, Coventry notified Appalachian Regional that it was terminating the letter agreement effective May 4, 2012. Id. Coventry further explained that it would only enter into a new contract with Appalachian Regional if the new agreement allowed Coventry to pay Appalachian Regional less for its healthcare services than the letter agreement had permitted. (DE 8-8, p. 2, ¶ 5.)

Appalachian Regional then filed this action, at first asserting claims against only Coventry and the Cabinet. It later amended its complaint to assert claims against CMS. (DE 135, Second Amended Complaint.) The only claims at issue on the two motions currently before the Court are Appalachian Regional's claims against CMS.

In its complaint against CMS, Appalachian Regional asserts that it brings its claims against CMS to "challenge the decision of the Secretary of the Department of Health and Human Services made though its Centers for Medicare and Medicaid Services to approve the Section 1915(b) Waiver for the Kentucky Medicaid Program."(DE 135, Second Amended Complaint at 3.)

II. Analysis

In its motion to remand, CMS asks the Court to remand Appalachian Regional's claims against it to CMS for further administrative proceedings.

This is the only relief that CMS has properly requested with its motion to remand. In its memorandum, it states that this matter should be remanded only if the Court does not dismiss Appalachian Regional's claims against it. (DE 274-1, Mem. at 13.) It refers theCourt to a footnote in in its memorandum in which it states that it disagrees with an opinion by the late Judge Karl Forester that denied CMS's motion to dismiss the claims against it. (DE 274-1, Mem. at 11 n.5.) This case was initially assigned to Judge Forester and was later transferred to the undersigned.

With this motion to remand, CMS has not asked the Court to reconsider Judge Forester's decision or in any other way properly moved for the Court to dismiss the claims against it. See Fed. R. Civ. P. 7 (b) (stating that a "request for a court order must be made by motion" and must "state with particularity the grounds for seeking the order.")

Accordingly, the Court addresses only CMS's request to remand this matter back to the agency. In the motion to remand, CMS argued that Appalachian Regional's claims against it are based on its approval of Kentucky's waiver program and its approval of the initial...