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Health Net of Arizona, Inc. v. Burwell

United States District Court, D. Arizona

February 9, 2015

Health Net of Arizona, Inc., Plaintiff,
v.
Sylvia Mathews Burwell, Secretary of Health and Human Services, Defendant.

ORDER

DAVID C. BURY, District Judge.

This matter was referred to the United States Magistrate Judge pursuant to 28 U.S.C. §636(b)(1)(B) and the local rules of practice of this Court for hearing and a Report and Recommendation (R&R) on the Plaintiff's Motion for Summary Judgment. Before the Court is the Magistrate Judge's Report and Recommendation on the Plaintiff's Motion for Summary Judgment. The Magistrate Judge recommends, after conducting motion hearing, to the Court that the Motion for Summary Judgment should be denied. The Plaintiff has filed Objections to this R&R.

FACTUAL AND PROCEDURAL BACKGROUND

A. Judicial Review

The Complaint filed February 19, 2013, reads, as follows: "This is an action for judicial review of the final decision of the Secretary of the Department of Health and Human Services brought pursuant to 42 U.S.C. § 405(g). Health Net seeks review of the Secretary's determination that it is financially responsible to pay for court ordered mental health evaluations on the grounds that Medicare is not liable for payment of services when the cost of such services are paid for directly or indirectly by another government entity. 42 U.S.C. § 1395y(a)(3); 42 C.F.R. § 411.8." (Complaint at 2.) (Lead ALJ Appeal No. 1-719387785; Lead Docket No. M-11-1371.)

Originally assigned to the United States District Court for the District of Arizona, Phoenix Division, (CV-13-352-PHX-NVW.) Defendant filed an Answer on July 31, 2013 and a scheduling conference was conducted on September 27, 2013. Concerns were then raised that the proper venue for this action was not Phoenix but Tucson. On October 21, 2013, this action was transferred to the Tucson Division and on October 23, 2013, the action was referred to the Magistrate Judge for pretrial management and R&R.

On December 6, 2013, Plaintiff filed a Motion for Summary Judgment. On January 28, 2014, Defendant filed a Response and on February 21, 2014, Plaintiff filed a Reply. On June 24, 2014, the parties orally argued the dispositive motion to the Magistrate Judge, who issued a Report and Recommendation on July 11, 2014. On July 28, 2014, Plaintiff filed Objections to the Report and Recommendation and on August 14, 2014, Defendant filed a response to the Objections.

B. Underlying Administrative Proceedings

On April 20, 2012, the Medicare Appeals Council (MAC) issued a consolidated decision on multiple Administrative Law Judge (ALJ) decisions from August 13, 2010 and February 29, 2012. (ROA 000667.) These decisions concerned coverage under the enrollees' various MA plans offered by Health Net (HN) for inpatient hospitalization services provided to the enrollees at University Physicians Health Care (UPH) from April 11, 2008 through May 4, 2011 pursuant to court ordered evaluations. The ALJs issued respectively forty-one (41) fully-favorable decisions for UPH and ten (10) favorable decisions for Health Net. Each decision was appealed. Because the decisions all arose from the same determinative facts and involved common legal issues, the parties asked the Medicare Appeals Council (MAC) to review the ALJ's actions and issue a consolidated decision. Generally, the MAC applied the provisions of 42 C.F.R. §405, subpart I, to resolve these appeals. In a nutshell, the MAC found that Health Net was required to pay for the inpatient hospital services arising from the court ordered mental health evaluations (COEs) in all of the appeals. 42 C.F.R. §411.8(b)(6).

"The council has reviewed the extensive memoranda and briefings in this matter, from both UPH and Health Net. The voluminous exhibits and materials attached to the appellants' submissions to the Council are duplicative of the documentation that was in the records before the ALJs. After reviewing the appellants' legal arguments and submission, the Council concludes that the dispositive issues in this case are (1) whether Pima County is obligated to pay for the in patient hospitalizations arising out of the COEs, thus implicating the provisions of 42 C.F.R. 411.8(a), and, if so, (2) whether the exception for services paid for by a government entity under 42 C.F.R. 411.8(b)(6) applies to UPH." (000672)

On June 14, 2012, Health Net filed a written Request for Reopening the Consolidated Decision of the MAC. (000303.) On December 18, 2012, the MAC denied the request. (000010). The MAC initial decision treated the four prongs under 411.8 as the first two had been conceded by all parties and then focused on the third and fourth prong to reach its decision. Health Net asked to reopen the Consolidated Decision taking the position that it had never conceded to the first two prongs of 411.8, Services Paid for by a Government Entity:

a) Basic rule. Except as provided in paragraph (b) of this section, Medicare does not pay for services that are paid for directly or indirectly by a government entity.
(b) Exceptions. Payment may be made for the following:
* * *
(6) Services furnished by a public or private health facility that-
(i) Is not a Federal provider or other facility operated by a Federal agency;
(ii) Receives U.S. government funds under a Federal program that provides support to facilities that furnish health care services;
(iii) Customarily seeks payment for services not covered under Medicare from all available sources, including private insurance and patients' cash resources; and
(iv) Limits the amounts it collects or seeks to collect from a Medicare Part B beneficiary and others on the beneficiary's behalf to:
(A) Any unmet deductible applied to the charges related to the reasonable costs that the facility incurs in providing the covered services;
(B) Twenty percent of the remainder of ...

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