CIGA Wins Partial Summary Judgment on Issue of Over-inclusive Reimbursements

Conditional Payments, Jen Article, Medicare Set-Aside Blog, MSP Litigation on January 9, 2017
Posted by Jennifer Jordan, JD, MSCC

On January 5, 2017, the U.S. District Court for the Central District of California ruled in favor of the California Insurance Guarantee Association (CIGA) in its ongoing challenges against CMS over its MSP practices. After several years and many amended complaints, the only remaining issue in this litigation was CIGA’s allegations that CMS calculates its reimbursement liability in a manner that is contrary to the MSP and the implemented regulations, resulting in over-inclusive reimbursement demands. While CMS attempted to avoid a ruling on this issue by withdrawing its demands in all three claims referenced in the suit, the court correctly identified that the agency’s action effected only these cases and did not render the issue moot as this did not represent a change in CMS practices. After overcoming many inventive arguments by the government, the court eventually concluded that the government’s interpretation of the MSP and the relevant regulations are contrary to law and not entitled to deference.

As a point of background to any readers unfamiliar with its recovery practices, CMS routinely holds primary payers responsible for the entirety of any bill for medical treatment or services which contains at least one related diagnosis code subject to an MSP exclusion, regardless of what treatment was actually rendered during the appointment. This typically occurs when physician offices list all possible related codes associated with a patient and not necessarily the treatment rendered during a particular office visit on the billing. Or for example, when a patient visits his primary care physician and during the visit to refill blood pressure and diabetes medication, states that he continues to suffer from low back pain following his work accident, that bill will most likely note a code for the low back pain even though that was not actually treated during the visit. Because reimbursement claims are identified electronically, all bills containing related codes will be included in CMS’s demands and the burden falls on the primary payer to dispute and prove which bills are unrelated. However in cases such as this, CMS refuses to reduce its demand for unrelated medical services that obviously took place during the visit for which the primary payer is not legally responsible for payment. It is CMS’s stated practice, as noted in its pleadings, to “seek full reimbursement for a conditional payment as long as one diagnosis code was related.”

Interestingly, the court identifies that CMS engages in this practice for its convenience, “not because that is what is required (or even permitted) by any statute, regulation, or policy manual.” In the deposition of Ian Fraser, a CMS employee long involved in MSP issues, he openly admitted that it was “either impractical or impossible to split a single charge containing ‘both work related services and non-work related services.’” But just because it is easier or the way they have always done it does not make it right. Therefore the government proposed a number of creative legal theories to try to evade a determination that CMS’ practices are improper.


As the agency charged with administration of the Medicare Act, CMS is generally granted deference in its statutory interpretation. But that deference is not without limits. Because this was a claim made under the Administrative Procedures Act, “[t]he reviewing court shall hold unlawful and set aside agency action, findings, and conclusions found to be (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; . . . (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; [or] (D) without observance of procedure required by law.” 5 U.S.C. § 706(2)(A), (C), (D). Under the APA, questions of statutory interpretation are addressed under the Chevron and Skidmore framework, and questions of regulatory interpretation under Auer. Because the government advanced its interpretations in this case solely through its pleadings, the court found deference under Chevron or Skidmore unwarranted. And because the CMS’ interpretation is plainly erroneous and/or inconsistent with regulation, it also found Auer deference inappropriate.

Definition of “Item or Service”

The government attempted to justify its practice by claiming that “an item or service” refers to whatever (and however many) medical treatment(s) a provider lumps into a single charge. However “item or service” is defined by regulation as “any item, device, medical supply or service provided to a patient (i) which is listed in an itemized claim for program payment or a request for payment . . . .” (42 C.F.R. § 1003.101). Furthermore the MSP Manual makes reference to situations where multiple items or services may be reflected in one payment, thus acknowledging that even CMS practice does not support the government’s creative legal arguments here. Therefore a physician’s decision to co-mingle visits or over-code its bills does not somehow legally render a primary payer responsible for unrelated medical services.

Distinction between Reimbursement and Conditional Payment

The government also attempted to distinguish its actions in these proceeds from conflicting stated policies and regulations by claiming that those applied only to conditional payments and not to reimbursements such as these. We in the MSP community have also seen CMS apply this same tactic to procurement cost reductions, also claiming that they only apply to conditional payments and not future medical allocations. But I digress.  By creating this distinction between these two types of collection actions, CMS may be unintentionally acknowledging that payments made by CMS in workers’ compensation claims are not made conditionally, but apparently by mistake. While Medicare is entitled to reimbursement for payments made for which it was not responsible and the carrier legally obligated to pay for the same, if not made conditionally, then the recovery is not governed by section 1395y(b)(2)(B) of the Medicare Secondary Payer Act, titled “Conditional Payments.” If this distinction were true, then traditional subrogation principles would prevail and statutory interest and double damages under the MSP would not apply.  Definitely a theory worth further discussion.

State Law Governs Responsibility to Pay, Not the MSP

And most importantly, the court also wisely identified that it is in fact state law that governs here, not federal law. Citing Caldera v. Ins. Co. of the State of Pa., it noted that “whether a compensation carrier has a ‘responsibility to make payment’ with respect to an item or service is generally a matter of state law.” Furthermore, California law is clear that “where a patient receives multiple treatments for multiple conditions, the compensation carrier is not responsible for the treatments that are not attributable to an industrial accident–at least to the extent they are separable from the treatments that are so attributable.” (citing S. Coast Framing, Inc. v. W.C.A.B., 61 Cal. 4th 291, 297 (2015)). And finally, the court also acknowledged that even the MSP Manual states:

If WC does not pay all of the charges because only a portion of the services is compensable, i.e., the patient received services for a condition which was not work related concurrently with services which were work related, Medicare benefits may be paid to the extent that the services are not covered by any other source which is primary to Medicare.

So although all indications are that CIGA is not responsible for payment of 100% of the medical services in question under any state or federal law, regulation or even official CMS published policy, CMS has routinely recovered payments it is not entitled to under threat of statutory interest and litigation carrying double damages, a practice that this court has finally acknowledged is improper.

Unjust Enrichment

One area the court did not comment on but deserves discussion here is the concept that these medical services for which CMS is unable to parse out were in fact Medicare covered services not paid by the federal government. Medicare is an entitlement program and the Medicare beneficiaries in question here were statutorily entitled to have these medical services paid by Medicare, not CIGA. But not only are Medicare beneficiaries not receiving proper benefits under the Medicare Act, CIGA was wrongfully forced to make payments for medical services that they had no legal obligation to make. If calculated over the years of CMS maintaining this unlawful practice, it is likely to amounts to millions in improper payments by CIGA. But more significantly, this number is unimaginable when considered in the aggregate over the entire workers’ compensation industry. Ironically enough, this practice is demonstrative of the federal government shifting its statutory burden under the Medicare Act to the private sector instead of the other way around as we are so frequently accused of attempting. Perhaps CMS should pay equal attention to the protection of primary payers’ interest as these payers are forced to do on Medicare’s behalf.

So What Does This Mean?

While I’d like to believe that CMS must cease its practice of over-inclusive demands for reimbursement and properly apportion its demands, I am not optimistic. This court simply held that the CMS practice of holding CIGA responsible for an entire medical bill containing at least one related diagnosis code is improper given that it has no such responsibility under state law. However the opinion states that CMS must only “consider” whether related and unrelated charges can be apportioned. It does not suggest how CMS should do so and notes that even upon such consideration, CMS might still conclude that apportionment is unreasonable. The chances of CMS changing nothing but the phrasing of its form letters to note that such a consideration transpired is particularly high given the existence of the SMART Act primary payer appeal that didn’t exist when this litigation was initiated but now forces these types of disputes through the mandatory administrative remedy exhaustion. But what this hopefully does accomplish is raise awareness among potential payers that many of CMS’s practices are not supported by law, not entitled to deference and not automatically subject to federal preemption.

This should however still be viewed as progress and CIGA should be commended for pursuing this litigation. Primary payers tend to quickly write checks because it is easier and ultimately cheaper than fighting the federal government. But if we don’t fight back, CMS will continue to shift as much of its responsibilities over to the private sector as possible to indirectly preserve the Medicare trust funds longer. Public policy in preserving Medicare or not, these payments are not the responsibility of these payers and the government needs to deal with its financial problems in another way.


Case No 2:15-cv-01113-ODW (FFMx)


2017 U.S. Dist. LEXIS 1681

January 5, 2017