Federal Court ruling confirms that the Health Insurance Provider Fee must be factored into Medicaid capitation rates
In a recent decision, the Fifth Circuit Court of Appeals reversed a United States District Court judgment that would have resulted in Medicaid managed care organizations (MCOs) paying the Affordable Care Act’s (ACA) Health Insurance Provider Fee (HIPF) without having that enormous expense factored into their capitation rates. The appellate decision maintains the rule that actuarially sound rates are to provide for all reasonable, appropriate, and attainable costs, and such costs include government-mandated taxes and fees like the HIPF.
In Texas v. United States the states of Texas, Kansas, Louisiana, Indiana, Wisconsin, and Nebraska (the “States”) challenged the rule that Medicaid actuarial rate-setting must require an MCO’s rates to include an amount accounting for the HIPF that MCOs are required by law to pay. The judgment in the States’ favor threatened the future of actuarial rate-setting because Medicaid MCOs would have been at risk of paying the HIPF without being compensated for this liability through their capitation payments.
The States also challenged the “Certification Rule,” which requires that the capitation rates paid by the States be certified by actuaries who follow the practice standards established by the Actuarial Standards Board (ASB). The States argued that by creating the Certification Rule, the federal government unlawfully delegated to the ASB rulemaking power governing the States’ access to Medicaid funds. The States also argued that the federal government’s incorporation of Actuarial Standard of Practice (ASOP) 49 into the Certification Rule was unlawful because doing so exceeded statutory authority.
The Fifth Circuit ruled that requiring actuaries to follow the ASB’s standards was not an unlawful delegation of federal authority and that the federal government can require states to factor the HIPF into Medicaid capitation rates pursuant to ASOP 49 and other actuarial soundness principles established by the ASB.
The FCC’s Declaratory Ruling Exempts COVID-19 Messages
The Telephone Consumer Protection Act (TCPA) establishes various restrictions on the use of calls or text messages, particularly without express consent. The TCPA does, however, include an exemption for “emergency purposes.” In the event there were any question regarding whether the current COVID-19 pandemic qualifies as an emergency under this exemption, the Federal Communications Commission (FCC) removed all doubt in late March 2020, issuing a Declaratory Ruling (DA 20-318). The Declaratory Ruling provides immediate emergency exemptions for government officials, health care providers, and state and local health officials, among others, to communicate information made necessary because of the COVID-19 outbreak so long as the information is directly related to the imminent health and safety risks arising out of the outbreak. The FCC has deemed this type of health information related to COVID-19 vital, time-sensitive, and necessary for health and safety purposes.
On top of this, the California Department of Health Care Services directed Medi-Cal managed care plans to communicate certain COVID-19 related information directly to their Medi-Cal members, such as the common signs of coronavirus and instructions on how to seek medical help.
Notwithstanding the fact that both the federal and state governments have encouraged state and local health officials to communicate important information to their members during this pandemic, some TCPA plaintiffs’ lawyers nevertheless view this crisis as an opportunity to threaten the health plans sending these messages, including the threat of potential class action lawsuits against the health plans.
What Triggers a Force Majeure Provision and Excuses Performance?
According to Merriam-Webster, “force majeure” translates from French as “superior force.” In contracting terms, a “force majeure” clause is an often overlooked provision containing boilerplate language that will very rarely ever be triggered. The clause is intended to allow a party to be relieved of contractual obligations when unforeseen events beyond that party’s control make it impossible or impracticable for the party to perform.
Most health plan contracts with providers or vendors contain a force majeure clause. Whether and/or to what extent a particular force majeure clause will be impacted by the COVID-19 pandemic will depend on the specific language of each clause. The following items commonly appear in force majeure clauses and may be implicated by the events related to COVID-19:
- Pandemic, epidemic, or disease
- National or State emergency
- Government acts, regulations, mandates, or orders
- Shortage of materials and/or resources
- Disruption of transportation systems
- Labor stoppage
Additionally, many force majeure clauses have catch-all language such as “any other event beyond the reasonable control of a party.” Thus, an event may be deemed a force majeure event even if it is not specifically listed in the contract itself.
It is important to note that the fact of the current pandemic, in and of itself, does not necessarily trigger a force majeure clause. The party seeking to be excused from performance would need to demonstrate the degree to which the party’s ability to perform is impacted by the pandemic. In many cases, the contract language will determine the circumstances under which performance will be excused. Some language may prescribe that a party may be excused if a triggering event fully “prevents” performance whereas others may be less strict, merely requiring that performance be “impeded” by the triggering event.
Court Rules that California Legislature Intended Medi-Cal Managed Care Plans to Pay
APR-DRG Rates to Out-Of-Network Hospitals for Post-Stabilization Services
A five-year battle against Dignity Health concluded on January 9, 2020 when the Second District Court of Appeal ruled in L.A. Care’s favor. L.A. Care successfully defended the State’s All Patient Refined Diagnosis Related Groups (APR-DRG) payment methodology as the appropriate payment for out-of-network emergency and post-stabilization services provided to L.A. Care’s Medi-Cal members by Dignity’s subsidiary, Northridge Hospital. The appellate court’s ruling establishes once and for all that the State’s APR-DRG payment methodology (which provides a single payment amount for a patient’s entire episode of care and is designed to cover all the costs of care provided by the hospital) is the payment intended for both emergency and post-stabilization inpatient services provided by an out-of-network hospital to a Medi-Cal managed care beneficiary.
Dignity did not dispute that it was required to accept the APR-DRG payment for out-of-network emergency services. However, Dignity contended that Medi-Cal managed care plans are required to transfer patients after the emergency condition is stabilized at an out-of-network hospital or else be subject to the hospital’s full-billed charges. The appellate court ruled that the California Legislature intended the APR-DRG payment to be used for out-of-network post-stabilization services as well.
In the lawsuit, Dignity had asserted that approximately $98 million was owed for services from 2012 to mid-2016. For the periods from mid-2016 to mid-2019, Dignity claimed an additional $390 million under the same legal theory through a second lawsuit and various government claims.
DSR Health Law represented L.A. Care in the action. The California Department of Health Care Services (DHCS), the California Association of Health Plans (CAHP), and the Local Health Plans of California (LHPC) all submitted amicus curiae (friend of the court) briefs supporting L.A. Care’s position.
The decision, which is certified for publication, can be considered a victory for the entire Medi-Cal managed care community. A copy of the appellate court decision is available here.