The U.S. District Court for the Central District of California (the Court) recently determined that the Centers for Medicaid and Medicare Service (CMS) cannot seek reimbursement from Worker's Compensation (WC) employers or primary insurers for unrelated medical charges when, in a conditional payment case, the health care provider's bill includes codes for medical conditions unrelated to the WC claim. The ruling in the California Insurance Guarantee Association vs. Burwell case gives WC claimants, their employers and their insurers an opportunity to dispute CMS demands for reimbursement for all coded services, regardless of whether they were related to the claim at issue.

The Facts of the Case

The California Insurance Guarantee Association (CIGA) contested CMS's demand for reimbursement for the listed medical charges that appeared on a co-insured's health care bills. A common practice of many medical providers is to add ICD-10 codes to their records for all conditions reported by their patient, regardless of the cause. Over time, when CMS received those records, it sought reimbursement from the WC insurer for all listed codes, including those unrelated to the WC claim and therefore not covered by the WC insurer. The insurer (represented in this case by CIGA) sued to dispute CMS's demand to pay for services not covered by its insurance contract.

The Court Dismisses CMS Defense Arguments

CMS argued four points in its defense, none of which survived judicial review. The Court commented:

1. CMS withdrawing the demand didn't resolve the issue. CMS did withdraw the reimbursement claim but only after a hearing in which the Court suggested it would likely lose the case if pursued to trial. The Court noted that the withdrawal only stopped the instant case and that CMS would continue the over-reaching practice unless ordered to stop by a judicial decision.
2. CMS bears the burden to prove the medical codes relate to WC injuries. CIGA had asserted that its identification of the unrelated coding required CMS to prove that those entries were linked to the WC claim. The Court agreed and pointed out that CMS hadn't even challenged the fact that some of the codes were unrelated to the claim.
3. CMS cannot be reimbursed just for "charges;" reimbursement is available only for services rendered in relation to the WC claim. CMS argued that the Medicare Secondary Payer Act (MSP) permitted reimbursement for whatever charges the provider lumped into its bill. The Court clarified their error on that issue.
4. Both California state law and its own MSP Manual state that the agency can receive reimbursement only for medical services provided for WC injuries, and not non-work-related conditions. CMS had asserted that federal law preempted state law and that its interpretation of the federal legislation suggests it can recover reimbursements for unrelated charges.

What Happens Next

The lower court opinion isn't a precedent because it wasn't issued by an appellate court. However, it is instructional for both CMS and WC insurers as to how they will do business in the future:

CMS has work to do

The Court determined that just because the task was difficult didn't eliminate the CMS's obligation to separate out covered claims from non-covered claims in its reimbursement demands. Moving forward, the Court indicated that CMS should at least attempt to limit its payment request to only the WC claims, but declined to suggest how the agency would go about doing that.

Upsets Presumptions

The decision also upends two presumptions upon which CMS has relied in pursuit of its reimbursement demands:

1. CMS presumes that state law does not govern its actions. Not so, said the Court. At least within the conditional payment context, CMS is governed, at least in part, by state law. The Court identified several California cases that bound CMS's insurance-carrier activities and noted that the agency's manual was in accord with those legal restrictions. Ergo, moving forward, relevant state law does play a part in how CMS conducts its federal business.
2. CMS also argued that state courts should simply defer to CMS's interpretation of federal law. Again, no, said the Court; both state and federal law oppose CMS's position, and deferral of that fact won't occur.

The Burwell decision was released just weeks ago, and, so far, there has been no appeal filed. What CMS elects to in response to the order is unknown. At the very least, the case suggests the agency may face additional litigation challenges by other insurers disputing the agency’s "blanket" reimbursement demands. CMS's own arguments suggest it may contest the Court's requirement that it apportion its claim to include reimbursement for only WC injuries. In any event, the California court has opened an avenue in which Insurers can dispute CMS reimbursement claims that overreach their contractual obligations.