Fox Ins. Co. v. Centers for Medicare/Medicaid

When a Medicare Part D insurance provider’s malfeasance is found to create a serious risk of health to Medicare enrollees, governing regulations authorize (1) the immediate termination of the services contract without a pre-termination hearing and (2) the immediate recovery of advanced capitation payments not utilized by the provider after the termination, even as final results of the reconciliation process are pending.

Following an unsuccessful administrative appeal, Fox Insurance Company, Inc. (“Fox”), a prescription drug insurance coverage provider, filed complaints against The Centers for Medicare and Medicaid Services (“CMS”), the federal agency that administers the Medicare program, challenging the termination of its Medicare Part D services contract and the federal government’s demand for immediate repayment of advanced funds not utilized after the termination became effective. The district court deferred to CMS’s reasonable interpretation of its own regulations, which allowed termination of the contract when enrollees are exposed to “imminent and serious risk to their health.” Holding that the exception to the usual reconciliation process found in 42 C.F.R. § 423.509(b)(2) applied, the CMS was allowed to demand immediate repayment pending the final results of the reconciliation process. The district court rejected Fox’s claim that CMS owed significant money that should be set off against CMS’s demand for payment. The court further concluded that substantial evidence supported a finding that Fox had failed to meet its obligations to plan participants and that no property interest existed on which Fox could base a due process claim. The Ninth Circuit rejected all of Fox’s contentions, holding that both the agency’s interpretation and the regulation itself were consistent with the statutory scheme.. In addition, the panel upheld the district court’s finding that Fox was not in substantial compliance with contractual and statutory requirements. Furthermore, the panel held that, under governing regulations, CMS’s immediate demand for repayment was authorized and that no set off was required. This was the first Medicare Part D contract termination to reach a federal appeals court. AFFIRMED.