News & Insights


April 6, 2022

Health Headlines– April 4, 2022

Ninth Circuit Reverses Decision Against United in ERISA Mental Health Class Actions— On March 22, 2022, the U.S. Court of Appeals for the Ninth Circuit reversed the judgment of a district court that had ordered United Behavioral Health (UBH) to reprocess over 50,000 mental health and substance use disorder treatment claims that the district court concluded were improperly denied as not in compliance with generally accepted standards of care. Although the Ninth Circuit agreed with the district court that the plaintiffs had standing to bring the lawsuits and that the class actions had been properly certified, the Ninth Circuit held that the district court did not give UBH’s interpretation of the underlying ERISA plan documents sufficient deference, as it was required to do.  The Ninth Circuit found that UBH’s interpretation of the ERISA plans—that the plans did not require compliance with generally accepted standards of care—was reasonable. The Ninth Circuit did not certify its opinion for publication, meaning that this decision will not have precedential effect. The plaintiffs may appeal the decision to the U.S. Supreme Court.  

The appeal stems from two related class actions against UBH from the U.S. District Court for the Northern District of California. The plaintiffs in each class action were beneficiaries of ERISA-governed health plans administered by UBH. The plaintiffs alleged that UBH improperly denied them benefits for treatment of mental health and substance use disorders because UBH’s Level of Care Guidelines and Coverage Determination Guidelines did not comply with the terms of their insurance plans. The plaintiffs alleged their health plans provided for coverage of treatment consistent with generally accepted standards of care. They further claimed that UBH breached the fiduciary duty it owed the members and arbitrarily denied their claims in violation of ERISA by developing guidelines inconsistent with generally accepted standards of care and prioritizing cost savings over members’ interests. UBH disagreed, contending that under its interpretation of the ERISA plan documents, the plans did not require consistency with all generally accepted standards of care; they simply excluded from coverage care not in compliance with generally accepted standards of care.

After a ten-day bench trial, the district court agreed with the plaintiffs and found that UBH breached its fiduciary duty to the plaintiffs and arbitrarily denied claims in violation of ERISA. The district court determined that UBH’s internal guidelines for mental health and substance abuse coverage ignored generally accepted standard of care by focusing too narrowly on only covering acute symptoms and crises and excluding from coverage the effective treatment of members’ underlying conditions. In a subsequent order addressing the remedies of UBH’s ERISA violations, the district court enjoined UBH from using its defective guidelines when making coverage determinations and required UBH to reprocess over 50,000 mental health and substance use disorder treatment claims in compliance with generally accepted standards of care.

In reversing the district court, the Ninth Circuit held that the district court improperly substituted its own interpretation of the ERISA plan documents for UBH’s. The Ninth Circuit said UBH’s interpretation that the plans did not require consistency with generally accepted standards of care was not unreasonable. The Court’s theory was that the plans excluded coverage for treatment inconsistent with generally accepted standards of care—they did not mandate coverage for all treatment that is consistent with the generally accepted standards of care. Because the decision is unpublished, the Ninth Circuit’s holdings are limited to the facts of this case and cannot be applied to future cases. 

The Ninth Circuit’s March 22, 2022 order is here. The district court’s February 28, 2019 order following the bench trial is here, and the district court’s November 3, 2020 remedies order is here.

Reporter, Ariana Fuller, Los Angeles, +1 213 443 4342,    

D.C. District Court Upholds Hospitals’ Bad Debt Indigency Determinations Using Information Provided by Credit Reporting Agency— On March 29, 2022, the D.C. District Court granted summary judgment in favor of a group of hospitals operated by Sentara Healthcare seeking reimbursement for bad debt from Fiscal Years (FYs) 2010-2013. The court determined that Sentara complied with applicable reimbursement rules notwithstanding its use of information provided by a credit reporting agency. 

Medicare reimburses hospitals 70% of unpaid bills accumulated from patients who are Medicare beneficiaries but have not paid the hospital the amount owed for their Medicare deductible or coinsurance. To receive that “bad debt” reimbursement, hospitals must satisfy several requirements. The relevant requirement at issue in Sentara deals with the hospital’s duty to conduct a “reasonable collection effort” before deeming the patient’s debt as uncollectible. The Provider Reimbursement Manual (PRM) allows a hospital to skip that step if the hospital determines the patient is indigent according to its own “customary methods,” for which CMS provides further guidance.

In reviewing Sentara’s cost reports, the Medicare contractor disallowed reimbursement for Sentara’s claimed bad debts because of how Sentara assessed and concluded patient indigency.  Primarily, the contractor took issue with Sentara’s use of Equifax scores and the fact that Equifax has a proprietary scoring methodology. Sentara appealed the Medicare contractor’s decision to the Provider Reimbursement Review Board which reversed most, but not all, of the contractor’s disallowances. The CMS Administrator subsequently reversed the Board, relying in part on a newly published CMS rule. The Administrator concluded that the PRM’s resources test is mandatory, even though the PRM language says “[t]he provider should take into account a patient’s total resources,” rather than “must.” Next, the Administrator applied the new CMS rule retroactively, rather than prospectively as stated in the rule’s preamble. And finally, the Administrator viewed the indigence categorization as chiefly determined by Equifax rather than the Hospitals, as purportedly required by the regulation.  Sentara appealed to the D.C. District Court.

In district court, the government argued that PRM § 312(B) requires a hospital to verify patient assets on its own, so using Equifax for financial information caused Sentara to fail this requirement. Second, the government argued that Sentara also failed PRM § 312(A) which requires the hospital, not the patient, to determine the patient’s indigency. And third, the government argued that Sentara did not satisfy PRM § 312(D) because Sentara allegedly failed to provide adequate documentation for indigency determinations since the MAC could not audit Equifax’s proprietary assessment methodologies. 

The district court did not decide whether, despite the PRM’s use of the word “should” instead of “must,” the asset and expense test, was mandatory as CMS contended. Instead, the court held that “even if PRM § 312(B) was mandatory for the cost years in question, Sentara complied with its requirements.”

Specifically, the court determined that Sentara’s use of Equifax reports was sufficiently based on the individual patient’s actual assets and liabilities, so the record did not support the Administrator’s decision to the contrary. The Equifax reports compile many pieces of information, including the estimated value of a person’s home or car based on any mortgages or loans in the person’s name, estimations of an individual’s income based on the person’s credit file and a check with a national income database, a review of any monetary judgments, and more. The Equifax reports include assets as well as liabilities, such as loans, credit card debts, delinquencies, and more.  In rejecting the government’s argument, the court found that the Equifax reports were sufficiently specific to individual patients and was not based on overly broad patient categories. Additionally, Sentara checked data provided by the patient against the patient’s Equifax report and investigated when a discrepancy arose. The court observed, “[i]t is hard to imagine what else a provider could do to reasonably assess the patient’s ability to pay.”

The government argued that Sentara failed to satisfy PRM § 312(A) because, it alleged, Sentara outsourced the indigency determination to Equifax. The court rejected this argument because the record showed that Sentara did not rely on any single score from Equifax. Instead, Sentara developed and employed its own method of comparing three different scores, plus any other relevant data that it had, to make a determination of indigency. The court concluded that Sentara “did more than simply rubber-stamp” the information provided by Equifax.

Lastly, the court determined that Sentara provided adequate documentation and analysis to satisfy PRM § 312(D) which requires “documentation of the method by which indigence was determined.” Equifax’s use of a proprietary modeling method did not run afoul of § 312(D)’s documentation requirement because Sentara’s reliance on Equifax predictive scores was permissible and Sentara documented the method in its patient files. The court rejected any suggestion that the rules require hospitals “to gather (and maintain) more granular financial information” than Sentara did.  The court rejected, on an independent basis, the government’s argument here because the Administrator did not rely on it in her decision. In a footnote, the court also reversed the Administrator’s decision with regard to disallowance of reimbursement for married patients. 

As a result, the court determined that Sentara is entitled to reimbursement for its bad debt costs during FYs 2010-2013. 

The government has until May 30, 2022 to decide whether it will appeal the decision to the D.C. Circuit. 

The full text of Sentara Hospitals, et al. v. Azar is available here.

Reporter, Kasey Ashford, Washington D.C., +1 202 626 2906,  

White House’s FY 2023 Budget Request Includes Healthcare Provisions – President Biden submitted his Fiscal Year (FY) 2023 budget request to Congress on March 28, 2022. The budget request is not binding on Congress. Rather, it may serve as a guide for both Congress and the administration as they consider spending issues and priorities for the upcoming fiscal year. The budget gives HHS $127 billion in discretionary spending and $1.6 trillion in mandatory funding. Among other provisions, the President’s budget aims to strengthen access to mental health care, increase spending in nursing and behavioral health workforce development, bolster pandemic preparedness, invest in healthcare research, expand support of telehealth, and spend more on the 340B program.

Mental Health

The FY 2023 budget aims to increase access to mental health care. The budget allots funding to mental health programs and policies, which include investing in workforce development and service expansion, eliminating Medicare’s 190-day lifetime limit psychiatric services coverage, and increasing coverage for behavioral health care without cost-sharing in both the Medicare and private insurance market. The budget also includes increased enforcement of the mental health parity law and the establishment of a new $7.5 billion Mental Health Transformation Fund for mental health workforce development and expansion of services.

Workforce Development

In addition to the mental health workforce development described above, the budget proposes investments in the National Health Service Corps, nursing workforce development, diversity-related training, and public health and preventive medicine programs. However, the budget calls for a decrease in funding for graduate medical education at children’s hospitals.

Pandemic Preparedness

The budget also allots $81.7 million in mandatory funding across multiple HHS operating divisions to fund pandemic preparedness. The money would be distributed among the Office of the Assistant Secretary for Preparedness and Response (ASPR), Centers for Disease Control and Prevention (CDC), National Institutes of Health (NIH), and Food and Drug Administration (FDA). ASPR would be directed to spend $40 billion of that distribution on vaccine, therapeutic, and diagnostic research for certain high-priority viruses, build up the public health workforce, and increase medical countermeasure manufacturing.

Healthcare Research & Innovation

A proposed investment of $5 billion for Advanced Research Projects Agency for Health (ARPHA-H) would be initially focused on cancer, diabetes, and dementia research. The budget allots $92 million for healthcare research at the CDC and FDA in order to fund the Cancer Moonshot program. This program aims to reduce cancer deaths by at least 50% over the next 25 years. In combination with other funding requests for the NIH, the total requested budget for healthcare research and innovation is $49 billion.


The budget proposes an extension for Medicare’s coverage of telehealth beyond the end of the pandemic. The budget also includes a $45 million request for the Health Resources and Services Administration (HRSA) to promote telehealth, an increase over the actual FY 2022 budget for HRSA’s telehealth funding.

340B Drug Pricing Program

The budget includes a $6 million increase over the FY 2022 enacted budget for the 340B program, for a total request of $17 million in spending. The budget also includes language that would increase oversight of the 340B program but does not include specific details on regulatory requirements for oversight.

More details about the healthcare-related proposals in the budget are available in the HHS Budget in Brief document, which is available here. President Biden’s budget request is available here.

Reporter, Rebecca Gittelson, Atlanta, +1 404 572 4679, 

HHS Enforces Pandemic Assistance Reporting Requirements – The Health Resources and Services Administration (HRSA) is demanding repayment of funds granted under the Provider Relief Fund (PRF) from recipients who failed to comply with the program’s mandatory reporting requirement. This recoupment of funds could potentially impact up to 10,000 providers.
HRSA required recipients of relief funds in excess of $10,000 to delineate their use of PRF funds in a report submitted to HHS by September 30, 2021. HRSA implemented this reporting requirement to confirm that the providers who received the PRF funds used the funds only for healthcare related expenses or lost revenue attributable to COVID-19.

On March 10, 2022, HHS sent notices to non-compliant providers instructing the providers that that they had thirty (30) business days to return the PRF funds. Non-compliant providers who do not comply with HRSA’s instruction to return the funds may be excluded from receiving or retaining future PRF payments.
The Provider Relief Fund Reporting Non-Compliance Fact Sheet is available here.
Reporter, Kimberly Rai, New York, +1 212 556 2198,

Also in The News

HHS Inspector General Christi Grimm Addresses HCCA Compliance Institute

In a March 29, 2022 keynote address delivered at the Health Care Compliance Association’s 2022 Compliance Institute, newly confirmed U.S. Department of Health and Human Services Inspector General Christi Grimm offered insight into OIG’s enforcement priorities and highlighted the four core values she expects to guide OIG’s operations, engagement with stakeholders and priorities:  (1) people-focused results, (2) pragmatism, (3) preparedness and (4) transparency.  The transcript of Inspector General Grimm’s remarks is available here.

King & Spalding Webinar: Data Governance in Healthcare

On April 6, 2022, at 1:00 PM ET, King & Spalding will be hosting a roundtable webinar exploring the importance of implementing and maintaining a robust data governance program in the healthcare environment. Topics for discussion will include:

  • Key elements of a data governance program;

  • How data governance helps reduce organizational costs while increasing regulatory compliance and optimizing efficiencies and data integrity;

  • Potential risks related to a lack of data governance; and

  • Oversight and enforcement activities related to data governance.

The presenters include Andi Bosshart, Tamra Moore, and Lori Burton. To register for the event, click here

 Life Sciences Industry Disruption Video Series

The life sciences industry combines breakthrough science, vast commercial momentum and complex regulatory regimes to provide breakthrough treatments and services to improve patient health. Our life sciences disruption series focuses on emerging trends and how our K&S teams partner with clients to solve problems.