News & Insights


June 18, 2018

Health Headlines – June 18, 2018

Fifth Circuit Reverses District Court’s Ruling that Required Hospital to Plead Specific Plan Language to State a Claim For ERISA Benefits – On June 12, 2018, the United States Court of Appeals for the Fifth Circuit issued a ruling in Innova Hospital San Antonio, L.P. v. Blue Cross and Blue Shield of Georgia, Inc., et al. that clarified the scope of what a provider suing as assignee of an ERISA member’s benefits must plead to state a claim for underpaid ERISA benefits. The defendant commercial insurers argued the hospital failed to meet the plausibility pleading standard on a motion to dismiss because it did not plead the identity of specific plans or specific plan language applicable to each of the hospital’s claims for underpayment. The United States District Court for the Northern District of Texas had agreed with the defendants, dismissing the hospital’s claims for ERISA plan benefits and breach of contract because the hospital did not identify the specific plan provisions at issue. The Fifth Circuit reversed the district court’s judgment granting the defendants’ motion to dismiss the hospital’s second amended complaint for failure to state a claim.   See Innova Hosp. San Antonio, L.P. v. Blue Cross and Blue Shield of Georgia, Inc., et al., Case No. 14-11300 (5th Cir. June 12, 2018), available here. The plaintiff is a hospital that brought various claims for violations of ERISA (including a claim for benefits under 29 U.S.C. § 1132(a)(1)(B)) and breach of contract arising from defendants’ alleged underpayments of more than $58 million for services the hospital provided to defendants’ members. The defendants are Blue Cross and Blue Shield of Georgia, Health Care Service Corporation, and other insurance companies and third party administrators.

On appeal, the hospital argued that the district court created a “heightened pleading standard” by requiring the hospital to plead plan information that it did not have and that the defendants had been unwilling to provide. The Fifth Circuit sided with the hospital and held:  “Simply put, ERISA plaintiffs should not be held to an excessively burdensome pleading standard that requires them to identify particular plan provisions in ERISA contexts when it may be extremely difficult for them to access such plan provisions.”  Slip Op. at 10. In reversing the district court’s ruling, the Fifth Circuit noted that the hospital had attempted repeatedly – both before filing the lawsuit and through multiple discovery requests – to obtain the plan documents from the defendants. The defendants did not provide the plan documents and argued in the motion to dismiss that the hospital failed to plead the plan language they would not provide. Id. at 3, 8. The Fifth Circuit held that “plaintiffs alleging claims under 29 U.S.C. § 1132(a)(1)(B) for plan benefits need not necessarily identify the specific language of every plan provision at issue to survive a motion to dismiss under Rule 12(b)(6).”  The court highlighted the hospital’s numerous attempts to obtain plan documents and noted that its holding “underscores the principle that when discoverable information is in the control and possession of a defendant, it is not necessarily the plaintiff’s responsibility to provide that information in her complaint.”  Id. at 13.

The Fifth Circuit similarly reversed the district court’s dismissal of the hospital’s breach of contract claim, finding that the hospital sufficiently alleged a claim for breach of contract by pleading the existence of valid contracts (i.e., non-ERISA plans), performance by the hospital, breach of the contract by the defendants, and damages in the form of underpayments or non-payments. Id. at 16. The hospital had also brought a claim for breach of fiduciary duty under ERISA, 29 U.S.C. § 1132(a)(3). However, the Fifth Circuit declined to reverse the district court’s dismissal of this claim, finding that the hospital “has an adequate mechanism for redress under § 1132(a)(1)(B) and thus may not simultaneously plead claims under § 1132(a)(3).”  Id. at 20. Following the Fifth Circuit’s ruling, the Innova case is remanded to the district court to consider the hospital’s claims for ERISA plan benefits and breach of contract.

Reporter, Jennifer S. Lewin, Atlanta, + 1 404 572 3569,

Signature HealthCARE to Pay $30 Million to Resolve Medicare Fraud Allegations – Signature HealthCARE (Signature), a Kentucky-based owner and operator of 115 skilled nursing facilities across ten states, has reached an agreement with the HHS OIG to settle a False Claims Act lawsuit in which it was accused of knowingly submitting fraudulent Medicare and Medicaid claims for unnecessary rehabilitation services totaling $244 million by automatically placing patients in the highest reimbursement level for therapy services without conducting individual evaluations, among other allegations. Signature did not admit to any wrongdoing as part of the settlement.

The lawsuit, sparked by two former employee whistleblowers, also alleged that Signature provided therapy for the minimum amount of time required to bill at a given reimbursement level while discouraging the provision of additional care beyond that threshold, and pressured therapists and patients to complete planned sessions even when patients were gravely ill or declined to participate.

Signature was also accused of submitting forged pre-admission certifications of patient need for skilled nursing to Tennessee’s Medicaid program. As part of the resolution, Tennessee will receive a portion of the settlement, as will the two whistleblowers.

Click here to read the full DOJ press release.

Reporter, Carissa M. Meade, Los Angeles, + 1 213 443 4325,  

Insurers Not Entitled to Full ACA Risk Corridors Payments Says the United States Court of Appeals for the Federal Circuit – Resolving a split in the lower courts, the Federal Circuit issued two decisions on June 14, 2018, wherein the Court held that health insurers Moda Health Plan Inc. (Moda Health) and Land of Lincoln Mutual Health (Land of Lincoln) are not entitled to the full risk corridor payments established by Section 1342 of the Affordable Care Act. The decisions will affect all cases involving claims for outstanding risk corridors payments – payments that would total approximately $12.3 billion. The opinion issued in Moda Health Plan Inc. v. U.S. can be found here. The opinion issued in Land of Lincoln Mutual Health v. U.S. can be found here.

In an effort to encourage insurance companies to offer ACA-compliant insurance plans without adding risk premiums to the cost of the plans, Section 1342 of the ACA directed the Secretary of HHS to establish what is referred to as the “risk corridors” program. Under the risk corridors program, plans whose costs of providing coverage exceeded the premiums received from CMS would be paid a share of their excess costs by the Secretary. Plans whose premiums exceeded their costs would pay a share of their profits to the Secretary. It was anticipated that the amounts paid-in by plans whose premiums exceeded their costs would essentially offset the amounts paid to plans whose costs exceeded their premiums.

However, rather than the payments-in matching up with the payments-out as anticipated, in September 2015, CMS announced that it expected payments-in of approximately $362 million but expected payments-out totaling $2.87 billion. By the end of the three-year period, CMS calculated that payments-in fell short of the total amount of payments-out by over $12 billion. CMS, Risk Corridors Payment and Charge amounts for the 2016 Benefit Year, available here (Nov. 2017).

Despite the legislative directive regarding corridors payments, when Congress passed its appropriations for HHS for FY 2015 (the first year the risk corridors applied), the lump-sum appropriation included a rider that prohibited HHS from using any of the funds for risk corridors payments. Congress enacted identical riders in FY 2016 and FY 2017.

The district court in Moda Health ruled in favor of the insurance company and held that the risk corridors payments were owed pursuant to statute. However, in a three-two split, the Federal Circuit Court of Appeals reversed and held:

Although section 1342 obligated the government to pay participants in the exchanges the full amount indicated by the formula for risk corridor payments, we hold that Congress suspended the government’s obligation in each year of the program through clear intent manifested in appropriations riders. We also hold that the circumstances of this legislation and subsequent regulation did not create a contract promising the full amount of risk corridors payments. Accordingly, we hold that Moda has failed to state a viable claim for additional payments under the risk corridors program under either a statutory or contract theory.

Justice Newman wrote a lengthy dissent that concluded with the following:

The government’s ability to benefit from participation of private enterprise depends on the government’s reputation as a fair partner. By holding that the government can avoid its obligations after they have been incurred, by declining to appropriate funds to pay the bill and by dismissing the availability of judicial recourse, this court undermines the reliability of dealings with the government.

Based on the controversial nature of this decision and strong decent, it seems likely that there will be a request for an en banc hearing or appeal to the U.S. Supreme Court.

Reporter, Amy L. O’Neill, Sacramento, +1 916 321 4812,

CMS Updates Rules for Reporting Adverse Legal Actions – On June 1, 2018, CMS issued further guidance for reporting and reviewing final adverse legal actions (ALAs) in provider enrollment applications. In Transmittal 797, which replaces Transmittal 784 to the Medicare Program Integrity Manual, CMS clarifies what adverse actions should be reported and offers Medicare Administrative Contractors (MACs) guidance in reviewing them. Perhaps most significant is that, as of April 30, 2018, CMS no longer requires providers to report current or past Medicare payment suspensions or revocations. Historically, Medicare payment suspensions and revocations were reportable final adverse actions. Yet, CMS has also broadened the scope of disclosure for adverse actions. In particular, now all final adverse actions that occurred under the legal business name (LBN) and tax identification number (TIN) of the disclosing entity must be reported.

The MACs will examine resources like the Provider Enrollment, Chain, and Ownership System (PECOS) or the System for Award Management (SAM) (formerly the Excluded Parties List System) to determine whether “someone with ownership interest and/or managing control” of the provider is excluded, for example. In other words, an LBN and TIN, regardless of the strength of its connection to a provider, will be linked with any of the provider’s associates’ or affiliates’ revocations or exclusions. Further, all final adverse actions must be reported regardless of when they occurred, even if they have been expunged or are pending appeal.

Per the April 30, 2018 guidance, the updated list of reportable adverse actions includes:

  • Felony and misdemeanor convictions within 10 years;
  • Current or past medical license suspensions or revocations;
  • Current or past accreditation suspensions or revocations;
  • Current or past OIG suspensions or exclusions;
  • Current or past federal executive branch debarments;
  • Medicaid billing number exclusions, revocations, or terminations; and
  • Current or past federal sanctions of any other type.

Transmittal 797 also provides updated “decision trees” for a MAC’s use in reviewing the reported (or unreported) adverse actions. The significant new “branches” of the decision trees concern the following scenarios:

  • When a provider (or someone with managing control or ownership interest in the provider) has an active or previous OIG exclusion fails to report the exclusion, the MAC shall only cite 42 C.F.R. § 424.530(a)(4) (denial of Medicare enrollment for false or misleading information) as a reason for denial if the provider never before reported the adverse action.
  • Enrollment applications will be processed despite the reporting of (or failure to report) current or past Medicare payment suspensions (the MACs will still review whether other denial reasons exist).
  • When a provider seeks revalidation or to change information, but fails to report a prior license suspension, license revocation, or OIG exclusion, the MAC shall only cite 42 C.F.R. § 424.535(a)(4) (providing false or misleading information as grounds for revocation) as a reason for revocation from Medicare enrollment if the provider never before reported the adverse action.

The technical purpose of Transmittal 797 was simply to replace and rescind Transmittal 784 to add a note to business requirement 10558.3 that a provider education article would be published online. A Medicare Learning Network (MLN) article discussing the updates described above is now available here.

Reporter, Lee Nutini, Atlanta, +1 404 572 3533,


U.S. Senate to Hold Hearing on Effective Administration of the 340B Drug Pricing Program – On June 19, 2018, the U.S. Senate Committee on Health, Education, Labor & Pensions will have a full committee hearing on the administration of the 340B Drug Pricing Program. This will be the third hearing that the committee has held examining the program. The only witness listed to testify is Captain Krista M. Pedley, Director of the Office of Pharmacy Affairs at HRSA. The details are located here.

What You Need to Know About CMS’s Proposals for the 2019 Inpatient and Long Term Care Prospective Payment System – On June 19, 2018, King & Spalding will host a 75-minute webinar to discuss a major proposed rule published in the Federal Register on May 7, 2018, which updates the IPPS and LTCH PPS. The webinar will analyze CMS’s most important proposals, including those around DSH/UCC payments, changes to inpatient orders, the EHR Promoting Interoperability Program, pay-for-performance, multi-campus hospitals and price transparency. To register, please click here.

Mark Polston, Dan Hettich and Chris Kenny to Speak at HFMA Annual Conference – From June 24–27, the Healthcare Financial Management Association (HFMA) will host its Annual Conference in Las Vegas, which brings together healthcare executives from across the nation to consider and discuss complex healthcare issues. Mark Polston and Daniel Hettich will address Medicaid developments and Christopher Kenny will speak about the Medicare S-10 worksheet. To register, please click here.

Jim Boswell, Marcia Augsburger, and John Carroll to Address the AHLA Annual Meeting – From June 24–27, the American Health Lawyers Association (AHLA) will host its In-House Counsel Program and Annual Meeting in Chicago. Jim Boswell will speak at the AHLA In-House Counsel Program on “Trends and Emerging Issues in Managed Care Litigation.”  On June 25, John Carroll will speak at the Annual Meeting on “Exclusionary Practices in Health Care and Pharmaceuticals,” and Marcia Augsburger will speak on “Arbitration of High Stakes Payer/Provider Disputes.” For more information, please click here.

The Changing Landscape of Cybersecurity: Trends and Developments for Pharmaceutical and Medical Device Companies – On June 26, 2018, King & Spalding will host a 90-minute webinar that will not only focus on the threat landscape that medical device and pharmaceutical manufacturers face today, but also provide valuable insight on measures that may be taken to protect these companies from cyber threats and associated losses. To register, please click here.

11th Annual King & Spalding Medical Device Summit – Save the Date – King & Spalding, in conjunction with FDANews, will host the 11th Annual Medical Device Summit on September 6, 2018, in Chicago. Registration opens in June. Subjects will include regulatory, reimbursement, enforcement, compliance, commercial, litigation, cybersecurity and other important topics for medical device manufacturers in the coming year. For more information please click here.