Appalachian Regional Healthcare, Inc. v. Coventry Health & Life Insurance Co.

214 F. Supp. 3d 606, 2016 U.S. Dist. LEXIS 135566, 2016 WL 5796866
CourtDistrict Court, E.D. Kentucky
DecidedSeptember 30, 2016
DocketCIVIL ACTION NO. 5:12-114-KKC
StatusPublished
Cited by4 cases

This text of 214 F. Supp. 3d 606 (Appalachian Regional Healthcare, Inc. v. Coventry Health & Life Insurance Co.) is published on Counsel Stack Legal Research, covering District Court, E.D. Kentucky primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Appalachian Regional Healthcare, Inc. v. Coventry Health & Life Insurance Co., 214 F. Supp. 3d 606, 2016 U.S. Dist. LEXIS 135566, 2016 WL 5796866 (E.D. Ky. 2016).

Opinion

OPINION AND ORDER

KAREN K. CALDWELL, CHIEF JUDGE

This matter is before the Court on the motions for summary judgment (DE 280) filed by defendants Commonwealth of Kentucky, Cabinet for Health and Family Services and Audrey Haynes in her official capacity as Cabinet Secretary (collectively, the “Cabinet”) and on the motion for summary judgment filed by the plaintiffs. (DE 279).

I. Background

The plaintiffs — referred to collectively as Appalachian Regional — provide healthcare in Kentucky. With their complaint, they challenge certain actions by the state and federal governments and a private managed care organization in the administration of Kentucky’s Medicaid program.

The purpose of that program is to provide government funding for medical care of individuals who cannot afford to pay for that care on their own. Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 275, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006). Through the program, the federal government provides funds to help states deliver healthcare to their needy citizens. Wilder v. Va. Hosp. Ass’n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990).

The Department of Health and Human Services is the federal agency that administers the program. Ahlborn, 547 U.S. at 275, 126 S.Ct. 1752. It does so through the Centers for Medicare and Medicaid Ser[608]*608vices (CMS). Id. The Court will refer to the federal department and CMS collectively as CMS in this opinion. The Kentucky Cabinet for Health and Family Services is the state agency that administers Kentucky’s Medicaid program. KRS §§ 194A.010(1), 194A.030(2). CMS and the Cabinet are both defendants in this action.

To qualify for federal financial assistance to administer their Medicaid programs, states must comply with certain federal requirements. Va. Hosp. Ass’n, 496 U.S. at 502, 110 S.Ct. 2510. For example, the state must establish a plan for reimbursing healthcare providers for the medical services they provide to needy citizens. Id.

Prior to November 1, 2011, the Kentucky state cabinet directly reimbursed doctors and hospitals for the services they provided to Medicaid recipients pursuant to a fee schedule set by the state. This is known as a fee-for-service system. See Appalachian Reg’l Healthcare, Inc. v. Coventry Health and Life Ins. Co., 714 F.3d 424, 426 (6th Cir. 2013). In 2011, however, CMS approved Kentucky’s application for a waiver that permits the state to administer its Medicaid program as a managed-care program instead of reimbursing providers under the traditional fee-for-service model. (DE 274-2, Glaze Dec. ¶¶ 5, 6.) This was done in an effort to control “ballooning Medicaid costs and resulting pressures on the state’s budget.” Appalachian Reg’l, 714 F.3d at 426.

Under a managed-care program, the Cabinet no longer directly reimburses doctors and hospitals for the healthcare services they provide. Instead, the Cabinet now pays a group of third-party administrators called managed care organizations (MCOs). Appalachian Reg’l Healthcare, Inc. v. Coventry Health and Life Ins. Co., 5:12-CV-114, 2012 WL 2359439, at *1 (E.D. Ky. June 20, 2012). The state awards contracts to certain MCOs, which are charged with managing healthcare services for Medicaid beneficiaries who sign up to become “members” of one of the MCOs. Id.

The Cabinet pays each MCO a flat monthly fee — called a capitation payment — for the healthcare of each of the MCO’s members who is a Medicaid recipient. Id. The capitation payment is a set fee that the Cabinet pays for each MCO member, whether or not the member actually receives any health services that month. 42 C.F.R. § 438.2. The MCO then pays the healthcare providers for the healthcare services actually rendered to its members. “So the MCO bears the risk that the costs of care may exceed the capitation payment. But on the other side, it stands to profit if beneficiaries use fewer services.” Appalachian Reg’l, 714 F.3d at 426.

The state converted to the managed-care model in order to “improve healthcare access and quality by eliminating unnecessary care, enhancing coordination among providers, emphasizing preventative care, and promoting healthy lifestyles.” Id. The state also believed that the conversion would save it money. Id.

The Cabinet initially awarded contracts to three MCOs: Coventry Health and Life Insurance Co., Kentucky Spirit Health Plan, Inc., and WellCare of Kentucky, Inc. Appalachian Reg’l, 714 F.3d at 426. The MCOs were charged with administering healthcare in seven of the state’s eight Medicaid regions. One of those regions is Region 8 which is made up of 19 counties in eastern and southeastern Kentucky that “are among the most economically depressed, underserved, and medically needy in the Commonwealth.” Id. at 426-27.

As part of the waiver approval, CMS must approve both the state’s contracts with the MCOs and the capitation payments to be paid to the MCOs. 42 C.F.R. §§ 438.6(a),(c), 438.806(c). The capitation [609]*609payments are set forth in the contracts between the Cabinet and each MCO. CMS reviewed the contracts for compliance with the Medicaid Act and the applicable regulations. 42 U.S.C. § 1396b(m); 42 C.F.R. § 438.806. CMS approved each of the contracts, including the designated capitation rates, for the period of November 1, 2011 to June 30, 2014. (DE 135-3, CMS Letter Oct. 28, 2011; DE 274-2, Glaze Decl. ¶¶ 7-12.) These initial MCO contracts expired on June 30, 2014. (DE 274-2, Glaze Decl. ¶13.)

The MCOs, in turn, contracted with healthcare providers who make up each MCO’s healthcare-provider “network.” Appalachian Reg’l, 2012 WL 2359439, at *1. Each MCO’s network must meet certain state and federal standards. These “so-called network-adequacy requirements ... obligate an MCO to maintain a provider network that guarantees certain services are accessible to its members within specified times or distances from their homes.” Appalachian Reg’l, 714 F.3d at 427.

For healthcare services rendered to them members, the MCOs pay healthcare providers who are in their network the amount set forth in the contracts between the parties. (DE 278-1, Mem. at 8.) Coventry entered into a temporary agreement with Appalachian Regional, which made Appalachian Regional a provider in Coventry’s network. Id. The agreement provided that Coventry would pay 107.5 percent of the Medicaid rate for inpatient services. (DE 278-19, Agreement, Ex. A.)

For healthcare services rendered to an MCO’s members by healthcare providers who are not in their network — out-of-network providers — the amounts paid to providers are governed by other guidelines.

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214 F. Supp. 3d 606, 2016 U.S. Dist. LEXIS 135566, 2016 WL 5796866, Counsel Stack Legal Research, https://law.counselstack.com/opinion/appalachian-regional-healthcare-inc-v-coventry-health-life-insurance-kyed-2016.