LOCKE LORD LLP€¦ · 09/01/2017 · CASE NO. 2:15-cv-1113 ODM-FFM NOTICE OF MOTION AND PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT; MEMORANDUM OF POINTS AND AUTHORITIES IN

Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT

LOCKE LORD LLPKelly S. Biggins (SBN: 252515)[email protected] South Grand Avenue, Suite 2600Los Angeles, California 90071Telephone: (213) 485-1500Fax: (213) 485-1200

Steven T. Whitmer (pro hac vice)[email protected] L. Young (pro hac vice)[email protected] South Wacker DriveChicago, Illinois 60606Telephone: (312) 443-0254Fax: (312) 896-6254

Attorneys for PlaintiffCalifornia Insurance Guarantee Association

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CALIFORNIA INSURANCEGUARANTEE ASSOCIATION,

Plaintiff,

vs.

SYLVIA MATHEWS BURWELL, in herofficial capacity as Secretary of the UnitedStates Department of Health & HumanServices; UNITED STATESDEPARTMENT OF HEALTH & HUMANSERVICES; and CENTER FORMEDICARE & MEDICAID SERVICES,

Defendants.

)))))))))))))))))))))

CASE NO. 2:15-cv-1113 ODM-FFM

NOTICE OF MOTION ANDPLAINTIFF’S MOTION FORPARTIAL SUMMARYJUDGMENT; MEMORANDUM OFPOINTS AND AUTHORITIES INSUPPORT THEREOF

Date: August 1, 2016Time: 1:30 pmCourtroom: 11Judge: Hon. Otis D. Wright IIPretrial Conference: Nov. 14, 2016Trial: December 6, 2016

Case 2:15-cv-01113-ODW-FFM Document 68 Filed 06/29/16 Page 1 of 24 Page ID #:823

Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2


PLEASE TAKE NOTICE THAT, on August 1, 2016 at 1:30 p.m., or as soon

thereafter as may be heard by the above-entitled Court, located at 312 N. Spring

Street, Courtroom 11, Los Angeles, California, Plaintiff CALIFORNIA INSURANCE

GUARANTEE ASSOCIATION (“CIGA”) will present this motion seeking partial

summary judgment against Defendants SYLVIA MATHEWS BURWELL, in her

official capacity as Secretary of the United States Department of Health & Human

Services, UNITED STATES DEPARTMENT OF HEALTH & HUMAN SERVICES,

and CENTER FOR MEDICARE & MEDICAID SERVICES (“Defendants”).

Defendants have demanded that CIGA reimburse them for certain conditional

payments they made under the Medicare Secondary Payer Act (“MSP”) totaling

$308,401. Through this motion, CIGA seeks a ruling that it is not responsible for

$119,122 of those conditional payments. The undisputed facts show that these

conditional payments include charges that are not covered by any workers

compensation policy. As such, the conditional payments may not be recovered under

the MSP. CIGA therefore respectfully requests that the Court enter partial summary

judgment in its favor declaring:

1. Defendants’ demand for payment of the $119,122 in conditional

payments is arbitrary, capricious, an abuse of discretion and not in accordance of law.

Thus, the demand violates Section 706 of the Administrative Procedures Act (“APA”)

and must be set aside by this Court.

2. Based on the above, CIGA has no obligation to reimburse Defendants for

the $119,122 of conditional payments.

3. Based on the above, Defendants are permanently enjoined from enforcing

the MSP provisions against CIGA with respect to claims for reimbursement of

conditional payments that are not covered by a workers compensation policy.

This motion is based on the following memorandum of points and authorities,

the accompanying statement of uncontroverted facts, the Declarations of Julie L.

Young and Moe Azaran, the request for judicial notice, and the evidence and


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3


authorities cited therein. This motion is further made following conference of counsel

for the parties pursuant to Local Rule 7-3 on June 23, 2016.

Dated: June 29, 2016 Respectfully submitted

LOCKE LORD LLP

By: /s/ Kelly S. BigginsSteven T. WhitmerJulie L. YoungKelly S. Biggins

Attorneys for Plaintiff, CaliforniaInsurance Guarantee Association


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

i


TABLE OF CONTENTS

Page(s)

MEMORANDUM OF POINTS AND AUTHORITIES................................................ 1

I. BACKGROUND FACTS .................................................................................... 2

A. CIGA. ......................................................................................................... 2

B. Defendants.................................................................................................. 3

C. The Conditional Payments At Issue........................................................... 3

D. Defendants’ Internal Practice..................................................................... 5

E. The MSP Manual. ...................................................................................... 6

II. SUMMARY JUDGMENT STANDARD............................................................ 7

III. ARGUMENT........................................................................................................ 8

A. Defendants May Only Recover Those Conditional Payments Covered By

The Workers Compensation Policies......................................................... 9

B. Defendants Concede That The Conditional Payments Include Uncovered

Charges..................................................................................................... 10

C. Defendants Have Not Met Their Burden To Justify Their Demands. ..... 11

D. The Court Should Reject Defendants’ Argument Based On The

Definition Of “Item Or Service.”............................................................ 12

E. The Court Should Consider All Evidence Presented By CIGA. ............. 15

IV. CONCLUSION .................................................................................................. 16


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ii


TABLE OF AUTHORITIES

Page(s)

Federal Cases

Alvarado Cmty. Hosp. v. Shalala,155 F.3d 1115 (9th Cir. 1998) ................................................................................. 15

Caldera v. Ins. Co. of the State of Pa.,716 F.3d 861 (5th Cir. 2013) ................................................................................... 10

Christensen v. Harris Cty.,529 U.S. 576 (2000)................................................................................................. 14

Clark Reg’l Med. Ctr. v. U.S. Dep’t of Health & Human Servs.,314 F.3d 241 (6th Cir. 2002) ................................................................................... 14

Ctr. for Biological Diversity v. U.S. Fish & Wildlife Serv.,807 F.3d 1031 (9th Cir. 2015) ................................................................................... 8

Decker v. Northwest Envtl. Def. Cent.,133 S. Ct. 1326 (2013)............................................................................................. 13

Estate of Urso v. Thompson,309 F. Supp. 2d 253 (D. Conn. 2004) ...........................................................2, 11, 12

Lands Council v. Powell,395 F.3d 1019 (9th Cir. 2005) ............................................................................. 8, 16

Newton-Nations v. Betlach,660 F.3d 370 (9th Cir. 2011) ..................................................................................... 8

Shalala v. Guernsey Mem’l Hosp.,514 U.S. 87 (1995)................................................................................................... 14

Swoger v. Rare Coin Wholesalers,803 F.3d 1045 (9th Cir. 2015) ................................................................................... 7

United States v. Iron Mountain Mines, Inc.,987 F. Supp. 1250 (E.D. Cal. 1997) ........................................................................ 16

Valentini v. Shinseki,860 F. Supp. 2d 1079 (C.D. Cal. 2012)..................................................................... 8


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

iii


Wall v. Leavitt,No. S-05-2553, 2008 WL 4737164 (E.D. Cal. Oct. 29, 2008)..........................12, 14

Young v. Sec’y of Health & Human Servs.,No. 4:11CV002-B-A, 2012 WL 379510 (N.D. Miss. Feb. 3, 2012).............1, 11, 12

State Cases

Fireman’s Fund Ins. Co. v. Workers’ Comp. Appeals Bd.,116 Cal. Rptr. 3d 658 (Cal. Ct. App. 2010)............................................................... 2

In re Am. Reserve Ins. Co.,188 Cal. Rptr. 346 (Cal. Ct. App. 1983).................................................................... 2

Isaacson v. Cal. Ins. Guar. Ass’n,44 Cal. 3d 775 (1988) ................................................................................................ 2

Federal Regulations

42 C.F.R. § 405.1062(a) (2016).................................................................................... 15

42 C.F.R. § 1003.101 (2016) ........................................................................................ 12

Federal Rules

Fed. R. Civ. P. 56............................................................................................................ 1

Fed. R. Civ. P. 56(a) ....................................................................................................... 7

State Statutes

Cal. Ins. Code § 1063 et seq. (West 2016) ..................................................................... 2

Cal. Ins. Code § 1063.1(c)(1) ..................................................................................... 3, 9

Cal. Ins. Code § 1063.5................................................................................................... 2

Cal. Ins. Code § 1063.14................................................................................................. 2

Federal Statutes

5 U.S.C.§ 706 (Administrative Procedures Act) ............................................2, 8, 10, 12

5 U.S.C. § 706(2)(A) (2016)........................................................................................... 8

42 U.S.C. § 1395y(b) ...................................................................................................... 3


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

iv


42 U.S.C. § 1395y(b)(2)(A)(ii) (2016) .................................................................1, 9, 13

42 U.S.C. § 1395y(b)(2)(B)(i) ........................................................................................ 9

42 U.S.C. § 1395y(b)(2)(B)(ii) ..................................................................................... 12


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1


MEMORANDUM OF POINTS AND AUTHORITIES

CIGA submits this motion for partial summary judgment pursuant to Federal

Rule of Civil Procedure 56 and Local Rules 56-1 through 56-3.

Through this motion, CIGA seeks a summary judgment ruling in its favor

because it is not responsible to reimburse Defendants for $119,122 of conditional

payments they made under the MSP. The undisputed facts show that these

conditional payments include charges for medical treatment that is not covered by any

underlying workers compensation policy. As such, Defendants’ demands are

improper under the MSP, which allows for recovery here only when the conditional

payments are covered by such a policy. See, e.g., 42 U.S.C. § 1395y(b)(2)(A)(ii)

(2016) (providing that a workers compensation carrier is “primary” under MSP only if

“payment has been made or can reasonably be expected to be made under a

workmen’s compensation law or plan”).

The undisputed facts show that Defendants’ improper demands to CIGA were

no accident. Instead, Defendants’ sworn testimony confirms that, for years, they have

implemented an internal practice to intentionally bill CIGA for these conditional

payments, knowing they contained charges that were not covered by an insurance

policy. Under this internal practice, if any part of a conditional payment is covered by

an insurance policy, Defendants admit they always bill CIGA for the full amount of

the conditional payment, including any charges that are not covered. This internal

practice continues to this day and systematically overcharges CIGA in violation of the

MSP provision cited above. The internal practice also violates the MSP manual

published by Defendants, which provides for Defendants, and not CIGA, to pay the

uncovered charges.

Under established law, “Medicare bears the ultimate burden of justifying the

amounts it seeks in reimbursement.” Young v. Sec’y of Health & Human Servs., No.

4:11CV002-B-A, 2012 WL 379510, at *3 (N.D. Miss. Feb. 3, 2012) (citation

omitted). Indeed, “it is only fair and just that Medicare bear the ultimate burden of


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2


justifying the amounts it seeks in reimbursement.” Estate of Urso v. Thompson, 309

F. Supp. 2d 253, 260 (D. Conn. 2004). For all of the above reasons, Defendants have

not met this burden. Instead, Defendants’ demands for the $119,122 in conditional

payments are arbitrary, capricious, and contrary to the governing law, and therefore

must be set aside under Section 706 of the Administrative Procedures Act. In support

thereof, CIGA states as follows.

I. BACKGROUND FACTS

CIGA’s motion for partial summary judgment is based on the following

uncontested facts.

A. CIGA.

CIGA is a statutory entity that is triggered when an insurance company is

declared insolvent, subject to the terms and conditions of CIGA’s authorizing statute,

Cal. Ins. Code § 1063 et seq. (West 2016). CIGA’s statutory mission is to provide

“insureds with a limited form of protection from financial loss occasioned by the

insolvency of their insurer.” Isaacson v. Cal. Ins. Guar. Ass’n, 44 Cal. 3d 775, 786–

87 (1988). In this respect, CIGA was “created as a last resort of limited financial

protection for insureds and the public” in the event that an insurance company is

declared insolvent. Fireman’s Fund Ins. Co. v. Workers’ Comp. Appeals Bd., 116

Cal. Rptr. 3d 658, 666 (Cal. Ct. App. 2010).

The costs of CIGA are ultimately passed along to insurance consumers. CIGA

issues assessments and collects payments from its member insurers to fund its

statutory duties. Cal. Ins. Code § 1063.5. In turn, the member insurers recoup the

assessments by way of a surcharge on premiums charged to California policyholders.

Cal. Ins. Code § 1063.14. “Thus the cost is ultimately borne by the insurance-buying

public in California.” In re Am. Reserve Ins. Co., 188 Cal. Rptr. 346, 350 (Cal. Ct.

App. 1983). In order to maintain the cost of insurance at an accessible level, the

California Insurance Code caps the assessments that may be collected. Cal. Ins. Code


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3


§ 1063.5 (“premium charged to any member insurer . . . shall not be more than 2

percent of the net direct written premium”).

CIGA’s statute contains numerous provisions that impose reasonable limits on

CIGA’s benefits in order to conserve its limited resources. CIGA is only responsible

to pay “covered claims,” as defined by its statute. There is a fundamental requirement

to qualify as a “covered claim”—the claim must arise under an insurance policy

issued by an insolvent insurer. Cal. Ins. Code § 1063.1(c)(1) (defining “covered

claims” to include only those “within the coverage of an insurance policy of the

insolvent insurer . . .”).

B. Defendants.

Defendants are responsible for administering the federal Medicare program,

which provides certain health benefits. Under the Medicare Secondary Payer Act

(“MSP”), in some instances, Defendants are permitted to make “conditional

payments” to medical providers and to then seek reimbursement from certain

statutorily-defined “primary payers,” including workers compensation insurance

companies. 42 U.S.C. § 1395y(b).

C. The Conditional Payments At Issue.

Leading up to this lawsuit, Defendants demanded that CIGA reimburse them

for $308,401 of conditional payments. (SUF ¶¶ 1-4.)1 CIGA objected to Defendants’

demand on multiple grounds. One of those grounds is relevant to this motion—CIGA

refused to pay Defendants for $119,122 of the conditional payments because they

included charges that were not covered by the underlying workers compensation

policies. CIGA has put three particular workers compensation claims at issue, where

Defendants seek to recover conditional payments that include charges with no

conceivable relevance to the injuries covered under the policies:

1 All references to “SUF” are to CIGA’s Statement of Uncontroverted Facts submitted herewith.


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4


• Claim 1: The policy provides coverage for the claimant’s work injuries

arising from a slip and fall accident. (Id. at ¶ 5.) Defendants nevertheless demand

that CIGA reimburse them for conditional payments including charges for the

claimant’s diabetes, insulin use, and bereavement. (Id. at ¶¶ 8, 10.) It is undisputed

that these and other charges have no relationship to the covered slip and fall accident.

(Id. at ¶¶ 6-7, 9.) Yet Defendants seek to recover $1,026 in conditional payments

from CIGA that includes charges for the unrelated treatment. (Id. at ¶ 11.)

• Claim 2: The policy provides coverage for the claimant’s work injuries

arising from stepping in a hole. (Id. at ¶ 14.) Defendants nevertheless demand that

CIGA reimburse them for conditional payments including charges for the claimant’s

tobacco use, bronchitis, eczema, and hypertension. (Id. at ¶¶ 17-20.) It is undisputed

that these and other charges have no relationship to the covered stepping in a hole

accident. (Id. at ¶¶ 15-16.) Yet Defendants seek to recover $117,454 in conditional

payments from CIGA that includes charges for the unrelated treatment. (Id. at ¶ 21.)

• Claim 3: The policy provides coverage related to the claimant’s asbestos

exposure at work. (Id. at ¶ 24.) Defendants nevertheless demand that CIGA

reimburse them for conditional payments including charges for the claimant’s stomach

ulcer and dizziness. (Id. at ¶¶ 27, 29.) It is undisputed that these and other charges

have no relationship to the covered asbestos injuries. (Id. at ¶¶ 25-26, 28, 30.) Yet

Defendants seek to recover $642 in conditional payments from CIGA that includes

charges for the unrelated treatment. (Id. at ¶ 31.)

Leading up to this lawsuit, CIGA sent letters to Defendants objecting to their

demands for the conditional payments on the above grounds. (Id. at ¶¶ 12, 22, 32.)

CIGA’s letters asserted that CIGA was not responsible for “treatment to non-industrial

medical conditions,” and CIGA specifically identified the particular charges at issue.

(Id. at ¶¶ 13, 23, 33.) Defendants nevertheless persisted in their demands.


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5


D. Defendants’ Internal Practice.

Defendants have not and do not dispute CIGA’s assertion that the conditional

payments include charges for medical treatment that is not covered by the workers

compensation policies. (Id. at ¶¶ 44-49.) Defendants nevertheless intentionally billed

CIGA for these amounts pursuant to an established internal practice. Ian Fraser—the

sole witness Defendants’ identified in this matter—described this practice at his

deposition. Mr. Fraser has been a Health Insurance Specialist with Defendants for

fifteen years, specializing that entire time in issues surrounding the MSP.

As explained by Mr. Fraser, Defendants seek to recover conditional payments

for medical bills that they have already paid. (Id. at ¶¶ 35-37.) Each medical bill lists

diagnosis codes describing the medical treatment provided. (Id. at ¶¶ 41-42.) In many

instances, the medical bills contain a single charge that relates to multiple diagnosis

codes. (Id. at ¶ 43.) In such cases, Defendants determine if any one of the diagnosis

codes is covered by the insurance policy. (Id. at ¶ 44.) If so, Defendants always

charge CIGA for the entire amount of the conditional payment, notwithstanding the

charges for the uncovered treatment. (Id. at ¶¶ 45-49.)

By way of illustration, Defendants paid a medical bill in the amount of $56.15

for Claim 1 on June 19, 2009. (Id. at ¶ 50.) Treatment was provided for two

diagnosis codes—one code related to the claimant’s pre-existing diabetes and one

code related to the claimant’s work accident. (Id.) Defendants demanded that CIGA

pay them the full $56.15 of the conditional payment, even though Defendants concede

that the diabetes treatment is not covered under the workers compensation policy.

(Id.)

In another example, Defendants admit that their internal practice results in

charges to CIGA for medical treatment that is not covered by the workers

compensation policy, including the following example from Mr. Fraser’s deposition:

Q: Now, it’s my understanding that this claim relates

to an accident where a gentleman fell into a hole


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6


and hurt his knee and his hip and his spine. Would

you agree with me that the treatment for tobacco

use would not appear related to that work

injury?

A: I would agree.

Q: All right. And you’d also agree with me that the

conditional payment charged includes the full

amount for that visit to the doctor’s office,

including the treatment for the tobacco use?

A: I would agree.

(Id. at ¶ 51.) In this respect, if any part of a conditional payment is related to a

covered workers compensation injury, Defendants’ practice is to always charge CIGA

the full amount of the conditional payment. (Id. at ¶¶ 46-48.)

Defendants follow the above practice for all conditional payments involving

medical bills with multiple diagnosis codes. As explained by Mr. Fraser, “[t]hat’s

always been the way that we’ve done it” because “part of the claim, you know, at least

in part isn’t our responsibility . . . .” (Id. at ¶ 47.) Defendants make no effort to

segregate out the charges that are and are not covered by the policy, contending that it

would be administratively difficult to do so. (Id. at ¶ 45.) As such, when at least one

diagnosis code is covered by a policy, it is Defendants’ practice to always demand

reimbursement for the entire amount of the conditional payment. (Id. at ¶ 46.)

E. The MSP Manual.

Mr. Fraser admits that Defendants’ billing practice does not comport with their

own manual. Defendants have published a manual on their website called the

“Medicare Secondary Payer, MSP, Manual” (“MSP Manual”). (Id. at ¶ 52.) Mr.

Fraser relies upon the MSP Manual in performing his job duties, and is required to

abide by it. (Id. at ¶¶ 53-54.) The MSP Manual confirms that, when claimants seek

medical treatment for multiple conditions, only some of which are covered by workers


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7


compensation insurance, it is Defendants—and not the primary payers—that assume

responsibility for the non-covered charges.

The MSP Manual states:

If WC does not pay all of the charges because only a

portion of the services is compensable, i.e., the patient

received services for a condition which was not work

related concurrently with services which were work-

related, Medicare benefits may be paid to the extent that

the services are not covered by any other source which is

primary to Medicare.

(Id. at ¶ 55.) Mr. Fraser agrees that the MSP Manual provides for Defendants (and not

CIGA) to bear the payments for these “not covered” services, but testified that he has

had a hard time as a practical matter putting the sentence into effect. (Id. at ¶ 56.) In

fact, in direct contrast to the requirements of the MSP and the MSP Manual, it is

Defendants’ practice to always bill CIGA for the full amount of a conditional

payment, even when it includes charges for concurrent medical treatment that is not

covered by a workers compensation policy. (Id. at ¶ 57.) 2

II. SUMMARY JUDGMENT STANDARD

Under Federal Rule 56(a), “[a] party may move for summary judgment

identifying each claim or defense—or the part of each claim or defense—on which

summary judgment is sought.” Fed. R. Civ. P. 56(a). “A party is entitled to summary

judgment if the ‘movant shows that there is no genuine dispute as to any material fact

and the movant is entitled to judgment as a matter of law.’” Swoger v. Rare Coin

Wholesalers, 803 F.3d 1045, 1047 (9th Cir. 2015).

2 This Court previously recognized that “Fraser appeared to acknowledge that this practice conflictswith the MSP Manual.” (Order 5, ECF No. 61.)


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8


III. ARGUMENT

Based on the undisputed facts, Defendants’ demands for the $119,122 of

conditional payments must be set aside under the APA. Pursuant to Section 706 of

the APA, this Court may “hold unlawful and set aside” any “agency action, findings,

and conclusions found to be -- (A) arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law . . . .” 5 U.S.C. § 706(2)(A) (2016). Under this

section, the Court “may reverse an agency action only if it is contrary to the law or

‘arbitrary and capricious.’” Newton-Nations v. Betlach, 660 F.3d 370, 378 (9th Cir.

2011). An agency action is “arbitrary and capricious” if:

[T]he agency fails to consider an important aspect of a

problem, if the agency offers an explanation for the

decision that is contrary to the evidence, if the agency’s

decision is so implausible that it could not be ascribed to

a difference in view or be the product of agency expertise

or if the agency’s decision is contrary to the governing

law.

Lands Council v. Powell, 395 F.3d 1019, 1026 (9th Cir. 2005) (citation omitted); see

Ctr. for Biological Diversity v. U.S. Fish & Wildlife Serv., 807 F.3d 1031, 1043 (9th

Cir. 2015) (addressing standard).3

Here, the Court should apply Section 706 and set aside Defendants’ demands

for the $119,122 in conditional payments. The demands are arbitrary, capricious, and

contrary to the governing law because (1) under the MSP, Defendants may only

recover conditional payments that are covered by an underlying workers

compensation policy, (2) Defendants concede that the conditional payments at issue

include charges that are not covered by such a policy, (3) Defendants have not met

3 Review under Section 706 of the APA applies only to “final” agency actions for which there is “noother adequate remedy.” Valentini v. Shinseki, 860 F. Supp. 2d 1079, 1097 (C.D. Cal. 2012).Defendants have not disputed that their demands for reimbursement of the conditional payments inthis case constitute final actions that are subject to Section 706 review.


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9


their burden to justify their demand for any portion of the $119,122, (4) the Court

should reject Defendants’ arguments based on the definition of “item or service,” and

(5) all of the evidence presented by CIGA should be considered.

A. Defendants May Only Recover Those Conditional Payments Covered

By The Workers Compensation Policies.

Under the governing law, Defendants may only recover from CIGA for

conditional payments that are covered by the underlying workers compensation

policies. This is true for the following two reasons:

First, under CIGA’s Act, CIGA is only responsible to pay covered claims

arising under the policies of an insolvent insurer. See Cal. Ins. Code § 1063.1(c)(1).

Medical treatment that does not relate to a covered work accident does not arise under

the workers compensation policy of an insolvent insurer. Thus, there can be no

covered claim for such amounts.

Second, under the MSP, Defendants cannot recover conditional payments that

exceed an insurer’s responsibility under the relevant policies. Defendants may seek

reimbursement under the MSP only when there is another “primary payer.” 42 U.S.C.

§ 1395y(b)(2)(B)(i). A workers compensation carrier is a “primary payer” only if

“payment has been made or can reasonably be expected to be made under a

workmen’s compensation law or plan”—here, the workers compensation plans are the

policies issued by the insolvent insurance companies. See 42 U.S.C. §

1395y(b)(2)(A)(ii) (providing that a workers compensation carrier is “primary”);

(Order 2, ECF No. 50) (concluding the workers compensation policies were “primary

plans” under the MSP). No payment can be expected for unrelated treatment that is

not covered by the workers compensation policies.4

4 CIGA previously objected to Defendants’ demands on the grounds that CIGA was not a “primarypayer,” and therefore was not subject to the reimbursement provisions of the MSP. The Court ruledagainst CIGA on this objection through its November 3, 2015 ruling on Defendants’ motion todismiss. (See ECF No. 38.) CIGA respectfully reserves its rights to appeal any portion of theNovember 3rd Order.


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10


It is well established that Defendants cannot use the MSP to expand CIGA’s

obligations under state law or the applicable workers compensation policy. For

example, in Caldera, the Fifth Circuit held that a carrier that is not responsible for

paying a claim under a workers compensation policy cannot be held responsible under

the MSP. Caldera v. Ins. Co. of the State of Pa., 716 F.3d 861, 866-67 (5th Cir. 2013)

(finding MSP does not trump state law requiring claimant to obtain preauthorization

from insurance company before incurring medical expenses). The same is true here.

In sum, Defendants cannot recover from CIGA unless the conditional payments

are covered by a workers compensation policy. And Defendants cannot use the MSP

to expand CIGA’s obligations to provide coverage.

B. Defendants Concede That The Conditional Payments Include

Uncovered Charges.

There is no dispute that the conditional payments that Defendants seek to

recover from CIGA include charges for unrelated medical treatment that is not

covered by the workers compensation policies. Specifically, CIGA has determined

that such charges total $119,122 for the three claims at issue, and Defendants have not

and cannot refute that finding. (SUF ¶¶ 7, 11, 16, 21, 26, 31.)

Instead, Defendants admit that the charges for each of the diagnosis codes

challenged by CIGA are unrelated to the covered work accidents. (Id. at ¶¶ 7, 9, 16,

26, 28, 30.) Defendants nevertheless knowingly charged CIGA for these conditional

payments, pursuant to Defendants’ internal practice. (Id. at ¶ 57.) This practice

systematically overcharges CIGA by always billing for the full amount of a

conditional payment, even when it includes charges for medical treatment that is not

covered by a workers compensation policy. (Id. at ¶¶ 58-66.) Thus, both this practice

and Defendants’ demand for the $119,122 is arbitrary, capricious, and contrary to the

governing law, and therefore must be set aside under Section 706 of the APA.


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11


C. Defendants Have Not Met Their Burden To Justify Their Demands.

Defendants may recover no portion of the $119,122 at issue because they have

made no effort to segregate out the covered and uncovered charges. (Id. at ¶ 45.) In

these circumstances, Defendants have not met their burden to justify their demands.

When seeking to recover conditional payments, “Medicare bears the ultimate

burden of justifying the amounts it seeks in reimbursement.” Young, 2012 WL

379510, at *3 (citation omitted). As explained by one Court, “it is only fair and just

that Medicare bear the ultimate burden of justifying the amounts it seeks in

reimbursement.” Estate of Urso, 309 F. Supp. 2d at 260.

The Urso case is instructive. Urso was injured in a slip and fall accident at a

supermarket. Id. at 255. Thereafter, Defendants made conditional payments for

Urso’s medical treatment. Id. When Urso entered into a settlement with the

supermarket, Defendants contended that the settlement proceeds must be used to

reimburse them for the conditional payments. Id. Urso objected on the grounds that

many of the conditional payments were unrelated to the slip and fall accident. Id. at

259. Like here, Defendants conceded that many of the conditional payments were

unrelated, but took the position that “it was plaintiff’s responsibility to sift through the

medical bills and payments and prove which Medicare payments were unrelated to the

accident and plaintiff failed to do so.” Id. at 260.

The Court disagreed, finding Defendants “bear the ultimate burden of

persuasion on this issue.” Id. The Court recognized that, after the Defendants made

their initial demand, Urso was “in a better position as an initial matter to evaluate the

reimbursement claim and to assess whether a payment made by Medicare was truly

for an item or service that was ultimately paid by a primary plan.” Id. But once Urso

made a “prima facie case” that Defendants’ demand was overinclusive, the burden

shifted back to the Defendants to support their demand, since it was Defendants who

were seeking reimbursement. Id. In this respect, the burden was not on Urso “of

proving a negative.” Id.


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12


In that case, the court found that Urso had made her prima facie case by

identifying several items that on their face “had nothing to do with” the slip and fall

accident, including treatment for diabetes, cardiological services, and hypertension.

Id. The court further found that Defendants had not satisfied their burden to “justify

each payment” as related to the accident. Id.; see Wall v. Leavitt, No. S-05-2553,

2008 WL 4737164, at *15 (E.D. Cal. Oct. 29, 2008) (affirming Urso procedure and

recognizing that it puts “ultimate burden” on Defendants); Young, 2012 WL 379510,

at *3-4 (finding “ALJ erred as a matter of law in placing the burden of proof on

plaintiff”).

Here, as in Urso, CIGA made its prima facie case by identifying specific

charges, based on specific diagnosis codes, that were not related to the covered work

accident. The burden then shifted back to Defendants to justify each of the payments

they are seeking to recover from CIGA. Defendants have made no attempt to do so.

As such, they have not satisfied their burden to establish that CIGA is responsible for

any portion of the $119,122 at issue, and Defendants’ demand for payment of the

$119,122 is therefore arbitrary, capricious, and contrary to the governing law, and

must be set aside under Section 706 of the APA.

D. The Court Should Reject Defendants’ Argument Based On The

Definition Of “Item Or Service.”

Defendants have told CIGA they are charging the full amount of the conditional

payments because each payment represents a single “item or service” for which

Defendants are purportedly entitled to reimbursement under the MSP. 42 U.S.C. §

1395y(b)(2)(B)(ii). For support, Defendants point to regulations defining “item or

service” to include: “(a) Any item, device, medical supply or service provided to a

patient (i) which is listed in an itemized claim for program payment or a request for

payment . . . .” 42 C.F.R. § 1003.101 (2016). The wording of this unremarkable

definition says nothing to support Defendants’ position. And Defendants’ purported

reading of the definition does not square with the MSP, under which CIGA may be


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13


responsible for a conditional payment only if covered by an insurance policy. See,

e.g., 42 U.S.C. § 1395y(b)(2)(A)(ii) (providing that a workers compensation carrier is

a “primary payer” only if “payment has been made or can reasonably be expected to

be made under a workmen’s compensation law or plan”); Decker v. Northwest Envtl.

Def. Cent., 133 S. Ct. 1326, 1334 (2013) (“It is a basic tenet that ‘regulations, in order

to be valid, must be consistent with the statute under which they are promulgated.’”).

Moreover, Defendants have already interpreted the MSP in the exact manner as

CIGA in their MSP Manual. The MSP Manual addresses the precise issues before this

Court, including what happens when there is a single conditional payment that

includes charges for disparate services provided for multiple conditions.

First, the MSP Manual confirms that an “item or service” is not and all or none

proposition, but may be apportioned among Defendants and a “primary payer.” For

example, the MSP Manual defines “primary payer” as follows:

When used in the context in which Medicare is the

secondary payer, any entity that is or was required or

responsible to make payment with respect to an item or

service (or any portion thereof) under a primary plan.

(SUF ¶ 67 (emphasis added).) This language confirms that a primary payer may be

responsible for only a portion of an “item or service,” contrary to Defendants’ position

in this case.

Second, the MSP Manual then goes on to address the precise circumstance

before this Court—when a workers compensation claimant receives concurrent

medical treatment for multiple conditions on the same day, at the same doctor visit. In

those circumstances, the MSP Manual is clear that Defendants retain responsibility for

any portion of the charges that is not covered by the worker compensation policy. The

MSP Manual provides:

If WC does not pay all of the charges because only a

portion of the services is compensable, i.e., the patient


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

14


received services for a condition which was not work

related concurrently with services which were work-

related, Medicare benefits may be paid to the extent that

the services are not covered by any other source which is

primary to Medicare.

(Id. at ¶ 55.) Defendants’ position cannot be squared with the above language, and

Defendants’ deviation from the MSP Manual is inexplicable.

It is true that the MSP Manual “lack[s] the force of law.” Christensen v. Harris

Cty., 529 U.S. 576, 587 (2000). But it is nevertheless a “prototypical example of an

interpretive rule ‘issued by an agency to advise the public of the agency’s construction

of the statutes and rules which it administers.’” Shalala v. Guernsey Mem’l Hosp.,

514 U.S. 87, 99 (1995) (citation omitted) (considering Medicare Provider

Reimbursement Manual (PRM) promulgated by DHHS); Wall, 2008 WL 4737164, at

*14 n.27 (taking judicial notice of MSP Manual). Here, Defendants told the public

that if there was concurrent treatment—some covered and some not—Defendants

would be responsible for the uncovered portion. Defendants should be held to their

word.

Defendants’ violation of the MSP Manual is powerful—if not conclusive—

evidence that Defendants’ demand for the $119,122 in conditional payments is

overreaching. For example, the Sixth Circuit considered DHHS’s exclusion of certain

“swing-beds” from the bed count of a hospital. Clark Reg’l Med. Ctr. v. U.S. Dep’t of

Health & Human Servs., 314 F.3d 241, 244 (6th Cir. 2002). The plaintiffs alleged that

this exclusion was “arbitrary and capricious” because “it did not comport with either

the language of the regulation itself, or the Department’s ‘Provider Reimbursement

Manual [PRM],’ which clarifies how to count beds.” Id. The court agreed, holding

“we find the Department’s own PRM conclusive proof that swing beds . . . are

intended to be counted in the tally” of the hospital’s bed count. Id. at 248. Likewise,


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15


here, the MSP Manual contains “conclusive proof” that Defendants’ actions are

arbitrary and capricious.

Indeed, federal regulations provide that administrative law judges (ALJs) must

give the MSP Manual “substantial deference” when “applicable to a particular case.”

42 C.F.R. § 405.1062(a) (2016) (“ALJs . . . are not bound by . . . CMS program

guidance, such as program memoranda and manual instructions, but will give

substantial deference to these policies if they are applicable to a particular case.”); In

the Case of F.G. (Appellant) MSPRC (Contractor) Claim for Medicare Secondary

Payment (MSP) Recovery, No. M-10-1650, 2010 WL 4782993, at *4 (DHHS Appeals

Bd. Oct. 20, 2010) (finding ALJ “properly deferred” to MSP Manual).

For all of the above reasons, the Court should reject Defendants’ arguments

based on the definition of “item or service.” This definition does not support

Defendants’ position, and Defendants’ reading of the definition is contrary to both the

MSP and Defendants’ own published manual.

E. The Court Should Consider All Evidence Presented By CIGA.

Finally, in evaluating the above issues, this Court should consider all of the

evidence presented by CIGA in support of partial summary judgment, even that

falling outside the administrative record. “A district court may go outside the

administrative record for the purposes of background information or ‘for the limited

purposes of ascertaining whether the agency considered all the relevant factors or fully

explicated its course of conduct or grounds of decision.” Alvarado Cmty. Hosp. v.

Shalala, 155 F.3d 1115, 1124 (9th Cir. 1998). For these reasons, the parties have

already taken discovery outside the administrative record.

Generally, the record may be supplemented in four instances: “(1) if admission

is necessary to determine ‘whether the agency has considered all relevant factors and

has explained its decision,’ (2) if ‘the agency has relied on documents not in the

record,’ (3) ‘when supplementing the record is necessary to explain technical terms or

complex subject matter,’ or (4) ‘when plaintiffs make a showing of agency bad


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

16


faith.’” Lands Council, 395 F.3d at 1030. “These limited exceptions operate to

identify and plug holes in the administrative record.” Id. Here, several of these

exceptions apply to the evidence at issue, including the following:

First, CIGA asks the Court to admit the MSP Manual. Among other things,

admission of the MSP Manual is necessary to show that Defendants have not properly

considered all of the relevant factors—the MSP Manual directly addresses the precise

circumstances at issue, and Defendants deliberately ignored that direction. The MSP

Manual also supplements the record by explaining how the MSP should be correctly

interpreted. The MSP Manual is also relevant to show that Defendants’ internal

practice is not in good faith. See, e.g., United States v. Iron Mountain Mines, Inc.,

987 F. Supp. 1250, 1260-61 (E.D. Cal. 1997) (“An agency acts in bad faith when it

engages in wilful misconduct.”).

Second, CIGA asks the Court to admit the testimony of Defendants’

representative Ian Fraser. Mr. Fraser’s testimony establishes that Defendants did not

consider all relevant factors, including the direction in the MSP Manual. Mr. Fraser

also explains complex subject matter. In addition, Mr. Fraser describes Defendants’

improper internal practices.

Under all of the above standards the Court should consider the MSP Manual

and testimony of Ian Fraser.

IV. CONCLUSION

For all of the above reasons, CIGA respectfully requests that the Court enter

partial summary judgment in its favor in accordance with the attached Proposed

Statement of Decision.

///

///

///

///

///


Loc

ke

Lor

dL

LP

30

0S

ou

thG

ran

dA

ven

ue,

Su

ite

260

0L

os

An

gel

es,

CA

900

71

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

17


Dated: June 29, 2016 Respectfully submitted,

LOCKE LORD LLP

By: /s/ Kelly S. BigginsSteven T. WhitmerJulie L. YoungKelly S. Biggins

Attorneys for Plaintiff, CaliforniaInsurance Guarantee Association


Documents

LOCKE LORD LLP€¦ · 09/01/2017 · CASE NO. 2:15-cv-1113 ODM-FFM NOTICE OF MOTION AND PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT; MEMORANDUM OF POINTS AND AUTHORITIES IN