Texas Physician Group Sues HHS to Block $8M Refund Demand

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By Matthew Loughran

Feb. 22 — A Texas physicians' group that participated in a Medicare demonstration project sued the Department of Health and Human Services Feb. 19 to keep about $8 million in management fees it had received as part of the project.

Texas Tech Physicians Associates challenged the way the Centers for Medicare & Medicaid Services administered its portion of the Care Management for High Cost Beneficiaries Demonstration project. They claimed that CMS's failure to abide by the terms of the grant precludes the agency from requesting the refund of the management fees.

The demo was established in 2004 as a way to study different approaches to improve the quality of life of Medicare beneficiaries with high medical expenses while reducing program and beneficiary costs.

The main issue revolves around whether the group's participation in the program constituted a government procurement contract that would make standard contract remedies available to Texas Tech for its allegations that the CMS breached the participation agreement.

Marshall J. Doke Jr. of Gardere Wynne Sewell LLP in Dallas, who filed the complaint on behalf of Texas Tech, told Bloomberg BNA that the agreement was a procurement contract which the government breached, with the government demanding the return of the $8 million in management fees that had been paid to the group by the time that it had withdrawn from the project.

“The whole point of the project was to lower the costs associated with high-cost Medicare beneficiaries, which would be for the government's benefit,” Doke said.

Medicare Savings Not Realized

In response to the CMS's solicitation for the project, Texas Tech and Trailblazer Health Enterprises LLC—a subsidiary of BlueCross BlueShield of South Carolina, Inc. and a Medicare contractor—proposed Texas Senior Trails, a project that would use multidisciplinary care managers to improve physician-patient relationships and coordinate patient care for high-cost Medicare beneficiaries. The goal of the demo was to reduce emergency room visits and hospitalizations and encourage and enable the beneficiaries to take an active role in managing their illnesses .

The project was required to produce 5 percent savings over three years from April 2006 for the costs of a selected group of beneficiaries when compared with the costs of a group of nonparticipating beneficiaries. As part of the proposal, Texas Tech was entitled to management fees, which would be refundable to the CMS to cover any savings that weren't realized.

Texas Tech withdrew from the project in July 2007, after multiple disputes with the CMS over the composition of the comparison group, the complaint said. At the outset of the project, the comparator group had Medicare costs more than 5 percent lower than the costs for the participating beneficiaries, the complaint said.

Despite this information, Texas Tech alleged, the CMS found the project had actually resulted in a 14 percent increase in Medicare costs for the participating beneficiaries and demanded the return of all of the management fees paid to that point.

Texas Tech objected, claiming that the agreement was the equivalent of a procurement contract, which the CMS had breached by not using a fully comparable group of beneficiaries to measure the savings.

The HHS Departmental Appeals Board ruled in favor of the CMS, finding the project was a grant to Texas Tech and not subject to common law contract theories. As a result, the board determined that Texas Tech must repay all of the management fees.

Texas Tech now seeks review by the U.S. District Court for the Northern District of Texas, arguing again that the project was a procurement contract that was breached by the CMS.

The complaint was filed by Doke, Joanne Early, Stacy Obenhaus and Sadie Butler of Gardere Wynne Sewell LLP in Dallas.

To contact the reporter on this story: Matthew Loughran in Washington at mloughran@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com