## Facts

- The Medicare Act created Medicare, and CMS administered the program, including Medicare Part D prescription drug coverage delivered through private plan sponsors.
- In 2006, CMS awarded Fox Insurance Company, Inc. (Fox) a contract to operate Medicare Part D prescription drug plans; CMS renewed the contract multiple times.
- In 2010, CMS began receiving complaints that Fox was improperly delaying or denying access to medications for serious conditions, including cancer, seizure disorders, and HIV.
- In February 2010, CMS contacted Fox about these complaints; Fox responded that a system error caused the problems and claimed it had been corrected.
- After additional review, CMS imposed intermediate restrictions, temporarily suspending Fox’s ability to market its plan and enroll new beneficiaries.
- In early March 2010, CMS conducted a three-day on-site audit of Fox’s operations.
- The audit found that Fox improperly denied coverage for critical drugs and that beneficiaries were forced to forego or postpone life-saving treatments, including chemotherapy.
- CMS also found that Fox required beneficiaries to undergo invasive medical procedures before it would cover certain medications.
- Fox’s compliance officer admitted that Fox lacked compliance plans or procedures.
- On March 8, 2010, Fox submitted a letter describing remedial steps it said it had taken, but CMS concluded that many steps were started only after the audit began and that the problems were not adequately corrected.
- On March 9, 2010, CMS immediately terminated Fox’s Part D contract, finding that delaying termination would pose an imminent and serious risk to enrollees’ health.
- CMS also demanded repayment of a prorated portion of March capitation payments corresponding to the period after termination.
- Fox challenged the termination and repayment through administrative review within HHS and lost.
- Fox then filed federal court actions challenging the termination and the recoupment; the district court ruled for CMS, and Fox appealed. The Ninth Circuit consolidated the appeals.

## Issues

1. Whether CMS had statutory and regulatory authority to immediately terminate Fox’s Medicare Part D contract, without a pre-termination hearing, upon finding an imminent and serious risk to enrollee health.
2. Whether substantial evidence supported CMS’s determination that Fox’s failures created an imminent and serious risk to beneficiary health.
3. Whether Fox had a protected property interest in continued participation as a Part D sponsor (or in continued receipt of capitation payments) such that due process required a pre-termination hearing.
4. Whether CMS could require immediate, prorated repayment of March capitation funds after a mid-month termination rather than waiting for the annual reconciliation process.
5. Whether Fox showed unlawful disparate treatment based on CMS’s handling of other Part D sponsors.

## Decision

- The Ninth Circuit affirmed the district court’s judgments in favor of CMS.
- CMS acted within its statutory and regulatory authority in immediately terminating Fox’s Part D contract after finding an imminent and serious risk to enrollee health.
- The administrative record contained substantial evidence that Fox’s drug coverage failures and lack of an effective compliance function threatened beneficiary health, including delays and denials involving cancer, seizure, and HIV medications.
- The court rejected Fox’s due process challenge, concluding that the urgent governmental interest in protecting beneficiaries permitted immediate action with post-termination administrative review.
- CMS also acted within its authority by ordering immediate, prorated recoupment of capitation payments for the portion of March after termination.
- Fox’s claims of inconsistent treatment compared to other sponsors did not justify overturning CMS’s termination decision or recoupment order.

## Legal Principles

- CMS may immediately terminate a Medicare Part D sponsor contract when it determines the sponsor’s noncompliance poses an imminent and serious risk to the health of enrolled beneficiaries.
- In reviewing the agency’s action, courts assess whether the agency’s risk determination is supported by substantial evidence in the administrative record.
- When beneficiary health is at immediate risk, due process may be satisfied by prompt post-deprivation administrative review rather than a pre-termination evidentiary hearing.
- Under applicable Part D payment rules, CMS may recover prorated capitation payments for the portion of a month following a mid-month contract termination, even though Part D also uses annual reconciliation mechanisms for other payment adjustments.
- Allegations that an agency treated other regulated entities differently do not, without a sufficient showing of unlawful agency action, invalidate an otherwise authorized termination based on the record in the case.

## Conclusion

The Ninth Circuit upheld CMS’s immediate termination of Fox’s Medicare Part D contract after CMS found that Fox’s coverage denials and delays for serious-condition medications, together with the absence of effective compliance procedures, posed an imminent and serious risk to enrollees’ health; the court also upheld CMS’s authority to demand immediate, prorated repayment of capitation funds for the remainder of the month following the mid-month termination.


Fox Insurance Co. v. Centers for Medicare and Medicaid Services, 715 F.3d 1211 (2013)