from the United States District Court for the Northern
District of Texas
KING, HIGGINSON, and COSTA, Circuit Judges.
COSTA, CIRCUIT JUDGE.
incentivizes services, not results. Its fee-for-service model
risks not only that beneficiaries may receive treatment they
do not need, but also that they may miss out on less
expensive treatment that might help. See Medicare
Payment Advisory Comm'n, Report to the Congress:
Reforming the Delivery System 7 (June 2008). To test whether
other approaches could be more efficient, Congress authorizes
"experiments and demonstration projects" deviating
from the ordinary Medicare reimbursement rules. 42 U.S.C.
§ 1395b-1. This case arises from one such demonstration
project, with a twist: Texas Tech Physicians Associates could
keep the additional fees it received for implementing the
project only if its care management model achieved cost
savings. The government says Texas Tech failed, and so
demands return of roughly $8 million in fees. Texas Tech
resists that demand.
the alternative payment models the Department of Health and
Human Services may explore is whether "payments for
services other than those for which payment may"
ordinarily be made might reduce costs and improve
"utilization of services." 42 U.S.C. §
1395b-1(a)(1)(B). Using that authorization, the Center for
Medicare and Medicaid Services (CMS, the agency within HHS
that administers Medicare) solicited proposals for a
"Care Management for High-Cost Beneficiaries
Demonstration." CMS was looking for projects to test
whether "intensive management" of patients and
coordination between providers might improve care and reduce
costs for Medicare beneficiaries with substantial medical
needs. On top of the normal fees for services, participating
programs could earn monthly fees contingent on achieving cost
savings of 5%. These extra fees would count as costs.
Tech Physicians Associates-together with Texas Tech
University Health Sciences Center and Trailblazer Health
Enterprises-submitted a proposal. The project would employ a
"system of telephone contacts, letters, site visits and
physician contacts" to help manage and coordinate care
for high-risk beneficiaries treated at Texas Tech's
facilities. Interventions would range from home safety
assessments to support groups, depending on patients'
risk levels. The application indicated it expected to achieve
Medicare cost savings of up to 25%.
took Texas Tech up on its proposal, and the parties signed a
"demonstration agreement" in January 2006. Texas
Tech agreed to implement the project "as proposed in the
demonstration application." In exchange, it would
receive a monthly management fee of $117 per participating
beneficiary. And as required by the solicitation, it agreed
to be responsible for failure to meet the 5% net cost savings
figure, up to the amount it would receive in management fees.
difficulty-then and now-was selecting an adequate control
group. The control group was important because cost savings
would be determined by comparing the costs of patients in the
control group with those of Texas Tech's participating
patients, referred to as the intervention group. The
demonstration agreement did not itself identify a control
group. Instead, CMS would "contract with an independent
evaluator" to "assist CMS in designing features for
a suitable comparison group." After the contractor
proposed a methodology for matching a control group to the
intervention group, Texas Tech would have "the
opportunity to review and agree" before beginning the
on a control group proved something of a sticking point.
Following an initial proposal from a contractor hired by CMS,
RTI International, Texas Tech raised various concerns about
the populations from which the control group would be drawn.
RTI responded with changes to its initial approach.
months of back-and-forth, RTI sent an April 2006 memo
summarizing a "physician group practice-based"
approach. RTI used a "loyalty algorithm" to
identify patients whose loyalty to a practice was similar to
that of Texas Tech's patients. Those beneficiaries would
be eligible for inclusion in the control group if they were
within the 48-county area served by Texas Tech and had high
Medicare costs or serious diseases. RTI would then randomly
assign eligible beneficiaries to the control group such that,
according to historical cost data, it was made up of
low-cost, medium-cost, and high-cost patients in percentages
nearly identical to Texas Tech's patient population.
Tech reviewed and accepted the April 2006 methodology and
began enrolling participants that month.
trouble began less than a year later. In February 2007,
Actuarial Research Corporation (another CMS contractor)
released a report on the first six months of Texas Tech's
project. After adjusting for baseline cost differences, the
intervention group's monthly per-member costs were 7%
higher than the control group's. Texas Tech chalked the
cost differences up to inconsistencies between the groups. It
pointed, for instance, to two features of the intervention
group that it believed explained its higher costs: more
deaths and more patients residing in nursing homes. In light
of those differences, Texas Tech asked that the control group
be adjusted. But CMS declined; it said doing so was "not
feasible" and its investigation of disparities between
the groups did not reveal "any reasonable adjustments
that could produce a match . . . that mitigated
Tech then terminated the program effective July 31, 2007. The
demonstration agreement permitted early termination, in which
event it required a prompt "final reconciliation."
Research Corporation issued a reconciliation report a year
later. It concluded that (1) Texas Tech had received $7.99
million in administrative fees; (2) Texas Tech's savings
guarantee required just over $10 million in net savings-$2.05
million in cost reductions plus the $7.99 million in fees; and (3)
the intervention group's Medicare costs were $6.79
million higher than the control group's. This meant a
"savings shortfall" of $16.79 million, exceeding
the contingent monthly fees Texas Tech had received and
requiring their return in full.
Unhappy with that result, Texas Tech hired its own consultant
to investigate disparities between the intervention and
control groups. Its report raised concerns about whether the
control group's historical cost trends matched the
intervention group's, and whether differences in death
rates made the groups a poor match. CMS asked RTI to look
into those concerns, but RTI concluded that the differences
between the groups "cannot account for the estimated
Texas Tech intervention effect of higher, not lower, cost
sent a letter to Texas Tech in March 2009 requesting return
of the $7.99 million. Texas Tech demurred. Four years passed
before CMS sent Texas Tech another letter in September 2013,
renewing its demand that Texas Tech return the money. That
letter said it would represent CMS's "final
decision" unless Texas Tech appealed to HHS's
Departmental Appeals Board.
Tech did appeal to the Board, only to promptly ask for
dismissal of its appeal. It argued that the demonstration
agreement was a procurement contract and thus governed by the
Contract Disputes Act, 41 U.S.C. §§ 7101- 09, which
would mean the Board was not the proper forum for resolving
this dispute. It also argued that the Act's six-year
statute of limitations barred CMS's delayed attempt to
collect the debt. The Board denied Texas Tech's motion to
dismiss, holding that the demonstration agreement was a grant
agreement rather than a procurement contract.
merits appeal that followed, Texas Tech raised a variety of
contract theories to avoid CMS's demand for repayment,
including three alleged breaches of the agreement as well as
common law defenses like mistake and impossibility. In a
thorough opinion, the Board rejected those arguments in part
because it determined that "[c]ommon law contract
theories are inapplicable" to grant agreements. In light
of this view, whether CMS breached the agreement mattered
only insofar as the demonstration agreement conditioned Texas
Tech's repayment obligation on CMS's performance. And
in addition to finding that ...