A Pennsylvania provider is suing a health insurance company for passing on its 2 percent reimbursement cut required by sequestration.
Central Pennsylvania’s Susquehanna Health System is suing American Progressive Life and Health Insurance Company of New York, alleging that the insurer’s 2 percent reimbursement reduction in a Medicare Advantage PPO violated the terms of their contract.
“Rather than pay the contractually required amount, American Progressive has unilaterally withheld payment of 2 percent of the amounts due and owing to Susquehanna, claiming the federal sequestration of 2 percent imposed by the Balanced Budget Act Amendments of 2011 permits it to do so,” wrote lawyers for Susquehanna Health, the parent organization of Williamsport Hospital, two other hospitals and a number of physician groups.
American Progressive’s 2 percent reduction in its Today’s Options Medicare Advantage plan was intended to account for the 2 percent reduction in Medicare rates during 2013, as part of federal sequestration. But Susquehanna Health argues that the sequestration was not meant to be passed from Medicare Advantage plans onto providers in all cases – depending on terms of the initial contracts.
The Centers for Medicare & Medicaid Services “was obligated to reduce the payments it made to MAOs (Medicare Advantage organizations) by the 2 percent sequester, in effect, a premium reduction to MAOs,” lawyers for the health system argued. The sequestration “could not apply to the payments from an MAO to a health care system as that payment was governed exclusively by the contract between the MAO and the system. That is, the sequester could only be taken (or the premium reduction passed along to providers) if the contract permitted the MAO to do so,” they wrote in the lawsuit, filed in Pennsylvania federal court.
It is not clear how many Medicare Advantage plans have passed on the 2 percent sequestration to providers, but it’s at least more than a few, according to the American Hospital Association, which has probed CMS for clarifications on the issue.
While CMS has not forbade Medicare Advantage plans from passing on the sequestration cut, the agency’s guidance has suggested that the pass-through could be barred based on provider-insurer contracts.
As lawyers for Susquehanna Health argue, when the health system contracted with American Progressive in 2008, it “did not intend to automatically adjust payments due under the Agreement based on any change in the amount Medicare had available to pay premiums to MAOs.”
Susquehanna is asking a judge to order the insurer to pay back the 2 percent withheld, as determined by an audit. American Progressive has not yet responded to the lawsuit.
This story is based on a report appearing on Healthcare Payer News.