Appeals Court Sides with Plaintiff, Against the Government
A Federal Appeals Court reversed a lower court decision against CGI Federal Inc. in their challenge over the Centers for Medicaid and Medicare Services’ (CMS) modified payment terms for recovery audit contracts, finding that the disputed terms do indeed violate the Federal Acquisition Regulation’s stance against “terms inconsistent with customary commercial practice.”
A copy of the decision is posted here.
The lower court’s previously granted stay of execution prevented CMS from moving forward with awarding contracts to the three winning bidders, and now appears to remain in effect.
Cause of the Reversal
There were two separate issues considered by the higher court: (1) did CGI have standing to file a protest, since they did not submit a bid, and (2) did the specific Request for Quotations (RFQs) violate the complex (and rather byzantine) rules for contracting with the federal government. More specifically, CGI took issue with the agency’s inclusion of payment terms “inconsistent with customary commercial practice” and therefore not in accordance with the law.
The court produced a long analysis of the issue concerning CGI’s standing as a bidder – what lawyers call a “de novo” review (meaning, “from the beginning”). Ultimately, it made sense to this writer that the court decided that CGI was a “prospective bidder” and therefore had standing to file a protest.
The second issue concerned even longer discussion of individual words (…fortunately, no discussion of the meaning of words like “is”…) ultimately arriving at the conclusion that the rules in question were indeed violated, and the payment terms were not customary commercial practice.
“Customary and Reasonable”
Healthcare providers, hospitals in particular, are quite familiar with the above phrase, since it is often used to deny or recoup reimbursements for Medicare and Medicaid claims. While those instances are quite subjective, often appealed and overturned, in this specific instance, a reasonable person might easily see the contractor’s complaint.
The terms that CMS wanted to install in their new contracts would have required contractors to not invoice CMS for their contingency fees until a provider’s appeal passed the second level of the five-level appeals process, which is averaging between 120 and 420 days after the demand letter is sent out to the provider. Under the older contracts, the fees were invoiced 41 days after the demand letter. The lower court did not consider the difference (less than 90 days) to be significant enough for it to intervene. The higher court disagreed.
An Simplified Analogy
Try to think of it this way… Suppose you are a computer repairman and are asked to fix a computer. You do the work, get it running fine. The typical way business is done is for you to immediately collect for the work you did, but you offer a warranty or some kind of guarantee, as protection for the customer. But… what if you are not allowed to even issue an invoice for your work, for 14 months, in case it has to be fixed again? Would you submit to that kind of contract? I wouldn’t!
This isn’t an exact analogy, but I think that’s the way the Court imagined it.
Regardless of what the Court was thinking, the lower court has been told to reverse the decision. While it is typically difficult to predict what CMS will do, in this case, it seems to me to be pretty obvious that they will need to redo the bidding, at least for the three bids that were included in the protests, and likely redo the fourth one, as well. The fifth contract was already awarded, and I’d expect that one to remain, as is.
Given the time it will take to accomplish all that, barring any further protests, I would expect to see the new RAC contracts in full swing before the end of 2015.