Molina Healthcare of Illinois v. The Illinois Department of Healthcare et al.

ORDER

THIS MATTER is before the Court to rule on the parties’ Cross Motions for Summary Judgment. The parties have agreed that the motions address only the issue of the method of interest calculation. In the event that the Court rules in favor of either party they agree that the matter be sent to the assigned Commissioner for the calculation of damages.

BACKGROUND OF THE CLAIM

Respondent contracts with Claimant Molina Healthcare of Illinois (“Molina”), a managed care organization (MCO) to provide healthcare services to Illinois Medicaid enrollees.

According to those contracts, Molina is entitled to late payment penalty interest pursuant to The Illinois Prompt Payment Act (“PPA”) 30 ILCS 540/1 et seq. and its Administrative Rules 741 Ill. Admin. Code 900.10 et seq.

Pursuant to those agreements, Respondent assigns enrollees effective on the first day of each month, and Claimant administers benefits to those enrollees beginning on the first day of the month for each month in which they are enrolled in Molina’s health plan.

[*175] Respondent agrees to pay Claimant on the 15th day of the service month. Payment is not issued for each enrollee. Rather, Respondent generates a lump sum voucher that reflects a flat monthly rate based on approved capitation rates for each enrollee at the first of the month. The lump sum voucher, then, equals the sum of the number of all the enrollees eligible on the first of the service month multiplied by the applicable rate for those enrollees. The vouchers are then sent to the Comptroller. Those vouchers are then subject to a later adjustment, using Document Control Numbers (“DCN’s”) based upon the actual number of enrollees who join or leave during a given month.

Beginning on January 2016 and through November 2017, HFS made late payments to Claimant, triggering the obligation of Respondent to pay late payment interest to Claimant consistent with their agreements. On April 26, 2018, Respondent made the first late payment interest payment to Claimant. Claimant argues that Respondent used the incorrect methodology to calculate the PPA interest. Molina argues that Respondent should calculate the interest based on the lump sum amounts of each voucher. This claimant alleges, resulted in underpayment hence Claimant’s filing its Verified Complaint in this Court on April 19, 2019, seeking $7,500,138.00 in damages.

SUMMATION OF BRIEFS AND ORAL ARGUMENT

An Oral Argument was held en banc on November 6, 2023, to discuss the briefs and respond to questions from the Court.

Respondent argues that the relevant provisions of the contracts with Claimant do not alter the terms of the PPA, and that Respondent’s method for calculating interest complies with the PPA and its Administrative Rules.

Respondent argues that capitation rates are not static and vary each month. The amounts of the monthly MCO capitation payment vary because the pool of eligible enrollees serviced by the MCO contracts is constantly changing. Respondent considers each individual enrollee at a claim level using a Document Control Number (“DCN”). As such HFS considers individual enrollees services to be a separate and proper bill. For example, in May of 2016 there were 160,000 claims or DCN’s. Those enrollees that are [*176] no longer eligible (or have passed away) were subject to adjustment of the voucher amount.

Late payment interest, according to Respondent, is calculated by 91 days from the 15th day of the service month. And each individual DCN that has been recalibrated by the subsequent adjustment (left or died) does not generate PPA interest. In addition, interest calculated on individual DCN’s amounting to $5.00 or less is statutorily excluded and not paid.

At argument, Respondent acknowledged that the method of issuing a voucher in the gross amount and then making subsequent adjustments is unwieldy and misleading to the MCO’s. Respondent noted on the other hand paying interest only on the number of actual enrollees is proper and that issuing individual payments to 150,000 enrollees would be impossible to manage.

Respondent argues that HFS calculates PPA interest to Molina using the exact same methodology that HFS uses to calculate interest due for all its MCO’s. Respondent argues that the methodology used by HFS comports with the requirements of the PPA and administrative rules. Respondent agrees that HFS will pay a flat monthly approved capitation rate for each enrollee pursuant to the fee schedule that is included in the contracts. HFS consistently submitted vouchers to the Illinois Comptroller’s office for payment to Molina based upon the contractual formula that generated the lump sum payment.

Molina argues that prompt payment interest should be calculated on the total amount of the voucher HFS submitted to the Controller. But Respondent argues that HFS did not calculate PPA interest based on the total amount of the voucher and instead calculated interest using the monthly capitation rate for each individual enrollee. In addition, while using the individual enrollee capitation rate HFS would only pay PPA interest amounts of more than $5.00 for an individual enrollee. Respondent cites the fact that the statutory mandate to pay late penalty interest pursuant to the PPA is cited in MCO contracts with Molina. As such it requires that late payment interest be paid in accordance with PPA and its administrative rules.

Respondent argues MCO capitation payments are not static and vary each month.

The amount of the monthly MCO capitation payments varies because the pool of eligible [*177] enrollees serviced by the MCO contract is constantly changing because enrollees join or leave every month. By the way of example Molina currently has over 360,000 individual enrollees. Consequently, the pool of enrollees is always in flux.

Claimant argues that instead of calculating interest based on the monthly, principal lump sum payments paid to Claimant, (representing a “proper bill”), HFS calculated interest based on the capitation rate for each specific enrollee. As a result of HFS’s improper calculation, Claimant alleges it is owed and seeks to collect $7,500,138.00 in prompt payment interest.

Claimant argues that for purposes of the PPA the calculation should be based upon the contractual formula and payments actually made in the course of business. Claimant points out that during the budget impasse Molina fronted the money to cover the services that it was required to pay for and then because of the process employed by HFS Molina was shortchanged systematically. Claimant argues that Cahokia Nursing and Rehabilitation Center v. State, 59 Ill. Ct. C1. 278, 283 (2006) holds that where a vendor does not submit a bill or invoice, the actual payments made best represent the bill.

Claimant argues that HFS’s policy of paying interest for each DCN is not entitled to deference and is contrary to the PPA and the actual contracts with Molina. Claimant argues that Cahokia rejected the idea that a DCN is a proper bill for application of the PPA. Moreover, Claimant argues that there is no statutory, judicial, or contractual support for the use of a DCN for the basis of a proper bill. It cites Cahokia, “the spirit and purpose of the [Prompt Pay Act] is not only to ensure prompt payment to vendors… but to also ensure that such payment is based upon a proper bill or properly approved bill sufficient to put the State on notice that a certain payment is due and owing.” Cahokia, 59 Ill.Ct.C1. at 289.

Claimant argues that the PPA clearly requires the State to calculate and pay interest upon the entire proper bill or invoice which is defined as when the agency has the information necessary to process the full payment to vendor. It again cites Cahokia and both the statute and administrative code that provides that “proper bill” is defined as when the agency has the necessary information to process payment (See 30 ILCS 540/1, 30 ILCS 540/302 and 74 Ill. Admin. Code 900.20).

[*178] Claimant argues the contracts between Molina and HFS do not address document control numbers nor do they cite that payments are per enrollee. The contracts do not require Molina to submit invoices or bills. The contract terms require monthly lump sum payments in the ordinary course of business. In the alternative Claimant argues that if the State were to calculate and pay interest based upon the monthly payments and the voucher payments that actually go out to the vendor, the State could recoup interest in the future based upon over payment of interest. The Court asked Claimant at Oral Argument that if the State deployed the alternative method suggested by Claimant wouldn’t the parties wind up in the same place i.e. “We overpaid you and now we want you to give some back?” Counsel for Claimant responded that what the State could do is offset payment previously made based upon the number of enrollees during that month. In other words, an offset would be made in the normal course of business. In the instant case if there was a disenrollment and it turned out Respondent paid interest on the disenrolled member Respondent could then just offset the capitation amount that corresponds to the enrollee in the future.

CONTRACT LANGUAGE AND RELEVANT LAW

Joint Rules of 1. “… in any instance where a State official or agency is late in the payment of a vendor’s bill or invoice for goods or services Comptroller furnished to the State,… properly approved in accordance with and the rules promulgated under Section 3-3, the State official or Department agency shall pay interest to the vendor in accordance with the of Central following: Management 2. Any bill approved for payment under this Section must be paid Services: or the payment issued to the payee within 90 days of receipt of Prompt a proper bill or invoice. If payment is not issued or mailed to Payment 74 the payee within this 90-day period, an interest penalty of 1.0% Ill.Adm.Code of any amount approved and unpaid shall be added for each 900 et seq. month or fraction thereof after the end of this 90-day period, until final payment is made.” 30 ILCS 540/3-2; and [*179] 3. “No agency shall enter into a contract with a late payment interest provision more generous to the vendor than that provided in this Part.” 74 Ill.Adm.Code 900.50.

30 ILCS Where a State official or agency is late in payment of a vendor’s 540/3-2(2) bill or invoice properly approved in accordance with this Act, and different late payment terms are not reduced to writing as a contractual agreement, the State official or agency shall automatically pay interest penalties required by this Section amounting to $50 or more to the appropriate vendor. Each agency shall be responsible for determining whether an interest penalty is owed and for paying the interest to the vendor. Except as provided in paragraph (4), an individual interest payment amounting to $5 or less shall not be paid by the State. Interest due to a vendor that amounts to greater than $5 and less than $50 shall not be paid but shall be accrued until all interest due the vendor for all similar warrants exceeds $50, at which time the accrued interest shall be payable and interest will begin accruing again, except that interest accrued as of the end of the fiscal year that does not exceed $50 shall be payable at that time. In the event an individual has paid a vendor for services in advance, the provisions of this Section shall apply until payment is made to that individual.

Contract #1: Payments, including late charges, will be paid in accordance ICP MCO with the State Prompt Payment Act. (30 ILCS 540 and Rules 74 Ill.Adm.Code 900).

Contract #2: Payments, including late charges, will be paid in accordance FHP/ACA with the State Prompt Payment Act. (30 ILCS 540 and Rules 74 MCO Ill.Adm.Code 900).

Contract #3: Capitation paid by the Department for the Medical Component MMAI/MCO is due to the Contractor by the fifteenth (15th) day of the service [*180] month. Payments due from the Department, including late charges, will be paid in accordance with the State Prompt Payment Act (30 ILCS 540) and rules (74 Ill.Adm.Code 900)…

ANALYSIS

The Prompt Payment Act has been the subject of comment by this Court over the years. The Prompt Payment Act was enacted in 1982. At that time, the Federal Funds Rate was 14% per annum. For the last 40 years the Federal Funds Rate has averaged 4.41%.

Given that history we have commented that an interest penalty of 1% per month bears no reasonable relationship to the interest environment for the last 40 years. Commentators have argued that the Prompt Payment Act should be revisited by the legislature to adjust annual interest rate penalties (e.g., 6 month treasuries) to reflect current interest rates. The case at bar illustrates the fiscal impact under the PPA when the government effectively shuts down. In this case the 793 day budget impasse between the then Governor and then Speaker of the House combined with the high rates of interest promulgated in the Prompt Payment Act resulted in a back log of bills that at the peak neared 17 Billion Dollars. The State actually had to borrow money at a lower interest rate than the PPA to pay these obligations. This did damage to both the State’s credit ratings as well as the loss of the public’s confidence whose tax dollars paid for these interest expenses.

While there is no explicit statutory language authorizing Respondent’s methodology for calculating late payment interest, we find Respondent’s argument compelling that calculating interest based off an aggregate amount would be difficult since every enrollee is enrolled according to a different timetable. As such, each enrollee has a different period of lapsed interest or the enrollee has gone off Medicaid or died and is not subject to reimbursement.

When interpreting the meaning of the provisions of the Act, we are bound to ascertain and give effect to the true intent of the legislature. See People ex rel. Director of Corrections v. Booth, 215 Ill.2d 416, 423, 294 Ill. Dec. 157, 830 N.E.2d 569 (2005). To give effect to the true intent of the legislature, we must interpret every provision and every [*181] word generally and in the context in which it is used and not in isolation. People v.

Eppinger, 2013 IL 114121, ¶ 21.

Respondent uses several provisions of the Code to illustrate its argument, including the Comptroller’s Manual and Section 900.9(d) of the Administrative Rules, which states: “Interest is to be calculated for each individual Vendor bill received. A determination of whether an interest penalty is owed is to be made for each individual bill and may not be based upon summing interest from two or more bills together.”

Claimant argues that it should have been paid late payment penalties under the PPA in aggregate and that the interest should have been calculated based on an aggregate amount. Alternatively, HFS has for at least ten years calculated interest for healthcare providers per claim and has adhered by statute to not making interest payments that amount to $5.00 or less. This methodology resulted in a lower disbursement than Claimant felt it was owed in this case.

In examining the Cahokia case we find that the decision is more expansive than the Claimant’s characterization of it simply standing for the proposition that the Court rejected the use of a DCN as the basis for a proper bill.

The Court pointed out the difficulty in sorting out these billing questions where no physical bill is presented. “It is evident that the language of the Prompt Payment Act does not comport with the paperless billing system. The current application is wholly dependent on a physical bill and here there is simply no bill. Rather than create an artificial “bill”, this Court finds that because the language of the Act and its application to the current system is not clear, it should be evaluated in light of the spirit and intent of the Act and by observing the Joint Rules that are aimed at addressing such situations where the course is unclear or confusing.” Cahokia, 59 Ill.Ct.C1. at 290.

The Act and Joint Rules provide that the state official or agency pay interest for the late vendor payments for bills or invoices properly approved within 60 days of receipt of a proper bill or invoice. The Court in Cahokia noted that the spirit and purpose of the Act is not only to ensure prompt payment to vendors such as Claimant but also to ensure such payments are based upon a proper bill or properly approved bill sufficient to put the State on notice that a certain payment is due and owing. The Court found that the penalty [*182] period beginning simply on the last day of the month does not ensure that the bill is a proper bill or a properly approved bill. The Act is intended to allow the State time to review charges for the bill to become a proper bill or properly approved bill. Cahokia, 59 Ill.Ct.C1. at 289.

Although unwieldy we agree that the methodology HFS deploys in paying interest based upon the actual number of enrollees is the proper methodology. It is clear from both the statute and rules that payments (and ensuing interest) are based upon a properly approved bill. To hold otherwise would mean that the State is obligated to pay interest on “claims” that are not valid or properly approved because the enrollee has died or left the system. And to deploy Claimant’s “claw back” argument gets us in a place where the Respondent lacks a reasonable forum to adjudicate when the Claimant fights against the claw back. Further, Respondent does not owe interest on individual bills when the interest amounts to $5.00 or less.

Therefore, IT IS HEREBY ORDERED that Respondent’s Motion for Summary Judgment is GRANTED as to its method of calculating interest and Claimant’s Motion for Summary Judgment is DENIED and the matter is remanded to the Commissioner for a hearing on the calculation of interest.