Applying Iowa law, the 8th Circuit Court of Appeals held that a dispute over Medicare and Medicaid billing errors does not involve professional services as that term was defined under the healthcare professional liability policies.  DeWall v. Med. Protective Co., 22-1952, 2023 WL 1790697 (8th Cir. February 7, 2023). 

The insurer in DeWall issued two Healthcare Professional Liability policies to a corporation and an individual physician.  Each policy afforded coverage for “claim[s] for damages … based on professional services rendered … in the practice of the insured’s profession.”  Further, each policy contained a Medicare Endorsement which covered, subject to a $25,000 limit per policy, the “defense of an Insured in an investigation, civil suit and/or administrative proceeding which is brought by a state or federal agency which alleges improper submission of claims for reimbursement under the Medicare or Medicaid Program.”  

The insured corporation entered into an agreement with the underlying claimant to serve as the exclusive manager of the underlying claimant’s care centers, with the insured physician serving as Medical Director.  Subsequently, the Centers for Medicare and Medicaid Services (“CMS”) directed the underlying claimant to identify and repay CMS for any overpayments made by Medicare and Medicaid.  The underlying claimant identified and reimbursed $773,779 in overpayments which it later sought to recover from the insureds in arbitration.

The insureds tendered the defense to their healthcare professional liability insurer.  The insurer agreed that the expenses incurred defending the arbitration were covered by the Medicare Endorsement sublimit, and it issued payments that exhausted the $25,000 limit in each policy.  As for any remaining coverage obligation, the insurer took the position that the allegations did not fall within the scope of the professional services coverage and, thus, no further coverage obligations were owed. 

In the declaratory judgment action that followed, the insureds asserted that the allegations fell within the policies’ professional services coverage because they were “based upon” a doctor’s orders and diagnosis.  Accordingly, the insureds argued that the insurer owed an unlimited duty to defend outside of the Medicare Endorsement sublimit.  The insureds sought to recover $284,188.90 in attorney’s fees and $43,375 in expert witness expenses.

The district court determined that the underlying billing dispute did not allege a claim “based upon” the insureds’ “rendering of medical ... services to a patient and the provision of medical examinations, opinions, or consultations regarding a person’s medical condition ....”  The district court noted that the claimant specifically told the insureds that the dispute was not about “the quality of care provided or clinical expertise” but was solely “about billing documentation.”  In the underlying Arbitration Statement, the underlying claimant expressly stated the “[insureds] should reimburse [the underlying claimant] for [the payments it made to the CMS contractor], which were required because of [the insureds’] deficient record keeping.”  The district court also declined the insureds’ invitation to read the professional services coverage as covering a Medicare billing dispute because that would render the Medicare Endorsement superfluous. The 8th Circuit agreed. 

The 8th Circuit rejected the insureds’ reliance upon coverage cases concerning medical malpractice actions against physicians, holding that those cases did not address coverage within the context before the court.  Turning to the allegations of the underlying Arbitration Statement, the 8th Circuit could not identify any allegation in which the underlying claimant was required to reimburse CMS based upon professional services rendered or that should have been rendered by the insureds.  Instead, as noted by the district court, the Arbitration Statement asserted that the reimbursements were the result of the insureds’ “deficient record keeping.” 

While the insureds also contended that the Medicare Endorsement did not apply because the underlying arbitration proceeding was not “brought by a state or federal agency”, this argument, like the others, was rejected on appeal. The 8th Circuit agreed with the insurer’s determination that the claim fell within the scope of the Medicare Endorsement because “the ultimate claimant is a governmental agency,” holding that the insurer’s analysis “was a sound interpretation of the Endorsement in this unusual context.” 

In light of the policies’ definition of professional services, the 8th Circuit affirmed the district court’s ruling that the underlying billing dispute was not based on professional services and therefore limited coverage to the sublimit available under the Medicare Endorsement.