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National Government Services, Inc. v. United States

United States Court of Appeals, Federal Circuit

May 2, 2019

UNITED STATES, Defendant-Appellee

          Appeal from the United States Court of Federal Claims in No. 1:18-cv-00200-MMS, Chief Judge Margaret M. Sweeney.

          Matthew Hillel Solomson, Federal Government Solutions, Anthem, Inc., Baltimore, MD, argued for plaintiff-appellant. Also represented by Monica Rose Sterling, Anuj Vohra, Crowell & Moring, LLP, Washington, DC.

          William Porter Rayel, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Robert Edward Kirschman, Jr., Douglas K. Mickle, Joseph H. Hunt.

          Before Prost, Chief Judge, Moore and Wallach, Circuit Judges.


         In this bid protest, National Government Services, Inc. ("NGS") appeals the decision of the Court of Federal Claims ("Claims Court") denying NGS's pre-award bid protest. Nat'l Gov't Servs., Inc. v. United States, 137 Fed.Cl. 715 (2018) ("Decision"). We reverse the decision of the Claims Court and remand for further proceedings.


         The Centers for Medicare & Medicaid Services ("CMS") is an agency of the U.S. Department of Health and Human Services ("HHS"). CMS uses contractors to administer claims and benefits related to the Medicare program.

         From the inception of Medicare in 1965 until implementation of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("Medicare Modernization Act"), CMS procured contractors to administer Medicare claims and benefits through noncompetitive contracts. Decision, at 2. In the Medicare Modernization Act, however, Congress added Section 1874A to the Social Security Act (Title XVIII) to create the Medicare administrative contractor ("MAC") program. See Medicare Modernization Act, Pub. L. No. 108-173, § 911(a)(1), 117 Stat. 2066, 2378-83 (codified as amended at 42 U.S.C. § 1395kk-1 ("the MAC Statute")).

         The companies that process Medicare claims on behalf of CMS are called Medicare administrative contractors or MACs. See 42 U.S.C. § 1395kk-1(a)(3). An "A/B" MAC provides services with respect to Medicare Parts A and B. See 42 U.S.C. § 1395kk-1(a)(4); see also id. §§ 1395h(a), 1395u(a). The MAC Statute generally requires CMS to "use competitive procedures when entering into contracts with [M]edicare administrative contractors [MACs] under this section, taking into account performance quality as well as price and other factors." § 1395kk-1(b)(1)(A).

         The nationwide MAC contract market is currently divided into twelve geographic jurisdictions: 5, 6, 8, and 15, plus E, F, H, and J-N. Decision, at 3. For example, Jurisdiction H represents 13.5% of the current A/B Medicare workload and covers Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas. Meanwhile, Jurisdiction 8 represents 5.9% of the current A/B Medicare workload and covers Indiana and Michigan. Decision, at 3. CMS solicits contracts for each jurisdiction.


         In 2010, CMS began preparing for its second round of solicitations to replace the original A/B MAC contracts as they expired.[1] In July 2010, CMS issued a Request for Information ("RFI") that described changes to CMS's approach to the A/B MAC procurements and provided an opportunity for potential offerors to give input on those changes. One of CMS's proposed changes was to implement a contract award limit for the A/B MAC contracts to be included in all A/B MAC solicitations. J.A. 11465 (RFI). The purpose of this award limit was "to place a limit, in all A/B MAC Round II solicitations, on the amount of A/B MAC contract responsibility that any single entity can win . . . in a 'prime contractor' capacity." Decision, at 5 (quoting J.A. 11465 (RFI)).

         In August 2010, CMS issued another RFI regarding this proposed award limitations policy ("Award Limitations Policy" or "Policy"). See J.A. 11472-82 (RFI). CMS indicated that this Policy would be included in all solicitations for the second round of MAC contracts. Decision, at 9 (citing J.A. 11478). After making some revisions to the Policy, CMS included the Policy in the Jurisdiction F solicitation, which CMS issued in October 2010. According to the Policy, CMS would not award more than 26% of the national A/B Medicare workload to any single contractor or more than 40% of the national A/B Medicare workload to any one set of affiliates. Decision, at 10 (quoting the Jurisdiction F solicitation).

         CMS designed the Award Limitations Policy to address two market concerns: (1) "business continuity concerns with awarding an overly-large share of the Medicare claims administration workload to any one entity (or set of affiliated entities)"; and (2) "maintain[ing] a dynamic, competitive marketplace, where no single entity (or set of affiliated entities) control/s so much of the agency's MAC business that all or most other players are driven from the market, returning the agency to a less-than-competitive environment." J.A. 11801 ¶ 7 (Klots Decl.).


         CMS continued to incorporate the Award Limitations Policy into solicitations for other jurisdictions, including Jurisdiction H ("JH"). See J.A. 15546-48. As stated in the JH solicitation, the Policy explains:

CMS will not award more than 26% of the national A/B Medicare workload, in A/B MAC prime contracts, to any single contractor (single corporate entity). In addition, CMS will not award more than 40% of the national A/B Medicare workload, in A/B MAC prime contracts, to any one (1) set of affiliates.
CMS is placing no limitation on the number of A/B MAC prime contracts for which any entity, or entities, may submit proposals. As A/B MAC prime contracts are awarded, the awardee's Medicare workload base will be appropriately adjusted, thereby potentially impacting other pending proposals.

         J.A. 15546.[2] The workload percentages assigned to each MAC jurisdiction are included in the solicitation. J.A. 15548.

         The JH solicitation explains that "CMS will determine whether Offerors exceed the limitation on workload at the time of award, and will exclude Offerors from consideration on such basis at that time." J.A. 15547. Moreover, the solicitation includes an "Exception," which states:

In order to ensure continuity in Medicare Fee-for-Service operations, CMS retains the discretion to award a particular A/B MAC prime contract to a particular contractor, even where doing so would otherwise exceed the A/B MAC prime contract Medicare workload allowed by this policy.

         J.A. 15548. We refer to this exception as the "Continuity Exception."

         NGS is an offeror for the JH solicitation.[3] NGS is also the current contractor for Jurisdiction 6 (which represents 7.8% of the current A/B Medicare workload), as well as Jurisdiction K (which represents 12% of the current A/B Medicare workload). Based on the Award Limitations Policy and NGS's current contracts, NGS cannot win the MAC contract for Jurisdiction H (which represents 13.5% of the current A/B Medicare workload) because winning would cause NGS to exceed the Policy's workload caps.


         In November 2017, NGS filed a pre-award protest with the Government Accountability Office ("GAO"), arguing that the Award Limitations Policy in the Jurisdiction 8 solicitation did not allow for full and open competition because it precludes a successful best value offeror from receiving a MAC award where the contract award would cause that offeror to exceed the Policy's workload caps. GAO denied the protest in January 2018.

         NGS then filed suit in the Claims Court on February 8, 2018. Before the Claims Court, NGS challenged the Jurisdiction 8 solicitation as well as the Jurisdiction H solicitation (which also included the Award Limitations Policy and remains at issue in this appeal). The Claims Court rejected NGS's protest.

         NGS timely appealed. We have jurisdiction under 28 U.S.C. § 1295(a)(3).


         In reviewing a grant of judgment upon the administrative record, we review the Claims Court's determination without deference, reapplying the same standard of review applicable in the Claims Court. Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1358 (Fed. Cir. 2009) (citing Bannum, Inc. v. United States, 404 F.3d 1346, 1351 (Fed. Cir. 2005)). We therefore review the agency's actions according to the standards set forth in the Administrative Procedure Act, 5 U.S.C. § 706. See 28 U.S.C. § 1491(b)(4). Under that standard, we ask whether the agency's action was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. § 706(2).

         In applying this standard of review, we determine whether "(1) the procurement official's decision lacked a rational basis; or (2) the procurement procedure involved a violation of regulation or procedure." Weeks Marine, 575 F.3d at 1358 (quoting PGBA, LLC v. United States, 389 F.3d 1219, 1225 (Fed. Cir. 2004)).


         This appeal requires us to analyze the propriety of the Award Limitations Policy included in the JH solicitation. As explained above, CMS developed the Policy to include in all MAC contract solicitations. It is not tailored to any solicitation. The rationale behind the Policy is two-fold. First, the agency has business continuity concerns related to overreliance on a particular MAC (i.e., that Medicare claims operations will be put at risk if a MAC with many contracts fails). Second, the agency has concerns about maintaining a competitive, dynamic MAC marketplace over the long term. The Award Limitations Policy attempted to address these concerns by setting workload caps so that a particular MAC cannot be awarded more than a certain percentage of the total A/B Medicare market.

         As explained below, we reverse the Claims Court's decision in this case. In doing so, however, we find it important to delineate the bounds of what we do-and do not-decide.

         At the outset, we take no issue with the particular concerns animating the Award Limitations Policy or with CMS's general ability to consider and address such concerns. Indeed, NGS concedes that CMS may take appropriate steps to address those very concerns. Appellant's Br. 12; see also Oral Arg. at 12:29-12:48. In our view, the issue presented is simply a procedural one-whether the agency complied with the Competition in Contracting Act ("CICA") and the Federal Acquisition Regulation ("the FAR") when it attempted to address its concerns by developing a blanket policy applicable to all MAC solicitations that effectively excludes offerors from competing, without documenting the need for such action in light of a particular contract or a particular offeror. We do not hold that agencies cannot ...

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