University Health Services, Inc. v. Health & Human Services, 95-9493

• Decision Date: 28 August 1997
• Docket Number: No. 95-9493,95-9493
• Citation: 120 F.3d 1145
• Parties: , Medicare & Medicaid Guide P 45,598, 11 Fla. L. Weekly Fed. C 431 UNIVERSITY HEALTH SERVICES, INC., Plaintiff-Appellee, v. HEALTH & HUMAN SERVICES, Donna Shalala, in her official capacity as Secretary, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1145

120 F.3d 1145

53 Soc.Sec.Rep.Ser. 905, Medicare & Medicaid Guide

P 45,598,

11 Fla. L. Weekly Fed. C 431

UNIVERSITY HEALTH SERVICES, INC., Plaintiff-Appellee, v. HEALTH & HUMAN SERVICES, Donna Shalala, in her official capacity as Secretary, Defendant-Appellant.

No. 95-9493.

United States Court of Appeals Eleventh Circuit.

Aug. 28, 1997.

Barbara Biddle, Civil Div. Appellate Staff, United States Department of Justice, Katherine S. Gruenheck, Washington, DC, for Defendant-Appellant.

Robert Perry Sentell, III, Wyck A. Knox, Jr., Kilpatrick & Cody, Augusta, GA.

Appeal from the United States District Court for the Southern District of Georgia.

Before BIRCH, BLACK and CARNES, Circuit Judges.

BIRCH, Circuit Judge:

This appeal requires that we examine regulations and interpretive guidelines promulgated pursuant to Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395cc ("the Medicare Act"). The Secretary of Health and Human Services ("Secretary") appeals the judgment of the district court in favor of University Health Services ("University"). University sought review in the district court of the Secretary's decision to disallow a portion of its claims for reimbursement of bad debts related to Medicare patients. The district court determined that the Secretary was precluded from disallowing University's bad debt claims and granted summary judgment in favor of University. For the reasons that follow, we REVERSE.

I. BACKGROUND

The Medicare Act permits hospitals and other health care providers to enter into an agreement with the Secretary by which the Secretary reimburses providers through private fiscal intermediaries for amounts owed, but not paid, by Medicare patients. 42 U.S.C. § 1395cc. To qualify for reimbursement with respect to these bad debt claims, hospitals must comply with regulations directing them to make reasonable efforts to collect Medicare deductible and coinsurance amounts. Specifically, Medicare bad debt constitutes an allowable cost if the following criteria are met:

(1) The debt must be related to covered services and derived from deductible and coinsurance amounts.

(2) The provider must be able to establish that reasonable collection efforts were made.

(3) The debt was actually uncollectible when claimed as worthless.

(4) Sound business judgment established that there was no likelihood of recovery at any time in the future.

42 C.F.R. § 413.80(e).

The Secretary has delineated further the regulation's bad debt collections requirement in its Provider Reimbursement Manual ("PRM"). Provisions of the PRM relevant to this action state in pertinent part:

To be considered a reasonable collection effort, a provider's effort to collect Medicare deductible and coinsurance amounts must be similar to the effort the provider puts forth to collect comparable amounts for non-Medicare patients....

A. Collection Agencies.--A provider's collection effort may include the use of a collection agency in addition to or in lieu of subsequent billings, follow-up letters, telephone and personal contacts. Where a collection agency is used, Medicare expects the provider to refer all uncollected patient charges of like amount to the agency without regard to class of patient. The "like amount" requirement may include uncollected charges above a specified minimum amount. Therefore, if a provider refers to a collection agency its uncollected non-Medicare patient charges which in amount are comparable to the individual Medicare deductible and coinsurance amounts due the provider from its Medicare patient, Medicare requires the provider to also refer its uncollected Medicare deductible and coinsurance amounts to the collection agency.

PRM § 310.

Presumption of Noncollectibility.--If after reasonable and customary attempts to collect a bill, the debt remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary, the debt may be deemed uncollectible.

PRM § 310.2.

In 1987, Congress enacted the Omnibus Budget Reconciliation Act ("OBRA") that placed a moratorium on, among other things, the Secretary's authority retroactively to modify Medicare bad debt reimbursement policy that was in effect on August 1, 1987. The moratorium provides, in pertinent part:

In making payments to hospitals under [the Medicare Program], the Secretary of Health and Human Services shall not make any change in the policy in effect on August 1, 1987, with respect to payment under [the Medicare program] to providers of service for reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance amounts incurred under [the Medicare program] (including criteria for what constitutes a reasonable collection effort, including criteria for indigency determination procedures, for record keeping, and for determining whether to refer a claim to an external collection agency).

The Secretary may not require a hospital to change its bad debt collection policy if a fiscal intermediary, in accordance with the rules in effect as of August 1, 1987, with respect to criteria for indigency determination procedures, record keeping, and determining whether to refer a claim to an external collection agency, has accepted such policy before that date, and the Secretary may not collect from the hospital on the basis of an expectation of a change in the hospital's collection policy.

OBRA of 1987, Pub.L. No. 100-203, § 4008(c), as amended by Technical and Miscellaneous Revenue Act of 1988, § 8402 and OBRA of 1989, § 6023.

University is a non-profit hospital located in Augusta, Georgia. The intermediary in this case is Blue Cross and Blue Shield of Georgia ("Blue Cross"). It is undisputed that University historically has pursued comparable in-house collection efforts for both Medicare and non-Medicare accounts for the first 120 days after the last activity on each account, consistent with the applicable Medicare regulations. Until 1989, University wrote off as bad debt all delinquent accounts following this 120-day period and referred all non-Medicare accounts to an in-house collection agency. University did not forward outstanding Medicare accounts to the collection agency but, rather, claimed and received, through Blue Cross, reimbursement for these amounts from the Medicare program. In 1989, Blue Cross conducted a full audit of the 1986 cost year and determined that University's bad debt collection practice, specifically with respect to the referral of solely non-Medicare overdue accounts to a collection agency, was inconsistent with Medicare policy. Accordingly, Blue Cross disallowed the 1986 bad debt claim.

University sought administrative review of Blue Cross's decision. The Provider Reimbursement Review Board ("PRRB") found that University had demonstrated that sound business judgment justified its dissimilar treatment of Medicare and non-Medicare accounts after 120 days following the last activity on these accounts. In support of its findings, the PRRB noted that University had shown financial losses in connection with collection efforts in the 1989-1991 cost years, during which University complied with the intermediary's directive to refer all accounts, both Medicare and non-Medicare, to its internal collection agency.

The Secretary reversed the PRRB decision and concluded that University had failed to show that it had engaged in reasonable collection efforts with respect to its Medicare accounts. The Secretary premised her conclusion on the grounds that (1) University's bad debt collection method was inconsistent with the plain language of the Secretary's interpretive guidelines of the Medicare Act, embodied in the PRM, directing providers to treat similarly Medicare and non-Medicare overdue accounts; (2) University had failed to show that sound business judgment justified its decision not to refer Medicare accounts to its collection agency; and (3) because University had not acted in compliance with the pertinent Medicare regulations in 1986, the moratorium articulated in OBRA did not apply to the facts of this case and, thus, did not bar the intermediary's disallowance of reimbursement costs for that cost year.

The district court reversed the Secretary's decision and ordered that summary judgment enter in favor of University. The court found that, for many years prior to 1986, University had employed the same collection practices as those used in 1986 and that Blue Cross previously had allowed reimbursement of University's bad debt claims. The court further stated that the Secretary tacitly had ratified University's collection efforts through the acts of her intermediary and, consequently, her change in policy with respect to the 1986 cost year had an unfair retroactive effect. Based on this reasoning, the court concluded that the Secretary was equitably estopped from disallowing reimbursement for 1986. Alternatively, the court found that the OBRA moratorium barred the Secretary from denying University's claim for bad debt reimbursement. This appeal followed.

II. DISCUSSION

"In reviewing the Secretary's decisions, both the district court and [our] court must abide by those decisions 'unless [they are] arbitrary, capricious, an abuse of discretion, not in accordance with law, or unsupported by substantial evidence in the record taken as a whole.' " Alacare Home Health Serv., Inc. v. Sullivan, 891 F.2d 850, 854 (11th Cir.1990) (quoting Carraway Methodist Med. Center v. Heckler, 753 F.2d 1006, 1009 (11th Cir.1985)) (alteration in original). "We previously have noted that the Secretary has amassed considerable expertise in the health care area and absent a strong showing by the plaintiff, 'this court will not substitute its judgment for that of the agency.' " Id. (quoting Lloyd Noland Hosp. & Clinic v. Heckler, 762 F.2d 1561, 1565 (11th Cir.1985). Although an agency's interpretive rules do not have the force of law, Shalala v. St. Paul-Ramsey Med. Ctr., 50 F.3d 522, 527 n. 4 (...