Lakeland Reg'l Health Sys. v. Sebelius

• Decision Date: 16 July 2013
• Docket Number: Civil Case No. 12–600 (RJL).
• Parties: LAKELAND REGIONAL HEALTH SYSTEM, Plaintiff, v. Kathleen SEBELIUS, Secretary Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

958 F.Supp.2d 1

LAKELAND REGIONAL HEALTH SYSTEM, Plaintiff,

v.Kathleen SEBELIUS, Secretary Department of Health and Human Services, Defendant.

Civil Case No. 12–600 (RJL).

United States District Court, District of Columbia.

July 16, 2013.

Lori Allison Rubin, Foley & Lardner, LLP, Washington, DC, for Plaintiff.

Peter C. Pfaffenroth, U.S. Attorney's Office, Washington, DC, for Defendant.

MEMORANDUM OPINION

RICHARD J. LEON, District Judge.

Plaintiff Lakeland Regional Health System (“plaintiff” or “Lakeland”) brought the present action against Kathleen Sebelius, the Secretary of Health and Human Services (“defendant” or “the Secretary”) pursuant to Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395–1395k–l (the “Medicare Act”) and the Administrative Procedure Act, 5 U.S.C. § 551 et seq. (the “APA”), challenging the defendant's final administrative decision denying Medicare reimbursement for certain bad debts incurred by plaintiff during the 2005 fiscal year. Defendant held that the debts could not be deemed “uncollectible” under 42 C.F.R. § 413.89(e) while pending at an outside collection agency. Plaintiff argues that defendant's position constitutes a change in policy in violation of 42 U.S.C. § 1395f note (hereinafter “Bad Debt Moratorium” or “Moratorium”). In the alternative, plaintiff contends that defendant's decision is arbitrary, capricious, and inconsistent with the governing statute and regulations. Before the Court are the parties' cross motions for summary judgment. Upon consideration of the parties' pleadings, relevant law, and the entire record in this case, defendant's summary judgment motion is GRANTED and plaintiff's motion is DENIED.

BACKGROUND

A. Statutory and Regulatory Background

1. The Medicare Program and Bad Debt Reimbursements

The Medicare Act provides health insurance benefits to eligible elderly and disabled persons. 42 U.S.C. § 1395 et seq. The Centers for Medicare and Medicaid Services (“CMS”), formerly the Health Care Financing Administration (“HCFA”), administers the Medicare program for the Secretary. 42 U.S.C. § 1395kk; 42 C.F.R. § 400.200 et seq. Medicare providers like plaintiff enter into written agreements with the Secretary to provide services to eligible beneficiaries. 42 U.S.C. § 1395cc. Pursuant to these agreements, providers are reimbursed for services rendered to eligible beneficiaries. See id. The Secretary has broad discretion to determine which “reasonable costs” may be reimbursed to Medicare providers, see42 U.S.C. § 1395x(v)(1)(A), and what documentation is required from providers, see42 U.S.C. § 1395g(a). The Secretary contracts with fiscal intermediaries ¹ to determine and process reimbursement payments to providers. 42 U.S.C. § 1395h.

At the close of each fiscal year, providers submit cost reports to their fiscal intermediaries for determination of program reimbursement. 42 C.F.R. §§ 413.20, .24. After auditing the report, 42 C.F.R. § 1395g, the fiscal intermediary issues a Notice of Program Reimbursement (“NPR”), 42 C.F.R. §§ 405.1801(a)—.1803. A hospital may challenge an NPR by requesting a hearing before the Provider Reimbursement Review Board (“PRRB”). 42 U.S.C. § 1395 oo(a). The PRRB's decision is subject to review by the Administrator of CMS. 42 U.S.C. § 1395 oo(f)(1); 42 C.F.R. § 405.1875(a)(1). The Administrator's decision constitutes a final agency decision subject to judicial review. 42 U.S.C. § 1395 oo(f)(1); 42 C.F.R. § 405.1877.

Medicare requires its beneficiaries to bear a portion of the cost of covered services in the form of deductibles and coinsurance. 42 C.F.R. §§ 409.80—.83. In order to prevent shifting the costs of covered services to non-Medicare patients, the Medicare program reimburses hospitals when they are unable to collect coinsurance and deductible payments from Medicare beneficiaries. 42 U.S.C. § 1395x(v)(1)(A); 42 C.F.R. §§ 412.115(a), 413.89(a, d). The regulations governing bad debt reimbursement were written to incentivize providers to practice strong and efficient collection efforts before seeking bad debt reimbursement from the Medicare program:

A bad debt must meet the following criteria to be allowable:

(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. § 413.89(e); AR at 580. 42 C.F.R. § 413.89(e) was first issued in 1966. See District Hosp. Partners v. Sebelius, Civ. Action No. 11–1717, 932 F.Supp.2d 194, 200–01, 2013 WL 1209956 at *6 (D.D.C. Mar. 26, 2013) (Kessler, J.).

Chapter 3 of the Medicare Provider Reimbursement Manual, Part I (“PRM”), contains the Secretary's guidance for interpreting 42 C.F.R. § 413.89(e). See AR at 582–85. This manual was first issued in 1968. See Foothill Hosp.–Morris L. Johnston Mem'l v. Leavitt, 558 F.Supp.2d 1, 11 (D.D.C.2008). PRM § 308 mirrors 42 C.F.R. § 413.89(e), outlining the four main criteria that must be satisfied for reimbursement. AR at 582. PRM § 310 discusses the “reasonable collection effort” providers must undertake and document before seeking bad debt reimbursement. AR at 582–83. PRM § 310.A states that providers may employ the assistance of a collection agency. AR at 582–83. PRM § 310.B requires “document[ation] in the patient's file by copies of the bill(s) and [other letters or reports].” AR at 583. PRM § 310.2 provides for a “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.

AR at 583. PRM § 314 states that a provider “should have the usual accounts receivable records-ledger cards and source documents to support its claim” and “[u]ncollectible deductibles and coinsurance amounts are recognized as allowable bad debts in the reporting period in which the debts are determined to be worthless.” AR at 584. PRM § 316 precludes double-recovery where CMS has reimbursed a provider for a bad debt that the provider is later able to collect from a beneficiary. AR at 584–85.

The Secretary has also issued guidelines for fiscal intermediaries to follow in administering the reimbursement system. For example, a 1985 audit guideline regarding the use of outside collection agencies states:

Where a provider utilizes the services of a collection agency .... [i]f reasonable collection effort was applied, fees the collection agency charges the provider are recognized as an allowable administrative cost of the provider.Hospital Audit Program § 4499, Ex. 15 (AR at 349). The 1985 audit guideline further states that “[t]o determine the acceptability of collection agency services,” the intermediary should ensure that “both Medicare and non-Medicare uncollectible amounts are handled in a similar manner” and the patient's file “is properly documented to substantiate the collection effort.” Id.

In 1989, the Secretary published a Medicare Intermediary Manual (“MIM”) instructing fiscal intermediaries that:

If the [bad] debt is written-off on the provider's books 120 days after the date of the bill and then turned over to a collection agency, the amount cannot be claimed as a bad debt on the date of the write-off. It can be claimed as a bad debt only after the collection agency completes its customary collection effort.

MIM, 13–4, §§ 4198, 4199 (AR at 381, 407–08); Foothill, 558 F.Supp.2d at 10. An HCFA policy memorandum dated June 11, 1990 provides further guidance on the bad debt policy set forth in the PRM:

[U]ntil a provider's reasonable collection effort has been completed, including both in-house efforts and the use of a collection agency, a Medicare bad debt may not be reimbursed as uncollectible. This is in accordance with the fourth criterion in [PRM] section 308, which provides that an uncollected Medicare account cannot be considered an allowable Medicare bad debt unless sound business judgment established that there is no likelihood of recovery at any time in the future. We have always believed that, clearly, there is a likelihood of recovery for an account sent to a collection agency and that claiming of a Medicare bad debt at the point of sending the account to the [collection] agency would be contrary to the bad debt policy in [PRM] sections 308 and 310 ....

HFCA Clarification of Bad Debt Policy (“HFCA Memo”), June 11, 1990 (AR at 414). CMS also issued a Joint Signature Memorandum in 2008 stating:

In accordance with the regulation/policy in effect prior to the August 1, 1987, moratorium, until a provider's reasonable collection efforts have been completed, including both in-house efforts and the use of a collection agency, unpaid deductible and coinsurance amounts cannot be recognized as a Medicare bad debt.

Joint Signature Memorandum re: Clarification of Medicare Bad Debt Policy/Bad Debt Policy Related to Accounts at a Collection Agency (“JSM”), May 2, 2008 (AR at 117).

2. The Bad Debt Moratorium

In 1987, Congress enacted what is herein referred to as the “Bad Debt Moratorium,” prohibiting the Secretary from making changes to the agency's bad debt policy in effect on August 1, 1987. See Foothill, 558 F.Supp.2d at 3. The Moratorium states:

In making payments to hospitals under title XVIII “42 USC 1395f note” of the Social Security Act, 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 title XVIII of the Social Security Act to providers of service for reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance amounts incurred under such title (including criteria for what constitutes a reasonable collection effort).

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