Abington Crest Nursing and Rehab. v. Leavitt, Civil No. 06-1932 (RJL).

Decision Date28 March 2008
Docket NumberCivil No. 06-1932 (RJL).
Citation541 F.Supp.2d 99
PartiesABINGTON CREST NURSING AND REHABILITATION CENTER, et al., Plaintiffs, v. Michael O. LEAVITT, Secretary, Department of Health and Human Services, Defendant.
CourtU.S. District Court — District of Columbia

John Robert Jacob, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, for Plaintiffs.

Christopher Blake Harwood, U.S. Attorney's Office, Washington, DC, for Defendant.


RICHARD J. LEON, District Judge.

This case is before the Court on the parties' cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56. Plaintiffs, Medicare-certified skilled nursing facilities ("SNFs") owned and/or operated by Extendicare Health Services, Inc. (collectively, "plaintiffs," "Extendicare Facilities," or "Extendicare"), are seeking a reversal of the Secretary of Health and Human Services' ("the Secretary") denial of plaintiffs' request for reimbursement of Medicare "bad debts." Upon review of the pleadings, the administrative record, and the applicable law, the Court upholds the Secretary's decision as reasonable and therefore GRANTS defendant's motion for summary judgment and DENIES plaintiffs' motion for summary judgment.

I. Statutory and Regulatory Background
A. Medicare Program Generally

This action arises under Title XVIII of the Social Security Act, more commonly known as the Medicare Act. See 42 U.S.C. § 1395 et seq. The Act establishes a federally funded health insurance program for the elderly and disabled. See 42 U.S.C. §§ 1395c, 1395j, 1395k. Medicare authorizes payment for covered health care services provided by hospitals, skilled nursing facilities, outpatient rehabilitation facilities, and the like. See id. §§ 1395x(u), 1395cc. The Medicare insurance program is composed of two parts. Part A of the Medicare insurance program provides insurance coverage for inpatient hospital care. See id. § 1395d. Part B provides supplemental coverage for other types of care, including most outpatient therapeutic services. See id. § 1395k.

The Medicare program is administered by the Center for Medicare and Medicaid Services ("CMS"), previously the Health Care Financing Administration, on behalf of the Secretary. See 42 U.S.C. §§ 1395h, 1395u. CMS's payment and audit functions are contracted out to insurance companies known as fiscal intermediaries. Fiscal intermediaries determine payment amounts due to providers of health care services under Medicare law and the interpretive guidelines published by CMS. Id. § 1395h; 42 C.F.R. §§ 413.20(b), 413.24. Providers are required to file Medicare cost reports with their intermediaries, detailing the providers' requests for reimbursement of costs resulting from the provision of health care to Medicare recipients, on an annual basis. 42 C.F.R. § 413.24. The intermediary reviews and audits the cost reports and determines in a notice of program reimbursement ("NPR") the amount of Medicare reimbursement due to the provider for that cost year. Id. § 405.1803. If a fiscal intermediary denies a reimbursement, the provider may appeal the decision to the Provider Reimbursement Review Board ("PRRB"). 42 U.S.C. § 1395oo(a). The Secretary has the authority to review the PRRB determination. Id. § 1395oo(f)(1). A provider dissatisfied with the final decision of the Secretary may request judicial review of the decision pursuant to 42 U.S.C. § 1395oo(f)(1).

B. Payment for Medicare-Covered Services Provided by SNFs

Over the last decade, Congress has changed the payment methodology (i.e., the rules under which providers are paid for services covered under Medicare) applicable to SNFs. For both Part A and Part B services furnished to Medicare beneficiaries prior to July 1, 1998, Medicare reimbursed SNFs for the "reasonable costs" of these covered services. See 42 U.S.C. §§ 1395f(b)(1), 1395x(v)(1)(A). A provider's reasonable costs in turn include "bad debts," which are defined as "amounts considered to be uncollectible from accounts and notes receivable that were created or acquired in providing services" and include "the costs attributable to the deductible and coinsurance amounts that remain unpaid [which] are added to the Medicare share of allowable costs." 42 C.F.R. § 413.80(b), (d).1 These bad debt provisions were adopted, pursuant to congressional directive, to ensure that the "costs of efficiently delivering covered services to individuals covered by the insurance programs established by [Medicare] will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by such insurance programs." 42 U.S.C. § 1395x(v)(1)(A); see also 42 C.F.R. § 413.80(d) (regulation adopting similar provision). This is known as the "prohibition on cross-subsidization" or the "anti-cross subsidization principle." See Medicare Program — Provider Bad Debt Payment, 68 Fed.Reg. 6,682, 6,683 (Feb. 10, 2003).

With the enactment of the Balanced Budget Act of 1997 ("BBA of 1997"), Congress eliminated the reasonable cost scheme for SNFs. In its place, Congress enacted a prospective payment system based on a federal per diem rate for Part A services and provided that Part B services would be paid for according to a physician fee schedule set forth at Section 1848 of the Social Security Act. See 42 U.S.C. §§ 1395yy(e)(9), 13951(a)(8), 1395m. The implementing regulations reflect this change in the payment methodology for SNFs:

The amount paid for [SNF] services ... (i) That are furnished in cost reporting periods beginning on or after July 1, 1998, to a resident who is in a covered Part A stay, is determined in accordance with the prospectively determined payment rates for SNFs established under section 1888(e) of the Act, as set forth in subpart J of this part, (ii) That are furnished on or after July 1, 1998, to a resident who is not in a covered Part A stay, is determined in accordance with any applicable Part B fee schedule or, for a particular item or service to which no fee schedule applies, by using the existing payment methodology utilized under Part B for such item or service.

42 C.F.R. § 413.1(g)(2). Since the enactment of the BBA of 1997, the Secretary has continued to reimburse bad debts arising under the Part A prospective payment system but has not reimbursed bad debts arising under the Part B fee schedule.

II. Factual and Procedural Background

At issue in this dispute is the Secretary's final administrative decision, disallowing plaintiffs' reimbursement claim for bad debts arising from Part B services. The 21 plaintiffs in this case are Medicare-certified skilled nursing facilities owned and/or operated by Extendicare. (Compl.¶ 4.) The Extendicare Facilities provide, inter alia, physical, occupational, and speech therapy services to residents who require such services. (Id. at ¶ 6.) For residents who have insurance coverage provided by the Medicare program, some of these therapy services are subject to payment under Parts A and B of the Medicare program. (Id.)

In their fiscal year 1999 Medicare cost reports, plaintiffs claimed reimbursement for bad debts related to certain uncollectible deductibles and coinsurance arising from therapy services payable under the Part B fee schedule. (Id. at ¶ 23.) United Government Services LLC, plaintiffs' intermediary audited the 1999 cost reports. (Id. at ¶¶ 7, 24.) On or around September 26, 2001, the intermediary issued each plaintiff a NPR, disallowing the Part B bad debt claims. (Id. at ¶ 25.) On or around March 12, 2002, each plaintiff filed an individual appeal with the PRRB. (Id. at ¶ 26.) Plaintiffs requested that the PRRB permit them to pursue the Part B bad debt issue as a group appeal, pursuant to PRRB procedures. (Id. at ¶ 28.) The PRRB granted this request and the appeal proceeded as a group appeal. (Id.) On February 3, 2005, the PRRB conducted a hearing on the Part B bad debt issue and, on July 21, 2006, issued its decision, wherein it determined that "[t]he Intermediary's adjustment to the Providers' uncollectible deductibles and coinsurance arising from therapy services paid under the Part B fee schedule was improper." (A.R. 56-66;2 Compl. ¶¶ 31, 32.)

The intermediary and CMS requested review of the PRRB's decision. (A.R.49-55.) The Secretary, acting through his designated agent, the Deputy Administrator of CMS, issued a final determination in the form of an Administrator's Decision on September 12, 2006, reversing the PRRB's decision and finding that plaintiffs were not entitled to reimbursement of uncollectible deductibles and coinsurance arising from therapy services paid under the Medicare Part B fee schedule. (Compl. ¶ 33; A.R. 2-17.) The Secretary reasoned:

Applying the law to the facts of this case, the Administrator finds that the Intermediary properly denied the Providers' claimed Medicare bad debts relating to uncollectible deductibles and coinsurance arising from therapy services provided to patients who were not in a covered Part A stay and for which payment was determined in accordance with the Part B fee schedule. The Administrator finds that the BBA of 1997 changed the basis of payments from reasonable cost to a fee schedule for these services. Medicare's longstanding policy has been not to pay for bad debts for any services paid under a reasonable charge or fee schedule methodology.


Plaintiffs now move for summary judgment, claiming that the Secretary's final administrative decision is arbitrary and capricious, an abuse of discretion, and not in accordance with the governing law and thereby constitutes a violation of 5 U.S.C. § 706(2)(A). Defendant, Michael Leavitt, in his official capacity as Secretary of the Department of Health and Human Services ("HHS"), also moves for summary judgment, claiming that the Secretary's decision was reasonable and consistent with the controlling Medicare law and regulations. For the following reasons, the Court...

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    ...from an entity's provision of Part B services paid under a fee schedule are reimbursable. See Abington Crest Nursing and Rehab. Ctr. v. Leavitt, 541 F.Supp.2d 99, 105-06 (D.D.C. 2008) (making a similar finding that the bad debt regulations, 42 C.F.R. § 413.80 et seq. do not specifically add......
  • Select Specialty Hosp.–bloomington Inc. v. Sebelius
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    ...little, if any, practical consequence since both standards ‘involve the same level of scrutiny.’ ” Abington Crest Nursing & Rehab. Ctr. v. Leavitt, 541 F.Supp.2d 99, 104 n. 4 (D.D.C.2008) ( quoting Mem. Hosp./Adair County Hlth. Ctr., Inc. v. Bowen, 829 F.2d 111, 117 (D.C.Cir.1987)). Indeed,......
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    ...PRRB decisions. On March 28, 2008, the court granted the Secretary's motion for summary judgment. Abington Crest Nursing & Rehab. Ctr. v. Leavitt, 541 F.Supp.2d 99, 101 (D.D.C.2008). The court framed the issue as follows: "Was the Secretary's interpretation of the applicable Medicare law an......
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