Community Hosp. of Monterey Peninsula v. Thompson, No. 01-17512.

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtStapleton
Citation323 F.3d 782
PartiesCOMMUNITY HOSPITAL OF THE MONTEREY PENINSULA; Alameda Hospital; Antelope Valley Medical Center; California Hospital Medical Center; California Pacific Medical Center; Cedars-Sinai Medical Center; Chinese Hospital; Corcoran District Hospital; Clovis Community Hospital; Colusa Community Hospital; Daniel Freeman Memorial Hospitals; Daniel Freeman Marina Hospital; Davies Medical Center; Eden Hospital Medical Center; Fallbrook Hospital District; Fresno Community Hospital; Glenn General Hospital; Henry Mayo Newall Memorial Hospital; Hospital of the Good Samaritan-Los Angeles; Huntington Memorial Hospital; Inter Community Medical Center; John Muir Medical Center; Kern County Medical Center; Laurel Grove Hospital; Loma Linda University Hospital; Marshall Hospital; Merrithew Memorial Hospital Medical Center; Pacific Coast Hospital; Pomerado Hospital; Presbyterian Intercommunity Hospital; Providence St. Joseph Medical Center-Burbank; Riverside Community Hospital; San Joaquin General Hospital; San Luis Obispo County General Hospital; San Mateo County General Hospital; Santa Marta Hospital; Sharp Coronado Hospital; Sharp Memorial Hospital; Sierra Community Hospital Siskiyou General Hospital/Fairchild Medical Center; St. John Regional Medical Center; St. Luke's Hospital; Summit Medical Center; Sutter Tracy Community Hospital; Tahoe Forest Hospital; Tri-City Medical Center; Tulare District Hospital; Tuolumme General Hospital; University of California Irvine Medical Center; University of California at San Francisco Medical Center; University of California San Francisco-Mount Zion; Valley Memorial Hospital; Valleycare Medical Hospital; Woodland Memorial Hospital; Palomar Medical Center, Plaintiffs-Appellees-Cross-Appellants, v. Tommy G. THOMPSON, Secretary of Health and Human Services, Defendant-Appellant-Cross-Appellee.
Docket NumberNo. 02-15115.,No. 01-17512.
Decision Date18 March 2003
323 F.3d 782
COMMUNITY HOSPITAL OF THE MONTEREY PENINSULA; Alameda Hospital; Antelope Valley Medical Center; California Hospital Medical Center; California Pacific Medical Center; Cedars-Sinai Medical Center; Chinese Hospital; Corcoran District Hospital; Clovis Community Hospital; Colusa Community Hospital; Daniel Freeman Memorial Hospitals; Daniel Freeman Marina Hospital; Davies Medical Center; Eden Hospital Medical Center; Fallbrook Hospital District; Fresno Community Hospital; Glenn General Hospital; Henry Mayo Newall Memorial Hospital; Hospital of the Good Samaritan-Los Angeles;

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Huntington Memorial Hospital; Inter Community Medical Center; John Muir Medical Center; Kern County Medical Center; Laurel Grove Hospital; Loma Linda University Hospital; Marshall Hospital; Merrithew Memorial Hospital Medical Center; Pacific Coast Hospital; Pomerado Hospital; Presbyterian Intercommunity Hospital; Providence St. Joseph Medical Center-Burbank; Riverside Community Hospital; San Joaquin General Hospital; San Luis Obispo County General Hospital; San Mateo County General Hospital; Santa Marta Hospital; Sharp Coronado Hospital; Sharp Memorial Hospital; Sierra Community Hospital Siskiyou General Hospital/Fairchild Medical Center; St. John Regional Medical Center; St. Luke's Hospital; Summit Medical Center; Sutter Tracy Community Hospital; Tahoe Forest Hospital; Tri-City Medical Center; Tulare District Hospital; Tuolumme General Hospital; University of California Irvine Medical Center; University of California at San Francisco Medical Center; University of California San Francisco-Mount Zion; Valley Memorial Hospital; Valleycare Medical Hospital; Woodland Memorial Hospital; Palomar Medical Center, Plaintiffs-Appellees-Cross-Appellants,
v.
Tommy G. THOMPSON, Secretary of Health and Human Services, Defendant-Appellant-Cross-Appellee.
No. 01-17512.
No. 02-15115.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted November 4, 2002.
Filed March 18, 2003.

Page 784

Suzanne K. Yurk (argued), David W. Shapiro, Jocelyn Burton, San Francisco, CA, for the defendant-appellant-cross-appellee.

Sanford E. Pitler (argued), Carol Sue Janes, Vickie Joseph Williams, Seattle, WA; Donald W. Carlson, San Francisco, CA, for the plaintiffs-appellees-cross-appellants.

Appeal from the United States District Court for the Northern District of California; Vaughn R. Walker, District Judge, Presiding. D.C. No. CV-01-00142.

Page 785

Before STAPLETON,* O'SCANNLAIN, and FERNANDEZ, Circuit Judges.

OPINION

STAPLETON, Circuit Judge.


I. Overview

Appellant, Tommy Thompson, Secretary of the Department of Health and Human Services ("the Secretary"), challenges the district court's grant of summary judgment to the plaintiff hospitals ("the Providers"). At issue is the Secretary's obligation to reimburse the Providers for bad debts arising from the failure of Medicare Part B participants to make coinsurance and deductible payments under circumstances in which Medi-Cal, California's state Medicaid program, may be responsible for such payments.

Section 1395g(a) of Title 42 of the United States Code provides in part that "no [reimbursement] payments shall be made to any provider unless it has furnished such information as the Secretary may request in order to determine the amounts due such provider...." 42 U.S.C. § 1395g(a) (2002). Exercising this authority, the Secretary, throughout the relevant period, consistently required the Providers to submit evidence that they had billed Medi-Cal for coinsurance and deductible obligations and received a refusal to pay, known as a Remittance Advice or "R.A." The Providers found this "must bill" policy onerous for a number of reasons and undertook to develop a computer-based system intended to establish whether, and to what extent, Medi-Cal was liable for particular coinsurance or deductible payments under the applicable law. After the system was designed, the Providers asked if the Secretary would be willing to accept the data that the system would produce in lieu of evidence that Medi-Cal had refused to pay when billed. The Secretary declined to accept this tender, reaffirming the must-bill policy.

Because we find the must-bill policy to be a reasonable implementation of the reimbursement system and not inconsistent with the statute and regulations governing fiscal years 1989 through 1995 (the "relevant period"), we will reverse the summary judgment entered by the district court in favor of the Providers and remand with instructions that summary judgment be entered in favor of the Secretary.

II. The Medicare System
A. Medicare, generally

Medicare pays for covered medical care provided to eligible aged and disabled persons. 42 U.S.C. §§ 1395-1395ggg (2002). The Centers for Medicare and Medicaid Services ("CMS"), formerly the Health Care Financing Administration ("HCFA"), is the component of the Department of Health and Human Services that administers the Medicare program for the Secretary. CMS is headed by the Administrator, who acts on behalf of the Secretary in administrating the Medicare program.

Medicare is divided into two parts. Part A authorizes payments primarily for institutional care, including hospital inpatient services and skilled nursing facilities. 42 U.S.C. §§ 1395c-1395i-4. Generally, everyone who is eligible for Social Security benefits is also eligible for Part A benefits.

Part B pays for physicians' services, outpatient hospital services, and durable medical equipment. 42 U.S.C. §§ 1395j-1395w-4.

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Part B resembles a private insurance policy. Individuals elect to be covered by Part B. They pay premiums as well as coinsurance and deductibles. 42 U.S.C. §§ 1395j, 1395l, 1395r, 1395s. Reimbursement for outpatient hospital services provided to Part B enrollees is handled by private insurance companies, who serve as fiscal intermediaries ("Intermediaries") for the Medicare program. See 42 U.S.C. § 1395u.

B. Cost Shifting

The Medicare statute and regulations prohibit cost shifting. See 42 U.S.C. § 1395x(v)(1)(A) (2002); 42 C.F.R. § 413.80(d) (2002). Generally, cost shifting occurs in the following two ways: (1) the necessary costs of delivering health care to Medicare enrollees are borne by individuals who are not Medicare recipients,1 or (2) the necessary costs of delivering health care to the hospital's other patients not covered by Medicare are borne by Medicare.2 See 42 U.S.C. § 1395x(v)(1)(A) (stating that "the necessary costs of efficiently delivering covered services to individuals covered by the insurance programs established by this subchapter 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").

Part B enrollees are responsible for paying coinsurance and deductible amounts. Because the coinsurance and deductible amounts are sometimes uncollectible from the enrollee, Medicare reimburses the health care provider for this "bad debt" to prevent a cost shift from the Medicare recipient to individuals not covered by Medicare. See 42 C.F.R. § 413.80(d).

C. Crossover patients from state Medicaid programs

Medicaid is a federal-state program that enables states to provide necessary medical care to individuals whose resources are inadequate to pay for such care. See 42 U.S.C. §§ 1396-1396v. State Medicaid agencies may enter into a buy-in agreement with the Secretary whereby the State enrolls the poorest Medicare beneficiaries, some of whom are also eligible for Medicaid, into the Part B program. These patients are often called "crossover patients." Generally, the state agrees to pay the premiums, coinsurance, and deductibles for the crossover patients as part of its Medicaid program.

D. Medi-Cal crossover bad debts

Under 42 U.S.C. § 1396a(n), a state Medicaid program may impose a payment ceiling. The ceiling limits payment of the crossover patient's coinsurance and deductible to the difference between what the state would have paid for the service if the person had not been enrolled in Part B of Medicare and what Part B of Medicare actually did pay, up to the full amount of the coinsurance and deductible. Medi-Cal elected to impose such a ceiling in 1989.

For example, suppose the following facts: (1) a hospital incurs a cost of $100 in providing services to a crossover patient. (2) Medicare, under Part B, pays $80 of that cost. The amount representing the coinsurance and/or deductible usually paid by a non-crossover Part B enrollee is $20. If Medi-Cal determines that it would only pay $60 for the care provided to the crossover patient if the patient were not enrolled

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in Part B, then it will pay none of the deductible/coinsurance to the health care provider (60-80 < 0, therefore Medi-Cal pays none of the $20 coinsurance/deductible). However, if Medi-Cal determines that it would have paid $90 of the covered service, then it will pay the provider $10 of the deductible/coinsurance (90-80=10, therefore Medi-Cal pays for $10 of the $20 coinsurance/deductible).

In these examples, the health care provider is shortchanged by $20 and $10 respectively. To prevent cost shifting, Medicare, through the Intermediary, reimburses the provider for the amount over the Medi-Cal cost ceiling as a bad debt.

California's application of its payment ceiling to outpatient hospital services required each provider to prepare a detailed bill for Medi-Cal so that Medi-Cal could price the services as if it were the primary payer and compare that price to what Medicare had already paid. Medi-Cal would pay only the difference. The bill had to be hand-coded because Medi-Cal's electronic billing system was not compatible with Medicare's.

Shortly after Medi-Cal imposed the payment ceiling, the Providers asked the Intermediaries if they were required to bill Medi-Cal for amounts above the payment ceiling. Medi-Cal and the Intermediaries instructed the Providers that they were...

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51 practice notes
  • Maximum Comfort, Inc. v. Thompson, No. CIV. S-03-1584 LKK/PA.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • June 28, 2004
    ...manner in which the agency supplies construction of the statute is within its discretion. Cmty. Hosp. of Monterey Peninsula v. Thompson, 323 F.3d 782, 790 (9th Cir.2003). Thus, it is not necessary that the agency promulgate regulations, but it may properly determine benefits under the Medic......
  • Cove Associates Joint Venture v. Sebelius, No. 1:10-cv-01316 (BJR)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • March 26, 2012
    ...Medicaid liability for costs. JSM-370 also referenced a recent Ninth Circuit decision, Cmty. Hosp. of the Monterey Peninsula v. Thompson, 323 F.3d 782, 799 (9th Cir. 2003):In November of 1995, language was added in PRM-II Section 1102.3L (the cost report questionnaire) that allowed provider......
  • Estate of Landers v. Leavitt, Docket No. 06-4921-cv.
    • United States
    • U.S. Court of Appeals — Second Circuit
    • October 1, 2008
    ...and therefore do not receive Chevron deference. See Erringer v. Thompson, 371 F.3d 625, 629-33 (9th Cir. 2004); Cmty. Hosp. v. Thompson, 323 F.3d 782, 788, 791 (9th Cir.2003); see also Omohundro v. United States, 300 F.3d 1065, 1068 (9th Cir.2002) (per curiam) ("[A]n administrative agency's......
  • Oregon v. Ashcroft, No. 02-35587.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • May 26, 2004
    ...the fact that the Ashcroft Directive reverses the agency's earlier interpretation. See Cmty. Hosp. of the Monterey Peninsula v. Thompson, 323 F.3d 782, 792 (9th Cir.2003) ("An agency interpretation ... which conflicts with the agency's earlier interpretation is entitled to considerably less......
  • Request a trial to view additional results
51 cases
  • Maximum Comfort, Inc. v. Thompson, No. CIV. S-03-1584 LKK/PA.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • June 28, 2004
    ...manner in which the agency supplies construction of the statute is within its discretion. Cmty. Hosp. of Monterey Peninsula v. Thompson, 323 F.3d 782, 790 (9th Cir.2003). Thus, it is not necessary that the agency promulgate regulations, but it may properly determine benefits under the Medic......
  • Cove Associates Joint Venture v. Sebelius, No. 1:10-cv-01316 (BJR)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • March 26, 2012
    ...Medicaid liability for costs. JSM-370 also referenced a recent Ninth Circuit decision, Cmty. Hosp. of the Monterey Peninsula v. Thompson, 323 F.3d 782, 799 (9th Cir. 2003):In November of 1995, language was added in PRM-II Section 1102.3L (the cost report questionnaire) that allowed provider......
  • Estate of Landers v. Leavitt, Docket No. 06-4921-cv.
    • United States
    • U.S. Court of Appeals — Second Circuit
    • October 1, 2008
    ...and therefore do not receive Chevron deference. See Erringer v. Thompson, 371 F.3d 625, 629-33 (9th Cir. 2004); Cmty. Hosp. v. Thompson, 323 F.3d 782, 788, 791 (9th Cir.2003); see also Omohundro v. United States, 300 F.3d 1065, 1068 (9th Cir.2002) (per curiam) ("[A]n administrative agency's......
  • Oregon v. Ashcroft, No. 02-35587.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • May 26, 2004
    ...the fact that the Ashcroft Directive reverses the agency's earlier interpretation. See Cmty. Hosp. of the Monterey Peninsula v. Thompson, 323 F.3d 782, 792 (9th Cir.2003) ("An agency interpretation ... which conflicts with the agency's earlier interpretation is entitled to considerably less......
  • Request a trial to view additional results

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