Dist. Hosp. Partners, L.P. v. Sebelius, Civil Action No. 11–1717 (GK).

• Decision Date: 26 March 2013
• Docket Number: Civil Action No. 11–1717 (GK).
• Citation: 932 F.Supp.2d 194
• Parties: DISTRICT HOSPITAL PARTNERS, L.P. d/b/a George Washington University Hospital, et al., Plaintiffs, v. Kathleen G. SEBELIUS, Secretary of the United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

932 F.Supp.2d 194

DISTRICT HOSPITAL PARTNERS, L.P. d/b/a George Washington University Hospital, et al., Plaintiffs,

v.Kathleen G. SEBELIUS, Secretary of the United States Department of Health and Human Services, Defendant.

Civil Action No. 11–1717 (GK).

United States District Court, District of Columbia.

March 26, 2013.

Robert L. Roth, Hooper, Lundy & Bookman, P.C., Washington, DC, Jonathan P. Neustadter, Hooper, Lundy & Bookman, PC, Los Angeles, CA, for Plaintiffs.

Javier M. Guzman, U.S. Attorney's Office, Washington, DC, for Defendant.

MEMORANDUM OPINION

GLADYS KESSLER, District Judge.

Plaintiffs are a group of commonly owned hospitals that participate in the Medicare program. They bring this action against Kathleen Sebelius in her official capacity as Secretary of the Department of Health and Human Services (“Defendant” or “Secretary”) after the Secretary disallowed various Medicare bad debts claimed by Plaintiffs in the fiscal years ending in 2003, 2004, and 2005. Plaintiffs challenge that decision pursuant to the Medicare Act, 42 U.S.C. § 1395 et seq. (“the Act”), and the Administrative Procedure Act (“APA”), 5 U.S.C. § 551 et seq.

This matter is before the Court on Plaintiffs' Opening Brief [Dkt. No. 14], which this Court construes as a Motion for Summary Judgment,¹ Defendant's Motion for Summary Judgment and Opposition to Plaintiffs' Opening Brief [Dkt. No. 19], Plaintiffs' Opposition and Reply Brief [Dkt. No. 22], and Defendant's Reply to Plaintiffs' Opposition and Reply to Defendant's Motion for Summary Judgment [Dkt. No. 28]. Upon consideration of the briefs, the administrative record, and the entire record herein, and for the reasons stated below, Plaintiffs' Motion for Summary Judgment is granted and Defendant's Motion for Summary Judgment is denied.

I. BACKGROUNDA. Statutory and Regulatory Framework

1. The Medicare Program

Title XVIII of the Social Security Act established the Medicare program, which provides medical care for the elderly and disabled. 42 U.S.C. § 1395 et seq.; see also Kaiser Found. Hosps. v. Sebelius, 708 F.3d 226, 227–28 (D.C.Cir.2013) (citation omitted). The Medicare program is administered by the Secretary of Health and Human Services through the Center for Medicare and Medicaid Services (“CMS”). Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006). Medicare providers enter into written agreements with the Secretary to provide services to eligible individuals. 42 U.S.C. § 1935cc. Fiscal intermediaries, private companies that process payments on behalf of CMS, then make interim payments to providers, subject to subsequent adjustments. 42 U.S.C. § 1395h.

To calculate these adjustments, providers are required to submit an annual cost report to their fiscal intermediary identifying total costs incurred during the course of the fiscal year. 42 C.F.R. §§ 413.20, 413.24. Fiscal intermediaries then analyze and audit the cost report and inform the provider of a determination of the amount of total Medicare reimbursement to which they are entitled, referred to as the notice of amount of program reimbursement (“NPR”). 42 C.F.R. § 405.1803; see also Regions Hosp. v. Shalala, 522 U.S. 448, 452, 118 S.Ct. 909, 139 L.Ed.2d 895 (1998).

If a provider is dissatisfied with the intermediary's final determination of its NPR, and if the provider meets the requirements set forth in 42 U.S.C. § 1395 oo(a), the provider may appeal the determination to the Provider Reimbursement Review Board (“PRRB”). 42 U.S.C. § 1395 oo(a)(1)(A)(ii). A decision of the PRRB is final unless the Secretary, on her own motion, and within 60 days after the provider is notified of the PRRB decision, reverses, affirms, or modifies the PRRB's decision. 42 U.S.C. § 1395 oo(f). The Secretary has delegated her final authority to modify, affirm, or reverse PRRB decisions to the Administrator of CMS (“Administrator”). 42 U.S.C. 1395 oo(f)(1); 42 C.F.R. § 405.1875.

Following a final decision of the PRRB or the Administrator, a provider is entitled to file a civil action in the United States District Court for the District of Columbia to seek judicial review of the final agency action. 42 U.S.C. § 1395 oo(f).

2. Medicare Bad Debt Reimbursements

Medicare “bad debts” are unpaid amounts, such as deductibles or copayments, owed by Medicare patients for covered Medicare services. 42 C.F.R. § 413.89(e); see also42 C.F.R. § 413.89(b)(1). These bad debts are deductions from revenue and are not to be included in costs reported by the provider. 42 C.F.R. § 413.89(a). However, the Medicare statute prohibits cost-shifting, which means that costs associated with services provided to Medicare beneficiaries cannot be borne by non-Medicare patients, and vice versa. 42 U.S.C. § 1395x(v)(1)(A)(i); Walter O. Boswell Mem'l Hosp. v. Heckler, 749 F.2d 788, 791 (D.C.Cir.1984) (noting that statute prohibits “cost-shifting” between Medicare and non-Medicare patients). In order to prevent cost-shifting, a provider unable to collect from a Medicare beneficiary can claim the amounts owed as “bad debts” and be reimbursed under Medicare if the provider meets certain criteria specified in 42 C.F.R. § 413.89(e).

According to 42 C.F.R. § 413.89(e), bad debts attributable to unpaid Medicare costs are reimbursable if: (1) the debt is “related to covered services and derived from deductible and coinsurance amounts”; (2) the provider establishes that “reasonable collection efforts were made”; (3) the debt was “actually uncollectible when claimed as worthless”; and (4) “sound business judgment” establishes that there is “no likelihood of recovery at any time in the future.” Id. § 413.89(e).

Chapter 3 of the Medicare Provider Reimbursement Manual,² Part I (“PRM”), contains the Secretary's interpretation of these Regulations. Catholic Health Initiatives v. Sebelius, 617 F.3d 490, 491 (D.C.Cir.2010) (noting that PRM contains “guidelines and policies” but “does not have the effect of regulations”). Three sections of the PRM are relevant.

First, PRM section 310 defines a “reasonable collection effort” of Medicare debts as one that is “similar to the effort the provider puts forth to collect comparable amounts from non-Medicare patients.” Administrative Record (“AR”) 254. It specifically provides that a “provider's collection effort may include the use of a collection agency.” Id.

Second, PRM section 310.2 sets forth a “presumption of noncollectibility,” which establishes that if, after reasonable and customary attempts to collect the unpaid amounts have failed, the debt remains unpaid more than 120 days from the date the first bill was mailed to the Medicare beneficiary, the debt “may be deemed uncollectible.” AR 255.

Third, PRM section 316 establishes a system to ensure that any debts deemed uncollectible that are later recovered by the provider are subtracted from benefits due to the provider in the reporting period in which those payments are recovered. AR 279.

3. The Medicare Bad Debt Moratorium

In 1987, Congress enacted what became known as the “Bad Debt Moratorium.” See Foothill Hosp.-Morris L. Johnston Mem'l v. Leavitt, 558 F.Supp.2d 1, 3 (D.D.C.2008) (“Foothill ”) (citing Hennepin Cty. Med. Ctr. v. Shalala, 81 F.3d 743, 747 (8th Cir.1996)) (noting that Congress enacted the Moratorium in response to the policy changes proposed by the Inspector General of Health and Human Services).³ The Moratorium reads:

(c) CONTINUATION OF BAD DEBT RECOGNITION FOR HOSPITAL SERVICES.—In making payments to hospitals under title XVIII 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).

Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100–203 § 4008, 101 Stat. 1330 (reprinted in 42 U.S.C. § 1935f note).

In 1988, Congress amended the Moratorium to further define “reasonable collection effort,” defining the term to include “criteria for indigency determination procedures, for record keeping, and for determining whether to refer a claim to an external collection agency.” Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100–647 § 802, 102 Stat. 3798 (reprinted in 42 U.S.C. § 1935f note).

In 1989, Congress amended the Moratorium again. It added the following sentence: “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.” Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101–239, § 6023, 103 Stat. 2106 (reprinted in 42 U.S.C. § 1935f note).

Thus, the Moratorium, as amended, contains two restrictions on the Secretary. First, the Secretary is prohibited from making any changes to the agency's bad debt policy in effect on August 1, 1987. See Foothill, 558 F.Supp.2d at 5–9 (rejecting the Secretary's argument that she “is free to make changes to [her] own policies and is restricted only in modifying the individual policies of individual Medicare providers” in light of the clear statutory text and the court's view of the historical context in which the statute was passed). Second, the Secretary is prohibited from requiring a provider to change bad debt policies it had in place on August 1, 1987. Id. at 4 (noting that the Bad Debt Moratorium “clearly prevents the Secretary from changing...