Foothill Hosp.-Morris L. Johnston Mem. v. Leavitt

• Decision Date: 30 May 2008
• Docket Number: Civil Action No. 07-701(ESH).
• Citation: 558 F.Supp.2d 1
• Court: U.S. District Court — District of Columbia
• Parties: FOOTHILL HOSPITAL—MORRIS L. JOHNSTON MEMORIAL, a California nonprofit corporation, d/b/a Foothill Presbyterian Hospital, Plaintiff, v. Michael O. LEAVITT, Secretary of the United States Department of Health and Human Services, Defendant.

Page 1

558 F.Supp.2d 1

FOOTHILL HOSPITAL—MORRIS L. JOHNSTON MEMORIAL, a California nonprofit corporation, d/b/a Foothill Presbyterian Hospital, Plaintiff, v. Michael O. LEAVITT, Secretary of the United States Department of Health and Human Services, Defendant.

Civil Action No. 07-701(ESH).

United States District Court, District of Columbia.

May 30, 2008.

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

Christopher Blake Harwood, U.S. Attorney's Office, Linda L. Keyser, U.S. Department of Health and Human Services, Washington, DC, for Defendant.

MEMORANDUM OPINION

ELLEN SEGAL HUVELLE, District Judge.

Plaintiff is a Medicare provider seeking reimbursement for the unpaid debts of Medicare beneficiaries. Defendant denied plaintiffs reimbursement claims, ruling that the debts could not be deemed "uncollectible" under 42 C.F.R. § 413.89(e) because plaintiff had referred these bad debts to an outside collection agency. Plaintiff argues that defendant's current view 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. Because the Court finds that defendant's decision violates the Bad Debt Moratorium, plaintiffs summary judgment motion will be granted and defendant's motion will be denied.

BACKGROUND

I. STATUTORY AND REGULATORY BACKGROUND

Medicare is a federally funded system of health insurance for the aged and disabled. 42 U.S.C. § 1395 et seq. The program is administered by the Centers for Medicare and Medicaid Services ("CMS"),¹ under the direction of the Secretary of the United States Department of Health and Human Services ("Secretary"). 42 U.S.C. § 1395kk; 42 C.F.R. § 400.200 et seq. When a Medicare provider treats a beneficiary of the program, it collects coinsurance and deductible payments from the patient, and it then seeks reimbursement for the remaining costs from the Medicare program. (Compl. ¶¶ 10, 12.) The provider initiates the reimbursement process by filing a Medicare cost report with its fiscal intermediary, a private insurance company that processes payments on behalf of CMS. (Def.'s SJ Mot. 2-3.)² The fiscal intermediary responds with a Notice of Program Reimbursement ("NPR"), which informs the provider which of its reimbursement requests have been accepted or denied. (Id.) If a request is denied, the provider can appeal the fiscal intermediary's decision to the Provider Reimbursement Review Board ("PRRB") within 180 days of the issuance of the NPR. 42 U.S.C. § 1395oo(a); 42 C.F.R. § 405.1841. The PRRB's decision is final unless the CMS Administrator ("Administrator") elects to review it. 42 C.F.R. § 405.1875(a)(1).

The Medicare statute prohibits cost shifting, which means that the costs for treating Medicare beneficiaries are not to be borne by those who are not Medicare recipients and their non-Medicare costs are not to be borne by the Medicare program. 42 U.S.C. § 1395x(v)(1)(A)(i). As a result, when a provider is unable to collect coinsurance and deductible payments from Medicare beneficiaries, the Medicare program reimburses the provider for these bad debts so that the costs will not be passed on to non-Medicare patients. 42 C.F.R. § 413.89(d). Providers must demonstrate that their bad debts satisfy four criteria before they can be reimbursed:

(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; and

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

Id. § 413.89(e). See also Provider Reimbursement Manual ["PRM"] § 308 (reiterating these four criteria). A key question is when a delinquent account becomes "uncollectible" so that the provider qualifies for reimbursement.³ The government has been struggling with this issue for decades, and its actions have often been inconsistent. See, e.g., Hennepin County Med. Ctr. v. Shalala, 81 F.3d 743, 747 (8th Cir.1996) (discussing a 1986 proposal by the HHS Inspector General to radically restructure the system for handling bad debts).

On August 1, 1987, in an attempt to shield Medicare providers from the Inspector General's proposed policy changes, id. at 750-51, Congress enacted what became known as the Bad Debt Moratorium:

SEC. 4008. OTHER PROVISIONS RELATING TO PAYMENT FOR INPATIENT HOSPITAL SERVICES,

(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, 101 Stat. 1330 (reprinted in 42 U.S.C. § 1395f note). Thereafter, the HHS Inspector General continued to press for closer scrutiny of bad debt reimbursement requests. Hennepin, 81 F.3d at 747. In fact, in the fiscal year following the Bad Debt Moratorium, fiscal intermediaries disallowed forty percent of the bad debt claims. Id. In response, Congress added the following language in 1988 to the Bad Debt Moratorium:

SEC. 802. MAINTENANCE OF BAD DEBT COLLECTION POLICY. Effective as of the date of the enactment of the Omnibus Budget Reconciliation Act "42 USC 1395f note" of 1987, section 4008(c) of such Act is amended by inserting after "reasonable collection effort" the following: ",including 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, 102 Stat. 3342 (reprinted in 42 U.S.C. § 1395f note). In 1989, Congress again amended the statute by adding the following:

SEC. 6023. CLARIFICATION OF CONTINUATION OF AUGUST 1987 HOSPITAL BAD DEBT RECOGNITION POLICY, (a) IN GENERAL.— Section 4008(c) of the Omnibus Budget Reconciliation Act of 1987 is amended by adding at the end the following: "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, 103 Stat. 2106 (reprinted in 42 U.S.C. § 1395f note).

With this last amendment, the Bad Debt Moratorium clearly prevents the Secretary from changing a provider's established bad debt policy, but the parties disagree about whether it also prohibits changes to the Secretary's own policies. Plaintiff argues that the original version already barred changes to the Secretary's own policies, and that the final amendment merely introduced an additional restriction with respect to an individual provider's policies. (Pl.'s SJ Mot. 14-16.)⁴ Defendant contends that the final amendment is not an additional restriction, but rather a clarification of the Moratorium's original intent. (Def.'s SJ Mot. 22.) Under defendant's view, the Secretary is free to make changes to his own policies and is restricted only in modifying the individual policies of individual Medicare providers. (Id.)

II. PROCEDURAL HISTORY

Plaintiff, a Medicare provider, sought reimbursement for unpaid Medicare deductibles and coinsurance in its fiscal year ending September 30, 1995. (Compl. ¶ 22.) These bills had been outstanding for more than 300 days on average when plaintiff simultaneously wrote them off as uncollectible and sent them to an outside collection agency. (Pl.'s SJ Mot. 8; Def.'s SJ Mot. 18.) Plaintiff handled these accounts in the same manner that it handled non-Medicare accounts. (Compl. ¶ 22.)

Plaintiffs fiscal intermediary, Blue Cross of California ("Blue Cross"),⁵ disallowed $60,993 of its bad debt claims on December 16, 1996. (Compl. ¶ 23.) The position of Blue Cross was that "collection efforts do not come to an end until the provider makes a final decision to cease its efforts on pursuing a bad debt item, which is after the outside collection agency ceases the collection efforts." (A.R. 152.)

Plaintiff appealed to the PRRB. It argued that it had met all of the statutory criteria for bad debts reimbursement, or in the alternative, that the Blue Cross decision constituted a change in policy in violation of the Bad Debt Moratorium. (A.R. 21.) On December 19, 2006, the PRRB ruled in plaintiffs favor:

Based upon the Provider's extensive in-house collection efforts that included numerous letters and active pursuit of claims for an average of over 300 days, the Board finds that the collections efforts documented by the Provider met the Secretary's regulatory requirements, and they were completed before the Provider determined the accounts to be uncollectible and worthless. In addition, the Board finds that the conclusive presumption of collectibility based on outside collection account status runs afoul of well established precedent.

(Id. 25.)

The CMS Administrator elected to review the PRRB decision. (Compl. ¶ 26.) On February 16, 2007, it issued an opinion overruling...