Gci Health Care Centers, Inc. v. Thompson

• Citation: 209 F.Supp.2d 63
• Decision Date: 25 April 2002
• Docket Number: No. 00-CV-2426.,00-CV-2426.
• Parties: GCI HEALTH CARE CENTERS, INC., d/b/a Village Green Nursing Home, Plaintiff, v. Tommy THOMPSON, Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

209 F.Supp.2d 63

GCI HEALTH CARE CENTERS, INC., d/b/a Village Green Nursing Home, Plaintiff, v. Tommy THOMPSON, Secretary of Health and Human Services, Defendant.

No. 00-CV-2426.

United States District Court, District of Columbia.

April 25, 2002.

Thomas C. Fox, Reed, Smith, Shaw & McClay, L.L.P., Washington, DC, for GCI Health Care Centers, Inc., dba Village Green Nursing Home, plaintiff.

Mark E. Nagle, U.S. Attorney's Office, Washington, DC, Jonathan C. Brumer, U.S. Department of Health & Human Services, Health Care Financing Division, Baltimore, MD, for Tommy G. Thompson, Secretary, Department of Health and Human Services, federal defendant.

MEMORANDUM OPINION

KOLLAR-KOTELLY, District Judge.

This case comes before the Court on the parties' cross motions for Summary Judgment pursuant to Federal Rule of Civil Procedure 56(c). Plaintiff, GCI Health Care Centers d/b/a Village Green Nursing Home ("Village Green"), requests judicial review of the Secretary of Health and Human Services' ("Secretary") denial of Plaintiff's request for reimbursement of Medicare "bad debts." Upon review of the parties' motions for summary judgment, corresponding memoranda of law, oppositions and replies thereto, notice of and response to Plaintiff's supplemental authority, the administrative record, and the relevant law, the Court will deny Plaintiff's motion and grant Defendant's motion.

BACKGROUND

A. Medicare Program Statutory and Regulatory Framework

The Secretary of Health and Human Services is granted the authority to promulgate rules and regulations implementing and interpreting Title XVIII of the Social Security Act, more commonly known as the Medicare Act. See 42 U.S.C. § 1395x(v)(1)(A). Under this Act, participating health care providers are reimbursed for the "reasonable costs" of services that they provide to Medicare patients. Id. Reasonable costs are defined as "the cost[s] actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services." Id.

The Secretary has delegated the administration of the Medicare regulations to the Center for Medicare and Medicaid Services ("CMS"), previously the Health Care Financing Administration ("HCFA")¹, and fiscal intermediaries. See 42 U.S.C. § 1395h, 1395u. The fiscal intermediaries, generally private insurance companies, receive an annual "cost report" from the providers detailing the providers' requests for reimbursement of reasonable costs. See 42 U.S.C. § 1395g(a). The intermediaries review and audit the report to determine whether the claimed costs are "reasonable" and are properly apportioned between payors. Id. 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, 42 U.S.C. § 1395oo(f)(1), and has delegated that authority to CMS. 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).

Medicare is composed of two parts, Part A, which deals with hospital and related costs, and Part B, which covers most therapeutic services. Reimbursement for reasonable costs is available to providers offering both "Part A" and "Part B" services. Part B is a voluntary program and is considered "supplemental medical insurance" that requires a Medicare enrollee to pay monthly premiums, annual deductibles and additional "fees per service" in the form of coinsurance or co-payments in order to receive coverage. 42 U.S.C. § 1395, 42 C.F.R. § 410.3.

Medicaid, Title XIX of the Social Security Act, is a joint federal/state insurance program providing medical coverage for medically and categorically needy persons. See 42 U.S.C. § 1396, et seq. 42 C.F.R. Part 430. States are not required to participate in the Medicaid program, but those that choose to participate receive financial assistance from the federal government. Id. States are required to submit their Medicaid plans to CMS for approval and, once approved, states are responsible for administering the programs. In some instances a person is eligible for both Medicare and Medicaid services. These persons, often referred to as "dual eligibles," may not be able to afford the premium, deductible, and coinsurance costs associated with Part B Medicare services. In order to remedy this problem, the Medicaid Act allows states to use Medicaid funds to pay these Part B costs for dual eligibles. See 42 U.S.C. §§ 1396a, 1396d.

B. Arizona's State Medicaid Program

Arizona chose to provide Medicaid services to its needy residents and to that end implemented the Arizona Health Care Cost Containment System ("AHCCCS"). The program operates through two components, one that deals with acute care services, and the Arizona Long Term Care System ("ALTCS"), which deals with long term care services. Pl.Mem. at 6-7. ALTCS subcontracts with "program contractors" responsible for the direct administration of the Arizona plan. County agencies and Medicaid recipients enroll directly with program contractors, and health care providers are required to submit their claims and bills for reimbursement directly to these contractors. Id. In this case, Plaintiff contracted with Maricopa Managed Care Systems ("MMCS") and under that contract was required to submit its reimbursement claims to MMCS. Id. at 7. Plaintiff did not submit bills directly to ALTCS or AHCCCS. Administrative Record ("AR") at 328.

Arizona's plan provided in part that "a person determined dual eligible shall be entitled to the following benefits and services: (2) payment of Medicare Part B premiums, coinsurance, and deductibles." Arizona Administrative Code §§ R9-29-301 and R9-29-302. "Program contractors and other providers shall be responsible for providing the covered services specified in R9-29-302 to dual eligible and enrolled members in accordance with the provisions specified in A.A.C. Title 9, Chapter 28." Notwithstanding this language in the state plan, MMCS sent a letter on October 23, 1996, with a memorandum to Plaintiff indicating that it would not provide reimbursements for Part B deductible and coinsurance amounts for Medicare/Medicaid dual enrollees. AR at 297 (January 23, 1996, memorandum from Andy Doley of MMCS) ("All authorized therapy services performed on MMCS Medicare patients should be billed to Medicare for payment in full. MMCS will not reimburse for these services.")

C. The Denial of Reimbursement for Bad Debts

Plaintiff is a Skilled Nursing Facility ("SNF") that provides long term services primarily to Medicaid enrollees, Pl.Mem. at 7, and it is entitled to reimbursements for the reasonable costs of caring for its residents. 42 U.S.C. § 1395x(v)(1)(A). Plaintiff's reasonable costs include "bad debts" which are "amounts considered to be uncollectible from accounts and notes receivable that were created or acquired in providing services." 42 C.F.R. § 413.80. Additionally, Part B "deductibles and coinsurance amounts are reimbursable under the Program." HCFA Provider Reimbursement Manual ("PRM") § 300.²

Plaintiff submitted its cost report for fiscal year 1994 to its Medicare fiscal intermediary, Blue Cross/Blue Shield of Arizona ("BC/BS-AZ" or "Intermediary"), requesting reimbursement of $55,780 in bad debts related to Part B deductible and coinsurance payments for dual eligible enrollees. Plaintiff believed that the state Medicaid plan would not cover these claimed amounts, based on MMCS' October 23, 1996, communication. Plaintiff at no time attempted to bill or collect these Part B costs from MMCS or the State. AR at 259, 434. The Intermediary reviewed Plaintiff's cost report and disallowed the bad debts claim on the grounds that the State was obligated to reimburse Plaintiff for the requested amounts under the Medicaid plan and Plaintiff failed to undertake reasonable collection efforts to obtain that payment from the State. AR at 280, 290-99, 433. Plaintiff appealed this decision to the PRRB claiming that the State, through MMCS, refused to reimburse providers for Part B deductibles and coinsurance, and thus, it was unnecessary to first bill the state before claiming the amounts as Medicare bad debts. The PRRB agreed with Plaintiff and reversed the intermediary's disallowance. AR at 37. Subsequently, the Deputy Administrator of HCFA, acting for the Secretary, reviewed the PRRB decision and reinstated the fiscal intermediary's denial of reimbursement. AR at 1-8.

The Deputy Administrator of HCFA relied on PRM § 322 which provides in part "where the state is obligated either by statute or under the terms of its [Medicaid] plan to pay all, or any part, of the Medicare deductible or coinsurance amounts, those amounts are not allowable as bad debts under Medicare." The Secretary contends that Arizona was obligated to pay the deductible and coinsurance portions of Part B services for dual eligibles, and thus, Plaintiff was not entitled to reimbursement for those amounts as Medicare bad debts. Def.Mem. at 14, AR at 7.

Plaintiff appeals the Secretary's determination arguing that (1) the Secretary's decision to deny bad debt reimbursement is contrary to applicable law, (2) the Secretary's decision is not supported by substantial evidence in the administrative record, (3) the Secretary impermissibly relied on PRM § 322, a rule that was not properly promulgated pursuant to notice and comment rule making as required by 5 U.S.C. § 553, and (4) the Secretary's decision was arbitrary and capricious. See Pl.Mem. at 13. The Secretary responds that pursuant to the Arizona Medicaid program, the state was obligated to pay for Part B deductibles and coinsurance reimbursements for dual eligible enrollees. Defendant further contends that Plaintiff did not undertake reasonable collection efforts because it made no attempt to collect the requested amounts from the...