Harris County Hosp. Dist. v. Shalala, Civ. A. No. H-94-241.

• Decision Date: 31 August 1994
• Docket Number: Civ. A. No. H-94-241.
• Citation: 863 F. Supp. 404
• Parties: HARRIS COUNTY HOSPITAL DISTRICT, Plaintiff, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — Southern District of Texas

863 F. Supp. 404

HARRIS COUNTY HOSPITAL DISTRICT, Plaintiff, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant.

Civ. A. No. H-94-241.

United States District Court, S.D. Texas, Houston Division.

August 31, 1994.

COPYRIGHT MATERIAL OMITTED

Arthur E. Murphy, III, Houston, TX, for plaintiff.

Larry C. Marcy, Asst. U.S. Atty., Houston, TX, for defendant.

OPINION ON SUMMARY JUDGMENT

HUGHES, District Judge.

1. Introduction.

After slugging it out through three administrative levels of review the parties have reached this court. In one corner is the acknowledged bureaucratic heavyweight champion of the world, The United States' Department of Health and Human Services. In the other corner is the bureaucratic welterweight challenger, the Harris County Hospital District. Two issues are before the court. It is a split decision.

2. The System.

The Department of Health and Human Services administers a government program to furnish medical benefits to the elderly. That program is commonly known as Medicare. Medicare is run by the Health Care Financing Administration.

The financing administration has claims managers for Medicare under contract who are fiscal intermediaries. In this case, the agent is Blue Cross/Blue Shield. Blue Cross/Blue Shield subcontracts among its constituent parts; in this case, the sub-agent is Blue Cross/Blue Shield, Texas (Blue Cross). The intermediary's administration of Medicare in Texas is governed by federal statute, the federal regulations of the financing administration, and the rules and guidelines in the financing administration's provider reimbursement manual.

In administering Medicare, the intermediary deals directly with hospitals that receive Medicare benefits on behalf of their patients. In this case the Harris County Hospital District operates two hospitals that accept Medicare patients. It is the intermediary's responsibility to ensure that the district is reimbursed for its Medicare expenses and that the district follows the requirements of the program.

3. The Procedural History of the Disputes.

The district requested that Blue Cross:

A. Reimburse it for the allowable bad debts of its indigent patients for fiscal year 1988; and

B. Allow it, for depreciation purposes, to change the useful lives of the two hospitals that it closed in 1989 and 1990.

Blue Cross denied both requests.

The district appealed to the Provider Reimbursement Review Board, and that panel reversed, holding for the district on both issues. The secretary of Health and Human Services conducted the final administrative review, and she reversed the review board, agreeing with Blue Cross' initial decision to deny both claims. The district appealed to court.

4. Legal Standards.

The parties have filed cross-motions for summary judgment on the administrative record. In a review of executive agency action, this court determines whether that action was "arbitrary, capricious, an abuse of discretion, unsubstantiated by substantial evidence, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). The secretary's interpretation of agency regulations is entitled to control, provided that it is not plainly erroneous or inconsistent with the regulation. Stinson v. United States, ___ U.S. ___, ___, 113 S.Ct. 1913, 1919, 123 L.Ed.2d 598 (1993). This court's review will be critical and careful. The role of an independent judiciary requires more rigor in its review of the administrative process than a rubber stamp. See Acadian Gas Pipeline Sys. v. FERC, 878 F.2d 865, 868 (5th Cir. 1989). If a statute is involved and if the intent of Congress is clear, both the agency and this court must give effect to the unambiguous enacted intent of Congress. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984).

A. ALLOWABLE BAD DEBTS

5. Background.

Like most medical plans, Medicare requires certain deductible and coinsurance amounts to be the responsibility of the patient. See 42 C.F.R. §§ 409.80-409.89; 410.152; 410.160. Many patients who receive care at hospitals, however, do not have the funds to pay these amounts and, in fact, never pay the hospitals. Medicare will reimburse the hospitals for these bad debts if they meet the regulatory criteria. See 42 C.F.R. § 413.80(e).

For the year at issue and many years earlier, the district used an income test to establish indigence for both its Medicare and non-Medicare patients. It did not inquire about assets. To establish the patient's income the district relied on a patient's statement of indigence as supported by check stubs, social security benefit checks, or a letter from an employer. If a patient had absolutely no income the district accepted the patient's declaration of that fact. After establishing income and dependents, the district divided patients into five groups, ranging from no payment, through three different partial payments, to full payment. The district then issued an eligibility card for its patients with the payment classification. The Medicare patients' eligibility cards issued between 1976 and 1988 had an expiration date of 1999.

Blue Cross accepted the district's indigence determinations for all years before 1988 and reimbursed the district accordingly. In the audits of the district that Blue Cross conducted over those years, not one adjustment had ever been based on the district's policy for determining indigence only on income. From May through July 1987, the Office of Inspector General of Health and Human Services performed audits of intermediaries and hospitals throughout the country and concluded that there were substantial overpayment by Medicare for bad debts. The office of inspector general issued its report in 1988.

The district was one of three providers in Texas to be audited. Prompted by the audit, Blue Cross disallowed the district's bad debt claim in full for fiscal year 1988. The disallowance was based on the district's not using an asset test in addition to income level to determine indigence. Blue Cross did not determine whether patients would not have been indigent if an asset evaluation had been used. It simply denied reimbursement for all Medicare patients because an asset test was not also used. Similar disallowances were made across the country.

6. The Statutory, Regulatory, and Interpretive Scheme.

Medicare will reimburse a hospital for bad debts if the debt meets these regulatory criteria.

A. The debt must be related to covered services and derived from deductible and coinsurance amounts.

B. The district must be able to establish that reasonable collection efforts were made.

C. The debt must be actually uncollectible when claimed as worthless.

D. Sound business judgment must establish that there was no likelihood of recovery in the future.

42 C.F.R. § 413.80(e). The manual for provider reimbursement review interprets the regulation to allow a hospital to establish that it was reasonable not to try to collect solely by the hospital's establishing that the patient was indigent. The manual has guidelines for determining indigence.

A. The patient's indigence must be determined by the provider, not by the patient, i.e., a patient's signed declaration of his inability to pay his medical bills cannot be considered proof of indigence.

B. The provider should take into account a patient's total resources, which would include, but are not limited to, an analysis of assets (only those convertible to cash and unnecessary for the patient's daily living), liabilities, income, and expenses. In making this analysis the provider should take into account extenuating circumstances that would affect the determination of the patient's indigence.

C. The provider must determine that no source other than the patient would be legally responsible for patient's medical bill, e.g., Title XIX, local welfare agency, and guardian.

D. The patient's file should contain documentation of the method by which indigence was determined in addition to all backup information to substantiate the determination.

Provider Reimbursement Review Manual, HCFA Pub. 15-1, § 312 (emphasis added).

Congress became aware of the move within the department to change the way hospitals accounted for their bad debt. In three successive years congress enacted legislation addressing the issue. In 1987 Congress imposed a moratorium on Health and Human Services's making a change in policy on reimbursements for bad debts.

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).

Section 4008(c) of the Omnibus Budget Reconciliation Act of 1987, Pub.L. No. 100-203 (Dec. 22, 1987).

The following year congress amended the moratorium by adding at the end of the paragraph more specific language.

including criteria for indigence determination procedures, for record keeping, and for determining whether to refer a claim to an external collection agency.

Section 8402 of the Technical and Miscellaneous Revenue Act of 1988, Pub.L. No. 100-647 (Nov. 10, 1988).

Congress made one more amendment to the statue one year later by adding a sentence to the end of the paragraph.

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 indigence 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

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