Hennepin County Medical Center v. Shalala, 94-3067

Citation81 F.3d 743
Decision Date09 April 1996
Docket NumberNo. 94-3067,94-3067
Parties, Medicare & Medicaid Guide P 44,124 HENNEPIN COUNTY MEDICAL CENTER, Plaintiff-Appellee, v. Donna E. SHALALA, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

Appeal from the United States District Court for the District of Minnesota; Paul Magnuson, Judge.

Jeffrica Jenkins Lee, Washington, DC, argued (Anthony J. Steinmeyer, on the brief), for appellant.

Dennis M. Barry, Washington, DC, argued, for appellee.

Before HANSEN, GIBSON and MURPHY, Circuit Judges.

DIANA E. MURPHY, Circuit Judge.

The Secretary of Health and Human Services Donna Shalala appeals from a judgment in favor of Hennepin County Medical Center (HCMC). HCMC sought review in the district court of the Secretary's decision to disallow some of its claims for reimbursement of bad debts related to Medicare patients. Both sides moved for summary judgment, and the district court granted the motion of HCMC after concluding that several amendments to the Medicare Act (Title XVIII of the Social Security Act, as amended, 42 U.S.C. § 1395 et seq.) prevent the Secretary from disallowing the claims. We affirm in part, reverse in part, and remand.

Medicare patients are often responsible for both deductible and coinsurance payments for hospital care. When Medicare patients fail to make these payments to the care providers, the government will reimburse hospitals if they have made reasonable collection efforts. 42 C.F.R. § 413.80(e). Congress authorized the Secretary to promulgate regulations to ensure that hospitals would not be forced to shift these costs to non-Medicare patients. 42 U.S.C. § 1395x(v)(1)(A)(i). In order to qualify for reimbursement, hospitals must comply with a network of collection, record keeping, and reporting regulations and rules. This case involves a decision by the Secretary to disallow a reimbursement for 1983 which had already been made to HCMC.


Hospitals that provide Medicare services may prepare a reimbursement request which includes deductible and coinsurance amounts owed, but not paid, by Medicare patients. The Secretary employs private entities, called intermediaries, to review the requests made by provider hospitals. Blue Cross & Blue Shield of Minnesota was the intermediary used by the Secretary to review HCMC's reimbursement requests.

A provider may seek review by the Provider Reimbursement Review Board (PRRB) of an intermediary's decision regarding a reimbursement request. 42 C.F.R. §§ 405.1835, 405.1841. Following a PRRB ruling, either party may request that the Administrator of the Health Care Financing Administration (HCFA), an agency of the Department of Health and Human Services, exercise his discretion to review the case. 42 C.F.R. § 405.1875. If the Administrator declines to review the case, the PRRB decision becomes the decision of the Secretary. Id. Otherwise, the Administrator's decision is considered the decision of the Secretary. Id. In either event, the provider may seek judicial review under most circumstances. 42 U.S.C. § 1395oo (f)(1); 42 C.F.R. § 405.1877. Federal jurisdiction in this case also is based on the Administrative Procedure Act, 5 U.S.C. § 701-706.

For HCMC's fiscal year beginning January 1, 1983, it reported that Medicare patients had failed to make roughly $500,000 in payments. Blue Cross did a full field audit of the request in early 1985 and found that some of the services listed in the request were not eligible for reimbursement under Medicare. 1 It reduced the claimed amount accordingly and then issued a notice of program reimbursement in September 1985. As a result HCMC received roughly $385,000 in reimbursement for Medicare bad debts.

During the audit the intermediary also requested information regarding HCMC's collection efforts directed at Medicare bad debt patients. The HCMC business office manager provided the hospital's written collection policies and assured the auditor that HCMC used the same methods of collection regardless of a patient's Medicare eligibility.

A year later, Blue Cross was auditing HCMC's 1985 reimbursement request. During this audit, the intermediary was concentrating on reviewing the bad debt collection policies of providers. Blue Cross asserts that the HCMC business office manager told the auditor that it did not pursue the bad debts of Medicare patients as vigorously as those of non-Medicare patients. The manager allegedly said that non-Medicare patients received a series of five letters before their accounts were turned over to a collection agency. Medicare patients, on the other hand, received only one or two phone calls, and their accounts were also apparently not turned over to collection agencies. Blue Cross also claims that the manager told the auditor that the differing collection policies had been in effect for several years, not just for the 1985 fiscal year which was the subject of the audit. In response, the intermediary requested more information about HCMC's collection policies. Some evidence suggests that HCMC promised to provide documentation regarding its collection efforts for 1985, but never produced any.

Blue Cross then decided to reopen its reimbursement recommendation for 1983, pursuant to 42 C.F.R. § 405.1885. Under the regulations the intermediary, or various Health and Human Services entities, may reopen a determination within three years of the date the notice of program reimbursement is issued if "new and material evidence" is discovered, if there was "a clear and obvious error," or if the earlier determination was "inconsistent with the law, regulations or rulings, or general instructions." HCFA Pub. 15-1 § 2931.2; see State of Oregon on Behalf of Oregon Health Sciences Univ. v. Bowen, 854 F.2d 346, 350 (9th Cir.1988). In a September 1988 letter, Blue Cross informed HCMC both of the decision to reopen the 1983 determination and of its intention to disallow all of the bad debt claims. In a subsequent letter several weeks later, Blue Cross indicated that "until such time as you supply us with convincing evidence to support your position, the adjustments will stand as proposed."

The disallowance was based on two types of reimbursement claims by HCMC. If a Medicare patient is indigent, a provider need not always try to collect deductible and coinsurance payments before submitting them to the intermediary as bad debts. HCMC had therefore included in its request patients it considered indigent because a different county agency had determined them to be eligible for Medicaid. Blue Cross disallowed some claims because it concluded that HCMC did not obtain and store documentation supporting these indigency determinations from the other county agency.

The second disallowance category relates to the quality of HCMC's efforts to collect unpaid deductible and coinsurance payments from non-indigent Medicare patients and its alleged failure to provide documentation of those efforts. Based on the business office manager's alleged statements that HCMC used different collection procedures for Medicare than for non-Medicare patients, Blue Cross concluded that the hospital might be in violation of the rules requiring similar collection efforts. Blue Cross argues that the decision to reopen the 1983 cost year followed HCMC's failure to provide documentation of its collection efforts for any of the cost years covered by the manager's alleged statements. HCMC claims that no documentation was ever requested for the 1983 cost year at issue here. It also argues that its collection efforts were reasonable, as required by the regulation and as demonstrated by its eighty percent collection rate on Medicare accounts, regardless of any alleged dissimilarity in its collection efforts.

HCMC appealed the intermediary's decision to the PRRB under 42 U.S.C. § 1395oo and 42 C.F.R. § 405.1835. After an extensive hearing which also addressed other issues, the PRRB concluded that Blue Cross had properly reopened the 1983 determination based on new information discovered during the subsequent audit. The board also concluded that HCMC had not complied with the reporting regulations in that it had not provided the documentation requested by the intermediary. In late 1991 the PRRB thus upheld the intermediary's decision to disallow the bad debt reimbursement. HCMC next appealed to the Administrator of the HCFA, who declined to review the decision. The decision of the PRRB therefore became the final decision of the Secretary. 42 C.F.R. § 405.1875.

HCMC sought judicial review of the Secretary's decision in the district court under 42 U.S.C. § 1395oo (f)(1), and each party moved for summary judgment. The district court granted the motion of HCMC and denied the Secretary's motion. Concluding that the Secretary's decision to disallow the reimbursement was barred by several amendments to the Medicare Act, the court entered judgment in favor of HCMC.


The three amendments relied on by the district court were passed by Congress (in 1987, 1988, and 1989) in response to heightened scrutiny by intermediaries and HCFA of Medicare bad debt reimbursement requests. H.R. Conf. Rep. No. 1104, 100th Cong., 2d Sess. 277 (1988), reprinted in 1988 U.S.C.C.A.N. 5048, 5337 (1988 Conf. Rep.). In 1986, the inspector general of Health and Human Services had proposed either eliminating bad debt reimbursement entirely or attempting to recoup the costs by garnishing the Social Security checks of debtors. Proposal Would Tap Social Security Payments, New York Times, December 3, 1986 at A24; HHS Inspector General Urges Deducting Unpaid Bills from Social Security Checks, 13 BNA Pension & Benefits Reporter 49, at 2037 (December 8, 1986). Neither proposal was adopted. The inspector general then called for much closer examination of providers' bad debt requests. See HHS Inspector General Continues to Recommend Scrapping or Revamping Bad-Debt Reimbursement,...

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