Mercy Gen. Hosp. v. Azar, Civil Action No. 16-99 (RBW)

Citation344 F.Supp.3d 321
Decision Date29 September 2018
Docket NumberCivil Action No. 16-99 (RBW)
Parties MERCY GENERAL HOSPITAL, et al., Plaintiffs, v. Alex M. AZAR II, in His Official Capacity as Secretary of the United States Department of Health and Human Services, Defendant.
CourtU.S. District Court — District of Columbia

Lori Allison Rubin, Brian J. Kapatkin, Donald H Romano, Foley & Lardner, LLP, Washington, DC, for Plaintiffs.

Brian J. Field, U.S. Attorney's Office, Civil Division, Linda L. Keyser, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendant.


REGGIE B. WALTON, United States District JudgeThe plaintiffs, eighty-one acute care hospitals located in California, seek judicial review of the final decision of the defendant, the Secretary of the United States Department of Health and Human Services ("HHS"), denying their claims for reimbursement of deductible and coinsurance payments that were not paid to the hospitals by Medicare beneficiaries. See Complaint ("Compl.") ¶¶ 1–2. The parties filed cross-motions for summary judgment, see Plaintiffs' Motion for Summary Judgment; Defendant's Cross-Motion for Summary Judgment and Opposition to Plaintiffs' Motion for Summary Judgment, and United States Magistrate Judge Deborah A. Robinson issued a Report and Recommendation (the "Report" or "R & R") recommending that the Court affirm the Secretary's decision, deny the plaintiffs' motion, and grant the Secretary's cross-motion, see R & R at 30. Currently before the Court are the plaintiffs' Objections to the Magistrate Judge's Report and Recommendation ("Pls.' Objs."). Upon consideration of the parties' submissions, the parties' arguments presented at the motions hearing on February 2, 2018, and the administrative record in this case,1 the Court concludes that it must grant in part and deny in part the plaintiffs' motion for summary judgment, deny the Secretary's cross-motion for summary judgment, and remand this case to the Secretary for further proceedings consistent with this opinion.

A. Statutory and Regulatory Framework
1. The Medicare Program

The Medicare program, established in 1965 as Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 – 1395lll (2012) (the "Medicare Act"), "is a federally funded medical insurance program for the elderly and disabled," Fischer v. United States, 529 U.S. 667, 671, 120 S.Ct. 1780, 146 L.Ed.2d 707 (2000) (internal citation omitted). Relevant here, Part A of the Medicare Act provides insurance coverage to eligible beneficiaries for the cost of inpatient hospital care, home health care, and hospice services, see 42 U.S.C. § 1395c, and Part B provides supplemental coverage for outpatient hospital care and other types of care not covered by Part A, see id. § 1395k. "Although the costs incurred for most of the care provided to Medicare patients are borne by the government, individual Medicare patients are ‘often responsible for both deductible and coinsurance payments for hospital care.’ " Cmty. Health Sys., Inc. v. Burwell, 113 F.Supp.3d 197, 203–04 (D.D.C. 2015) (quoting Hennepin Cty. Med. Ctr. v. Shalala, 81 F.3d 743, 745 (8th Cir. 1996) ).

The Centers for Medicare and Medicaid Services ("CMS") administers the Medicare program on behalf of the Secretary, see Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006), "through contracts with [M]edicare administrative contractors," 42 U.S.C. §§ 1395h(a), 1395u(a), which were known as "fiscal intermediaries" (the "intermediaries") during the cost years at issue in this case, id. § 1395h (2000). To receive reimbursement from Medicare, providers must submit to their intermediaries "cost reports ... on an annual basis." 42 C.F.R. § 413.20(b) (2017). The intermediaries then review these reports to determine the amount of reimbursement due to the providers. See 42 U.S.C. § 1395kk-1(a)(4). Following their review, the intermediaries "must ... furnish the provider ... a written notice reflecting ... [their] final determination of the total amount of reimbursement due [to] the provider." 42 C.F.R. § 405.1803(a).

A provider who "is dissatisfied with a final determination of ... its [ ] intermediary," 42 U.S.C. § 1395oo(a)(1)(A)(i), "may obtain a hearing ... by a Provider Reimbursement Review Board" (the "Board"), id. § 1395oo(a). "A decision by the Board [must] be based upon the record made at such hearing, ... and shall be supported by substantial evidence when the record is viewed as a whole." Id. § 1395oo(d). The Board's decision is "final unless the Secretary, [via the CMS Administrator (the "Administrator"),] ... reverses, affirms, or modifies the Board's decision." Id. § 1395oo(f)(1) ; 42 C.F.R. § 405.1875 (recognizing that the Secretary has delegated to the Administrator his authority to review the Board's decisions). Finally, a provider may "obtain judicial review of any final decision of the Board[ ] or ... the [Administrator]." 42 U.S.C. § 1395oo(f)(1) ; see 42 C.F.R. § 405.1877 ("[A] provider has a right to obtain judicial review of a final decision of the Board, or ... the Administrator.").

2. The Medicaid Program and "Dual Eligibles"

The Medicaid program, established under Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 – 1396w-5, "authorizes federal financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons," Pharm. Research & Mfrs. of Am. v. Walsh, 538 U.S. 644, 650, 123 S.Ct. 1855, 155 L.Ed.2d 889 (2003). "In order to participate in the Medicaid program, a [s]tate must have a plan for medical assistance approved by the Secretary," id. (citing 42 U.S.C. § 1396a(b) ), which must, among other things, "define[ ] the categories of individuals eligible for benefits and the specific kinds of medical services that are covered," id. (citing 42 U.S.C. § 1396a(a)(10), (17) ).

"Some patients are eligible for both Medicare and Medicaid (known as ‘dual eligibles’)." Grossmont Hosp. Corp. v. Burwell, 797 F.3d 1079, 1081 (D.C. Cir. 2015). Although "Medicare is the primary payor" in this situation, "[s]tate Medicaid plans often mandate that the state Medicaid agency pay for part or all of the Medicare deductibles and coinsurance amounts incurred in connection with treating these dual eligibles." Id. Claims submitted to a state Medicaid program for these unpaid amounts are often referred to as "crossover claims." Pls.' Summ. J. Mem. at 8.2 However,

[i]n some instances, the State has an obligation to pay, but either does not pay anything or pays only a part of the deductible or coinsurance because of a State payment "ceiling." For example, assume that a State pays a maximum of $42.50 per day for [ ] services and the provider's cost is $60.00 a day. The coinsurance is $32.50 a day so that Medicare pays $27.50 ($60.00 less $32.50). In this case, the State limits its payment towards the coinsurance to $15.00 ($42.50 less $27.50).

CMS Pub. 15-1, § 322.

During the cost years at issue, California participated in Medicaid through a program known as Medi-Cal. See AR 12. Effective August 1, 1989, Medi-Cal instituted a payment ceiling for Medicare deductibles and coinsurance for outpatient services. See AR 606. Effective May 1, 1994, Medi-Cal instituted a similar ceiling for inpatient services. See AR 680–83; see also AR 1412, 1422.

3. Medicare "Bad Debts"

If Medicare patients fail to pay the deductible and coinsurance payments that they owe to providers, the providers may seek reimbursement from CMS for these amounts, known as "bad debts." See 42 C.F.R. § 413.89(e).3 To obtain reimbursement for these bad debts, providers must demonstrate that the debt satisfies four criteria:

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


Chapter 3 of CMS's Provider Reimbursement Manual ("PRM") provides further instruction regarding the requirements for bad debt reimbursement. As to the second bad debt criterion, regarding "reasonable collection efforts," § 310 provides that "a reasonable collection effort ... must involve the issuance of a bill on or shortly after discharge or death of the beneficiary to the party responsible for the patient's personal financial obligations." CMS Pub. 15-1, § 310 (hereinafter "PRM"). However, § 312, which addresses bad debts associated with "indigent or medically indigent" patients, provides that "[o]nce indigence is determined and the provider concludes that there ha[s] been no improvement in the beneficiary's financial condition, the debt may be deemed uncollectible without applying the §[ ]310 procedures." Id. § 312. To determine indigency, § 312 instructs that "[p]roviders can deem Medicare beneficiaries indigent or medically indigent when such individuals have also been determined eligible for Medicaid as either categorically needy individuals or medically needy individuals, respectively." Id."Otherwise, the provider should apply its customary methods for determining the indigence of patients to the case of the Medicare beneficiary, under [PRM] guidelines[,]" including that "[t]he provider must determine that no source other than the patient would be legally responsible for the patient's medical bill; e.g., title XIX [ (Medicaid) ], local welfare agency[,] and guardian[.]" Id.

Finally, § 322 of the PRM provides specific instruction on bad debts associated with dual eligible patients. Id. § 322. It provides that

[w]here 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. [However, a]ny portion of such deductible or

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