Mountain States Health Alliance v. Burwell

Decision Date10 September 2015
Docket NumberCivil Action No. 13-641 (RDM)
Parties Mountain States Health Alliance, Plaintiff, v. Sylvia M. Burwell, Secretary, U.S. Department of Health and Human Services, Defendant.
CourtU.S. District Court — District of Columbia

Daniel J. Hettich, King & Spalding, LLP, Washington, DC, for Plaintiff.

Joshua M. Kolsky, Scott Charles Sasjack, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendant.

MEMORANDUM OPINION

RANDOLPH D. MOSS

, United States District Judge

Under the governing regulations, a Medicare provider is entitled to reimbursement for unpaid deductibles and copayments—referred to as "Medicare bad debt"—but only if certain requirements are met. Among other things, the regulations require that the provider establish that it has engaged in "reasonable collection efforts" before declaring a debt uncollectible. 42 C.F.R. § 413.89(e)

. That requirement is further explicated in section 310 of the Provider Reimbursement Manual, which specifies that, in order to qualify as a "reasonable collection effort, a provider's effort must be similar to the effort the provider puts forth to collect comparable amounts from non-Medicare patients." Center for Medicare and Medicaid Services Pub. 15–1, § 310 (2003). The Provider Reimbursement Manual further states that "[w]here a collection agency is used, Medicare expects the provider to refer all uncollected patient charges of like amount to the agency without regard to class of patient," that is, without regard for whether the charges were incurred by a Medicare or non-Medicare patient. Id. § 310.A.

This case involves a challenge to the application of these rules in a decision by the Secretary of Health and Human Services ("Secretary")1 denying Plaintiff reimbursement for unpaid Medicare bad debt for the cost reporting periods ending June 30, 2004 and June 30, 2005. See Mountain States Health Alliance 05 Bad Debt—Passive Collection CIRP Grp. v. BlueCross BlueShield Ass'n/Cahaba Gov't Benefits Adm'rs, LLC, PRRB Dec. No.2013–D6 (Mar. 4, 2013) ("Board Decision"), AR 6–18.2 Plaintiff, Mountain States Health Alliance, is the owner of two acute care hospitals ("Providers") in Tennessee. For the reporting periods at issue, the Providers first engaged in in-house collection efforts without distinguishing between Medicare and non-Medicare accounts. To the extent those efforts failed, they then referred the debts to an outside, "primary" collection agency—again, without distinguishing between Medicare and non-Medicare accounts. But to the extent that second round of efforts also failed, they adopted different approaches for Medicare and non-Medicare accounts. For non-Medicare accounts, the Providers sent all but those where the patient was bankrupt, deceased with no estate, incarcerated, or a charity to a "secondary" collection agency. In contrast, they declared all of the remaining Medicare bad debt "uncollectible" and, on that basis, sought reimbursement under the Medicare program.

The Secretary denied reimbursement on the ground that the Providers did not use similar efforts to collect Medicare and non-Medicare bad debt and, in particular, continued to employ collection agencies to pursue certain non-Medicare debt, but not Medicare debt. Dissatisfied with that result, Plaintiff brought this action, alleging that (1) section 310 of the Provider Reimbursement Manual constitutes a "legislative rule," which the Secretary failed to adopt pursuant to the required notice and comment procedures, (2) the Secretary failed to "list" section 310 in the Federal Register, as required by statute, (3) the Secretary's decision departed from Medicare policy in place on August 1, 1987, and thus violated the congressionally-mandated "Bad Debt Moratorium," and (4) the Secretary's decision was, in any event, arbitrary and capricious. See Dkt. 16 at 20, 26.

The matter is now before the Court on cross-motions for summary judgment. For the reasons explained below, the Court GRANTS in part and DENIES in part Plantiff's motion for summary judgment, Dkt. 16, DENIES the Secretary's cross-motion for summary judgment, Dkt. 17, VACATES the Board's decision, and REMANDS for further proceedings consistent with this Memorandum Opinion. A separate Order accompanies this decision.

I. BACKGROUND
A. Statutory And Regulatory Background
1. The Medicare Provider Reimbursement System

The Medicare program provides healthcare for the elderly and disabled. See 42 U.S.C. §§ 1395 et seq .

Participating health care providers collect deductibles and coinsurance amounts directly from Medicare patients and are reimbursed for other costs through the Medicare program.

As relevant here, providers are reimbursed for various direct and indirect "reasonable costs." See generally 42 C.F.R. Part 413; 42 U.S.C. § 1395x(v)(1)(A)

. The provider bears the burden of supplying information establishing that the costs for which it seeks reimbursement are "reasonable costs" eligible for reimbursement under the relevant regulations. See, e.g., 42 C.F.R. § 413.24(a). Providers file annual cost reports, which are reviewed by private administrative contractors authorized by the Center for Medicare and Medicaid Services ("CMS"). See 42 U.S.C. § 1395h ; 42 C.F.R. § 413.24(f). During the years at issue here, these private contractors were called "fiscal intermediaries." See 42 U.S.C. § 1395h (2000). Intermediaries evaluate the annual cost reports under the Secretary's regulations and informal guidance, particularly the Provider Reimbursement Manual, which includes the Secretary's "guidelines and policies to implement Medicare regulations which set forth principles for determining the reasonable cost of provider services." See CMS Pub. 15–1, Part I, Forward, (2003) (hereinafter "PRM"). The intermediary determines the amount of reimbursement to which the provider is entitled and issues a "Notice of Program Reimbursement."

A provider that is dissatisfied with an intermediary's reimbursement determination may appeal to the Provider Reimbursement Review Board ("the Board"). See 42 U.S.C. § 1395oo (a)

; 42 C.F.R. §§ 405.1835, 405.1837. The Board is bound by the Secretary's regulations and "shall afford great weight to interpretive rules, general statements of policy, and rules of agency organization, procedure, or practice established by CMS," including the PRM. See 42 C.F.R. § 405.1867. The provisions in the PRM, however, "do not have the force and effect of law and are not accorded that weight in the adjudicatory process." Shalala v. Guernsey Mem. Hosp., 514 U.S. 87, 99, 115 S.Ct. 1232, 131 L.Ed.2d 106 (1995).

A Board decision becomes the final decision of the Secretary unless the CMS Administrator, acting on the Secretary's behalf, elects to review it. See 42 U.S.C. § 1395oo (f)(1)

; 42 C.F.R. § 405.1875(a)(1). A provider that is dissatisfied with the Secretary's final decision may seek judicial review in federal district court. 42 U.S.C. § 1395oo (f)(1).

2. Medicare Bad Debt

Uncollected Medicare deductibles and coinsurance amounts are collectively referred to as "Medicare bad debt." See, e.g.,Abington Crest Nursing & Rehab. Ctr. v. Sebelius, 575 F.3d 717, 720 (D.C.Cir.2009)

; 42 C.F.R. § 413.89(a). Medicare "reimburses providers for this 'bad debt' " in order to prevent cross-subsidization, i.e., "a cost shift from the Medicare recipient to individuals not covered by Medicare." Cmty. Hosp. of Monterey Peninsula v. Thompson, 323 F.3d 782, 786 (9th Cir.2003)

; see also 42 C.F.R. § 413.89(d) ; Abington, 575 F.3d at 720.

Under the governing regulations, providers seeking reimbursement for Medicare bad debt 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.

42 C.F.R. § 413.89(e)

; see Principles for Reimbursable Costs, 31 Fed.Reg. 14808, 14813 (Nov. 22, 1966) (final rule). This case involves the second requirement, "reasonable collection efforts." Neither the regulation nor the Medicare Act defines "reasonable collection efforts," but the Secretary has provided her interpretation in section 310 of the PRM. That provision explains that "[t]o be considered a reasonable collection effort, a provider's effort to collect Medicare deductible and coinsurance amounts must be similar to the effort the provider puts forth to collect comparable amounts from non-Medicare patients." PRM § 310. Section 310 further explains that if a provider elects to refer its non-Medicare accounts to a collection agency, the provider must similarly refer its Medicare accounts of "like amount":

Where a collection agency is used, Medicare expects the provider to refer all uncollected patient charges of like amount to the agency without regard to class of patient. The 'like amount' requirement may include uncollected charges above a specified minimum amount. Therefore, if a provider refers to a collection agency its uncollected non-Medicare patient charges which in amount are comparable to the individual Medicare deductible and coinsurance amounts due the provider from its Medicare patient, Medicare requires the provider to also refer its uncollected Medicare deductible and coinsurance amounts to the collection agency.

PRM § 310.A. Section 310 was last revised in 1983. See Dkt. 26–1 (HCFA Transmittal No. 246, Feb. 1981); Dkt. 26–2 (HCFA Transmittal No. 278, Jan. 1983).

3. The "Bad Debt Moratorium"

In 1987, Congress enacted legislation to "freeze" the Secretary's Medicare bad debt reimbursement policies. Hennepin Cnty. Med. Ctr. v. Shalala, 81 F.3d 743, 751 (8th Cir.1996)

; see alsoFoothill Hosp. v. Leavitt, 558 F.Supp.2d 1, 3–5 (D.D.C.2008). This legislation, typically referred to as the "Bad Debt...

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