New Lifecare Hosps. of N.C., LLC v. Becerra

Citation7 F.4th 1215
Decision Date10 August 2021
Docket NumberNo. 20-5227,20-5227
Parties NEW LIFECARE HOSPITALS OF NORTH CAROLINA, LLC, doing business as LifeCare Hospitals of North Carolina, et al., Appellants v. Xavier BECERRA, in his official capacity as Secretary, United States Department of Health and Human Services, Appellee
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Jason M. Healy argued the cause and filed the briefs for appellants.

Dennis Fan, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief were Brian M. Boynton, Acting Assistant Attorney General, and Alisa B. Klein, Attorney.

Before: Henderson, Wilkins and Walker, Circuit Judges.

Wilkins, Circuit Judge:

Appellants are four long-term care hospitals located in North Carolina, Pennsylvania, Texas, and Louisiana. The hospitals treat patients who are dually eligible for the Medicare and Medicaid programs. In 2008, the hospitals were denied reimbursement by the Secretary of Health and Human Services for "bad debts"i.e. , unpaid coinsurances and deductibles owed by patients. The Secretary denied reimbursement on the grounds that the hospitals failed to comply with the "must-bill" policy, which requires providers to first seek payment from Medicaid before seeking reimbursement from Medicare for the bad debts of patients covered by both programs. The hospitals sought judicial review of the reimbursement denial, and the District Court granted summary judgment to the Secretary. For the reasons explained below, we affirm the District Court.


Medicare is a federally funded program that reimburses healthcare providers for delivering medical care to qualifying elderly and disabled individuals. See 42 U.S.C. § 1395 et seq. Medicaid is a cooperative federal-state program—administered by states, and subject to federal guidelines—that pays for medical care provided to eligible low-income individuals. See 42 U.S.C. § 1396 et seq. Medicare is administered by the Centers for Medicare and Medicaid Services ("CMS") on behalf of the Secretary of Health and Human Services. Notably, because Medicare does not cover the full cost of care, patients are responsible for paying deductible and coinsurance fees for inpatient hospital services received. See 42 U.S.C. § 1395e ; 42 C.F.R. §§ 409.82, 409.83.

This case concerns several hospitals that treat "dual-eligible" patients—i.e. , individuals who qualify for both Medicare and Medicaid. Often, these patients are unable to afford the coinsurances and deductibles required of them under Medicare. When that happens, state Medicaid programs may fill the gap by requiring the state Medicaid agency to cover the unpaid fees. Grossmont Hosp. Corp. v. Burwell , 797 F.3d 1079, 1081 (D.C. Cir. 2015). The Medicaid statute requires states to determine what cost-sharing liability they bear for dual-eligible patients. See 42 U.S.C. § 1396a(a)(10)(E)(i).

If the state does not cover the deductibles and coinsurances of dual-eligible patients through Medicaid, then those missing payments can be designated as "bad debts," and healthcare providers can seek reimbursement through Medicare. See 42 C.F.R. § 413.89 ; see also CMS Provider Reimbursement Manual Part 1, § 322, Medicare reimburses bad debts to prevent hospitals from shifting the cost of Medicare-related services onto non-Medicare patients. See 42 U.S.C. § 1395x(v)(1)(A) (requiring the Secretary to regulate in such a way that "the necessary costs of efficiently delivering covered services to individuals covered by the insurance programs established by this subchapter will not be borne by individuals not so covered").

Before a provider can seek reimbursement of bad debt from Medicare, CMS requires the provider to demonstrate that "reasonable ... efforts were made" to collect payment from the party responsible for the bill. 42 C.F.R. § 413.89(e)(2). In its Provider Reimbursement Manual ("PRM"), CMS explains what a "reasonable collection effort" means. See Provider Reimbursement Manual § 310. Section 310 of the PRM explains that providers must "issu[e] ... a bill ... to the party responsible" for the patient's payments. CMS Provider Reimbursement Manual § 310. Section 322 of the PRM further explains that when a state Medicaid program is "obligated either by statute or under the terms of its plan to pay all, or any part, of the Medicare deductible or coinsurance amounts, those amounts are not allowable as bad debts under Medicare." Id. § 322 (emphasis added). Medicare thus allows "[a]ny portion of such deductible or coinsurance amounts that the State is not obligated to pay [to] be included as a bad debt[.]" Id. (emphasis added).

CMS addressed the bad debt reimbursement policy in a joint memorandum ("JSM") issued to all fiscal intermediaries in 2004. At that time, CMS explained that:

In order to fulfill the requirement that a provider make a "reasonable" collection effort with respect to the deductibles and co-insurance amounts owed by dual-eligible patients, our bad debt policy requires the provider to bill the patient or entity legally responsible for the patient's bill before the provider can be reimbursed for uncollectible amounts.

J.A. 238. The 2004 memorandum referred to this pre-reimbursement requirement as the "must-bill" policy, and it outlined the steps a provider must take to comply with the policy before seeking bad debt reimbursement for dual-eligible patients:

[I]n those instances where the state owes none or only a portion of the dual-eligible patient's deductible or co-pay, the unpaid liability for the bad debt is not reimbursable to the provider by Medicare until the provider bills the State, and the State refuses payment (with a State Remittance Advice).

Id. In short, CMS's must-bill policy requires hospitals to: (1) bill the state Medicaid program to determine whether Medicaid will cover the bad debts first, and (2) obtain a document known as a "remittance advice" ("RA") indicating whether the state "refuses payment," before seeking reimbursement under Medicare. Id. ; see also Grossmont , 797 F.3d at 1086.

Bad debt reimbursement claims are ultimately processed by private insurance companies (fiscal intermediaries) serving as contractors for CMS. See 42 U.S.C. §§ 1395h(a), 1395u(a), 1395kk-1. Healthcare providers file annual cost reports with these contractors, 42 C.F.R. § 413.20(b), and the contractors issue notices indicating which payments Medicare will cover, id. § 405.1803(a). Providers can then appeal reimbursement decisions from the contractors to the Provider Reimbursement Review Board ("Board"), an administrative tribunal within HHS. 42 U.S.C. § 1395oo (a). The Board's decision is final unless the Secretary—acting through the CMS Administrator—"reverses, affirms, or modifies" the Board. Id. § 1395oo (f)(1) ; see also 42 C.F.R. § 405.1875(a). From there, a provider may seek judicial review by filing a civil action in district court. 42 U.S.C. § 1395oo (f) ; 42 C.F.R. § 405.1877(b).

Relevant here, Congress froze any changes to CMS's bad debt reimbursement policy in 1987. Grossmont , 797 F.3d at 1083 ; see also Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203, § 4008(c), 101 Stat. 1330 –55. This freeze, known as the "Bad Debt Moratorium," prevents CMS from making "any change in the policy in effect on August 1, 1987, with respect to payment" for "unpaid deductible and coinsurance amounts." Pub. L. No. 100-203, § 4008(c).


Appellants ("the hospitals") are long-term care facilities in North Carolina, Pennsylvania, Texas, and Louisiana. In April 2008, the hospitals were denied over $3 million in bad debt reimbursement claims they submitted to CMS contractors. The contractors denied the claims on the grounds that the hospitals failed to comply with the must-bill policy. During the relevant time period, the hospitals were not enrolled in Medicaid and were thus unable to bill their respective state Medicaid programs. Central to this appeal, the hospitals claim that CMS contractors previously reimbursed bad debt claims without requiring proof that the hospital followed the must-bill policy. According to the hospitals, contractors only began enforcing the policy against them in April 2008.

The hospitals appealed the denial of reimbursement to the Board. The Board upheld the contractors’ decisions for half of the hospitals, but reversed as to the other half. With respect to the hospitals in Louisiana and Texas, the Board found that they had "made a business decision" not to enroll in Medicaid, and that nothing prevented them from complying with the must-bill policy except for their own decision not to enroll in Medicaid. As to the hospitals in North Carolina and Pennsylvania, the Board found that those hospitals were not permitted to enroll in their state Medicaid programs during the relevant period, and were thus unable to bill Medicaid through no fault of their own. As a result, the Board ordered the contractors to accept an alternative form of documentation (something other than the RA) and reconsider the reimbursement claims.

The CMS Administrator took up review of the Board's decision. The parties filed comments for the Administrator, see 42 C.F.R. § 405.1875, but the hospitals failed to raise one argument at issue in this appeal—namely, that CMS violated Congress's 1987 Bad Debt Moratorium by suddenly enforcing the must-bill policy in 2008.

The Administrator partially reversed the Board and denied all of the hospitals’ reimbursement claims. The Administrator reasoned that the must-bill policy applies to all hospitals, regardless of Medicaid enrollment status, because state Medicaid programs are required to allow limited enrollment for the purpose of complying with the must-bill policy. J.A. 729–30. The Administrator also noted that if a state refuses to allow a hospital to enroll and thereby comply with the must-...

To continue reading

Request your trial
7 cases
  • Ascension Borgess Hosp. v. Becerra
    • United States
    • United States District Courts. United States District Court (Columbia)
    • August 30, 2021
    ...the standard of review of the Administrative Procedure Act ("APA"), 5 U.S.C. § 701 et seq. See New LifeCare Hosps. of N. Carolina, LLC v. Becerra , 7 F.4th 1215, 1222 n.1 (D.C. Cir. 2021) (citing Thomas Jefferson Univ. v. Shalala , 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) )......
  • Firsthealth Moore Reg'l Hosp. v. Becerra
    • United States
    • United States District Courts. United States District Court (Columbia)
    • September 20, 2021
    ...... for delivering medical care to qualifying elderly and disabled individuals." New LifeCare Hosps. of N.C., LLC v. Becerra , 7 F.4th 1215, 1219 (D.C. Cir. 2021) (citing 42 U.S.C. § 1395 et ......
  • FirstHealth Moore Reg'l Hosp. v. Becerra
    • United States
    • United States District Courts. United States District Court (Columbia)
    • September 20, 2021
    ...decisions from the contractors to the Provider Reimbursement Review Board ([“PRRB”]), an administrative tribunal within HHS.” New LifeCare Hosps., 7 F.4th at 1220 (citing 42 U.S.C. § 1395oo(a)). The provider's appeal of an NPR issued by the MAC must be within 180 days of its issuance if the......
  • Stephens Cnty. Hosp. v. Becerra
    • United States
    • United States District Courts. United States District Court (Columbia)
    • September 30, 2021
    ...has been a shift in agency policy requiring notice-and-comment rulemaking. See NewLifeCare Hospitals of North Carolina, LLC v. Becerra, 7 F.4th 1215, 1222-23 (D.C. Cir. 2021) (holding that because the hospitals “identify no change in CMS policy, ” the Secretary did not violate the Medicare ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT