New Lifecare Hosps. of N.C. LLC v. Azar, Case No. 1:17-cv-00237 (TNM)

Citation416 F.Supp.3d 11
Decision Date27 September 2019
Docket NumberCase No. 1:17-cv-00237 (TNM)
Parties NEW LIFECARE HOSPITALS OF NORTH CAROLINA LLC, et al., Plaintiffs, v. Alex M. AZAR, II, Secretary of the U.S. Department of Health and Human Services, in his official capacity, Defendant.
CourtUnited States District Courts. United States District Court (Columbia)

Jason M. Healy, Law Office of Jason M. Healy, PLLC, Washington, DC, for Plaintiffs.

Brian J. Field, Diana Viggiano Valdivia, Doris Denise Coles-Huff, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendant.



Four long-term care hospitals ("the Providers") seek judicial review of the Secretary of Health and Human Services' denial of their claims for reimbursement of deductible and coinsurance payments that Medicare beneficiaries did not pay.1 The Centers for Medicare and Medicaid Services ("CMS"), which administer the Medicare program on behalf of the Secretary, denied their reimbursement claims because the Providers did not comply with CMS's so-called "must-bill" policy. The Providers admit as much, but they insist that CMS's application of that policy was unlawful.

Both the Providers and the Secretary now move for summary judgment. Given the deferential standard of review and the limited record before it, the Court will grant summary judgment to the Secretary.

A. Legal Background
1. The Medicare Program

The Medicare program "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). 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). A provider must submit cost reports annually to a contractor who, in turn, determines the payment to be made to that provider. See 42 C.F.R. §§ 413.20, 413.24(f). A contractor then issues a Notice of Program Reimbursement that specifies the allowable Medicare payment. Id. § 405.1803.

If a provider is "dissatisfied with a final determination" of the contractor, it may appeal that determination to the Provider Reimbursement Review Board ("the Board"). 42 U.S.C. § 1395oo(a). The Board's decision is final unless the Secretary "reverses, affirms, or modifies the Board's decision." Id. § 1395oo(f). The Secretary has delegated his authority to review the Board's decisions to the CMS Administrator. See 42 C.F.R. § 405.1875(a)(1). If a provider is dissatisfied with the Board's decision or the Secretary's decision, it may seek judicial review of that decision by filing a civil action in federal court. 42 U.S.C § 1395oo(f)(1) ; 42 C.F.R. § 405.1877(b).

2. The Medicaid Program

"The Medicaid program is a cooperative federal-state program to provide medical care for eligible low-income individuals ... jointly funded by federal and state governments." Grossmont Hosp. Corp. v. Burwell , 797 F.3d 1079, 1081 (D.C. Cir. 2015). For a state to qualify for federal funding, the Secretary must approve the state's Medicaid plan, which sets out, among other things, covered medical services. 42 U.S.C. §§ 1396a, 1396b.

Some patients, so-called "dual eligibles," are eligible for both Medicare and Medicaid. See Grossmont Hosp. Corp. , 797 F.3d at 1081. In many cases, these patients cannot afford to pay their Medicare deductibles and coinsurance costs. States must use their Medicaid dollars to pay Medicare cost-sharing obligations for dual eligible patients. See 42 U.S.C. § 1396a(a)(10)(E)(i).

3. "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—called "bad debts." See 42 C.F.R. § 413.89(e). Medicare "reimburses the health care provider for this ‘bad debt’ " 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).

To obtain reimbursement for bad debt, providers must establish that these criteria are satisfied:

(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). Chapter 3 of CMS's Provider Reimbursement Manual ("the Manual") provides more instruction about bad debt reimbursement. See generally The Provider Reimbursement Manual—Part 1, First, Section 310 of the Manual requires that "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." Manual § 310. Section 312, however—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.

Section 322 of the Manual provides specific instruction on bad debts associated with dual eligible patients. Id. § 322. It provides that

Where 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. Any portion of such deductible or coinsurance amounts that the State is not obligated to pay can be included as a bad debt under Medicare, provided that the requirements of § 312 or, if applicable, § 310 are met.

Id. Additionally, Section 322 addresses situations in which "the State has an obligation to pay, but either does not pay anything or pays only part of the deductible or coinsurance because of a State payment ‘ceiling.’ " Id. In those situations, Section 322 instructs that, "any portion of the deductible or coinsurance that the State does not pay that remains unpaid by the patient, can be included as a bad debt under Medicare, provided that the requirements of § 312 are met." Id.

4. 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, 747, 751 (8th Cir. 1996) ; Foothill Hosp. v. Leavitt , 558 F. Supp. 2d 1, 3–5 (D.D.C. 2008). This legislation, called the "Bad Debt Moratorium," provides that "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 ... for reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance amounts incurred under [the Medicare program] (including criteria for what constitutes a reasonable collection effort, including criteria for indigency determination procedures, for record keeping, and for determining whether to refer a claim to an external collection agency)." See Omnibus Budget Reconciliation Act of 1987 ("OBRA"), Pub. L. No. 100–203, tit. IV, § 4008(c), 101 Stat. 1330–55, as amended by Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100–647, tit. VIII, § 8402, 102 Stat. 3342, 3798, reprinted as amended at 42 U.S.C. § 1395f note (2012).

B. Factual Background

At issue here is CMS's "must-bill" policy. Under the "must-bill" policy, providers must both (1) bill their state Medicaid programs; and (2) receive a Remittance Advice ("RA"), a specific document from the state Medicaid programs asserting that the states are not liable for any portion of the bad debts. A.R. 15. The Providers are long-term care hospitals, or "LTCHs." For the fiscal years at issue, the Providers were not enrolled in Medicaid. See A.R. 16. According to the Providers, before April 2008, CMS contractors—who review the Providers' annual claims for reimbursement—treated proof of a beneficiary's indigence, for example, his dual eligible status, as a sufficient basis for bad debt reimbursement. Pls.' Mot. for Summ. J. ("Pls.' Br.") at 11, ECF No. 12.2 In other words, the Providers claim that, in the past, if the CMS contractors knew that a beneficiary was a dual eligible, they treated the debt associated with him as reimbursable bad debt and did not require the providers to comply with the must-bill policy. Id.

But not anymore. In April 2008, contractors issued Notices of Program Reimbursement denying about three million dollars' worth of reimbursement claims because the Providers had not complied with the CMS's must-bill policy. A.R. 409–13; 919. They had not billed their state Medicaid programs or received RAs. Id. In this lawsuit, the Providers object to this alleged abrupt change.

The Providers appealed the contractors' determinations to the Board, which held a hearing on their claims. See A.R. 51. In its decision, the Board split the Providers into two groups. See A.R. 51–62. First, the Board found that the Louisiana and Texas Providers could have enrolled in their state Medicaid programs but "made a business decision not to participate." A.R. 59–60 (emphasis in original). The Board thus upheld the CMS contractors' determinations for those Providers. A.R. 60. But, according to the Board, the North Carolina and Pennsylvania Providers were differently situated. See A.R. 60. The Board found that neither state Medicaid program allowed them to enroll for the fiscal years at issue. A.R. 60. So the Board reversed the CMS contractors' decisions as to these Providers and ordered the contractors...

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6 cases
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