Select Specialty Hosp.-Denver, Inc. v. Azar
| Decision Date | 25 June 2020 |
| Docket Number | Civil Action No. 10-1356 (BAH) |
| Parties | SELECT SPECIALTY HOSPITAL-DENVER, INC., et al., Plaintiffs, v. ALEX M. AZAR II, Secretary, U.S. Department of Health and Human Services, Defendant. |
| Court | U.S. District Court — District of Columbia |
MEMORANDUM OPINION
Plaintiffs, seventy-five long-term care hospitals, prevailed in their suit seeking over $20 million in reimbursements from the Centers for Medicare and Medicaid Services ("CMS") for unpaid co-insurance and deductible obligations of patients eligible for both Medicare and Medicaid. See Select Specialty Hosp.-Denver, Inc. v. Azar, 391 F. Supp. 3d 53 (D.D.C.), reconsideration denied, 2019 WL 5697076 (D.D.C. Nov. 4, 2019). Now, under the Equal Access to Justice Act ("EAJA"), 28 U.S.C. § 2412, plaintiffs seek $1,323,298.04 in attorney's fees and costs incurred during this litigation and the underlying administrative proceedings. See Pls.' App. by Mot. for Attys.' Fees & Costs Under EAJA ( ) at 1, ECF No. 91; Pls.' Supp. App. by Mot. for Attys.' Fees & Costs Under EAJA ( ) at 2, ECF No. 97. Plaintiffs argue that they are entitled to these fees and costs because CMS acted in bad faith before and during the litigation, or, in the alternative, because the position CMS took was not substantially justified. See Pls.' Mem. Supp. Pls.' Mot. ( ) at 3-4, ECF No. 91. CMS's conduct does not meet the stringent standard for a finding of bad faith. Further, CMS's position was substantially justified at the time it was formulated: Select Specialty Hospital ruled for plaintiffs based on Azar v. Allina Health Services, 139 S. Ct. 1804 (2019), a Supreme Court decision issued a week after the parties completed briefing on the dispositive motions, see Select Specialty, 391 F. Supp. 3d at 66. Accordingly, and as explained in detail below, plaintiffs' requests for attorney's fees and costs are denied.
The statutory, regulatory, procedural, and factual background were detailed in Select Specialty Hospital. 391 F. Supp. 3d at 56-66. Only pertinent background is repeated here.
In the Medicare context, unpaid co-insurance and deductible obligations are known as "bad debts." See 42 C.F.R. § 413.89(b)(1) (). Medicare providers may be reimbursed by CMS only for "allowable" bad debts, id. § 413.89(d), and a bad debt cannot be "allowable" unless "[t]he provider [is]. . . able to establish that reasonable collection efforts were made," id. § 413.89(e) ().
Patients eligible for both Medicare and Medicaid are known as "dual-eligible patients." For dual-eligible patients' bad debts, providers can satisfy this reasonable collection requirement by showing (1) that the patient has "been determined eligible for Medicaid" and (2) that "no source other than the patient," including Medicaid, "would be legally responsible for the patient's medical bill." Provider Reimbursement Manual, Part I ("PRM-I") § 312. The second obligation was at issue here.
To fulfill this obligation, CMS currently requires that all providers "bill the patient or entity legally responsible for the patient's bill." H-AR at 584 (Joint Signature Memorandum 370("JSM 370") (Aug. 10, 2004)).1 "[W]ith respect to 'dual-eligibles,'" current CMS guidance further states that "in 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.
Prior to 2007, though, the plaintiffs had been reimbursed for their dual-eligible patients' bad debts without first billing state Medicaid programs and obtaining a remittance advice, or RA. See Select Specialty, 391 F. Supp. 3d at 55, 60-62. These steps were viewed as unnecessary because states were not liable for inpatient care of dual-eligible patients by long-term care hospitals. Id. at 55. Indeed, none of the plaintiffs were enrolled in their state Medicaid programs as providers prior to 2007, id. at 60, and some states would not allow these types of hospitals to enroll, id. at 61.
In 2007, Medicare administrative contractors suddenly began denying plaintiffs' requests for reimbursement for dual-eligible bad debts, citing plaintiffs' failure to present RAs.2 In July and August 2007, one set of plaintiffs, the Select I plaintiffs, had their reimbursement requests for dual-eligible patients' bad debts in fiscal year 2005, totaling $438,693, denied by theircontractor, Wisconsin Physicians Service Corporation ("WPS"). See Select Specialty, 391 F. Supp. 3d at 61 (citing S1-AR at 674). A second set of plaintiffs, the Select II plaintiffs, had various such requests for fiscal years 2006-2010, totaling $19,317,678, denied by contractors WPS and Novitas Solutions, Inc., beginning in June 2007. Id. (citing S2-AR at 457 (Stipulations ¶ 9)). The third plaintiff, the Hillcrest plaintiff, had dual-eligible bad debts reimbursement requests denied for the first time by WPS in December 2008; this plaintiff was ultimately denied $568,803 in reimbursements for dual-eligible bad debts for fiscal years 2007 and 2008. Id. (citing H-AR at 555-57, 565-67; H-Answer ¶¶ 6).
The three sets of plaintiffs appealed the contractors' denials to the Provider Reimbursement Review Board ("PRRB"), which reversed those denials in part. See id. at 64-65 . The CMS Administrator, whom the Secretary of Health and Human Services ("HHS") has given authority to hear appeals from the PRRB, reinstated the contractors' decisions to deny the plaintiffs' dual-eligible bad debt reimbursements for failure to submit RAs. Id. at 65 (citing S1-AR at 2-19; S2-AR at 1-22; H-AR at 2-29).
The first set of plaintiffs, the Select I plaintiffs, appealed the Administrator's decision about their reimbursements to this Court, see Complaint, Select I, No. 10-cv-1356, ECF No. 1, which granted partial summary judgment to the plaintiffs and remanded the case to the Administrator "for reconsideration of the limited issue of whether Plaintiffs were justified in relying on CMS' prior failure to enforce the must-bill policy with respect to dual-eligiblereimbursement claims from non-participating Medicaid providers," Cove Assocs. Joint Venture v. Sebelius, 848 F. Supp. 2d 13, 30 (D.D.C. 2012). The Administrator affirmed the previous denial of reimbursements to the Select I plaintiffs, see Select Specialty, 391 F. Supp. 3d at 65-66 (citing S1S-AR at 3-9), and the Select I plaintiffs' case in this Court was then reopened and eventually consolidated with the Select II and Hillcrest plaintiffs' cases, see Minute Order (Jan. 10, 2019).
In granting the plaintiffs' motion for summary judgment and denying CMS's cross-motion, Select Specialty Hospital held that CMS was required by the Medicare Act, 42 U.S.C. § 1395hh(a)(2), to conduct notice-and-comment rulemaking before subjecting the non-Medicaid participating plaintiffs to the must-bill and RA requirements. 391 F. Supp. 3d at 67. Section 1395hh(a)(2) requires CMS to give notice and an opportunity to comment when "establish[ing] or chang[ing] a substantive legal standard governing the scope of benefits." 42 U.S.C. § 1395hh(a)(2). A Supreme Court decision issued just after the parties finished briefing the motions for summary judgment, see Select Specialty, 391 F. Supp. 3d at 66, clarified that this provision "distinguish[es] a substantive from a procedural legal standard," and requires that CMS conduct notice and comment rulemaking for changes to the former but not to the latter type of standard, Allina Health Servs., 139 S. Ct. at 1811 (emphasis in original). Allina affirmed the D.C. Circuit's judgment in Allina Health Services v. Price, 863 F.3d 937 (D.C. Cir. 2017), without endorsing "in every particular," the D.C. Circuit's definition of "substantive," preferring to leave "questions about the statute's meaning" not essential to resolving that case for "other cases," Allina Health Servs., 139 S. Ct. at 1814. The D.C. Circuit has further defined "substantive legal standard," as, "at a minimum includ[ing] a standard that 'creates, defines, andregulates the rights, duties, and powers of parties.'" Price, 863 F.3d at 943 (quoting BLACK'S LAW DICTIONARY (10th ed. 2014)).
The record evidence in this case demonstrated that "CMS's application of the must-bill and RA requirements to the plaintiffs beginning in 2007 was a change in policy." Select Specialty, 391 F. Supp. 3d at 62. That change was substantive rather than procedural because "CMS changed not just the steps that existing LTCHs must take, vis-à-vis CMS, to be reimbursed, but also changed whether such entities must form contracts with third parties, the state Medicaid programs." Id. at 69. Given that the change was substantive, "without satisfying the notice-and-comment obligation of § 1395hh(a)(2), CMS could not, and indeed cannot, impose the must-bill policy and RA requirement on the plaintiffs for the period when they were non-Medicaid-participating providers." Id. Thus, summary judgment was granted to the plaintiffs, the Administrator's decisions were set aside, and the case was remanded to HHS for proceedings consistent with the ruling. See Order (Aug. 22, 2019), ECF No. 74.
After CMS's motion for reconsideration was denied because it relied on "rec...
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