Select Specialty Hospital-Denver, Inc. v. Azar, Civil Action No. 10-cv-1356 (BAH)

CourtUnited States District Courts. United States District Court (Columbia)
Citation391 F.Supp.3d 53
Docket NumberCivil Action No. 10-cv-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.
Decision Date22 August 2019

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

Brian J. Field, U.S. Attorney's Office for the District of Columbia, Javier M. Guzman, Democracy Forward Foundation, Linda L. Keyser, U.S. Department of Health and Human Services Office of the General Counsel, Washington, D, for Defendant.


BERYL A. HOWELL, Chief Judge The plaintiffs in this consolidated case are seventy-five long-term care hospitals ("LTCHs") located in twenty-six states seeking a total of $20,325,174 in reimbursements from the Department of Health and Human Services ("HHS"), in connection with the plaintiffs' provision of inpatient care, over the period of 2005 through 2010, for patients eligible for both Medicare and Medicaid ("dual-eligible patients"), who generally are indigent. Prior to 2007, the Centers for Medicare and Medicaid Services ("CMS") had reimbursed LTCHs for their dual-eligible patients' unpaid co-insurance and deductible obligations ("bad debt") without requiring the LTCHs to bill state Medicaid programs for a formal determination of how much of that bad debt would be covered by state Medicaid programs. Billing state Medicaid programs was regarded as unnecessary, because the states were not liable for Medicare bad debts incurred at LTCHs.

In 2007, however, CMS abruptly began denying LTCHs reimbursement for dual-eligible patients' bad debts unless the LTCHs had both billed their state Medicaid programs and received a specific document from those state Medicaid programs called a State Remittance Advice ("RA")—to prove that the state Medicaid programs were, in fact, not liable for any portion of the bad debts. This requirement that LTCHs bill the state Medicaid program to confirm that the state will not pay the Medicare cost-sharing amounts on behalf of a dual-eligible patient is known as CMS's "must-bill policy."

At the time of CMS's change in the must-bill policy, no means were available to satisfy CMS's new requirements because the LTCHs were not enrolled in their respective state Medicaid programs, and states would neither process bills nor issue RAs to non-participating providers. Moreover, when the LTCHs attempted to enroll in their respective state Medicaid programs, some states rejected the LTCHs as unrecognized provider types under their state Medicaid programs. When the LTCHs were eventually able to enroll successfully in their state Medicaid programs, obtaining the requisite RAs remained impossible because states would not process claims for prior fiscal years.

The plaintiffs claim, inter alia , that CMS could not change the requirements for Medicare bad debt reimbursement, at least as to non-participating Medicaid providers, without conducting notice-and-comment rulemaking, as required by the Medicare Act, 42 U.S.C. § 1395hh(a)(2). Complaint ¶¶ 120–124 ("S1-Compl."), Select Specialty Hosp.-Denver, Inc. v. Azar (Select I ), Civ. No. 10-1356 (filed Aug. 12, 2010), ECF No. 1; Complaint ¶¶ 129–134 ("S2-Compl."), Select Specialty Hosp.-Birmingham v. Azar (Select II ), Civ. No. 17-235 (filed Feb. 2, 2017), ECF No. 1; Complaint ¶ 66(l ) ("H-Compl."), Select Specialty Hosp.-Tulsa/Midtown, LLC v. Azar (Hillcrest ), Civ. No. 18-584 (filed Mar. 15, 2018), ECF No. 1. The D.C. Circuit's holding in Allina Health Servs. v. Price (Allina II ), 863 F.3d 937 (D.C. Cir. 2017), aff'd, Azar v. Allina Health Servs. , ––– U.S. ––––, 139 S. Ct. 1804, 204 L.Ed.2d 139 (2019), confirms that the plaintiffs are correct. Thus, for the reasons set forth below, the plaintiffs' Motion for Summary Judgment ("Pls.' Mot."), ECF No. 66, is granted, and HHS's Cross-Motion for Summary Judgment ("Def.'s Mot."), ECF No. 67, is denied.


Summarized below are the relevant statutory and regulatory provisions, including CMS's "must-bill" policy and the changes made to this policy leading to the plaintiffs' claims, followed by the factual and procedural history of this case.

A. Statutory and Regulatory Background
1. The Medicare Act and Reimbursement Generally

"Medicare is a federally funded medical insurance program for the elderly and disabled" that was "[e]stablished as part of the Social Security Act, 42 U.S.C. § 1395 et seq. " Fischer v. United States , 529 U.S. 667, 671, 120 S.Ct. 1780, 146 L.Ed.2d 707 (2000). Inpatient hospital care, which is at issue in this lawsuit, is generally covered under Part A of the Medicare Act. 42 U.S.C. §§ 1395c – 1395i-5. CMS, "formerly the Health Care Financing Administration (HCFA), administers the Medicare program on behalf of the Secretary" of HHS, St. Luke's Hosp. v. Sebelius , 611 F.3d 900, 901 n.1 (D.C. Cir. 2010), and is headed by the CMS Administrator, Forsyth Mem'l Hosp. v. Sebelius , 639 F.3d 534, 535 (D.C. Cir. 2011).

The Secretary is required by statute to delegate most of "[t]he administration of [Part A] ... through contracts with [M]edicare administrative contractors." 42 U.S.C. § 1395h(a). These contractors, known as "Intermediaries," are responsible for, inter alia , "[d]etermining ... the amount of the payments required ... to be made to providers of services, suppliers and individuals;" for making those payments; and for providing communication, education, and technical assistance to health care providers treating Medicare patients. Id. § 1395kk-1(a)(4). In order to receive payment from the Medicare program, through the Intermediaries, health care providers such as the plaintiffs must submit "cost reports ... on an annual basis." 42 C.F.R. § 413.20(b). After receiving and reviewing these cost reports, Intermediaries "must within a reasonable period of time ... furnish the provider ... a written notice reflecting the contractor's final determination of the total amount of reimbursement due the provider." Id. § 405.1803(a). These notices, which "[e]xplain the [Intermediary's] determination of total program reimbursement due the provider," id. § 405.1803(a)(1)(i), are known as notices of program reimbursements ("NPRs").

When dissatisfied with an NPR, a provider may seek review of, and a hearing regarding, the Intermediary's decision before the Provider Reimbursement Review Board ("PRRB"), so long as certain jurisdictional requirements, which are not at issue here, are met. 42 U.S.C. § 1395oo (a). "A decision of the Board shall be final unless the Secretary, on his own motion, ... reverses, affirms, or modifies the Board's decision." Id. § 1395oo (f)(1). The Secretary has delegated responsibility for hearing appeals from PRRB decisions to the CMS Administrator. See 42 C.F.R. § 405.1875 ; Mercy Home Health v. Leavitt , 436 F.3d 370, 374 (3d Cir. 2006). A dissatisfied provider may file a civil action challenging the PRRB or the Administrator's final decision in the "District Court of the United States for the judicial district in which the greatest number of providers participating in both the group appeal and the civil action are located or in" this District. 42 C.F.R. § 405.1877(e)(2).1

2. The Cost-Shifting Prohibition and Bad Debt Reimbursement

The Medicare Act requires that the Secretary, in promulgating rules concerning provider reimbursement for reasonable costs, must (1) "take into account both direct and indirect costs of providers of services," and (2) employ "methods of determining costs" for "efficiently delivering covered services to [covered] individuals" that ensure such costs are "not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by such insurance programs." 42 U.S.C. § 1395x(v)(1)(A).2 The purpose of this cost-shifting prohibition is to ensure that neither providers nor non-Medicare-covered patients end up paying the costs for services rendered to Medicare beneficiaries. Although the costs incurred for most of the care provided to Medicare patients are borne by the federal government, individual Medicare patients are "often responsible for both deductible and coinsurance payments for hospital care." Hennepin Cnty. Med. Ctr. v. Shalala (Hennepin Cnty. ), 81 F.3d 743, 745 (8th Cir. 1996). If Medicare patients fail to pay the deductible or coinsurance amounts they owe for hospital care, Medicare allows for reimbursement to the provider of these "bad debts" so long as certain criteria are met. 42 C.F.R. § 413.89(e).

"Bad debts" in the Medicare context are defined as "amounts considered to be uncollectible from accounts and notes receivable that were created or acquired in providing services." 42 C.F.R. § 413.89(b)(1). Such debts are "attributable to the deductibles and coinsurance amounts" billed to Medicare patients. Id. § 413.89(a). Pursuant to the cost-shifting prohibition, Medicare reimburses providers for these bad debts, ensuring that the costs are not "borne by individuals not so covered." 42 U.S.C. § 1395x(v)(1)(A). Ordinarily, Medicare will reimburse providers for bad debts they can prove are "allowable." 42 C.F.R. § 413.89(d). Under long-standing regulations, four criteria in effect since 1966, determine whether a bad debt is "allowable" and thus eligible for reimbursement:

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

Id. § 413.89(e); see 31 Fed. Reg. 14808, 14813 (Nov. 22, 1966) ; see also 20 C.F.R. § 405.420 (1967) ; 42 C.F.R. § 413.80 (1986).

The second requirement, that the provider make "reasonable collection efforts," is principally at issue here. CMS has set out the requirements...

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