Shalala v. St. Paul-Ramsey Medical Center, PAUL-RAMSEY

• Decision Date: 14 March 1995
• Docket Number: PAUL-RAMSEY,No. 94-1380,94-1380
• Citation: 50 F.3d 522
• Parties: , Medicare & Medicaid Guide P 43,108 Donna E. SHALALA, Secretary of Health and Human Services, Appellant, v. ST.MEDICAL CENTER, a Minnesota nonprofit corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 522

50 F.3d 522

47 Soc.Sec.Rep.Ser. 255, Medicare & Medicaid Guide

P 43,108

Donna E. SHALALA, Secretary of Health and Human Services, Appellant, v. ST. PAUL-RAMSEY MEDICAL CENTER, a Minnesota nonprofit corporation, Appellee.

No. 94-1380.

United States Court of Appeals Eighth Circuit.

Submitted Oct. 14, 1994.

Decided March 14, 1995.

Jeffrica J. Lee, Washington, DC, argued (Frank W. Hunger, David Lee Lillehaud, Anthony J. Steinmeyer and Jeffrica Jenkins Lee on the brief), for appellant.

Albert Shay, Washington, DC, argued (James Gaynor, Jr., Chicago, IL, and Albert W. Shay, Washington, DC, on the brief), for appellee.

Before HANSEN, Circuit Judge, JOHN R. GIBSON, Senior Circuit Judge, and MORRIS SHEPPARD ARNOLD, Circuit Judge.

HANSEN, Circuit Judge.

The Secretary of Health and Human Services (the Secretary) appeals the district court's ¹ order reversing the Secretary's decision to deny reimbursement of $495,679 in Medicare "bad debt expenses" to St. Paul-Ramsey Medical Center (Ramsey). The Secretary argues that Ramsey failed to satisfy the requirements governing the reimbursement of "bad debt expenses" arising from the treatment of indigent patients. The district court agreed with Ramsey that the Secretary was applying requirements that have never been imposed and concluded that Ramsey had satisfied those requirements which did in fact exist. We affirm.

I.

A. Regulatory Structure and Reimbursement System

Ramsey is a provider of services under the Medicare program. "Provider hospitals" participate in the Medicare program by entering into a "provider agreement" with the Secretary. Medicare is a two-part program. Part A covers reimbursement of hospital inpatient costs and posthospital extended care costs. Part B is a voluntary program providing supplemental health insurance for physician's services, medical equipment, outpatient services, laboratory services and the like. The issue presented in this case is a Part A reimbursement dispute.

Under Part A, Medicare pays the bulk of a Medicare inpatient's hospital costs for the services provided by the provider hospital. Medicare does not, however, pay all of the costs for the patient. The patient remains responsible for paying all deductibles and coinsurance amounts to the hospital. The hospital retains the responsibility for collecting these monies.

The Medicare program reimburses some of the hospital's general operational "reasonable costs" and seeks to avoid both shifting the costs of providing Medicare services from Medicare patients to non-Medicare patients and the hospital's shifting of non-Medicare patient costs to the Medicare program. 42 U.S.C. Sec. 1395x(v)(1)(A). Congress specifically left a gap in the statute and gave the Secretary the authority to establish the regulations which define "reasonable costs" and which prevent Medicare costs from being shifted to the provider hospitals. Id. Under the regulations that the Secretary has developed, the amounts a hospital is unable to collect from a Medicare patient for unpaid deductible and coinsurance amounts ("bad debts") are treated as reductions in the hospital's revenue--not "reasonable costs" the hospital incurs because they are not actual "costs" in the delivery of care. However, in keeping with the prohibition against shifting Medicare costs to provider hospitals, the Secretary has determined that "the costs attributable to the deductibles and coinsurance amounts that remain unpaid [by the Medicare patient] are added to the Medicare share of allowable costs." 42 C.F.R. Sec. 413.80(d). For those amounts to qualify as a reimbursable Medicare generated "bad debt", generally the hospital must first make "reasonable collection efforts" to recover the deductible and coinsurance amounts still owing. 42 C.F.R. Sec. 413.80(e).

The Secretary has issued a number of guidelines and manuals, to assist interested parties in navigating the shoals of the Medicare compensation and reimbursement system. Health Care Financing Administration Publication 15-1, commonly referred to as the Provider Reimbursement Manual ("PRM" or "manual"), is the main source. In the PRM, the Secretary relaxes the "reasonable collection efforts" requirements in the case of "indigent" Medicare patients stating that a "bad debt" may be deemed uncollectible without requiring the hospital to undertake "reasonable collection efforts" if the patient is "indigent" as determined by the criteria under section 312 of the PRM. Section 312 contains detailed criteria for determining indigency, and its language provides the main focus of the dispute in this case.

As a general matter, section 312 requires the provider to use its customary method for determining indigency when it determines if a Medicare patient is indigent. Section 312 also contains the following specific requirements which are relevant to this case: the fact of indigence should be determined by the hospital and not the patient, i.e., the patient's signed declaration of indigency is not enough; the provider should look to and analyze all of the patient's resources, liabilities, income, and expenses; and the patient file should contain documentation of the method used to determine indigency and the information upon which the determination is based. The Secretary's main contention in this case is that Ramsey failed to satisfy the requirement that the hospital, not the patient, must determine whether or not the patient is, in fact, indigent.

The Medicare program reimburses costs to provider hospitals through a "fiscal intermediary," normally an insurance company under contract to the Secretary. The fiscal intermediary essentially acts as a claims adjustor for the Secretary and determines how much of the hospital's claimed Medicare reimbursement costs should be paid. The provider hospital is required to file an annual cost report with the intermediary which supplies the basis for the provider hospital's Medicare reimbursement requests. The intermediary analyzes the claims made in the report, performs an audit, and eventually issues a written Notice of Program Reimbursement (NPR) informing the provider hospital of the amount of reimbursement to which it is entitled.

If the provider hospital is not satisfied with the intermediary's determination of what the hospital is entitled to by way of reimbursement, and the amount in controversy exceeds $10,000, the provider hospital can request a hearing before the Provider Reimbursement Review Board (PRRB), which is within the Department of Health and Human Services. The decision of the PRRB is the final agency determination of the reimbursement claim unless the Secretary on her own motion (acting through the Chief Administrator of the Health Care Financing Administration), decides to affirm, reverse, or modify the decision of the PRRB. If the provider hospital is dissatisfied with the final agency determination, the provider hospital may then seek judicial review of the agency's decision in accordance with the judicial review provisions of the Administrative Procedure Act (APA), 5 U.S.C. Secs. 701-706.

In 1987, Congress enacted legislation as part of the Omnibus Budget Reconciliation Act (OBRA), which essentially prohibits the Secretary from changing the "bad debt reimbursement policies" from those existing in 1987. The OBRA legislation includes a provision specifically stating that the Secretary cannot make a provider hospital change its indigency determination procedure if the fiscal intermediary had approved the hospital's indigency determination procedure in the past in accordance with the rules existing as of 1987. ²

B. Factual & Procedural Background

Ramsey has two programs for elderly indigent patients as part of its Senior Health Care Center: (1) the Low and Moderate Income Program (LAMP) for indigent Medicare patients; and (2) the Hill-Burton ³ program for indigent non-Medicare patients. This case involves claimed reimbursements for the LAMP program, which uses the same income eligibility standards as the Hill-Burton program, except that the LAMP program imposed an additional asset guideline for the relevant year.

To be eligible for LAMP, patients must be eligible for Medicare and must be indigent. Enrollment in LAMP is valid for one year and may be renewed annually. Ramsey accepted the financial information provided by both LAMP and Hill-Burton patients at face value and did not attempt to independently verify the accuracy of the income and assets the patients listed on Ramsey's information forms. It used the same procedure to determine the indigency of Medicare patients in 1986 as it had in all prior years.

Ramsey made a claim for reimbursement of those Medicare patient generated "bad debt expenses" relating to LAMP for the 1986 fiscal year, like it had in all other prior years. Blue Cross and Blue Shield Association- /Blue Cross and Blue Shield of Minnesota served as the intermediary, as it had in other years prior to 1986. Blue Cross had allowed full reimbursement in prior years, and initially allowed the 1986 claim, in full, as well. However, Blue Cross later reopened the 1986 claim and in an NPR dated September 26, 1989, disallowed $495,679 in claimed reimbursements.

Ramsey appealed the Blue Cross decision to the PRRB. After an evidentiary hearing, the PRRB concluded that Blue Cross had properly disallowed Ramsey's reimbursement claim. The PRRB found that Ramsey had failed to comply with the requirements of section 312 of the PRM. The PRRB specifically held that Ramsey had failed to comply with section 312 of the PRM because Ramsey "simply accepted whatever financial information was supplied by the patients, ... the patient's indigency was determined by the patient and not the provider [Ramsey]." (R. at 13.) The PRRB concluded that Ramsey had poor records and reiterated that Ramsey essentially had allowed the patients to determine their own indigency because Ramsey had no policy for verifying indigency. (Id. at...