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Lakeland Regional Health System v. Sebelius

United States District Court, District Circuit

July 16, 2013

KATHLEEN SEBELIUS, Secretary Department of Health and Human Services Defendant.


RICHARD J. LEON, United States District Judge

Plaintiff Lakeland Regional Health System ("plaintiff or "Lakeland") brought the present action against Kathleen Sebelius, the Secretary of Health and Human Services ("defendant" or "the Secretary") pursuant to Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395kkk-l (the "Medicare Act") and the Administrative Procedure Act, 5 U.S.C. § 551 et seq. (the "APA"), challenging the defendant's final administrative decision denying Medicare reimbursement for certain bad debts incurred by plaintiff during the 2005 fiscal year. Defendant held that the debts could not be deemed "uncollectible" under 42 C.F.R. § 413.89(e) while pending at an outside collection agency. Plaintiff argues that defendant's position constitutes a change in policy in violation of 42 U.S.C. § 1395f note (hereinafter "Bad Debt Moratorium" or "Moratorium"). In the alternative, plaintiff contends that defendant's decision is arbitrary, capricious, and inconsistent with the governing statute and regulations. Before the Court are the parties' cross motions for summary judgment. Upon consideration of the parties' pleadings, relevant law, and the entire record in this case, defendant's summary judgment motion is GRANTED and plaintiffs motion is DENIED.


A. Statutory and Regulatory Background

1. The Medicare Program and Bad Debt Reimbursements

The Medicare Act provides health insurance benefits to eligible elderly and disabled persons. 42 U.S.C. § 1395 et seq. The Centers for Medicare and Medicaid Services ("CMS"), formerly the Health Care Financing Administration ("HCFA"), administers the Medicare program for the Secretary. 42 U.S.C. § 1395kk; 42 C.F.R. § 400.200 et seq. Medicare providers like plaintiff enter into written agreements with the Secretary to provide services to eligible beneficiaries. 42 U.S.C. § 1395cc. Pursuant to these agreements, providers are reimbursed for services rendered to eligible beneficiaries. See Id . The Secretary has broad discretion to determine which "reasonable costs" may be reimbursed to Medicare providers, see 42 U.S.C. § 1395x(v)(l)(A), and what documentation is required from providers, see 42 U.S.C. § 1395g(a). The Secretary contracts with fiscal intermediaries[1] to determine and process reimbursement payments to providers. 42 U.S.C. § 1395h.

At the close of each fiscal year, providers submit cost reports to their fiscal intermediaries for determination of program reimbursement. 42 C.F.R. §§ 413.20, .24. After auditing the report, 42 C.F.R. § 1395g, the fiscal intermediary issues a Notice of Program Reimbursement ("NPR"), 42 C.F.R. §§ 405.1801(a)-. 1803. A hospital may challenge an NPR by requesting a hearing before the Provider Reimbursement Review Board ("PRRB"). 42 U.S.C. § 1395oo(a). The PRRB's decision is subject to review by the Administrator of CMS. 42 U.S.C. § 1395oo(f)(l); 42 C.F.R. § 405.1875(a)(1). The Administrator's decision constitutes a final agency decision subject to judicial review. 42 U.S.C. § 139500(f)(1); 42 C.F.R. § 405.1877.

Medicare requires its beneficiaries to bear a portion of the cost of covered services in the form of deductibles and coinsurance. 42 C.F.R. §§ 409.80-.83. In order to prevent shifting the costs of covered services to non-Medicare patients, the Medicare program reimburses hospitals when they are unable to collect coinsurance and deductible payments from Medicare beneficiaries. 42 U.S.C. § 1395x(v)(l)(A); 42 C.F.R. §§ 412.115(a), 413.89(a), (d). The regulations goveming bad debt reimbursement were written to incentivize providers to practice strong and efficient collection efforts before seeking bad debt reimbursement from the Medicare program:

A bad debt must meet the following criteria to be allowable:

(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); AR at 580. 42 C.F.R. § 413.89(e) was first issued in 1966. SeeDistrict Hosp. Partners v. Sebelius, Civ. Action No. 11-1717, slip op. ...

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