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Community Health Systems, Inc. v. Burwell

United States District Court, District of Columbia

July 7, 2015

SYLVIA MATHEWS BURWELL, Secretary, U.S. Dep't of Health and Human Services Defendant.


BERYL A. HOWELL, District Judge.

Pending before the Court are cross-motions for summary judgment from the plaintiffs, a group of hospitals owned by Community Health Systems, Inc. ("CHS"), Pls.' Mot. Summ. J. ("Pls.' Mot."), ECF No. 15-1, and the defendant, the Secretary of Health and Human Services ("HHS"), who is sued in her official capacity, Def.'s Mot. Summ. J. ("Def.'s Mot."), ECF No. 19.[1] The plaintiffs were denied $16, 400, 811 in reimbursements for "bad debt" incurred in the treatment of Medicare patients during fiscal years 2004 through 2006. First Am. Compl. ("FAC") ¶¶ 5, 32, ECF No. 7; Def.'s Mem. Supp. Def.'s Mot. at 1 ("Def.'s Mem."), ECF No. 19. The plaintiffs allege that this reimbursement denial violates the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, and a Congressional moratorium, in effect from 1987 through 2012, that barred any change in HHS policy regarding reimbursement of Medicare bad debt. FAC ¶ 1; Pls.' Corrected Mem. Supp. Pls.' Mot. ("Pls.' Mem.") at 1, ECF No. 15-1. The defendant counters that the policy under which HHS denied the reimbursements is both reasonable and long-standing, having existed at the time the Medicare Bad Debt Moratorium took effect. Consequently, the defendant maintains that the challenged reimbursement denial reflects no policy change that would violate the Moratorium. Def.'s Mem. at 2. For the reasons set forth below, the defendant's motion is granted and the plaintiffs' motion is denied.


Resolving the instant motions requires a tour of the "labyrinthine world of Medicare reimbursements." District Hosp. Partners, L.P. v. Burwell, 786 F.3d 46, 48 (D.C. Cir. 2015) (internal quotation marks omitted). The relevant portions of the Medicare statute are explained first, followed by the history of the Medicare Bad Debt Moratorium, before the Court addresses the reimbursement decision challenged by the plaintiffs.

A. General Medicare Reimbursements and Appeals Therefrom

"Medicare is a federally funded medical insurance program for the elderly and disabled... [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 (2000). Inpatient hospital care is generally covered under Part A of the Medicare Act. 42 USC §§ 1395c-1395i-5. The Centers for Medicare and Medicaid Services ("CMS"), "formerly the Heath 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) (internal citation omitted).

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).[2] 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, " to make those payments, and provide 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 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" are known as notices of program reimbursements ("NPRs"). See id. § 405.1803(a)(1)(i).

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" or "Board"), 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). The dissatisfied provider, or, as in this case, a group of dissatisfied providers, 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).

B. Medicare Bad Debt Reimbursements

The Medicare statute provides that non-Medicare patients shall not be forced to share the cost of treatment for Medicare patients. 42 U.S.C. § 1395x(v)(1)(A)(i). This ban on cross-subsidization effectively requires that "the necessary costs of efficiently delivering covered services to individuals covered by" Medicare "will not be borne by individuals not so covered." Id. Although the costs incurred for most of the care provided to Medicare patients are borne by the government, individual Medicare patients are "often responsible for both deductible and coinsurance payments for hospital care." Hennepin Cnty. Med. Ctr. v. Shalala ( Hennepin County ), 81 F.3d 743, 745 (8th Cir. 1996). If Medicare patients fail to pay this portion of their care, Medicare allows for reimbursement of these "bad debts" so long as certain criteria are met. 42 C.F.R. § 413.89(e). The principle underlying the reimbursement of Medicare bad debt is straightforward: "This policy, adopted in 1966[, ]... was originally intended to prevent costs of beneficiary care from being shifted to non-Medicare patients, " in keeping with the statutory cross-subsidization ban in § 1395x(v)(1)(A)(i). U.S. Dep't of Health and Human Servs., Ofc. of Inspector Gen., Semiannual Rep. to the Congress (Apr. 1, 1986-Sept. 30, 1986) ("1986 OIG Report") at 2.[3]

"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); see also Def.'s Mot. Ex. 1 (Provider Reimbursement Manual ("PRM"), Chapter 3) § 300, ECF No. 19-1. For reimbursement of bad debt arising from nonpayment of coinsurance and deductible amounts due from Medicare patients, a hospital must satisfy the following four criteria:

(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). While the regulations do not define key terms used in these criteria, such as "reasonable collection efforts, " "uncollectible, " "worthless, " and "likelihood of recovery, " see id., the HHS sets out interpretive instructions, policies and procedures in the PRM, see Catholic Health Initiatives ( CHI ) v. Sebelius, 617 F.3d 490, 491 (D.C. Cir. 2010) (describing PRM as "guidelines and policies to implement Medicare regulations which set forth principles for determining the reasonable cost of provider services, but it does not have the effect of regulations") (internal quotation marks omitted).

The opening paragraph of PRM § 310 sets out HHS' interpretation of the phrase "reasonable collection effort" as follows:

To be considered a reasonable collection effort, 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. It must involve the issuance of a bill on or shortly after discharge or death of the beneficiary to the party responsible for the patient's personal financial obligations. It also includes other actions such as subsequent billings, collection letters and telephone calls or personal contacts with this party which constitute a genuine, rather than a token, collection effort. The provider's collection effort may include using or threatening to use court action to obtain payment.

Administrative Record ("AR") at 371 (PRM § 310), ECF No. 24-1.[4] As this portion of PRM § 310 makes clear, a "reasonable collection effort" requires both the issuance of a bill and similar treatment of Medicare and non-Medicare bills.

The second paragraph of PRM § 310, subsection A specifically addresses the use of collection agencies, stating that "[a] provider's collection effort may include the use of a collection agency, " without mandating such use. Id. (PRM § 310.A). If a provider chooses to refer Medicare debt to a collection agency, HHS "expects the provider to refer all uncollected patient charges of like amount to the agency without regard to class of patient, " consistent with the policy expressed in the opening paragraph that both Medicare and non-Medicare debt be treated similarly. Id.

A "presumption of noncollectibility" applies to bad debts "[i]f after reasonable and customary attempts to collect a bill, the debt remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary." AR at 373 (PRM § 310.2). In such circumstances, the PRM provides that "the debt may be deemed uncollectible." Id.

If a hospital collects on a bad debt after Medicare has reimbursed the debt, procedures are in place to prevent double recovery to the hospital. Specifically, PRM § 316 provides that "[w]here the provider was reimbursed by the [Medicare] program for bad debts for the reporting period in which the amount recovered was included in allowable bad debts, reimbursable costs in the period of recovery are reduced by the amounts recovered." AR at 375 (PRM § 316). Put simply, if a provider collects on a bad debt after being reimbursed by Medicare, the provider's future Medicare reimbursements are reduced by an identical amount. Id.

C. The Bad Debt Moratorium

Since the beginning of the Medicare program, the government has reimbursed a substantial percentage of Medicare bad debt incurred by providers in order "to prevent costs of beneficiary care from being shifted to non-Medicare patients." 1986 OIG Report at 2. By the mid-1980s, however, elimination or radical alteration of this practice became the subject of policy debates. Id. at 3. The debate was prompted by changes to the Medicare reimbursement system made in 1983 as part of the Reagan Administration's Social Security Act amendments, which moved from directly reimbursing hospitals for the cost of treating Medicare patients to a fixed cost per diagnosis, allowing hospitals to turn a profit on what had previously been a zero sum game. See Spencer Rich, Getting Rich Off Medicare? Levels of Hospital Profits Are Scrutinized as the Government Tries to Balance its Budget, The Wash. Post (Oct. 27, 1987). This shift, in the view of HHS' Office of Inspector General ("OIG"), meant "the original intent of reimbursing hospitals for bad debts no longer seems appropriate." 1986 OIG Report at 3. Based on this view, the 1986 OIG Report recommended modification of the bad debt reimbursement system to hospitals in two alternative ways: "either discontinue Medicare payments to [] hospitals for beneficiary bad debts or, in coordination with [the Social Security Administration], pursue legislative authority to recover payments for beneficiaries bad debts through benefit payment offsets." Id.

The HHS OIG proposal met with resistance in Congress and within the health care industry. See Joe Davidson, U.S. to Propose Ending Reimbursement to Hospitals of Unpaid Medicare Debts, The Wall Street J. (July 2, 1987); Joe Davidson, HHS Weighs Plan of Garnishment for Medicare Bills, The Wall Street J. (Dec. 3, 1986).[5] In response, Congress enacted the so-called "Medicare Bad Debt Moratorium" (or the "Moratorium") as part of the Omnibus Budget Reconciliation Act of 1987. Pub. L. 100-203, § 4008(c), 101 Stat. 1330, 1330-55 (1987); Hennepin County, 81 F.3d at 747. With subsequent amendments in 1988 and 1989, Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647 § 8402, 102 Stat 3342, 3798 (1988); Omnibus Budget Reconciliation Act of 1988, Pub. L. No. 101-239, § 6023, 103 Stat. 2106, 2167 (1989), the Moratorium prevented HHS from "mak[ing] any change in the policy in effect on August 1, 1987... relating to unrecovered costs associated with" Medicare bad debt. 101 Stat. 1330-55.[6]

The Moratorium did not precisely describe the "policy" to which any "change" was prohibited. Given the context and recommendations set out in the 1986 OIG Report, see supra, the initial Moratorium appeared aimed at preventing HHS from abolishing reimbursement for Medicare bad debt or garnishing social security checks, as the HHS OIG had recommended.

Additional nuance is provided by the Conference Report accompanying the 1988 Amendment to the Moratorium, which report expressed "concern[] about recommendations made by the Inspector General of HHS... and actions which may be taken by the Secretary in response to those recommendations, regarding bad debt collection policies followed by certain hospitals." H.R. Rep. No. 100-1104, at 25 (1988) (Conf. Rep.), reprinted in 1988 U.S.C.C.A.N. 5048, 5337.[7] The conferees explicitly objected to certain OIG "recommendations, " including those concerning "the provider's responsibility regarding a decision to use a collection agency for Medicare bad debt, " which the conferees stated "may have the effect of violating the prohibition on changes in policy if the Secretary's response results in the retroactive disallowance of bad debt payments claimed by the hospitals." Id. The conferees "clarif[ied] that the Congress intended that the actions of Fiscal Intermediaries occurring prior to August 1, 1987 to approve explicitly [a] hospital's bad debt collection practices, to the extent such action by the Fiscal Intermediary was consistent with the regulations, PRRB decisions, or program manuals and issuances, are to be considered an integral part of the policy on that date, and thus not subject to change." Id. Significantly, at the same time, the conferees did not "intend to preclude the Secretary from disallowing bad debt payments based on regulations, PRRB decisions, manuals, and issuance[s] in effect prior to August 1, 1987." Id.

The third amendment to the Moratorium in 1989 further clarified the effect of the Moratorium on hospitals that had relied on pre-1987 decisions by their Intermediaries regarding bad debt reimbursements. See H.R. Rep. No. 101-247, at 918 (1989), reprinted in 1989 U.S.C.C.A.N. 1906, 2389. This amendment, which was made retroactive to August 1, 1987, added the following language to the Moratorium: "the Secretary would be prohibited from directing the hospital to change its policy, or collecting retroactively from the hospital based upon the expectation of a change in the hospital's collection policy." Id.

The parties have cited to no legislative history for the Moratorium that references any "policy" as of August 1, 1987 regarding the allowance, or disallowance, of bad debt reimbursement for accounts still active at collection agencies, and the Court has located no such reference. The two amendments to the Moratorium focused almost exclusively on the relationship between hospitals and their Fiscal Intermediaries, effectively requiring Intermediaries to continue their pre-1987 policies regarding bad debt reimbursement, provided such policies were both (1) explicitly stated by the Intermediary and (2) "consistent with the regulations, PRRB decisions, or program manuals and issuances" made by HHS prior to August 1, 1987. See 42 U.S.C. § 1395f note. As the Eighth Circuit noted in Hennepin County, "Congress was motivated" in passing the Moratorium "to prevent unexpected consequences to providers from the [HHS] inspector general's proposed changes in the criteria for bad debt reimbursement." 81 F.3d at 750-51. "It appears Congress merely sought to freeze a moment in time, forbidding the Secretary to change the criteria" for bad debt reimbursement after August 1, 1987, "but allowing full enforcement of the policies in place before it." Id. at 751. This conclusion is bolstered by the 1988 Conference Report, which stated that Congress did not intend to stop the Secretary from prohibiting bad debt reimbursements so long as such denials were consistent with the policies in place when the Moratorium took effect. See H.R. Rep. No. 100-1104, at 25.

The Moratorium was repealed by Middle Class Tax Relief and Job Creation Act of 2012, Pub. L. 112-96, § 3201(d), 126 Stat. 156, 192-3 (2012), for "cost reporting periods beginning on or after October 1, 2012."

D. The Plaintiffs' Collection Practices

The relevant facts in this matter are undisputed. The parties stipulated before the PRRB that during the cost years at issue, some of the plaintiffs were owned by CHS, while "certain hospitals in the [case] were owned by Triad Hospitals, Inc. and were later acquired by CHS." AR at 10 (Challenged PRRB Decision). The parties also stipulated that (1) all of the "bad debts at issue... are related to covered services and derived from deductible and coinsurance amounts, " (2) the plaintiffs maintained a "policy to actively pursue all debts for at least 120 days prior to writing them off as bad debt" and (3) the plaintiffs complied with their policy. Id. Additionally, the parties do not dispute that after "at least 120 days of in-house collection activities, " the plaintiffs "forwarded uncollected accounts to outside collection agencies, and wrote the accounts off as bad debts.'" Id. at 11. Any amounts recovered by the collection agencies were offset, pursuant to PRM § 316, and the collections efforts engaged in by the plaintiffs "were similar for all patients regardless of" whether the patients were using Medicare. Id. The plaintiffs "concede that the bad debts at issue... were claimed while such debts were being worked by an outside collection agency after more than 120 days of in house collection efforts." Id. In turn, the Intermediaries concede that "[t]he sole bases for the [] disallowance of the bad debts at issue is that the provider wrote the accounts off as worthless even though there was no evidence that the delinquent accounts were recalled by the provider or that the collection efforts ceased by the collection agency."[8] Id.

The parties do not dispute that in 2002, the Intermediary for the CHS plaintiffs-though not for the Triad plaintiffs-"reviewed CHS' collection practices and issued a letter" noting that "[t]he regulations state the provider can presume [bad] debt uncollectable and write it off after 120 days, assuming they have made consistent collection efforts (Medicare vs. Non-Medicare/Private Pay) as noted" in 42 C.F.R. § 413.89(e). AR at 11 (PRRB Decision); see also AR at 2053 (Letter, dated Oct. 8, 2002, from Regional Manager-Central Region, Medicare Audit and Reimbursement, Mutual of Omaha Ins. Co. to CHS). The Intermediary observed in the 2002 letter, which was issued fifteen years after the effective date of the Moratorium, that "[t]he [Medicare] regulations do not state that a provider cannot continue collection efforts (with a related party or unrelated party) after being written off" and, based on this regulatory silence, opined that "[w]e see no reason why the related party relationship [between CHS and the collection agency] should interfere with or obscure the determination of the allowability of the Bad Debt claim." AR at 2053. This letter does not otherwise reference or describe the Intermediary's or the plaintiffs' pre-Moratorium practices regarding reimbursement of Medicare bad debt referred to a collection agency. See id. at 2052-53.

In a subsequent 2006 letter, "the Intermediary informed CHS that the Medicare program will not reimburse deductible and coinsurance amounts while they are being worked by a collection agency." Id. at 11 (internal quotation marks omitted). According to the plaintiffs, the 2006 Intermediary letter disallowing reimbursement for Medicare bad debt still referred to a collection agency was a "complete surprise" and reflected a policy that "hadn't been applied in the audit experiences that [CHS] had." Pls.' Mem. at 33. The plaintiffs claim that they "formulated their bad debt collection policies based on the presumption of noncollectability [sic]" in PRM § 310.2, and in collaboration "with the Intermediary, " which "specifically confirmed the adequacy of that policy" reflected in the earlier 2002 letter. AR at 13. The plaintiffs' practice is to "continue in-house collections even after the minimum time ( i.e., 120 days) has passed until the business office manager" for each hospital "personally reviews and signs of on each debt prior to writing off that debt" as bad debt. Id. Once written off, the debt is sent to a collection agency and the plaintiffs "are not involved with the debts after they are written-off unless there is a successful collection effort by the collection agency." Id.

E. The Challenged Decision

The plaintiffs challenge the PRRB's decision upholding the Intermediaries' denial of bad debt reimbursement, totaling $16, 400, 811, to six hospitals in 2004, fifty-four hospitals in 2005, and fifty-eight hospitals in 2006. AR at 10; Pls.' Mem. at 8.[9] Each of the hospitals involved had their bad debt reimbursement denied "because the Providers' debts were still at a collection agency." AR at 10. The PRRB ruled that the Intermediaries' "adjustments to remove the Medicare bad debts... while the debts were still at the collection agency were proper." Id. at 15. In reaching this conclusion, the PRRB considered both prongs of the Moratorium barring the Secretary from (1) changing HHS' bad debt reimbursement policy in effect on August 1, 1987; and (2) requiring "a provider to change its bad debt collection policy when the Intermediary had accepted that policy prior to August 1, 1987." Id.

The PRRB determined that only the first prong was at issue since "there [was] nothing in the record to document or confirm what the [plaintiffs'] policy was prior to August 1, 1987, " and, therefore, no evidence had been presented regarding whether the Secretary had required the plaintiffs to change their policy after prior acceptance by an Intermediary. Id. Specifically, the PRRB noted that at the evidentiary hearing, the plaintiffs' "witness testified... that he had no knowledge as to what the [plaintiffs] were reimbursed by the Intermediary prior to August 1, 1987" and, further, "there is nothing in the record to document or confirm what the Provider's policy was prior to August 1, 1987." Id. [10] As a result, the PRRB found that the second prong of the Moratorium was not implicated in this case. Id.

While acknowledging the "presumption of noncollectibility" in PRM § 310.2, on which the plaintiffs assert they based their bad debt collection practices, AR at 13, the PRRB noted that this section "does not create an automatic presumption after the passage of 120 days" allowing a provider to be reimbursed for any bad debts still pending at that time, id. at 19. Instead, "it is a discretionary presumption and does not foreclose the possibility that a debt may still be deemed collectible after 120 days, " citing the section's permissive language that after 120 days a debt " may be deemed" uncollectible. Id. (emphasis added). The PRRB noted that PRM § 310.2 "does not excuse a provider from satisfying the other criteria specified in" the HHS regulations governing reimbursement of bad debt. Id. at 20. In other words, the four criteria identified in 42 C.F.R. § 413.89(e) must still be satisfied before a provider is entitled to reimbursement for bad debt, including bad debt older than 120 days and still at a collection agency. Thus, "the provider must first determine that the debt is uncollectible' by ...

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