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Mountain States Health Alliance v. Burwell

United States District Court, D. Columbia.

September 10, 2015

MOUNTAIN STATES HEALTH ALLIANCE, Plaintiff,
v.
SYLVIA M. BURWELL, Secretary, U.S. Department of Health and Human Services, Defendant

Page 196

          For MOUNTAIN STATES HEALTH ALLIANCE, Plaintiff: Daniel J. Hettich, LEAD ATTORNEY, KING & SPALDING, LLP, Washington, DC.

         For SYLVIA M. BURWELL, Secretary, U.S. Department of Health and Human Services, Defendant: Joshua M. Kolsky, LEAD ATTORNEY, U.S. ATTORNEY'S OFFICE FOR THE DISTRICT OF COLUMBIA, Washington, DC; Scott Charles Sasjack, LEAD ATTORNEY, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, Office of the General Counsel, CMS Division, Washington, DC.

Page 197

         MEMORANDUM O PINION

         RANDOLPH D. MOSS, United States District Judge.

         Under the governing regulations, a Medicare provider is entitled to reimbursement

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for unpaid deductibles and copayments--referred to as " Medicare bad debt" --but only if certain requirements are met. Among other things, the regulations require that the provider establish that it has engaged in " reasonable collection efforts" before declaring a debt uncollectible. 42 C.F.R. § 413.89(e). That requirement is further explicated in section 310 of the Provider Reimbursement Manual, which specifies that, in order to qualify as a " reasonable collection effort, a provider's effort must be similar to the effort the provider puts forth to collect comparable amounts from non-Medicare patients." Center for Medicare and Medicaid Services Pub. 15-1, § 310 (2003). The Provider Reimbursement Manual further states that " [w]here a collection agency is used, Medicare expects the provider to refer all uncollected patient charges of like amount to the agency without regard to class of patient," that is, without regard for whether the charges were incurred by a Medicare or non-Medicare patient. Id. § 310.A.

         This case involves a challenge to the application of these rules in a decision by the Secretary of Health and Human Services (" Secretary" )[1] denying Plaintiff reimbursement for unpaid Medicare bad debt for the cost reporting periods ending June 30, 2004 and June 30, 2005. See Mountain States Health Alliance 05 Bad Debt--Passive Collection CIRP Grp. v. BlueCross BlueShield Ass'n/Cahaba Gov't Benefits Adm'rs, LLC, PRRB Dec. No. 2013-D6 (Mar. 4, 2013) (" Board Decision" ), AR 6-18.[2] Plaintiff, Mountain States Health Alliance, is the owner of two acute care hospitals (" Providers" ) in Tennessee. For the reporting periods at issue, the Providers first engaged in in-house collection efforts without distinguishing between Medicare and non-Medicare accounts. To the extent those efforts failed, they then referred the debts to an outside, " primary" collection agency--again, without distinguishing between Medicare and non-Medicare accounts. But to the extent that second round of efforts also failed, they adopted different approaches for Medicare and non-Medicare accounts. For non-Medicare accounts, the Providers sent all but those where the patient was bankrupt, deceased with no estate, incarcerated, or a charity to a " secondary" collection agency. In contrast, they declared all of the remaining Medicare bad debt " uncollectible" and, on that basis, sought reimbursement under the Medicare program.

         The Secretary denied reimbursement on the ground that the Providers did not use similar efforts to collect Medicare and non-Medicare bad debt and, in particular, continued to employ collection agencies to pursue certain non-Medicare debt, but not Medicare debt. Dissatisfied with that result, Plaintiff brought this action, alleging that (1) section 310 of the Provider Reimbursement Manual constitutes a " legislative rule," which the Secretary failed to adopt pursuant to the required notice and comment procedures, (2) the Secretary failed to " list" section 310 in the Federal Register, as required by statute, (3) the Secretary's decision departed from Medicare policy in place on August 1, 1987, and thus violated the congressionally-mandated " Bad Debt Moratorium," and (4) the Secretary's decision was, in any event, arbitrary and capricious. See Dkt. 16 at 20, 26.

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          The matter is now before the Court on cross-motions for summary judgment. For the reasons explained below, the Court GRANTS in part and DENIES in part Plantiff's motion for summary judgment, Dkt. 16, DENIES the Secretary's cross-motion for summary judgment, Dkt. 17, VACATES the Board's decision, and REMANDS for further proceedings consistent with this Memorandum Opinion. A separate Order accompanies this decision.

         I. BACKGROUND

         A. Statutory And Regulatory Background

         1. The Medicare Provider Reimbursement System

         The Medicare program provides healthcare for the elderly and disabled. See 42 U.S.C. § § 1395 et seq. Participating health care providers collect deductibles and coinsurance amounts directly from Medicare patients and are reimbursed for other costs through the Medicare program.

         As relevant here, providers are reimbursed for various direct and indirect " reasonable costs." See generally 42 C.F.R. Part 413; 42 U.S.C. § 1395x(v)(1)(A). The provider bears the burden of supplying information establishing that the costs for which it seeks reimbursement are " reasonable costs" eligible for reimbursement under the relevant regulations. See, e.g., 42 C.F.R. § 413.24(a). Providers file annual cost reports, which are reviewed by private administrative contractors authorized by the Center for Medicare and Medicaid Services (" CMS" ). See 42 U.S.C. § 1395h; 42 C.F.R. § 413.24(f). During the years at issue here, these private contractors were called " fiscal intermediaries." See 42 U.S.C. § 1395h (2000). Intermediaries evaluate the annual cost reports under the Secretary's regulations and informal guidance, particularly the Provider Reimbursement Manual, which includes the Secretary's " guidelines and policies to implement Medicare regulations which set forth principles for determining the reasonable cost of provider services." See CMS Pub. 15-1, Part I, Forward, (2003) (hereinafter " PRM" ). The intermediary determines the amount of reimbursement to which the provider is entitled and issues a " Notice of Program Reimbursement."

         A provider that is dissatisfied with an intermediary's reimbursement determination may appeal to the Provider Reimbursement Review Board (" the Board" ). See 42 U.S.C. § 1395oo(a); 42 C.F.R. § § 405.1835, 405.1837. The Board is bound by the Secretary's regulations and " shall afford great weight to interpretive rules, general statements of policy, and rules of agency organization, procedure, or practice established by CMS," including the PRM. See 42 C.F.R. § 405.1867. The provisions in the PRM, however, " do not have the force and effect of law and are not accorded that weight in the adjudicatory process." Shalala v. Guernsey Mem. Hosp., 514 U.S. 87, 99, 115 S.Ct. 1232, 131 L.Ed.2d 106 (1995).

         A Board decision becomes the final decision of the Secretary unless the CMS Administrator, acting on the Secretary's behalf, elects to review it. See 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. § 405.1875(a)(1). A provider that is dissatisfied with the Secretary's final decision may seek judicial review in federal district court. 42 U.S.C. § 1395oo(f)(1).

         2. Medicare Bad Debt

         Uncollected Medicare deductibles and coinsurance amounts are collectively referred to as " Medicare bad debt." See, e.g., Abington Crest Nursing & Rehab. Ctr. v. Sebelius, 575 F.3d 717, 720, 388 U.S. App.D.C. 19 (D.C. Cir. 2009); 42 C.F.R. § 413.89(a). Medicare " reimburses providers for

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this 'bad debt'" in order to prevent cross-subsidization, i.e., " a cost shift from the Medicare recipient to individuals not covered by Medicare." Cmty. Hosp. of Monterey Peninsula v. Thompson, 323 F.3d 782, 786 (9th Cir. 2003); see also 42 C.F.R. § 413.89(d); Abington, 575 F.3d at 720.

         Under the governing regulations, providers seeking reimbursement for Medicare bad debt must demonstrate that the debt satisfies 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); see Principles for Reimbursable Costs, 31 Fed.Reg. 14808, 14813 (Nov. 22, 1966) (final rule). This case involves the second requirement, " reasonable collection efforts." Neither the regulation nor the Medicare Act defines " reasonable collection efforts," but the Secretary has provided her interpretation in section 310 of the PRM. That provision explains that " [t]o 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." PRM § 310. Section 310 further explains that if a provider elects to refer its non-Medicare accounts to a collection agency, the provider must similarly refer its Medicare accounts of " like amount" :

Where a collection agency is used, Medicare expects the provider to refer all uncollected patient charges of like amount to the agency without regard to class of patient. The 'like amount' requirement may include uncollected charges above a specified minimum amount. Therefore, if a provider refers to a collection agency its uncollected non-Medicare patient charges which in amount are comparable to the individual Medicare deductible and coinsurance amounts due the provider from its Medicare patient, Medicare requires the provider to also refer its uncollected Medicare deductible and coinsurance amounts to the collection agency.

PRM § 310.A. Section 310 was last revised in 1983. See Dkt. 26-1 (HCFA Transmittal No. 246, Feb. 1981); Dkt. 26-2 (HCFA Transmittal No. 278, Jan. 1983).

         3. The " Bad Debt Moratorium"

         In 1987, Congress enacted legislation to " freeze" the Secretary's Medicare bad debt reimbursement policies. Hennepin Cnty. Med. Ctr. v. Shalala, 81 F.3d 743, 751 (8th Cir. 1996); see also Foothill Hosp. v. Leavitt, 558 F.Supp.2d 1, 3-5 (D.D.C. 2008). This legislation, typically referred to as the " Bad Debt Moratorium," provides in relevant part that " the Secretary of Health and Human Services shall not make any change in the policy in effect on August 1, 1987, with respect to payment . . . for reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance amounts incurred under [the Medicare program] (including criteria for what constitutes a reasonable collection effort, including criteria for indigency determination procedures, for record keeping, and for determining whether to refer a claim to an external collection agency)." See Omnibus Budget Reconciliation Act of 1987 (" OBRA" ), Pub. L. No. 100-203, tit. IV, § 4008(c), 101 Stat. 1330-55,, as amended by Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647, tit. VIII, § 8402, 102 Stat. 3798,, reprinted as amended at 42 U.S.C. § 1395f

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note (2012). In 1986, the Inspector General of the Department of Health and Human Services (" HHS" ) had proposed substantial changes regarding the Medicare program's treatment of bad debt. See Hennepin Cnty., 81 F.3d at 747, 750-51; Foothill Hosp., 558 F.Supp.2d at 3-5, 6-7. Congress responded by enacting the Bad Debt Moratorium. Foothill Hosp., 558 F.Supp.2d at 3. The conference report explains that the conferees adopted the House-proposed provision, which " [p]rohibits the Secretary from making any change in policy in effect on August 1, 1987 on payments for Medicare bad debt," H.R. Rep. 100-495, 543 (1987) (Conf. Rep.), but added language " to prohibit the Secretary from modifying the criteria for what constitutes a reasonable collection effort," id. at 547.

         The language " criteria for indigency determination procedures, for record keeping, and for determining whether to refer a claim to an external collection agency " was added in 1988, a year after the original enactment of the Bad Debt Moratorium. Pub. L. No. 100-647, tit. VIII, § 802 (emphasis added). The 1988 conference report explains that Congress made this amendment because it was " concerned about [further] recommendations made by the Inspector General of HHS subsequent to August 1, 1987, and actions which may be taken by the Secretary in response to those recommendations, regarding the bad debt collection policies followed by certain hospitals." H.R. Rep. No. 100-1104 (1988) (Conf. Rep.), reprinted in 1988 U.S.C.C.A.N. 5048, 5337. The conference report further explains that the amended provision was not " intend[ed] to preclude the Secretary from disallowing bad debt payments based on regulations, PRRB decisions, manuals, and issuances in effect prior to August 1, 1987." Id. Rather,

[t]he conferees wish to clarify 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 in effect on that date, and thus not subject to change.

Id.

         In 1989, Congress again amended the Bad Debt Moratorium, this time to provide that " [t]he Secretary may not require a hospital to change its bad debt collection policy if a fiscal intermediary, acting in accordance with the rules in effect as of August 1, 1987, . . . has accepted such policy before that date, . . ." Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239, tit. VI, § 6023, 103 Stat. 2167. Because Plaintiff does not contend that its policy was approved by a fiscal intermediary before 1987, this particular aspect of the Moratorium is not at issue here. The Bad Debt Moratorium ended on October 1, 2012. See Pub. L. No. 112-96, tit. III, § 3201(d), 126 Stat. 192,, reprinted at 42 U.S.C. § 1395f note.

         B. Factual Background

         Plaintiff owns and operates Providers Johnson City Medical Center and Indian Path Medical Center, two acute care facilities in Tennessee that provide Medicare services. AR 10. During the two years at issue in this case, 2004 and 2005, Plaintiff's hospitals had a policy of treating the accounts of Medicare and non-Medicare patients similarly for approximately one year. The accounts were first subjected to in-house collection efforts for six months. See AR 13, 15. The accounts were then referred to a primary collection agency. See id. After six months of unsuccessful collection efforts at the primary collection agency, however, the Medicare and non-Medicare

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accounts were sent in different directions. The non-Medicare accounts were sent to a secondary collection agency, with the exception of accounts deemed " uncollectible" due to bankruptcy, death, incarceration, or charitable status. See AR 12, 15, 81, 86, 95. In contrast, all the Medicare accounts were returned to the Providers and written off as Medicare bad debts, without regard for the amount of the account, the status of the patient, or other individualized considerations. AR 12, 13, 15, 85.[3]

         When the Providers sought reimbursement for the cost reporting years ending on June 30, 2004 and June 30, 2005, the fiscal intermediary excluded approximately $700,000 in Medicare bad debts. AR 19. The intermediary's auditor acknowledged that one of the Providers " perform[ed] a thorough collection effort[ ] on all payor types prior to sending the bad debts to a primary collection agency. The primary agency also perform[ed] thorough collection efforts on all payor types." AR 336-39. Nonetheless, the intermediary disallowed the Medicare bad debts because the Providers had referred non-Medicare accounts to a secondary collection agency, but had not referred Medicare accounts of like amount, and therefore had not satisfied the " reasonable collection efforts" requirement set forth in the relevant regulation, 42 C.F.R. § 413.89(e). AR 10-13.

         Plaintiff timely appealed to the Board on behalf of each Provider. AR 12. The Board held a hearing on the consolidated appeals, at which it heard testimony from Plaintiff's corporate director of reimbursement and a representative from Plaintiff's collection agency. See AR 64-111, 66. Plaintiff argued that the Providers satisfied all the requirements imposed by the regulation regarding " reasonable collection efforts," 42 C.F.R. § 413.89(e), as interpreted by section 310 of the PRM. Plaintiff contended that the Providers had subjected Medicare and non-Medicare accounts to identical collection efforts for at least a year, see AR 10-11, including submitting all accounts to a first collection agency, id., and that the Providers exercised good business judgment in discontinuing their efforts to collect the Medicare accounts after a year because those accounts are on average smaller and more difficult to collect, id. Plaintiff argued that this policy satisfied section 310's requirement that " similar" collection efforts be expended with respect to a provider's Medicare and non-Medicare accounts. See id. Plaintiff also argued that to the extent the Secretary's policy required more, that policy violated the Bad Debt Moratorium because, prior to the Moratorium, the Secretary had reimbursed Medicare bad debt even where providers referred only non-Medicare accounts to collection agencies. See AR 11-12.

         The Board affirmed the fiscal intermediary's denial of reimbursement. See AR 13-18. It agreed with the intermediary that Plaintiff's hospitals had failed to satisfy the " reasonable collection efforts" requirement, see AR 14, 17, explaining that " [t]he key principle . . . for determining whether a provider's efforts to collect Medicare deductible and coinsurance amounts is 'reasonable' is that such efforts are 'similar' to the provider's efforts to collect 'comparable' amounts from non-Medicare patients," AR 14. Furthermore, where a provider uses a collection agency, " CMS requires providers to refer all uncollected patient charges of 'like amount' to the collection agency without regard for class of patient." AR 15.

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          The Board emphasized that the Providers did not decide whether to refer a given Medicare account " based on the actual documented collectability of the individual account ( e.g., bankrupt or deceased patient) or on a global threshold amount by which Medicare and non-Medicare accounts were referred alike." AR 16. Instead, " [t]he record reflects that . . . for delinquent Medicare accounts, the Providers made a single global decision not to refer [Medicare] accounts to the secondary collection agency based on attributes believed by the Providers to generally exist across Medicare accounts as a whole," i.e., " that the Medicare population on average is retired and not gainfully employed, is not necessarily going to borrow money, is living off retirement and social security income, presents difficulty with regards to pursuing property liens and wage garnishments, and has no regard for a lower credit score." AR 16 (emphasis in original). The Board concluded that the exclusion of the Medicare accounts " on a global basis" from referral to the secondary collection agency " did not comply with the regulatory requirement that reasonable collection efforts were made." AR 17.

         The Board also concluded that the Secretary's policy did not violate the Bad Debt Moratorium. AR 16-17. Plaintiff argued that three prior Board decisions construed section 310 to impose a requirement for like treatment of Medicare and non-Medicare accounts, but had not imposed the type of categorical rule applied by the intermediary. According to Plaintiff, by applying an inflexible rule, the intermediary had changed the governing bad debt policy in violation of the Moratorium. In response, the Board explained that the three administrative decisions cited by Plaintiff applied the bad debt reimbursement policy in effect for cost years prior to January 1983. AR 16. Because section 310 was revised in January 1983, and because it was the revised version of section 310 that was in effect when the Moratorium was enacted in August 1987, the Board concluded that the pre-1983 decisions were " not relevant to the Bad Debt Moratorium issue." Id. The Board also concluded that a fourth administrative decision, rendered in 1996, was not illustrative of the Secretary's policy in August 1987, because it was issued after the effective date of the Bad Debt Moratorium and, in any event, relied on the three decisions applying the pre-1983 policy, which the Board had already concluded were irrelevant. AR 16-17.

         When the CMS Administrator declined to review the Board's decision, it became the final decision of the Secretary. Plaintiff timely appealed to this Court, the parties filed cross-motions for summary judgment, and, on May 5, 2015, the Court heard oral argument. The Court then directed the parties to submit copies of the HHS Inspector General Report cited in Foothill Hospital v. Leavitt, 558 F.Supp.2d 1, 3 (D.D.C. 2008), and " supplemental materials relating to the interpretation of the Bad Debt Moratorium, such as legislative history, administrative decisions, and HHS guidance documents." See May 6, 2015, Minute Order; see also Dkts. 25, 26, 27. The parties filed memoranda addressing the supplemental materials. See Dkts. 29, 30.

         II. STANDARD OF REVIEW

         Pursuant to the Medicare Act, 42 U.S.C. § 1395oo(f)(1), this Court reviews the final decision of the Secretary under the applicable provisions of the Administrative Procedure Act (" APA" ), 5 U.S.C. § § 701 et seq. The Court will set aside the Secretary's decision only if it is " arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 ...


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