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Winder HMA LLC v. Burwell

United States District Court, District of Columbia

July 25, 2016

WINDER HMA LLC, et al., Plaintiffs,



         Hospitals participating in the Medicare program are reimbursed by the federal government each year for much of the cost of the services they provide to qualifying patients. The Medicare patients themselves, however, are responsible for a small share of the cost of their care – e.g., deductibles or co-payments – just as non-Medicare patients are. When patients of both types fail to pay their portion of the bill, hospitals are forced to engage in collection efforts to recover the money due. If hospitals are ultimately unable to recover the amounts owed by Medicare patients, the Medicare program will reimburse them for this sum. To avoid token collection efforts, however, Medicare regulations require that hospitals treat Medicare and non-Medicare debts in the same manner.

         In this case a group of hospitals challenges a decision by the Secretary of Health and Human Services not to reimburse them for some Medicare patients’ unpaid debts because they did not expend precisely identical efforts collecting Medicare debts as they did collecting non-Medicare debts. As in other Medicare-reimbursement cases, “[w]hat begins as a rather conventional accounting problem raises significant questions respecting the interpretation of the Secretary’s regulations, ” the agency’s interpretive guidance, and the Medicare statutes themselves. See Shalala v. Guernsey Mem’l Hosp., 514 U.S. 87, 89-90 (1995). At issue here is a statute known as the Bad Debt Moratorium, which freezes in place some of the Secretary’s Medicare-reimbursement policies as they existed on August 1, 1987. As the Court concludes that the Secretary’s present understanding of one section of her interpretive guidance is inconsistent with her 1987 interpretation, it will vacate the agency’s reimbursement denial and remand for further administrative proceedings.

         I. Background

         Because the Medicare statute and its attendant regulations and interpretive guidance create a complex scheme that governs the actions taking place in this case, the Court will first set forth the basic contours of that scheme and then examine the administrative proceedings that gave rise to Plaintiffs’ suit.

         A. Statutory Background

         1. Overview

         “The federal Medicare program reimburses medical providers for services they supply to eligible patients, ” who are typically elderly or disabled. See Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 2 (D.C. Cir. 2011) (citing 42 U.S.C § 1395 et seq.). Part A, the section of the statute relevant here, “covers medical services furnished by hospitals and other institutional care providers.” Id. The Center for Medicare and Medicaid Services (CMS), a component of the Department of Health and Human Services, administers the Medicare-reimbursement program. See Arkansas Dep’t of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 275 (2006).

         To receive their Medicare Part A reimbursements, “[a]t the end of each year, providers participating in Medicare submit cost reports to contractors acting on behalf of HHS known as fiscal intermediaries.” Sebelius v. Auburn Regional Medical Center, 133 S.Ct. 817, 822 (2013); see also 42 C.F.R. §§ 413.20, 413.24. These intermediaries, typically private companies that “process payments on behalf of CMS[ and] make interim payments to providers, . . . then analyze and audit the cost report and inform the provider of the total amount of Medicare reimbursement to which they are entitled, which is referred to as the Notice of Program Reimbursement (NPR).” Emanuel Medical Center, Inc. v. Sebelius, 37 F.Supp.3d 348, 350 (D.D.C. 2014) (citing 42 C.F.R. § 405.1803). A provider dissatisfied with the intermediary’s determination of its NPR is afforded 180 days to request a hearing to challenge that determination before the Provider Reimbursement Review Board (PRRB). See 42 U.S.C. § 1395oo(a). “The Board can affirm, modify, or reverse the fiscal intermediary’s award; the Secretary [of HHS] in turn may affirm, modify, or reverse the PRRB’s decision.” Emanuel Medical Center, 37 F.Supp.3d at 350 (citing 42 U.S.C. §§ 1395oo(d)-(f)). The provider then has sixty days after notice of a final decision by the PRRB or the Secretary in which to file a civil action in federal district court to seek judicial review of that decision. See 42 U.S.C. § 1395oo(f); 42 C.F.R. § 405.1877.

         2. Reimbursement of “Bad Debts”

         “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.” Cmty. Health Sys., Inc. v. Burwell, 113 F.Supp.3d 197, 203-04 (D.D.C. 2015) (internal quotation marks and citation omitted). When Medicare patients fail to pay this portion of their care, hospitals may, under certain conditions, write such payments off as “bad debt” and seek reimbursement from the federal government. See 42 C.F.R § 413.89(e). As another court in this district has explained, “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, ’” sometimes referred to as the “statutory cross-subsidization ban.” Cmty. Health Sys., Inc., 113 F.Supp.3d at 204; 42 U.S.C. § 1395x(v)(1)(A)(i) (stating that “the necessary costs of efficiently delivering covered services to individuals covered by” Medicare “will not be borne by individuals not so covered”).

         Medicare “bad debts” are defined as “amounts considered to be uncollectible from accounts and notes receivable that were created or acquired in providing services” and are “attributable to the deductibles and coinsurance amounts” billed by providers to individual Medicare patients. See 42 C.F.R. §§ 413.89(b)(1), 413.89(a). When hospitals submit Medicare bad debt for reimbursement, they must demonstrate that the debt satisfies four criteria, set forth in longstanding regulations:

(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). HHS has provided further interpretive instruction as to the meaning of “reasonable collection efforts” in its Provider Reimbursement Manual (PRM). See ECF No. 19 (Cross-Mot.) at 35 (Def. Exh. 1). PRM § 310 instructs:

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.

Def. Exh. 1 at 2 (emphasis added). The PRM further states that a reasonable collection effort may – but need not – involve referral of unpaid amounts to a collection agency:

A provider’s collection effort may include the use of a collection agency in addition to or in lieu of subsequent billings, follow-up letters, telephone and personal contacts. 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. . . . 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.

Id. at 2-3 (PRM § 310(A)). The same section of the manual sets forth a “[p]resumption of [n]oncollectibility, ” according to which debts are deemed uncollectible “[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.” Id. at 3 (PRM § 310.2).

         3. Bad Debt Moratorium

         While the repayment of bad debts to hospitals has been a longstanding practice under the Medicare program, resulting in “the government[’s] . . . reimburs[ing] a substantial percentage of Medicare bad debt incurred by providers, ” Cmty. Health Sys. Inc., 113 F.Supp.3d at 205, “[b]y the mid-1980s . . . elimination or radical alteration of this practice became the subject of policy debates, ” as critics complained that hospitals profited unduly under the Medicare-reimbursement system. See id. The 1983 Social Security Act amendments had shifted payments to service providers from direct reimbursement 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.” Id. As a result, the agency began examining whether “the original intent of reimbursing hospitals for bad debts no longer seems appropriate.” Id. (quoting HHS 1986 OIG Report at 3). HHS recommended that Congress make changes to this system, but such recommendations “met with resistance in Congress and within the health care industry, ” id. at 206, so shortly after the agency issued its recommendations, Congress took legislative action to “shield Medicare providers from the [HHS] Inspector General’s proposed policy changes.” Foothill Hosp. Morris L. Johnston Mem’l v. Leavitt, 558 F.Supp.2d 1, 3 (D.D.C. 2008). This action was part of the Omnibus Budget Reconciliation Act of 1987. See Pub. L. 100-203 § 4008(c), 101 Stat. 1330, 1355 (1987); see also Hennepin Cnty. Med. Ctr. v. Shalala, 81 F.3d 743, 745 (8th Cir. 1996) (explaining that Congress enacted these provisions in response to the policy proposals of the Office of the Inspector General of HHS). Congress enacted additional, related amendments in 1988 and 1989, and together these legislative provisions became known as the “Medicare Bad Debt Moratorium.” See 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). Instead of amending existing regulations concerning the reimbursement of bad debt, the Moratorium froze in place the Secretary’s interpretations of those regulations as they existed on August 1, 1987.

         The Bad Debt Moratorium mandated:

In making payments to hospitals under [the Medicare program], 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 under [the Medicare program] to providers of service for reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance amounts incurred under [the Medicare program] (including the criteria for what constitutes a reasonable collection effort).

101 Stat. 1330-55 (emphasis added). The 1989 amendment added the following sentence: “The Secretary may not require a hospital to change its bad debt collection policy if a fiscal intermediary, in accordance with the rules in effect as of August 1, 1987, . . . has accepted such policy before that date. . . .” 103 Stat. 2106. The Bad Debt Moratorium, thus amended, imposes a two-pronged restriction on the Secretary: “First, the Secretary is prohibited from making any changes to the agency’s bad debt policy in effect on August 1, 1987. Second, the Secretary is prohibited from requiring a provider to change bad debt policies it had in place on August 1, 1987.” Dist. Hosp. Partners, L.P. v. Sebelius, 932 F.Supp.2d 194, 198 (D.D.C. 2013) (internal citations omitted). With this statutory background in mind, the Court now turns to Plaintiffs’ challenge to their Medicare reimbursements and the attendant administrative proceedings.

         B. Plaintiffs’ Medicare Reimbursements

         1. The Hospitals’ Collection Efforts

         Plaintiffs in this case are Health Management Associates, Inc., Community Health Systems, Inc., and their subsidiaries, all of whom are operators of various hospital facilities in multiple states that provide acute-care services as part of the Medicare program. See Mot. at 8 (Pl. SOF, ¶ 3.1); AR 14. (The Court, following Plaintiffs’ practice, will refer to all of them collectively as “the Hospitals.”) The central issue this suit raises concerns the Hospitals’ efforts to collect outstanding debts from Medicare patients before writing them off as “bad debts” and whether those efforts were sufficient.

         During the period at issue in this case – fiscal years ending in 2004, 2005, and 2006 – the Hospitals employed a variety of procedures in attempting to collect unpaid deductibles and other payments owed by Medicare patients, which efforts began once the insurers (Medicare or additional insurance providers) had satisfied their obligations. See Mot. at 9 (Pl. SOF, ¶ 3.2). The Hospitals first “maintained a substantial in-house collection process, ” contracting with the private Artrac Corporation to engage in “first party” collections in the name of the Hospitals. See id. As part of that process, the Hospitals first sent a letter to the patient advising him of his financial obligations for medical services provided and followed up with additional collection letters to the patient or relevant payer. Id. Meanwhile, Artrac, using its predictive-dialing system, made calls to these patients “at least once every 7-10 days.” Id. These calls were made at different times of the day and on different days of the week. Id. If accounts still remained unpaid after these efforts, Artrac would send “a final demand letter” and then return the accounts to the Hospitals, which would then send all of the unpaid accounts – both Medicare and non-Medicare – to an outside collection agency (OCA). Id. at 9-10 (Pl. SOF ¶ 3.2).

         The OCA’s practices were more aggressive, sending patients no fewer than three letters making at least twelve calls, and also utilizing litigation where appropriate. Id. The Hospitals explained that, together with the outside collection agency, its collection efforts included:

1. Repeated review of the accounts to determine whether the debtors were bankrupt or deceased;
2. Repeated verification of both the debtors’ addresses and phone numbers;
3. Issuance of numerous collection letters demanding payment;
4. Frequent phone calls at all times of the day and in the ...

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