United States District Court, District of Columbia
A. HOWELL CHIEF JUDGE.
plaintiffs in this consolidated case are seventy-five
long-term care hospitals (“LTCHs”) located in
twenty-six states seeking a total of $20, 325, 174 in
reimbursements from the Department of Health and Human
Services (“HHS”), in connection with the
plaintiffs' provision of inpatient care, over the period
of 2005 through 2010, for patients eligible for both Medicare
and Medicaid (“dual-eligible patients”), who
generally are indigent. Prior to 2007, the Centers for
Medicare and Medicaid Services (“CMS”) had
reimbursed LTCHs for their dual-eligible patients' unpaid
co-insurance and deductible obligations (“bad
debt”) without requiring the LTCHs to bill state
Medicaid programs for a formal determination of how much of
that bad debt would be covered by state Medicaid programs.
Billing state Medicaid programs was regarded as unnecessary,
because the states were not liable for Medicare bad debts
incurred at LTCHs.
2007, however, CMS abruptly began denying LTCHs reimbursement
for dual-eligible patients' bad debts unless the LTCHs
had both billed their state Medicaid programs and
received a specific document from those state Medicaid
programs called a State Remittance Advice
(“RA”)-to prove that the state Medicaid programs
were, in fact, not liable for any portion of the bad debts.
This requirement that LTCHs bill the state Medicaid program
to confirm that the state will not pay the Medicare
cost-sharing amounts on behalf of a dual-eligible patient is
known as CMS's “must-bill policy.”
time of CMS's change in the must-bill policy, no means
were available to satisfy CMS's new requirements because
the LTCHs were not enrolled in their respective state
Medicaid programs, and states would neither process bills nor
issue RAs to non-participating providers. Moreover, when the
LTCHs attempted to enroll in their respective state Medicaid
programs, some states rejected the LTCHs as unrecognized
provider types under their state Medicaid programs. When the
LTCHs were eventually able to enroll successfully in their
state Medicaid programs, obtaining the requisite RAs remained
impossible because states would not process claims for prior
plaintiffs claim, inter alia, that CMS could not
change the requirements for Medicare bad debt reimbursement,
at least as to non-participating Medicaid providers, without
conducting notice-and-comment rulemaking, as required by the
Medicare Act, 42 U.S.C. § 1395hh(a)(2). Complaint
¶¶ 120-124 (“S1-Compl.”), Select
Specialty Hosp.-Denver, Inc. v. Azar (Select
I), Civ. No. 10-1356 (filed Aug. 12, 2010), ECF No. 1;
Complaint ¶¶ 129-134 (“S2-Compl.”),
Select Specialty Hosp.-Birmingham v. Azar
(Select II), Civ. No. 17-235 (filed Feb. 2, 2017),
ECF No. 1; Complaint ¶ 66(l)
(“H-Compl.”), Select Specialty
Hosp.-Tulsa/Midtown, LLC v. Azar (Hillcrest),
Civ. No. 18-584 (filed Mar. 15, 2018), ECF No. 1. The D.C.
Circuit's holding in Allina Health Servs. v.
Price (Allina II), 863 F.3d 937 (D.C. Cir.
2017), aff'd, Azar v. Allina Health Servs., 139
S.Ct. 1804 (2019), confirms that the plaintiffs are correct.
Thus, for the reasons set forth below, the plaintiffs'
Motion for Summary Judgment (“Pls.' Mot.”),
ECF No. 66, is granted, and HHS's Cross-Motion for
Summary Judgment (“Def.'s Mot.”), ECF No. 67,
below are the relevant statutory and regulatory provisions,
including CMS's “must-bill” policy and the
changes made to this policy leading to the plaintiffs'
claims, followed by the factual and procedural history of
Statutory and Regulatory Background
The Medicare Act and Reimbursement
is a federally funded medical insurance program for the
elderly and disabled” that was “[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, which is at issue
in this lawsuit, is generally covered under Part A of the
Medicare Act. 42 U.S.C. §§ 1395c-1395i-5. CMS,
“formerly the Health 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), and is
headed by the CMS Administrator, Forsyth Mem'l Hosp.
v. Sebelius, 639 F.3d 534, 535 (D.C. Cir. 2011).
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). 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;” for making those payments;
and for providing 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 final
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, ” id. § 405.1803(a)(1)(i), are
known as notices of program reimbursements
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”),
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). A
dissatisfied provider 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. §
The Cost-Shifting Prohibition and Bad Debt
Medicare Act requires that the Secretary, in promulgating
rules concerning provider reimbursement for reasonable costs,
must (1) “take into account both direct and indirect
costs of providers of services, ” and (2) employ
“methods of determining costs” for
“efficiently delivering covered services to [covered]
individuals” that ensure such costs are “not be
borne by individuals not so covered, and the costs with
respect to individuals not so covered will not be borne by
such insurance programs.” 42 U.S.C. §
1395x(v)(1)(A). The purpose of this cost-shifting
prohibition is to ensure that neither providers nor
non-Medicare-covered patients end up paying the costs for
services rendered to Medicare beneficiaries. Although the
costs incurred for most of the care provided to Medicare
patients are borne by the federal government, individual
Medicare patients are “often responsible for both
deductible and coinsurance payments for hospital care.”
Hennepin Cnty. Med. Ctr. v. Shalala (Hennepin
Cnty.), 81 F.3d 743, 745 (8th Cir. 1996). If Medicare
patients fail to pay the deductible or coinsurance amounts
they owe for hospital care, Medicare allows for reimbursement
to the provider of these “bad debts” so long as
certain criteria are met. 42 C.F.R. § 413.89(e).
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). Pursuant to the cost-shifting
prohibition, Medicare reimburses providers for these bad
debts, ensuring that the costs are not “borne by
individuals not so covered.” 42 U.S.C. §
1395x(v)(1)(A). Ordinarily, Medicare will reimburse providers
for bad debts they can prove are “allowable.” 42
C.F.R. § 413.89(d). Under long-standing regulations,
four criteria in effect since 1966, determine whether a bad
debt is “allowable” and thus eligible for
(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
(4) Sound business judgment established that there was no
likelihood of recovery at any time in the future.
Id. § 413.89(e); see 31 Fed. Reg.
14808, 14813 (Nov. 22, 1966); see also 20 C.F.R.
§ 405.420 (1967); 42 C.F.R. § 413.80 (1986).
second requirement, that the provider make “reasonable
collection efforts, ” is principally at issue here. CMS
has set out the requirements constituting a reasonable
collection effort in its Provider Reimbursement Manual, Part
I (“PRM-I”) § 310. With respect to
dual-eligible patients, CMS allows providers to presume the
beneficiary is indigent and the debt uncollectible, and
therefore providers need not engage in the collection
practices described in PRM-I § 310. See PRM-I
§ 312 (“Providers can deem Medicare beneficiaries
indigent or medically indigent when such individuals have
also been determined eligible for Medicaid as either
categorically needy individuals or medically needy
individuals, respectively.”). In order to rely on a
patient's status as a Medicaid beneficiary to establish
indigence and satisfy the reasonable collection efforts
requirement, however, the provider “must determine that
no source other than the patient would be legally responsible
for the patient's medical bill; e.g., title XIX, local
welfare agency and guardian.” Id. Accordingly,
the PRM requires providers to determine that Medicaid is not
“legally responsible” for a dual-eligible
patient's medical bills before seeking reimbursement from
The Must-Bill Policy and the Remittance Advice
demonstrate that “no source other than the patient
would be legally responsible” for a dual-eligible
patient's medical bills, PRM-I § 312, CMS currently
requires providers to bill their respective state Medicaid
programs and obtain an RA demonstrating that
Medicaid is not responsible for any part of the debt. The
Secretary refers to this two-pronged policy as simply the
“must-bill policy, ” see Def.'s Mem.
Supp. Cross-Mot. Summ. J. & Opp'n Pls.' Mot.
Summ. J. (“Def.'s Mem.”) at 28-29, ECF No.
67-1, but the policy has two components: (1) the requirement
that providers bill state Medicaid programs for dual-eligible
bad debts, and (2) the requirement that RAs are the only
acceptable form of documentation to demonstrate that the
state Medicaid program is not responsible for the bad debt
(“the RA requirement”), each of which came into
existence at a separate time.
first requirement, that providers generally must bill state
Medicaid programs, “has been consistently articulated
in the final decisions of the Secretary” since at least
1983. Cove Assocs. Joint Venture v. Sebelius, 848
F.Supp.2d 13, 28 (D.D.C. 2012) (citing Hoag Mem. Hosp.
Presbyterian Provider v. Blue Cross, Admin. Dec. No.
2002-D28, 2002 WL 31548714 (Aug. 2, 2002); Hosp. de Area
de Carolina, Admin. Dec. No. 93-D23 (Apr. 26, 1993);
St. Joseph Hosp., PRRB Dec. No. 84-D109 (Apr. 16,
1984); Concourse Nursing Home, PRRB Dec. No. 83-D152
(Sept. 27, 1983)); see also Community Hosp. of Monterey
Peninsula v. Thompson (CHMP), 323 F.3d 783, 799
(9th Cir. 2003); GCI Health Ctrs., Inc. v. Thompson
(GCI), 209 F.Supp.2d 63, 67-75 (D.D.C. 2002);
Cal. Hosp. 90-91 Outpatient Crossover Bad Debts Grp. v.
Blue Cross of Cal., PRRB 2000-D80, 2000 WL 1460668
(Sept. 6, 2000). Nevertheless, the must-bill policy for
reimbursement to LTCHs of bad debts for dual-eligible
patients was not applied to any of the plaintiffs, none of
which were state-Medicaid-participating providers, for their
claimed reimbursements, “until the Intermediaries
issued the first NPRs at issue, ” in 2007, for fiscal
year 2005. See Pls.' Mem. at 12 (citing
S1-AR at 549, S2-AR at 1297, H-AR at 541- 43).
the second requirement, CMS did not impose an “absolute
requirement that the Providers obtain a Medicaid remittance
advice (RA), ” S1-AR at 56 (Select Specialty
'05 Medicare Dual Eligible Bad Debts Grp. v. Wisc.
Physicians Serv., PRRB 2010-D25 (Apr. 13, 2010)
(“2010 PRRB Decision”) at 10), until 2004 with
the issuance by CMS of Joint Signature Memorandum 370
(“JSM-370”). A JSM “is not issued to the
general public, ” S1-AR at 55 (2010 PRRB Decision at 9
n.20), and is “not an appropriate vehicle to set
policy, ” id. (2010 PRRB Decision at 9);
rather, a JSM is “used by CMS to communicate internally
with [CMS] contractors, ” id. (2010 PRRB
Decision at 9 n.20). JSM-370 instructed Medicare
Intermediaries that “in those instances where the state
owes none or only a portion of the dual-eligible
patient's deductible or co-pay, the unpaid liability for
the bad debt is not reimbursable to the provider by Medicare
until the provider bills the State, and the State refuses
payment (with a State Remittance advice).”
S2-AR at 163 (emphasis added). The Secretary cites nothing in
the record articulating an absolute RA requirement before the
issuance of JSM-370, and none of the cited provisions in
reimbursement instruction manuals, or PRMs, for providers
make any ...