United States District Court, District of Columbia
NEW LIFECARE HOSPITALS OF NORTH CAROLINA LLC, et al., Plaintiffs,
ALEX M. AZAR, II, Secretary of the U.S. Department of Health and Human Services, in his official capacity, Defendant.
N. McFADDEN, U.S.D.J.
long-term care hospitals (“the Providers”) seek
judicial review of the Secretary of Health and Human
Services’ denial of their claims for reimbursement of
deductible and coinsurance payments that Medicare
beneficiaries did not pay. The Centers for Medicare and Medicaid
Services (“CMS”), which administer the Medicare
program on behalf of the Secretary, denied their
reimbursement claims because the Providers did not comply
with CMS’s so-called “must-bill” policy.
The Providers admit as much, but they insist that CMS’s
application of that policy was unlawful.
the Providers and the Secretary now move for summary
judgment. Given the deferential standard of review and the
limited record before it, the Court will grant summary
judgment to the Secretary.
The Medicare Program
Medicare program “is a federally funded medical
insurance program for the elderly and disabled.”
Fischer v. United States, 529 U.S. 667, 671 (2000).
CMS administers the Medicare program on behalf of the
Secretary, see Ark. Dep’t of Health & Human
Servs. v. Ahlborn, 547 U.S. 268, 275 (2006),
“through contracts with [M]edicare administrative
contractors, ” 42 U.S.C. §§ 1395h(a),
1395u(a). A provider must submit cost reports annually to a
contractor who, in turn, determines the payment to be made to
that provider. See 42 C.F.R. §§ 413.20,
413.24(f). A contractor then issues a Notice of Program
Reimbursement that specifies the allowable Medicare payment.
Id. § 405.1803.
provider is “dissatisfied with a final
determination” of the contractor, it may appeal that
determination to the Provider Reimbursement Review Board
(“the Board”). 42 U.S.C. § 1395oo(a). The
Board’s decision is final unless the Secretary
“reverses, affirms, or modifies the Board’s
decision.” Id. § 1395oo(f). The Secretary
has delegated his authority to review the Board’s
decisions to the CMS Administrator. See 42 C.F.R.
§ 405.1875(a)(1). If a provider is dissatisfied with the
Board’s decision or the Secretary’s decision, it
may seek judicial review of that decision by filing a civil
action in federal court. 42 U.S.C. § 1395oo(f)(1); 42
C.F.R. § 405.1877(b).
The Medicaid Program
Medicaid program is a cooperative federal-state program to
provide medical care for eligible low-income individuals . .
. jointly funded by federal and state governments.”
Grossmont Hosp. Corp. v. Burwell, 797 F.3d 1079,
1081 (D.C. Cir. 2015). For a state to qualify for federal
funding, the Secretary must approve the state’s
Medicaid plan, which sets out, among other things, covered
medical services. 42 U.S.C. §§ 1396a, 1396b.
patients, so-called “dual eligibles, ” are
eligible for both Medicare and Medicaid. See Grossmont
Hosp. Corp., 797 F.3d at 1081. In many cases, these
patients cannot afford to pay their Medicare deductibles and
coinsurance costs. States must use their Medicaid dollars to
pay Medicare cost-sharing obligations for dual eligible
patients. See 42 U.S.C. § 1396a(a)(10)(E)(i).
Medicare patients fail to pay the deductible and coinsurance
payments that they owe to providers, the providers may seek
reimbursement from CMS for these amounts-called “bad
debts.” See 42 C.F.R. § 413.89(e).
Medicare “reimburses the health care provider for this
‘bad debt’” 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).
obtain reimbursement for bad debt, providers must establish
that these criteria are satisfied:
(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.
42 C.F.R. § 413.89(e). Chapter 3 of CMS’s Provider
Reimbursement Manual (“the Manual”) provides more
instruction about bad debt reimbursement. See
generally The Provider Reimbursement Manual-Part 1,
First, Section 310 of the Manual requires that “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.” Manual § 310. Section 312,
however-which addresses bad debts associated with
“indigent or medically indigent”
patients-provides that “[o]nce indigence is determined
and the provider concludes that there ha[s] been no
improvement in the beneficiary’s financial condition,
the debt may be deemed uncollectible without applying the
§ 310 procedures.” Id. § 312.
322 of the Manual provides specific instruction on bad debts
associated with dual eligible patients. Id. §
322. It provides that
Where the State is obligated either by statute or under the
terms of its [Medicaid] plan to pay all, or any part, of the
Medicare deductible or coinsurance amounts, those amounts are
not allowable as bad debts under Medicare. Any portion of
such deductible or coinsurance amounts that the State is not
obligated to pay can be included as a bad debt under
Medicare, provided that the requirements of § 312 or, if
applicable, § 310 are met.
Id. Additionally, Section 322 addresses situations
in which “the State has an obligation to pay, but
either does not pay anything or pays only part of the
deductible or coinsurance because of a State payment
‘ceiling.’” Id. In those
situations, Section 322 instructs that, “any portion of
the deductible or coinsurance that the State does not pay
that remains unpaid by the patient, can be included as a bad
debt under Medicare, provided that the requirements of §
312 are met.” Id.
The “Bad Debt Moratorium”
1987, Congress enacted legislation to “freeze”
the Secretary’s Medicare bad debt reimbursement
policies. Hennepin Cnty. Med. Ctr. v. Shalala, 81
F.3d 743, 747, 751 (8th Cir. 1996); Foothill Hosp. v.
Leavitt, 558 F.Supp.2d 1, 3–5 (D.D.C. 2008). This
legislation, called the “Bad Debt Moratorium, ”
provides 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. 3342, 3798, reprinted
as amended at 42 U.S.C. § 1395f note (2012).