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Select Specialty Hospital-Denver, Inc. v. Azar

United States District Court, District of Columbia

November 4, 2019

ALEX M. AZAR II, Secretary, U.S. Department of Health and Human Services, Defendant.



         The plaintiffs, seventy-five long-term care hospitals (“LTCHs”) located in twenty-six states, sought reimbursement from the Department of Health and Human Services (“HHS”) for unpaid co-insurance and deductible obligations (“bad debts”) of patients eligible for both Medicare and Medicaid (“dual-eligible patients”). The plaintiffs' Motion for Summary Judgment, ECF No. 66, was granted and HHS's Cross-Motion for Summary Judgment, ECF No. 67, was denied. See Select Specialty Hosp.-Denver, Inc. v. Azar, 391 F.Supp.3d 53, 70 (D.D.C. 2019). Now, HHS seeks reconsideration of that decision under Federal Rules of Civil Procedure 59(e) and 60(b). See Def.'s Mot. for Reconsid. of the Court's Aug. 22, 2019 Mem. Op. (“Def.'s Mot.”), ECF No. 78. Plaintiffs ask for an order amending the judgment to include an award of prejudgment interest under 42 U.S.C. § 1395oo(f)(2). See Pls.' Mot. for Prej. Interest (“Pls.' Mot.”), ECF No. 77. For the reasons set forth below, the defendant's motion is denied and the plaintiffs' motion is granted.

         I. BACKGROUND

         The statutory, regulatory, procedural, and factual background for this case were provided in the earlier opinion. See Select Specialty, 391 F.Supp.3d at 56-66. Still, some background bears repeating here.

         A. Statutory and Regulatory Background

         “Bad debts” are defined in the Medicare context 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). Medicare providers may be reimbursed by the Centers for Medicare and Medicaid Services (“CMS”), which administers the Medicare program, for “allowable” bad debts. Id. § 413.89(d). A bad debt cannot be “allowable” unless “[t]he provider [is]. . . able to establish that reasonable collection efforts were made.” Id. § 413.89(e) (outlining four criteria that determine whether a debt is allowable). For dual-eligible patients' bad debts, providers can satisfy this reasonable collection requirement by showing (1) that the patient has “been determined eligible for Medicaid” and (2) that “no source other than the patient, ” including Medicaid, “would be legally responsible for the patient's medical bill.” Provider Reimbursement Manual, Part I (“PRM-I”) § 312. The second obligation is at issue here.

         To fulfill this obligation, CMS currently requires that all providers “bill the patient or entity legally responsible for the patient's bill.” H-AR at 584 (Joint Signature Memorandum 370 (“JSM 370”) (Aug. 10, 2004)).[1] “[W]ith respect to ‘dual-eligibles, '” current CMS guidance further states 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).” Id.

         Defendant insists that the must-bill policy and the more specific remittance advice (“RA”) requirement are both longstanding. See Def.'s Mot. at 2. Prior to 2007, however, the LTCH plaintiffs had been reimbursed for their dual-eligible patients' bad debts without first billing state Medicaid programs and obtaining an RA. See Select Specialty, 391 F.Supp.3d at 55, 60-62. These steps were viewed as unnecessary because states were not liable for inpatient care of dual-eligible patients by LTCHs. Id. at 55. Indeed, none of the plaintiffs were enrolled in their state Medicaid programs as providers prior to 2007, id. at 60, and some states would not allow these LTCHs to enroll, id. at 61.

         In 2007, Medicare administrative contractors suddenly began denying plaintiffs' requests for reimbursement for dual-eligible bad debts, citing plaintiffs' failure to present RAs.[2] In July and August 2007, one set of plaintiffs, the Select I plaintiffs, had their reimbursement requests for dual-eligible patients' bad debts in fiscal year 2005, totaling $438, 693, denied by their contractor, Wisconsin Physicians Service Corporation (“WPS”) (formerly known as “Mutual of Omaha”). See Select Specialty, 391 F.Supp.3d at 61 (citing S1-AR at 674). A second set of plaintiffs, the Select II plaintiffs, had various such requests for fiscal years 2006-2010, totaling $19, 317, 678, denied by contractors WPS and Novitas Solutions, Inc. (“Novitas”), beginning in June 2007. Id. (citing S2-AR at 457 (Stipulations ¶ 9)). The third plaintiff, the Hillcrest plaintiff, had dual-eligible bad debts reimbursement requests denied for the first time by WPS in December 2008; this plaintiff was ultimately denied $568, 803 in reimbursements for dual-eligible bad debts for fiscal years 2007 and 2008. Id. (citing H-AR at 555-57, 565-67; H-Answer ¶¶ 6).

         The three sets of plaintiffs appealed the contractors' denials to the Provider Reimbursement Review Board (“PRRB”), which reversed those denials in part. See Id. at 64-65 (citing Select Specialty '05 Medicare Dual Eligible Bad Debts Grp. v. Wisc. Physicians Serv., PRRB 2010-D25 (Apr. 13, 2010); Select Specialty Medicare Dual Eligible Bad Debts CIRP Grps. v. Novitas Solutions, Inc., PRRB 2016-D22 (Sept. 27, 2016); Hillcrest Specialty Hosp. v. Novitas Solutions, Inc., PRRB 2018-D3 (Nov. 6, 2017)). The CMS Administrator, whom the Secretary has given authority to hear appeals from the PRRB, reinstated the contractors' decisions to deny the plaintiffs' dual-eligible bad debt reimbursements for failure to submit RAs. Id. at 65 (citing S1-AR at 2-19; S2-AR at 1-22; H-AR at 2-29).

         B. The Instant Litigation

         The first set of plaintiffs, the Select I plaintiffs, appealed the Administrator's decision about their reimbursements to this Court, see Complaint, Select I, Civ. No. 10-1356 (“S1-Compl.”), ECF No. 1, which granted partial summary judgment to the plaintiffs and remanded the case to the Administrator “for reconsideration of the limited issue of whether Plaintiffs were justified in relying on CMS' prior failure to enforce the must-bill policy with respect to dual-eligible reimbursement claims from non-participating Medicaid providers, ” Cove Assocs. Joint Venture v. Sebelius, 848 F.Supp.2d 13, 30 (D.D.C. 2012). The Administrator affirmed the previous denial of reimbursements to the Select I plaintiffs, see Select Specialty, 391 F.Supp.3d at 65-66 (citing S1S-AR at 3-9), and the Select I plaintiffs' case in this Court was then reopened and eventually consolidated with the Select II and Hillcrest plaintiffs' cases, see Minute Order (Jan. 10, 2019).

         In granting the plaintiffs' motion for summary judgment and denying the defendant's cross-motion, see Select Specialty, 391 F.Supp.3d at 56, the Court held that CMS was required by the Medicare Act, 42 U.S.C. § 1395hh(a)(2), to conduct notice and comment rulemaking before subjecting the non-Medicaid participating plaintiffs to the must-bill and RA requirements, Select Specialty, 391 F.Supp.3d at 67. Section 1395hh(a)(2) requires CMS to give notice and an opportunity to comment when “establish[ing] or chang[ing] a substantive legal standard governing the scope of benefits.” 42 U.S.C. § 1395hh(a)(2). A “substantive legal standard, ” as defined by the D.C. Circuit, “at a minimum includes a standard that ‘creates, defines, and regulates the rights, duties, and powers of parties.'” Allina Health Servs. v. Price, 863 F.3d 937, 943 (D.C. Cir. 2017) (quoting Black's Law Dictionary (10th ed. 2014)). On this definition, the provision “distinguish[es] a substantive from a procedural legal standard, ” and requires that CMS conduct notice and comment rulemaking for changes to the former but not to the latter type of standard. Azar v. Allina Health Servs., 139 S.Ct. 1804, 1811 (2019).[3]

         The record evidence in this case demonstrated that “CMS's application of the must-bill and RA requirements to the plaintiffs beginning in 2007 was a change in policy.” Select Specialty, 391 F.Supp.3d at 62. That change was substantive rather than procedural because “CMS changed not just the steps that existing LTCHs must take, vis-à-vis CMS, to be reimbursed, but also changed whether such entities must form contracts with third parties, the state Medicaid programs.” Id. at 69. Given that the change was substantive, “without satisfying the notice-and-comment obligation of § 1395hh(a)(2), CMS could not, and indeed cannot, impose the must-bill policy and RA requirement on the plaintiffs for the period when they were non-Medicaid-participating providers.” Id. Thus, summary ...

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