Community Health Systems, Inc. v. Burwell ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
COMMUNITY HEALTH SYSTEMS, INC.,
et al.
Civil Action No. 14-1432 (BAH)
Plaintiffs,
Judge Beryl A. Howell
v.
SYLVIA MATHEWS BURWELL,
Secretary, U.S. Dep’t of Health and
Human Services
Defendant.
MEMORANDUM OPINION
Pending before the Court are cross-motions for summary judgment from the plaintiffs, a
group of hospitals owned by Community Health Systems, Inc. (“CHS”), Pls.’ Mot. Summ. J.
(“Pls.’ Mot.”), ECF No. 15-1, and the defendant, the Secretary of Health and Human Services
(“HHS”), who is sued in her official capacity, Def.’s Mot. Summ. J. (“Def.’s Mot.”), ECF No.
19. 1 The plaintiffs were denied $16,400,811 in reimbursements for “bad debt” incurred in the
treatment of Medicare patients during fiscal years 2004 through 2006. First Am. Compl.
(“FAC”) ¶¶ 5, 32, ECF No. 7; Def.’s Mem. Supp. Def.’s Mot. at 1 (“Def.’s Mem.”), ECF No. 19.
The plaintiffs allege that this reimbursement denial violates the Administrative Procedure Act
(“APA”), 5 U.S.C. § 706, and a Congressional moratorium, in effect from 1987 through 2012,
that barred any change in HHS policy regarding reimbursement of Medicare bad debt. FAC ¶ 1;
Pls.’ Corrected Mem. Supp. Pls.’ Mot. (“Pls.’ Mem.”) at 1, ECF No. 15-1. The defendant
1
The plaintiffs have requested oral argument on the pending motions, Pls.’ Mot. at 1, but given the sufficiency of
the parties’ written submissions, this request is denied. See LCvR 7(f) (stating allowance of oral hearing is “within
the discretion of the court”).
1
counters that the policy under which HHS denied the reimbursements is both reasonable and
long-standing, having existed at the time the Medicare Bad Debt Moratorium took effect.
Consequently, the defendant maintains that the challenged reimbursement denial reflects no
policy change that would violate the Moratorium. Def.’s Mem. at 2. For the reasons set forth
below, the defendant’s motion is granted and the plaintiffs’ motion is denied.
I. BACKGROUND
Resolving the instant motions requires a tour of the “labyrinthine world of Medicare
reimbursements.” District Hosp. Partners, L.P. v. Burwell, 786 F.3d 46, 48 (D.C. Cir. 2015)
(internal quotation marks omitted). The relevant portions of the Medicare statute are explained
first, followed by the history of the Medicare Bad Debt Moratorium, before the Court addresses
the reimbursement decision challenged by the plaintiffs.
A. General Medicare Reimbursements and Appeals Therefrom
“Medicare is a federally funded medical insurance program for the elderly and disabled
. . . [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 is generally covered under Part A of the
Medicare Act. 42 USC §§ 1395c–1395i-5. The Centers for Medicare and Medicaid Services
(“CMS”), “formerly the Heath 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) (internal citation omitted).
The 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). 2
2
During the cost years at issue in the instant matter, Medicare administrative contractors were known as “Fiscal
Intermediaries.” See Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub L. No. 108-
173 § 911(e), 117 Stat. 2066, 2386 (2003). Consequently, the Court refers to these entities as “Fiscal
2
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,” to make those payments, and provide 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 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”
are known as notices of program reimbursements (“NPRs”). See id. § 405.1803(a)(1)(i).
When 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” or
“Board”), 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). The dissatisfied provider, or, as in this case, a group of dissatisfied providers, 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
Intermediaries” or “Intermediaries,” as did the Provider Reimbursement Review Board (“PRRB”) in the decision
challenged in the instant action.
3
participating in both the group appeal and the civil action are located or in” this District. 42
C.F.R. § 405.1877(e)(2).
B. Medicare Bad Debt Reimbursements
The Medicare statute provides that non-Medicare patients shall not be forced to share the
cost of treatment for Medicare patients. 42 U.S.C. § 1395x(v)(1)(A)(i). This ban on cross-
subsidization effectively requires that “the necessary costs of efficiently delivering covered
services to individuals covered by” Medicare “will not be borne by individuals not so covered.”
Id. 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.” Hennepin Cnty. Med. Ctr. v. Shalala (Hennepin
County), 81 F.3d 743, 745 (8th Cir. 1996). If Medicare patients fail to pay this portion of their
care, Medicare allows for reimbursement of these “bad debts” so long as certain criteria are met.
42 C.F.R. § 413.89(e). 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,” in keeping with the statutory
cross-subsidization ban in § 1395x(v)(1)(A)(i). U.S. Dep’t of Health and Human Servs., Ofc. of
Inspector Gen., Semiannual Rep. to the Congress (Apr. 1, 1986–Sept. 30, 1986) (“1986 OIG
Report”) at 2. 3
“Bad 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
3
For the cost years at issue, the plaintiffs were limited by statute to reimbursement of seventy percent of the bad
debts claimed, but this rate has declined under current law to sixty-five percent of bad debt claimed. See 42 U.S.C.
§ 1395x(v)(1)(T)(iv).
4
coinsurance amounts” billed to Medicare patients. Id. § 413.89(a); see also Def.’s Mot. Ex. 1
(Provider Reimbursement Manual (“PRM”), Chapter 3) § 300, ECF No. 19-1. For
reimbursement of bad debt arising from nonpayment of coinsurance and deductible amounts due
from Medicare patients, a hospital must satisfy the following 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). While the regulations do not define key terms used in these criteria, such
as “reasonable collection efforts,” “uncollectible,” “worthless,” and “likelihood of recovery,” see
id., the HHS sets out interpretive instructions, policies and procedures in the PRM, see Catholic
Health Initiatives (CHI) v. Sebelius, 617 F.3d 490, 491 (D.C. Cir. 2010) (describing PRM as
“guidelines and policies to implement Medicare regulations which set forth principles for
determining the reasonable cost of provider services, but it does not have the effect of
regulations”) (internal quotation marks omitted).
The opening paragraph of PRM § 310 sets out HHS’ interpretation of the phrase
“reasonable collection effort” as follows:
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
5
genuine, rather than a token, collection effort. The provider’s collection effort
may include using or threatening to use court action to obtain payment.
Administrative Record (“AR”) at 371 (PRM § 310), ECF No. 24-1. 4 As this portion of PRM §
310 makes clear, a “reasonable collection effort” requires both the issuance of a bill and similar
treatment of Medicare and non-Medicare bills.
The second paragraph of PRM § 310, subsection A specifically addresses the use of
collection agencies, stating that “[a] provider’s collection effort may include the use of a
collection agency,” without mandating such use. Id. (PRM § 310.A). If a provider chooses to
refer Medicare debt to a collection agency, HHS “expects the provider to refer all uncollected
patient charges of like amount to the agency without regard to class of patient,” consistent with
the policy expressed in the opening paragraph that both Medicare and non-Medicare debt be
treated similarly. Id.
A “presumption of noncollectibility” applies to bad debts “[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.” AR at 373 (PRM § 310.2). In such circumstances, the
PRM provides that “the debt may be deemed uncollectible.” Id.
If a hospital collects on a bad debt after Medicare has reimbursed the debt, procedures are
in place to prevent double recovery to the hospital. Specifically, PRM § 316 provides that
“[w]here the provider was reimbursed by the [Medicare] program for bad debts for the reporting
period in which the amount recovered was included in allowable bad debts, reimbursable costs in
the period of recovery are reduced by the amounts recovered.” AR at 375 (PRM § 316). Put
4
Pursuant to Local Civil Rule 7(n)(1), the parties timely submitted “an appendix containing copies of those portions
of the administrative record that are cited or otherwise relied upon in any memorandum in support of or in
opposition to any dispositive motion.” This appendix, consisting of 350 pages, is docketed at ECF No. 24-1. The
defendant subsequently provided, at the Court’s direction, two discs containing the entire AR, which consists of
4,048 pages. See Minute Order, June 18, 2015.
6
simply, if a provider collects on a bad debt after being reimbursed by Medicare, the provider’s
future Medicare reimbursements are reduced by an identical amount. Id.
C. The Bad Debt Moratorium
Since the beginning of the Medicare program, the government has reimbursed a
substantial percentage of Medicare bad debt incurred by providers in order “to prevent costs of
beneficiary care from being shifted to non-Medicare patients.” 1986 OIG Report at 2. By the
mid-1980s, however, elimination or radical alteration of this practice became the subject of
policy debates. Id. at 3. The debate was prompted by changes to the Medicare reimbursement
system made in 1983 as part of the Reagan Administration’s Social Security Act amendments,
which moved from directly reimbursing hospitals 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. See Spencer Rich, Getting Rich Off Medicare? Levels of Hospital Profits Are
Scrutinized as the Government Tries to Balance its Budget, The Wash. Post (Oct. 27, 1987).
This shift, in the view of HHS’ Office of Inspector General (“OIG”), meant “the original intent
of reimbursing hospitals for bad debts no longer seems appropriate.” 1986 OIG Report at 3.
Based on this view, the 1986 OIG Report recommended modification of the bad debt
reimbursement system to hospitals in two alternative ways: “either discontinue Medicare
payments to [] hospitals for beneficiary bad debts or, in coordination with [the Social Security
Administration], pursue legislative authority to recover payments for beneficiaries bad debts
through benefit payment offsets.” Id.
The HHS OIG proposal met with resistance in Congress and within the health care
industry. See Joe Davidson, U.S. to Propose Ending Reimbursement to Hospitals of Unpaid
Medicare Debts, The Wall Street J. (July 2, 1987); Joe Davidson, HHS Weighs Plan of
7
Garnishment for Medicare Bills, The Wall Street J. (Dec. 3, 1986). 5 In response, Congress
enacted the so-called “Medicare Bad Debt Moratorium” (or the “Moratorium”) as part of the
Omnibus Budget Reconciliation Act of 1987. Pub. L. 100-203, § 4008(c), 101 Stat. 1330, 1330-
55 (1987); Hennepin County, 81 F.3d at 747. With subsequent amendments in 1988 and 1989,
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), the Moratorium prevented HHS from “mak[ing] any change in the
policy in effect on August 1, 1987 . . . relating to unrecovered costs associated with” Medicare
bad debt. 101 Stat. 1330-55. 6
The Moratorium did not precisely describe the “policy” to which any “change” was
prohibited. Given the context and recommendations set out in the 1986 OIG Report, see supra,
the initial Moratorium appeared aimed at preventing HHS from abolishing reimbursement for
Medicare bad debt or garnishing social security checks, as the HHS OIG had recommended.
5
An impetus for the HHS OIG recommendations appears to have been a White House mandate “that increased
funding for AIDS programs would have to come from other department programs” at HHS. Joe Davidson, U.S. to
Propose Ending Reimbursement to Hospitals of Unpaid Medicare Debts, The Wall Street J. (July 2, 1987). At the
time, critics called the mandate, which was coupled with the proposal to cut Medicare reimbursements, “an attempt
by the [Office of Management and Budget] and the Reagan administration to force two desperate situations to
compete.” Id.
6
As of 1989, the full Moratorium, as amended, provided that:
In making payments to hospitals under title XVIII . . . of the Social Security Act, 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 title XVIII of the Social Security Act to providers of service for
reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance
amounts incurred under such title (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 ). 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, with respect to criteria for indigency determination
procedures, record keeping, and determining whether to refer a claim to an external collection
agency, has accepted such policy before that date, and the Secretary may not collect from the
hospital on the basis of an expectation of a change in the hospital’s collection policy.
42 U.S.C. § 1395f note.
8
Additional nuance is provided by the Conference Report accompanying the 1988
Amendment to the Moratorium, which report expressed “concern[] about recommendations
made by the Inspector General of HHS . . . and actions which may be taken by the Secretary in
response to those recommendations, regarding bad debt collection policies followed by certain
hospitals.” H.R. Rep. No. 100-1104, at 25 (1988) (Conf. Rep.), reprinted in 1988 U.S.C.C.A.N.
5048, 5337. 7 The conferees explicitly objected to certain OIG “recommendations,” including
those concerning “the provider’s responsibility regarding a decision to use a collection agency
for Medicare bad debt,” which the conferees stated “may have the effect of violating the
prohibition on changes in policy if the Secretary’s response results in the retroactive
disallowance of bad debt payments claimed by the hospitals.” Id. The conferees “clarif[ied] 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 on that date, and thus not subject
to change.” Id. Significantly, at the same time, the conferees did not “intend to preclude the
Secretary from disallowing bad debt payments based on regulations, PRRB decisions, manuals,
and issuance[s] in effect prior to August 1, 1987.” Id.
The third amendment to the Moratorium in 1989 further clarified the effect of the
Moratorium on hospitals that had relied on pre-1987 decisions by their Intermediaries regarding
bad debt reimbursements. See H.R. Rep. No. 101-247, at 918 (1989), reprinted in 1989
U.S.C.C.A.N. 1906, 2389. This amendment, which was made retroactive to August 1, 1987,
7
The November 1988 amendment added the following language to the Moratorium: “including criteria for
indigency determination procedures, for record keeping, and for determining whether to refer a claim to an external
collection agency.” Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647, § 8402, 102 Stat.
3342, 3798, 42 U.S.C. § 1395f note.
9
added the following language to the Moratorium: “the Secretary would be prohibited from
directing the hospital to change its policy, or collecting retroactively from the hospital based
upon the expectation of a change in the hospital’s collection policy.” Id.
The parties have cited to no legislative history for the Moratorium that references any
“policy” as of August 1, 1987 regarding the allowance, or disallowance, of bad debt
reimbursement for accounts still active at collection agencies, and the Court has located no such
reference. The two amendments to the Moratorium focused almost exclusively on the
relationship between hospitals and their Fiscal Intermediaries, effectively requiring
Intermediaries to continue their pre-1987 policies regarding bad debt reimbursement, provided
such policies were both (1) explicitly stated by the Intermediary and (2) “consistent with the
regulations, PRRB decisions, or program manuals and issuances” made by HHS prior to August
1, 1987. See 42 U.S.C. § 1395f note. As the Eighth Circuit noted in Hennepin County,
“Congress was motivated” in passing the Moratorium “to prevent unexpected consequences to
providers from the [HHS] inspector general’s proposed changes in the criteria for bad debt
reimbursement.” 81 F.3d at 750–51. “It appears Congress merely sought to freeze a moment in
time, forbidding the Secretary to change the criteria” for bad debt reimbursement after August 1,
1987, “but allowing full enforcement of the policies in place before it.” Id. at 751. This
conclusion is bolstered by the 1988 Conference Report, which stated that Congress did not
intend to stop the Secretary from prohibiting bad debt reimbursements so long as such denials
were consistent with the policies in place when the Moratorium took effect. See H.R. Rep. No.
100-1104, at 25.
10
The Moratorium was repealed by Middle Class Tax Relief and Job Creation Act of 2012,
Pub. L. 112-96, § 3201(d), 126 Stat. 156, 192–3 (2012), for “cost reporting periods beginning on
or after October 1, 2012.”
D. The Plaintiffs’ Collection Practices
The relevant facts in this matter are undisputed. The parties stipulated before the PRRB
that during the cost years at issue, some of the plaintiffs were owned by CHS, while “certain
hospitals in the [case] were owned by Triad Hospitals, Inc. and were later acquired by CHS.”
AR at 10 (Challenged PRRB Decision). The parties also stipulated that (1) all of the “bad debts
at issue . . . are related to covered services and derived from deductible and coinsurance
amounts,” (2) the plaintiffs maintained a “policy to actively pursue all debts for at least 120 days
prior to writing them off as bad debt” and (3) the plaintiffs complied with their policy. Id.Additionally, the parties do not dispute that after “at least 120 days of in-house collection
activities,” the plaintiffs “forwarded uncollected accounts to outside collection agencies, and
wrote the accounts off as ‘bad debts.’” Id. at 11. Any amounts recovered by the collection
agencies were offset, pursuant to PRM § 316, and the collections efforts engaged in by the
plaintiffs “were similar for all patients regardless of” whether the patients were using Medicare.
Id. The plaintiffs “concede that the bad debts at issue . . . were claimed while such debts were
being worked by an outside collection agency after more than 120 days of in house collection
efforts.” Id. In turn, the Intermediaries concede that “[t]he sole bases for the [] disallowance of
the bad debts at issue is that the provider wrote the accounts off as worthless even though there
was no evidence that the delinquent accounts were recalled by the provider or that the collection
efforts ceased by the collection agency.” 8 Id.
8
The plaintiffs refer to this policy as the “presumption of collectibility,” Pls.’ Mem. at 1, but the Court declines to
adopt this nomenclature for two reasons. First, while the phrase “presumption of noncollectibility” appears as the
11
The parties do not dispute that in 2002, the Intermediary for the CHS plaintiffs—though
not for the Triad plaintiffs—“reviewed CHS’ collection practices and issued a letter” noting that
“[t]he regulations state the provider can presume [bad] debt uncollectable and write it off after
120 days, assuming they have made consistent collection efforts (Medicare vs. Non-
Medicare/Private Pay) as noted” in 42 C.F.R. § 413.89(e). AR at 11 (PRRB Decision); see also
AR at 2053 (Letter, dated Oct. 8, 2002, from Regional Manager-Central Region, Medicare Audit
and Reimbursement, Mutual of Omaha Ins. Co. to CHS). The Intermediary observed in the 2002
letter, which was issued fifteen years after the effective date of the Moratorium, that “[t]he
[Medicare] regulations do not state that a provider cannot continue collection efforts (with a
related party or unrelated party) after being written off” and, based on this regulatory silence,
opined that “[w]e see no reason why the related party relationship [between CHS and the
collection agency] should interfere with or obscure the determination of the allowability of the
Bad Debt claim.” AR at 2053. This letter does not otherwise reference or describe the
Intermediary’s or the plaintiffs’ pre-Moratorium practices regarding reimbursement of Medicare
bad debt referred to a collection agency. See id. at 2052–53.
In a subsequent 2006 letter, “the Intermediary informed CHS that the Medicare program
will not reimburse deductible and coinsurance amounts while they are being worked by a
collection agency.” Id. at 11 (internal quotation marks omitted). According to the plaintiffs, the
2006 Intermediary letter disallowing reimbursement for Medicare bad debt still referred to a
collection agency was a “complete surprise” and reflected a policy that “hadn’t been applied in
the audit experiences that [CHS] had.” Pls.’ Mem. at 33. The plaintiffs claim that they
title of PRM § 310.2, AR at 373, the plaintiffs’ phrase does not appear in either Medicare regulations or the PRM.
Moreover, the plaintiffs’ phrase is a misnomer, since the agency’s policy expresses no “presumption” regarding the
likelihood of bad debt collection but instead reflects an interpretation of the operation of all four criteria set out in 42
C.F.R. § 413.89(e).
12
“formulated their bad debt collection policies based on the presumption of noncollectability
[sic]” in PRM § 310.2, and in collaboration “with the Intermediary,” which “specifically
confirmed the adequacy of that policy” reflected in the earlier 2002 letter. AR at 13. The
plaintiffs’ practice is to “continue in-house collections even after the minimum time (i.e., 120
days) has passed until the business office manager” for each hospital “personally reviews and
signs of on each debt prior to writing off that debt” as bad debt. Id. Once written off, the debt is
sent to a collection agency and the plaintiffs “are not involved with the debts after they are
written-off unless there is a successful collection effort by the collection agency.” Id.
E. The Challenged Decision
The plaintiffs challenge the PRRB’s decision upholding the Intermediaries’ denial of bad
debt reimbursement, totaling $16,400,811, to six hospitals in 2004, fifty-four hospitals in 2005,
and fifty-eight hospitals in 2006. AR at 10; Pls.’ Mem. at 8. 9 Each of the hospitals involved had
their bad debt reimbursement denied “because the Providers’ debts were still at a collection
agency.” AR at 10. The PRRB ruled that the Intermediaries’ “adjustments to remove the
Medicare bad debts . . . while the debts were still at the collection agency were proper.” Id. at
15. In reaching this conclusion, the PRRB considered both prongs of the Moratorium barring the
Secretary from (1) changing HHS’ bad debt reimbursement policy in effect on August 1, 1987;
and (2) requiring “a provider to change its bad debt collection policy when the Intermediary had
accepted that policy prior to August 1, 1987.” Id.
The PRRB determined that only the first prong was at issue since “there [was] nothing in
the record to document or confirm what the [plaintiffs’] policy was prior to August 1, 1987,”
and, therefore, no evidence had been presented regarding whether the Secretary had required the
9
The full text of the challenged PRRB decision is found in the AR at pages 6–31.
13
plaintiffs to change their policy after prior acceptance by an Intermediary. Id. Specifically, the
PRRB noted that at the evidentiary hearing, the plaintiffs’ “witness testified . . . that he had no
knowledge as to what the [plaintiffs] were reimbursed by the Intermediary prior to August 1,
1987” and, further, “there is nothing in the record to document or confirm what the Provider’s
policy was prior to August 1, 1987.” Id. 10 As a result, the PRRB found that the second prong of
the Moratorium was not implicated in this case. Id.
While acknowledging the “presumption of noncollectibility” in PRM § 310.2, on which
the plaintiffs assert they based their bad debt collection practices, AR at 13, the PRRB noted that
this section “does not create an automatic presumption after the passage of 120 days” allowing a
provider to be reimbursed for any bad debts still pending at that time, id. at 19. Instead, “it is a
discretionary presumption and does not foreclose the possibility that a debt may still be deemed
collectible after 120 days,” citing the section’s permissive language that after 120 days a debt
“may be deemed” uncollectible. Id. (emphasis added). The PRRB noted that PRM § 310.2
“does not excuse a provider from satisfying the other criteria specified in” the HHS regulations
governing reimbursement of bad debt. Id. at 20. In other words, the four criteria identified in 42
C.F.R. § 413.89(e) must still be satisfied before a provider is entitled to reimbursement for bad
debt, including bad debt older than 120 days and still at a collection agency. Thus, “the provider
must first determine that the debt is ‘uncollectible’ by which it must exhaust what it has
established as its reasonable and customary collection efforts,” and, “[i]f a provider chooses to
utilize a collection agency, these efforts must be exhausted before the debt can be determined to
be uncollectable and, therefore, worthless.” Id.10
As noted, the 2002 Intermediary letter to the CHS plaintiffs does not describe the practices of the Intermediary or
the plaintiffs fifteen years earlier, before the Moratorium took effect, regarding reimbursement of Medicare bad debt
pending at collection agencies. See AR 2052–53.
14
In reaching this conclusion, the PRRB focused on the structure and text of PRM § 310.2,
which states, in full that “[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, the
debt may be deemed uncollectible.” Id. at 9. The PRRB determined that the prepositional
phrase “[i]f after reasonable and customary attempts to collect a bill,” means that “reasonable
and customary attempts to collect a bill” must occur regardless of the time elapsed since a bill is
first mailed. Id. at 20 (emphasis in original). Otherwise, the words “remained unpaid more
than” would be rendered superfluous, since any other reading would mean that the debt could be
“deemed uncollectible” after 120 days regardless of whether the provider had completed its
reasonable and customary attempts to collect. Id. Thus, the PRRB opined that the presumption
of noncollectibility applies “only if (1) the provider has completed its customary collection
attempts for that debt; (2) the actual collection attempts for the bad debt being claimed are
‘reasonable’; and (3) the collection attempts for the debt are completed more than 120 days from
the date the first bill [was] sent to the patient for that debt.” Id.
Based on this construction of the regulatory provision, the PRRB concluded that “the
policy of not allowing providers to claim bad debts until they are returned from a collection
agency is consistent with the Regulations and Manual sections in effect on August 1, 1987.” Id.
Accordingly, the PRRB found that the disallowance of the plaintiffs’ reimbursement requests
was not a violation of the Moratorium’s first prong, and upheld the Intermediaries’ decisions. Id.
at 26. The PRRB’s holding was narrow, ruling only that the Intermediaries “properly disallowed
the [plaintiffs’] claimed Medicare bad debts solely on the ground that accounts related to such
bad debts were still pending at outside collection agencies.” Id. The CMS Administrator
declined to review the decision of the PRRB. Id. at 1.
15
The plaintiffs timely filed this lawsuit, pursuant to the APA and the judicial review of
Medicare decisions provision in 42 U.S.C. § 1395oo, challenging the PRRB’s decision as
“inconsistent with and unauthorized by the governing Medicare statute, regulations, and manual
provisions, [] arbitrary and capricious, [] not supported by evidence in the record, and violat[ive
of] the APA and the Medicare program’s publication requirements.” FAC ¶ 38.
II. LEGAL STANDARD
A. Summary Judgment Standard Under Federal Rule of Civil Procedure 56
Pursuant to Federal Rule of Civil Procedure 56, summary judgment may be granted when
the court finds, based upon the pleadings, depositions, affidavits, and other factual materials in
the record, “that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” FED. R. CIV. P. 56(a), (c); see Tolan v. Cotton, 134 S. Ct. 1861,
1866 (2014) (per curiam); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). “A
genuine issue of material fact exists if the evidence, ‘viewed in a light most favorable to the
nonmoving party,’ could support a reasonable jury’s verdict for the non-moving party.”
Muwekma Ohlone Tribe v. Salazar, 708 F.3d 209, 215 (D.C. Cir. 2013) (quoting McCready v.
Nicholson, 465 F.3d 1, 7 (D.C. Cir. 2006)).
In APA cases such as this one, involving cross-motions for summary judgment, “the
district judge sits as an appellate tribunal. The ‘entire case’ on review is a question of law.” Am.
Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001) (collecting cases). Thus,
this Court need not and ought not engage in lengthy fact finding, since “[g]enerally speaking,
district courts reviewing agency action under the APA’s arbitrary and capricious standard do not
resolve factual issues, but operate instead as appellate courts resolving legal questions.” James
Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1096 (D.C. Cir. 1996); see also Lacson v. U.S.
Dep’t of Homeland Sec., 726 F.3d 170, 171 (D.C. Cir. 2013) (noting, in APA case, that
16
“determining the facts is generally the agency’s responsibility, not ours”); Sierra Club v.
Mainella, 459 F. Supp. 2d 76, 90 (D.D.C. 2006) (“Under the APA . . . the function of the district
court is to determine whether or not as a matter of law the evidence in the administrative record
permitted the agency to make the decision it did.”) (quotation marks and citation omitted)).
Judicial review is limited to the administrative record, since “[i]t is black-letter administrative
law that in an APA case, a reviewing court should have before it neither more nor less
information than did the agency when it made its decision.” CTS Corp. v. EPA, 759 F.3d 52, 64
(D.C. Cir. 2014) (internal citations and quotation marks omitted; alteration in original); see 5
U.S.C. § 706 (“[T]he Court shall review the whole record or those parts of it cited by a party . . .
.”); Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 743 (1985) (noting when applying arbitrary
and capricious standard under the APA, “‘[t]he focal point for judicial review should be the
administrative record already in existence . . . .’” (quoting Camp v. Pitts, 411 U.S. 138, 142
(1973)).
B. Standards of Review Under Administrative Procedure Act
1. Chevron Deference
The familiar two-step process set out in Chevron U.S.A., Inc. v. Natural Resources
Defense Council, Inc. (Chevron), 467 U.S. 837, 845 (1984), applies to judicial review of claims
that an agency has acted “in excess of statutory jurisdiction, authority or limitations, or short of
statutory right” under the APA, when the agency is interpreting a statute. See Am. Fed’n of
Gov’t Emps. Local 3669 v. Shinseki, 709 F.3d 29, 33 (D.C. Cir. 2013). At the first step of the
inquiry, a court must “ask whether Congress has directly addressed the precise question at issue.”
Mayo Found. for Med. Educ. & Research v. United States, 131 S. Ct. 704, 711 (2011) (internal
citations omitted). “‘If the intent of Congress is clear, that is the end of the matter; for the court,
as well as the agency, must give effect to the unambiguously expressed intent of Congress.’”
17
City of Arlington, Tex. v. FCC, 133 S. Ct. 1863, 1868 (2013) (quoting Chevron, 467 U.S. at 842–
43).
On the other hand, if “Congress has not directly addressed the precise [interpretative]
question at issue . . . the agency is charged with filling the ‘gap left open’ by the ambiguity.”
EPA v. EME Homer City Generation, L.P. (EME Homer), 134 S. Ct. 1584, 1603 (2014) (quoting
Chevron, 467 U.S. at 843, 866) (first alteration in original). Thus, if the statute is silent or
ambiguous with respect to the specific issue under consideration, the analysis shifts to Chevron
step two, where “the question for the court is whether the agency’s answer is based on a
permissible construction of the statute.” City of Arlington, Tex., 133 S. Ct. at 1868; see CSX
Transp., Inc. v. Surface Transp. Bd., 754 F.3d 1056, 1063 (D.C. Cir. 2014) (same).
When Congress has delegated to the agency authority to make rules carrying the force of
law, and the challenged agency interpretation was promulgated in the exercise of that authority,
then the agency’s rule is entitled to deference “as long as it is a permissible construction of the
statute, even if it differs from how the court would have interpreted the statute in the absence of
an agency regulation.” Sebelius v. Auburn Reg’l Med. Ctr., 133 S. Ct. 817, 826 (2013); see also
EME Homer, 134 S. Ct. at 1606 (determining if agency’s interpretation of ambiguous phrase is
“permissible construction of statute” as second step of Chevron analysis); Nat’l Cable &
Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 980 (2005) (“If a statute is
ambiguous, and if the implementing agency’s construction is reasonable, Chevron requires a
federal court to accept the agency’s construction of the statute, even if the agency’s reading
differs from what the court believes is the best statutory interpretation.”). Courts “routinely
accord dispositive effect to an agency’s reasonable interpretation of ambiguous statutory
language.” EME Homer, 134 S. Ct. at 1603 (citation omitted). “Deference is appropriate even if
18
the agency’s interpretation first appears during litigation, unless the interpretation conflicts with
prior interpretations or amounts to nothing more than a convenient litigating position.”
Shieldalloy Metallurgical Corp. v. Nuclear Regulatory Comm’n, 768 F.3d 1205, 1208–09 (D.C.
Cir. 2014) (internal quotation marks and citations omitted). A court “need not conclude that the
[agency’s] interpretation of the [s]tatute is the only one it permissibly could have adopted or
even the interpretation deemed most reasonable by the courts,” so long as it is reasonable. Nat’l
Treasury Emps. Union v. Fed. Labor Relations Auth., 754 F.3d 1031, 1042 (D.C. Cir. 2014)
(internal quotation marks and citations omitted; emphasis in original). 11
2. Auer Deference
An agency’s interpretation of its own regulations commands substantial judicial
deference. See Auer v. Robbins, 519 U.S. 452, 463 (1997); Bowles v. Seminole Rock & Sand
Co., 325 U.S. 410, 415–17 (1945); Drake v. F.A.A., 291 F.3d 59, 68 (D.C. Cir. 2002). “When an
agency interprets its own regulation, the Court, as a general rule, defers to it ‘unless that
interpretation is ‘plainly erroneous or inconsistent with the regulation.’” Decker v. Nw. Envtl.
Def. Ctr., 133 S. Ct. 1326, 1337 (2013) (quoting Chase Bank USA, N. A. v. McCoy, 562 U.S.
195, 208 (2011)); see also Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156, 2166
(2012) (holding that agency’s interpretation controls unless it is plainly erroneous or inconsistent
with the regulation); Seminole Rock, 325 U.S. at 414 (noting that a regulation “becomes . . .
controlling weight unless it is plainly erroneous or inconsistent with the regulation.”); Huerta v.
11
The Supreme Court recently articulated an exception to Chevron that applies in “extraordinary cases” where
“there may be reason to hesitate before concluding that Congress has intended such an implicit delegation” of
authority to an agency. King v. Burwell, No. 14-114, 2015 WL 2473448, at *8 (U.S. June 25, 2015) (quoting FDA
v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159 (2000)). In cases involving questions “of deep
‘economic and political significance’ that is central to [a] statutory scheme,” id. (quoting Util. Air. Regulatory Grp.
v. EPA, 134 S. Ct. 2427, 2444 (2014)), courts may set aside Chevron deference and instead look directly to the
statutory text, examined in light of its “context and with a view to [its] place in the overall statutory scheme,” id.(quoting Brown & Williamson Tobacco Corp., 529 U.S. at 133).
19
Ducote, No. 14-1023, 2015 WL 3952264, at *6 (D.C. Cir. June 30, 2015) (“To the extent the
agency has interpreted its own . . . regulation, that interpretation is to be accorded deference . . .
unless it is clearly contrary to the plain and sensible meaning of the regulation.” (internal
quotation marks omitted; second alteration in original)); Texas v. EPA, 726 F.3d 180, 194 (D.C.
Cir. 2013) (finding agency interpretation of its regulation is “controlling because the
interpretation is neither plainly erroneous [n]or inconsistent with the regulation, and there is no
reason to suspect that it does not reflect the agency’s fair and considered judgment on the matter
in question”) (internal quotations and citations omitted; brackets in original).
Thus, a plaintiff challenging an agency’s interpretation of its own regulations carries a
“heavy burden in advancing [that] claim” because an “agency’s interpretation of its own
regulations ‘must be given controlling weight unless it is plainly erroneous.’” In re Polar Bear
Endangered Species Act Listing & Section 4(d) Rule Litig. — MDL No. 1993 (In re Polar Bear
Litig.), 709 F.3d 1, 11 (D.C. Cir. 2013) (internal citations omitted); see Auer, 519 U.S. at 461–
62; Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (“[W]e must defer to the
[agency]’s interpretation unless an ‘alternative reading is compelled by the regulation’s plain
language or by other indications of the Secretary’s intent at the time of the regulation’s
promulgation.”). “Although an agency is ‘entitled to significant deference in interpreting its own
regulation—perhaps even more than an agency gets in interpreting a statute under Chevron’—it
is unlikely we would defer to an unreasonable agency interpretation of an ambiguous
regulation.’” Menkes v. U.S. Dep’t of Homeland Sec., 637 F.3d 319, 343 (D.C. Cir. 2011)
(Brown, J. dissenting in part) (quoting Kidd Commc’ns v. FCC, 427 F.3d 1, 4 (D.C. Cir. 2005)).
3. Substantial Evidence
When an agency’s adjudicatory decision is challenged under the APA, such adjudications
are overturned only upon a finding that the “agency action, findings, and conclusions” are
20
“unsupported by substantial evidence . . . on the record of an agency hearing.” 5 U.S.C. §
706(2)(E); see Kaufman v. Perez, 745 F.3d 521, 527 (D.C. Cir. 2014) (noting that agency factual
findings may be “set aside . . . ‘only if unsupported by substantial evidence on the record as a
whole.’” (quoting Chippewa Dialysis Servs. v. Leavitt, 511 F.3d 172, 176 (D.C. Cir. 2007));
Dillmon v. NTSB, 588 F.3d 1085, 1089 (D.C. Cir. 2009) (noting that agency’s factual findings
may be adopted “as conclusive if supported by substantial evidence . . . even though a plausible
alternative interpretation of the evidence would support a contrary view” (internal citation and
quotation marks omitted)).
Notably, “an agency’s refusal to consider evidence bearing on the issue before it
constitutes arbitrary agency action within the meaning of § 706,” as does ignoring “evidence
contradicting its position.” Butte Cnty., Cal. v. Hogen, 613 F.3d 190, 194 (D.C. Cir. 2010). As
the D.C. Circuit has explained, an agency decision “would be arbitrary and capricious” if is not
“supported by substantial evidence” because “‘it is impossible to conceive of a ‘nonarbitrary’
factual judgment supported only by evidence that is not substantial in the APA sense.’” Safe
Extensions, Inc. v. FAA, 509 F.3d 593, 604 (D.C. Cir. 2007) (quoting Ass’n of Data Processing
Serv. Org. v. Bd. of Governors of Fed. Reserve Sys. (ADPSO), 745 F.2d 677, 684 (D.C. Cir.
1984)). Consequently, when assessing whether agency action is arbitrary or capricious, “in their
application to the requirement of factual support[,] the substantial evidence test and the arbitrary
or capricious test are one and the same.” ADPSO, 745 F.2d at 683; accord CTS Corp., 759 F.3d
at 59 n.1.
The scope of review under the “arbitrary and capricious standard is ‘highly deferential,’”
Am. Trucking Ass’ns, Inc. v. Fed. Motor Carrier Safety Admin., 724 F.3d 243, 245 (D.C. Cir.
2013) (quoting Am. Wildlands v. Kempthorne, 530 F.3d 991, 997 (D.C. Cir. 2008)); Envtl. Def.
21
Fund, Inc. v. Costle, 657 F.2d 275, 283 (D.C. Cir. 1981) (same), and “narrow,” such that “a court
is not to substitute its judgment for that of the agency,” Judulang v. Holder, 132 S. Ct. 476, 483
(2011); see also Fogo De Chao (Holdings) Inc. v. U.S. Dep’t of Homeland Sec., 769 F.3d 1127,
1135 (D.C. Cir. 2014) (same); Agape Church, Inc. v. FCC, 738 F.3d 397, 408 (D.C. Cir. 2013)
(same). Particularly when “an agency has acted in an area in which it has ‘special expertise,’ the
court must be particularly deferential to [the agency’s] determinations.” Sara Lee Corp. v. Am.
Bakers Ass’n Ret. Plan, 512 F. Supp. 2d 32, 37 (D.D.C. 2007) (quoting Bldg. & Constr. Trades
Dep’t, AFL–CIO v. Brock, 838 F.2d 1258, 1266 (D.C. Cir. 1988)). Yet, “courts retain a role, and
an important one, in ensuring that agencies have engaged in reasoned decisionmaking.”
Judulang, 132 S. Ct. at 483–484. Simply put, “the agency must explain why it decided to act as it
did.” Butte Cnty., 613 F.3d at 194.
In evaluating agency actions under the “arbitrary and capricious” standard, courts “must
consider whether the [agency’s] decision was based on a consideration of the relevant factors and
whether there has been a clear error of judgment.” Marsh v. Ore. Natural Res. Council, 490 U.S.
360, 378 (1989) (citation and internal quotation marks omitted); Citizens to Preserve Overton
Park, Inc. v. Volpe (Overton Park), 401 U.S. 402, 416 (1971), overruled on other grounds by
Califano v. Sanders, 430 U.S. 99, 105 (1977); Blue Ridge Envtl. Def. League v. Nuclear
Regulatory Comm’n, 716 F.3d 183, 195 (D.C. Cir. 2013). When an agency “‘fail[s] to provide a
reasoned explanation, or where the record belies the agency’s conclusion, [the court] must undo
its action.’” Cnty. of Los Angeles v. Shalala, 192 F.3d 1005, 1021 (D.C. Cir. 1999) (quoting
BellSouth Corp. v. FCC, 162 F.3d 1215, 1222 (D.C. Cir. 1999)); see Select Specialty Hosp.-
Bloomington, Inc. v. Burwell, 757 F.3d 308, 312 (D.C. Cir. 2014) (noting that when “‘an
agency’s failure to state its reasoning or to adopt an intelligible decisional standard is [] glaring []
22
we can declare with confidence that the agency action was arbitrary and capricious’” (quoting
Checkosky v. SEC, 23 F.3d 452, 463 (D.C. Cir. 1994))). At the very least, the agency must have
reviewed relevant data and articulated a satisfactory explanation establishing a “rational
connection between the facts found and the choice made.” See Am. Trucking Ass’ns, Inc., 724
F.3d at 249 (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co.
(State Farm), 463 U.S. 29, 43 (1983)); see also EME Homer, 134 S. Ct. at 1602 (holding that
agency “retained discretion to alter its course [under a regulation] provided it gave a reasonable
explanation for doing so”); Amerijet Int’l, Inc. v. Pistole, 753 F.3d 1343, 1350 (D.C. Cir. 2014)
(“[A] fundamental requirement of administrative law is that an agency set forth its reasons for
decision; an agency’s failure to do so constitutes arbitrary and capricious agency action.”
(internal quotation marks and citation omitted)). “[C]onclusory statements will not do; an
agency’s statement must be one of reasoning.” Amerijet Int’l Inc., 753 F.3d at 1350 (internal
quotation marks omitted; emphasis in original).
III. DISCUSSION
The plaintiffs challenge the PRRB decision on multiple grounds, arguing that the HHS
policy underlying this decision of not reimbursing Medicare bad debt retained by collection
agencies is (1) inconsistent with the plain language of the applicable regulation; (2) violative of
the Medicare Bad Debt Moratorium; and (3) issued without appropriate notice-and-comment
rulemaking or fair notice to the plaintiffs. For the reasons detailed below, the Court concludes
that the defendant’s interpretation of its regulations is reasonable and in accord with the
Moratorium and the requirements of the APA. Consequently, the challenged decision must be
upheld.
23
A. The Agency’s Interpretation Of The Applicable Regulation Is Reasonable
The rationale supporting the HHS policy disallowing reimbursement of Medicare bad
debt retained by collection agencies is explicated at length in the challenged PRRB decision. See
AR at 6–31. The PRRB found that the agency’s policy is reasonably dictated by both the criteria
set out in the relevant regulation, 42 C.F.R. § 413.89(e), and the presumption of noncollectibility
in PRM § 310.2. Id. In short, to be reimbursed for bad debt, a provider must meet each of the
four criteria set forth in 42 C.F.R. § 413.89(e), regardless of how long the bill is overdue and
unpaid. AR at 15–16. Moreover, a provider seeking reimbursement of bad debt pending at a
collection agency cannot satisfy all four criteria, rendering the bad debt in question non-
reimbursable. Id.In particular, the PRRB concluded, reasonably, that if a provider sends a debt to a
collection agency, and that debt remains in active collection at the agency, the debt cannot be
“worthless,” within the meaning of the third criterion, under 42 C.F.R. § 413.89(e)(3). AR at 20.
The PRRB also concluded that a debt pending at a collection agency cannot satisfy the fourth
criterion, under 42 C.F.R. § 413.89(e)(4), that there is “no likelihood of recovery at any time in
the future,” since the provider exercised “sound business judgment” to send the debt to a
collection agency in the first instance, rather than write-off the debt. See AR at 18–20. The
provider must believe in some likelihood of recovery, and that the debt is not “worthless,” if the
provider’s sound business judgment requires the submission of a debt to a collection agency
rather than ceasing all efforts to collect the debt. See id. Consequently, though a provider is not
required to send debts to a collection agency to demonstrate “reasonable collection efforts” for
the purposes of 42 U.S.C. § 413.89(e)(2), see AR 371 (PRM § 310.A) (“A provider’s collection
effort may include the use of a collection agency . . .”), choosing to do so means that the third
24
and fourth criteria cannot be met until the collection agency ceases efforts to collect on the debt,
AR at 20. Only at that time can the debt be considered “worthless” and as having “no likelihood
of recovery at any time in the future,” when all collection efforts have unsuccessfully concluded.
See id.
PRM § 310.2, the presumption of noncollectibility, is easily reconciled with the
regulatory criteria in 42 C.F.R. § 413.89(e) for reimbursable Medicare bad debt. The
presumption of noncollectibility clarifies that “after reasonable and customary attempts to collect
a bill” a “debt may be deemed uncollectible” if it “remains unpaid more than 120 days from the
date the first bill is mailed to the beneficiary.” AR at 373. (PRM § 310.2). The PRRB
concluded that PRM § 310.2 interprets 42 C.F.R. § 413.89(e)(3), under which a provider must
show that the bad debt at issue “was actually uncollectible when claimed as worthless.” AR at
20. If the presumption applies, a provider satisfies the third criterion for reimbursement after
120 days have elapsed without other evidence of the debt’s uncollectible status. Id. The
presumption does not, however, “excuse a provider from satisfying the other criteria specified”
in the regulation, including that there is “no likelihood of recovery at any time in the future,” as
defined by the “sound business judgment” of the provider. Id.; see 42 C.F.R. § 413.89(e)(4).
The PRRB reasoned that a provider turns a debt over to a collection agency based upon a belief
in some likelihood of recovery and, so long as the collection agency is allowed to pursue the
account, the provider is therefore unable to meet all four criteria for reimbursement, regardless of
whether the presumption of noncollectibility would otherwise apply. See AR at 20–21; Lakeland
Reg’l Health Sys. v. Sebelius (Lakeland), 958 F. Supp. 2d 1, 7 (D.D.C. 2013). 12
12
The plaintiffs contend that PRM § 310.2 refers only to “the pursuit of ‘reasonable and customary’ collection
efforts,” and that those efforts need not be completed to trigger the application of the presumption of
noncollectibility. Pls.’ Mem. at 17–18 (emphasis in original). The plaintiffs urge the adoption of this proposed
reading because, according to the plaintiffs, PRM § 310.2 “was intended to set up a bright-line rule as to when a
25
The PRRB’s determination that the presumption of noncollectibility is discretionary and
does not trump the provider’s obligation to meet the four criteria of 42 C.F.R. § 413.89(e), is
consistent with the only pre-Moratorium PRRB decision “that considered the presumption of
noncollectibility.” AR at 20 n.54 (citing Davie County Hospital v. Blue Cross Blue Shield
Association (Davie County), PRRB Dec. No. 1984-D89 (Mar. 22, 1984)). In Davie County, the
PRRB upheld an intermediary’s disallowance of a bad debt reimbursement even though, for the
debts at issue, more than six months had elapsed since the first bill had been sent to the patient.
Id. The provider admitted to sending non-Medicare debts to a collection agency but did not do
the same for Medicare debts. Id. The PRRB held that the provider’s collection efforts were not
“reasonable” since the provider did not engage in collection efforts that were equivalent to the
collection agency’s efforts to collect non-Medicare debt, even though the Medicare debts had
been pending for longer than 120 days. Davie County, PRRB Dec. No. 1984-D89. Specifically,
the PRRB found that the provider could have used “other in-house collection efforts, such as
writing letters and making telephone calls” that could have rendered the provider’s in-house
efforts similar to those engaged in by the collection agency that handled non-Medicare accounts.
Id. The provider failed to do so, making its treatment of Medicare and non-Medicare accounts
sufficiently different so as to justify the disallowance of reimbursement, regardless of the length
of time the Medicare debt remained unpaid. Id.provider could deem the debt uncollectible and not have to provide fact evidence of its uncollectibility.” The
plaintiffs’ contention is misguided for two reasons. First, in an APA challenge, the Court’s role is not to determine
the “more natural and logical reading” of an agency’s interpretation of a regulation, Pls.’ Mem. at 17, but rather to
determine whether the agency’s interpretation is “plainly erroneous or inconsistent with the regulation.” Decker,
133 S. Ct. at 1337. The agency’s interpretation here is neither plainly erroneous nor inconsistent with the regulation.
Second, if the plaintiffs are correct that PRM § 310.2 was intended to create “a bright-line rule,” the agency’s
interpretation—that the presumption of noncollectibility may apply only when collection efforts have ceased—
establishes a clearer bright-line than the plaintiffs’ proposed reading. Under the plaintiffs’ interpretation,
Intermediaries would have to determine whether reasonable and customary efforts were being “pursued,” a dynamic
notion, while the agency’s interpretation merely asks whether collection efforts, both in-house and at collection
agencies, have ceased.
26
The plaintiffs dispute the reasonableness of the PRRB’s interpretation of the regulation
on both textual and policy grounds. First, the plaintiffs contend that the agency’s interpretation
of the third criterion in 42 C.F.R. § 413.89(e)(3), which requires establishment that “[t]he debt
was actually uncollectible when claimed as worthless,” has a “fundamental flaw” due to “over-
simplification.” Pls.’ Reply Def.’s Opp’n Pls.’ Mot. (“Pls.’ Reply”) at 15, ECF No. 21. Under
the agency’s interpretation of the third criterion, “a provider that continues to attempt collection
of a beneficiary’s debt, either through in-house efforts or through a collection agency account
cannot have been determined to be uncollectible or worthless if a provider believes it has
sufficient worth for referral to a collection agency.” Def.’s Mem. at 12. According to the
plaintiffs, this interpretation “fails to distinguish between the individual provider’s determination
of whether or not an account is collectible and the separate and independent determination of a
collection agency.” Pls.’ Reply at 15.
Essentially, the plaintiffs are critical of applying the third criterion in a holistic fashion to
the collection process in toto and, instead, urge that this criterion focus solely on in-house efforts
and ignore the efforts of collection agencies. See id. The “upshot” is that the plaintiffs believe a
provider’s decision to refer an account to the collection agency, standing alone, is all that is
required to satisfy 42 C.F.R. § 413.89(e)(3), and the evaluation by a collection agency “whether
the account has worth to the collections agency,” is irrelevant to meeting this criterion. Pls.’
Reply at 17 (emphasis in original). The plaintiffs’ logic is, at best, tenuous. If a provider
believes that a debt is “actually uncollectible” and “worthless,” under the third criterion, sound
business judgment would presumably counsel against engaging in the useless exercise of
referring that debt to a collection agency and incurring concomitant service charges. As the
Lakeland court pointed out, “what provider exercising sound business judgment would spend his
27
precious resources on the fool’s errand of pursuing an uncollectible debt with no likelihood of
future recovery?” 958 F. Supp. 2d at 7. On the contrary, this analysis supports the agency’s
interpretation of 42 C.F.R. § 413.89(e)(3) and (4): sound business judgment requires that a debt
have some likelihood of future recovery to send the debt to a collection agency—otherwise,
sending the debt to a collection agency is, as the Lakeland court observed, a “fool’s errand.” Id.Thus, the agency’s interpretation of the regulation to mean that sending a debt to a collection
agency disqualifies that debt from reimbursement so long as the provider persists in that referral,
is reasonable and, until all collection efforts have ceased, the debt is not “worthless” under 42
C.F.R. § 413.89(e)(3).
Next, the plaintiffs argue that agency’s interpretation of the fourth criterion in 42 C.F.R. §
413.89(e)(4), requiring “[s]ound business judgment established that there was no likelihood of
recovery at any time in the future,” effectively re-writes “the regulation’s requirement that there
be no ‘likelihood’ of recovery with a requirement that there be no ‘possibility’ of recovery.”
Pls.’ Mem. at 27 (emphasis in original). In the plaintiffs’ view, “it can hardly be considered
likely, or probable, that a patient who has made no payments on an account for more than 120
days . . . will end up making payment on his/her debt.” Id. (emphasis in original). The plaintiffs
are correct that the agency construes the phrase of “no likelihood of recovery” in the fourth
criterion of the regulation as amounting to no possibility of recovery. See Def.’s Mem. at 14 n.4
(agreeing that “this is precisely how the Secretary interprets this provision”). Given the
emphasis in the regulation that the bad debt be likely unrecoverable “at any time in the future,”
42 C.F.R. § 413.89(e)(3), and that this debt be “actually uncollectible” and “worthless,” 42
C.F.R. § 413.89(e)(3), the agency’s interpretation that “no likelihood” is contextually equivalent
to “no possibility,” is reasonable.
28
By contrast, adoption of the plaintiffs’ interpretation would effectively rewrite the
regulation to eliminate the third and fourth criteria. If, as the plaintiffs urge, the presumption of
noncollectibility is absolute and, after 120 days of collection efforts, a debt automatically
becomes reimbursable, the regulatory criteria that a debt be “actually uncollectible,” “worthless,”
and have “no likelihood of recovery at any time in the future” would become nullities. See 42
C.F.R. § 413.89(e). This proposition echoes the finding the Sixth Circuit made in Battle Creek
Health System v. Leavitt (Battle Creek), 498 F.3d 401, 411–12 (6th Cir. 2007). In that case, the
court held that the Secretary’s interpretations of “§ 413.89(e) [was] eminently reasonable” and of
PRM § 310.2 “is consistent with, and most effectively enforces, all of the criteria” of the
regulation. Id. The plaintiffs’ alternative view that the presumption of noncollectibility applies
regardless of a debt’s status at a collection agency, would render “the third and fourth criteria of
42 C.F.R. § 413.89(e) . . . nugatory.” Id. at 411. 13
Finally, the plaintiffs challenge the agency’s interpretation as “unreasonable” on policy
grounds, contending that this interpretation of the criteria for Medicare bad debt reimbursement
in 42 C.F.R. § 413.89(e) “actually financially harms Medicare as well.” Pls.’ Reply at 18. The
plaintiffs reason that debts pending at a collection agency may eventually be collected, with any
collected amounts returned to Medicare, pursuant to PRM § 316. Id. “[B]y prohibiting a
collection agency from continuing to hold and monitor an account already paid by CMS, the
agency is foregoing possible recoupments of monies already paid out.” Id. This argument
actually cuts against the plaintiffs’ position that Medicare bad debts active at collection agencies
meet the requirements of 42 C.F.R. § 413.89(e). The only way Medicare could be harmed by
13
The Battle Creek court did not address the effect of the Moratorium on the agency’s interpretation. See generally
Battle Creek.
29
failing to allow efforts at a collection agency to continue after reimbursement is if the debt
actually had some likelihood of being recovered, in which circumstance the debt should not have
been reimbursed in the first instance. Construing the regulatory criteria as the plaintiffs’
suggest—and permitting reimbursement to a provider upon referral of Medicare debt to a
collection agency—would invite premature reimbursement and essentially absolve the plaintiffs
from complying with 42 C.F.R. § 413.89(e)(4), since the plaintiffs would not, presumably, send
to a collection agency any debt that the plaintiffs believed had “no likelihood of recovery at any
time in the future.” See Lakeland, 958 F. Supp. 2d at 7. Thus, the plaintiffs’ policy argument,
predicated on the rationale that debt pending at a collection agency retains some value and has
some likelihood of recovery, is not persuasive. The agency’s interpretation of 42 C.F.R. §
413.89(e), in contrast, gives effect to all four criteria in 42 C.F.R. § 413.89(e).
This Court joins the other courts to have considered this issue and finds that the agency’s
policy is a reasonable interpretation of 42 C.F.R. § 413.89. See Battle Creek, 498 F.3d at 412;
Lakeland, 958 F. Supp. 2d at 8–9; Mesquite Cmty. Hosp. v. Levitt, No. 3-07-CV-1093, 2008 WL
4148970, at *4 (N.D. Tex. Sept. 5, 2008). Moreover, the PRRB’s application of that policy in
the challenged decision to the plaintiffs’ bad debt reimbursement is not, standing alone, arbitrary
and capricious. This finding is highly probative, but not determinative, of how long the agency’s
policy has been in effect. The Court turns next to the question whether the agency’s bad debt
reimbursement policy was in existence at the time the Moratorium took effect and the plaintiffs’
claim that the policy violates the Moratorium.
B. The Agency’s Interpretation Does Not Violate The Moratorium
As previously noted, the text and legislative history for the Moratorium and its
amendments make no explicit reference to the agency’s specific policy disallowing
30
reimbursement of Medicare bad debt accounts pending at collection agencies. The Moratorium
merely bars any change in agency policy regarding bad debt reimbursement generally. Thus, the
Moratorium itself sheds no light on the critical question whether the agency applied a policy in
the challenged PRRB decision that was in effect in August 1987 or, as the plaintiffs assert,
violated the statutory command in the Moratorium.
The language of the Moratorium conditions a violation on a change in HHS “policy.”
See 42 U.S.C. § 1395f note. The 1988 Conference Report clarified that the “policy” was defined
by HHS’ regulations, manuals, and issuances as well as PRRB decisions. H.R. Rep. No. 100-
1104, at 25. The bad debt reimbursement regulations, of which 42 U.S.C. § 413.89 is the most
relevant here, are part of the agency’s efforts to give effect to the statutory prohibition on cross-
subsidization in 42 U.S.C. § 1395x(v)(1)(A)(i). Thus, in prohibiting a change in “the policy” of
HHS regarding bad debt reimbursement, the Moratorium froze the agency’s implementing
regulations for this aspect of the Medicare program. As such, the question at issue can best be
understood as determining the meaning of the relevant HHS regulations when the Moratorium
took effect. In this context, the agency’s interpretation of its own regulation must be deferred to
“unless an ‘alternative reading is compelled by the regulation’s plain language or by other
indications of the Secretary’s intent at the time of the regulation’s promulgation.’” Thomas
Jefferson Univ., 512 U.S. at 512 (quoting Gardebring v. Jenkins, 485 U.S. 415, 430 (1988)).
This interpretive problem is complicated by the relative dearth of pre-Moratorium agency
decisions or specific written policy statements articulating exactly what the agency’s policy was
regarding reimbursement of Medicare bad debt pending at collection agencies. See Pls.’ Mem. at
13 (noting that “[t]here are no agency statements prior to August 1, 1987 expressing a policy that
patient accounts pending at a collection agency are presumed to be collectible and therefore
31
cannot be reimbursed as Medicare bad debt”). The reason for the lack of such evidence, prior to
August 1, 1987, may be attributable to the fact that, for cost years prior to January 1, 1983,
providers were prohibited by regulation from using legal action or the “threat of legal action to
collect Medicare deductible and coinsurance amounts.” AR at 23 n. 65. Since using threats of
legal action is a tactic often associated with collection agencies, providers may have turned with
more regularity to use of such agencies as part of the effort to recoup Medicare bad debt
beginning only after the regulatory change in 1983. See AR at 23 n.65; Davie County (listing
“maintain[ing] full control” over collection processes to avoid running afoul of prohibition on
“using or threatening to use court action to collect overdue amounts from Medicare patients”
among provider’s reasons for failing to use collection agency). The substantial time lag between
the providers’ submission of bad debt information for reimbursement and a PRRB ruling on an
intermediary’s decision would likely have pushed any focus on this specific policy until much
later. Indeed, the PRRB ruling in this matter issued in 2014 refers to the cost years of 2004,
2005, and 2006. AR at 10. A combination of the change permitting use of collection tactics
associated with collection agencies in 1983 and the delay between reimbursement disallowances
and resolution, allows, at best, only a short period before the Moratorium became effective in
August 1987 for this precise issue to have reached the PRRB or CMS Administrator for a clear
articulation of the policy against reimbursement of Medicare bad debt pending at collection
agencies.
Nevertheless, substantial evidence exists in the record to support the conclusion that the
agency’s policy pre-dates the Moratorium. The primary evidence for this conclusion is the fact
that the relevant regulation, 42 C.F.R. § 413.89(e), and the interpretive guidance in PRM § 310,
existed in their present forms prior to the Moratorium taking effect. See Def.’s Mem. at 31 n.15
32
(noting 42 C.F.R. § 413.89 was finalized in 1966); AR at 16 n.44 (noting last substantive
revision to PRM § 310 in January 1983). Consequently, the relevant regulation and guidance fall
into the existing “PRRB . . . manuals and issuances” category, which the 1988 conferees made
clear the Moratorium was not intended to disturb. See H.R. Rep. No. 100-1104, at 25. The
plaintiffs dismiss reliance on the agency’s reasonable interpretation of this regulation and
guidance as a source of the policy in effect at the time of the Moratorium, arguing that this
amounts to an assertion that the disallowance of reimbursement for Medicare bad debt pending at
collection agencies is “inherent in the bad debt regulations themselves” and merely conflates the
agency’s current interpretation with its pre-Moratorium interpretation. Pls.’ Mem. at 13-14
(citing District Hosp. Partners L.P. v. Sebelius (District), 932 F. Supp. 2d 194, 200-201 (D.D.C.
2013); see also Foothill Hosp. v. Leavitt, 558 F. Supp. 2d 1, 10 (Foothill) (D.D.C. 2008)).
Contrary to the plaintiffs’ view, this Court finds that the agency’s interpretation of a long-
standing regulation to be no less reasonable because its current interpretation is the same as it
would have given, if asked, prior to the effective date of the Moratorium.
Furthermore, shortly after the Moratorium initially took effect and virtually
simultaneously with passage of the third amendment to the Moratorium, HHS revised, in
September 1989, the Medicare Intermediary Manual (“MIM”), which “updated [and] clarified”
aspects of Medicare policy. AR at 392. Among the revisions made by this 1989 version of the
MIM is the inclusion of an express statement that “[i]f the [bad] debt is written-off on the
provider’s books 120 days after the date of the bill and then turned over to a collection agency,
the amount cannot be claimed as a bad debt on the date of the write-off. It can be claimed as a
bad debt only after the collection agency completes its customary collection efforts.” AR at
402–03. The defendant explains that the policy reflected in this MIM statement “was not new
33
when it was published in the MIM in 1989” but “[r]ather, at that time some Medicare contractors
were incorrectly applying CMS policy and the agency issued the MIM to clarify the Secretary’s
bad debt policy and ensure it was being consistently applied.” Def.’s Mem. at 22. This
evidence, in combination with the reasonableness of the agency’s interpretation of its own
regulation and the level of deference due to that interpretation, supports the conclusion that the
agency’s policy regarding bad debt reimbursement was the same on August 1, 1987 as it is now.
The Court is mindful that three other Judges of this Court have considered this same
question and reached different results. See Lakeland, 958 F. Supp. 2d at 3; District, 932 F. Supp.
2d at 196; Foothill, 558 F. Supp. 2d at 9. The District and Foothill courts held that the
Secretary’s policy disallowing reimbursement for bad debt pending at a collection agency
violated the Moratorium, and as a result never addressed the reasonableness of the agency’s
interpretation or whether its “eminently reasonable,” Battle Creek, 498 F.3d at 411, reading of its
own regulations militated in favor of the policy’s existence before the Moratorium took effect.
District, 932 F. Supp. 2d at 206; Foothill, 558 F. Supp. 2d at 11. In contrast, the Lakeland court
held that this policy did not violate the Moratorium because “it has always been the Secretary’s
policy that accounts pending at collection agencies cannot be written off as bad debts until
collection activity has terminated.” Lakeland, 958 F. Supp. 2d at 7.
Relying largely on the same evidence cited in Foothill and District, the plaintiffs urge
this Court to follow the reasoning of those decisions. See generally Pls.’ Mem; Pls.’ Reply. As
detailed below, however, examination of this evidence, including PRRB decisions both pre- and
post-Moratorium, compels this Court to hold, as did the Lakeland court, that the reimbursement
policy at issue is not a “change” from the Secretary’s practices as of August 1, 1987 and,
therefore, does not violate the Moratorium.
34
1. Pre-Moratorium Evidence
The plaintiffs rely on three disparate pieces of evidence that pre-date the August 1, 1987
effective date of the Moratorium: (1) one Administrator’s decision issued in 1984, Pls.’ Mem. at
18; (2) the 1985 version of Medicare’s Hospital Audit Program manual, id. at 15; and (3) the
1985 version of the MIM, id. at 22. These pieces of evidence, considered alone or in
combination, do not, as the plaintiffs contend, reflect a different policy than that applied in the
challenged PRRB decision.
First, the plaintiffs rely on a 1984 Administrator’s decision in Scotland Memorial
Hospital v. Blue Cross and Blue Shield Association (Scotland), No. 84-D174 (Nov. 8, 1984). 14
Scotland involved a challenge to the disallowance of bad debt reimbursement for a hospital that
sent its non-Medicare debt to a collection agency but not its Medicare debt. Scotland at 110–
111. In that decision, the Administrator held that the PRRB “reached a reasonable inference
when it found that the provider’s treatment of Medicare accounts was similar to the treatment of
non-Medicare accounts,” despite the failure to send Medicare accounts to collection agencies,
based on the finding that the in-house efforts of the provider equated with the permissible efforts
a collection agency would have undertaken. Id.
Scotland is inapposite for at least two reasons. First, the Medicare regulations in effect
for the cost years at issue in that case prohibited the use of legal process or the threat of legal
process to collect Medicare debt from patients, a ban that effectively discouraged the use of
collection agencies for bad Medicare debt. Id.; see also Davie County. As discussed above, this
prohibition on the threat of or actual use of legal process to collect bad debt from Medicare
patients was not lifted until a regulatory change made in 1983. AR at 23 n.65. Thus, the
14
The Scotland decision is Exhibit 5 to the plaintiffs’ corrected Motion for Summary Judgment, ECF No. 15-1, and
page number citations refer to the ECF page number in this docket entry.
35
Scotland decision stands for the proposition that the lack of identical treatment for Medicare and
non-Medicare debt may be excused if the provider treats the debts as similarly as regulations
permit. Scotland at 111. This holding has little relevance to the issues in this instant matter.
Second, the provider in Scotland stands in an entirely different posture from the plaintiffs in the
instant case: in Scotland, the issue was whether the provider’s decision not to send Medicare debt
to a collection agency barred reimbursement, and the Administrator determined that
reimbursement was allowed when the regulations required differential treatment of Medicare and
non-Medicare debt. By contrast, here, the issue is whether the plaintiffs’ decisions to send
Medicare debt to a collection agency bars reimbursement, when such referral is not required but
triggers the requirement for equivalent treatment with non-Medicare debt and, consequently, has
repercussions affecting the timing of reimbursement. Given the different regulatory
requirements and factual posture in Scotland, this decision has only limited probative value in
illuminating the pre-August 1987 policy on reimbursing providers for Medicare bad debt
pending at collection agencies.
Next, the plaintiffs cite a provision in Medicare’s Hospital Audit Program manual, in
effect in 1985. Pls.’ Mem. at 15; see AR at 23; see also AR at 410 (reproducing full text of
Hospital Audit Program § 15.04). In particular, the plaintiffs point to the sub-paragraph (A) in
§ 15.04 of this manual requiring hospital auditors to “[r]eview provider contracts with the
collection agency to determine that both Medicare and non-Medicare uncollectible amounts are
handled in a similar manner.” 15 The plaintiffs make the interpretative leap that this section is
15
The Hospital Audit Program manual § 15.04 reads, in full, as follows:
15.04 Where a provider utilizes the services of a collection agency, the provider need not refer all
uncollected patient charges to the agency, but may refer only uncollected charges above a
specified minimum amount. If reasonable collection effort was applied, fees the collection agency
36
“significant” and “show[s] that the Secretary considered debts pending at a collection agency to
be uncollectible (and therefore, reimbursable).” Pls.’ Mem. at 15. This is a leap too far. When
providers use collection agencies as part of their collection efforts, § 15.04.A simply provides
audit guidance to evaluate whether the providers require collection agencies to treat Medicare
and non-Medicare accounts similarly, directing the auditors’ attention to ensure proper
documentation for those collection efforts and for verification of any bad debts claimed. AR at
410. Furthermore, rather than considering any debt pending at a collection agency to be
automatically reimbursable, as the plaintiffs suggest, § 15.04.B directs the auditor to ensure the
collection agency has proper documentation “to substantiate the collection effort,” including
“copies of the agency’s billing, follow-up letters and reports of telephone and personal contacts.”
Id. This documentation, and the audit scrutiny requirement, of collection agency files
demonstrates that mere referral to a collection agency was not considered by HHS to be
sufficient proof that a Medicare bad debt was “worthless” or “uncollectible” to satisfy the criteria
set out in 42 C.F.R. § 413.89(e). 16 At the same time, despite the parties’ straining to read the
charges the provider are recognized as an allowable administrative cost of the provider. To
determine the acceptability of collection agency services, perform the following audit steps.
A. Review provider contracts with the collection agency to determine that both Medicare and non-
Medicare uncollectible amounts are handled in a similar manner.
B. Determine that the patient’s file is properly documented to substantiate the collection effort by
reviewing the patient’s file for copies of the agency’s billing, follow-up letters and reports of
telephone and personal contacts.
C. Determine that the bad debt amounts recovered by the collection agency are properly recorded
by verifying that the full amount collected is credited to the patient’s account and the collection
fee is charged to administrative expense.
AR at 410.
16
In the challenged decision, the PRRB addresses the 1985 Hospital Audit Program manual by focusing on the first
paragraph of § 15.04, which permits recovery by the providers of fees charged by collection agency, to bolster its
claim that this provision is consistent with the agency’s policy in this matter. AR at 24. The PRRB opines that §
15.04 refers to reimbursements for collection agency charges when “uncollectible bad debts [are] coming back from
the collection agency to the provider.” Id. (emphasis in original). This conclusion, according to the PRRB, is
37
1985 Hospital Audit Program manual as supportive of their respective positions, this document is
silent regarding whether Medicare bad debt pending at a collection agency is, by definition,
ineligible for reimbursement under the relevant regulation.
Finally, the plaintiffs rely upon the silence in the 1985 Medicare Intermediary’s Manual
(“MIM”) § 4118.2, Part E, regarding the reimbursibility of bad debt pending at a collection
agency. Pls.’ Mem. at 22–23. This silence is not surprising given the historical regulatory
framework that, prior to the 1983 cost year, providers were discouraged from sending Medicare
bad debts to collection agencies, a regulatory limitation lifted only two short cost years before
issuance of the 1985 MIM. In other words, during this short period of time, the reimbursibility
of Medicare bad debt pending at collection agencies likely had not been an issue arising with
sufficient frequency to warrant attention in the MIM. See supra. Silence in the 1985 MIM §
4118.2 regarding the policy applied in the challenged PRRB decision does not suffice to show
that the agency had no policy at all. Indeed, the Supreme Court, in a Medicare reimbursement
case, rejected the contention that a court could “infer from [] silence the existence of a contrary
policy because” the document in question “did not purport to be a comprehensive review of all
conditions that might be placed” on the reimbursement procedures in effect. Thomas Jefferson
Univ., 512 U.S. at 516.
The plaintiffs bear the burden of overcoming the substantial deference due to an agency
in interpreting its own regulation, and reliance on silence falls woefully short of proving that the
implicit in the structure of § 15.04, since the PRRB construes the reimbursable collection agency fees as fees for
services performed by the collection agency in pursuit of the debt, which fees are only charged after a collection
agency has ceased its efforts and returned the debt to the provider. Id. at 24. While the PRRB’s interpretation may
not be the only tenable reading of § 15.04, it is not unreasonable in context. In any event, the plaintiffs’ attempt to
use the brief reference in § 15.04.A to “Medicare and non-Medicare uncollectible amounts” as conclusive proof that
all Medicare debts at collection agencies were reimbursable as bad debt in 1985, is not so clear from the Hospital
Audit Program manual as to brook no other interpretation. See Pls.’ Mem. at 15. At best, the plaintiffs have merely
pointed out an alternative interpretation with no evidence that the agency ever endorsed and used that interpretation.
38
Secretary had a contrary policy to that expressed in this case prior to August 1, 1987. Thus, the
plaintiffs have provided no persuasive evidence pre-dating the August 1, 1987 Moratorium that
the agency had a policy regarding the reimbursement of Medicare bad debt pending at a
collection agency that is different from the agency’s position expressed in the challenged PRRB
decision.
2. Post-Moratorium Evidence
The plaintiffs also rely on two other items generated by HHS components post-dating the
effective date of the Moratorium to bolster their contention that the challenged PRRB decision
applied a policy different from the policy in effect on August 1, 1987, in violation of the
Moratorium. Specifically, the plaintiffs rely upon (1) a 1995 Administrator decision, Pls.’ Mem.
at 14, 20–22; and (2) the transmittal memorandum for, and 1989 amendment to, the MIM, id. at
15, 24–25. 17
First, the plaintiffs discuss extensively the 1995 Administrator’s decision in Lourdes
Hospital v. Blue Cross and Blue Shield Association (Lourdes), Case Nos. 95-D58, 95-D59, 95-
D60 (H.C.F.A. Admin. Decis. Oct. 27, 1995), which is both distinguishable from the instant case
and, to the extent the decision has been construed as the plaintiffs urge, expressly disavowed by
the agency. See Pls.’ Mem. at 14, 20–23. Lourdes involved an appeal to the CMS Administrator
from an Intermediary’s decision disallowing Medicare bad debts, which were written off fewer
17
The parties debate the meaning and import of four additional post-Moratorium documents, including (1) a June
1990 HCFA memorandum, Pls.’ Mem. at 24–25; Def.’s Mem. at 25–26; (2) a 1990 cover memorandum from an
Intermediary discussing the June 1990 HCFA memorandum, Pls.’ Mot. Ex. 2, ECF No. 15-1; Def.’s Mem. at 25; (3)
a March 20, 1990 memorandum from an agency component regarding the “Clearance of Memorandum to Regional
Offices on Bad Debts,” Def.’s Mem. at 26 n.13; and (4) a 2008 Joint Signature Memorandum from CMS that
“reiterated [the agency’s] longstanding interpretation of 42 C.F.R. § 413.89(e),” id. at 28; Pls.’ Mem. at 25. None of
these documents are included in the AR. When reviewing an agency decision under the APA, “[i]t is ‘black-letter
administrative law that . . . a reviewing court should have before it neither more nor less information than did the
agency when it made its decision.’” CTS Corp., 759 F.3d at 64 (quoting Hill Dermaceuticals, Inc. v. FDA, 709 F.3d
44, 47 (D.C. Cir. 2013)). Since neither party moved to supplement the AR and the documents are not part of the
AR, see generally AR, the Court will not consider them.
39
than 120 days after the first bill was sent to the patient, thus preventing the presumption of
noncollectibility from applying. 18 Lourdes at 105, ECF No. 15-1. The Administrator addressed
two issues: (1) “whether the Provider correctly claimed bad debts before the passage of more
than 120 days from the first billings,” and (2) “whether the Provider met its burden of showing
that it properly offset recovered amounts against previously claimed bad debts.” Id. The CMS
Administrator reversed the PRRB and allowed reimbursement of the bad debt at issue. Id. at
108. Notably, the issue of whether bad debt pending at a collection agency was reimbursable
was neither addressed nor resolved. 19 See generally id.Indeed, other PRRB decisions cite Lourdes only for the proposition that providers may
show, through specific evidence, that a debt was actually uncollectible, with no likelihood of
recovery, in fewer than 120 days. See Bluegrass Reg’l Med. Ctr. v. Blue Cross & Blue Shield
Ass’n, No. 98-D63, 1998 WL 349510, at *7 (P.R.R.B. June 11, 1998); (citing Lourdes for
proposition that bad debts can be declared uncollectible fewer than 120 days after first bill is sent
if “there was substantial evidence including testimony and the provider’s historical experience
that established the subject debts as uncollectible”); Greenview Hosp. v. Blue Cross & Blue
Shield Ass’n, Case No. 99-D1, 1998 WL 773618, at *6 (P.R.R.B. Oct. 5, 1998) (same).
In addition to these PRRB decisions, a component of HHS, the Bureau of Policy
Development, characterized Lourdes as standing for the proposition that “the [agency’s] policy
18
The Lourdes decision was provided as Exhibit Four to the plaintiffs’ corrected Motion for Summary Judgment,
ECF No. 15-1, and page citations to this decision refer to the ECF page number in this docket entry.
19
The plaintiffs’ contend that “Lourdes is not an outlier” in the agency’s adjudications but is “a continuation of
agency policy” as expressed in Scotland. Pls.’ Mem. at 23. Lourdes does not reference Scotland, which tends to
discredit the plaintiffs’ theory that Lourdes is a continuation of a policy expressed in Scotland. In any event,
Scotland analyzed the treatment of Medicare and non-Medicare bad debt under an obsolete policy, see supra, and
Lourdes addressed whether bad debt could be reimbursable if evidence showed the debt met the four criteria in 42
C.F.R. § 413.89(e) before 120 days had elapsed. See Lourdes at 107; Scotland at 111. Thus, Lourdes and Scotland
addressed entirely different issues, and neither decision addressed the issue whether Medicare bad debt pending at a
collection agency is reimbursable under 42 C.F.R. § 413.89(e).
40
permits claiming of bad debts in 120 days or less only when providers are able to show that a
particular debt was ‘actually uncollectible when claimed as worthless’ in accordance with the
criterion in” the Medicare regulations. Bluegrass Reg’l Med. Ctr., 1998 WL 349510, at *4
(quoting Administrator’s letter dated September 15, 1995) (emphasis in original). In short,
Lourdes was initially interpreted as a clarification of when a provider could be reimbursed for
bad debts pending for fewer than 120 days, rather than having precedential value regarding the
question of whether active accounts at collection agencies may be reimbursed. 20
The plaintiffs rely heavily on the factual circumstance in Lourdes that the Medicare bad
debt accounts found by the PRRB to be reimbursable were still active at a collection agency, but
this particular circumstance was not highlighted as a legal issue for resolution. See generally
Lourdes. Instead, the legal issue at stake—and resolved—was whether debt, which was proved
by other evidence to be actually uncollectible, could be reimbursed even if the debt had been
pending for fewer than 120 days. Lourdes at 107–08. In this respect, Lourdes certainly does not
reflect any explicit statement of policy on whether bad debt at a collection agency is
reimbursable. Significantly, unlike the instant case, Lourdes involved the re-opening of a
previous year’s audit and additional proof that many of the bad debts in question at the collection
agency had ceased to be active and were, in fact, uncollected. See id. at 105; In re: George
Washington Univ. Hosp., No. 2011-D31, 2011 WL 4499599, at *9 n.18 (Admin. Decis. July 26,
2011) (describing factual circumstances in Lourdes). Consequently, to the extent that the
plaintiffs argue that Lourdes proves that the agency did not have the policy regarding bad debt
20
Later PRRB decisions did interpret Lourdes as supporting the plaintiffs’ position, see, e.g., Dameron Hospital v.
BlueCross BlueShield Ass’n, No. 2006-D16 (PRRB Feb. 17, 2006), but those PRRB decisions were rejected by the
Administrator as an erroneous interpretation, see In re: Dameron Hospital, No. 2006-D16, 2006 WL 1684657, at *8
(Admin. Decis. Apr. 17, 2006); Def.’s Mem. at 15 n.5.
41
reimbursement now claimed, Pls.’ Mem. at 21, Lourdes is distinguishable on its facts and has
limited, if any, precedential value.
Another post-Moratorium PRRB decision is more directly on point, although neither
party discusses it in detail. 21 In Methodist Hospital of Dyersburg v. Blue Cross and Blue Shield
Association (Dyersburg), No. 2000-D56, 2000 WL 796345, at *2 (P.R.R.B. May 30, 2000), a
provider challenged the disallowance of reimbursement for debts, which had been turned over to
a collection agency, claiming that the four criteria for bad debt reimbursement, under 42 C.F.R. §
413.89(e), were satisfied. The provider contended that “[a]lthough the Provider had ceased its
internal collection efforts, [a collection agency] continued to attempt to collect the debt” at the
same time the provider sought reimbursement. Id. The PRRB held “that the bad debts were
‘uncollectible’ when turned over to the collection agency, thus meeting both the four (4) criteria
of 42 C.F.R. § 413.8[9](e), and the 120 days rule” in PRM § 310.2. Id. at *8 (emphasis added).
Consequently, the PRRB reversed the Intermediary’s decision disallowing the bad debt and
ordered the provider reimbursed. Id. at *9.
The factual situation in Dyersburg is closely analogous to the facts in this matter. In
Dyersburg, as here, the provider pursued and exhausted its internal collection efforts and then
turned the debt over to a collection agency for further efforts. Compare id. at *2–3 with AR at
10–11. In Dyersburg, the bad debt was reimbursed despite the accounts being active at a
collection agency, while in the instant matter, the bad debt reimbursement was disallowed.
Compare Dyersburg, 2000 WL 796345, at *9 with AR at 20–21. Dyersburg is not
distinguishable from the instant facts, as is Lourdes, since there is nothing in Dyersburg to
21
The plaintiffs devote three sentences to Dyersburg, Pls.’ Mem. at 32, and the defendant mentions this decision in
only two sentences in a footnote, Def.’s Mem. at 17 n.6.
42
indicate that the audits in that case were reopened or that all of the bad debt claimed was sent for
reimbursement fewer than 120 days after the first bill was sent to the patient.
Although the holding in Dyersburg is directly contrary to the position advanced by the
agency in this case, this decision was not overturned by the Administrator within the statutory
timeframe. See generally Dyersburg, 2000 WL 796345. The Administrator recognized the
contradiction in In re: St. John Health, No. 2014-D19, 2014 WL 7213279, at *8–9 (Admin.
Decis. Oct. 23, 2014), where the Administrator reversed the PRRB’s allowance of
reimbursement for debt pending with a collection agency. In St. John Health, the Administrator
summarized agency policy for bad debt reimbursement as follows: “when a provider sends
uncollected amounts to a collection agency, the provider cannot establish reasonable collection
efforts have been made, the debt was actually uncollectible when claimed as worthless and that
there is no likelihood of recovery.” Id. at *7. The Administrator went on to discuss the policy
reasons for the agency’s practice. Id. at *8. In rejecting the PRRB’s suggestion that PRM § 316
“makes harmless any premature claiming of unpaid amounts as bad debts, as later collected
amounts are offset,” the Administrator explained:
once the debt is allowed [to be reimbursed] there is no longer any incentive to
continue to make collection efforts. Consequently the Administrator concludes
that, under longstanding Medicare law and policy, if a Provider continues
collection efforts at an outside collection agency, then the Provider has not
complied with the regulatory criteria set forth at 42 C.F.R. § 413.89(e)(3) and (4)
and the provisions of Chapter 3 of the PRM.
Id.In St. John Health, the Administrator further opined that allowing Medicare bad debts to
be reimbursed while pending at a collection agency resulted in a substantial difference between
the treatment of Medicare and non-Medicare debts, in contravention of the over-arching policy
of equal treatment of both Medicare and non-Medicare accounts, stating that “[t]o suggest that,
43
as long as the Provider conforms to this requirement of sending both Medicare and non-Medicare
accounts to [a] collection agency, it can immediately claim the Medicare debts while collection
activities continue nullifies the effects, intent and purpose of section 310.A” of the PRM. Id. “It
would be meaningless to require similar treatment” between Medicare and non-Medicare
accounts “while concurrently allowing the provider to write-off the unpaid coinsurance and
deductibles while the accounts are still at the collection agency.” Id. Such a policy would result
in dissimilar treatment of the two types of debt—collection efforts for non-Medicare debts
continue until a determination by the provider that keeping the debt with a collection agency is
no longer worthwhile, while Medicare debts are written off and submitted for reimbursement
long before the referral has concluded. See id. In other words, consistent with the regulations
barring differential treatment of Medicare and non-Medicare debt, providers choosing to send
delinquent accounts to a collection agency may not treat Medicare debt as entirely uncollectible
when such debt remains pending at a collection agency along with non-Medicare debt, based on
the business judgement that likely repayment of some accounts outweighs the cost of engaging
the collection agency.
St. John Health also recognizes the contradictory language in Dyersburg and, to a lesser
extent, Lourdes. Id. at *9 and *9 n. 15. The Administrator addressed the contradiction directly,
stating “[t]o the extent that any Administrator decision cannot be distinguished and has
expressed policy that deviated from the existing policy,” as advanced by the agency in this
matter, those decisions are “erroneous and contrary to the moratorium and the rules in effect on
August 1, 1987.” Id. at *9; see also id. at *9 n.15 (citing Dyersburg as contrary to the agency’s
policy and the Moratorium and distinguishing Lourdes). Given the deference due to the agency
in interpreting its own regulations, the clear statement of the agency that cases such as Dyersburg
44
and Lourdes were incorrectly decided and themselves in violation of the Moratorium must be
given “controlling weight.” See In re Polar Bear Litig., 709 F.3d at 11.
The second post-Moratorium item of evidence cited by the plaintiffs is a transmittal
memorandum and 1989 amendment to the MIM. The 1989 MIM amendment expresses the
“[c]oncern” that “there is an incentive [for providers] to claim bad debts before they become
worthless and to claim other than Medicare bad debts.” AR at 402. This version of the MIM
then proceeds to include the clear statement reflecting the agency policy applied by the PRRB in
the challenged decision that: “[i]f the bad debt is written-off on the provider’s books 120 days
after the date of the bill and then turned over to a collection agency, the amount cannot be
claimed as a bad debt on the date of the write-off. It can be claimed as a bad debt only after the
collection agency completes its customary collection effort.” AR at 403.
The plaintiffs seize on language used in the transmittal memorandum for the 1989 MIM
amendment to argue that the concern about providers seeking reimbursement of Medicare debts
prematurely “before they become worthless,” and the amended language barring reimbursement
until “after the collection agency completes its customary collection effort,” was brand new,
rather than long-standing policy. AR at 402–03. The transmittal memorandum was titled “NEW
POLICY—EFFECTIVE DATE: For Prospective Payment System (PPS) cost report audits
performed after 10/12/89.” AR at 392. The plaintiffs seek to draw the inference from the title of
the transmittal memorandum that the policy, expressed in the challenged PRRB decision and
reflected in the 1989 MIM amendment, existed, at the earliest, in 1989, after the Moratorium
took effect. Pls.’ Mem. at 23–24.
The plaintiffs’ argument rests on too thin a reed. The fact that the 1989 MIM amendment
was announced in a transmittal bearing the title “NEW POLICY” is insufficient to render every
45
portion of the document “new.” See Lawson v. FMR LLC, 134 S. Ct. 1158, 1169 (2014) (noting
that headings for statutes are often “‘but a short-hand reference to the general subject matter’ of
the provision, ‘not meant to take the place of detailed provisions of the text.’” (quoting Trainmen
v. Baltimore & Ohio R. Co., 331 U.S. 519, 528 (1947)). Indeed, the text of document itself
described the bad debt reimbursement policy as being “updated or clarified,” not new. See AR at
392; In re: Univ. Health Servs., Inc., 2011 WL 4499597, at *7 n.10 (CMS Admin. Decis. July
26, 2011) (discussing 1989 MIM amendments).
In sum, the plaintiffs have provided no persuasive evidence that the agency had a
different policy regarding Medicare bad debt reimbursement for pending accounts at collection
agencies on August 1, 1987 than the policy expressed by the PRRB in the challenged decision. 22
* * *
The plaintiffs’ evidence that the agency policy, which was applied in the challenged
PRRB decision to disallow reimbursement of Medicare bad debt pending at collection agencies,
changed after the effective date of the Medicare Bad Debt Moratorium, thereby violating the
Moratorium, is simply unpersuasive. Instead, the Court finds that substantial evidence supports
the agency’s finding that this policy has been a reasonable interpretation of a long-standing
agency regulation and does not conflict with the Moratorium.
22
The plaintiffs repeatedly urge this Court to follow Foothill and District, and reject Lakeland as wrongly decided.
Pls.’ Mem. at 16 (stating the agency “has failed to provide any evidence, let alone substantial evidence, that the
conclusions reached by the courts in Foothill and District Hospital Partners are wrong”); id. at 20 (alleging that the
agency “has failed to show that Foothill and District Hospital Partners were wrongly decided”); id. at 23 (alleging
that “Lakeland is wrongly decided and should not be followed by this Court”). While potentially persuasive, those
decisions are not binding, since “District Court decisions do not establish the law of the circuit, nor, indeed, do they
even establish the law of the district.” In re Executive Office of President, 215 F.3d 20, 24 (D.C. Cir. 2000) (internal
quotation marks and citations omitted). Based on an analysis of the evidence discussed in Foothill and District, this
Court reaches a different conclusion.
46
C. The Plaintiffs’ Contrary Arguments Are Unpersuasive
The plaintiffs make two additional arguments against the challenged decision, both of
which arguments merely cloak their dispute over the agency’s interpretation of the plain
language of 42 C.F.R. § 413.89 in another guise. 23 The plaintiffs first contend that the
reimbursement policy violates the APA for failure to comply with its notice-and-comment
rulemaking process. Id. at 27–30. Second, the plaintiffs contend that they did not have “fair
notice” of the Secretary’s policy. Id. at 30–34. These arguments are not persuasive.
1. The Agency’s Reimbursement Policy Is An Interpretive Rule Exempt
from Notice-And-Comment Rulemaking
The plaintiffs advance the argument in their opening memorandum that the agency’s
reimbursement policy is a “legislative” rule and, therefore, should have been subjected to notice-
and-comment rulemaking under the APA. Pls.’ Mem. at 27–30. 24 According to the plaintiffs,
this is a “fatal flaw in the Secretary’s policy.” Id. at 27. At the outset, the plaintiffs do not
dispute that the underlying regulation interpreted by the reimbursement policy, 42 C.F.R. §
413.89, was subject to notice-and-comment rulemaking, see Notice of Proposed Rulemaking, 31
Fed. Reg. 7864, 7869 (June 2, 1966); Final Rule, 31 Fed. Reg. 14,808, 14,813 (November 22,
1966), or that participants in the Medicare system could have been alerted to the policy through
23
Insofar as the plaintiffs make the equitable argument that they were entitled to rely upon the 2002 Intermediary
letter to CHS, this argument is unavailing. To the extent that the Intermediary’s letter implies that Medicare bad
debt pending at collection agencies was reimbursable, see supra Part I.D, the letter merely shows confusion as to the
agency’s policy. This letter does not purport to speak for, let alone bind, the agency. See Thomas Jefferson Univ.,
512 U.S. at 517 (noting that an earlier erroneous reimbursement of Medicare costs in contradiction of Medicare
regulations “does not render the Secretary’s interpretation of that clause invalid”). If anything, the Intermediary’s
letter may serve as notice to the plaintiffs that any bad debt pending at a collection agency, for which the
Intermediary allowed reimbursement to the CHS plaintiffs in cost years prior to 2004, may have been reimbursed
erroneously.
24
The plaintiffs also assert the contrary argument that the “Secretary’s Manual” is not entitled to Chevron deference
because “informal agency policy statements” and lacks persuasive force. Pls.’ Mem. at 34. While it is unclear to
which “Manual” the plaintiffs are referring, the Court finds all of the manuals referenced above to be consistent and,
since the agency’s interpretation of its own regulation, 42 C.F.R. § 413.89(e), is not “plainly erroneous or
inconsistent with the regulation,” that interpretation, embodied in the various manuals, such as the MIM and the
PRM, is entitled to substantial deference. See Decker, 133 S. Ct. at 1337 (2013).
47
notice of the 1989 MIM amendment pertaining to the “Prospective Payments System Hospital
Audit Guidelines,” which was also issued in the Federal Register, see 55 Fed. Reg. 10290, 10292
(March 20, 1990). The plaintiffs’ position is that the notice provided was insufficient because
the “policy at issue here [] is ‘substantive,’ and not merely ‘interpretative.’” Pls.’ Mem. at 28.
The Court disagrees.
At the outset, the plaintiffs have conceded this argument since they failed to respond to
the defendant’s opposing argument in their reply. See Pls.’ Reply at i (referencing “Fair Notice”
argument in table of contents but failing to refer to notice-and-comment argument); see generally
id. (containing no reference to interpretive rule argument). For this reason alone, the plaintiffs’
argument on this issue is rejected. Ass’n of Am. Physicians & Surgeons v. Sebelius, 746 F.3d
468, 471 (D.C. Cir. 2014) (noting the “standard rule inferring concession from gaps in a
plaintiff’s opposition” to uphold district court’s acceptance of argument as conceded when
plaintiff failed to respond to the argument in its reply). Even absent this concession, the
plaintiffs’ argument is unpersuasive.
While legislative rules have the “force and effect of law” and may be promulgated only
after public notice and comment, INS v. Chadha, 462 U.S. 919, 986 n. 19 (1983) (internal
quotation marks omitted), such notice and comment rulemaking is not required under the APA
“for interpretive rules, general statements of policy, and rules of organization, procedure, or
practice,” Nat’l Mining Ass’n v. McCarthy, 758 F.3d 243, 250 (D.C. Cir. 2014); see 5 U.S.C. §
553(b)(3)(A). This exception to the notice and comment requirement was “created by Congress
to accommodate situations where the policies promoted by public participation in rulemaking are
outweighed by the countervailing considerations of effectiveness, efficiency, expedition and
reduction in expense” and to “provide agencies with a degree of flexibility where substantive
48
rights are not at stake,” thereby “allow[ing] administrative officers the freedom to explain what
they think a regulation or statute means without undertaking cumbersome proceedings.”
Sentara-Hampton Gen. Hosp. v. Sullivan, 980 F.2d 749, 759 (D.C. Cir. 1992) (internal citations
and quotation marks omitted). The D.C. Circuit has acknowledged that “[t]he point at which a
purported guidance document crosses over from being a non-binding policy statement or
interpretive rule to a legislative rule sometimes may be ‘enshrouded in considerable smog,’”
Ass’n of Flight Attendants-CWA v. Huerta (AFA), 785 F.3d 710, 717 (D.C. Cir. 2015) (quoting
Cmty. Nutrition Inst. v. Young, 818 F.2d 943, 946 (D.C. Cir. 1987)), but, in this case, no such
difficulty is presented since the agency’s policy barring reimbursement of Medicare bad debt
pending at collection agencies is plainly an interpretive rule.
A legislative rule “‘establishes a standard of conduct which has the force of law,’” id. at
716 (quoting Pac. Gas & Elec. Co. v. Fed. Power Comm’n, 506 F.2d 33, 38 (D.C. Cir. 1974)),
and “impose[s] legally binding obligations or prohibitions on regulated parties,” id. at 716–17
(quoting Nat’l Mining, 758 F.3d at 251–52). The D.C. Circuit has explained that “[t]he most
important factor in differentiating between binding and non-binding actions is ‘the actual legal
effect (or lack thereof) of the agency action in question.” Id. at 717 (quoting Nat’l Mining, 758
F.3d at 242 (internal quotation marks omitted). In contrast to a legislative rule, an interpretive
one “derive[s] a proposition from an existing document whose meaning compels or logically
justifies the proposition,” CHI, 617 F.3d at 494 (internal quotation marks and citation omitted),
and merely “explains how the agency will enforce a statute or regulation,” Nat’l Mining, 758
F.3d at 252. These guiding principles amply demonstrate that the agency’s reimbursement
policy is an interpretative rule.
49
The policy of disallowing bad debt reimbursement pending at a collection agency informs
the regulated entities about the way in which the agency will interpret the applicable regulation
in 42 C.F.R. § 413.89(e), and merely “‘supplies crisper and more detailed lines than the
[regulation] being interpreted.’” Health Ins. Ass’n of Am. v. Shalala, 23 F.3d 412, 423 (D.C. Cir.
1994) (quoting Am. Mining Cong. v. Mine Safety & Health Admin., 995 F.2d 1106, 1112 (D.C.
Cir. 1993)). The policy has no effect on the obligations or rights of the regulated entities. On the
contrary, providers remain free to choose whether to use collection agencies and to promulgate
their own policies for attempting to collect bad debts. See PRM § 310.A. As such, the policy
“does not impose any obligation or prohibition on regulated entities” or “create a new basis for
enforcement or liability.” AFA, 785 F.3d at 717. Indeed, the plaintiffs have pointed to no right
or duty imposed by the agency’s policy upon them, other than that already present in 42 C.F.R. §
413.89(e)—a regulation that was subject to notice-and-comment rulemaking.
Even though the policy “may alter the manner in which the [regulated] parties present
themselves or their viewpoints to the agency,” this alteration of behavior is not grounds for
finding the policy to be a legislative rule subject to notice-and-comment rulemaking. Nat’l
Mining, 758 F.3d at 250. “Such effects are entirely permissible under the interpretative rule
exception, so long as the rule represents the agency’s explanation of a statutory or regulatory
provision, and the rule is not intended to substantively change existing rights and duties.”
Sentara-Hampton, 980 F.2d at 759.
Moreover, the policy of disallowing bad debt reimbursement prior to the completion of
collection efforts is a reasonable interpretation of the applicable regulation, see supra Part III.A,
and, thus, “derive[s] a proposition from an existing document whose meaning compels or
logically justifies the proposition” and “flow[s] fairly from the substance of the existing
50
document,” CHI, 617 F.3d at 494. 25 The policy makes the requirements in the regulation
“crisper” by clarifying that Medicare debt accounts at collection agencies are not “worthless”
and that retention of such debt by collection agencies is inconsistent with the requirement that
“there is no likelihood of recovery at any time in the future.” 42 C.F.R. § 413.89(e)(3) & (4).
Given the obvious interpretive features of the agency’s reimbursement policy, the plaintiffs’
abandonment in reply of their argument that this policy should have been treated as a legislative
rule subject to notice-and-comment rulemaking, is unsurprising.
Accordingly, even had the plaintiffs not abandoned this argument and, therefore,
conceded it, the argument fails since the agency’s policy is an interpretive rule and exempt from
notice-and-comment rulemaking pursuant to 5 U.S.C. § 553(b)(3)(A).
2. “Fair Notice” of the Agency’s Reimbursement Policy Was Provided
The plaintiffs’ final, related argument—that they had inadequate notice of the agency’s
policy—fares no better. Pls.’ Mem. at 30–34. At most, the plaintiffs have shown that some
confusion may have existed when the Moratorium became effective as to whether Intermediaries
were required to disallow bad debts pending at collection agencies. By 1989—two short years
after the Moratorium was enacted and over the same time period as Congress considered the last
Moratorium amendment—the agency included in the MIM the unequivocal statement that bad
25
The plaintiffs rely heavily in their opening brief on CHI as support for their argument that the policy is a
legislative rule, but that reliance is misplaced. See Pls.’ Mem. at 28–29. In CHI, the court rejected a Medicare rule
set out in the PRM prohibiting certain insurance companies from investing more than ten percent of their assets in
equities. See CHI, 617 F.3d at 492, 497. The CHI court found the ten percent rule to be “arbitrary” and “rigid,”
such that notice-and-comment rulemaking was required, since the numerical threshold was not a logical outgrowth
of the regulations and statutes governing Medicare providers’ malpractice insurance carriers, which regulations
purported only to define “reasonable costs” that could be reimbursed by the program, and the rule imposed
affirmative duties and obligations on the regulated entities limiting their ability to purchase certain types of
investments. Id. at 495–96 (noting that “there is no way an interpretation of ‘reasonable costs’ can produce the sort
of detailed—and rigid—investment code set forth” in the challenged PRM provision). By contrast, the agency’s bad
debt reimbursement policy at issue here is a reasonable interpretation giving effect to each of the four criteria in 42
C.F.R. § 413.89(e), and, rather than being a “rigid” rule, does not impose any affirmative obligation on providers
regarding their business decision whether to use a collection agency.
51
debt may “be claimed as a bad debt only after the collection agency completes its collection
effort” and debt “turned over to a collection agency . . . cannot be claimed as a Medicare bad
debt on the date of the write-off.” AR at 402–03. The plaintiffs cite certain decisions, such as
Dyersburg and Lourdes, which seem to contradict this policy, Pls.’ Reply at 21, but those
decisions are either distinguishable or have been expressly disavowed by the agency as
erroneous. See supra Part III.B. The plaintiffs also ignore the substantial number of cases
contemporaneous with Lourdes, and pre-dating Dyersburg, that affirmed the disallowance of
debt still pending at collection agencies. See Lakeland, 958 F. Supp. 2d at 9 (noting policy
statement in Administrator decision that “until a provider’s reasonable collection effort has been
completed, including both in-house efforts and the use of a collection [agency], a Medicare bad
debt may not be reimbursed as uncollectible” (quoting Humana Hosp. v. Aetna, HCFA Admin.
Decision (Sept. 11, 1992)); Def.’s Reply Pls.’ Opp’n Def.’s Mot. (“Def.’s Reply”) at 7 n.2, ECF
No. 23 (collecting following administrative cases: Humana Hospital v. Aetna, HCFA Admin.
Decision, at 5-6 (Sept. 11, 1992), Univ. Hosp. v. Blue Cross and Blue Shield of Georgia, HCFA
Admin. Decision, at 5-7 (Aug. 21, 1995); Mem’l Hosp. v. Blue Cross and Blue Shield of
Nebraska, 1996 WL 860643, at *4, HCFA Admin. Decision (March 22, 1996); Detroit Receiving
Hosp. v. Blue Cross and Blue Shield Ass’n, 1996 WL 887671, at *4, HCFA Admin. Decision
(Oct. 7, 1996); Arlington Hosp. v. Blue Cross and Blue Shield of Virginia, 1997 WL 420393, at
*5, HCFA Admin. Decision (June 13, 1997); Baystate Med. Ctr. v. Aetna, 1997 WL 786228, at
*3, HCFA Admin. Decision (Aug. 4, 1997)).
The plaintiffs point to a 1998 letter from an accountant in a component of Medicare’s
central office to a CMS regional office answering a series of questions about bad debt as further
support for their contention that they had no reason to know of the agency’s policy. Pls.’ Mem.
52
at 31. 26 This correspondence is ambiguous, at best, and does not necessarily support the
plaintiffs’ contention. The letter asked, in the context of a hypothetical, whether bad debt, which
had been subjected to in-house collection efforts for sixty days and a collection agency for sixty
days, with no debt recovered, could be reimbursed if the debt was still being actively pursued at
the collection agency. Pls.’ Ex. 3 at 99, ECF No. 15-1. The letter offers two “possible answers”
from which the accountant was to choose: (A) that the provider could only claim the bad debt as
reimbursable “when the collection agency decides the amount cannot be collected” or (B) “the
bad debt can be claimed at the end of the first 120 days of total collection effort even if the
collection agency is still working the account.” Id. The accountant responding to the letter does
not simply chose between the two options but conditions the selection of option (B), with
additional verbiage, stating that “(B) is appropriate since it specifies that both Medicare and non-
Medicare claims have been written off their books as accounts receivable.” Id. at 102. This
response appears to focus only on whether the Medicare and non-Medicare debt were treated
similarly, not whether the debts’ active status at the collection agency rendered the debt
uncollectible. At best, the letter merely confirms that some confusion existed among some
participants in the complex Medicare system after the Moratorium took effect as to whether such
debt was reimbursable.
While the plaintiffs have supplied evidence of confusion by some intermediaries and an
accountant in a Medicare component seventeen years ago, this does not prove lack of fair notice
to the plaintiffs of the agency’s policy. See Lakeland, 958 F. Supp. 2d at 9. In light of the plain
text of 42 CFR § 413.89(e), which makes clear that bad debt may only be reimbursed if all four
26
The 1998 letter was not included in the AR considered by the agency, nor does the index to the AR reflect this
document, making its consideration on the merits of the parties’ dispute inappropriate. This letter appears to be
discussed only as to the issue of fair notice of the agency’s reimbursement policy, however.
53
criteria are met, and the 1989 MIM, which expressly confirmed that bad debt still pending at a
collection agency was not reimbursable, by 2004 (the first challenged cost year), 27 the plaintiffs
had been “fairly notified . . . of the agency’s interpretation.” Gen’l Elec. Co. v. EPA, 53 F.3d
1324, 1329 (D.C. Cir. 1995); see also Suburban Air Freight, Inc. v. TSA, 716 F.3d 679, 683–684
(D.C. Cir. 2013) (noting court may uphold regulation as reasonable and find lack of notice in
“very limited set of cases” only when clear statement of policy completely unavailable);
Howmet Corp. v. EPA, 614 F.3d 544, 554 (D.C. Cir. 2010) (finding published regulation with
interpretive manual published one year after regulation, both of which were issued “thirteen
years before the conduct at issue” were sufficient to put petitioner on notice of agency’s
interpretation). In addition, decisions of the PRRB and the Administrator applied this policy
multiple times. See Lakeland, 958 F. Supp. 2d at 9 (collecting cases). Thus, the plaintiffs’
notice argument fails.
IV. CONCLUSION
The PRRB decision challenged by the plaintiffs applied an interpretation of a long-
standing Medicare regulation to disallow reimbursement of Medicare bad debt pending at a
collection agency, based upon the PRRB’s analysis that such debt could not satisfy the
requirements of 42 C.F.R. § 413.89(e)(3) and (e)(4). That interpretation is reasonable and must
be given “controlling weight,” since the interpretation is not “‘plainly erroneous or inconsistent
with the regulation.’” Auer, 519 U.S. at 461. Moreover, the plaintiffs have not presented
persuasive evidence to show that agency changed this interpretation of a long-standing
regulation, in violation of the Medicare Bad Debt Moratorium. Accordingly, the defendant’s
27
Notice of changes to the 1989 MIM was published in the Federal Register, as the plaintiffs concede. Pls.’ Mem.
at 34.
54
motion for summary judgment is granted and the plaintiffs’ cross-motion for summary judgment
is denied.
An Order consistent with this Memorandum Opinion will issue contemporaneously.
Digitally signed by Judge Beryl A. Howell
Date: July 7, 2015 DN: cn=Judge Beryl A. Howell, o=United
States District Court, ou=District of
Columbia,
email=Howell_Chambers@dcd.uscourts.g
ov, c=US
Date: 2015.07.07 11:41:24 -04'00'
__________________________
BERYL A. HOWELL
United States District Judge
55