District Hospital Partners, L.P. v. Sebelius ( 2013 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
DISTRICT HOSPITAL PARTNERS,
L.P. d/b/a GEORGE WASHINGTON
UNIVERSITY HOSPITAL, et al.,
Plaintiffs,
v. Civil Action No. 11-1717 (GK)
KATHLEEN G. SEBELIUS,
Secretary of the United
States Department of Health
and Human Services,
Defendant.
MEMORANDUM OPINION
Plaintiffs are a group of commonly owned hospitals that
participate in the Medicare program. They bring this action
against Kathleen Sebelius in her official capacity as Secretary
of the Department of Health and Human Services ("Defendant" or
"Secretary") after the Secretary disallowed various Medicare bad
debts claimed by Plaintiffs in the fiscal years ending in 2003,
2004, and 2005. Plaintiffs challenge that decision pursuant to
the Medicare Act, 42 U.S.C. § 1395 et seq. ("the Act"), and the
Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq.
This matter is before the Court on Plaintiffs' Opening
Brief [Dkt. No. 14], which this Court construes as a Motion for
Summary Judgment, 1 Defendant's Motion for Summary Judgment and
Opposition to Plaintiffs' Opening- Brief [Dkt. No. 19] 1
Plaintiffs' Opposition and Reply Brief [Dkt. No. 22], and
Defendant's Reply to Plaintiffs' Opposition and Reply to
Defendant's Motion for Summary Judgment [Dkt. No. 28]. Upon
consideration of the briefs, the administrative record, and the
entire record herein, and for the reasons stated below,
Plaintiffs' Motion for Summary Judgment is granted and
Defendant's Motion for Summary Judgment is denied.
I . BACKGROUND
A. Statutory and Regulatory Framework
1. The Medicare Program
Title XVIII of the Social Security Act established the
Medicare program, which provides medical care for the elderly
and disabled. 42 U.S.C. § 1395 et seq.; see also Kaiser Found.
Hosps. v. Sebelius, F.3d , 2013 WL 791272, at *1 (D.C. Cir.
1
The parties debate whether the Plaintiffs' Opening Brief should
be construed as a motion for summary judgment. Compare Pls.'
Opp'n & Reply Br. 2 n.2 [Dkt. No. 22], with Def. 's Reply to
Pls.' Opp'n & Reply to Def.'s Mot. for Summ. J. 3 n.2 [Dkt. No.
28] . Plaintiffs acknowledge that judicial review of this case is
under the APA. Pls:' Opp'n & Reply Br. 2 n.2. They also
acknowledge that the entire case will be resolved based on the
briefs and the administrative record. See Joint Mot. to Set a
Briefing Schedule 2 [Dkt. No. 12] . Thus, this case is being
decided as a matter of law, and summary judgment is the
"appropriate procedure for resolving a challenge to a federal
agency's administrative decision when review is based on the
administrative record." Richards v. I.N.S., 554 F.2d 1173, 1177
(D.C. Cir. 1977).
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Mar. 5, 2013) (citation omitted) . The Medicare program is
administered by the Secretary of Health and Human Services
through the Center for Medicare and Medicaid Services ( "CMS") .
Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268,
275 (2006) . Medicare providers enter into written agreements
with the Secretary to provide services to eligible individuals.
42 U.S.C. § 1935cc. Fiscal intermediaries, private companies
that process payments on behalf of CMS, then make interim
payments to providers, subject to subsequent adjustments. 42
u.s.c. § 1395h.
To calculate these adjustments, providers are required to
submit an annual cost report to their fiscal intermediary
identifying total costs incurred during the course of the fiscal
year. 42 C.F.R. §§ 413.20, 413.24. Fiscal intermediaries then
analyze and audit the cost report and inform the provider of a
determination of the amount of total Medicare reimbursement to
which they are entitled, referred to as the notice of amount of
program reimbursement ("NPR"). 42 C.F.R. § 405.1803; see also
Regions Hosp. v. Shalala, 522 U.S. 448, 452 (1998).
If a provider is dissatisfied with the intermediary's final
determination of its NPR, and if the provider meets the
requirements set forth in 42 U.S. C. § 1395oo (a), the provider
may appeal the determination to the Provider Reimbursement
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Review Board ("PRRB"). 42 U.S.C. § 1395oo (a) (1) (A) (ii). A
decision of the PRRB is final unless the Secretary, on her own
motion, and within 60 days after the provider is notified of the
PRRB decision, reverses, affirms, or modifies the PRRB's
decision. 42 U.S.C. § 1395oo(f). The Secretary has delegated her
final authority to modify, affirm, or reverse PRRB decisions to
the Administrator of CMS ("Administrator") . 42 u.s.c.
13 9 5 oo (f) ( 1) ; 4 2 C • F . R. § 4 0 5 . 18 7 5 .
Following a final decision of the PRRB or the
Administrator, a provider is entitled to file a civil action in
the United States District Court for the District of Columbia to
seek judicial review of the final agency action. 42 U.S.C. §
1395 oo(f).
2. Medicare Bad Debt Reimbursements
Medicare "bad debts" are unpaid amounts, such as
deductibles or copayments, owed by Medicare patients for covered
Medicare services. 42 C.F.R § 413.89(e); see also 42 C.F.R. §
413.89 (b) (1) . These bad debts are deductions from revenue and
are not to be included in costs reported by the provider. 42
C.F.R. § 413.89(a). However, the Medicare statute prohibits
cost-shifting, which means that costs associated with services
provided to Medicare beneficiaries cannot be borne by non-
Medicare patients, and vice versa. 42 u.s.c. §
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1395x(v) (1) (A) (i); Walter 0. Boswell Mem'l Hosp. v. Heckler, 749
F.2d 788, 791 (D.C. Cir. 1984) (noting that statute prohibits
"cost-shifting" between Medicare and non-Medicare patients) . In
order to prevent cost-shifting, a provider unable to collect
from a Medicare beneficiary can claim the amounts owed as "bad
debts" and be reimbursed under Medicare if the provider meets
certain criteria specified in 42 U.S.C. § 413.89(e).
According to 42 C.F.R. § 413.89(e), bad debts attributable
to unpaid Medicare costs are reimbursable if: (1) the debt is
"related to covered services and derived from deductible and
coinsurance amounts"; ( 2) the provider establishes that
"reasonable collection efforts were made"; (3) the debt was
"actually uncollectible when claimed as worthless"; and (4)
"sound business judgment" establishes that there is "no
likelihood of recovery at any time in the future." Id.§ 413.89(e).
Chapter 3 of the Medicare Provider Reimbursement Manual, 2
Part I ("PRM"), contains the Secretary's interpretation of these
Regulations. Catholic Health Initiatives v. Sebelius, 617 F. 3d
490, 491 (D.C. Cir. 2010) (noting that PRM contains "guidelines
2
The Secretary also issues a manual for fiscal intermediaries,
known as the Medicare Intermediary Manual ( "MIM") . See Albert
Einstein Med. Ctr. v. Sebelius, 566 F.3d 368 (3d Cir. 2009)
(noting that Secretary issues manuals such as the PRM and MIM
"to assist healthcare providers and fiscal intermediaries in
administering the [reimbursement] system").
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and policies" but "does not have the effect of regulations") .
Three sections of the PRM are relevant.
First, PRM section 310 defines a "reasonable collection
effort" of Medicare debts as one that is "similar to the effort
the provider puts forth to collect comparable amounts from non-
Medicare patients." Administrative Record ("AR") 254. It
specifically provides that a "provider's collection effort may
include the use of a collection agency." Id.Second, PRM section 310.2 sets forth a "presumption of
noncollectibility," which establishes that if, after reasonable
and customary attempts to collect the unpaid amounts have
failed, the debt remains unpaid more than 120 days from the date
the first bill was mailed to the Medicare beneficiary, the debt
"may be deemed uncollectible." AR 255.
Third, PRM section 316 establishes a system to ensure that
any debts deemed uncollectible that are later recovered by the
provider are subtracted from benefits due to the provider in the
reporting period in which those payments are recovered. AR 279.
3. The Medicare Bad Debt Moratorium
In 1987, Congress enacted what became known as the "Bad
Debt Moratorium." See Foothill Hosp.-Morris L. Johnston Mem'l v.
Leavitt, 558 F. Supp. 2d 1, 3 (D.D.C. 2008) ("Foothill") (citing
Hennepin Cty. Med. Ctr. v. Shalala, 81 F.3d 743, 747 (8th Cir.
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1996)) (noting that Congress enacted the Moratorium in response
to the policy changes proposed by the Inspector General of
Health and Human Services) . 3 The Moratorium reads:
(c) CONTINUATION OF BAD DEBT RECOGNITION FOR HOSPITAL
SERVICES. 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) .
Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203
§ 4008, 101 Stat. 1330 (reprinted in 42 U.S.C. § 1935f note).
In 1988, Congress amended the Moratorium to further define
"reasonable collection effort," defining the term to include
"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 § 802, 102 Stat. 3798(reprinted in 42 U.S.C. § 1935f note).
In 1989, Congress amended the Moratorium again. It added
the following sentence: "The Secretary may not require a
hospital to change its bad debt collection policy if a fiscal
3
Foothill contains a detailed review of the legislative history
of the Moratorium and its subsequent amendments. 558 F. Supp. 2d
at 2-3.
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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." Omnibus Budget
Reconciliation Act of 1989, Pub. L. No. 101-239, § 6023, 103
Stat. 2106 (reprinted in 42 U.S.C. § 1935f note).
Thus, the Moratorium, as amended, contains two restrictions
on the Secretary. First, the Secretary is prohibited from making
any changes to the agency's bad debt policy in effect on August
1, 1987. See Foothill, 558 F. Supp. 2d at 5-9 (rejecting the
Secretary's argument that she "is free to make changes to [her]
own policies and is restricted only in modifying the individual
policies of individual Medicare providers" in light of the clear
statutory text and the court's view of the historical context in
which the statute was passed) . Second, the Secretary is
prohibited from requiring a provider to change bad debt policies
it had in place on August 1, 1987. Id. at 4 (noting that the Bad
Debt Moratorium "clearly prevents the Secretary from changing a
provider's established bad debt policy") ; see also Uni v. Health
-8-
Servs., Inc. v. Health & Human Servs., 120 F.3d 1145, 1147-48
(11th Cir. 1997).
B. Factual and Procedural History
Plaintiffs submitted cost reports that included claims for
bad debts to their fiscal intermediaries in fiscal year 2003,
2004, and 2005. AR 60. These alleged bad debts included unpaid
deductibles and coinsurance amounts that had been sent to an
outside collection agency after 120 days of internal collection
efforts. AR 60, 230-32, 236. Plaintiffs' fiscal intermediary
issued NPRs disallowing these claimed bad debts, declaring that
uan ongoing collection effort at [an] outside collection agency
indicated that the bad debts were not yet deemed worthless." AR
60.
Plaintiffs timely appealed the NPRs to the PRRB,
challenging the disallowance of the bad debts. AR 60. On May 27,
2011, the PRRB issued a unanimous decision holding that
Plaintiffs properly claimed the uncollectible accounts as bad
debts even though the accounts were still at an outside
collection agency. Univ. Health Servs., Inc. v. BlueCross
BlueShield Ass'n, Case No. 07-0084GC, 2011 WL 2574339 (P.R.R.B.
May 27, 2011).
On June 20, 2011, the Administrator notified the parties
that she intended to review the PRRB's decision under 42 C.F.R.
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§ 405.1875. AR 51-52. The parties submitted comments to the
Administrator. AR 19-50. On July 26, 2011, the Administrator
issued a decision reversing the PRRB and upholding the fiscal
intermediary's adjustments disallowing Plaintiffs' claimed bad
debts. Univ. Health Servs., Inc. v. Blue Cross Blue Shield
Ass'n, 2011 WL 4499597 (H.C.F.A. Admin. Dec. July 26, 2011)
("Administrator Decision").
The Administrator ruled that the PRRB erred when it
concluded that the Bad Debt Moratorium was applicable in this
case. Id. at *9. She observed that CMS policy establishes that
"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." 4 Id. at *8. The Administrator therefore concluded that
CMS has "always required that a provider demonstrate that its
collection efforts were reasonable and, therefore, there has
been no change in CMS policy." Id. at *9.
As permitted by 42 U.S.C. § 1395oo(f), Plaintiffs timely
filed a Complaint on September 23, 2011 [Dkt. No. 1] seeking
review of the Administrator's decision. Plaintiffs filed their
4
For ease of analysis, this Court shall refer to the Secretary's
position, that an account that is outstanding at an outside
collection agency is per se not uncollectible and thus cannot be
claimed as a bad debt, as the "presumption of collectability."
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Opening Brief on March 9, 2012. Defendant filed her Motion for
Summary Judgment and Opposition to Plaintiffs' Opening Brief on
April 25, 2012. Plaintiffs then filed their Opposition and Reply
Brief on June 11, 2012, and Defendant filed her Reply to
Plaintiffs' Opposition and Reply to Defendant's Motion for
Summary Judgment on August 9, 2012. The joint appendix was filed
on August 23, 2012 [Dkt No. 30], and this matter is now ripe for
review.
II. STANDARD OF REVIEW
The Medicare Act provides for judicial review of a final
decision made by the PRRB or the Secretary. 42 U.S.C. §
1395oo(f) (1). It instructs the reviewing court to apply the
provisions of the APA. Id. Because this case involves a
challenge to a final administrative decision, the Court's review
on summary judgment is limited to the Administrative Record.
Holy Land Found. for Relief and Dev. v. Ashcroft, 333 F.3d 156,
160 (D.C. Cir. 2003) (citing Camp v. Pitts, 411 U.S. 138, 142
( 1973) ) ; Richards, 554 F. 2d at 1177 ("Summary judgment is an
appropriate procedure for resolving a challenge to a federal
agency's administrative decision when review is based on the
administrative record.").
Under the APA, an agency decision is set aside only if it
is "arbitrary, capricious, an abuse of discretion, or otherwise
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not in accordance with law" and its factual findings are only
overturned if "unsupported by substantial evidence." 5 U.S.C. §
706 (2) (A), (E); see also Murray Energy Corp. v. F.E.R.C., 629
F.3d 231, 235 (D.C. Cir. 2011) (quotation and citation omitted).
It is well established in our Circuit that this court's review
of agency action is "highly deferential." Bloch v. Powell, 348
F.3d 1060, 1070 (D.C. Cir. 2003) (citations and internal
quotation marks omitted) . If the "agency has rationally set
forth the grounds on which it acted, this court may not
substitute its judgment for that of the agency." BNSF Ry. Co. v.
Surface Transp. Bd., 604 F.3d 602, 611 (D.C. Cir. 2010)
(internal quotation and citation omitted). However, this Court
must ensure that the agency has "considered the factors relevant
to its decision and articulated a rational connection between
the facts found and the choice made." In re Polar Bear
Endangered Species Act Listing & 4(d) Rule Litig., F.3d.
2013 WL 765059, at *6 (D.C. Cir. Mar. 1, 2013) (quoting Keating
v. F.E.R.C., 569 F.3d 427, 433 (D.C. Cir. 2009)).
When determining if substantial evidence supports an
agency's factual finding, "weighing the evidence is not the
court's function." United Steel, Paper & Forestry, Rubber, Mfg.,
Energy, Allied Indus. & Serv. Workers Int 'l Union, v. Pension
Ben. Guar. Corp., No. 12-5116, 2013 U.S. App. LEXIS 731, at *14
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(D.C. Cir. Jan. 11, 2013). Instead, the question is "whether
there is such relevant evidence as a reasonable mind might
accept as adequate to support the agency's finding." Id.(quoting Consolo v. Fed. Mar. Comm'n, 383 U.S. 607, 620 (1966))
(internal quotation marks omitted) .
III. ANALYSIS
Plaintiffs make three arguments in support of vacating the
Administrator's decision. Their primary argument, which is
dispositive, is that the presumption of collectability did not
exist prior to 1987. Therefore, application of that policy to
disallow their claimed bad debts violates the first prong of the
Bad Debt Moratorium prohibiting the Secretary from changing the
agency's bad debt policies. 5
A. The Presumption of Collectability Violates the First
Prong of the Bad Debt Moratorium
The first prong of the Bad Debt Moratorium prohibits the
Secretary from making any changes to the Department ' s bad debt
policy in effect on August 1, 1987. See Foothill, 558 F. Supp.
2d at 5-9. As already noted, the Administrator concluded that
5
Because the Court concludes that the Administrator erred when
she determined that there was no change in policy in violation
of the Bad Debt Moratorium, the Court need not address
Plaintiffs' argument that the Administrator's decision failed to
allow the hospital to claim the debts based on the second,
hospital-specific prong of the Bad Debt Moratorium. For the same
reason, it is not necessary to address whether the presumption
of collectability is arbitrary and capricious. See Foothill, 558
F. Supp. 2d at 11 n.17.
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the presumption of collectability was in place prior to the
effective date of the Moratorium and accordingly upheld the
intermediary's denial of the Plaintiffs' claims on this basis.
Administrator Decision, 2011 WL 4499597, at *9-*10. However, for
the reasons set forth below, the Court concludes that the
Administrator's finding was not supported by substantial
evidence. See 5 U.S.C. § 706(2) (E) (factual conclusions may be
overturned only where they are "unsupported by substantial
evidence") . 6
1. The Record Evidence Cited by the Secretary Does
Not Support the Administrator's Finding
The Secretary argues that the Regulations, various PRM
provisions, a particular 1989 MIM provision, two memoranda from
1990, a 2008 CMS Joint Signature Memorandum, and various
decisions of the Administrator provide substantial evidence that
the presumption of collectability existed prior to the enactment
of the Moratorium. De£.' s Mem. of P. & A. in Supp. of De£.' s
Mot. for Summ. J. & Opp'n to Pls.' Opening Br. 21-22 [Dkt. No.
6
The Foothill court addressed the same issue and came to the
same conclusion. Foothill, 558 F. Supp. 2d at 10-11 (finding
that the presumption of collectability was indeed "a change in
policy, for this policy did not exist prior to the effective
date of the Moratorium") . The Secretary filed an appeal of
Foothill in our Court of Appeals, but withdrew it prior to
briefing. Foothill Hosp.-Morris L. Johnson Mem'l v. Leavitt, No.
08-5224, 2008 WL 4562209 (D.C. Cir. Sept. 19, 2008).
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19-1]; Def. 's Reply to Pls.' Opp' n & Reply to Def. 's Mot. for
Summ. J. 17. The Court addresses each in turn.
a. 42 C.F.R. § 413.89The Regulation at issue, 42 C.F.R. § 413.89, was issued in
1966, and thus predates the Moratorium. 7 However, the Regulation
does not establish the presumption of collectability nor address
the use of collection agencies. It does not define "reasonable
collection efforts," "actually collectible," or "sound business
judgment." See GCI Health Care Ctrs. , Inc. v. Thompson, 2 0 9 F.
Supp. 2d 63, 69 (D.D.C. 2002).
The Secretary's response is that the presumption of
collectability is "inherent" in the Regulation. But the very
wording of the Regulation fails to support such an
interpretation. Rather than being "inherent" in the Regulation,
the presumption of collectability simply represents the
Secretary's current interpretation of the Regulation. 8 See
7
42 C.F.R. § 413.89 was originally codified in 1966 as 42 C.F.R.
§ 405.420. Principles for Reimburseable Costs, 31 Fed. Reg.
14,808, 14,813 (Nov. 22, 1966). In 1986, it was redesignated as
42 C.F.R. § 413.80. Redesignation of Reasonable Cost
Regulations, 51 Fed. Reg. 34,790, 34,790 (Sept. 30, 1986). In
2004, it was again redesignated and became 42 C.F.R. 413.89.
Changes to the Hospital Inpatient Prospective Payment Systems
and Fiscal Year 2005 Rates, 69 Fed. Reg. 48,916, 49,254 (Aug.
11, 2004).
8
While the parties vigorously dispute the level of deference
that should be accorded the Secretary's current interpretation,
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Foothill, 558 F. Supp. 2d at 10 (noting that the Secretary was
confusing the Regulation with his interpretation of the
Regulation) .
b. PRM Provisions
The Secretary also argues that the PRM provisions, on their
face, establish the presumption of collectability. However, the
language of the PRM does not set forth any such presumption,
and, in fact, tacitly contradicts it. PRM section 310 specifies
that the use of collection agencies by providers can be part of
a "reasonable collection effort." PRM section 310.2 states that
if "reasonable and customary attempts" to collect a debt have
not been successful in 12 0 days, the debt is entitled to a
presumption of noncollectibility. This provision does not
exclude debts that remain at collection agencies. Taken
together, the two PRM sections obviously contemplate the
possibility that debts which remain at a collection agency for
more than 12 0 days may be deemed noncollectible. Thus, section
310 and section 310.2 do not support the Secretary's position.
See Foothill, 558 F. Supp. 2d at 11.
c. 1989 MIM Transmittal No. 28
The Secretary also argues that a MIM transmittal letter
from September 1989 supports her position that the presumption
that question is irrelevant to the threshold issue of when the
interpretation became the Secretary's policy.
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of collectability existed prior to 1987. The document,
identified as Transmittal No. 28, set out "New Policy" to be
used by intermediaries for audits performed after October 12,
1989. AR 289. Exhibit A-ll in the transmittal specified:
If the bad debt is written-off on the provider's books
121 days after the date of the bill and then turned
over to a collection agency, the amount cannot be
claimed as a Medicare bad debt on the day of the
write-off. It can be claimed as a Medicare bad debt
only after the collection agency completes its
collection effort.
AR 315. This is the first time that the presumption of
collectability actually appeared in writing, and this was two
years after the Bad Debt Moratorium went into effect.
Clearly, the fact that this is the first publication of the
presumption of collectability, and that it was issued well after
passage of the Moratorium, weighs against the Secretary's
assertion that the presumption predated the Moratorium.
Plaintiffs emphasize that the transmittal specifically
identified itself as setting forth "New Policy." Thus, the
transmission, by its own terms actually contradicts the
Secretary's argument. See Foothill, 558 F. Supp. 2d at 10(finding that the transmittal letter was "[t] ellingly" labeled
as a new policy and thus was a "new rule when it was enacted in
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1989, several years after the Bad Debt Moratorium") . 9 In sum, the
language of the 1989 MIM Transmittal does not support the
Administrator's conclusion that it contained an established
policy with regard to the collectability of bad debts.
d. 1990 Health Care Financing Administration
Memoranda
The Secretary argues that two memoranda written by Health
Care Financing Administration ( "HCFA") 10 personnel in 1990
support her argument. First, the Secretary points to a June 11,
1990, Memorandum to regional administrators entitled
9
The Secretary argues that, while the transmittal did set forth
some new policies, it was transmitting established policy with
respect to "pass-through reasonable cost reimbursement issues
such as bad debts." Administrator Decision, 2011 WL 4499597, at
*7 n.10 (finding that exhibit was "transmitting new policy with
respect to some IPPS issues" but also "transmitting established
policy") . The Administrator's conclusion was based on language
on the front page of the transmission stating that the revisions
addressed "significant and/or recurring issues." AR 289.
Medicare reimbursement policy regarding bad debts was and
clearly still is a recurring issue. See Foothill, 558 F. Supp.
2d at 3 (citing Hennepin, 81 F. 3d at 747) (describing how the
"government has been struggling with this issue :Eor decades" and
noting that its "actions have often been inconsistent") . This
language thus provides no additional support for the Secretary.
Moreover, the Administrator conceded that there was at least
some "new policy" embodied in the transmittal. Administrator
Decision, 2011 WL 4499597, at *7 n.10 (stating that "IPPS
Exhibit A shows certain 'new policies'") . However, she did not
explain how she distinguished the "new" policy from the
"established" policy.
1
°
CMS was formerly known as the Health Care Financing
Administration. St. Luke's Hosp. v. Sebelius, 611 F.3d 900, 901
n.1 (D.C. Cir. 2010) (citation omitted)
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"Clarification on Bad Debt Policy," which stated that HCFA
"always believed" that "there is a likelihood of recovery for an
account sent to a collection agency." AR 369. However, a close
look at the language of the Memorandum in its entirety squarely
contradicts her assertion that the presumption of collectability
was clearly in place in 1990, much less before the Moratorium
became effective three years earlier in 1987.
The Memorandum began by stating that HCFA had "reexamined"
its position on the collectability of accounts at collection
agencies in light of the Moratorium and the fact that "a debt
referred to a collection agency can sometimes be considered as
pending indefinitely." AR 369. Its analysis included the
following passage:
We believe that an intermediary could reasonably have
interpreted the title of section 310.2, Presumption of
Noncollectability, to provide that an uncollectible
account could be presumed to be a bad debt if the
provider has made a reasonable and customary attempt
to collect the bill for at least 120 days even though
the claim has been referred to a collection agency.
Such an interpretation is reasonable unless it is
apparent that the debt is not a bad debt, for example,
because the beneficiary is currently making payments
on account, or has currently promised to pay the debt.
As noted above, section 310.2 provides that the debt
may be deemed uncollectible rather than that the debt
"shall" or "must" be deemed uncollectible. On the
contrary, "may" connotes the existence of discretion.
Thus, even after 120 days, a debt should not be deemed
uncGllectible when there is reason to believe that in
fact it is collectible. However, the mere fact that a
debt is referred to a collection agency after the
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provider's in-house collection effort is completed
does not mean that the debt is collectible.
AR 370 (emphasis in original) .
There are two important points to be drawn from this
passage. First, the Memorandum recognizes that an intermediary
could "reasonably" interpret the PRM differently, which
contradicts the Secretary's position in this litigation that the
PRM clearly establishes the presumption of collectability.
Second, the Memorandum stated that this alternate interpretation
is reasonable except in specific circumstances where there are
reasons beyond an account's referral to a collection agency to
believe that the debt will be collected. AR 370 (setting out
examples of specific circumstances such as where "the
beneficiary is currently making payments on account, or has
currently promised to pay the debt"). It then declared that "the
mere fact that a debt is referred to a collection agency after
the provider's in-house collection effort is completed does not
mean that the debt is collectible." These statements directly
contradict the presumption of collectability, which posits that
the "mere fact" that an account has been referred to a
collection agency makes it per se not uncollectible.
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Second, the Memorandum explicitly recognized that HCFA had
failed to issue any directives to intermediaries expressing this
policy prior to 1987. It stated:
Therefore, where an intermediary applied section
310.2 to permit an allowable Medicare bad debt for an
account sent to a collection agency, consistent with
the provider's procedures for non-Medicare patients,
the moratorium would prohibit the intermediary from
applying the policy differently despite HCFA
directives to the contrary dated subsequent to August
1, 1987.
AR 370. This passage reflected the Secretary's interpretation of
the Moratorium to only prevent an intermediary -- not the agency
itself -- from changing its policies. See Foothill, 558 F. Supp.
2d at 4 (noting that Secretary argued that he "is free to make
changes to his own polices and is restricted only in modifying
the individual policies of individual Medicare providers") . At
no point in the Memorandum did HCFA identify any pre-1987
evidence that this interpretation existed prior to the
Moratorium. Moreover, this sentence acknowledged that the only
"directives" that might have informed the intermediary on this
issue were released "subsequent to August 1, 198 7." Thus, the
Memorandum taken as a whole does not support the Secretary's
position.
The Secretary attempts in her Motion for Summary Judgment
to "bolster" the weight of the June 1990 Memorandum by
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referencing a March 20, 1990, Memorandum from the CMS Director
of the Office of Quality Control Programs. See Def.'s Mem. of P.
& A. in Supp. of Def. 's Mot. for Summ. J. & Opp' n to Pls.'
Opening Br. 20 n.10. This Memorandum was not included in the
Administrative Record and therefore need not be considered. 11
However, even if the Court were to consider the March 1990
Memorandum, it neither "bolsters" the June Memorandum nor
supports the Secretary's position. The Memorandum stated that
HCFA "has had a long standing policy on when providers could
claim bad debts" but failed to identify any pre-1987 evidence
that supported that conclusion. Thus, even if the Court were to
consider this March Memorandum, it would not "bolster" the
weight of the June Memorandum, nor support the Secretary's
contention that the presumption of collectability was in place
prior to 1987.
11
Despite having already used the appropriate procedure to
supplement the Administrative Record in this case to include the
2008 Joint Statement Memorandum, see Def. 's Mot. for Leave to
Supplement the Admin. Record [Dkt. No. 1 7] , the Secretary did
not follow such procedure with the March 1990 Memorandum.
Instead, it attached it to its initial filing as an exhibit. The
Court notes that its "[r]eview is to be based on the full
administrative record that was before the Secretary at the time
he made his decision." Walter 0. Bosw~ll Mem. Hosp., 749 F.2d at
792 (emphasis in original) (quoting Citizens to Preserve Overton
Park, Inc. v. Volpe, 401 U.S. 402, 420 (1971)).
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e. 2008 CMS Joint Statement Memorandum
The Secretary also argues that the May 2, 2008, CMS Joint
Statement Memorandum ( "JSM") supports the Administrator's
finding. The JSM's self-stated purpose was to "clarify
longstanding policy concerning reimbursement for a Medicare bad
debt while the account is at a collection agency." Supplemental
AR 1. However, like the earlier memoranda just discussed, the
JSM actually contradicts the Secretary's position.
First, the JSM cited no pre-1987 evidence in support of its
statement that the presumption of collectability was in place
prior to the Moratorium. Second, the JSM directly contradicted
the June 1990 Memorandum by asserting that the PRM clearly
establishes the presumption of collectability. In addition, the
June 1990 Memorandum explicitly told intermediaries who had
permitted providers to claim bad debts outstanding at collection
agencies that they not only could, but must, continue to allow
such bad debts pursuant to the Moratorium. The JSM, in
contradiction, declared such actions to be "not in accordance
with the regulations" and instructed intermediaries to apply the
presumption of collectability. Supplemental AR 2. The JSM
demonstrates that, twenty years after the Moratorium went into
effect, the agency had still not succeeded in adequately
communicating or implementing a policy that it claims was in
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place for over forty years. The JSM does not support the
Secretary's position.
f. CMS Administration Decisions
Finally, the Secretary argues that various Administrator
decisions support her decision. First, she identifies six
Administrator decisions 12 between 1992 and 1997 which allegedly
demonstrate the Administrator's consistent "position that
accounts pending at collection agencies cannot be deemed
worthless." Def. 's Reply to Pls.' Opp' n & Reply to Def. 's Mot.
for Summ. J. 7-8. First, all these cases postdate the Moratorium
by several years. Second, all of these cases deal with the
separate issue of whether both Medicare and non-Medicare
accounts must be sent to a collection agency for the provider to
claim the Medicare accounts as bad debts. These decisions do not
address when in the process the provider can claim such accounts
as bad debts, and thus, are not applicable.
12
Baystate Med. Ctr. v. Aetna (H.C.F.A. Admin. Dec. Aug. 4,
1997) [Dkt. No. 28-1 pp. 58-65]; Arlington Hosp. v. Blue Cross
Blue Shield Ass'n, 1997 WL 420393 (H.C.F.A. Admin. Dec. June 13,
1997) [Dkt. No. 28-1 pp. 49-57]; Detroit Receiving Hosp. & Univ.
Health Ctr. v. Blue Cross and Blue Shield Ass'n, 1996 WL 887671(H.C.F.A. Admin. Dec. Oct. 7, 1996) [Dkt. No. 28-1 pp. 41-48];
Mem' 1 Hosp. of Dodge Cty. v. Blue Cross & Blue Shield Ass' n
(H.C.F.A. Admin. Dec. March 22, 1996) [Dkt. No. 28-1 pp. 31-40];
Univ. Hosp. v. Blue Cross & Blue Shield Ass'n (H.C.F.A. Admin.
Dec . Aug. 21, 19 9 5) [Dkt . No. 2 8 -1 pp. 21-3 0] ; Humana Hosp. v.
Aetna Life Ins. Co. (H. C. F .A. Admin. Dec. Sept. 11, 1992) [Dkt.
No. 28-1 pp. 2-10].
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Second, the Secretary identifies three fairly recent
Administrator decisions that "apply the Secretary's policy in
the same manner it has been applied in this case." Def. 's Reply
to Pls.' Opp'n & Reply to Def.'s Mot. for Summ. J. 9. In
addition to the fact that all of these cases significantly post-
date the Moratorium, the decisions were either overturned based
on a finding that the presumption of collectability violated the
Bad Debt Moratorium or were upheld without addressing the
Moratorium issue.
The earliest of the decisions cited by the Secretary is a
2004 case, Battlecreek Health Sys. & Mercy Gen. Health Partners
v. Blue Cross Blue Shield Ass'n, 2004 WL 3049346 (H.C.F.A.
Admin. Dec. Nov. 12, 2004). The Western District of Michigan
affirmed the Administrator's decision, and was upheld by the
Sixth Circuit Court of Appeals. Battle Creek Health Sys. v.
Thompson, 423 F. Supp. 2d 755, 760 (W.D. Mich. 2006), aff'd,
Battle Creek Health Sys. v. Leavitt, 498 F. 3d 401 (6th Cir.
2007). However, as the Foothill court observed, the parties in
Battle Creek did not raise, and neither the district court nor
the appellate court addressed, the Moratorium. Foothill, 558 F.
Supp. 2d at 5 n.7.
The second case cited is Mesquite Cmty. Hosp. v. Blue Cross
and Blue Shield Ass'n, 2007 WL 1804073 (H.C.F.A. Admin. Dec.
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Apr. 18, 2007), which was similarly upheld without addressing
the Bad Debt Moratorium. Mesquite Cmty. Hosp. v. Levitt, 3-07-
CV-1093-BD, 2008 WL 4148970, at *3 n.4 (N.D. Tex. Sept. 5, 2008)
(noting that "[u]nlike the provider in Foothill Hospital,
plaintiff makes no argument concerning the Bad Debt Moratorium
in this case").
The third case is the Administrator's 2007 opinion in
Foothill Presbyterian Hosp. v. Blue Cross & Blue Shield Ass' n,
2007 WL 1004394 (H.C.F.A. Admin. Dec. Feb. 14, 2007). As
discussed above, that opinion was overturned by another member
of this District Court because she found that the
Administrator's determination that the presumption of
collectability existed prior to 1987 was not supported by
substantial evidence. Foothill, 558 F. Supp. 2d at 11. Thus,
these opinions are not persuasive evidence of pre-Moratorium
policy.
In sum, the Court has reviewed the evidence cited by the
Secretary and finds that it falls far short of the "substantial
evidence" on which the Administrator based her contention that
the presumption of collectability existed prior to 1987.
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2. Evidence in the Record Contradicts the
Administrator's Finding that the Presumption of
Collectability Existed Prior to 1987
The Court must look to "the record as a whole 11 in reviewing
the Administrator's factual findings. Chippewa Dialysis Servs.
v. Leavitt, 511 F.3d 172, 176 (D.C. Cir. 2007). In this case, a
review of the record, beyond the evidence relied upon by the
Secretary, further contradicts the Administrator's finding.
For instance, a set of audit guidelines in place in 1985,
obviously pre-Moratorium, specifically addressed collection
agencies. AR 360-365. Section 15.04 of the Hospital Audit
Program, located in a manual for intermediaries, explained that:
Where a provider utilizes the services of a collection
agency, the provider need not refer all uncollected
patient charges to the agency, but it may refer only
uncollected charges above a specified minimum amount.
If reasonable collection effort was applied, fees the
collection agency charges the provider are recognized
as an allowable administrative cost of the provider.
AR 362. It then stated that, "[t]o determine the acceptability
of collection agency services, 11
the intermediary should ensure
"both Medicare and non-Medicare uncollectible amounts are
handled in a similar manner 11 by the provider, ensure that the
patient's file "is properly documented to substantiate the
collection effort, 11
and determine if the amounts are properly
recorded. AR 362. It is noteworthy that these guidelines set out
step-by-step instructions for intermediaries preparing to audit
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a provider's use of collection agencies, but did not state that
PRM section 310.2's presumption of noncollectability did not
apply to accounts sent to collection agencies.
In addition, the pre-Moratorium provision of the MIM relied
on by the Secretary did not prohibit reimbursement while an
account was outstanding at a collection agency. AR 367; see
Foothill, 558 F. Supp. 2d at 11. Thus, in two major references
provided to intermediaries, the Secretary did not mention or
allude to any presumption of collectability.
Moreover, a pre-Moratorium Administrator decision·, Scotland
Mem. Hosp. v. Blue Cross & Blue Shield Ass' n, (H. C. F .A. Admin.
Dec. Nov. 9, 1984), directly contradicts the presumption of
collectability. AR 463-464. In Scotland Memorial, the
Administrator noted that the presumption of noncollectability
established in PRM section 310.2 deserved "more weight than the
subjective and unrealistic opinion of the provider's witness,
who felt the bad debts were not uncollectible because she
expected the collection agency to collect them." AR 464. Thus,
as of 1984, the presumption of noncollectability in section
310.2 applied to accounts that had been sent to collection
agencies.
Finally, in a 1995 case, the Administrator approved a bad
debt claim even though the debt had been given to an outside
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collection agency that had not yet terminated its efforts.
Lourdes Hosp. v. Blue Cross & Blue Shield Ass'n, (H.C.F.A.
Admin. Dec. Oct. 27, 1995). AR 271-275. While Lourdes, like many
of the Administrator decisions cited above, significantly post-
dates the Moratorium, it demonstrates that the presumption of
collectability was not firmly established even eight years after
the Moratorium went into effect.
The Court is mindful that review of a final agency decision
is ~highly deferential," Bloch, 348 F. 3d at 1070, and
understands that ~weighing the evidence is not the court's
function." United Steel, 2013 U.S. App. LEXIS 731, at *14.
However, considering that the Secretary has pointed to no
persuasive evidence that supports her contention, much less pre-
1987 evidence, and that the only pre-1987 evidence that has been
identified by the parties contradicts the Secretary's position.
there is not "such relevant evidence as a reasonable mind might
accept as adequate to support" her conclusion. Id. (citation
omitted). Accordingly, the Court must conclude that the record
does not contain substantial evidence to uphold the
Administrator's determination that the intermediary
appropriately disallowed the Plaintiffs' bad debt claims.
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IV. REMEDY
Plaintiffs request that the Court "reimburse Plaintiffs for
the bad debt claims on their fiscal year 2003, 2004 and 2005
cost reports, including interest." Proposed Order [Dkt. No. 14-
1]. As noted in Foothill, however, the appropriate remedy is a
remand to the Agency. See Foothill, 558 F. Supp. 2d at 11(quoting Palisades Gen. Hosp. Inc. v. Leavitt, 426 F.3d 400, 403
(D.C. Cir. 2005)) (observing that once District Court has
determined that agency made an error of law, the case must be
remanded to the agency for further proceedings) .
Thus, because the Court finds that the Administrator's
factual determination that the presumption of collectability
existed prior to 1987 was not supported by substantial evidence,
the Court vacates the Administrator's decision and remands the
case to the Secretary for further proceedings consistent with
this ruling.
V. CONCLUSION
For the foregoing reasons, Plaintiffs' Motion for Summary
Judgment is granted and Defendant's Motion for Summary Judgment
is denied. An Order shall accompany this Memorandum Opinion.
March 26, 2013
/sf@``
Gladys Kessle
United States District Judge
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