Summer Hill Nursing Home LLC v. Leavitt

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
SUMMER HILL NURSING HOME )
LLC, )
)
Plaintiff, )
)
v. ) Civil Action No. 08-268 (RMC)
)
1
CHARLES E. JOHNSON, Acting )
Secretary, U.S. Department of Health and )
Human Services, et al., )
)
Defendants. )
)
MEMORANDUM OPINION
This matter is before the Court on cross motions for summary judgment. Summer
Hill Nursing Home LLC seeks judicial review of a decision of the Secretary of the Department of
Health and Human Services denying its claim for Medicare reimbursement of “bad debts” it
incurred. The Secretary denied Summer Hill’s claim because he found that Summer Hill did not bill
the New Jersey Medicaid program as is required by the agency’s “must bill” policy. However, it is
undisputed that after Summer Hill submitted its reimbursement claim but before the Secretary issued
his decision, Summer Hill billed New Jersey Medicaid and received “remittance advices” from New
Jersey Medicaid refusing to pay the debts. Because the Secretary ignored this fact in his analysis and
failed to explain why Summer Hill’s subsequent submission of remittance advices was insufficient
1
Pursuant to Federal Rule of Civil Procedure 25(d), Charles E. Johnson is substituted as
Acting Secretary for his predecessor, Michael O. Leavitt, Secretary of the U.S. Department of Health
and Human Services.
to establish that the debts were actually uncollectible when claimed, the Court finds that the
Secretary’s decision was arbitrary and capricious. Accordingly, Summer Hill’s motion for summary
judgment will be granted and the Secretary’s denied.
I. FACTS
Summer Hill is a 120-bed nursing facility located in the State of New Jersey. It is a
participating provider in both the federal Medicare program and New Jersey’s Medicaid program.2
On or about May 31, 2005, Summer Hill submitted its Medicare Cost Report for the fiscal year
ending December 31, 2004 to the fiscal intermediary, claiming $170,537 in “bad debts”3 relating to
uncollectible deductible and co-insurance amounts for “dual eligible”4 patients. On or about January
21, 2006, the intermediary disallowed $135,106 of Summer Hill’s bad debt because Summer Hill
“wrote off dual eligible bad debts prior to billing [New Jersey] Medicaid for the deductible and co-
insurance amounts.” AR 88. Summer Hill appealed the intermediary’s disallowance to the Provider
Reimbursement Review Board (“PRRB”) on or about March 28, 2006.
Some time between receiving notice of the intermediary’s disallowance and filing its
appeal with the PRRB, Summer Hill billed New Jersey Medicaid for the bad debts and received
remittance advices refusing to pay the debts. AR 100-141. On appeal before the PRRB, Summer
Hill argued, inter alia, that the remittance advices show that it had complied with the agency’s “must
2
Medicare is a federally funded program that finances medical care for the aged and
disabled. See 42 U.S.C. § 1395, et seq. Medicaid is a cooperative federal-state program that
finances medical care for the poor. See 42 U.S.C. § 1396, et seq.
3
“Bad debts are 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).
4
“Dual eligibles” are persons who qualify for both Medicare and Medicaid.
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bill” policy5 because they show that “for each of the ‘bad debts’ claimed . . . Medicaid has issued a
Code 670, reflecting its determination that, because the Medicare payment exceeds the Medicaid
allowable payment ceiling, no Medicaid payment is due.” AR 84. The PRRB reversed the
intermediary’s disallowance, but did not decide the effect of Summer Hill’s subsequent receipt of
remittance advices because it found that the must bill policy “has no foundation in law in that it is
beyond the requirements of the regulations and [Provider Reimbursement Manual].”6 AR 77.
The Secretary reversed the PRRB’s decision on December 20, 2007. Summer Hill
had argued that the Secretary “need not reach the issues of whether the PRRB was correct in finding
insufficient authority for a ‘must bill’ policy for full Medicaid patients or whether such a policy, if
properly authorized, is appropriate” because “remittance advices were received by Summer Hill from
New Jersey Medicaid which conclusively establishes the debts to be ‘actually uncollectible when
claimed.’” AR 16. However, the Secretary ignored that argument, finding that “[t]he bad debts
claimed by the Provider were not worthless when written off” because “[t]he Provider did not bill
the State and receive a remittance advice to meet the reasonable collection effort requirements of the
regulation and manual provisions for the claims at issue in this case.” AR 12.
As a result, Summer Hill brought this suit against the Secretary and the Administrator
for the Centers for Medicare & Medicaid Services. Summer Hill asserts that the Secretary’s denial
of its claim for Medicare reimbursement was arbitrary and capricious under the Administrative
5
The “must bill” policy is an administrative requirement that providers submit evidence that
they have billed state Medicaid programs for uncollectible deductible and co-insurance obligations
and received a refusal to pay, called a “remittance advice,” in order to be reimbursed by Medicare.
6
The Ninth Circuit has upheld the Secretary’s must bill policy. See Cmty. Hosp. of the
Monterey Peninsula v. Thompson, 323 F.3d 782 (9th Cir. 2003). So has Judge Kollar-Kotelly on
this Court. See GCI Health Care Ctrs., Inc., v. Thompson, 209 F. Supp. 2d 63 (D.D.C. 2002).
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Procedure Act (“APA”), 5 U.S.C. § 551 et seq., which applies pursuant to 42 U.S.C. § 1395oo(f)(1).
II. LEGAL STANDARDS
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment must be
granted when “the pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c); Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247 (1986). Moreover, summary judgment is properly granted against
a party who “after adequate time for discovery and upon motion . . . fails to make a showing
sufficient to establish the existence of an element essential to that party’s case, and on which that
party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
In ruling on a motion for summary judgment, the court must draw all justifiable
inferences in the nonmoving party’s favor and accept the nonmoving party’s evidence as true.
Anderson, 477 U.S. at 255. A nonmoving party, however, must establish more than “the mere
existence of a scintilla of evidence” in support of its position. Id. at 252. In addition, the nonmoving
party may not rely solely on allegations or conclusory statements. Greene v. Dalton, 164 F.3d 671,
675 (D.C. Cir. 1999). Rather, the nonmoving party must present specific facts that would enable a
reasonable jury to find in its favor. Id. at 675. If the evidence “is merely colorable, or is not
significantly probative, summary judgment may be granted.” Anderson, 477 U.S. at 249-50(citations omitted).
Under the APA, “[a]gency action made reviewable by statute and final agency action
for which there is no other adequate remedy in a court are subject to judicial review.” 5 U.S.C.
§ 704. The APA requires a reviewing court to set aside an agency action that is “arbitrary,
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capricious, an abuse of discretion, or otherwise not in accordance with law.” Id. § 706(2)(A); Tourus
Records, Inc. v. Drug Enforcement Admin., 259 F.3d 731, 736 (D.C. Cir. 2001). “At a minimum,
that standard requires the agency to examine the relevant data and articulate a satisfactory
explanation for its action including a rational connection between the facts found and the choice
made.” Tourus Records, 259 F.3d at 736 (quotation marks and citations omitted); see also Pub.
Citizen, Inc. v. Fed. Aviation Admin., 988 F.2d 186, 197 (D.C. Cir. 1993) (“The requirement that
agency action not be arbitrary or capricious includes a requirement that the agency adequately
explain its result.”). An agency action is arbitrary or capricious if the agency has “entirely failed to
consider an important aspect of the problem,” or if it has “offered an explanation for its decision that
runs counter to the evidence before the agency.” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto.
Ins. Co., 463 U.S. 29, 43 (1983); see also County of Los Angeles v. Shalala, 192 F.3d 1005, 1021
(D.C. Cir. 1999) (“Where the agency has failed to provide a reasoned explanation, or where the
record belies the agency’s conclusion, [the court] must undo its action.”).
In reviewing an administrative action such as the Secretary’s decision at issue here,
the role of the district court is to “sit as an appellate tribunal” and review the case as a matter of law.
Marshall County Health Care Auth. v. Shalala, 988 F.2d 1221, 1226 (D.C. Cir. 1993). Such review
is limited to the administrative record, and “not some new record made initially in the reviewing
court.” Camp v. Pitts, 411 U.S. 138, 142 (1973); accord Alliance for Bio-Integrity v. Shalala, 116
F. Supp. 2d 166, 177 (D.D.C. 2000).
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III. ANALYSIS
The parties spend the bulk of their briefs arguing over the validity of the Secretary’s
must bill policy. However, the Court need not – and does not – reach that issue because the
Secretary failed to explain how that policy was violated in this case. In his decision, the Secretary
recounted that “the Provider asserted that the required remittance advices were received from [New
Jersey] Medicaid which conclusively establishes the debts to be ‘actually uncollectible when
claimed’ and therefore acknowledges the validity of the bad debts that were claimed.” AR 5. In
other words, the Secretary acknowledged Summer Hill’s argument that upon receipt of remittance
advices from New Jersey Medicaid refusing to pay the debts, it was in compliance with the spirit,
if not the letter, of the must bill policy. Yet the Secretary ignored this argument in his analysis. See
AR 5-12. That alone requires that the Court reverse the Secretary’s decision as arbitrary and
capricious. See Fox Television Stations, Inc. v. FCC, 280 F.3d 1027, 1051 (D.C. Cir. 2002).
Contrary to the evidence, the Secretary found that “the Provider did not bill the State
for the claims at issue in this case,” and based on that finding concluded that “it has not demonstrated
that it has meet [sic] the necessary criteria for Medicare payment of bad debts related to these
claims.” AR 10. The Secretary reasoned that “it is unacceptable for a provider to write-off a
Medicare bad debt as worthless without first billing the State” and that “the provider must bill the
State and receive a remittance advice before claiming a bad debt as worthless because . . . the State
has the most current and accurate information to make a determination.” AR 11-12. Absent is any
explanation why Summer Hill’s subsequent receipt of remittance advices was insufficient to
establish that the debts were actually uncollectible when claimed. In that significant respect, the
Secretary “entirely failed to consider an important aspect of the problem.” State Farm, 463 U.S. at
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43. Accordingly, the Secretary’s decision “provides no basis upon which [the Court] could conclude
that it was the product of reasoned decisionmaking.” Tourus Records, 259 F.3d at 737.
The Secretary’s lawyers argue that Summer Hill’s subsequent receipt of remittance
advices was insufficient because Joint Signature Memorandum 370 (“JSM-370”) states that “the
provider must make certain that no source other than the patient would be legally responsible for the
patient’s medical bill . . . prior to claiming the bad debt from Medicare.” AR 207 (quotation marks
omitted). Nowhere in the Secretary’s decision is that rationale articulated, and the Court cannot
accept the lawyers’ post hoc rationalization as a substitute for the lack of explanation. “In order for
the court to uphold an agency’s action or conclusion as not ‘arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law,’ 5 U.S.C. § 706(2)(A), the court must be able
to conclude that the agency examined the relevant data and articulated a satisfactory explanation for
its action including a rational connection between the facts found and the choice made.” El Rio
Santa Cruz Neighborhood Health Ctr., Inc. v. HHS, 396 F.3d 1265, 1276 (D.C. Cir. 2005) (quotation
marks and citations omitted) (emphasis added). “Appellate counsel’s post hoc rationalizations are
not a substitute, for an agency’s discretionary order will be upheld, if at all, on the same basis
articulated in the order by the agency itself.” Id. (quotation marks and citations omitted). Nor does
JSM-370 provide a rationale for why remittance advices received after a claim is filed but prior to
the Secretary’s decision must be disregarded inasmuch as the remittance advices establish that the
debts were actually uncollectible when claimed.
IV. CONCLUSION
For the foregoing reasons, the Court finds that the Secretary’s decision was “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with the law” within the meaning
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of 5 U.S.C. § 706(2)(A). Accordingly, the Court will grant Summer Hill’s motion for summary
judgment [Dkt. # 9] and deny the Secretary’s cross motion for summary judgment [Dkt. # 10]. A
memorializing Order accompanies this Memorandum Opinion.
Date: March 25, 2009 /s/
ROSEMARY M. COLLYER
United States District Judge
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