113 F. Supp. 3d 197
D.D.C.2015Background
- CHS-owned hospitals sought $16,400,811 in Medicare "bad debt" reimbursements for FY 2004–2006; Intermediaries and the PRRB disallowed claims because the accounts were still with collection agencies when claimed.
- Medicare permits reimbursement of deductible/coinsurance bad debt only if four regulatory criteria are met (related to covered services; reasonable collection efforts; actually uncollectible when claimed as worthless; sound business judgment that there is no likelihood of recovery).
- PRM § 310.2 contains a discretionary "presumption of noncollectibility" after 120 days, but PRRB interpreted it to require that a provider complete reasonable collection efforts (including any collection-agency efforts) before claiming reimbursement.
- Plaintiffs argued the disallowance violated the 1987–2012 Medicare Bad Debt Moratorium (which forbade changes in HHS policy as of Aug. 1, 1987), the APA, and notice requirements; defendant argued the disallowance reflects a long-standing, reasonable interpretation of existing regulations and manuals predating the Moratorium.
- The district court deferred to HHS’s interpretation of its regulation and manuals, concluded the policy was reasonable and consistent with the Moratorium, and granted defendant summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Interpretation of 42 C.F.R. § 413.89(e) (when bad debt is "worthless" / "no likelihood of recovery") | A provider that refers accounts to collection agencies after 120 days should be able to claim the presumption of noncollectibility; collection-agency activity is separate and does not defeat "worthless" status. | Referring accounts to a collection agency indicates some likelihood of recovery; so third and fourth criteria cannot be met until collection efforts (including agency efforts) cease. | Court: Agency interpretation reasonable under Auer; referral to collection agency while it actively pursues debt defeats "worthless" / "no likelihood" showing. |
| Compliance with Medicare Bad Debt Moratorium (no post-8/1/1987 policy change) | The agency’s disallowance reflects a post-Moratorium change (policy applied in challenged decision was not the policy in effect on Aug. 1, 1987). | The regulation and PRM/MIM guidance underlying the policy existed pre-Moratorium; 1989 MIM clarifies rather than creates policy; therefore no prohibited change. | Court: Plaintiffs failed to show a change; substantial evidence supports that agency’s interpretation reflects long-standing policy and does not violate the Moratorium. |
| APA notice-and-comment rulemaking | The reimbursement policy is a substantive (legislative) rule and should have gone through notice-and-comment. | The policy is interpretive (explains how agency will apply existing regulation) and is exempt from notice-and-comment. | Court: Policy is interpretive, derives from existing regulation, exempt from notice-and-comment; plaintiffs abandoned this argument in reply. |
| Fair notice / reliance on intermediary guidance | Plaintiffs reasonably relied on Intermediary communications (e.g., a 2002 letter) and lacked fair notice of the agency policy. | The 1989 MIM and the regulation itself gave fair notice; isolated intermediary documents do not bind CMS; later inconsistent adjudications were disavowed. | Court: Plaintiffs had fair notice by the time of the challenged cost years; isolated contrary materials do not negate notice. |
Key Cases Cited
- District Hosp. Partners, L.P. v. Burwell, 786 F.3d 46 (D.C. Cir. 2015) (describing complexity of Medicare reimbursement review)
- Fischer v. United States, 529 U.S. 667 (U.S. 2000) (context on Medicare statutory framework)
- St. Luke’s Hosp. v. Sebelius, 611 F.3d 900 (D.C. Cir. 2010) (CMS administers Medicare on Secretary’s behalf)
- Hennepin Cnty. Med. Ctr. v. Shalala, 81 F.3d 743 (8th Cir. 1996) (discussion of bad-debt reimbursement and Moratorium background)
- Catholic Health Initiatives v. Sebelius, 617 F.3d 490 (D.C. Cir. 2010) (PRM as interpretive guidance, and interpretive/legislative rule analysis)
- Battle Creek Health Sys. v. Leavitt, 498 F.3d 401 (6th Cir. 2007) (upholding Secretary’s interpretation of bad-debt regulation as reasonable)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (U.S. 1994) (deference to agency interpretations of Medicare materials)
- Auer v. Robbins, 519 U.S. 452 (U.S. 1997) (deference to agency interpretations of its own regulations)
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (U.S. 1984) (two-step test for statutory interpretation)