128 F. Supp. 3d 195
D.D.C.2015Background
- Mountain States Health Alliance (owner of two Tennessee hospitals) sought Medicare reimbursement for "Medicare bad debt" for cost years ending June 30, 2004 and June 30, 2005; fiscal intermediary disallowed ~ $700,000 because providers sent Medicare accounts back to the hospital instead of referring them to a secondary collection agency while referring comparable non‑Medicare accounts onward.
- Regulations (42 C.F.R. § 413.89(e)) require providers to establish they made "reasonable collection efforts"; PRM § 310 (last revised 1983) interprets that to mean efforts must be similar for Medicare and non‑Medicare accounts and that where a collection agency is used, providers must refer all uncollected charges of "like amount" without regard to patient class.
- The Provider Reimbursement Review Board (PRRB) affirmed the disallowance, applying a categorical interpretation of PRM § 310 and rejecting plaintiff’s arguments that pre‑1987 administrative decisions allowed flexible, case‑by‑case treatment.
- Plaintiff challenged the Board’s decision in district court on four grounds: (1) § 310 is a legislative rule promulgated without APA notice‑and‑comment; (2) § 310 was not listed in the Federal Register as required by statute; (3) the Secretary’s application of § 310 violated the Bad Debt Moratorium (freezing pre‑Aug‑1‑1987 policy); and (4) the denial was arbitrary and capricious.
- The court: held § 310 is an interpretive (not legislative) rule; the Federal Register listing requirement (42 U.S.C. § 1395hh(c)(1)) is not retroactive so it did not invalidate the 1983 § 310; but vacated and remanded the Board decision because the Board applied an inflexible rule inconsistent with pre‑Moratorium administrative practice (as reflected in Reed City and St. Francis), thus violating the Bad Debt Moratorium; remand ordered for reconsideration under the pre‑Moratorium, more flexible standard.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is PRM § 310 a legislative rule requiring APA notice‑and‑comment? | § 310 imposes binding, substantive obligations and thus is a legislative rule; APA procedures required. | § 310 merely interprets the existing regulatory phrase "reasonable collection efforts" and is interpretive, so notice not required. | Held: § 310 is an interpretive rule, not a legislative rule; no notice‑and‑comment required. |
| Must § 310 have been listed in the Federal Register under 42 U.S.C. § 1395hh(c)(1)? | Failure to list § 310 invalidates it. | The statutory listing requirement is not retroactive to guidance issued before enactment; § 310 (1983) need not have been listed. | Held: Listing requirement not retroactive; § 310’s absence from the Register does not invalidate it. |
| Did the Secretary’s rigid application of § 310 violate the Bad Debt Moratorium (freeze of policy as of Aug 1, 1987)? | The Secretary shifted from a pre‑Moratorium flexible, case‑by‑case approach (allowing sound business judgment exceptions) to a rigid referral rule, which the Moratorium forbids. | The § 310 referral requirement was part of the frozen policy and was applied consistently pre‑ and post‑Moratorium; pre‑1987 decisions relied on an intervening legal‑action prohibition and thus are distinguishable. | Held: The Board’s categorical application departs from the more flexible pre‑Moratorium practice (as shown in Reed City and St. Francis) and thus violated the Moratorium; Board decision vacated and remanded. |
| Was the denial of reimbursement arbitrary and capricious on the facts? | Even under the pre‑Moratorium flexible standard, hospitals presented evidence (small average Medicare balances, low recovery rates, litigation costs) showing further pursuit would be futile. | Plaintiff’s evidence was insufficiently specific to show Medicare accounts of like amount would not be cost‑effective to pursue; record ambiguous. | Held: Court did not decide finally; remanded so Board can apply the proper flexible standard and reconsider factual sufficiency. |
Key Cases Cited
- Guernsey Memorial Hospital v. Shalala, 514 U.S. 87 (Sup. Ct.) (PRM provisions can be interpretive rules explaining statutes/regulations)
- Perez v. Mortgage Bankers Ass'n, 135 S. Ct. 1199 (Sup. Ct.) (distinction between interpretive and legislative rules; notice‑and‑comment requirement scope)
- Catholic Health Initiatives v. Sebelius, 617 F.3d 490 (D.C. Cir.) (striking PRM provision as an invalid legislative rule when it imposed detailed, rigid obligations not justified by statute)
- Am. Mining Cong. v. Mine Safety & Health Admin., 995 F.2d 1106 (D.C. Cir.) (factors for whether an interpretive rule has legal effect)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (Sup. Ct.) (deference to agency interpretations of ambiguous Medicare regulations)
- Hennepin County Med. Ctr. v. Shalala, 81 F.3d 743 (8th Cir.) (context on Bad Debt Moratorium's origin and purpose)
- Abington Crest Nursing & Rehab. Ctr. v. Sebelius, 575 F.3d 717 (D.C. Cir.) (reference on Medicare bad‑debt reimbursement principles)