Select Specialty Hospital - Denver, Inc. v. Sebelius
2012 U.S. Dist. LEXIS 40322
D.D.C.2012Background
- Two Medicare facilities—Scottsdale Life Care Center and Select Specialty Hospital–Denver—challenge CMS final denials of dual-eligible bad debt reimbursement for 2004–2005.
- Plaintiffs allege CMS must-bill policy requires billing states for dual-eligibles before Medicare bad debt reimbursement, even if provider did not participate in Medicaid.
- Administrators denied reimbursement because no state remittance advice (RA) showed state liability; must-bill policy and JSM-370 guidance cited.
- FIs previously reimbursed dual-eligible bad debts without Medicaid RA prior to 2004–2005; CHMP and related rulings acknowledged the must-bill policy, later clarified by CMS.
- Courts review CMS Administrator decisions under the APA for arbitrary, capricious action or substantial evidence; the case was remanded for reconsideration of reliance on prior enforcement policy.
- Plaintiffs seek partial grant of summary judgment while CMS seeks affirmance; court remands limited issue to agency for reconsideration of reliance on prior interpretation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether must-bill policy is a valid interpretation of CMS regulations. | Scottsdale argues policy lacks statutory basis; prior practice exempted non-participating providers. | Secretary interprets PRM and regulations to require billing states before Medicare bad debt reimbursement. | Partially granted; policy upheld as reasonable interpretation and remanded for reliance issue. |
| Application of must-bill to non-participating Medicaid providers. | Non-participating providers are caught in Catch-22; policy should not retroactively apply. | Policy applies to all dual-eligibles; states are best positioned to determine liability. | Remanded for reconsideration of reliance on prior interpretation and enforcement policy. |
| Whether the must-bill enforcement constitutes APA notice-and-comment rulemaking error. | Policy announced without proper APA notice; retroactive application. | Policy is interpretative, not a legislative rule; notice-and-comment not required. | Not a notice-and-comment rulemaking violation; interpretative rule; no procedural defect found. |
| Whether CMS’s enforcement change violated legitimate reliance interests. | CMS enforcement changed, undermining reliance on prior reimbursements. | Policy longstanding; enforcement merely clarified; reliance interests not legitimate. | Remanded to determine if reliance on prior enforcement was justified; not purely arbitrary. |
Key Cases Cited
- California Hospitals Medical Center v. Thompson, 323 F.3d 782 (9th Cir. 2003) (must-bill policy as a reasonable implementation of the reimbursement system)
- Cmty. Care Found. v. Thompson, 412 F. Supp. 2d 18 (D.D.C. 2006) (PRM interpretive guidance entitled to deference)
- GCI Health Care Centers v. Thompson, 209 F. Supp. 2d 63 (D.D.C. 2002) (affirmed must-bill policy applicability)
- Shalala v. Guernsey Mem. Hosp., 514 U.S. 87 (1995) (interpretative rulemaking and agency guidance permissible)