206 F.Supp.3d 22
D.D.C.2016Background
- Medicare Part A reimburses hospitals for patient care but permits reimbursement for "bad debts" (unpaid Medicare deductibles/coinsurance) if providers make "reasonable collection efforts" per 42 C.F.R. § 413.89(e) and CMS Provider Reimbursement Manual (PRM) § 310.
- PRM § 310 requires collection efforts for Medicare accounts to be "similar" to efforts for comparable non‑Medicare accounts and discusses referral to collection agencies and a 120‑day presumption of noncollectibility.
- Congress enacted the Bad Debt Moratorium (1987–89) freezing the Secretary’s bad‑debt policies as of August 1, 1987, including criteria for a reasonable collection effort.
- Plaintiffs (hospital groups) used in‑house collections and a primary collection agency for all accounts but, after writing off accounts, routed only non‑Medicare bad debts to secondary collection agencies (SCAs); Medicare accounts were written off sooner and not sent to SCAs.
- A Mutual of Omaha intermediary disallowed the Hospitals’ Medicare bad‑debt claims for FYEs 2004–06 because of the differential SCA treatment; the PRRB affirmed, applying a rigid interpretation of PRM § 310. CMS Administrator declined review; hospitals sought judicial review.
- District Court held the PRRB’s rigid application of § 310 conflicted with the Secretary’s pre‑1987 practice (as reflected in PRRB decisions and district/circuit precedent) frozen by the Moratorium, vacated the PRRB decision, and remanded for factfinding on whether a case‑specific ‘‘sound business judgment’’ exception applies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PRM § 310 required identical treatment of Medicare and non‑Medicare accounts as of Aug. 1, 1987 | §310 was applied flexibly pre‑1987; PRRB precedent allowed exceptions where sound business judgment showed further collection would be futile | PRM § 310 and the regulation predate Moratorium; PRRB’s rigid application is permissible and entitled to deference | Court: Pre‑1987 practice (PRRB decisions) shows §310 was not a hard‑and‑fast rule; rigid application violates the Moratorium |
| Whether the Court must defer to CMS’s current interpretation | Agency deserves deference on its regulations | Secretary urges deference to current agency view and to a 1990 HCFA Clarification as reflecting pre‑1987 policy | Court: Moratorium requires adherence to the Secretary’s pre‑1987 policy, so present‑day interpretations inconsistent with that policy are not controlling |
| Whether failing to follow a provider’s written collection policy bars reimbursement | Hospitals say their longstanding practice and testimony show compliance or ambiguity in written policy | Secretary contends failure to follow written policy is an independent basis for disallowance | Court: Secretary relied on one unreasoned PRRB statement for this rule; issue not decided below and not adopted now — hospitals have a colorable compliance argument; Court declines to adopt the fallback theory |
| Remedy: entitlement on record vs. remand | Hospitals seek reimbursement as matter of law | Secretary seeks affirmance | Court: Vacated PRRB decision and remanded for the Board to determine whether Hospitals’ sound business judgment (with factual support) justifies an exception to §310 |
Key Cases Cited
- Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87 (agency interpretation of Medicare rules often central to reimbursement disputes)
- Mountain States Health Alliance v. Burwell, 128 F. Supp. 3d 195 (D.D.C. 2015) (Bad Debt Moratorium bars post‑1987 tightening; remand to allow showing of sound business judgment)
- Hennepin Cnty. Med. Ctr. v. Shalala, 81 F.3d 743 (8th Cir. 1996) (pre‑1987 PRRB decisions show §310 was not rigid; Secretary may not retroactively apply stricter interpretation)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (courts generally give deference to an agency’s interpretation of its own regulations)
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (1983) (APA arbitrary-and-capricious standard for agency decisions)
- Foothill Hosp. Morris L. Johnston Mem'l v. Leavitt, 558 F. Supp. 2d 1 (D.D.C. 2008) (vacatur/remand where PRRB decision changed pre‑Moratorium policy)