WINDER HMA LLC, et al., Plaintiffs, v. SYLVIA BURWELL, Defendant.
Civil Action No. 14-2021 (JEB)
MEMORANDUM OPINION
Hospitals participating in the Medicare program are reimbursed by the federal government each year for much of the cost of the services they provide to qualifying patients. The Medicare patients themselves, however, are responsible for a small share of the cost of their care — e.g., deductibles or co-payments — just as non-Medicare patients are. When patients of both types fail to pay their portion of the bill, hospitals are forced to engage in collection efforts to recover the money due. If hospitals are ultimately unable to recover the amounts owed by Medicare patients, the Medicare program will reimburse them for this sum. To avoid token collection efforts, however, Medicare regulations require that hospitals treat Medicare and non-Medicare debts in the same manner.
In this case a group of hospitals challenges a decision by the Secretary of Health and Human Services not to reimburse them for some Medicare patients’ unpaid debts because they did not expend precisely identical efforts collecting Medicare debts as they did collecting non-Medicare debts. As in other Medicare-reimbursement cases, “[w]hat begins as a rather conventional accounting problem raises significant questions respecting the interpretation of the Secretary‘s regulations,” the agency‘s interpretive guidance, and the Medicare statutes themselves. See Shalala v. Guernsey Mem‘l Hosp., 514 U.S. 87, 89-90 (1995). At issue here is a statute known as the Bad Debt Moratorium, which freezes in place some of the Secretary‘s Medicare-reimbursement policies as they existed on August 1, 1987. As the Court concludes that the Secretary‘s present understanding of one section of her interpretive guidance is inconsistent with her 1987 interpretation, it will vacate the agency‘s reimbursement denial and remand for further administrative proceedings.
I. Background
Because the Medicare statute and its attendant regulations and interpretive guidance create a complex scheme that governs the actions taking place in this case, the Court will first set forth the basic contours of that scheme and then examine the administrative proceedings that gave rise to Plaintiffs’ suit.
A. Statutory Background
1. Overview
“The federal Medicare program reimburses medical providers for services they supply to eligible patients,” who are typically elderly or disabled. See Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 2 (D.C. Cir. 2011) (citing
To receive their Medicare Part A reimbursements, “[a]t the end of each year, providers participating in Medicare submit cost reports to contractors acting on behalf of HHS known as fiscal intermediaries.” Sebelius v. Auburn Regional Medical Center, 133 S. Ct. 817, 822 (2013); see also
2. Reimbursement of “Bad Debts”
“Although the costs incurred for most of the care provided to Medicare patients are borne by the government, individual Medicare patients are often responsible for both deductible and coinsurance payments for hospital care.” Cmty. Health Sys., Inc. v. Burwell, 113 F. Supp. 3d 197, 203-04 (D.D.C. 2015) (internal quotation marks and citation omitted). When Medicare patients fail to pay this portion of their care, hospitals may, under certain conditions, write such payments off as “bad debt” and seek reimbursement from the federal government. See
Medicare “bad debts” are defined as “amounts considered to be uncollectible from accounts and notes receivable that were created or acquired in providing services” and are “attributable to the deductibles and coinsurance amounts” billed by providers to individual Medicare patients. See
(1) The debt must be related to covered services and derived from deductible and coinsurance amounts.
(2) The provider must be able to establish that reasonable collection efforts were made.
(3) The debt was actually uncollectible when claimed as worthless.
(4) Sound business judgment established that there was no likelihood of recovery at any time in the future.
To be considered a reasonable collection effort, a provider‘s effort to collect Medicare deductible and coinsurance amounts must be similar to the effort the provider puts forth to collect comparable amounts from non-Medicare patients. It must involve the issuance of a bill on or shortly after discharge or death of the beneficiary to the party responsible for the patient‘s personal financial obligatiоns. It also includes other actions such as subsequent billings, collection letters and telephone calls or personal contacts with this party which constitute a genuine, rather than a token, collection effort.
Def. Exh. 1 at 2 (emphasis added). The PRM further states that a reasonable collection effort may — but need not — involve referral of unpaid amounts to a collection agency:
A provider‘s collection effort may include the use of a collection agency in addition to or in lieu of subsequent billings, follow-up letters, telephone and personal contacts. Where a collection agency is used, Medicare expects the provider to refer all uncollected patient charges of like amount to the agency without regard to class of patient. . . . Therefore, if a provider refers to a collection agency its uncollected non-Medicare patient charges which in amount are comparable to the individual Medicare deductible and coinsurance amounts due the provider from its Medicare patient, Medicare requires the provider to also refer its uncollected Medicare deductible and coinsurance amounts to the collection agency.
Id. at 2-3 (PRM § 310(A)). The same section of the manual sets forth a “[p]resumption of [n]oncollectibility,” according to which debts are deemed uncollectible “[i]f after reasonable and customary attempts to collect a bill, the debt remains unpaid more than 120 days from the date the first bill is mailed to the benеficiary.” Id. at 3 (PRM § 310.2).
3. Bad Debt Moratorium
While the repayment of bad debts to hospitals has been a longstanding practice under the Medicare program, resulting in “the government[‘s] . . . reimburs[ing] a substantial percentage of Medicare bad debt incurred by providers,” Cmty. Health Sys. Inc., 113 F. Supp. 3d at 205, “[b]y the mid-1980s . . . elimination or radical alteration of this practice became the subject of policy debates,” as critics complained that hospitals profited unduly under the Medicare-reimbursement system. See id. The 1983 Social Security Act amendments had shifted payments to service providers from direct reimbursement for the cost of treating Medicare patients to “a fixed cost per diagnosis, allowing hospitals to turn a profit on what had previously been a zero sum game.” Id. As a result, the agency began examining whether “the original intent of reimbursing hospitals for bad debts no longer seems appropriate.” Id. (quoting HHS 1986 OIG Report at 3). HHS recommended that Congress make changes to this system, but such recommendations “met with resistance in Congress and within the health care industry,” id. at 206, so shortly after the agency issued its recommendations, Congress took legislative action to “shield Medicare providers from the [HHS] Inspector General‘s proposed policy changes.” Foothill Hosp. Morris L. Johnston Mem‘l v. Leavitt, 558 F. Supp. 2d 1, 3 (D.D.C. 2008). This action was part of the Omnibus Budget Reconciliation Act of 1987. See Pub. L. 100-203 § 4008(c), 101 Stat. 1330, 1355 (1987); see also Hennepin Cnty. Med. Ctr. v. Shalala, 81 F.3d 743, 745 (8th Cir. 1996) (explaining that Congress enacted these provisions in response to the policy proposals of the Office of the Inspector General of HHS). Congress enacted additional, related amendments in 1988 and 1989, and together these legislative provisiоns became known as the “Medicare Bad Debt Moratorium.” See Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647 § 8402, 102 Stat. 3342, 3798 (1988); Omnibus Budget Reconciliation Act of 1988, Pub. L. No. 101-239 § 6023, 103 Stat. 2106, 2167 (1989). Instead of amending existing regulations concerning the reimbursement of bad debt, the Moratorium froze in place the Secretary‘s interpretations of those regulations as they existed on August 1, 1987.
The Bad Debt Moratorium mandated:
In making payments to hospitals under [the Medicare program], the Secretary of Health and Human Services shall not make any change in the policy in effect on August 1, 1987, with respect to payment under [the Medicare program] to providers of service for reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance amounts incurred under [the Medicare program] (including the criteria for what constitutes a reasonable collection effort).
101 Stat. 1330-55 (emphasis added). The 1989 amendment added the following sentence: “The Secretary may not require a hospital to change its bad debt collection policy if a fiscal intermediary, in accordance with the rules in effect as of August 1, 1987, . . . has accepted such policy before that date. . . .” 103 Stat. 2106. The Bad Debt Moratorium, thus amended, imposes a two-pronged restriction on the Secretary: “First, the Secretary is prohibited from making any changes to the agency‘s bad debt policy in effect on August 1, 1987. Second, the Secretary is prohibited from requiring a provider to change bad debt policies it had in place on August 1, 1987.” Dist. Hosp. Partners, L.P. v. Sebelius, 932 F. Supp. 2d 194, 198 (D.D.C. 2013) (internal citations omitted). With this statutory background in mind, the Court now turns to Plaintiffs’ challenge tо their Medicare reimbursements and the attendant administrative proceedings.
B. Plaintiffs’ Medicare Reimbursements
1. The Hospitals’ Collection Efforts
Plaintiffs in this case are Health Management Associates, Inc., Community Health Systems, Inc., and their subsidiaries, all of whom are operators of various hospital facilities in multiple states that provide acute-care services as part of the Medicare program. See Mot. at 8 (Pl. SOF, ¶ 3.1); AR 14. (The Court, following Plaintiffs’ practice, will refer to all of them collectively as “the Hospitals.“) The central issue this suit raises concerns the Hospitals’ efforts to collect outstanding debts from Medicare patients before writing them off as “bad debts” and whether those efforts were sufficient.
During the period at issue in this case — fiscal years ending in 2004, 2005, and 2006 — the Hospitals employed a variety of procedures in attempting to collect unpaid deductibles and other payments owed by Medicare patients, which efforts began once the insurers (Medicare or additional insurance providers) had satisfied their obligations. See Mot. at 9 (Pl. SOF, ¶ 3.2). The Hospitals first “maintained a substantial in-house collection process,” contracting with the private Artrac Corporation to engage in “first party” collections in the name of the Hospitals. See id. As part of
The OCA‘s practices were more aggressive, sending patients no fewer than three letters making at least twelve calls, and also utilizing litigation where appropriate. Id. The Hospitals explained that, together with the outside collection agency, its collection efforts included:
- Repeated review of the accounts to determine whether the debtors were bankrupt or deceased;
- Repeated verification of both the debtors’ addresses and phone numbers;
- Issuance of numerous collection letters demanding payment;
- Frequent phone calls at all times of the day and in the evening;
- Reporting of the debts on the debtor‘s credit reports; and
- [Pursuing or r]uling out of legal action.
AR 15. These in-house and outside-agency collection efforts extended for more than 120 days for all accounts. See AR 15; AR 179 (Providers’ opening argument, contending that their primary collection efforts lasted “for approximately 150 to 250 days for both [their] Medicare and non-Medicare accounts“). After this time, the OCA, which was paid on a contingency basis, would review each account and determine whether it was uncollectible. See AR 250-51. If so, the OCA would send the account back to the Hospitals, which would then write it off as “bad debt.” See id. at 254. If the OCA determined that there was still some likelihood of collection, however, it would retain the account so long as such possibility existed. See id. at 250-51.
Once the Hospitals had written off the accounts, they coded Medicare bad debt as “985” and non-Medicare bad debt as “978.” Mot. at 11 (Pl. SOF ¶ 3.3). After the write-off process, the Hospitals elected to send only their non-Medicare bad debts to a secondary collection agency (SCA). They argued before the PRRB that they believed, at the time that all the accounts were written off, that their primary collection activities constituted “reasonable collection efforts” as described by
A brief explanation of how the non-Medicare debts were processed by the secondary collection agency may aid the reader. Sometimes, the secondary collection
2. Intermediary‘s Disallowance
Plaintiffs’ designated Intermediary was the Mutual of Omaha Insurance Company. See AR 14. According to the Hospitals, they had for years been employing this practice of sending only non-Medicare bad debts to SCAs after writing them off as uncollectible. See Mot. at 13 (Pl. SOF ¶ 3.4). Further, Plaintiffs insist that the Intermediary had “allowed most of the claimed bad debts” under this practice for years prior to the fiscal years in this dispute. See Mot. at 13 (Pl. SOF ¶ 3.5.1); see also AR 223 (Hospital representative‘s testimony that “[i]n 2006, all of the sudden . . .[w]e were being told that we weren‘t following exact collection efforts“).
In any event, the Intermediary‘s 2006 audit — reviewing accounts written off for FYE 2004 — concluded that the Hospitals’ Medicare bad debts should be disallowed because they had not been sent to the SCA, as the non-Medicare accounts had. See Mot. at 14 (Pl. SOF ¶ 3.5.2); AR 1136-39 (Lower Keys Medical Center Medicare Bad Debts Audit); AR 568-570 (Intermediary “Management Letters” to Hospitals). The Hospitals appealed these disallowances to the Provider Reimbursement Review Board and requested a hearing. See, e.g., AR 2634, 2638.
3. PRRB Decision
Following briefing and a two-part hearing conducted on September 26 and November 19, 2013, the PRRB issued findings of fact and conclusions of law on September 25, 2014. See AR 10-30 (PRRB Decision). The Board focused on the question of whether the Hospitals’ decision to send only non-Medicare accounts to an SCA rendered the Medicare accounts written off in those years non-reimbursable. It began by noting that “[i]t is undisputed that the Providers treated Medicare accounts and non-Medicare accounts in a similar manner during in-house and primary collection agency efforts[, which] were expended for more than 120 days.” PRRB Dec. at 9. The Board did not, however, buy the Providers’ argument that, at this point, “the collection process was complete” because it found that “the intent of the SCA was to collect additional amounts of accounts receivable.” Id. It concluded that “the dissimilar use of the SCA for
In arriving at this conclusion, the Board explained that the Presumption of Noncollectibility found in PRM § 310.2 — according to which debts are deemed uncollectible if they remain unpaid for more than 120 days of reasonable and customary attempts to collect them — did not alter the outcome in this case, even though the Hospitals’ primary collection efforts had exceeded 120 days for all non-Medicare and Medicare accounts. The Board reasoned that “this presumption by its own terms is only applicable to a debt ‘after reasonable and customary attempts to collect a bill,” and “the Providers had not completed their customary collection efforts because, on its face, the Providers’ collection policy required both Medicare and non-Medicare accounts to be sent to the SCA.” PRRB Dec. at 10 (quoting testimony stating that Hospitals’ bad-debt collection policy was, “If no action is taken the system will generate a 978 adjustment for all non-Medicare accounts, 985 for Medicare accounts, and transmit the account to the secondary collection agency.“). The PRRB then turned to the Bad Debt Moratorium and discussed its two prongs at length.
The Board explained that its decision did not violate the first prong of the Morаtorium, which prohibits CMS from changing its bad-debt policy in effect on August 1, 1987, because Section 310 of the Provider Reimbursement Manual existed in the same form in 1987. See PRRB Dec. at 12. Section 310, the Board stated, made clear that “regardless of where the provider sets the bar for its actual ‘collection effort[,]’ § 310 specifies that, in order for a collection effort to be considered reasonable, the provider‘s actual ‘collection effort’ for Medicare accounts must be similar to that used for non-Medicare accounts,” and there must be “consistency in this treatment across” both forms of accounts. Id. The Board thereby adopted a rigid interpretation of PRM § 310 — requiring that collection efforts be exactly the same for non-Medicare and Medicare accounts — rather than a more flexible interpretation, permitting exceptions to the similar-collection-efforts standard where sound business judgment counseled against identical treatment. As the reader will soon learn, the Board‘s understanding of Section 310 is the central disputed issue in this case.
The Board‘s decision also discussed the Manual‘s Presumption of Noncollectibility, pointing to decisions prior to 1987 that demonstrated that a 120-day collection effort was not sufficient to trigger the presumption if the provider could not demonstrate that during those 120 days it had completed its customary collection efforts. See id. at 15-16. In particular, the Board found that if “the Providers chose to utilize the SCA as part of their ‘customary collection effort’ for non-Medicare bad debt accounts,” they were required to utilize the SCA for Medicare accounts as well. Id. at 16. This requirement, in the Board‘s view, was bolstered by its finding that the SCA “did engage in actual collection efforts” and “did result in meaningful collections as the net collection percentages for the SCA ranged from 3.5 percent to 6.5 percent.” Id. The Board did “recognize[] that the Providers’ decision to send only non-Medicare bad debts to the SCA may have been above and beyond the minimum needed to establish a ‘reasonable collection effort.‘” Id. At the same time, “the Providers’ decision to incorporate use of the SCA into its customary collection efforts for non-Medicare accounts means that the SCA activities must be incorporated into the ‘reasonable collection effort’
The Board thus determined that “the Intermediary‘s disallowance of the bad debts at issue is not in conflict with the first prong of the Bad Debt Moratorium.” Id. Nor, the Board concluded, did the disallowance conflict with the second prong of the Moratorium, which prohibits the Secretary from requiring a hospital to change its bad-debt collection policy if a fiscal intermediary, in accordance with rules in effect on August 1, 1987, has “accepted such policy before that date.” Id. at 20-21. Here, the Board found “nothing in the record showing that the Intermediary approved the Providers’ policy of only sending non-Medicare bad debt accounts to a secondary collection agency.” Id. at 21. Having found that the Bad Debt Moratorium posed no problem for the Intermediary‘s recommended disallowances, the Board affirmed them, stating that the Medicare debts the Hospitals had submitted did “not meet[ the] ‘similar’ collection effort requirement within the reasonable collection effort requirements.” Id.
The Administrator of CMS declined to review the PRRB decision in this case. See AR 01. On November 28, 2014, the Hospitals filed this action seeking judicial review of the Board‘s decision and naming the Secretary of HHS, in her official capacity, as Defendant. See ECF No. 1 (Complaint). Plaintiffs moved for summary judgment in December of 2015 and Defendant cross-moved in March of 2016. See ECF Nos. 15 (Motion), 19 (Cross-Motion). It is these Motions the Court now considers.
II. Legal Standard
Both parties here have moved for summary judgment on the administrative record. The summary-judgment standard set forth in
Judicial review оf the agency‘s decision in this case is governed by the Medicare statute,
An agency is required to “examine the relevant data and articulate a satisfactory explanation for its action.” State Farm, 463 U.S. at 43. For that reason, courts “‘do not defer to the agency‘s conclusory or unsupported suppositions,‘” United Techs. Corp. v. U.S. Dep‘t of Def., 601 F.3d 557, 563 (D.C. Cir. 2010) (quoting McDonnell Douglas Corp. v. U.S. Dep‘t of the Air Force, 375 F.3d 1182, 1187 (D.C. Cir. 2004)), and “agency ‘litigating positions’ are not entitled to deference when they are merely [agency] counsel‘s ‘post hoc rationalizations’ for agency action, advanced for the first time in the reviewing court.” Martin v. Occupational Safety & Health Review Comm‘n, 499 U.S. 144, 156 (1991). The reviewing court thus “may not supply a reasoned basis for the agency‘s action that the agency itself has not given.” Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-86 (1974) (citation omitted). A decision that is not fully explained may, nevertheless, be upheld “if the agency‘s path may reasonably be discerned.” Id. at 286.
III. Analysis
In their Motion for Summary Judgment, Plaintiffs raise a number of contentions in support of their position that their Medicare bad debts should have been reimbursed, and Defendant, in her Cross-Motion, conversely defends the PRRB decision on multiple fronts. A central issue contested by both parties is whether the Bad Debt Moratorium in some circumstances allows providers to treat Medicare and non-Medicare accounts differently, if sound business judgment counsels in favor of such differential treatment. Plaintiffs argue that the Board‘s decision in the negative violates the Moratorium, and Defendant disagrees. Because the Court ultimately concludes that Plaintiffs prevail on this point, it will focus its attention there and disregard most of the remaining topics debated in the briefs. After explaining why the Hospitals’ position on the Bad Debt Moratorium is correct, notwithstanding the Secretary‘s efforts to rebut it, the Court then considers Defendant‘s position that Plaintiffs are nonetheless not entitled to reimbursement because they did not follow their own written collections policy. Finding that argument meritless, the Court turns last to what remedy is appropriate in this case.
A. Bad Debt Moratorium
As a reminder, the first prong of the Bad Debt Moratorium prohibits the Secretary from “mak[ing] any change in the policy in effect on August 1, 1987, with respect to” bad-debt reimbursements to service providers under the Medicare statute. See 101 Stat. 1330-55. The parties agree that the regulation requiring providers to expend “reasonable collection efforts” before writing unpaid Medicare accounts off as bad debt, and the similar-collection-efforts standard in PRM § 310, existed in 1987 in the same form as they do now. The only question is whether the PRRB‘s application of the § 310 similar-collection-efforts standard in a rigid and inflexible manner in this case violates its policy that existed in August 1, 1987. See Mot. at 33-34. The Secretary‘s policy in 1987, they maintain, permitted some excеptions to this standard where sound business judgment counseled in favor of differential treatment between Medicare and non-Medicare bad debts. See id.
The first of these two aforementioned decisions is St. Francis Hosp. and Med. Ctr. v. Blue Cross Blue Shield Ass‘n/Kansas Hosp Services Ass‘n, Inc. (St. Francis), PRRB Dec. No. 86-D21 (Nov. 12, 1985), aff‘d, HCFA Adm‘r Dec. (Jan. 8, 1986). In that case, the provider, an acute-care hospital seeking reimbursements for fiscal years 1980-83, “claimed that it subjected all of its accounts receivable to a reasonable collection effort even though uncollected non-Medicare patient accounts were referred to a collection agency, while uncollected Medicare patient accounts were not.” Id. at 1. St. Francis Hospital, the provider, argued that it subjected all its accounts receivable — Medicare and non — to a reasonable in-house collection effort, noting that the Medicare in-house collection effort “is at least as stringent as that for all other patients’ accounts.” Id. at 4. These efforts included sending a bill to a patient three days after discharge and every thirty days thereafter for six months, after which time the Medicare accounts were written off as bad debts and the non-Medicare accounts were turned over to a collection agency. Id. The provider explained that in fiscal years 1983 and 1984, it had also referred its Medicare accounts to a collection agency after these in-house collection efforts, but “no amounts were recovered from the Medicare beneficiaries.” Id. Once the Intermediary‘s audit verified that nothing was recovered by the agencies, the provider “fe[lt] that the inability of its [collection] agency to collect in 1983 justifies its actions” for other fiscal years, “when Medicare accounts were not referred to a collection agency.” Id.
The Intermediary countered that these efforts “were not consistent” and deemed the collection efforts “not reasonable in accordance with Medicare regulations and instructions,” citing
indicates that the collection efforts for Medicare and non-Medicare accounts were identical up to the point when the provider turned certain delinquent accounts over to a collection agency. It is reasonable to write off bad debts when their pursuit would be too costly. While not specific to the years [whose reimbursements were being challenged], the provider referred its Medicаre accounts to a collection agency for the fiscal years ending 1983 and 1984, but did not recover amounts form them. The Board finds that the provider established that there was negligible likelihood of recovery of the Medicare bad debts.
Id. at 7. The Board also suggested that the requirement of Section 310 that a provider refer all uncollected patient charges of like amount to a collection agency was “not in accord with Medicare regulations.” Id. at 2.
This suggests, then, that the similar-collection-efforts standard in Section 310 was not interpreted by the agency as a requirement that debts be treated identically, without regard to the provider‘s business judgment as to whether further efforts to collect on outstanding Medicare accounts would be reasonable. The Administrator affirmed the Board‘s decision in St. Francis without addressing the similar-collection-efforts issue specifically. See HCFA Adm‘r Dec. at 1 (Jan. 8, 1986) (affirming “without opinion as to” similar-collection-efforts issue).
The second case, Reed City Hosp. v. Blue Cross Blue Shield Ass‘n/Blue Cross Blue Shield of Mich. (Reed City), PRRB Dec. No. 86-D67 (Feb. 20, 1986), was similar in many respects. In Reed, the provider, Reed City Hospital in Michigan, determined based on its “experience with collecting bad debts . . . that the results of submitting Medicare accounts to a collection agency would have been negligible due to the highly indigent population in its service area.” Id. at 1. Like the provider in St. Francis, Reed City Hospital first experimented with “forwarding its delinquent Medicare patient accounts to a collection agency,” but this yielded “insignificant results.” Id. The hospital did, however, continue to send its non-Medicаre accounts to a collection agency, and the Intermediary asserted that such disparate treatment violated PRM Section 310. Id. at 3. The Intermediary noted that “there is no evidence to show that the collection agency refused to accept Medicare,” id., so Reed City could have sent both non-Medicare and Medicare patients to the agency. The PRRB did not agree. The Board found that Reed City‘s in-house collection efforts were genuine and were sufficient to constitute a reasonable collection effort as defined by Section 310, such that the hospital‘s subsequent decision to send only non-Medicare delinquent accounts to a collection agency was “a sound one.” Id. at 1. The Board therefore allowed those reimbursements.
Reed City, Plaintiffs argue, stands for the same proposition that St. Francis had embodied just one year prior — that is, that the similar-collections-effort standard set forth in PRM § 310 was not a hard-and-fast rule. In both cases, the Board determined that so long as the provider employed reasonable efforts to collect the Medicare debt, in accordance with
In Mountain States, the plaintiff, the owner of two acute-care hospitals in Tennessee, first engaged in in-house collection efforts for all of its accounts. See id. at 198. Accounts of all types that remained uncollected were then sent to a primary collection agency. “But to the extent that second round of efforts also failed, they adopted different approaches for Medicare and non-Medicare accounts,” sending non-Medicare accounts where the patient was not bankrupt to a secondary collection agency and declaring “all of the remaining Medicare bad debt ‘uncollectible’ and, on that basis,” seeking reimbursement under Medicare. Id. The Secretary denied reimbursement given this dissimilar treatment of non-Medicare and Medicare accounts at the secondary-collection-agency stage, which violated PRM § 310. Id. The provider sought
judicial review of that decision, and the court determined that the disallowance violated the Bad Debt Moratorium. See id. at 212-20. Judge Moss reasoned that ”
In arriving at his conclusion, Judge Moss drew on the analyses of the Sixth and Eighth Circuits, which have also determined that the Secretary‘s policy prior to the adoption of the Moratorium was not to interpret
The Sixth Circuit, in Detroit Receiving Hospital, suggested that “after the initial enactment of the Moratorium[ in 1987], the Secretary began enforcing
In sum, Plaintiffs’ argument about the Bad Debt Moratorium appears strong and has been endorsed by both another court in this district as well as two other circuit courts. Before fully siding with the Hospitals, however, the Court considers Defendant‘s various objections to this position.
B. Defendant‘s Responses
Defendant raises a slew of rejoinders to Plaintiffs’ contention that the Bad Debt Memorandum requires the agency to adhere to a more flexible approach to the similar-collection-efforts standard. Because these arguments are analytically distinct, the Court tackles each separately.
1. Deference to Agency‘s Interpretation
Defendant first argues that deference to an agency‘s own interpretation of its guidance and regulations warrants an affirmance of the Board‘s decision here. See Cross-Mot. at 11. Plaintiffs respond that the Secretary is “attempt[ing] to cover a multitude of legal issues and facts in this case with a haze of deference to the agency‘s ‘reasonable interpretation’ of the regulation.” Pl. Reply at 4. The deference issue, in fact, is somewhat nuanced.
To be sure, courts typically “give substantial deference to an agency‘s interpretation of its own regulations.” Thomas Jefferson University v. Shalala, 512 U.S. 504, 512 (1994). Under this practice, an agency‘s interpretation of its regulations is given controlling weight “unless it is plainly erroneous or inconsistent with the regulation.” Id. (quotation marks omitted) (citing Udall v. Tallman, 380 U.S. 1, 16 (1965)). The Bad Debt Moratorium complicates the deference issue, however, as it requires the Court to follow the agency‘s 1987 interpretation of its own regulations, rather than the agency‘s present-day interpretation of the same. Under the Moratorium, an otherwise “reasonable” interpretation of a bad-debt regulation, if inconsistent with the Secretary‘s pre-1987 policy, is no longer
2. Regulations Pre-Date Moratorium
Next, the Secretary asserts that both the similar-collection-efforts standard, as articulated in
The question facing the Court, then, is whether the Secretary‘s current understanding of the regulation and the Manual is consistent with the agency‘s understanding of those materials in 1987, and any attempt to answer such a question requires recourse to the PRRB decisions that predate the Moratorium and reflect the agency‘s position at that time. This is because “[t]he Secretary‘s current interpretation of [Medicare] rules and guidelines is not determinative” as to whether the present interpretation was consistent with the pre-1987 policy of the Secretary. See Detroit Receiving Hosp., 1999 WL 970277, at *7. Rather, “the Secretary‘s policy in 1987 included both the PRM and the PRRB decisions interpreting it ([including ]St. Francis and Reed City).” Id. at *11 (internal quotation marks and citation omitted). That the Court‘s Moratorium analysis is informed by these PRRB decisions does not mean, contra Defendant, that it “elevate[s] those decisions above official policy statements such as
Defendant argues, relatedly, that “Board decisions are non-precedential and are not binding on the Secretary.” Cross-Mot. at 26. That may be so, but the Court does not look to St. Francis and Reed City simply because they are PRRB decisions, but rather because they reveal the Secretary‘s bad-debt reimbursement policy prior to August 1, 1987. The PRRB decisions inform this Court‘s determination whether the Secretary‘s present policy is inconsistent with that policy and therefore runs afoul of the Moratorium. In implicit acknowledgment
3. Failure to cite St. Francis and Reed City at PRRB
Defendant also objects that Plaintiffs rely on St. Francis and Reed City in their briefing before this Court but did not cite those decisions to the Board. This, they argue, prevents the Court from relying on those decisions to rule on the Board‘s disallowance, as courts generally “will not consider arguments that have not been first presented to the agency in the administrative proceedings.” Cross-Mot. at 23 (citing Pleasant Valley Hosp., Inc. v. Shalala, 32 F.3d 67, 70 (4th Cir. 1994)).
First, the providers in this case point out that they did note that St. Francis and Reed City were relevant legal authorities and attached them as Supplemental Exhibits in their record filings. See Pl. Opp. and Reply at 15-16; AR 669 (Supplemental Exhibits). Defendant proffers no reason the Hospitals may not further discuss those exhibits in their present briefings before this Court. Second, the requirement that arguments first be presented to an agency for its adjudication does not extend to authority cited in support of such arguments. So long as the party advanced the contention before the agency – viz., that the first prong of the Bad Debt Moratorium bars the Secretary‘s disallowance – it is free to support that contention here with whatever cases it can muster. See HealthEast Bethesda Lutheran Hosp. and Rehabilitation Center v. Shalala, 164 F.3d 415, 418 (8th Cir. 1998) (Secretary “makes no new argument” in defense of PRRB decision where she “simply directs [the court‘s] attention to more particular legal support” for arguments made below).
4. St. Francis and Reed City Explained by Litigation Prohibition
Defendant next argues that the Board‘s analyses in St. Francis and Reed City were motivated not by a flexible interpretation of the similar-collection-efforts standard, but rather by a different provision of
The pre-1983 prohibition on the threat of litigation to recover Medicare bad debt explained:
It is not the intent of the Medicare bad debt principle that court action be threatened or taken before these uncollected amounts can be reimbursed under this principle. The provider should instruct the collection agency not to use, or threaten to use, court action to collect the Medicare deductible and coinsurance amounts. However, where a collection agency refuses to accept Medicare accounts under the above Medicare restriction on legal action . . . [,] referral of unpaid Medicare deductible and coinsurance amounts is not required. Where referral to a collection agency is not made because of either of these restrictions, this does not, however, relieve the provider of responsibility to put forth a reasonable collection effort . . . .
Def. Exh. 2 (1981
Defendant believes that when the prohibition on court action and threats of court action was part of
This argument, in the Court‘s view, cannot sustain the explanatory weight the Secretary would like it to carry. Crucially, neither St. Francis nor Reed City mentions the 1981 prohibition on threats of litigation, nor does either PRRB decision discuss the practice of some collection agencies of threatening to take or taking court action to collect non-Medicare debts. Faced with the same argument – that the litigation prohibition, rather than a flexible approach to the similar-collection-efforts standard, motivated the decisions in St. Francis and Reed City – the Mountain States court explained:
In Reed City. . . [t]he provider made no reference to the ban on threats of litigation, instead relying exclusively on the asserted indigency of the relevant population, . . . [and] the Board‘s analysis in Reed City makes no mention of the restriction on legal action . . . merely f[inding] that “the provider‘s collection policies reflect that it maintained reasonable collection efforts on Medicare accounts deemed uncollectible as required” by the regulations. . . . Likewise, there is no evidence that the St. Francis decision was based, even in part, on the prohibition of the threat of legal action against Medicare beneficiaries. . . . Without making any reference to the prohibition on the threat of litigation, the Board found the provider‘s efforts met “the reasonable effort requirements” [and explained] . . . that “it is reasonable to write off bad debts when their pursuit would be too costly.”
128 F. Supp. 3d at 217-18 (internal citations and alterations omitted).
The Court concurs. Like Judge Moss, this Court cannot infer, particularly absent any reference to the bar on threats of or actual litigation, that such prohibition motivated the Board‘s decisions in those cases. Indeed, a far more plausible explanation was actually offered by the Board: The PRRB expressly noted in both decisions that the providers had demonstrated that they had employed reasonable collection efforts for their Medicare accounts via in-house attempts to recover outstanding payments and had determined, based on prior experience, that these Medicare accounts yielded little to no recovery when sent for further collection efforts to a collection
Even Defendant does not seem convinced by her alternative interpretation of these decisions. Rather than firmly asserting that the now-rescinded litigation prohibition in
Notwithstanding the absence of discussion of the earlier version of
The other PRRB Decision on which Defendant principally relies for her litigation-prohibitiоn argument is Marian Health Center v. Blue Cross & Blue Shield Assoc., PRRB Hearing Dec. No. 85-D110 (Sept. 23, 1985) (attached as Def. Exh. 4). There, the Board determined that a provider‘s “multi-step in-house [collection] procedure – including numerous billings, personal contacts, and personal letters – for 180 days for all accounts” may have been sufficient to constitute reasonable
Finally, the Court would be remiss not to note that both Davie County and Marian Health Center are Board decisions issued with cursory “Conclusions and Findings” of less than a page, and such conclusions were reached without much explanation or analysis. The decisions, as a result, are of only limited value in ascertaining the Secretary‘s policy in 1987, at least as to the questions posed by this case.
5. Agency‘s 1990 HCFA Clarification
Defendant‘s last rejoinder is that the Secretary‘s post-Moratorium guidance clarifying the agency‘s pre-Moratorium policies is the authoritative guide for the principles “frozen” in place by the Moratorium. See Cross-Mot at 20-21. Specifically, Defendant points to the “HCFA Clarification on Bad Debt Policy,” a memorandum to regulatory advisors dated June 11, 1990. See AR 471-73 (HCFA Clarification). The HCFA Clarification, according to the Secretary, makes clear that the agency‘s pre-1987 interpretation of
The HCFA Clarification was “an attempt to reduce the frequency with which providers may [have] be[en] prematurely designating bad debts as ‘uncollectible’ merely because they have been turned over to a collection agency.” HCFA Clarification at 1 (AR 471). The guidance focused primarily on “the point in the collection effort at which a provider may claim a Medicare bad debt” and was “prompted by the moratorium.” Id. But the thrust of its focus was
We believe that an intermediary could reasonably have interpreted the title of
section 310.2 , Presumption of Noncollectibility, to provide that an uncollectible [Medicare] account could be presumed to be a bad debt if the provider has made a reasonable and customary attempt to collect the bill for at least 120 days even though the claim has been referred to a collection agency. Such an interpretation is reasonable unless it is apparent that the debt is not a bad debt, for example, because the beneficiary is currently making payments on account, or has currently promised to pay thе debt. . . . . Thus, even after 120 days, a debt should not be deemed uncollectible when there is reason to believe that in fact it is collectible. However, the mere fact that a [Medicare] debt is referred to a collection agency after the provider‘s in-house collection effort is completed does not mean that the debt is collectible.
HCFA Clarification (AR 472). The Clarification at most seems to suggest that whether a provider may reasonably send only non-Medicare accounts to a collection agency after the provider‘s in-house collection effort is a fact-dependent determination at the discretion of the Intermediary and, ultimately, the Board. Such a suggestion is not at odds with the Court‘s holding here – that the similar-collection-efforts rule is not a completely inflexible one – and, in fact, seems to support it. In any event, the Court does not believe that Defendant has adequately demonstrated that the HCFA Clarification can or does reveal that the Secretary‘s pre-1987 policy was to require identical collection efforts and identical use of collection agencies in order for a provider‘s efforts to qualify as “similar” and, therefore, reasonable.
* * *
In sum, having found none of Defendant‘s counterarguments meritorious, the Court joins Judge Moss and the Sixth and Eighth Circuits. It concludes that the Secretary‘s rigid application of
C. Failure to Follow Provider Policy
Defendant has a fallback position. It contends that, regardless of whether the agency‘s decision here violated the Bad Debt Moratorium, the Hospitals should not be reimbursed for the disallowed amounts because they did not follow their own written collection policy, which arguably required them to send all accounts to a secondary collection agency. The primary difficulty with such a position, however, is that Defendant offers scant authority for the proposition that failure to follow one‘s policy necessarily results in disallowance of reimbursement.
In support of her argument, the Secretary cites a single PRRB decision, Methodist Hospital of McKenzie v. Blue Cross & Blue Shield Ass‘n, PRRB Hearing Decision No. 99-D71, 1999 WL 973646 (Sept. 30, 1999). In that case, the provider, a hospital-based home-health agency, had recently adopted a policy that required it
The Board, reviewing the Intermediary‘s decision, agreed that “there was no evidence in the record to demonstrate why 11 of 32 accounts were actually uncollectible and written off in less than 120 days.” Methodist Hosp., 1999 WL 973646, at *14. The PRRB decision also includes the following two sentences at the end of its review of the bad-debt disallowances: “The Board also addresses the Provider‘s argument that a statutory moratorium on changes in bad debt collection policy precludes the Intermediary‘s disallowance. The Board concludes that since the Provider did not follow its own bad debt collection policies, the issue is moot.” Id. The PRRB cited no other authority for this proposition, nor did it provide any reason why a provider‘s failure to follow its own policies renders “moot” the question of whether the Bad Debt Moratorium precludes the Secretary‘s disallowance. Defendant, it is worth noting, also offers no other authority or analysis in support of this notion, choosing to hang her hat entirely on the aforementioned unadorned sentences in this single PRRB decision.
In part because of this absence of explanation from the Board in Methodist Hosp., and because the Intermediary below in that case did not rely on any such argument in making its disallowance determination, the Court is not persuaded that the decision stands for such a broad proposition. Rather, the Court believes a better inference is that the Board took the provider‘s change in its policy – from not requiring documentation of collection efforts made on debts written off before 120 days to expressly requiring such documentation – as recognition from the provider that the Intermediary‘s argument was correct. In other words, since the presumption of uncollectibility does not apply to debts written off before 120 days, providers must demonstrate, with documentation, that they were written off because they were “actually uncollectible” within the meaning of
Plaintiffs argue, in the alternative, that even if the Medicare regulations do require disallowance where a provider has not followed its own policy, the Secretary here has not established thаt the Hospitals did not do so. During the hearings before the PRRB, a representative of the Hospitals testified that their policy stated, “If no action is taken[ after OCAs return debts to the Hospitals as uncollectible,] the system will generate a 978 adjustment for all non-Medicare accounts, 985 for Medicare accounts, and transmit the account to the secondary collection agency.” PRRB Dec. at 10; see also AR 224 (original testimony). This implies that all accounts are to be transmitted to the secondary collection agency, Defendants insist, and the Hospitals’ failure to do so constitutes “[a]n independent basis for upholding the disallowance.” Cross-Mot. at 30. Plaintiffs, on the other hand, contend that their policy was ambiguous, and that they had, for a long time, maintained a practice distinct from the understanding of the written policy that Defendant endorses. See Pl. Opp. at 21-23. They offered substantial testimony in their hearing before the Board about how the Hospitals themselves understood their policy to operate. See AR 216-17 (testimony of HMA employee noting that the “policy and procedure” of the Hospitals from the time she began working in 1990 was to send only non-Medicare accounts to a secondary collection agency after they were written off, and that another employee had confirmed that this was the Hospitals’ policy at least dating back to 1985). The PRRB Decision does not discuss such testimony, however, so the Court cannot know what findings of fact or conclusions of law were drawn from it. It does seem, however, that the Hospitals hаve a colorable argument that they did comply with their own longstanding debt-collection policies.
In any event, the Board here did not rule or rely on the fallback contention Defendant now raises. Nowhere did it conclude that a provider‘s failure to follow its own policy automatically renders reimbursement impossible or “moots” the Bad-Debt-Moratorium issue. The Court, accordingly, declines to endorse a position introduced for the first time at this stage in the litigation. See Pleasant Valley Hosp., 32 F.3d at 70.
D. Remedy
The Court‘s conclusion that the Secretary‘s pre-1987 policy interpreted
Here, too, the decision in Mountain States is instructive. As Judge Moss explained, “[E]ven under the standard applied in the Reed City and St. Francis decisions, it was the provider‘s burden to present evidence that the continued ‘pursuit’ of Medicare bad debt would ‘be too costly,‘” and that, consequently, continued collection efforts for non-Medicare accounts only was the reasonable course of action. Id. (quotation marks and citation omitted) (quoting St. Francis). The court
This Court is now in the same position. The Board here found that “the Providers treated Medicare accounts and non-Medicare accounts in a similar manner during in-house and primary collection agency efforts.” PRRB Dec. at 9. It also suggested that “the Providers’ decision to send only non-Medicare bad debts to the SCA may have been above and beyond the minimum needed to establish a ‘reasonable collection effort.‘” Id. at 16. But Plaintiffs do not point to any evidence in the record indicating that sending Medicare accounts to SCAs after those primary collection efforts ended would have been more costly than it was worth and therefore would not have been a sound business decision.
The record established that the SCA activities resulted in payments in 3.5 to 6.5 percent of non-Medicare accounts sent to the SCA. Id. Yet the record does not establish that Medicare accounts would yield payments at a significantly lower rate. The Hospitals, furthermore, seem to rely primarily on generalizations about the Medicare population in explaining their decision not to send those accounts to the SCA, much like the Mountain States providers. See id. at 7 (“The Providers maintain that, while they sent their unpaid non-Medicare accounts to the SCA, they believed that, based on sound business judgment, these accounts were uncollectible and there was no likelihood of collecting them in the future.“). What Plaintiffs’ purportedly “sound business judgment” is based on is not apparent, either from the parties’ briefings or the administrative record.
The Court, therefore, cannot assess whether Plaintiffs’ judgment was reasonable in light of the facts of this case and, accordingly, whether an “occasional exception” to the
On remand, the Board should determine whether the Hospitals’ belief that the recovery rates for Medicare accounts would be less than those for similar-value non-Medicare accounts sent to SCAs was supported by evidence beyond mere assumptions about Medicare patients as a group. St. Francis and Reed City, moreover, should assist in framing the issues. In Reed City, for instance, the provider represented to the Board that it “did not submit the Medicare uncollectibles to the
In both cases, therefore, the Board found that an exception to the similar-collection-efforts standard in
IV. Conclusion
For the foregoing reasons, the Court will deny Defendant‘s Cross-Motion for Summary Judgment, grant in part Plaintiffs’ Motion for Summary Judgment, vacate the decision of the PRRB, and remand for proceedings consistent with this Opinion.
/s/ James E. Boasberg
JAMES E. BOASBERG
United States District Judge
Date: July 25, 2016