Mercy General Hospital et al v. Burwell

MOTION for Summary Judgment

D.D.C.July 22, 2016

4835-3780-9973.2 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA MERCY GENERAL HOSPITAL, et al., Plaintiffs, v. SYLVIA MATHEWS BURWELL, in her official capacity as Secretary of the United States Department of Health and Human Services, ) ) ) ) ) ) ) ) ) ) ) Case No. 1:16-cv-99-RBW-AK Defendant. ) PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT Plaintiffs hereby move this Court, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment in their favor for the reasons set forth in the accompanying Memorandum of Points and Authorities in Support of Plaintiffs’ Motion for Summary Judgment. Plaintiffs request, by way of this Motion, that the Court set aside the November 18, 2015 final decision of Defendant Sylvia Matthews Burwell (“Defendant” or “Secretary”), issued by the Acting Administrator for the Centers for Medicare & Medicaid Services, which denied Plaintiffs reimbursement under the Medicare program for its Medicare bad debts, and that the Court order the Secretary to make payment to Plaintiffs for the amounts to which they are entitled for Medicare bad debts for that year, along with interest in accordance with 42 U.S.C. § 1395(f)(2). Pursuant to Local Rule 7(f), Plaintiff requests oral argument on this Motion for Summary Judgment. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 1 of 50 2 4835-3780-9973.2 Date: July 22, 2016 Respectfully submitted, /s/ Lori A. Rubin Lori A. Rubin, D.C. Bar No. 1004240 Foley & Lardner LLP 3000 K Street, N.W., Suite 600 Washington, D.C. 20007-5109 Telephone: (202) 672-5300 Fax: (202) 672-5399 Email: larubin@foley.com Attorney for Plaintiffs Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 2 of 50 4828-4620-3957.2 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA MERCY GENERAL HOSPITAL, et al., Plaintiffs, v. SYLVIA MATHEWS BURWELL, in her official capacity as Secretary of the United States Department of Health and Human Services, ) ) ) ) ) ) ) ) ) ) ) Case No. 1:16-cv-99-RBW-AK Defendant. ) PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 3 of 50 ii 4828-4620-3957.2 CONTENTS I. INTRODUCTION .............................................................................................................. 1 II. BACKGROUND ................................................................................................................ 2 A. Difficulties Confronted By California Providers With Dual Eligibles’ Outpatient Claims ................................................................................................... 3 B. Difficulties Confronted By California Providers With Dual Eligibles’ Inpatient Claims ...................................................................................................... 4 III. STATUTORY AND REGULATORY FRAMEWORK .................................................... 7 A. Medicare Reimbursement in General for Hospitals and Other Providers of Services ................................................................................................................... 7 B. Medicare Bad Debt Reimbursement ....................................................................... 8 C. The Medicare Bad Debt Moratorium .................................................................... 11 IV. PROCEDURAL HISTORY .............................................................................................. 13 V. STANDARD OF REVIEW .............................................................................................. 14 VI. ARGUMENT .................................................................................................................... 14 A. The Secretary’s Must Bill Policy Is Invalid Because it Violates the Bad Debt Moratorium .................................................................................................. 14 1. PRRB Decisions Do Not Establish Policy on Behalf of CMS. .................. 16 2. The Cited PRRB Decisions Did Not Even Purport to Establish a Must Bill Policy......................................................................................... 19 3. Statements and actions of CMS officials made during the cost years at issue in this case further support the conclusion there was no must bill policy prior to the Moratorium. ............................................ 21 4. The Secretary’s attempt to manufacture a pre-existing must bill policy based on the alleged plain language of the PRM fails. .................. 23 B. In Recognition There Was No Must Bill Policy, CMS Published Guidance On Acceptable Documentation, Upon Which Plaintiffs Relied. .......................... 29 C. Plaintiffs Received The Equivalent Of Remittance Advices From The State....................................................................................................................... 35 Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 4 of 50 iii 4828-4620-3957.2 1. CMS’s refusal to accept the EDS reports because they were not “official” State documents was arbitrary and capricious. ....................... 36 2. CMS’s refusal to accept the EDS reports because they were not “contemporaneous” State documents was arbitrary and capricious. ................................................................................................. 43 VII. CONCLUSION ................................................................................................................. 45 Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 5 of 50 4828-4620-3957.2 I. INTRODUCTION This case involves claims by eighty-three hospitals for Medicare reimbursement for unpaid coinsurance and deductibles incurred by hospital patients who were “dual eligibles” (i.e., entitled to Medicare and eligible for Medicaid). The reimbursement impact for Plaintiffs is approximately $55 million, exclusive of interest, for the 753 cost reporting years at issue. The relevant cost reporting periods are those between October 31, 1995 and December 2004. Plaintiff hospitals’ claims for Medicare reimbursement arose in the context of “ceiling” cases, i.e., cases in which Medicaid, as payor of last resort, assumed some or no liability for the unpaid co-insurance and deductibles, leaving Medicare with the responsibility for them in part or in whole. The Secretary denied the claims on the basis that the Plaintiffs failed to comply with the “must bill policy,” under which a hospital, in a ceiling case, must bill the State and receive a remittance advice prior to submitting the claim for bad debt reimbursement to Medicare. Plaintiffs contend that the “must bill policy” was not in effect prior to the Bad Debt Moratorium (as acknowledged by CMS senior officials) and thus cannot be applied to Plaintiffs’ claims. Moreover, during the cost years at issue, the Secretary’s bad debt policy specifically and purposefully provided that billing the State was not required, provided the hospital could establish the amount of Medicare’s liability for the bad debts (a relatively easy task). Finally, although not required, Plaintiffs contracted with the State’s intermediary, while the claims were pending at the administrative level, to verify Medicaid eligibility and determine the State’s responsibility (or lack thereof) for the bad debts at issue, thus leaving the Secretary with no valid excuse for not paying the claims. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 6 of 50 4828-4620-3957.2 II. BACKGROUND Plaintiffs in this case are non-profit acute care hospitals located in California. During the cost reporting periods in question, the Plaintiffs participated in the Medicare program and in the California Medicaid program (commonly referred to as “Medi-Cal”) as providers of hospital services. Palmetto GBA Services or Wisconsin Physician Services served as the responsible intermediaries (Medicare Administrative Contractors or “MACs”1) under either their current name or former names for the Plaintiffs and cost reporting periods in the group appeals. The State of California operates the Medi-Cal program pursuant to a state plan approved by the Centers of Medicare & Medicaid Services (“CMS”) under Title XIX of the Social Security Act. Because state Medicaid programs are payers of last resort for health care services, 42 U.S.C. § 1396a(a)(25), the Medicare program is primary and the Medi-Cal program is secondary in order of payment for patients eligible for both Medicare and Medicaid benefits. Before asserting its outpatient and inpatient State payment ceilings (discussed below), Medi-Cal generally paid 100% of the Medicare coinsurance and deductibles for Medicare covered services furnished to persons treated by the hospital who were eligible for both Medicare and Medicaid. In the case of inpatient hospital services, claims submitted by California hospitals to the Medicare MAC automatically “crossed over” to Medi-Cal for payment of the Medicare coinsurance and deductible amounts. The Medicare MAC transmitted the Medicare claim information to Medi-Cal pursuant to coordination of benefit agreements. Hospitals did not need to submit separate claims to Medi-Cal in order for the Medicare coinsurance and deductible amounts to be paid. Hospital inpatients eligible for Medicare and Medicaid benefits are referred 1 Until fairly recently, the Medicare contractors that processed hospitals’ and other providers of services’ cost reports were known as “fiscal intermediaries.” For the sake of convenience, the term “MAC” is used throughout regardless of time period. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 7 of 50 4828-4620-3957.2 to as “crossover patients” (Cal. Code Regs. tit. 22, § 51545(a)(22)) and claims to Medi-Cal for Medicare deductible and coinsurance amounts are referred to as “crossover claims” because the claims cross over to Medi-Cal for payment of these Medicare cost sharing obligations after the MAC has processed the claims for primary payment by Medicare. The automatic crossover process between Medicare and Medi-Cal had its limitations and frequently did not function properly. This could be the result of numerous causes such as retroactive Medicaid eligibility, improper or incomplete eligibility data furnished by Medi-Cal or maintained by the MAC, errors in processing after the claim was crossed over from Medicare, hospital information not reported properly to or by Medicare, or a hospital’s failure to follow-up on queries or denials from Medi-Cal. In the case of outpatients, an automated crossover of claims did not go into effect until October 24, 2005 (Medi-Cal Update, Aug. 2005, Ex. P-56 at 1, 3, Administrative Record (A.R.) at 1460, 1462). Without the automated crossover system, California providers with dual eligible outpatient claims had to provide Medi-Cal with hard copy, itemized bills (with the Medicare Remittance Advice attached) in order to secure available payments, if any, toward dual eligible Medicare deductible and coinsurance amounts from Medi-Cal. A. Difficulties Confronted By California Providers With Dual Eligibles’ Outpatient Claims Beginning July 1, 1989, Medi-Cal began applying a “State payment ceiling” (Ex. P-44 at 1, A.R. at 1399) described in CMS’s Provider Reimbursement Manual (PRM), Part - I, § 322 (Ex. P-65, A.R. at 1498) based upon Medi-Cal’s maximum payment allowances under its State plan prior to making payments for deductible and coinsurance amounts. The California Association of Hospitals and Health Systems (CAHHS) filed suit in Sacramento Superior Court challenging Medi-Cal’s payment limitation on the basis that it was implemented without first Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 8 of 50 4828-4620-3957.2 obtaining an approved State plan amendment and adopting regulations authorizing the changed payment methodology. Medi-Cal obtained the state plan amendment and promulgated the necessary regulations in January 1990. CAHHS and Medi-Cal reached a settlement agreement, resulting in Medi-Cal paying $25.1 million to hospitals in late 1990 for the period from July 1, 1989 through January 1990. (See Ex. P-7, A.R. at 614-15; Ex. P-10, A.R. at 680-83). Once properly promulgated, Medi-Cal’s payment limitation was applied with the approval of the Secretary through a properly approved Medicaid State Plan Amendment. Because the Medi-Cal outpatient rates were substantially less than cost or Medicare payment rates, approximately 80 percent of the Medi-Cal outpatient payments were zero or less than one or two dollars. The hospitals’ bills to Medicare did not automatically cross over to Medi-Cal. Moreover, for a provider to bill Medi-Cal for a dual eligible’s coinsurance (which in 80 percent of cases would be nothing) the hospital had to prepare an expensive manual bill with attachments, instead of a much less expensive automatic bill. Most hospitals were not staffed to meet this additional burden because the cost to create a manual cross over bill exceeded the expected payment. B. Difficulties Confronted By California Providers With Dual Eligibles’ Inpatient Claims Under the new (1994) State payment limitation for inpatient crossover patients, Medi- Cal’s payment was limited to the Medicaid payment rate for the services in question minus the amount paid by Medicare. In implementing this policy, Medi-Cal assumed that the Medicare payment for inpatient hospital services equaled or exceeded the Medicaid payment rate and did not perform claim-by-claim comparisons of the actual Medicare payment and the Medi-Cal payment rate. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 9 of 50 4828-4620-3957.2 This new practice was the assertion of a “State payment ceiling” described in PRM, Part - I, § 322. However, to implement this “State payment ceiling” Medi-Cal had to amend its State Medicaid Plan, and it had to first seek and obtain approval from the Secretary to amend this plan. Instead of following this procedure, Medi-Cal implemented its State payment ceiling policy before obtaining approval of an amendment to its state plan from CMS. As a result, hospitals began receiving no payment from Medi-Cal for the Medicare coinsurance and deductibles of crossover patients. Even though Medi-Cal refused to process claims or pay for the Medicare deductibles and coinsurance of crossover patients, CMS refused to allow any Medicare reimbursement for these amounts as bad debts. The rationale for CMS’s position was that until Medi-Cal’s State Plan was approved Medi-Cal was obligated to make payment for the Medicare coinsurance and deductibles under its current plan. Therefore, Medicare took the position that the unpaid amounts could not be reimbursed as Medicare bad debts under PRM, Part I, §322. On February 28, 1996, CMS formally approved State Plan Amendment 94-008, retroactive to May 1, 1994, which authorized Medi-Cal to pay for Medicare coinsurance and deductibles only if and to the extent that the Medicaid payment rate exceeds the Medicare primary payment. Although CMS thus agreed with Medi-Cal’s new policy limiting payment for crossover claims, Medicare nevertheless continued to refuse any bad debt reimbursement for unpaid Medicare coinsurance and deductibles of crossover patients resulting from that policy. In the meantime, several California hospitals filed a lawsuit in federal court against the California Department of Human Services (CDHS), the state agency responsible for Medi-Cal, seeking prospectively to compel full payment of Medicare coinsurance and deductibles for crossover patients. Initially the hospitals obtained a favorable district court ruling enjoining Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 10 of 50 4828-4620-3957.2 Medi-Cal from paying less than the full amount of the Medicare coinsurance and deductibles. Beverly Cmty. Hospital Ass’n v. Belshe, No. 95-4053, 1995 WL 805200, at *1 (C.D. Cal Dec. 18, 1995). In the Balanced Budget Act of 1997 (“BBA”), however, Congress amended the Medicaid statute to permit states to pay less than 100% of Medicare coinsurance and deductibles for Medicare/Medicaid eligible patients (including QMB patients) without a state plan amendment. BBA, Pub.L. 105-33, § 4174, 111 Stat. 251 (1997) (enacted), amending 42 U.S.C. § 1396a(n). In a decision dated December 2, 1997, the Court of Appeals for the Ninth Circuit held that this statutory amendment applied to the California litigation concerning Medi-Cal’s new payment limit on crossover claims and reversed the district court decision in favor of the hospitals. Beverly Cmty. Hosp. Ass’n v. Belshe, 132 F.3d 1259 (9th Cir. 1997). Thus, throughout this controversy California hospitals were caught between the conflicting priorities and practices of Medi-Cal and Medicare. Medi-Cal discontinued payment of the full Medicare coinsurance and deductibles for crossover claims under a policy that was eventually approved by CMS, and ultimately by Congress, retroactively to May 1, 1994. Yet Medicare refused to allow any bad debt reimbursement for the unpaid amounts – initially because Medi-Cal’s action was inconsistent with the terms of its state plan and then (after CMS approved the state plan amendment retroactively) because Medi-Cal had not performed a proper claim-by-claim comparison of the Medicare payment with the Medi-Cal payment rate. This impasse continued until 1999, when Medi-Cal furnished non-contemporaneous ad- hoc special reports (Reports) to the MAC showing the claim-by-claim comparison of the amount paid by Medicare and the Medicaid payment rate for inpatient crossover claims. Based on these Reports, the Medicare MAC made lump-sum payments to hospitals for the unpaid Medicare coinsurance and deductibles, retroactive to May 1, 1994. Meanwhile, from these Reports, Medi- Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 11 of 50 4828-4620-3957.2 Cal recouped all payments it had made on crossover claims under the invalidated district court order in Beverly that were in excess of the Medi-Cal payment rates, and also made payments, up to the amount of the Medi-Cal rate, on those crossover claims that had not been paid. The final reports produced for Medi-Cal by its claims processing fiscal intermediary (EDS) and relied on by the Intermediary for the lump sum payments of inpatient crossover bad debts were not furnished to the Plaintiffs until late August 1999. Upon Plaintiff review of the reports, it was apparent that the lists did not include all inpatient crossover claims for the Plaintiffs during the period allegedly covered by the lump sum payments, May 1, 1994 through April 14, 1999. Similarly, after April 14, 1999, the system of automated crossing over claims from Medicare to Medi-Cal continued to fall short of ensuring that all claims were identified, forwarded or processed. (See generally Ex. P-45—P-55, A.R. at 1407-58). III. STATUTORY AND REGULATORY FRAMEWORK A. Medicare Reimbursement in General for Hospitals and Other Providers of Services Title XVIII of the Social Security Act established the Medicare program, which provides medical care for the elderly and disabled. 42 U.S.C. §§ 1395 – 1395lll; see also Kaiser Found. Hosps. v. Sebelius, 708 F.3d 226, 227 (D.C. Cir. 2013). The Medicare program is administered by the Secretary of Health and Human Services through the Centers for Medicare & Medicaid Services (“CMS”). Ark. Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275 (2006). Medicare providers of services, including hospitals, enter into written agreements (provider agreements) with the Secretary to provide Medicare Part A and Medicare Part B services to eligible individuals. 42 U.S.C. § 1395cc. Medicare Administrative Contractors (MACs), private companies that process payments on behalf of CMS, then make interim payments to providers, subject to subsequent adjustments. 42 U.S.C. § 1395h. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 12 of 50 4828-4620-3957.2 To calculate these adjustments, providers are required to submit an annual cost report to their MAC identifying total costs incurred during the course of the fiscal year. 42 C.F.R. §§ 413.20, 413.24. MACs then analyze and audit the cost report and inform the providers of a determination of the amount of total Medicare reimbursement to which they are entitled, referred to as the notice of amount of program reimbursement (“NPR”). 42 C.F.R. § 405.1803; see also Regions Hosp. v. Shalala, 522 U.S. 448 (1998). If a provider is dissatisfied with its NPR, and if the provider meets the requirements set forth in 42 U.S.C. § 1395oo(a), the provider may appeal the determination to the Provider Reimbursement Review Board (“PRRB”). 42 U.S.C. § 1395oo(a)(1)(A)(ii). A decision of the PRRB is final unless the Secretary, on her own motion, and within 60 days after the provider is notified of the PRRB decision, reverses, affirms, or modifies the PRRB’s decision. 42 U.S.C. § 1395oo(f). The Secretary has delegated her final authority to modify, affirm, or reverse PRRB decisions to the Administrator of CMS (“Administrator”). 42 U.S.C. 1395oo(f)(1); 42 C.F.R. § 405.1875. Following a final decision of the PRRB or the Administrator, a provider is entitled to file a civil action in the United States District Court for the District of Columbia to seek judicial review of the final agency action. 42 U.S.C. § 1395oo(f). B. Medicare Bad Debt Reimbursement From the Medicare program’s inception in 1965 until 1983, hospitals were reimbursed the lower of their reasonable costs or customary charges for services provided to Medicare beneficiaries. See 42 U.S.C. § 1395f(b)(I). Effective with cost reporting years beginning October l, 1983, Congress adopted the inpatient prospective payment system (“IPPS”) to reimburse hospitals for their inpatient operating costs. See 42 U.S.C. § 1395ww(d). Under IPPS, Medicare payments for hospital operating costs are not based directly on the costs actually Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 13 of 50 4828-4620-3957.2 incurred by the hospitals. Rather, they are based on predetermined, nationally applicable rates, subject to certain payment adjustments. 42 U.S.C. § 1395ww(d)(l)—(5). Although most Medicare hospital payments are made under IPPS, Medicare payment for Medicare bad debts is made under a cost-based methodology, rather than IPPS. Medicare “bad debts” are unpaid amounts for deductibles or copayments, owed by Medicare patients for covered Medicare services. 42 C.F.R. § 413.89(e); see also 42 C.F.R. § 413.89(b)(1). These bad debts are deductions from revenue and are not to be included in costs reported by the provider. 42 C.F.R. § 413.89(a). That is, they are not reasonable costs. However, the Medicare statute prohibits cost-shifting, which means that costs associated with services provided to Medicare beneficiaries cannot be borne by non-Medicare patients, and vice versa. 42 U.S.C. § 1395x(v)(1)(A)(i); Walter O. Boswell Mem’l Hosp. v. Heckler, 749 F.2d 788, 791,(D.C. Cir. 1984) (noting that statute prohibits “cost-shifting” between Medicare and non- Medicare patients). In order to prevent cost-shifting, a provider unable to collect from a Medicare beneficiary can claim the amounts owed as “bad debts” and be reimbursed under Medicare if the provider meets certain criteria specified in 42 C.F.R. § 413.89(e).2 According to 42 C.F.R. § 413.89(e), bad debts attributable to unpaid Medicare cost sharing responsibility of the patients are reimbursable if: (1) the debt is “related to covered services and derived from deductible and coinsurance amounts”; (2) the provider establishes that 2 With regard to cost shifting, the bad debt regulation states as follows: The failure of beneficiaries to pay the deductible and coinsurance amounts could result in the related costs of covered services being borne by other than Medicare beneficiaries. To assure that such covered service costs are not borne by others, the costs attributable to the deductible and coinsurance amounts that remain unpaid are added to the Medicare share of allowable costs. 42 C.F.R. § 413.89(d). Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 14 of 50 4828-4620-3957.2 “reasonable collection efforts were made”; (3) the debt was “actually uncollectible when claimed as worthless”; and (4) “sound business judgment” establishes that there is “no likelihood of recovery at any time in the future.” § 413.89(e). Chapter 3 of the Medicare Provider Reimbursement Manual, 2 Part I (“PRM”), contains the Secretary’s interpretation of section 413.89. Catholic Health Initiatives v. Sebelius, 617 F.3d 490, 491 (D.C. Cir. 2010) (noting that PRM contains “guidelines and policies” but “does not have the effect of regulations”). Three sections of the PRM are especially relevant. Section 310 of the PRM generally requires that a provider engage in a “reasonable collection effort” of Medicare debts before being able to deem the debts uncollectible; however, section 310 is subject to the provisions of section 312 of the PRM, which allows providers “to deem Medicare beneficiaries indigent or medically indigent where such persons are also Medicaid recipients and considered by a State to be either categorically needy or medically needy.” (Ex. P-64, A.R. at 1498.). As stated in the BCBSA Handbook on Bad Debts, “[o]nce a patient is deemed indigent, a Medicare bad debt can be claimed without any effort to collect.” Provider’s Ex. P-43 at 25, A.R. at 1402. Section 312 further states that “The provider must determine that no source other than the patient would be legally responsible for the patient’s medical bill; e.g., title XIX, local welfare agency and guardian.” (emphasis added). Section 322 of the PRM notes that prior to 1968, all Medicaid State plans were required to pay the Part A deductible and coinsurance amounts for inpatient hospital services, but that effective with the 1967 Amendments to the Social Security Act, States no longer were required to pay deductible and coinsurance amounts; rather, States could amend their State Plans to Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 15 of 50 4828-4620-3957.2 provide payment up to a “ceiling,” which could result in the State paying only part of, or none, of the Part A deductible. PRM Section 322 gave the following example: For example, assume that a State pays a maximum of $42.50 per day for SNF services and the provider’s cost is $60.00 a day. The coinsurance is $32.50 a day so that Medicare pays $27.50 ($60.00 less $32.50). In this case, the State limits its payment towards the coinsurance to $15.00 ($42.50 less $27.50). In these situations, any portion of the deductible or coinsurance that the State does not pay that remains unpaid by the patient, can be included as a bad debt under Medicare, provided that the requirements of §312 are met. C. The Medicare Bad Debt Moratorium In 1987, 1988, and 1989, Congress passed a total of three amendments in concerned response to heightened scrutiny by CMS (then known as the Health Care Financing Administration) and its MACs (then Fiscal Intermediaries) of Medicare bad debt reimbursement requests. Hennepin County Med. Ctr. v. Shalala, 81 F.3d 743, 747 (8th Cir. 1995). The three amendments are collectively known as the Bad Debt Moratorium. First, in 1987, Congress enacted legislation to prohibit the Secretary from imposing more restrictive documentation requirements on providers for purposes of Medicare bad debt reimbursement, as part of the Omnibus Budget Reconciliation Act of 1987 (OBRA ‘87), Pub. L. No. 100-203, 101 Stat. 1330. Section 4008 of OBRA ‘87 provided: (c) CONTINUATION OF BAD DEBT RECOGNITION FOR HOSPITAL SERVICES. -- In making payments to hospitals under title XVIII of the Social Security Act, 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 title XVIII of the Social Security Act to providers of service for reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance amounts incurred under such title (including criteria for what constitutes a reasonable collection effort). 101 Stat. 1330-55 (emphasis added). Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 16 of 50 4828-4620-3957.2 Notwithstanding, the Secretary’s Inspector General continued to press for closer scrutiny of bad debt reimbursement requests. Hennepin County Med. Ctr., 81 F.3d at 747. In fact, in the fiscal year following the Bad Debt Moratorium, MACs disallowed 40 percent of the bad debt claims. In response, Congress amended the Bad Debt Moratorium in 1988. Foothill Hosp. v. Leavitt, 558 F. Supp. 2d 1, 3 (D.D.C. 2008). Specifically, in section 8402 of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647, 102 Stat. 3342, Congress added the following language to the Bad Debt Moratorium: MAINTENANCE OF BAD DEBT COLLECTION POLICY. Effective as of the date of the enactment of the Omnibus Budget Reconciliation Act “42 USC § 1395f note” of 1987, section 4008(c) of such Act is amended by inserting after “reasonable collection effort” the following: “,including criteria for indigency determination procedures, for record keeping, and for determining whether to refer a claim to an external collection agency”. In 1989, in section 6023 of OBRA ‘89 Congress amended the Moratorium a third and final time by adding the following language: CLARIFICATION OF CONTINUATION OF AUGUST 1987 HOSPITAL BAD DEBT RECOGNITION POLICY. (a) IN GENERAL. -- Section 4008(c) of the Omnibus Budget Reconciliation Act of 1987 is amended by adding at the end the following: “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, with respect to criteria for indigency determination procedures, record keeping, and determining whether to refer a claim to an external collection agency, has accepted such policy before that date, and the Secretary may not collect from the hospital on the basis of an expectation of a change in the hospital’s collection policy.” Thus, the Bad Debt Moratorium, as amended, contains two restrictions 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 that would make it more difficult for the providers to claim bad debts. See Foothill, 558 F. Supp. 2d at 5-9 (rejecting the Secretary’s argument that she “is free to make changes to [her] own policies and is restricted only in modifying the individual policies of Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 17 of 50 4828-4620-3957.2 individual Medicare providers,” in light of the clear statutory text and the historical context in which the statute was passed). Second, the Secretary is prohibited from requiring a provider to change bad debt policies it had in place on August 1, 1987. Id. at 4 (noting that the Bad Debt Moratorium “clearly prevents the Secretary from changing a provider’s established bad debt policy”); see also Univ. Health Servs., Inc. v. Health & Human Servs., 120 F.3d 1145, 1147-48 (11th Cir. 1997). IV. PROCEDURAL HISTORY Within 180 days of the date of their Notices of Program Reimbursement, the Plaintiffs appealed to the Secretary’s Provider Reimbursement Review Board (PRRB). On September 14, 2015, the PRRB upheld the MAC’s denial of the claimed bad debt reimbursement. On November 18, 2015, the CMS Administrator, acting upon authority delegated by the Secretary, issued the final decision of the Secretary, which affirmed the PRRB’s decision. See 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. § 405.1877(a)(4). The Secretary’s final decision held that her “must bill policy” pre-dated the Bad Debt Moratorium and applied to facts of this case. The Secretary also held that section 1102.3L of the PRM, Part II (hereinafter referred to as “section 1102.3L.” or “section 1102.3L. of the PRM”), violated the Bad Debt Moratorium and was inapplicable to the facts of this case. The Secretary further held that the reports that Plaintiffs contracted for and received from the State’s fiscal intermediary did not qualify as remittance advices from the State because they were “not contemporaneously generated State documents,” and that “they were not validated, certified, or adopted as State documents and do not qualify as State remittance advices.” Adm’r Decision at 17, A.R. at 18. Finally, the Secretary held that the Plaintiffs were not entitled to hold harmless relief under Joint Signature Memorandum (JSM) 370. Adm’r Decision at 16, A.R. at 17. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 18 of 50 4828-4620-3957.2 V. STANDARD OF REVIEW The Medicare Act provides for judicial review of a final decision made by the PRRB or the Secretary. 42 U.S.C. § 1395oo(f)(1). It instructs the reviewing court to apply the provisions of the Administrative Procedure Act. Id. Because this case involves a challenge to a final administrative decision, the Court’s review on summary judgment is limited to the Administrative Record. Holy Land Found. for Relief and Dev. v. Ashcroft, 333 F.3d 156, 160 (D.C. Cir. 2003) (citing Camp v. Pitts, 411 U.S. 138, 142 (1973)); Richards, 554 F.2d at 1177 (“Summary judgment is an appropriate procedure for resolving a challenge to a federal agency’s administrative decision when review is based on the administrative record.”). Under the APA, an agency decision is set aside if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” and its factual findings are overturned if “unsupported by substantial evidence.” 5 U.S.C. § 706(2)(A), (E); see also Murray Energy Corp. v. F.E.R.C., 629 F.3d 231, 235 (D.C. Cir. 2011). If the agency has rationally set forth the grounds on which it acted, the court may not substitute its judgment for that of the agency. BNSF Ry. Co. v. Surface Transp. Bd., 604 F.3d 602, 611 (D.C. Cir. 2010) (internal quotation and citation omitted). However, this Court must ensure that the agency has “considered the factors relevant to its decision and articulated a rational connection between the facts found and the choice made.” Safari Club Int’l v. Salazar, 709 F.3d. 1,8 (D.C. Cir. 2013) (quoting Keating v. F.E.R.C., 569 F.3d 427, 433 (D.C. Cir. 2009)). VI. ARGUMENT A. The Secretary’s Must Bill Policy Is Invalid Because it Violates the Bad Debt Moratorium The Secretary denied Plaintiffs’ claims simply because they did not bill the State and receive official remittance advices. The Secretary’s must bill policy was not in effect prior to the Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 19 of 50 4828-4620-3957.2 effective date of the Moratorium (and in fact, as explained in VI.B. below, CMS affirmatively chose not to have a must bill policy), and for this reason alone the Secretary’s decision must be reversed. The Secretary’s must bill policy came about, if at all, no earlier than 2000, far after the August 1, 1987 effective date for the Moratorium. The first mention of the purported must bill policy appears to be in the Administrator Decision for California Hospitals 90-91 Outpatient Crossover Bad Debts Group. California Hosp. 90-91 Outpatient Crossover Bad Debts Grp., 2000 WL 33170706 (2000). There, the Administrator stated that final decisions of the Secretary consistently held providers must bill Medicaid, citing three PRRB decisions, including one that did not even pre-date the effective date of the Moratorium. The Administrator Decision responds to Plaintiffs’ argument before the PRRB that the must bill policy was not established prior to the effective date of the Moratorium by stating that the must bill policy “has been consistently articulated in the final decisions of the Secretary addressing this issue, since well before the cost year in this case and applied to prior cost years prior to August 1, 1987.” Adm’r Decision at 13, A.R. at 14. This is a cleverly worded statement because it seems intended to lead the reader to believe that the cited final decisions (discussion of which is buried in a footnote) established the must bill policy, but it does not actually say that the final decisions established the must bill policy (which they did not and could not) or that they were even all issued prior to August 1, 1987. In fact, the Administrator cites to two PRRB decisions as attempted proof that the must bill policy predated the 1987 effective date.3 Both as 3 Adm’r Decision at 13, n.16, A.R. at 14, n.16, citing St. Joseph Hospital, PRRB Dec. No. 84- Dl09, and Concourse Nursing Home, PRRB Dec. No. 83-D152 (neither of which is a “ceiling” case). Oddly, the Administrator Decision also cites Hospital de Area de Carolina, Admin. Dec. No 93-D23, but this decision was not issued until six years after the effective date of the Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 20 of 50 4828-4620-3957.2 a matter of law, and as a matter of fact, the cited PRRB decisions could not and did not establish (or even attempt to establish) a must bill policy. Not only is there no policy statement in the form of a regulation, manual provision, or CMS Ruling that the Administrator Decision can point to, the Administrator’s position ignores evidence in the record that senior CMS policy officials emphatically stated in 1994 that there was no must bill policy. These same CMS policy officials demonstrated that they understood that, if CMS put into place a must bill policy, that would violate the Bad Debt Moratorium. 1. PRRB Decisions Do Not Establish Policy on Behalf of CMS. CMS’s longstanding policy is that neither PRRB decisions nor even CMS Administrator decisions set policy for CMS.4 See, e.g., Marion General Hospital 2007 WL 1004392, at *7 (2007) (“Notably, neither the Board, nor the Administrator decisions, are precedential and binding outside the four corners of the particular decision”); Kaiser Foundation Hospitals— Southern California Region 1999 - 2003 GME FTE Cap Group, 2010 WL 5571046, at *8 (2010) (“As courts have recognized, Administrator decisions are not precedential”); VNA of Albany, Inc. 2007 WL 3341634, at *5 n.4 (“Administrator decisions are not precedential”). CMS has even put this principle in its Provider Reimbursement Manual (PRM), CMS Pub. 15-1. Section 2927(e) of the PRM is entitled “Nonprecedential Nature of the Administrator’s Review Decision,” and states in full: Moratorium. Moreover, as demonstrated below, even Administrator decisions do not set policy for CMS, and further, the Hospital de Area de Carolina decision was not a crossover bad debt case and did not purport to establish any must bill policy for crossover bad debts. 4 As a practical matter, PRRB decisions could not set policy for CMS because where the PRRB issues a decision that becomes the final decision of the Secretary because the CMS Administrator declines review, it is impossible to know whether CMS is concurring only in the result or whether it agrees with some, all, or none of the rationale of the PRRB. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 21 of 50 4828-4620-3957.2 Decisions by the Administrator are not precedents for application to other cases. A decision by the Administrator may, however, be examined and an administrative judgment made as to whether it should be given application beyond the individual case in which it was rendered. If it has application beyond the particular provider, the substance of the decision will, as appropriate, be published as a regulation, HCFA Ruling, manual instruction, or any combination thereof so that the policy (or clarification of policy) having a basis in law and regulations may be generally known and applied by providers, intermediaries, and other interested parties.5 The D.C. Circuit has relied on the above section of the PRM in finding that Administrator decisions are not precedential. See Cmty. Care Found. v. Thompson, 318 F.3d 219, 227 (D.C. Cir. 2003) (quoting from section 2927(e) of the PRM). In prior litigation, the Secretary has taken the position that PRRB decisions do not set policy for CMS or the Secretary. See Def.’s Mem. in Supp. of Summ. J. at 14-15, Foothill Hospital v. Leavitt, No. 1:07-cv-00701-ESH (D.D.C. 2008), ECF No. 13.6 In that case, the Secretary argued that PRRB decisions are not precedential because it was to the Secretary’s advantage to do so.7 5 There is nothing unusual about CMS’s position that neither PRRB nor Administrator decisions set policy for CMS. Under other Medicare appeals processes, an unreviewed decision of an Administrative Law Judge (ALJ) or a decision of the Departmental Appeals Board (DAB) is the final decision of the agency. See, e.g., 42 C.F.R. §§ 405.1048, 405.1130, 498.74, 498.90. Yet neither an ALJ decision (which may conflict with other ALJ decisions) nor a DAB decision sets policy for CMS. 6 There, the Secretary asserted: [A]ny contrary PRRB decisions made in the context of individual claims adjudication are not precedential and do not establish inconsistency in the Secretary’s policymaking position. Cf. PRM § 2927 (“Decisions by the Administrator are not precedents for application to other cases.”); see also Cmty Care Found. v. Thompson, 318 F.3d 219, 226-27 (D.C. Cir. 2003) (PRRB decisions do not bind the Secretary). 7 In Foothill, the underlying issue was whether the provider could claim bad debts while they were still at a collection agency. The court noted that, in a previous decision, the CMS Administrator approved a bad debt claim even though an outside collection agency was still managing the delinquent accounts, and that “Defendant tries to downplay the importance of [the Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 22 of 50 4828-4620-3957.2 Because the Secretary asserted in prior litigation that PRRB decisions do not set policy for the Secretary, when it was in her interest to so assert, she is prevented by the doctrine of judicial estoppel from claiming in this litigation that PRRB decisions set forth any policy, including a must bill policy. See Moses v. Howard Univ. Hosp., 606 F.3d 789 (D.C. Cir. 2010) (“Courts may invoke judicial estoppel ‘[w]here a party assumes a certain position in a legal proceeding, . . . succeeds in maintaining that position, . . . [and then,] simply because his interests have changed, assume[s] a contrary position’“). Finally, the Secretary has admitted in previous litigation that the same PRRB decisions cited in the Administrator Decision (St. Joseph Hospital and Concourse Nursing Home) were not precedential. In Grossmont Hosp. Corp. v. Sebelius, No. 10-cv-01201 (D.D.C. 2012), the Secretary, in response to the same argument raised here, stated that “[t]he Secretary does not contend that the Board sets policy for her or that Board or Administrator decisions are precedent binding on this Court. Rather, the Secretary cites her previous final decisions as evidence that the must-bill policy pre-dates the 1987 congressional moratorium on changes to bad debt reimbursement policy.” Def’s Reply at 6 n.6, ECF No. 24. To the Secretary’s claim that the PRRB decisions did not establish the must bill policy, but are evidence of it, the Plaintiffs respond: evidence of what? If the PRRB decisions are evidence of a pre-Moratorium must bill policy, then where is the policy? The Secretary is trying to have it both ways. The Administrator repeatedly cites St. Joseph Hospital and Concourse Nursing Home as “setting above-referenced Administrator decision] by incorrectly referring to it as a PRRB decision.” Foothill Hospital v. Leavitt, 558 F. Supp. 2d at 7, n.9. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 23 of 50 4828-4620-3957.2 forth the policy,”8 but when called on, it retreats to the position that they are just further proof of the policy, without pointing to any place where the policy actually exists. 2. The Cited PRRB Decisions Did Not Even Purport to Establish a Must Bill Policy. Even if the two PRRB decisions cited in the Administrator Decision could establish policy on behalf of CMS (which, as demonstrated above, they could not), they did not even purport to establish policy of any sort, let alone a must bill policy for crossover bad debts. Before demonstrating that the PRRB decisions did not purport to establish any policy, it is important to note that the situation the two PRRB decisions dealt with is entirely different than the situation in which CMS announced its must bill policy in 2000 and the situation in which it attempts to apply it in the instant case. The stated purpose of the must bill policy is that the provider must bill the State and receive a remittance advice before CMS will provide any bad debt reimbursement that may be due. By definition, therefore, the must bill policy (to the extent it exists at all) is applicable only in “ceiling” cases, i.e., cases in which the State, under its State Plan, capped its responsibility for the bad debts and left Medicare with the responsibility for the balance. There is no must bill policy, and no need for a must bill policy, in non-ceiling cases, i.e., cases in which the State has assumed complete responsibility for the unpaid co-insurance and deductibles and therefore Medicare has no responsibility. Thus, when a provider asserted that Administrator decisions were inconsistent on the subject of a must bill policy, the 8 See, e.g., Adm’r Decision at 13 n. 16, A.R. at 14 n.6; Medicare Inpatient/Outpatient Unbilled Bad Debt Group Appeals v. Noridian Healthcare Solutions, Adm’r Dec. 2015-D23, reprinted in 2015 Medicare & Medicaid Guide (CCH) ¶ 83,026 at 11 n. 16; Life Care Center of Scottsdale v. Blue Cross Blue Shield Association/National Government Services, Inc., 2010 Medicare & Medicaid Guide (CCH) ¶82,601, Adm’r Dec. 2010-D23 at 13-14 n. 12. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 24 of 50 4828-4620-3957.2 Administrator disagreed, saying that the decision the provider put forth to show an inconsistency was not a ceiling case: Although the Providers cite Communi-Care, Admin. Dec. No. 97-D24, for support, the Administrator reversed that case finding that there was no evidence in the record that the State applied a ceiling to crossover payments. As the Administrator found no evidence of a ceiling, it was logical that the Administrator did not address the issue of whether a provider is required to bill the State when there was a ceiling and thus the Administrator was not required to specifically reverse the Board on that issue. California Hosp. 90-91 Outpatient Crossover Bad Debts Grp., Adm’r Decision 2000-D80, 2000 WL 33170706, at *9 (2000) (emphasis added).9 In Grossmont the Secretary described the must bill policy as “a must-bill policy that relies upon the State to determine its cost-sharing responsibility” vis-à-vis Medicare’s responsibility, (Defs’. Reply 28). In other words, the must bill policy is applicable to ceiling cases only. The two PRRB decisions cited in the Administrator Decision as establishing the must bill policy prior to the effective date of the Moratorium, i.e., St. Joseph Hospital, PRRB Dec. No. 84- D109, Ex. P-76, A.R. at 1549-51, and Concourse Nursing Home, PRRB Dec. No. 83-D152, Ex. P-75, A.R. at 1531-47, were not ceiling cases, but were instead cases in which the State had 9 In at least one other decision the Administrator recognized the distinction between ceiling and non-ceiling cases: The Administrator recognizes that the Board contended that the circumstance at §322 of the PRM involving a payment ceiling is analogous to this circumstance where the State despite its obligation, has not paid the claim. However, the Administrator finds that the instant case is not analogous to the circumstances of a payment ceiling. In the latter circumstance, the State has no obligation to pay for coinsurance and deductible amounts above the “ceiling.” Village Green Nursing Home v. Blue Cross and Blue Shield Ass’n/Blue Cross and Blue Shield of Arizona, HCFA Adm’r Decision 2000-D59, reprinted in 2000 Medicare & Medicaid Guide (CCH) ¶ 80,561, p.4 (August 3, 2000). Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 25 of 50 4828-4620-3957.2 assumed total responsibility for the bad debts. By the Administrator’s own rationale in California Hospitals 90-91 Outpatient Crossover Bad Debts Group, because the St. Joseph Hospital and Concourse Nursing Home decisions did not deal with a ceiling situation “it was logical that the [PRRB decisions] did not address the issue of whether a provider is required to bill the State when there was a ceiling.” The PRRB decisions did not purport to issue any rule whatsoever – they simply said – unremarkably – that where the State has total responsibility for the bad debts, and Medicare has none, one must bill the State and not seek payment from Medicare. See Exs. P-75 at 14 and P-76 at 2-3, A.R. at 1544 and 1550-51. 3. Statements and actions of CMS officials made during the cost years at issue in this case further support the conclusion there was no must bill policy prior to the Moratorium. At the August 23 - 24, 2012 hearing before the PRRB, Mr. Stephen Clark, who was employed at the time by the California Association of Hospitals and Health Systems as the vice president of finance in charge of the finance and reimbursement issues that affected hospitals, testified. He explained that, in 1992, a Medicare Technical Advisory Group (MTAG) was formed to discuss Medicare reimbursement issues facing hospitals. Tr. (August 23, 2012) at 23, 28, A.R. at 328, 329. The MTAG consisted of representatives from CMS,10 MACs, and hospitals. Tr. (August 23, 2012) at 26, A.R. at 329. Within the MTAG, was a taskforce (Taskforce) that addressed Medicare cost reporting issues for hospitals, and in particular the “Form 339,” which was a questionnaire that was completed by hospitals as an integral part of their required cost report filings. Tr. (August 23, 2012) at 27, 28, A.R. at 329. Mr. Clark was the chair of the Taskforce, and other members included Chuck Booth, who was the director of 10 At this time, what is now known as CMS was called the Health Care Financing Administration. For ease of reference, “CMS” will be used throughout regardless of the time period involved. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 26 of 50 4828-4620-3957.2 Office of Payment Policy at CMS, and Eric Yospe, who was the Director of the Division of Audit and Payment Management at CMS, and in charge of cost reporting audit operations. Tr. (August 23, 2012) at 28, 30-31, A.R. at 329, at 330. Minutes from the December 8 and 9, 1993 meeting of the Taskforce were entered into the record (Exhibit P-23, A.R. at 932-37) and Mr. Clark testified that he prepared them at the meeting and reduced them to memo form in January 1994. Tr. (August 23, 2012) at 32-33, A.R. at 330-31. He testified that he would take notes during the Taskforce meetings, type them, share them with Chuck Booth to make sure that he had captured everything accurately, and once he had Mr. Booth’s input he would share them with the full Taskforce members, seek any input and then finalize them and send out the final minutes to all of the Taskforce members. Tr. (August 23, 2012) at 33-34. A.R. at 331. The final minutes of the December 8 and 9, 1993 meeting of the taskforce state that “In addition, it was clarified that it was not HCFA’s policy to require billings by hospitals to qualify Medicare crossover patients as bad debts.”11 See Ex. P-23 at 2, A.R. at 933. Both Mr. Booth and Mr. Yospe stated at the December 8 and 9 meeting that it was not HCFA’s policy to have a must bill policy. Tr. (August 23, 2012) at 41, A.R. at 333. Mr. Clark said that Mr. Booth was “adamant” that there was no must bill policy. Tr. (August 23, 2012) at 55, A.R. at 336. None of the MAC representatives on the Task Force indicated that there was a must bill policy. Tr. (August 23, 2012) at 56, A.R. at 336. 12 11 The Minutes from the February 16 and 17, 1994 meeting of the Task Force contain the recommendation that the revised Form 339 not require billing. In addition the notes reflect that the three California MACs were requiring billing and that Mr. Clark would “send Chuck [Booth] and Eric [Yospe] the 3 FI's letter re billing. They will deal with Region IX.” Ex. P-25 at 1, A.R. at 966. 12 Mike Smith, from Dignity Health, testified at the hearing that he was present at a meeting hosted by the California Association of Hospitals and Health Systems in the early to mid-1990s, Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 27 of 50 4828-4620-3957.2 The Bad Debt Moratorium was also discussed by the Task Force. Mr. Clark testified that members of the Task Force raised the issue of whether, if HCFA did not have a must bill policy, applying a must bill policy now would be a change in policy that would violate the Bad Debt Moratorium. According to Mr. Clark, Mr. Booth stated there was no must bill policy and if there were, that would violate the Bad Debt Moratorium. Tr. (August 23, 2012) at 43, A.R. at 333. Mr. Clark made contemporaneous notes of Mr. Booth’s statement Tr. (August 23, 2012) at 44, A.R. at 333 and they are in the record. Exhibit P-23 at 2, A.R. at 933. 4. The Secretary’s attempt to manufacture a pre-existing must bill policy based on the alleged plain language of the PRM fails. Because there is no policy statement that CMS can point to that, prior to August 1, 1987, says a provider must bill the State in a ceiling case, the Administrator Decision attempts to circumvent the preclusive effect of the Bad Debt Moratorium by suggesting (but perhaps not actually saying) that the longstanding plain language of the PRM requires providers to bill the State in a ceiling case and receive a remittance advice: A fundamental requirement to demonstrate that an amount is, in fact, unpaid and uncollectible, is to bill the responsible party. Section 310 of the PRM generally requires a provider to issue a bill to the party responsible for the beneficiaries’ payment. Section 312 of the PRM, while allowing a provider to deem a dually eligible patient indigent and claim the associated debt, first requires that no other party, including the State Medicaid program is responsible for payment. Section 322 of the PRM addresses the circumstances of dually eligible patients where there is a State payment ceiling. That section states that the “amount that the State does not pay” may be reimbursed as a Medicare bad debt. This language, which has been in effect since prior to August 1, 1987, plainly requires that the provider bill the State as a prerequisite of payment of the claim by Medicare as a bad debt. Reading the sections together, the Administrator concludes that, in and that the subject of crossover bad debts arose. According to Mr. Smith, the Blue Cross and Blue Shield of California representative at the meeting, Joe Tuma, stated that hospitals were not required to bill Medicaid in order to claim crossover bad debts from Medicare. Tr. (August 23, 2012) at 114, A.R. at 351. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 28 of 50 4828-4620-3957.2 situations where a State is liable for all or a portion of the deductible and coinsurance amounts, the State is the responsible party and is to be billed and a remittance advices [sic] issued in order to establish the amount of bad debts owed under Medicare. Adm’r Decision at 12-13, A.R. at 13-14. But neither the plain language of section 310, nor that of section 312, nor that of section 322 (nor that of any other section) of the PRM requires providers to bill the State in ceiling cases (let alone receive a remittance advice). First, note that the Administrator states that section 310 of the PRM (reasonable collection efforts) “generally” requires providers to bill the party responsible for the co-pays. The qualifier “generally” makes its appearance in recognition of the fact that section 310 is speaking only about billing the beneficiary and is also in recognition of the fact that section 312 makes section 310 inapplicable to dually-eligible patients. Thus, the Administrator quickly moves on to section 312. The Administrator acknowledges that, under section 312, a provider may deem a dually eligible patient indigent and thus is excused from the reasonable collection efforts of section 310, but notes that, under section 312.C., a provider is required to determine that no other party, including the State Medicaid program, is responsible for payment. Fair enough. But section 312 wisely does not say that the only way a provider can determine that the State is not responsible for payment is by billing it, for in truth there are other ways to determine whether and the extent to which the State is responsible for payment of a particular patient’s co- pay.13 A case in point is the process engaged in by the Plaintiffs (discussed in detail below at section VI.B.), which relied on State Medicaid eligibility determinations and State Medicaid payment rates, and which the Administrator did not and could not challenge as leading to 13 The mere fact that section 322 of the PRM uses the language “The provider must determine” indicates that the provider is able to make the determination of the State’s liability on its own, albeit through information that is subject to verification. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 29 of 50 4828-4620-3957.2 inaccurate conclusions about the State’s responsibility (or lack thereof) for the bad debts at issue. Moreover, as discussed below, CMS itself recognized that there were alternative methods for determining the State’s responsibility for bad debts in ceiling cases, as it published program instructions for that specific purpose.14 Whereas, in a bout of buyer’s remorse brought on by the prospect of having to reimburse providers for their crossover bad debts, CMS rescinded section 1102.3L. of the PRM, it did not do so because of any question that the documentation methods contained therein led to inaccurate results. See section VI.B. below. Finally, CMS claims that certain language in section 322 of the PRM, to wit, “amount that the State does not pay,” “plainly requires” providers to bill the State in ceiling cases as a prerequisite of payment of the claim by Medicare as a bad debt. Admin Decision at 13; A.R. at 14. Putting aside that the language “amount that the State does not pay” does not actually appear in section 322 (or elsewhere in the PRM), section 322 in no way plainly requires providers to bill the State in ceiling cases. Section 322 states in pertinent part: In some instances, the State has an obligation to pay, but either does not pay anything or pays only part of the deductible or coinsurance because of a State payment “ceiling.” For example, assume that a State pays a maximum of $42.50 per day for SNF services and the provider’s cost is $60.00 a day. The coinsurance is $32.50 a day so that Medicare pays $27.50 ($60.00 less $32.50). In this case, the State limits its payment towards the coinsurance to $15.00 ($42.50 less $27.50). In these situations, any portion of the 14 In fact, the Secretary did not find any difficulty in calculating the amount owed by Medicare in a State payment ceiling” situation when it promulgated section 1102.3L. in November 1995. There, in lieu of billing the State, she required the provider “to establish that Medicaid is not responsible for payment” by “furnish[ing] documentation of . . . [n]on payment that would have occurred if the crossover claim had actually been filed with Medicaid.” Ex. P-41 at 3, A.R. at 1248. This was a practical solution because “[t]he payment calculation will be audited based on the state’s Medicaid plan in effect on the date that services were furnished. Providers should be aware of any change in the Medicaid payment formula that might impact the crossover calculation, and ensure that these changes are reflected in the claimed Medicare bad debt.” Id. at 4, A.R. at 1249. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 30 of 50 4828-4620-3957.2 deductible or coinsurance that the State does not pay that remains unpaid by the patient, can be included as a bad debt under Medicare, provided that the requirements of §312 are met (emphasis added). Referring to the above language, the Administrator Decision states: In addition, it is clear from section 322 of the PRM that the amount that can be claimed as bad debts is the amount the State “does not pay” which presumes that the State has been billed as all responsible parties are expected to be billed. Adm’r Decision at 7, A.R. at 8. This statement is a non-sequitur. Plaintiffs agree that it is clear from section 322 that the amount that can be claimed as bad debt in a ceiling case is the amount that the State does not pay, but disagrees that this presumes that the State has been billed. The State’s liability or lack thereof is determined as a matter of its State plan and according to a prescribed rate schedule, and not based on a facts-and-circumstances approach that varies from adjudication to adjudication.15 The language “does not pay” is easily read to mean the amount that the State does not pay according to its State plan and rate schedule. Indeed, this is the more natural reading of the language when the whole of the passage quoted above is considered. The paragraph is dealing with a hypothetical situation based on a State’s policy (“assume that a State pays a maximum of $42.50 per day for SNF services”).16 Apparently recognizing that the plain language of none of the three cited sections of the PRM (i.e., sections 310, 312 and 322) say that providers must bill the State and receive a 15 When one says that “Medicare does not pay” for eyeglasses and cosmetic surgery, one is not assuming that Medicare has been billed – rather, that statement that “Medicare pays” for certain services or “Medicare does not pay” is used to describe Medicare policy. 16 Perhaps recognizing the weakness of its plain language argument, the Secretary engages in a bit of bootstrapping. The Administrator Decision states that the language in section 322 of the PRM “does not pay” must mean that the State has been billed because “all responsible parties are expected to be billed.” Adm’r Decision at 7, A.R. at 8. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 31 of 50 4828-4620-3957.2 remittance advice, the Administrator says that those requirements are found by “[r]eading those sections together.” Adm’r Decision at 13, A.R. at 14. But three times zero is still zero. Reading sections together is what one does to interpret a statute or regulation as a whole when there is no plain language that leads to a certain result. State payment ceilings existed long before the 1987 Bad Debt moratorium but did not become relevant to California hospitals until 1989 when the State’s Medicaid program began applying ceilings before determining payment for outpatient deductible and coinsurance amounts. Recognizing that in almost every instance this would result in no Medi-Cal payment, the California Association of Hospitals and Health Systems (CAHHS) sought confirmation that Medicare reimbursement for the amount of deductibles and coinsurance not reimbursed due to the application of the ceiling by Medi-Cal may be eligible for bad debts after proving Medi-Cal eligibility. They also posed the question “is it necessary to bill Medi-Cal and receive a pro forma denial . . .” (Ex. P-3, A.R. at 606). Initial responses were mixed from the three MACs serving California at the time. (Ex. P-2, A.R. at 604; Ex. P-4, A.R. at 608; Ex. P-5, A.R. at 610). In a subsequent response, the MAC stating that billing was not necessary changed its position after stating that it consulted with HCFA Region IX arrived at the determination that billing was necessary. (Ex. P-6, A.R. at 612). None of the exhibits mention the existence of a must bill policy, nor did HCFA share this “determination” with providers as a policy. From July 1994 until June 1995, HCFA Region IX, CAHHS, MACs, and Provider Representatives met to discuss audit documentation alternatives to a remittance advice. (Ex. P-13 through P-19, A.R. at 690- 751). Mr. Carlson testified that a must bill policy was never brought-up during that process. Tr. (August 24, 2012) 76 -77, A.R. at 250. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 32 of 50 4828-4620-3957.2 The Secretary’s plain language argument is also belied by the positions she has taken in the past. If the plain language of section 322 of the PRM required the State to be billed in a ceiling case, one would assume that CMS officials Booth and Yospe would have said so when asked if there were a must bill policy, and that CMS would not have issued a manual provision specifically stating that providers were not required to bill the State. But neither of those things is true. CMS officials Booth and Yospe said there was no must bill policy, and CMS published section 1102.3L. of the PRM in 1995 (discussed in detail below) which specifically stated that providers did not have to bill the State in a ceiling case.17 Perhaps most tellingly, if CMS believed that the must bill policy was plainly required by the PRM, it would have said so in JSM-370 in which it gave its reasons for rescinding section 1102.3L. See Ex. P-82, A.R. at 1607-08. Finally, two pre-Moratorium PRRB decisions and the 1993 Administrator decision that the Administrator alleges articulated the must billing policy (but did not, as discussed above) do not state that the plain language of the PRM requires providers to bill the State , even in non- ceiling cases. See Ex. P-75 at 14, A.R. at 1544; Ex. P-76 at 2-3, A.R. at 1550-51; Ex. P-77 at 5, A.R. at 1557. It is important to note that Plaintiffs are not claiming that a must bill policy is facially inconsistent with the PRM – only that the plain language of the PRM does not say that providers must bill the State (let alone receive a remittance advice). Because the plain language of the PRM does not say that providers must bill the State in a crossover situation, the PRM did not 17 Prior to the publication of section 1102.3.L of the PRM, Part II, on July 1, 1994, the California Association of Hospitals and Health Systems issued a memo to hospitals that stated “[w]e have been discussing this issue with HCFA staff in Baltimore and San Francisco. HCFA has agreed that it may not be necessary to bill Medi-Cal for crossovers before claiming bad debt. However, there is still a requirement to demonstrate that the patient is eligible for Medi-Cal and that Medi- Cal will not reimburse all or part of the crossover liability.” Ex. P-11 at 1-2, A.R. at 685-86. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 33 of 50 4828-4620-3957.2 establish a must bill policy prior to the effective date of the Moratorium. Whether the Secretary can successfully argue that the must bill policy is consistent with the PRM is beside the point. Any policy – before or after the Moratorium – would need to be consistent with current rules. That is not the test. The test, for purposes of the Moratorium, is whether the policy at issue was established prior to the effective date of the Moratorium. The Moratorium would have no meaning at all if CMS could institute a policy for the first time after the effective date of the Moratorium and claim compliance with the Moratorium by pointing to language somewhere in the regulations or program instructions that is “consistent” with the new policy. B. In Recognition There Was No Must Bill Policy, CMS Published Guidance On Acceptable Documentation, Upon Which Plaintiffs Relied.18 As the record amply demonstrates, CMS senior officials made a conscious decision to allow providers to claim cross over bad debts without billing the State and receiving remittance advices, and, when asked, they disavowed there was any must bill policy. CMS issued manual instructions, which were in effect during all of the costs years at issue in this case, which specifically gives providers the option of submitting alternative documentation in lieu of billing the State. As noted above in section VI.A.3., a particular focus of the Taskforce was CMS’s Form 339, which was a questionnaire for hospitals to complete and to attest, as a requirement for filing their cost reports. In a letter dated April 14, 1994 , Eric Yospe, the Director of Provider Audit Operations at HCFA stated “the revisions/modifications recommended during our February 1994 meeting have 18 It is important to note that, in an abundance of caution, Plaintiffs billed the State and received remittance advices, relying on the permitted alternative documentation only where obtaining a remittance advice required extraordinary efforts and was not cost justified. It is only the bad debts associated with the alternative documentation that are at issue in this case. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 34 of 50 4828-4620-3957.2 been reviewed and, for the most part, incorporated in the enclosed revision. Therefore, we do not expect that there will be a need for any significant changes. We do not believe it will be necessary to reconvene the workgroup.” See Ex. P-29, A.R. at 1030. The revised version of Form HCFA-339 was applicable to, and was in effect during all times relevant to, the bad debts at issue in this case. Section 1102.3L of the PRM (a copy of which appears at Exhibit P-41, A.R. at 1246-49) contained instructions relating to Form HCFA-339 that were specific to bad debts. Section 1102.3L stated that a provider whose Medicare bad debts meet the substantive criteria for claiming bad debts specified therein “should complete Exhibit 5 [to Form HCFA-339] or submit internal schedules duplicating documentation requested on Exhibit 5 to support bad debts claimed.” Recognizing that the Bad Debt Moratorium prohibited CMS and its contractors from requiring documentation that was not required prior to the Moratorium, section 1102.3L then states: In accordance with OBRA 1987, intermediaries may not require hospitals to submit such a list that was not the intermediary’s practice to require such data from the hospital as of August 1, 1987. However, voluntary submission of this exhibit would greatly assist the intermediary in verifying the allowability of the bad debts claimed. The submission of this listing may possibly provide the intermediary with sufficient information upon which to base its acceptance of the bad debts claimed on the hospital’s cost report, without the necessity of an on-site visit.” Ex. P-34 at 1212, A.R. at 1131. Form HCFA-339 states that the documentation for purposes of Exhibit 5 consists of the following: columns 1, 2, 3 – patient names, health insurance claim number, and dates of service; column 4 (applicable to those Medicare beneficiaries who are also eligible for Medicaid (dual eligibles)) – documentation requirements for those individuals for who the provider has deemed indigent due to Medicaid eligibility; columns 5 and 6 (not applicable to dual eligibles) – the date that the first bill was sent to the beneficiary and the write- Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 35 of 50 4828-4620-3957.2 off date; column 7 – beneficiary payment as recorded on the Intermediary’s remittance advice; columns 8 and 9 – the beneficiary’s unpaid deductible and coinsurance amounts; and column 10 – total Medicare bad debts as recorded on the cost report. Ex. P-34 at 12-13, A.R. at 1131-32. The Plaintiffs satisfied all of these documentation requirements for the bad debts at issue. Neither the instructions for Exhibit 5 nor any other provision of Form HCFA-339 states that the documentation must be “contemporaneous.” The end result of the Taskforce’s work was that CMS published manual instructions, specifically section 1102.3L of the PRM, which in relevant part, stated in conjunction with specific dual eligibility instructions for column 4 of Exhibit 5: However, it may not be necessary for a provider to actually bill the Medicaid program to establish a Medicare crossover bad debt where the provider can establish that Medicaid is not responsible for payment. In lieu of billing the Medicaid program, the provider must furnish documentation of: • Medicaid eligibility at the time services were rendered (via valid Medicaid eligibility number), and • Nonpayment that would have occurred if the crossover claim had actually been filed with Medicaid. Section 1102.3L. of the PRM, Ex. P-41 at 3, A.R. at 1248 (emphasis supplied). The underscored language, “where the provider can establish that Medicaid is not responsible for payment” refers to a ceiling type situation where Medicaid is not obligated to pay the entire cost-sharing amount because of a State Plan or State statute (because if Medicaid were obligated to pay the entire cost-sharing amount because of a State Plan or State statute, the provider would not be able to “establish that Medicaid is not responsible for payment”).19 19 After section 1102.3L. of the PRM became effective, it was the subject of numerous training programs for providers. A workbook published by the BlueCross BlueShield Association, the Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 36 of 50 4828-4620-3957.2 Section 1102.3L is a most inconvenient truth for the Secretary, for it specifically repudiates the notion that hospitals were required to bill the State and receive a remittance advice in order to claim Medicare reimbursement for crossover bad debts. Accordingly, the Secretary has tried to disown it for various reasons, none of which have any merit. First, in the California Hospitals 90-91 Outpatient Crossover Bad Debts Group decision, the CMS Administrator stated that “the Providers [sic] interpretation [of section 1102.3L. of the PRM ] would constitute a change in the instructions and thus as reflected in the Transmittal would only be effective for cost reporting period [sic] beginning on or after November 1995.” 2000 WL 33170706 at *11, n.14.20 The Secretary thus accepted the validity and applicability of section 1102.3L. for cost reports ending on or after November 1995.21 After the Administrator’s decision denying reimbursement for the bad debts at issue was reversed by the district court, the Secretary, undaunted, came up with a new, limiting interpretation of section 1102.3L. Before the Ninth Circuit, the Secretary argued that that the authorization in section 1102.3L. of an alternative to billing the State was irrelevant because it applied only when patients are “categorically denied payment under the State’s Medicaid dominant MAC for California hospitals at the time, and dated September 1, 1995 advised “[a] provider may not have to bill Medicaid to establish a crossover bad debt as long as there is documentation showing: - The patient’s Medicaid eligibility at the time of services by means of a valid Medicaid eligibility number, and - That no payment would occur if the crossover claim had actually been filed with Medicaid.” (Ex. P-43 at 28, A.R. at 1305). Notwithstanding the workbook, after the publication of section 1102.3L., the Medicare MACs in California refused to follow it. Tr. (August 24, 2012) at 91-92, 179, A.R. at 253, 275. 20 Section 1102.3L. of the PRM was actually effective for cost reporting periods ending on or after November 30, 1995. See Ex. P-41 at 1, A.R. at 1246. 21 Note that the CMS Administrator did not state in the California Hospitals 90-91 Outpatient Crossover Bad Debts Group decision that section 1102.3L. of the PRM was new policy or a change in policy that was violative of the Bad Debt Moratorium. There is no mention of the Bad Debt Moratorium in the CMS Administrator decision. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 37 of 50 4828-4620-3957.2 program.” Cmty. Hosp. of the Monterey Peninsula v. Thompson, 323 F.3d 782 (9th Cir. 2003) (hereinafter “Community Hospital”). In the course of rejecting the Secretary’s attempt to limit the scope of section 1102.3L., the Ninth Circuit stated that it agreed with the providers that section 1102.3L. provided that, in lieu of billing the Medicaid program, a provider could furnish documentation of Medicaid eligibility and the non-payment that would have occurred if the crossover claim had actually been filed with Medicaid. Community Hospital, 323 F.3d at 798. The plain language of section 1102.3L., and the record in this case (including Mr. Clark’s testimony and the documentary evidence of the Task Force meetings and the resulting changes to Form 339) show that CMS understood that hospitals were able to determine on their own the extent of Medicaid’s liability (or, more accurately, that Medicaid was not liable) for the co-pays and that the purpose of section 1102.3L. was to allow hospitals to submit documentation subject to audit. The specific language, drafted by the MTAG committee, finalized by Eric Yospe as the Director of the Division of Audit and Payment Management at CMS, provides that alternative documentation “payment calculation will be audited based upon the state’s Medicaid plan in effect of the date that services were furnished.” Ex. P-31 at 11, A.R. at 1076. Cost report audits are routinely conducted by sub-contractors to CMS, generally MACs or other organizations with audit capabilities. HIPAA-compliant encrypted files of claim and eligibility detail are part of the record in this case to facilitate audit activities. Passwords to these files were previously provided to the MAC, the PRRB, and to CMS. Next, the Secretary attempted to manufacture a problem with the Bad Debt Moratorium. In Joint Signature Memo (JSM)-370, dated August 10, 2004, the Secretary stated “[t]he [Ninth Circuit in Community Hospital] also noted that, effective in August of 1987, Congress had Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 38 of 50 4828-4620-3957.2 imposed a moratorium on changes in bad-debt reimbursement policies, and therefore the Secretary lacked authority in November of 1995 to effect a change in policy.” The Ninth Circuit said no such thing. In fact, immediately after the Ninth Circuit stated that it disagreed with the Secretary’s narrow interpretation of the scope of section 1102.3L., the court stated “[m]oreover, nothing suggests the author understood § 1102.3L. to be establishing a change in policy.” 323 F.3d at 798. The court then dropped a footnote and said, “[i]ndeed, as the providers stress, there is a strong reason to believe the author had no intent to change existing policy. Effective August 1987, Congress imposed a moratorium on changes in bad-debt-reimbursement policies, and the Secretary lacked authority in November 1995 to effect a change in policy.” 323 F.3d at 798, n. 9. The Community Hospital court did not say or imply that section 1102.3L.of the PRM violated the Bad Debt Moratorium. The above-quoted language from footnote 9 of the opinion is the only place in its opinion where the court mentioned the Bad Debt Moratorium. Nor did the Secretary argue in Community Hospital that section 1102.3L. was contrary to the Bad Debt Moratorium. Had the Secretary believed that section 1102.3L. (which presumably went through legal clearance by the Secretary’s counsel) was contrary to the Moratorium it would have so argued in an attempt to prevent the court from giving any consideration of it, particularly in light of the fact that the Secretary argued (unsuccessfully) that section 1102.3L. of the PRM did not provide an alternative to billing the State in ceiling cases. Section 1102.3L. did not violate the Moratorium for two reasons. First, there was no must bill policy, as explained above. Second, the intent of Congress in passing the Moratorium (and revisiting it twice) was to ensure that CMS and its MACs would not be able to prevent providers from receiving reimbursement for their bad debts by adoption of new requirements. Nothing about the legislation appears to preclude CMS from modifying the documentation Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 39 of 50 4828-4620-3957.2 requirement to support the claiming of bad debts where the intent was to facilitate reimbursement rather than impede it. Therefore, even if there was a must bill policy in effect prior to the Moratorium’s effective date, there was no prohibition on CMS from issuing section 1102.3L. If CMS had the authority to grant hold harmless relief through JSM-370 without violating the Moratorium, it also had the authority to issue section 1102.3L. without violating the Moratorium, regardless of whether there was any must bill policy. C. Plaintiffs Received The Equivalent Of Remittance Advices From The State. In addition to the alternative documentation that Plaintiffs compiled in accordance with section 1102.3L. of the PRM, Plaintiffs contracted with the State’s contractor for processing crossover claims, EDS, and received the equivalent of remittance advices from EDS. The reports from EDS provide further support for their claims for the bad debts at issue. However, even if the must bill/must get a remittance advice policy were valid, Plaintiffs satisfied the policy because they presented the equivalent of bills to the State and received the equivalent of remittance advices from EDS. The Administrator refused to treat the reports and documents they received from EDS because “while the Providers suggest they are the same are remittance advices . . . they were not validated, certified or adopted as State documents and do not qualify as State remittance advices. Adm’r Decision at 17, A.R. at 18. However, what Plaintiffs received from EDS were in every way the equivalent of “official” remittance advices. They were produced by EDS, the same entity responsible for producing the State remittance advices, and were produced according to the same process EDS used to produce official remittance advices. To facilitate the audit process (as required by section 1102.3L.), the Plaintiffs contracted with EDS to summarize the results in the listing format suggested in the cost report questionnaire. The Secretary has not questioned, and could not, with a straight face, question the accuracy of Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 40 of 50 4828-4620-3957.2 EDS’s determinations of the State’s responsibility/absence of responsibility for the co-pays. The Administrator Decision made no attempt to explain why the information presented by the Plaintiffs could not be accepted. 1. CMS’s refusal to accept the EDS reports because they were not “official” State documents was arbitrary and capricious. In Loma Linda Univ. Med. Ctr. v. Sebelius, 684 F. Supp. 2d 42 (D.D.C. 2010), the CMS Administrator’s decision denied Medicare reimbursement for indirect medical education and direct graduate medical education costs because the provider had not, as required by a CMS Program Memorandum, presented no-pay bills timely and on the official UB-92 claim form. After reversing the Administrator’s finding that the information submitted by the provider was untimely, the court turned its attention to the hospital’s claim that the Administrator acted arbitrarily and capriciously in rejecting its information, because “the data it provided to the intermediary was ‘sufficient for calculating the IME and DGME payments’ and contained ‘the same information as included on the UB-92 claim form.’” 684 F. Supp. 2d at 56. The court reversed the Administrator’s decision because it had not refuted the provider’s contention that that the information it provided was identical to the data that would be included in the UB-92 forms, and remanded to the Secretary for the Medicare contractor to determine whether it could process the provider’s reimbursement request. 684 F. Supp. 2d at 57-58. The district court’s decision was affirmed by the Court of Appeals in a per curiam decision, on the basis that the Secretary “failed to ‘provide an explanation that will enable the court to evaluate the agency’s rationale’ for rejecting appellee’s proposed alternative computation method.” Loma Linda Univ. Med. Ctr. v. Sebelius, 408 Fed. Appx. 383, quoting Dickson v. Sec’y of Def., 68 F.3d 1396, 1404 (D.C. Cir. 1995) (quoting Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 654 (1990)). Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 41 of 50 4828-4620-3957.2 In this case, Plaintiffs went through detailed and careful efforts to ensure that they, and the State’s contractor (the same contractor responsible for producing “official” remittance advices) arrived at the correct determination of the State’s liability (or absence thereof) so as to determine Medicare’s liability for the bad debts. Neither the Administrator Decision nor the PRRB decision questioned the accuracy of the results of the process engaged in by Plaintiffs and the State’s fiscal intermediary. The Administrator’s ipse dixit statement, that “only through billing and receiving a State Medicaid remittance advice can a provider demonstrate that a State is or is not liable for any portion” of a bad debt, Adm’r Decision at 14, A.R. at 15, is simply not true. Irrespective of whatever validity the statement may have with respect to a provider that relies only on its own efforts and publicly available data, it has no validity with respect to the Plaintiffs, which utilized the State’s own contractor. Plaintiffs’ witness, Mr. Allen Carlson, testified at the hearing held before the PRRB that he first approached EDS, Medi-Cal’s fiscal intermediary, in 1997 to inquire as to whether it would contract with Carlson, Price, Fass and Company, Inc. (later to become A. Carlson Associates, LLC) to provide its State certified data of the Medicaid eligibility of the unbilled patients and the amount Medi-Cal would not have paid on crossover bad debt claims. See Exhibit P-92 at 3-4, A.R. at 2217-18, January 28, 1997 letter to State of California. Mr. Carlson testified that, after working together for several years for purposes of preparing the Medicaid eligibility and payments at issue in the Community Hospital case, he again approached EDS Corp. in 2004 for the purposes of acquiring the State certified data he would need for this appeal. Tr. (August 24, 2012) at 141, A. R. at 266; see also Ex. P-93, at 1-4, A.R. at 2232-35 (Aug. 27, 2004 letter to California). Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 42 of 50 4828-4620-3957.2 In order to contract with EDS, Mr. Carlson discussed the issue with the California Department of Health Services (DHS) and obtained DHS’ approval for pursuing a contract with EDS. Tr. (August 24, 2012) at 141, A.R. at 266; see also Ex. P-94, A.R. at 2240-42 (Oct. 25, 2004 letter to California Department of Health Services). EDS then requested and received formal approval from DHS to contract with Mr. Carlson. See Ex. P-96 at 6-7, A.R. at 2269-70 (Aug. 14, 2007 letter from EDS to California Department of Health Services). EDS then contracted with A. Carlson Associates, LLC to provide the documentation necessary for calculating Medicaid eligibility and bad debt amounts. Tr. (August 24, 2012) at 141-42, A.R. at 266; see also Ex. P-96, A.R. at 2264-71 (correspondence between A. Carlson Associates, LLC and California Department of Health Services, and signed agreement between EDS and California Department of Health Services). Mr. Ed Price, a healthcare financial data management engineer who was retained by A. Carlson Associates LLC to manage the crossover bad debt data at issue in this case, testified at the hearing held before the PRRB that the MACs provided Mr. Carlson with hospital data in the form of “paid Medicare claims data in the form of remittance advices and PS&R [(Provider Statistical & Reimbursement)] reports, [and] electronic PS&R reports,” which represented data on “one-hundred percent of the population of Medicare claims associated with the periods in consideration.” Tr. (August 23, 2012) at 225, A.R. at 379. Mr. Price testified that he then used the hospital’s actual bad debt logs and cross-referenced them with the hospital data so as to identify all of the crossover claims that had already been identified. Those claims were then removed to ensure they did not get claimed again. Tr. (August 23, 2012) at 226, A.R. at 379. Mr. Price testified that he then supplemented the remaining hospital data with additional patient information from the provider hospitals (i.e. gender, date of birth) in order to “make a Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 43 of 50 4828-4620-3957.2 complete claim” that could be submitted to the State. Tr. (August 23, 2012) at 226-27, A.R. at 379. Mr. Price further testified that the completed claims data was submitted to the State’s “eligibility re-verification process” (Exhibit P-98, A.R. at 2277-2333) which “determine[s] Medi-Cal eligibility for the disproportionate share Medicare DSH process,” Tr. (August 23, 2012) at 227-28, A.R. at 379; see also Ex. P-98, A.R. at 2277-2333, California Department of Health Services’ Disproportionate Share Hospitals Eligibility Re-Verification Process User Manual. This Eligibility Re-Verification System does not contain eligibility information until thirteen months after the month of service and therefore cannot be used in order to bill Medi-Cal or provide documentation at the time of filing a Medicare cost report. Mr. Price testified that using an eligibility verification system that establishes eligibility on a retrospective basis, instead of a contemporaneous basis, is as accurate, “if not more accurate than looking at eligibility on the date of service.” Tr. (August 23, 2012) at 232, A.R. at 380. Mr. Price further testified that, once he established eligibility of crossover bad debt claims, he worked with EDS to “set up the process for determining the pricing and the evaluation of the cutback amount” for these claims. Tr. (August 23, 2012) at 243-44, A.R. at 383. To that end, EDS and Mr. Price worked together to use the pricing rates and rules that were in effect at the time of service to create a series of reports that would show when the claim had hit the Medi- Cal ceiling and what Medi-Cal would not have paid on the claim. Tr. (August 23, 2012) at 246, A.R. at 384 ; see also Exs. P-110–113, A.R. at 2567-2621. From the remittance advices or detailed PS&R reports, Plaintiffs also identified the necessary detailed information relating to diagnosis, procedures, charges, Medicare payments and the Medicare coinsurance and deductibles for billing covered services furnished to the dual eligible patients. Following a similar methodology utilized by Medi-Cal and the MAC for the Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 44 of 50 4828-4620-3957.2 inpatient lump-sum payments made during 1999, as reflected in the MAC correspondence and Medi-Cal reports for the lump sum payments, the Plaintiffs submitted previously unprocessed crossover claims to Medi-Cal’s fiscal intermediary for reprocessing using processes and prices that were in effect at the time services were rendered. It is the Medi-Cal Program’s fiscal intermediary, as authorized by the California Department of Health Services, that determined and certified the difference between the Medicare primary payment and the Medi-Cal payment rate for each inpatient claim. The certification appearing on each page of the Medi-Cal Program’s Intermediary’s reports reads as follows: INFORMATION PROVIDED ON THIS REPORT IS DERIVED FROM CLAIMS DATA SUBMITTED BY A.CARLSON ASSOCIATES ON BEHALF OF ITS HOSPITAL CLIENTS AND PROCESSED (ELIGIBILITY VERIFIED AND MEDI-CAL PAYMENT/CUTBACK COMPUTED) ACCORDING TO MEDI-CAL PROCEDURES AND POLICIES USING PAYMENT RATES IN EFFECT AT THE TIME OF SERVICE. Ex. P-95 at 10, A.R. at 2253. In other words, The Medi-Cal intermediary (EDS) certified that it verified the Medicaid eligibility of the patients in question and that it computed Medicaid’s cost sharing amount according to the Medicaid payment policies in effect at the time of the patient’s stay. If the Medi-Cal payment rate was equal or less than the Medicare payment, no portion of the Medicare coinsurance and deductibles is payable by Medi-Cal. If the Medi-Cal payment rate exceeded the Medicare payment, the amount exceeding the Medicare payment is the amount payable by Medi-Cal for the Medicare coinsurance and deductibles, up to the total Medicare coinsurance and deductibles. As with the lump sum payment methodology utilized by the MAC, the remaining portions of Medicare and Medicaid deductibles not payable by Medi-Cal constitute the Plaintiffs’ reimbursable Medicare bad debt for crossover patients. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 45 of 50 4828-4620-3957.2 Mr. Price testified that, in order to eliminate the possibility that a beneficiary was responsible for payment of some of the coinsurance and deductibles, the Plaintiffs’ lists excluded all patients with a met or unmet Medicaid share of cost obligation. Tr. (August 23, 2012) at 249, A.R. at 385. Additional, adjustments were made for outpatient claims with service dates after 1998 for therapy services that are not subject to co-insurance. Finally, the Plaintiffs’ reimbursable bad debt amounts were reduced by the amount of the Balanced Budget Act Bad Debt Reduction factor for cost reporting periods beginning during the 1998 federal fiscal year or later.22 It is especially arbitrary and capricious for the Administrator to not have accepted the EDS reports as the equivalent of remittance advices given that the State did not reliably produce remittance advices, and CMS, which has oversight of the Medicaid program, did nothing to rectify this. A witness for Plaintiffs, Ms. Esther Mendez, testified at the hearing that only 80% of inpatient “automatic” crossover claims actually automatically crossed over, 22 After his extensive testimony on the efforts that he engaged in with the Medi-Cal intermediary, Mr. Price summarized what he called a “straightforward process.” He: started with the entire Medicare population as defined by RAs [(official Medicaid remittance advices)] and PS&Rs [(the official Medicare payment file)]. We deleted claimed bad debts, crossover bad debts that were already claimed. We supplemented the data as needed with other data from the providers so that we’d have a complete record to submit for eligibility verification. We submitted those records to the California eligibility verification process. As a result of that, we took the claims that came back as eligible and deemed them dual eligible and worked with the fiscal intermediary of the State of California to value the cutback amount, [i.e.,] the bad-debt amounts based on pricing at the time of service and generated these logs and adjusted for outpatient therapy services to come up with the final logs and the final numbers supporting this claim. Tr. (August 23, 2012) at 258-259. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 46 of 50 4828-4620-3957.2 meaning that Medi-Cal could not produce remittance advices for 20% of all inpatient crossover claims. Tr. (August 23, 2012) at 138, 166, A.R. at 364. Even more problematic is the fact that even for the 80% of crossover claims that did get automatically billed to Medi- Cal, Medi-Cal produced remittance advices for only roughly 40% of them, according to Ms. Mendez. Tr. (August 23, 2012) at 166, 173-74, A.R. at 364, 366. Thus, Medi-Cal reliably produced remittance advices for about only 32% of all inpatient crossover claims, forcing providers to take cost- prohibitive measures in order to abide by the Secretary’s purported “must-bill” policy. The situation with outpatient claims was as bad or worse. There was no automated crossover of outpatient claims until October 24, 2005, almost one year past the latest of the fiscal years in dispute (October 1995 through November 2004). Even after automated crossover of outpatient (Part B) claims from Medicare to Medi-Cal began, there remained a number of conditions where expensive and manual billing was still required, as well as a number of instances where Medi-Cal could not reliably supply providers with outpatient “zero pay” remittance advices. Overlaying all of the problems associated with billing the State and attempting to get a remittance advice is the fact that the State would process only bills that were issued within one year of the date of service – yet Medicaid eligibility by nature is adjudicated retrospectively and may take months or years. For example, in some States such as California, eligibility for Supplemental Security Income (SSI) makes the individual automatically eligible for Medicaid,23 23 California is a so-called “1619(b) State.” Under section 1619(b) of the Social Security Act, States can elect to give Medicaid eligibility automatically to those who are eligible for SSI. See “Supplemental Security Income (SSI) in California,” (SSA 2016) available at Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 47 of 50 4828-4620-3957.2 yet an appeal of a denial of SSI – particularly where the alleged bass for SSI is disability – make take months or years. The Court is respectfully referred to the Plaintiffs’ Post-Hearing Brief, at 70-75, A.R. at 189-94. for a full explanation of the problems hospitals in California faced when attempting to bill the State and receive remittance advices. 2. CMS’s refusal to accept the EDS reports because they were not “contemporaneous” State documents was arbitrary and capricious. The Administrator decision states that the EDS reports did not qualify as remittance advices because they were not “contemporaneously generated” State documents. Adm’r Decision at 17, A.R. at 18. The Administrator cited as support 42 C.F.R. §413.20. According to the Administrator, regulation 413.20 requires providers to keep “contemporaneous” records and documentation throughout the cost year and to then make available those records to the MAC in order to settle the cost report in the normal course of business. Here the Provider has not submitted claims to the State, received and “maintained” the required remittance advices contemporaneous with the cost reporting period and furnished such documents to the MAC, contrary to this principle. Administrator Decision at 14-15, A.R. at 15-16. It is unclear what the Administrator meant by “contemporaneous with the cost reporting period,” but to the extent the Administrator meant that the Plaintiffs were required to have billed the State and received remittance advices prior to submitting their cost reports, that is incorrect. In the first place, bad debts are reductions in revenue and are not reasonable costs. Therefore, the cited regulation, 42 C.F.R. § 413.20, which pertains to documentation requirements for claiming reasonable costs under the reasonable cost reimbursement system, does not apply. See section 413.20(a) (“The principles of cost https://www.ssa.gov/pubs/EN-05-11125.pdf; see also “SSI/SSP Eligibility,” (California Department of Social Services), available at: http://www.cdss.ca.gov/agedblinddisabled/Pg1423.htm. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 48 of 50 4828-4620-3957.2 reimbursement require that providers maintain sufficient financial records and statistical data for proper determination of costs payable under the program”) (emphasis added). Second, the word “contemporaneous” nowhere appears in the regulation, and the idea that the Plaintiffs were required to have billed the State and received remittance advices by the time they filed their cost reports is not only impossible to do but also inconsistent with CMS policy and practice. Providers are routinely allowed to submit supporting documentation in the course of an audit or other review following the filing of the cost report, or during the appeals process.24 It is disingenuous for the Secretary to pretend otherwise. A particularly apt case is the adding of Medicaid eligible days following the filing of the cost report, for purposes of claiming Disproportionate Share Hospital (DSH) reimbursement. Because providers are not able to know precisely which of their patients were eligible for Medicaid at the time of their discharge, providers routinely add to their DSH calculation Medicaid eligible days that are identified, through engaging in a matching process with the State, after their cost reports were filed. See e.g., Barberton Citizens Hosp. Barberton v. CGS Admin., 2015 D-5 (March 19, 2015, reprinted in 2015 Medicare & Medicaid Guide (CCH) ¶ 82,965. CMS recently formalized its procedures for allowing hospitals to add Medicaid eligible days after the filing of its cost report. CMS allows hospitals – as a matter of right – to add Medicaid eligible days through requesting and receiving an amended cost report, provided the request is made within 12 months after filing their cost reports. 80 Fed. Reg. at 70563 (third column) -64 (first column). Moreover, CMS 24 Mr. Price testified that, to his knowledge, no MAC had refused to consider the retrospective eligibility data he discussed during his testimony because it was not contemporaneous, stating that “this is the only source of eligibility acceptable to the fiscal intermediary in the state of California as far as documenting Medi-Cal eligibility.” Tr. (August 23, 2012) at 231, A.R. at 380. Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 49 of 50 4828-4620-3957.2 does not prohibit its MACs – as a matter of discretion – to grant additional requests for amended cost reports or to reopen cost reports for the purpose of adding Medicaid eligible days. Id. at 70562 (third column) -63 (first column). VII. CONCLUSION For the above reasons, Plaintiffs respectfully submit that this Court should remand the matter to the Secretary for the sole purpose of accepting Plaintiffs’ documentation of the bad debts at issue and calculating the appropriate Medicare reimbursement due Plaintiffs according to such documentation. Date: July 22, 2016 Respectfully submitted, /s/ Lori A. Rubin Lori A. Rubin, D.C. Bar No. 1004240 Foley & Lardner LLP 3000 K Street, N.W., Suite 600 Washington, D.C. 20007-5109 Telephone: (202) 672-5300 Fax: (202) 672-5399 Email: larubin@foley.com Attorney for Plaintiffs Case 1:16-cv-00099-RBW-AK Document 16 Filed 07/22/16 Page 50 of 50 4842-1263-4165.2 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA MERCY GENERAL HOSPITAL, et al., Plaintiffs, v. SYLVIA MATHEWS BURWELL, in her official capacity as Secretary of the United States Department of Health and Human Services, ) ) ) ) ) ) ) ) ) ) ) Case No. 1:16-cv-99-RBW-AK Defendant. ) [PROPOSED] ORDER Plaintiffs seek judicial review of the final administrative decision of the Secretary of Health and Human Services (the “Secretary”) that denied Plaintiffs’ claims for reimbursement of Medicare bad debts. After consideration of the complaint on file, the parties’ briefs, the administrative record, and the parties’ arguments at hearing, the Court finds that the Secretary’s decision in this case must be set aside and reversed for the following reasons: a. The “must bill policy” was not in effect prior to the Bad Debt Moratorium and thus cannot be applied to Plaintiffs’ claims; b. During the cost years at issue, the Secretary’s bad debt policy specifically and purposefully provided that billing the State was not required, provided the hospital could establish the amount of Medicare’s liability for the bad debts; and c. Even if the Secretary’s bad debt policy during the cost years at issue had (i) required Plaintiffs to bill the State and receive remittance advices, and (ii) was not prohibited by the Bad Debt Moratorium, Plaintiffs received the equivalent of remittance advices from the Case 1:16-cv-00099-RBW-AK Document 16-1 Filed 07/22/16 Page 1 of 2 2 4842-1263-4165.2 State’s contractor, and it was unreasonable for the Secretary to refuse to consider such information. IT IS HEREBY ORDERED that the Secretary’s final decision issued on November 18, 2015 is hereby set aside and reversed. IT IS HEREBY FURTHER ORDERED that this matter is remanded to the Secretary for the Secretary to review Plaintiff’s documentation and make appropriate reimbursement to Plaintiffs for the Medicare bad debts at issue herein, along with interest in accordance with 42 U.S.C. § 1395(f)(2). Dated: _________________ SO ORDERED. United States District Judge Case 1:16-cv-00099-RBW-AK Document 16-1 Filed 07/22/16 Page 2 of 2