Select Specialty Hospital - Denver, Inc. et al v. Sebelius

MOTION for Summary Judgment

D.D.C.May 30, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA SELECT SPECIALTY HOSPITAL - DENVER, INC., et al., Plaintiffs, v. THOMAS E. PRICE, M.D., Secretary U.S. Department of Health and Human Services, Defendant. Civil Action No. 10-1356 (BAH) PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT (ORAL ARGUMENT REQUESTED) Plaintiffs Select Specialty Hospital - Wilmington, Inc., Select Specialty Hospital - Jefferson Parish, Inc., Select Specialty Hospital - Fort Smith, Inc., Select Specialty Hospital - Denver, Inc., and Select Specialty Hospital - Orlando, Inc., (collectively, the “Plaintiffs”), pursuant to Federal Rule of Civil Procedure 56, respectfully move for summary judgment in their favor on the grounds that there are no material facts in dispute and that Plaintiffs are entitled to judgment as a matter of law. Oral argument is requested pursuant to this Court’s Local Rule 7(f). The Centers for Medicare and Medicaid Services (“CMS,” represented here by the Secretary of the Department of Health and Human Services) issued a “Decision of the Administrator” (“Administrator’s Decision”) reversing a prior decision of the Provider Reimbursement Review Board (“PRRB”). The Administrator’s Decision upheld the denial of Medicare reimbursement to Plaintiffs for unpaid beneficiary cost-sharing amounts (“bad debts”) related to services rendered to patients eligible for both Medicare and Medicaid (“dual eligibles”). The Administrator’s Decision concluded that Plaintiffs failed to satisfy the CMS “must bill” policy because they did not bill the state Medicaid programs for these Medicare cost- Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 1 of 56 2 sharing amounts and obtain confirmation that Medicaid processed and denied the claims, even though Medicare consistently paid such cost-sharing amounts under the same circumstances in prior periods without billing the states. The Administrator confirmed its decision on remand from this Court. The Administrator’s Decision adversely impacted Plaintiffs by preventing Medicare from reimbursing approximately $438,693 in otherwise allowable dual eligible bad debts. The Administrator’s Decision, findings, and conclusions should be stricken under the Administrative Procedure Act (“APA”) and the Medicare Act as arbitrary, capricious, an abuse of discretion, otherwise not in accordance with the law, and unsupported by substantial evidence. First, the Administrator’s Decision relied on a new policy, or new enforcement of the policy, which CMS instituted retroactively, without passage of any new law or promulgation of any new rule, policy statement, or similar action through proper procedure. Second, the Administrator overlooked and entirely failed to consider an important aspect of this case—that there are important factual differences between prior cases upholding the CMS “must bill” policy and this case, and that Plaintiffs had no way to comply with the policy. Third, the Administrator’s Decision is a sudden, retroactive, and unexplained departure from the Defendant’s prior treatment of Plaintiffs’ Medicare bad debt reimbursement, which Plaintiffs relied on in conducting their operations during the cost reporting periods at issue. Fourth, the Administrator’s Decision is not consistent with governing law because it violates, among other applicable law, the Medicare Act’s prohibition on cost-shifting and the bad debt moratorium. Fifth, even if the change in policy, or change in enforcement of the existing policy, is an interpretive rule it is invalid because it is clearly unreasonable. Finally, the Administrator’s Decision and the findings and conclusions on which it is premised are unsupported by substantial evidence. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 2 of 56 3 For the reasons set forth in the accompanying Memorandum of Points and Authorities, which is hereby incorporated by reference, the Administrator’s Decision and the application of it to Plaintiffs should be stricken as arbitrary and capricious, an abuse of discretion, unsupported by substantial evidence, and not in accordance with the law. The Court should order the Secretary to reimburse all of Plaintiff’s FY 2005 dual eligible bad debts without further delay. Dated: May 30, 2017 Respectfully submitted, /s/ Jason M. Healy Jason M. Healy (D.C. Bar No. 468569) THE LAW OFFICES OF JASON M. HEALY PLLC 1701 Pennsylvania Ave., N.W. Suite 300 Washington, DC 20006 (202) 706-7926 (888) 503-1585 (fax) jhealy@healylawdc.com Attorney for Plaintiffs Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 3 of 56 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA SELECT SPECIALTY HOSPITAL - DENVER, INC., et al., Plaintiffs, v. THOMAS E. PRICE, M.D., Secretary U.S. Department of Health and Human Services, Defendant. Civil Action No. 10-1356 (BAH) PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF THE MOTION FOR SUMMARY JUDGMENT Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 4 of 56 i TABLE OF CONTENTS Page I. INTRODUCTION ...............................................................................................................1 II. STATUTORY AND REGULATORY BACKGROUND ...................................................2 A. Medicare Cost Sharing .............................................................................................2 B. Medicare Prohibition on Cost-Shifting ....................................................................3 C. Medicare Bad Debt and Reasonable Collection Efforts ..........................................4 D. Presumption of Uncollectibility for Dual Eligible Patients .....................................5 E. The CMS “Must Bill” Policy ...................................................................................6 F. The Bad Debt Moratorium .......................................................................................7 III. STATEMENT OF MATERIAL FACTS ON THE ADMINISTRATIVE RECORD .............................................................................................................................8 A. Plaintiffs’ Dual Eligible Bad Debts Were Denied by Medicare Even Though Plaintiffs Are LTCHs that Did Not Participate in Medicaid ......................8 B. Historically, the Intermediary Reimbursed Plaintiffs for Dual Eligible Bad Debts Without Billing the State Medicaid Programs ...............................................9 C. Plaintiffs Were Not Able to Obtain RAs from State Medicaid Programs .............10 IV. PROCEDURAL HISTORY BEGINNING WITH THE COURT’S REMAND ORDER ..............................................................................................................................12 A. The Court’s Remand to the Agency for Further Fact-finding ...............................12 B. The Administrator’s Decision on Remand ............................................................13 C. The Court’s Order to Reopen this Case to Reach a Final Decision on the Merits .....................................................................................................................14 V. STANDARD OF REVIEW ...............................................................................................14 A. Summary Judgment Standard ................................................................................14 B. Administrative Procedure Act Standard ................................................................15 VI. ARGUMENT .....................................................................................................................16 A. The Administrator’s Decision Must Be Reversed Under § 706(2)(A) of the APA Because It Is Contrary to Law ......................................................................16 1. The Decision Violates the Cost-Shifting Prohibition in the Medicare Act (42 U.S.C. § 1395x(v)(1)(A)(i)) ........................................16 Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 5 of 56 ii 2. The Decision Is Not in Accordance With the Rule That Medicaid Participation is Voluntary and Not a Prerequisite to Receiving Medicare Reimbursement .....................................................17 3. The Agency’s Application of the Must Bill Policy to Non- Medicaid-Participating Providers Violates the Bad Debt Moratorium ..............................................................................................18 B. The Administrator’s Decision Must Be Reversed Under § 706(2)(A) of the APA Because It Is Arbitrary and Capricious, and an Abuse of Discretion ...........19 1. The Agency Failed to Consider that the Plaintiffs Had No Way to Comply With the Must Bill Policy .....................................................19 2. The Administrator’s Decision is Arbitrary and Capricious Because It is an Unexplained Departure From CMS’s Prior Treatment of Plaintiffs’ Reasonable Costs ............................................22 3. The Agency’s Application of the “Must Bill” Policy to Non- Medicaid-Participating Providers Is Arbitrary and Capricious Because It Did Not Take Into Account Legitimate Reliance on the Agency’s Longstanding Practice ......................................................25 4. The Agency’s Retroactive Application of Must Bill Policy Without Prior Notice to the Plaintiffs Was Arbitrary and Capricious .................................................................................................34 5. Even if the Must Bill Policy Is an Interpretive Rule, It Is Invalid Under the APA as Applied to Plaintiffs ....................................35 6. It Was Arbitrary and Capricious For the Agency to Refuse To Accept Proof of Indigence to Support the Claimed Bad Debts When the Plaintiffs Have No Ability to Force the States to Process Non-Medicaid-Participating Provider Claims ........................39 7. The Agency’s Refusal to Continue to Exempt Plaintiffs from the Must Bill Policy is Inconsistent with its Treatment of Other Providers in Similar Situations ...............................................................41 C. The Administrator’s Decision Must Be Reversed Under § 706(2)(E) of the APA Because It Is Not Supported by Substantial Evidence – The Agency’s Application of the “Must Bill” Policy to Non-Medicaid- Participating Providers Is Not Supported ..............................................................44 VII. CONCLUSION ..................................................................................................................45 Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 6 of 56 iii TABLE OF AUTHORITIES Cases Abington Crest Nursing and Rehab. Ctr. v. Leavitt, 541 F. Supp. 2d 99 (D.D.C. 2008) ............. 17 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ................................................................. 14 Ass'n of Flight Attendants-CWA, AFL-CIO v. Huerta, 785 F.3d 710 (D.C. Cir. 2015) ............... 36 Athens Comty. Hosp., Inc. v. Shalala, 21 F.3d 1176 (D.C. Cir. 1994) ......................................... 22 Banner Health v. Sebelius, No. 07-1614, 2010 WL 2265039 (D.D.C. June 7, 2010) .................. 16 Barney v. Holzer Clinic, Ltd., 110 F.3d 1207 (6th Cir. 1997) ...................................................... 17 BellSouth Corp. v. FCC, 162 F.3d 1215 (D.C. Cir. 1999) ...................................................... 16, 38 Bowen v. Georgetown Univ. Hosp., 488 U.S. 204 (1988) ............................................................ 34 Chamber of Commerce of the U.S. v. SEC, 412 F.3d 133 (D.C. Cir. 2005) ................................. 16 Charter-Operators of Alaska v. Blank, 844 F. Supp. 2d 122 (D.D.C. 2012) ............................... 15 Citizens to Preserve Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 415 (1971) ..................... 15 Cmty. Health Sys., Inc. v. Burwell, 113 F. Supp. 3d 197 (D.D.C. 2015) ...................................... 38 Cmty. Hosp. of Monterey v. Thompson, 2001 U.S. Dist. LEXIS 16938 (N.D. Cal. Oct. 11, 2001) ................................................................................................................................................... 42 Community Hosp. of Monterey Peninsula v. Thompson, 323 F. 3d 782 (9th Cir. 2003) ........ 27, 30 Cty. of L.A. v. Shalala, 192 F.3d 1005 (D.C. Cir. 1999) ......................................................... 16, 38 F.C.C. v. Fox Television Stations, Inc., 129 S. Ct. 1800 (2009) ....................................... 25, 37, 38 FiberTower Spectrum Holdings, LLC v. F.C.C., 782 F.3d 692 (D.C. Cir. 2015) ........................ 38 Flagstaff Broad. Found. v. F.C.C., 979 F.2d 1566 (D.C. Cir. 1992) ...................................... 24, 25 Flytenow, Inc. v. F.A.A., 808 F.3d 882 (D.C. Cir. 2015) .............................................................. 36 Foothill Hosp.-Morris L. Johnston Mem’l v. Leavitt, 558 F. Supp. 2d 1 (D.D.C. 2008) ....... 17, 18 Greyhound Corp. v. ICC, 551 F.2d 414 (D.C. Cir. 1977) ............................................................ 16 Health All. Hosps., Inc. v. Burwell, 130 F. Supp. 3d 277 (D.D.C. 2015) ..................................... 38 Howard Univ. v. Bowen, No. 85-3342, 1988 WL 33508 (D.D.C. Mar. 29, 1988) ....................... 17 Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 7 of 56 iv Idaho Health Care Ass’n v. Sullivan, 716 F. Supp. 464 (D. Idaho 1989) .................................... 18 James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1099 (D.C. Cir. 1996).......................... 15 Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S. 827 (1990) ..................................... 34 Landgraf v. USI Film Products, 511 U.S. 244 (1994) .................................................................. 34 Local 777, Democratic Union Organizing Comm. v. NLRB, 603 F.2d 862 (D.C. Cir. 1978) ...... 26 Motor Vehicle Mfrs. Ass'n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) .......... 16 New England Tel. & Tel. Co. v. FCC, 826 F.2d 1101 (D.C. Cir. 1987) ....................................... 26 Occidental Eng’g Co. v. INS, 753 F.2d 766 (9th Cir. 1985) ......................................................... 15 Perez v Mortg. Bankers Ass'n, 135 S. Ct. 1199 (2015) .................................................... 35, 36, 37 Richards v. INS, 554 F.2d 1173 (D.C. Cir. 1977) ......................................................................... 15 Select Specialty Hospitals, Inc. et al v. Cochran, 1:17-cv-00235 (BAH) ...................................... 9 Shalala v. Guernsey Mem’l Hosp., 514 U.S. 87 (1995)................................................................ 35 Sierra Club v. Mainella, 459 F. Supp. 2d 76 (D.D.C. 2006) ........................................................ 15 Smiley v. Citibank, 517 U.S. 735 (1996)....................................................................................... 25 Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrecoverable Trust, 410 F.3d 304 (6th Cir. 2005) .................................................................................................................... 17 Transactive Corp. v. United States, 91 F.3d 232 (D.C. Cir. 1996) ............................................... 16 U.S. Postal Serv. v. Postal Regulatory Comm'n, 785 F.3d 740 (D.C. Cir. 2015) ......................... 36 U.S. v. Pressman-Gutman Co., 721 F.Supp.2d 1333 (CIT, 2010) ................................................ 26 Universal Camera Corp v. NLRB, 340 U.S. 474 (1951) .............................................................. 16 University Health Servs. v. Shalala, 120 F.3d 1145 (11th Cir. 1997) .......................................... 18 WLOS TV, Inc. v. FCC, 932 F.2d 993 (D.C. Cir. 1991) ............................................................... 16 Statutes 28 U.S.C. § 1291 ........................................................................................................................... 14 42 U.S.C. § 1395e ........................................................................................................................... 3 42 U.S.C. § 1395f ..................................................................................................................... 7, 18 Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 8 of 56 v 42 U.S.C. § 1395hh(e)(2)(A) ........................................................................................................ 31 42 U.S.C. § 1395ww(m)(6)(A)(ii) ................................................................................................ 37 42 U.S.C. § 1395x(v)(1)(A) ...................................................................................................... 3, 16 42 U.S.C. § 1395x(v)(1)(A)(i) .............................................................................................. 3, 4, 17 42 U.S.C. § 1396d(a)(14) .............................................................................................................. 43 42 U.S.C. § 1395 et seq................................................................................................................... 2 5 U.S.C. § 706 ............................................................................................................................... 15 5 U.S.C. § 706(2)(A)-(C) .............................................................................................................. 15 5 U.S.C. § 706(2)(E) ............................................................................................................... 16, 44 5 U.S.C. § 551 et seq....................................................................................................................... 2 CAL. HEALTH & SAFETY CODE § 1200 et. seq. ............................................................................. 42 Medicare, Medicaid, and SCHIP Extension Act of 2007 § 114(c)(1)-(2) .................................... 37 Omnibus Budget Reconciliation Act of 1987 (“OBRA ‘87”), Pub. L. No. 100-203 § 4008, 101 Stat. 1330-55 ............................................................................................................................... 7 Omnibus Budget Reconciliation Act of 1989 (“OBRA ‘89”), Pub. L. No. 101-239 § 6023, 103 Stat. 2176 .................................................................................................................................... 7 Technical Miscellaneous Revenue Act of 1988 (“TMRA”), Pub. L. No. 100-647 § 8402, 102 Stat. 3798 .................................................................................................................................... 7 Regulations 42 C.F.R. § 409.80(a)(2) ................................................................................................................. 3 42 C.F.R. § 409.82 .......................................................................................................................... 3 42 C.F.R. § 409.83 .......................................................................................................................... 3 42 C.F.R. § 412.521 ........................................................................................................................ 4 42 C.F.R. § 413.50 .................................................................................................................... 3, 16 42 C.F.R. § 413.89(b)(1) ............................................................................................................. 4, 5 42 C.F.R. § 413.89(d) ............................................................................................................ passim Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 9 of 56 vi 42 C.F.R. § 421.1 et seq ................................................................................................................ 32 42 C.F.R. § 435.1009(a)(2) ........................................................................................................... 43 42 C.F.R. § 441.13(a)(2) ............................................................................................................... 43 42 C.F.R. Part 482......................................................................................................................... 32 Other Authorities CMCS-MMCO-CM Informational Bulletin to State Medicaid Agencies, Payment of Medicare Cost Sharing for Qualified Medicare Beneficiaries (QMBs) (June 7, 2013) ........................... 41 Fed. R. Civ. P. 56(a) ..................................................................................................................... 14 HCFA-339 (Provider Cost Report Reimbursement Questionnaire) ............................................... 6 Joint Signature Memorandum 370 (JSM-370) ......................................................................... 6, 30 Provider Reimbursement Manual § 302.1 .................................................................................. 4, 5 Provider Reimbursement Manual § 304 ......................................................................................... 4 Provider Reimbursement Manual § 310 ......................................................................................... 5 Provider Reimbursement Manual § 310.2 ...................................................................................... 5 Provider Reimbursement Manual § 312 ..................................................................................... 5, 6 Provider Reimbursement Manual § 322 ......................................................................................... 6 Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 10 of 56 I. INTRODUCTION This case is about unpaid Medicare cost-sharing amounts (“bad debts”) for patients at Plaintiffs’ hospitals who were eligible for both Medicare and Medicaid (“dual eligible beneficiaries” or “dual eligibles”). The Defendant’s fiscal intermediary denied these bad debt amounts on Plaintiffs’ annual Medicare cost reports because the Plaintiffs were unable to provide the only document the fiscal intermediary would accept—a remittance advice (“RA”) from the state Medicaid program showing that the Plaintiff billed Medicaid for the bad debt amount, the Medicaid claim was processed, and a payment determination was made by the state. The Plaintiffs cannot obtain such Medicaid RAs because they were not enrolled or otherwise participating in the state Medicaid program at the time the services were rendered, and the states have no other mechanism to process bills from such health care providers (“providers”). In some states, the Plaintiffs could not enroll in Medicaid because, as long-term care hospitals (“LTCHs” or “LTACs”), they are not a recognized provider type. The fiscal intermediary previously understood this and reimbursed the Plaintiffs for dual eligible bad debts without Medicaid RAs. The Plaintiffs relied on this practice of allowing dual eligible bad debts without Medicaid RAs when the Plaintiffs admitted or continued to treat dual eligible beneficiaries during these years. However, the fiscal intermediary abruptly began denying the bad debts at issue here, retroactively and without formal notice, by applying the so- called “must-bill” policy of the Defendant’s Centers for Medicare & Medicaid Services (“CMS”). When the fiscal intermediary changed how they applied the must-bill policy with respect to the Plaintiffs, they made it impossible for the Plaintiffs to comply. This Court previously determined that this situation creates a “classic Catch-22” because the state Medicaid programs will not issue RAs in a form that CMS will accept and the Medicare providers either are not enrolled in Medicaid or in some states cannot enroll in Medicaid Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 11 of 56 2 because, as LTCHs, they are not a recognized Medicaid provider type. Dkt. 31 at 24. The fiscal intermediary followed one policy and then around April 2007 imposed a different policy. The first policy exempted the Plaintiffs from the must-bill policy; the second policy imposed the must-bill policy on them. It was a complete reversal in the policy without prior notice, opportunity for comment, or regard for the inability of the Plaintiffs to comply. The Plaintiffs have thoroughly documented their inability to obtain Medicaid RAs by submitting hundreds of actual bills to state Medicaid programs for the Medicare cost-sharing amounts at issue. Not one Medicaid RA has been issued in a form that CMS will accept. Faced with mounting losses, the Plaintiffs have since decided to enroll in Medicaid for only one reason—to be able to obtain Medicaid RAs in the future so that Medicare will reimburse their dual eligible bad debt claims. Yet one state, Delaware, continues to prevent one of the Plaintiffs from enrolling in Medicaid. CMS’s insistence on applying the must-bill criteria under these circumstances and insistence on a “valid” Medicaid RA as the only acceptable documentation to allow dual eligible bad debts, even where states refuse to issue them, is inconsistent with prior audit treatment, was not preceded by notice to the Plaintiffs of the change for non-Medicaid-participating providers, and amounts to a violation of the Medicare statute, 42 U.S.C. §§ 1395 et seq. (the “Medicare Act”), Medicare regulations and the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 551 et seq. For these reasons, and the other reasons discussed herein, CMS’s decision to affirm the fiscal intermediary’s adjustments denying Plaintiffs’ dual eligible bad debts is legally invalid and should be reversed. II. STATUTORY AND REGULATORY BACKGROUND A. Medicare Cost Sharing Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 12 of 56 3 Like most health insurance, Medicare does not cover the full cost of covered services. Beneficiaries have certain out-of-pocket costs or “cost-sharing” obligations. See generally 42 U.S.C. § 1395e. These cost-sharing obligations are in the form of deductibles and coinsurance. Id. For example, a Medicare beneficiary is charged a fixed deductible amount when he or she receives Medicare-covered inpatient services in a hospital for the first time in a benefit period (42 C.F.R. § 409.82), and is charged an inpatient co-insurance amount for each day after the first 60 days of an inpatient stay for a benefit period (42 C.F.R.§ 409.83). B. Medicare Prohibition on Cost-Shifting The Social Security Act (“SSA”) prohibits CMS from shifting Medicare costs for which beneficiaries are responsible to non-beneficiaries (i.e., “cost shifting”). 42 U.S.C. § 1395x(v)(1)(A) (Administrative Record (“A.R.”) at 576) (requiring the implementing regulations for reasonable cost reimbursement to “take into account both direct and indirect costs of providers of services . . . in order that, under the methods of determining costs, the necessary costs of efficiently delivering covered services to individuals covered by the insurance programs established by this title will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by such insurance programs . . . .”); 42 C.F.R. §§ 413.50 (A.R. at 578-79); 413.89(d) (A.R. at 581-82). Because Part B-enrolled Medicare beneficiaries are responsible for paying Medicare coinsurance and deductible amounts (42 C.F.R. § 409.80(a)(2) (A.R. at 584)), Medicare reimburses a provider where such amounts are, in fact, uncollectible from the beneficiary. 42 U.S.C. § 1395x(v)(1)(A)(i) (A.R. at 576); 42 C.F.R. § 413.89(d) (A.R. at 581-82). Failure to do so would result in inappropriate cost shifting and would violate the SSA. The Medicare cost-shifting prohibition is specifically addressed in CMS Medicare regulations governing bad debt: Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 13 of 56 4 Under Medicare, costs of covered services furnished beneficiaries are not to be borne by individuals not covered by the Medicare program, and conversely, cost of services provided for other than beneficiaries are not to be borne by the Medicare program. Uncollected revenue related to services furnished to beneficiaries of the program generally means the provider has not recovered the cost of services covered by that revenue. 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) (A.R. at 581-82) (emphasis added); see also Provider Reimbursement Manual, Vol. I (“PRM-I”) § 304 (A.R. at 586) (“Payment for deductibles and coinsurance amounts is the responsibility of the beneficiaries. However the inability of the provider to collect deductibles and coinsurance amounts from beneficiaries of the Program could result in part of the costs of covered services being borne by others who are not beneficiaries of the Program.”). C. Medicare Bad Debt and Reasonable Collection Efforts Because of the cost-shifting prohibition, when Medicare beneficiaries fail to pay their cost-sharing amounts, or where such amounts are otherwise uncollectible, Medicare will reimburse the provider for the “bad debt,” to foreclose the possibility that the provider might make up the shortfall by shifting these costs to non-Medicare beneficiaries. 42 U.S.C. § 1395x(v)(1)(A)(i) (A.R. at 576); 42 C.F.R. § 413.89(d) (A.R. at 581-82). Bad debt is considered “allowable,” meaning that a provider can claim it for Medicare reimbursement. Bad debts are specifically excluded from the LTCH all-inclusive per-discharge payment system and, instead, reimbursed separately. 42 C.F.R. § 412.521. CMS regulations define “bad debts” as: Amounts considered to be uncollectible from accounts and notes receivable that were created or acquired in providing services. ‘Accounts receivable’ and ‘notes receivable’ are designations for claims arising from the furnishing of services, and are collectible in money in the relatively near future. 42 C.F.R. § 413.89(b)(1) (A.R. at 581); PRM-I § 302.1. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 14 of 56 5 Bad debt includes any unpaid Medicare deductibles and coinsurance. Id. CMS has established four criteria for allowable bad debt: (1) the debt must be related to covered services and derived from deductible and coinsurance amounts; (2) the provider must be able to establish that “reasonable collection efforts” were made; (3) the debt was actually uncollectible when claimed as worthless; and (4) sound business judgment established that there was no likelihood of recovery at any time in the future. 42 C.F.R. § 413.89(e) (A.R. at 581) (hereinafter the “Medicare Bad Debt Criteria”). As long as bad debt meets the Medicare Bad Debt Criteria, a health care provider is entitled to Medicare reimbursement for the amount of the bad debt. 42 C.F.R. § 413.89(d) (A.R. at 581). CMS has defined a “reasonable collection effort” as an effort similar to what a provider would make to collect amounts owed by non-Medicare patients. PRM-I § 310 (A.R. at 588). Generally, CMS presumes that “reasonable collection efforts” are exhausted, and that the debt is uncollectible, after 120 days have passed without payment since the first bill was issued, in spite of reasonable and customary efforts to bill the beneficiary for the cost-sharing amounts during that time. PRM-I § 310.2 (A.R. at 588). D. Presumption of Uncollectibility for Dual Eligible Patients Providers are excused from pursuing customary “reasonable collection efforts” if they can establish that the patient is indigent and that “no other source other than the patient would be legally responsible for the patient’s medical bill,” such as Medicaid. PRM-I § 312 (A.R. at 590). In such cases, a presumption of uncollectibility applies, and the provider may claim the related debt for Medicare reimbursement without first pursuing the collection efforts described in PRM-I § 310. Id. Although PRM-I § 312 sets forth guidelines for determining a patient’s indigence, it also contains a categorical rule that “[p]roviders can deem Medicare beneficiaries indigent or medically indigent when such individuals have also been determined eligible for Medicaid as Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 15 of 56 6 either categorically needy or medically needy individuals, respectively.” Id. Hence, dual eligibles are categorically indigent. Providers can obtain Medicare reimbursement for their unpaid Medicare cost sharing amounts as bad debts without billing dual eligible patients. However, if Medicaid has a legal obligation to pay all, or any part, of the Medicare cost-sharing amounts, the amounts are not considered to be allowable bad debt. PRM-I § 322 (A.R. at 592). E. The CMS “Must Bill” Policy On August 10, 2004, CMS issued a piece of subregulatory guidance in the form of Joint Signature Memorandum 370 (“JSM-370”), which provides in relevant part: In order to fulfill the requirement that a provider make a “reasonable” collection effort with respect to the deductibles and co-insurance amounts owed by dual- eligible patients, our bad debt policy requires the provider to bill the patient or entity legally responsible for the patient’s [. . .] medical bill; e.g., title XIX, local welfare agency . . . . prior to claiming the bad debt from Medicare. * * * [I]n those instances where the state owes none or only a portion of the dual- eligible patient’s deductible or co-pay, the unpaid liability for the bad debt is not reimbursable to the provider by Medicare until the provider bills the State, and the State refuses payment (with a State Remittance advice). Exhibit P-33. A “remittance advice,” or RA, “is the particular device used by state Medicaid programs to notify providers of the state’s Medicaid liability for costs.” Dkt. 31 at 8. This has become known as CMS’s “must-bill” policy. This policy deems reasonable collection efforts to be exhausted, and bad debt to be “actually uncollectible when claimed as worthless,” when the provider submits a Medicaid claim for the Medicare cost-sharing amount and Medicaid denies at least part of the claim amount with a Medicaid RA. CMS has historically taken the position that the policy does not apply, and billing is not required, where Medicaid, as a matter of law, cannot be responsible for the claim. A.R. at 549. In fact, prior published instructions for completing form HCFA-339 (Provider Cost Report Reimbursement Questionnaire) stated that, “it may not be necessary for a provider to actually bill Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 16 of 56 7 Medicaid to establish a Medicare crossover1 bad debt where the provider can establish that Medicaid is not responsible for payment. In lieu of billing Medicaid, the provider must furnish documentation of [Medicaid eligibility and non-payment that would have resulted from billing Medicaid].” A.R. at 511-513.2 Now, however, CMS insists that a provider must bill Medicaid and Medicaid’s refusal to pay must be in the form of a Medicaid RA indicating the amount (if any) that Medicaid will pay on the claim. A.R. at 405, 553. F. The Bad Debt Moratorium In 1987, Congress enacted the “bad debt moratorium,” effective on August 1, 1987, in response to Medicare program changes proposed by CMS (then HCFA). Omnibus Budget Reconciliation Act of 1987 (“OBRA ‘87”), Pub. L. No. 100-203 § 4008, 101 Stat. 1330-55, as amended by the Technical Miscellaneous Revenue Act of 1988 (“TMRA”), Pub. L. No. 100-647 § 8402, 102 Stat. 3798, and as further amended by the Omnibus Budget Reconciliation Act of 1989 (“OBRA ‘89”), Pub. L. No. 101-239 § 6023, 103 Stat. 2176 (codified 42 U.S.C. § 1395f note (CONTINUATION OF BAD DEBT RECOGNITION FOR HOSPITAL SERVICES)). The bad debt moratorium places two restrictions on CMS’s treatment of bad debt policy. First, CMS cannot change its bad debt policy from the policy that was in effect on August 1, 1987 with respect to “criteria for what constitutes a reasonable collection effort, including criteria for indigency determination procedures,” among other things. 42 U.S.C. § 1395f (emphasis added). Second, 1 “Crossover” is a term that is often used to describe dual eligible bad debts, especially in situations where the beneficiary becomes Medicaid-eligible during their episode of care or “cross over” from one insurance coverage type (Medicare) to another (Medicaid) while they are receiving health care services at a long-term care hospital. 2 CMS changed these instructions effective October 1, 2003 to remove this language. CMS, Change Request 2796 (Sept. 12, 2003), https://www.cms.gov/Transmittals/Downloads/R5P211.pdf. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 17 of 56 8 CMS cannot require a provider to change the bad debt procedures it had in place on August 1, 1987 “with respect to criteria for indigency determination procedures.” among other things. Id. III. STATEMENT OF MATERIAL FACTS ON THE ADMINISTRATIVE RECORD A. Plaintiffs’ Dual Eligible Bad Debts Were Denied by Medicare Even Though Plaintiffs Are LTCHs that Did Not Participate in Medicaid The Plaintiffs are LTCHs located in Delaware, Louisiana, Arkansas, Colorado, and Florida. A.R. at 674. These hospitals were operated by subsidiaries of Select Medical Corporation (“Select”) during the FY 2005 cost reporting periods at issue. Plaintiffs participate in Medicare and provide covered health care services to Medicare beneficiaries. A.R. at 639. Plaintiffs’ patients include Medicare beneficiaries who are obligated to pay deductibles and coinsurance, some of whom are “dual eligibles” (i.e., they are also eligible for Medicaid on their dates of service). A.R. at 639. During the relevant time period, fiscal year 20053, Plaintiffs did not participate in Medicaid in their respective states. A.R. at 640. As such, Plaintiffs could not, as a matter of state and federal law, seek Medicaid reimbursement from the state Medicaid programs for any items or services provided to Medicaid-insured patients. A.R. at 640, 242. In fiscal year 2005 cost reporting periods, Plaintiffs were not paid for some Medicare deductible and coinsurance amounts owed by dual eligibles. A.R. at 639. In each year since fiscal year 2005, Plaintiffs have continued to incur bad debts related to Medicare-covered services provided to dual eligibles. A.R. at 639.4 3 The applicable periods at issue are the Plaintiffs’ respective cost reporting periods. Select Specialty Hospital— Wilmington had a cost reporting period with fiscal year end (“FYE”) of 7/31/2005; Select Specialty Hospital— Jefferson Parish and Select Specialty Hospital—Fort Smith had cost reporting periods with a FYE of 8/31/2005; Select Specialty Hospital—Denver had a cost reporting period with a FYE of 9/30/2005; and Select Specialty Hospital—Orlando had a cost reporting period with a FYE of 12/31/2005. A.R. at 674. 4 At the time of the PRRB hearing (December 3, 2008), the estimated bad debts incurred by Select that would not be reimbursed by Medicare pursuant to the must-bill policy was $13 million. A.R. at 257. The total is now approximately $25 million. Approximately $19.3 million Continued on following page Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 18 of 56 9 Beginning in July 2007, Plaintiffs’ fiscal intermediary, Wisconsin Physicians Service Insurance Corporation (the “Intermediary”), finalized adjustments to Plaintiffs’ cost reports in Notices of Program Reimbursement (“NPRs”) denying a total of $438,693 of dual eligible bad debt reimbursement, which is the amount in controversy.5 A.R. at 674. The Intermediary cited the CMS must-bill policy as its reason for denying these amounts. E.g., A.R. at 686. Plaintiffs appealed these payment adjustments to the Provider Reimbursement Review Board (“PRRB”), which reversed the adjustments in an April 13, 2010 decision following a December 3, 2008 hearing. A.R. at 47-57. The CMS Administrator’s Decision dated June 9, 2010 (the “Administrator’s Decision”) reversed the PRRB’s ruling that the Intermediary’s application of the must-bill policy to non-Medicaid-participating providers is improper. A.R. at 2-19. B. Historically, the Intermediary Reimbursed Plaintiffs for Dual Eligible Bad Debts Without Billing the State Medicaid Programs For all of the Plaintiffs’ cost reporting periods prior to fiscal year 2005, and in fact, for some of the cost reporting periods applicable to Select’s other hospitals in fiscal year 2005, the Intermediary reimbursed dual eligible bad debts without Medicaid RAs, notwithstanding the must-bill policy.6 A.R. at 256-257. Prior to April 2007, the Intermediary allowed proof of the Continued from previous page of this total is the subject of the related case pending before the Court in Select Specialty Hospitals, Inc. et al v. Cochran, 1:17-cv-00235 (BAH) for fiscal years 2006 through 2010. Appeals for fiscal years 2011 through 2015 have been filed with the PRRB. 5 The $438,693 figure is the aggregate amount Plaintiffs seek. The amount of reimbursement that the Intermediary denied to the Plaintiffs individually is as follows: Select Specialty Hospital— Wilmington, $52,798; Select Specialty Hospital—Jefferson Parish, $3,158; Select Specialty Hospital—Fort Smith, $214,344; Select Specialty Hospital—Denver, $149,077; and Select Specialty Hospital—Orlando, $19,316. A.R. at 674. 6 Mr. Wade Snyder, the Reimbursement Director for Select Medical Corporation, testified in the PRRB hearing that, “The reason there is only five in this group is because by the time April 2007 rolled around, our intermediary had conducted the majority of its final settlements on our 2005 years, and any work that they did up to the beginning of April of ’07, they treated our dual- eligible bad debts differently.” A.R. at 256-257. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 19 of 56 10 beneficiary’s indigence (here, dual eligible status) as a sufficient basis for Medicare bad debt reimbursement. A.R. at 127-28, 237, 239. C. Plaintiffs Were Not Able to Obtain RAs from State Medicaid Programs In response to the change in application of the must-bill policy to the Plaintiffs, during the summer of 2007, Select attempted billing states where Plaintiffs and other Select LTCHs did not participate in Medicaid to determine whether state Medicaid programs would process the bills and issue RAs that Medicare would accept. The bills were accompanied by a non-public letter from the Intermediary to Select summarizing their new policy for requiring a Medicaid RA from the state before the Intermediary will reimburse dual eligible bad debts, whether the facility participates in the state Medicaid program or not. A.R. at 133-94. Select submitted a total of 402 Medicaid claims in 20 states, including: Alabama, Arkansas, Colorado, Delaware,7 Georgia, Iowa, Indiana, Illinois,8 Louisiana, Michigan, Mississippi, North Carolina, Nebraska, New Jersey, Oklahoma, Pennsylvania, Tennessee, Texas, Wisconsin, and West Virginia.9 In each case, instead of RAs specifically showing that Medicaid had processed and denied the claim, these states provided written confirmation that the claims could not be recognized or processed and that the state had no liability for the claims because Select’s hospitals were not Medicaid- 7 Affidavit of Wade Snyder (March 6, 2008) (A.R. at 639-42). Although the basis for the denial from Delaware was not clear based on the content of the denial itself, Select confirmed through telephone communication with the Delaware Medicaid program that, like in the other states, the denial was based on the fact that the Delaware Medicaid program does not recognize or enroll long-term acute care hospitals. A.R. at 254. 8 Select does not operate a LTCH in Illinois, however it was included in this billing exercise because one patient of a hospital located in Indiana resided in Illinois and was a beneficiary of the Illinois Medicaid program. 9 Bills were submitted to state Medicaid programs in all states in which Select LTCHs operate, including the Plaintiffs in this case, except for Select Specialty Hospital-Orlando (“SSH- Orlando”) (Provider No. 10-2003). SSH-Orlando obtained a Florida Medicaid provider number effective May 1, 2004 (which was after the dates of service related to the claims for bad debt at issue in this appeal). Because the billing exercise used only current claims, SSH-Orlando was not included in the billing exercise. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 20 of 56 11 enrolled, or a similar response, but in no case did any state provide an RA. For example, on April 17, 2007, in an e-mail from Mary Ulrey of the Michigan Medicaid program to Eric Fitzgerald (Reimbursement Analyst, Select), Michigan confirmed that, regardless of CMS’s must-bill policy, it would not produce RAs for non-enrolled providers. A.R. at 771. For the Plaintiffs included in this billing exercise (i.e., all of them except SSH-Orlando—see supra footnote 9) the responses Select received from the states are attached at A.R. at 134-194.10 A second set of Medicaid bills were submitted by Plaintiffs following the Court’s March 26, 2012 remand order. Dkt. 31. Select again submitted actual Medicaid claims, but this time they submitted claims for all of the dual eligible cost sharing amounts at issue in this case to prove that no Medicaid RAs would be obtained by Plaintiffs. In total, 102 bills were sent for dual eligible Medicare cost-sharing amounts in April 2012 to state Medicaid departments in Arkansas, Colorado, Delaware, Florida, Louisiana, and Oklahoma.11 Responses from the states were varied, but no Medicaid RAs were received.12 The Plaintiffs undertook extensive efforts to contact these states via telephone to find out if RAs could be obtained. Administrative Record Supplement (“A.R.S.”) at 22, ¶ 4 (“On behalf of the Providers, I have attempted to seek guidance from the States’ Medicaid programs via telephone, and I have supervised and directed a member of my staff to do the same, to determine whether the Providers may submit claims for the dates of service at issue in the [FY 2005] Case, 10 We note that Delaware did not provide a response. However, LTCHs are not a recognized provider-type in Delaware as discussed below. A.R. at 801. 11 Provider’s Post-Hearing Brief, Exhibits P-17 through P-22 (filed in related PRRB Case Nos. 08-0252G, 08-1945GC, 09-1473GC, 10-1130GC, 11-0590GC—which are the subject of pending case Select Specialty Hospitals, Inc. et al v. Cochran, 1:17-cv-00235 (BAH)). 12 Id. Included with the submitted bills, Select supplied each state Medicaid department with a letter summarizing the purpose of the bill submission and a copy of the Court’s March 26, 2012 remand order. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 21 of 56 12 and obtain Medicaid remittances showing the amount of Medicare cost sharing, if any, that the States are obligated to pay for such dates of service.”). The Plaintiffs’ conversations with Colorado, Delaware, and Louisiana confirmed that providers that are not enrolled in Medicaid and do not have a Medicaid provider number cannot submit claims for processing or receive RAs from the Medicaid agency. Id. ¶¶ 6,7,9. Importantly, as discussed above, Delaware currently does not allow LTCHs to enroll in its Medicaid program. Id. ¶ 11. The Plaintiffs’ interaction with the Florida Medicaid agency was even more problematic, as multiple phone calls and transfers yielded inconsistent responses from Florida Medicaid, but the ultimate determination was that “bills submitted by a provider, for dates of service prior to the provider’s enrollment in Medicaid, would be rejected and would not be processed.” Id. ¶ 8. IV. PROCEDURAL HISTORY BEGINNING WITH THE COURT’S REMAND ORDER A. The Court’s Remand to the Agency for Further Fact-finding On March 26, 2012, the Court issued an Order and Memorandum of Law granting in part and denying in part the motions for summary judgment. Dkt. 31. The Court said: CMS has not consistently enforced the must-bill requirement against Plaintiffs . . . for all of Select Specialty’s cost reporting periods prior to fiscal year 2005, its FI reimbursed the facilities for dual-eligible bad debt without Medicaid RAs. (S-AR at 256-57). Prior to April 2007, the FI allowed proof of the beneficiary’s indigence (here, dual eligible status) as a sufficient basis for Medicare bad debt reimbursement. Indeed, the FI reimbursed some of Select Specialty’s other subsidiary hospitals for dual-eligible bad debt without Medicaid RAs in fiscal year 2005. Id. at 12-13. The Court stated that applying the must-bill policy to non-Medicaid- participating providers places them “in a classic Catch-22” because the state Medicaid programs will not issue RAs in a form that CMS will accept and the Medicare providers either are not enrolled in Medicaid or in some states cannot enroll in Medicaid because, as long-term care hospitals (“LTCHs”), they are not a recognized Medicaid provider type. Id. at 13. The Court Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 22 of 56 13 did not invalidate the must-bill policy itself, but the Court determined that “CMS’ enforcement of the must-bill policy to Plaintiffs’ claims may ‘constitute a change that does not take [into] account [] legitimate reliance on prior interpretation’ and therefore may be arbitrary, capricious or an abuse of discretion.” Id. at 27. The Court remanded to CMS for reconsideration of whether these non-Medicaid-participating providers were justified in relying on the agency’s prior practice of not applying the must-bill policy to their dual eligible bad debts. B. The Administrator’s Decision on Remand On remand, the CMS Administrator received written comments from the parties. The Plaintiffs’ comments dated September 28, 2012 explained why their reliance on the agency’s prior interpretation and enforcement of the must-bill policy was reasonable and justified under the circumstances. A.R.S. at 11-24. Specifically, the Plaintiffs relied on the agency’s prior conduct, regulations, sub-regulatory communications, and enforcement history. The agency failed to account for the Plaintiffs’ reliance on consistent, established practices when it abruptly began applying the must-bill policy to these non-Medicaid-participating providers to require an RA from the state Medicaid agency as a precondition to Medicare reimbursement of their dual eligible bad debts. The Plaintiffs explained how their efforts to submit actual Medicaid bills to the state Medicaid programs for the dual eligible bad debts at issue and otherwise try to get the states to process those claims did not result in any Medicaid RAs. A.R.S. at 18-24. CMS did not take any action on these comments until the CMS Administrator issued a decision almost four years later, on March 21, 2016 (the “Administrator Remand Decision”). A.R.S. at 3-9; Dkt. 42-1. The Administrator did not file this decision with the Court. Dkt. 41 at 5. The Administrator’s decision on remand generally repeats the rationale of the earlier decision and dismisses the Plaintiffs’ arguments and evidence that they reasonably relied on the prior Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 23 of 56 14 agency policy of not requiring non-Medicaid-participating providers to comply with the must- bill policy. A.R.S. at 3-9. As a result of the Administrator’s Remand Decision, the Plaintiffs’ dual eligible bad debts remain denied, decreasing the Plaintiffs’ Medicare reimbursement for inpatient services rendered by Plaintiffs by approximately $438,693 total in their Medicare cost reporting periods ending in fiscal year FY 2005. C. The Court’s Order to Reopen this Case to Reach a Final Decision on the Merits The Plaintiffs moved to reopen this case so that the Court could complete its review of the Plaintiffs’ claims and issue a final decision on the merits. Dkt. 41. The Court’s July 20, 2012 Order Granting Motion To Strike Judgment And Denying Motion To Amend Order corrected the record by striking its premature judgment. Dkt. 36. The Court was clear that its March 26, 2012 Order disposed of the parties’ cross-motions for summary judgment, but did so “in a manner that expressly leaves the merits of Plaintiffs’ challenge to the Secretary’s decision unresolved.” Id. at 3. Accordingly, a judgment has not been entered by the Court with a final decision on the merits capable of being appealed under 28 U.S.C. § 1291. The Court granted Plaintiffs’ motion and reopened this case because “the Court remanded the case to the agency for resolution of a factual dispute before reaching a final decision and, thus, while not stating so explicitly, retained jurisdiction over the case.” Minute Order, March 7, 2017. V. STANDARD OF REVIEW A. Summary Judgment Standard Summary judgment is warranted where the moving party establishes that no genuine issue of material fact is in dispute and that it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). “In a case Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 24 of 56 15 involving review of a final agency action under the [APA], 5 U.S.C. § 706, however, the standard set forth in Rule 56[ ] does not apply because of the limited role of a court in reviewing the administrative record.” Sierra Club v. Mainella, 459 F. Supp. 2d 76, 89 (D.D.C. 2006); see also Charter Operators of Alaska v. Blank, 844 F. Supp. 2d 122, 126-27 (D.D.C. 2012). Under the APA, the agency’s role is to resolve factual issues to reach a decision supported by the administrative record, while “‘the function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did.’” Sierra Club, 459 F. Supp. 2d at 90 (quoting Occidental Eng’g Co. v. INS, 753 F.2d 766, 769 (9th Cir. 1985). “Summary judgment thus serves as the mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review.” Id. (citing Richards v. INS, 554 F.2d 1173, 1177 & n.28 (D.C. Cir. 1977)). B. Administrative Procedure Act Standard The APA requires an agency action to be set aside if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law;” “contrary to constitutional right, power, privilege, or immunity;” or “in excess of statutory jurisdiction authority or limitations, or short of statutory right.” 5 U.S.C. §§ 706(2)(A)-(C). The APA directs reviewing courts to engage in “a thorough, probing, in-depth review.” James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1099 (D.C. Cir. 1996),quoting Citizens to Preserve Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 415 (1971). The scope of review under an arbitrary and capricious standard entails a careful, sharp inquiry as to: [whether] the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 25 of 56 16 Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut. Auto. Ins., 463 U.S. 29, 43 (1983). “‘Where the agency has failed to provide a reasoned explanation, or where the record belies the agency’s conclusion, [the court] must undo its action.’” Cty. of L.A. v. Shalala, 192 F.3d 1005, 1021 (D.C. Cir. 1999) (quoting BellSouth Corp. v. FCC, 162 F.3d 1215, 1222 (D.C. Cir. 1999)). Further, an agency action that constitutes an unexplained departure from agency precedent must be overturned as arbitrary and capricious. Transactive Corp. v. United States, 91 F.3d 232, 237- 38 (D.C. Cir. 1996); WLOS TV, Inc. v. FCC, 932 F.2d 993, 996-98 (D.C. Cir. 1991); Greyhound Corp. v. ICC, 551 F.2d 414, 416 (D.C. Cir. 1977). The Court may only consider the reasons relied upon by the agency in reaching its conclusion and may not consider post hoc rationalizations by government counsel. E.g., Chamber of Commerce of the U.S. v. SEC, 412 F.3d 133, 143-44 (D.C. Cir. 2005). The APA also directs courts to hold unlawful agency actions which are “unsupported by substantial evidence in a case.” 5 U.S.C. § 706(2)(E). Substantial evidence “means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion” when taking into account “‘whatever in the record fairly detracts from its weight.’” Banner Health v. Sebelius, No. 07-1614, 2010 WL 2265039, at *7 (D.D.C. June 7, 2010) (quoting Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951)). VI. ARGUMENT A. The Administrator’s Decision Must Be Reversed Under § 706(2)(A) of the APA Because It Is Contrary to Law 1. The Decision Violates the Cost-Shifting Prohibition in the Medicare Act (42 U.S.C. § 1395x(v)(1)(A)(i)) As explained above, Congress has prohibited Medicare from shifting Medicare costs to persons other than Medicare beneficiaries. 42 U.S.C. § 1395x(v)(1)(A) (A.R. at 576); 42 C.F.R. §§ 413.50, 413.89(d) (A.R. at 578-82). The purpose of reimbursing providers for Medicare bad Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 26 of 56 17 debts is to avoid violating this statutory prohibition on cost-shifting. 42 U.S.C. § 1395x(v)(1)(A)(i) (A.R. at 576); 42 C.F.R. § 413.89(d) (A.R. at 581). This Court has regularly recognized Medicare’s cost-shifting prohibition (sometimes referred to as “anti-cross- subsidization provisions”) in its holdings. E.g., Abington Crest Nursing and Rehab. Ctr. v. Leavitt, 541 F. Supp. 2d 99, 106 (D.D.C. 2008); Foothill Hosp.-Morris L. Johnston Mem’l v. Leavitt, 558 F. Supp. 2d 1 (D.D.C. 2008). In Howard Univ. v. Bowen, No. 85-3342, 1988 WL 33508 (D.D.C. Mar. 29, 1988), this Court found that the cost shifting prohibition superseded a contrary Medicare regulation, stating “. . .the Secretary failed to note that the prohibition against cost-shifting is not merely a general regulation, but, as noted above, is an integral part of the Medicare statute itself and has been so found by numerous courts.” Id. at *2. Here, CMS’s refusal to reimburse Plaintiffs for their Medicare bad debts violates the statutory prohibition on cost-shifting under 42 U.S.C. § 1395x(v)(1)(A)(i) because it results in costs associated with providing health care services to Medicare beneficiaries—not simply the cost of billing a state Medicaid program—being shifted to non-Medicare beneficiaries. Applying CMS’s must-bill policy to Plaintiffs as non-Medicaid-participating providers therefore violates the Medicare statute, and amounts to a windfall for Medicare. 2. The Decision Is Not in Accordance With the Rule That Medicaid Participation is Voluntary and Not a Prerequisite to Receiving Medicare Reimbursement Participation in Medicaid is voluntary under the law. Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrecoverable Trust, 410 F.3d 304, 313 (6th Cir. 2005) (“A health-care provider is not required to participate in the Medicaid program, but rather voluntarily contracts with the state to provide services to Medicaid-eligible patients in return for reimbursement from the state at the specified rates”); see also Barney v. Holzer Clinic, Ltd., 110 F.3d 1207, 1211-12 (6th Cir. 1997) (citing cases, statutes, and regulations establishing that a Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 27 of 56 18 provider’s participation in Medicaid is wholly voluntary); Idaho Health Care Ass’n v. Sullivan, 716 F. Supp. 464, 472 (D. Idaho 1989) (noting that nursing homes’ decision to participate in Medicaid is voluntary and citing cases that establish Medicaid’s voluntariness). Further, Medicaid participation is not listed in the Social Security Act, regulations, or any agency guidance materials as a precondition to Medicare reimbursement for bad debts. See supra Part II.C. The effect of the Administrator’s Decision is to make Medicaid participation mandatory for all providers who intend to claim Medicare reimbursement for bad debts—even though this is not a condition of participation or payment for purposes of Medicare reimbursement and therefore violates the well-established rule that Medicaid participation is voluntary. Therefore the Administrator’s Decision is not in accordance with the law. 3. The Agency’s Application of the Must Bill Policy to Non-Medicaid- Participating Providers Violates the Bad Debt Moratorium As discussed above, Congress established a bad debt moratorium that places two limitations on CMS’s treatment of bad debt policy. 42 U.S.C. § 1395f note. First, CMS cannot change its bad debt policy from the policy that was in effect on August 1, 1987. Second, CMS cannot require a provider to change the bad debt collection policy that a provider had in place on August 1, 1987. As this Court discussed in Foothill Hosp.-Morris L. Johnston Mem’l v. Leavitt, 558 F. Supp. 2d 1 (D.D.C. 2008), “[t]he government has been struggling with [the bad debt] issue for decades, and its actions have often been inconsistent.” Id. at 7. The Secretary explained in a brief submitted to the Eleventh Circuit that the Bad Debt Moratorium precludes the Secretary from “increasing provider requirements applicable to claims for reimbursement of Medicare bad debt claims after [August 1, 1987].” Br. for Appellant, 1996 WL 33469762, at 23, submitted in University Health Servs. v. Shalala, 120 F.3d 1145 (11th Cir. 1997). Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 28 of 56 19 Despite the prohibitions imposed by the moratorium, CMS and the Intermediary—as discussed above—communicated to the Plaintiffs in April 2007 an abrupt change in the must-bill policy by which the policy would now apply to non-Medicaid-participating providers. A.R. at 548-49 (E-mail from K. Rohrich to W. Snyder dated Apr. 5, 2007). Articulated in 2007, this change violates both prohibitions of the 1987 bad debt moratorium. Not only does the sudden expansion of the must-bill policy to non-Medicaid-participating providers constitute an impermissible change to CMS’s bad debt policy prior to August 1, 1987, but the change also impermissibly forced the Plaintiffs, as non-Medicaid-participating providers, to change their long-standing bad debt procedures. Thus, the fiscal intermediary’s application of the must-bill policy to deny the Plaintiffs’ bad debt claims violates the bad debt moratorium and should not be upheld. The Administrator Decision affirming those payment denials should be held unlawful and set aside as violating the bad debt moratorium. B. The Administrator’s Decision Must Be Reversed Under § 706(2)(A) of the APA Because It Is Arbitrary and Capricious, and an Abuse of Discretion 1. The Agency Failed to Consider that the Plaintiffs Had No Way to Comply With the Must Bill Policy The Administrator’s Decision failed to consider the reality that Plaintiffs had no way to comply with CMS’s new interpretation or enforcement of the must-bill policy and, therefore, it is arbitrary and capricious and must be set aside. Motor Vehicle Mfrs. Ass'n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). Where a provider participates in the Medicaid program and incurs bad debts for dual eligible patients, it is generally feasible for the provider to obtain a Medicaid RA from the state. Although this is an additional burden, especially where the provider knows the Medicaid payment ceiling will preclude any reimbursement for the Medicare cost-sharing amounts, hospitals in the Plaintiffs’ chain organization have chosen to comply with this policy to the extent they are enrolled in Medicaid. A.R. at 242. However, in the case of non- Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 29 of 56 20 Medicaid-participating providers, it is impossible for the Plaintiffs to satisfy this RA requirement of the must-bill policy in order to be reimbursed for their allowable bad debts. A.R. at 242 (“[Mr. Snyder] Without a provider number, it’s an impossibility. It’s an impossibility. We just simply cannot get Medicaid remittance advices if we do not have a provider number. It will not happen.”); see also A.R. at 264-65 ([Mr. Braganza] “Have you ever gotten paid anything for a non-participating hospital [from Medicaid]?”; [Mr. Snyder] “No”). Some of these states have Medicaid regulations and policies that prevented the Plaintiffs from obtaining RAs as non- Medicaid-participating providers. A.R. at 521-38. To prove that Plaintiffs cannot obtain valid Medicaid RAs from the states, Select submitted bills to over twenty state Medicaid programs with over 400 bills.13 A.R. at 242-243, 640. Select only billed the Medicaid programs in the states where it has a non-Medicaid- participating subsidiary, including the states where the Plaintiffs are located. A.R. at 77. Each of the over 400 bills sent to states’ Medicaid programs was rejected without the issuance of a Medicaid RA. A.R. at 242-243. Accordingly, a provider cannot bill state Medicaid programs and receive Medicaid RAs unless the provider participates in Medicaid. A.R. at 640. Moreover, as stated above, in one state at issue, Delaware, Select is precluded from enrolling in Medicaid because Delaware does not recognize LTCHs as providers.14 A.R. at 265, 538. Select Specialty Hospital—Wilmington attempted to enroll in Delaware’s Medicaid 13 Select hospitals attempted to bill each state where it runs a non-Medicaid participating LTCH, including: Alabama, Arkansas, Colorado, Delaware, Georgia, Iowa, Indiana, Illinois, Louisiana, Michigan, Mississippi, North Carolina, Nebraska, New Jersey, Oklahoma, Pennsylvania, Tennessee, Texas, Wisconsin, and West Virginia. A.R. at 640. 14 At the time of the PRRB hearing, Select had an estimated fifteen hospitals around the country in states where the Medicaid program does not recognize long-term care hospitals. Therefore, the Select hospitals in these states, (namely North Carolina, New Jersey, Delaware, and West Virginia) cannot enroll in the states’ Medicaid program. Thus, it is absolutely impossible for the hospitals to comply with CMS’s must-bill policy. A.R. at 257. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 30 of 56 21 program, and in response to its application, the Hospital received a rejection letter stating that Delaware Medicaid does not recognize LTCHs. A.R. at 265, 538; see also A.R. at 321-22 (Pennsylvania Medicaid does not enroll LTCHs). Two other states at issue, Colorado and Arkansas, took over one year and two years, respectively, to process the Plaintiffs’ Medicaid enrollments. Dkt. 1, ¶ 79.15 This Court stated in the remand order: “If, at some point, Plaintiffs can establish that they have submitted the correct forms and made the right applications, it may in fact, in those circumstances be arbitrary and capricious for the Secretary to not accept an alternative form of documentation or to require that the states comply with her regulations.” Dkt. 31 at 25. With all of the Medicaid billing and enrollment efforts described above, the Plaintiffs have taken all reasonable efforts to satisfy the Court’s directive, and the results clearly establish that “submitting the correct forms and making the right applications” for the dates of service at issue in this appeal is futile. The states cannot or will not provide the one form of documentation that CMS and the Intermediary insist is needed before Medicare will reimburse dual eligible bad debts—a Medicaid RA. Moreover, CMS and the Intermediary have categorically rejected all of the denials, responses, and other documentation that the Plaintiffs have obtained from the states as a result of these efforts.16 The states refuse to allow the Plaintiffs to bill if they are not enrolled as full-fledged Medicaid providers. 15 See supra note 17. 16 CMS’s claim that a provider can simply “submit these claims and then are constructively enrolled for the purposes of the claims” (Transcript of Motion Hearing, March 19, 2012 at 37, line 14-16) is patently false. The evidence is clear that without filing an enrollment application and obtaining a Medicaid provider number, the Plaintiffs cannot bill Medicaid and obtain RAs (that is, if the state Medicaid program will even enroll LTCHs). A.R. at 313-340, 783-801. And even in states where the Plaintiffs can enroll in Medicaid, the states will not process Medicaid claims for dates of service prior to enrollment. A.R. at 134-194. Thus, the Plaintiffs cannot Continued on following page Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 31 of 56 22 Regardless of whether the LTCH has subsequently enrolled in the respective states’ Medicaid program, or has been unable to do so due to the Medicaid program’s lack of recognition of LTCHs, a state’s Medicaid program ultimately has no legal obligation to a non- Medicaid-participating provider. A.R. at 249, 549. As such, for FY 2005, the state Medicaid programs cannot be considered a potential source of payment for purposes of determining collectability of bad debts. A.R. at 274. The Administrator’s Decision does not directly address these highly relevant facts. Thus, the Administrator’s Decision articulation of the must-bill policy as applied to Plaintiffs’ non-Medicaid-participating hospitals, is nothing more than an unjustified bar to Medicare bad debt reimbursement that Plaintiffs are legally entitled to receive. E.g., Athens Comty. Hosp., Inc. v. Shalala, 21 F.3d 1176 (D.C. Cir. 1994). 2. The Administrator’s Decision is Arbitrary and Capricious Because It is an Unexplained Departure From CMS’s Prior Treatment of Plaintiffs’ Reasonable Costs CMS’s argument that this must-bill policy is “longstanding” is disingenuous. A.R. at 11. In fact, the must-bill policy had never been applied to these hospitals’ dual eligible bad debts before April of 2007, and had never been applied to other non-Medicaid-participating providers in Select’s chain. A.R. at 239, 241. Select was not once subjected to the must-bill policy in the years leading up to the Intermediary’s proposed adjustments to its 2005 cost reports, even though the hospitals at issue had never billed Medicaid or received Medicaid RAs during that time. A.R. at 239. The Intermediary itself confirmed CMS’s longstanding policy of not requiring Medicaid RAs from non-Medicaid-participating providers in order to reimburse Medicare bad debts in an Continued from previous page simply submit claims to Medicaid as the agency insists they can and should. Transcript of Motion Hearing, March 19, 2012 at 24, lines 24-25 (“At the very outset, the claims need to be submitted”) and at 21, lines 1-5 (“there is absolutely nothing preventing them and has been nothing preventing them from the time that they received those bulletins from the contractor in ‘04 and ‘05 forward, to then attempt to obtain the necessary RAs from the state.”). Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 32 of 56 23 email dated April 5, 2007: “If a provider is not Medicaid certified, they shouldn’t be required to bill the state before we allow the bad debt as the state does not have any liability to non- Medicaid-certified providers. This stance was based on an email clarification from CMS [Kansas City] Regional Office.” A.R. at 549. For these reasons, the Administrator’s Remand Decision is also erroneous. First, it states that “the Providers did not demonstrate (beyond allegations) in this record that in fact a claim had been made on its prior cost report(s) and that payment had been made for these types of unpaid coinsurance and deductibles without proper supporting documentation.” A.R.S. at 7. This is clearly false. Plaintiffs appeal exhibits and testimony establish a consistent practice of exempting these hospitals from the must-bill policy until April 2007. CMS has all of the cost reports filed by Plaintiffs for years prior to FY 2005 and by other Select LTCHs for years prior to FY 2006 showing that dual eligible bad debts were allowed. E.g., A.R. at 665-669. Second, the decision states that “any failure to deny these claims by the contractor does not rise to the level of an affirmative agency action” and that “[o]ccasionally providers may receive payment for an undocumented claim, but that does not relieve the provider of its responsibility to follow the rules and regulations of CMS.” A.R.S. at 7. However, this was not an isolated or infrequent occurrence—the Intermediary consistently exempted Plaintiffs from the must-bill policy before FY 2005. Lastly, the decision says that “[e]ven assuming, arguendo, that the Providers erroneously relied on previous payment of such claims without RAs, the Administrator finds that such reliance would not be reasonable in light of the November 2004 Flash communication and prior Administrator's decisions.” A.R.S. at 8. Yet Plaintiffs dual eligible bad debts were allowed before April 2007 without billing the states or obtaining Medicaid RAs despite the prior release of JSM-370 and the Intermediary newsletters (A.R. at 399-406). Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 33 of 56 24 The unannounced, retroactive application of the must-bill policy to non-Medicaid- participating providers is unprecedented and extreme. Indeed, CMS itself acknowledged in one of its Monterey briefs that exceptions to the must-bill policy do exist where the provider does not participate in Medicaid. A.R. at 570. Furthermore, the manner in which CMS changed its prior longstanding practice without any advance notice to Plaintiffs and other Select providers, and the effect that change has had on Plaintiffs and other Select providers, renders the Agency action arbitrary, capricious, and an abuse of discretion. Reference to “longstanding” precedent in the Administrator’s Decision, without more, is not sufficient to overcome the overwhelming evidence of an arbitrary and capricious agency action in this case. As the D.C. Circuit stated in Flagstaff Broad. Found. v. F.C.C., 979 F.2d 1566 (D.C. Cir. 1992): An agency’s action will be set aside by a reviewing court whenever the agency fails to provide a reasoned basis for its decision . . . This principle applies to all agency action, regardless of whether it involves established policy or the application of brand-new rules of interpretation . . . Conclusory statements of binding precedent and policy will not suffice . . . Id. at 1568, 1569, 1570 (emphasis added). Flagstaff involved a challenge to the Federal Communications Commission’s (“FCC’s”) denial of the plaintiff’s application for a new FM radio station. To support the denial, the FCC cited a 25-year old “policy statement” that the FCC alleged was controlling, without exception. The FCC alleged further that denials based on established policy do not require an elaborate justification or explanation. The D.C. Circuit found that the FCC was “obligated to confront challenges to its . . . policy, and, in view of documented changes in factual and legal circumstances, to articulate reasons why, despite those changes, the policy should be applied to a particular case.” Id. at 1567. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 34 of 56 25 Based on the reasoning in Flagstaff, this Court should set aside the Administrator’s Decision as arbitrary and capricious. Like the FCC in Flagstaff, CMS blindly relies on a policy that it has never revisited, or otherwise subjected to external scrutiny, to support its denial of the Plaintiffs’ Medicare bad debt reimbursement. The Administrator’s Decision refuses to recognize or address the compelling factual differences between the Plaintiffs in the present matter and prior challengers to the must-bill policy. Finally, like the FCC in Flagstaff, the Administrator offers no explanation as to why the must-bill policy is appropriate in light of the facts in this case. Under these circumstances, the D.C. Circuit found that “conclusory statements of binding precedent and policy will not suffice” and a “reiteration of a policy is not a reason for it.” Id. at 1570. CMS’s unexplained departure from precedent underscores the arbitrary and capricious nature of the Administrator’s Decision. 3. The Agency’s Application of the “Must Bill” Policy to Non-Medicaid- Participating Providers Is Arbitrary and Capricious Because It Did Not Take Into Account Legitimate Reliance on the Agency’s Longstanding Practice a. Applicable Authority The United States Supreme Court has stated: “[s]udden and unexplained change ... or change that does not take account of legitimate reliance on prior interpretation ... may be ‘arbitrary, capricious [or] an abuse of discretion’ under 5 U.S.C. § 706(2)(A).” Smiley v. Citibank, 517 U.S. 735, 742 (1996) (citations omitted). This position was reaffirmed in F.C.C. v. Fox Television Stations, Inc., 129 S. Ct. 1800, 1811 (2009) (an administrative determination is arbitrary and capricious if it “depart[s] from a prior policy sub silentio” or if the “prior policy has engendered serious reliance interests” that were not taken into account). The manner in which CMS adopted this new interpretation of the regulation—unfairly frustrating Plaintiffs’ justifiable reliance on the policy previously articulated by CMS through the Intermediary—is arbitrary, Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 35 of 56 26 capricious, and an abuse of discretion. This authority alone requires reversal of the Administrator’s Decision. In general, an agency cannot apply a new policy if (1) it is a departure from prior policy without an explanation for the change, or (2) it applies “retroactively to parties who detrimentally relied on the previous policy.” New England Tel. & Tel. Co. v. FCC, 826 F.2d 1101, 1110 (D.C. Cir. 1987) (citations omitted). “It is black-letter law that considerations of ‘administrative equity’ prohibit agencies from ‘impos[ing] undue hardship by suddenly changing direction, to the detriment of those who have relied on past policy.’” U.S. v. Pressman-Gutman Co., 721 F.Supp.2d 1333, 1347 (CIT, 2010) (quoting Acadian Gas Pipeline System v. FERC, 878 F.2d 865 (5th Cir. 1989)). Applying these rules, the CMS’s denial of two providers’ claims for reimbursement based on a change of agency position with respect to the reimbursement at issue were reversed after the court found that the providers had “legitimately relied” on the agency’s prior interpretation. Tenet Healthsystem Hospitals, Inc. v. Shalala, No. CIV. A. 97-3499, 1998 WL 780080 *4-5 (E.D. La. Nov. 4, 1998); see also Acadian, 878 F.2d at 868 (noting that “where an agency fails to distinguish past practice, its actions may indicate that lack of reasoned articulation and responsibility that vitiates the deference the reviewing court would otherwise show”) (citing Local 777, Democratic Union Organizing Comm. v. NLRB, 603 F.2d 862 (D.C. Cir. 1978)). In short, the “undue hardship” on Acadian Gas that resulted from FERC’s sudden change of direction on past policy and failure to adhere to its previously established precedents, is analogous to the hardship that the Plaintiffs face as a result of CMS’s application of an abrupt change in interpretation and enforcement of bad debt policy in 2007 to cost reporting periods that had already closed for FY 2005. Acadian, 878 F.2d at 870. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 36 of 56 27 b. The Plaintiffs Relied on the Agency’s Longstanding Practice of Not Applying the Must bill Policy to Non-Medicaid- Participating Providers In this case, the Plaintiffs filed their FY 2005 cost reports and claimed bad debt reimbursement in accordance with the prior fiscal years practice. A.R. at 237, 257-258. Specifically, in prior fiscal years, CMS reimbursed the Plaintiffs17 for Medicare bad debts even though the Plaintiffs did not (because they could not) bill Medicaid. Id. Thus, until July 10, 2007 (the date of the first NPR at issue) (A.R. at 425, 454), the agency consistently declined to enforce its must-bill policy against the Plaintiffs, continuously confirming through such conduct that non-Medicaid-participating providers would be reimbursed for Medicare bad debt without Medicaid RAs.18 For this reason, the Plaintiffs consistently sought Medicare bad debt reimbursement for dual eligibles without attempting to obtain Medicaid RAs, because the agency consistently had paid such claims in this manner for years and because there otherwise were no Medicare rules or guidance that required the Plaintiffs to enroll with state Medicaid agencies as a precondition to receiving Medicare reimbursement. 17 We note that all similarly-situated providers operated directly or indirectly by the Plaintiffs’ parent company were treated in an identical manner with respect to the agency’s enforcement, or lack thereof, of the must-bill policy through April 2007. A.R. at 256-257 ([Wade Snyder]: “The reason there’s only five in this group is because by the time of April 2007 rolled around, our intermediary had conducted the majority of its final settlements on our 2005 years, and any of the work that they did up to the beginning of April of ‘07, they treated our dual eligible bad debts differently. They allowed them as long as I could provide evidence that those dual-eligible patients were indeed Medicaid beneficiaries. So for the most part, all of our ‘05 cost reports had been final settled up through April of ‘07. The few that came late that were done late after the enforcement of this policy, those are the five that are in this group now. Clearly, had these hospitals been audited a couple months earlier, they would have allowed those bad debts...”). 18 The Monterey case involved the opposite facts—the agency consistently enforced the must- bill policy against the provider in that case for all prior years, a fact that was crucial to the Ninth Circuit’s analysis. Community Hosp. of Monterey Peninsula v. Thompson, 323 F. 3d 782 (9th Cir. 2003). Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 37 of 56 28 Because of the Plaintiffs’ reliance on the agency’s prior practice of not applying the must-bill policy to them, the Plaintiffs were deprived of any opportunity to make an informed choice or to conform their practices to the agency’s new interpretation and avoid, to the extent possible, the financial impact of the new interpretation on their business. Specifically, the Plaintiffs did not have (1) the need nor the opportunity to seek Medicaid RAs from the states; (2) an opportunity to decline to admit dual eligibles (to the extent appropriate) with an understanding of the financial impact of doing so pursuant to the agency’s current position; (3) an opportunity to consider enrolling in Medicaid (to the extent possible) with an understanding of the financial impact of failing to do so pursuant to the agency’s current position; and (4) an opportunity to take lost Medicare bad debt reimbursement into account in conjunction with budgeting for their operations. Like the provider in Tenet, the Plaintiffs would have done things differently had they known the agency, via the Intermediary, would suddenly change its mind and begin applying the must-bill policy to non-Medicaid-participating providers. Tenet, 1998 WL 780080 *4-5. The Plaintiffs’ reliance on the agency’s prior treatment of allowing their bad debts without Medicaid RAs necessitates reversing the Intermediaries’ cost report adjustments at issue and paying the Plaintiffs in the total amount of $438,693 for the cost reports under appeal. c. The Plaintiffs’ Reliance Was Justified—Plaintiffs Had No Reason to Believe CMS or the Intermediary Would Change Its Longstanding Practice The Intermediary’s adjustments and correspondence with the Plaintiffs take the position that the Plaintiffs should have been on notice, notwithstanding agency actions to the contrary, that the must-bill policy indeed applied to them. However, during the cost reporting periods for FY 2005, the Plaintiffs did not and could not anticipate that the agency would subject them to the must-bill policy (an impossible standard). With no final decision on this issue, the Plaintiffs Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 38 of 56 29 continued to rely on the prior audit treatment of allowing Medicare bad debts without Medicaid RAs in later cost reporting periods. First, no program guidance, notice, or other written communication ever expressly stated or even suggested that the must-bill policy would be applied to non-Medicaid-participating providers, for whom it would be impossible to comply. Neither the JSM 370 from CMS to the Intermediary, nor the previous October 15, 2003 and October 1, 2004 newsletters from the Intermediary (A.R. at 399-406) address non-Medicaid-participating providers, or their unique circumstance of being precluded from billing by the states.19 Thus, until July 10, 2007 (A.R. at 425, 454), the agency declined to enforce the must-bill policy against non-Medicaid-participating providers, and the agency never published anything suggesting this practice would end. Absent notice to the contrary, the Plaintiffs’ reliance on the agency’s prior practice was reasonable. Second, no must-bill case or decision had ever involved non-Medicaid-participating providers.20 For example, Monterey involved an enrolled provider that simply did not want to bill Medicaid. In contrast, here the Plaintiffs could not bill and, in some cases, will never be able to enroll and bill, Medicaid as a result of state law restrictions on enrollment. Because there is no evidence of CMS adopting this interpretation and enforcing it against non-Medicaid-participating providers, the Plaintiffs’ reliance on the agency’s prior interpretation and practice was reasonable, particularly in light of the clear distinction between providers that are legally unable to bill and enroll in Medicaid, and providers who simply would prefer not to do so. The 19 The Plaintiffs are not attempting to argue that they were unaware of the must-bill policy. Indeed, other providers within the Select organization have always complied with the policy where possible to do so. A.R. at 242. 20 Such providers’ predicament was addressed in briefing in the Monterey case, see Community Hosp. of Monterey Peninsula v. Thompson, 323 F. 3d 782, 798 (9th Cir. 2003), but there, the agency took the opposite position it is now taking with respect to enforcing the must-bill policy against those who cannot bill. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 39 of 56 30 Monterey court seemed persuaded by the fact that there was no evidence the Secretary ever reimbursed crossover bad debt without a Medicaid RA. Id. In this case, however, the exact opposite is true. The Plaintiffs consistently claimed Medicare bad debt reimbursement for dual eligibles without Medicaid RAs and were consistently reimbursed by Medicare for those bad debts for prior periods. Also, in the Monterey case, the court concluded that the Medicare prohibition on cost shifting was not violated because only the cost of billing a state Medicaid program was at issue. Monterey, 323 F.3d at 800. The court found that the cost of the bad debt itself would have been paid by the Medi-Cal program if below the state ceiling or Medicare if above it. Id. The same is not true in this case. Here it is the actual cost of the bad debt that has been shifted to the Plaintiffs as a result of the Intermediary’s denials because we know the states will not even process the Plaintiffs’ claims and therefore Medicare will never pay those amounts either. The billing costs are not relevant here, as demonstrated by the Plaintiffs’ willingness to bill the states if it were possible to do so without a Medicaid provider number. Third, the Intermediary continued to settle the Plaintiffs’ cost reports without adjusting dual eligible bad debts, notwithstanding the must-bill policy, well after the Monterey case was decided and JSM-370 was issued. Specifically, the Monterey decision—which CMS contends was the impetus for the agency’s change in position regarding enforcement of the must-bill policy (A.R. at 5)—was decided on March 18, 2003. JSM-370 was issued August 10, 2004. Id. The second Intermediary newsletter on the general must-bill policy was issued in October 2004. A.R. at 403-06. However, until July 2007—over four years after Monterey—CMS reimbursed the Plaintiffs’ dual eligible bad debts without issue and without requiring Medicaid RAs. A.R. at 425, 454. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 40 of 56 31 Given the agency’s consistent practice of not applying the must-bill policy to the Plaintiffs throughout this entire time period (when the policy was clearly being applied only to Medicaid-participating providers), the Plaintiffs were justified in relying on the agency’s consistent prior conduct, and in thus believing that the agency would continue to refrain from applying the must-bill policy to non-Medicaid-participating providers. Even the Intermediary and CMS ROs were under the impression that the must-bill policy did not apply to non- Medicaid-participating providers. A.R. at 781 (e-mail from Intermediary to the Plaintiffs: “If a provider is not Medicaid certified, they shouldn’t be required to bill the state before we allow the bad debt, as the state does not have any liability to non-Medicaid certified providers. This stance was based on an email clarification from CMS KC Regional Office.”). Moreover, the failure to account for this reliance in denying the Plaintiffs’ claims contravenes the precedent described above and in the Medicare Act. 42 U.S.C. § 1395hh(e)(2)(A) (HHS, and its component CMS, must not deny Medicare payments to providers that rely on prior written guidance from the agency or its fiscal intermediaries). Fourth, CMS has produced no evidence that its established interpretation and practice of consistently exempting non-Medicaid-participating providers from the must-bill policy was ever called into question in any way. Absent some indication that this treatment of non-Medicaid- participating providers was incorrect or otherwise under agency review, there was no way the Plaintiffs could anticipate, before July 2007 when they began receiving their NPRs, that CMS would change its practice. Finally, the Plaintiffs’ reliance on CMS’s continuous and consistent practice of paying reimbursement for dual-eligible bad debt claims was justified because there has never existed any controlling authority requiring the Plaintiffs to enroll with state Medicaid agencies as a Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 41 of 56 32 prerequisite to receiving Medicare reimbursement for dual-eligible bad debts. Specifically, Medicaid participation is not listed among Medicare’s “Conditions of Participation of Hospitals”—a series of requirements a provider must meet to be deemed worthy of participating in Medicare as an LTCH. 42 C.F.R. Part 482. Further, Medicaid participation is not listed among the various “conditions of payment”—i.e., the requirements that a provider must meet in order to get paid by Medicare for covered items or services. 42 C.F.R. § 421.1 et seq. Importantly, Medicaid participation is not set forth as a requirement for obtaining Medicare reimbursement for bad debt. 42 C.F.R. § 413.89(e) (A.R. at 581). Additionally, it is noteworthy that the laws, regulations, and practices of various states (including Delaware, where one Plaintiffs is located) simply do not permit LTCHs to enroll as Medicaid providers21—a fact not addressed in any statute or regulatory guidance relating to reimbursement of dual-eligible bad debt. d. The Agency Did Not Take Into Account the Plaintiffs’ Legitimate Reliance on the Prior Longstanding Practice CMS has failed to consider or account for the Plaintiffs’ legitimate reliance on the agency’s prior practice of not applying the must-bill policy to non-Medicaid-participating providers. As discussed above, the agency gave no notice to non-Medicaid-participating providers prior to changing the way it applied the must-bill policy. Further, the agency did not publish or give any instruction or other directive to state Medicaid programs prior to changing the way it applied the must-bill policy, such as a notice specifying that the Medicaid agencies should provide RAs or some alternative documentation in response to the inquiries of providers that are not enrolled in Medicaid who would ostensibly need such documentation to accompany claims to Medicare for dual-eligible bad debts. CMS contends that states are legally required to 21 A.R. at 538 and footnotes 7 and 10. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 42 of 56 33 produce RAs to non-Medicaid-participating providers (Transcript of Motion Hearing, March 19, 2012 at 21, line 19-20), yet the agency has done nothing to enforce this purported requirement.22 Moreover, the agency has provided no assistance to the Plaintiffs even though the Plaintiffs appealed to the Intermediary for such assistance. Specifically, after the Plaintiffs’ claims were first denied, the Plaintiffs (through their counsel) wrote to the Intermediary and requested “assistance in reaching a fair and workable resolution of this issue,” stating the Plaintiffs’ willingness to comply with the must-bill policy as long as the barriers to doing so could be removed, and explaining in detail the problems with respect to getting the required RAs from the applicable states because the Plaintiffs were not Medicaid-participating. A.R. at 540- 42. The Intermediary’s response letter (A.R. at 544) failed to acknowledge the problems unique to non-Medicaid-participating providers with respect to complying with the must-bill policy. CMS and the Intermediary made no attempt to order the states to issue RAs to the Plaintiffs even after being placed on notice of the circumstances of the Medicaid agencies refusing to supply the RA documentation the agency suddenly deemed necessary.23 Moreover, the correspondence between the Intermediary and counsel for the Plaintiffs was the culmination of multiple e-mail and telephone exchanges in which the Plaintiffs attempted to appeal to the Intermediary to obtain a workable solution. A.R. at 767-74, 778-81, 825. Eventually, after the Plaintiffs were 22 The Plaintiffs are certainly in no position to force states to comply with this so-called legal requirement to produce RAs to non-Medicaid-participating providers. Sept. 27, 2012 Declaration of Wade Snyder (A.R.S. at 22-24). 23 At the hearing before this Court, agency counsel suggested that the agency would be willing to “facilitate some sort of a dialogue with the provider and the state … that perhaps would be more with the state to change its policy.” Transcript of Motion Hearing, March 19, 2012 at 26, lines 7-14. Based on the agency’s position throughout this appeal, such statements by agency counsel have not been supported by the agency’s actions. See A.R. at 770 (April 17, 2007 email from Intermediary to Plaintiffs stating “we have not been given a CMS Central Office contact for providers to dispute such an issue themselves, and the only avenue available at this time is through the appeals process.”). Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 43 of 56 34 further precluded by the states from complying with the must-bill policy, the Intermediary informed the Plaintiffs by letter that no alternative documentation—even documentation that the Plaintiffs were banned from enrolling in Medicaid—would suffice to establish “reasonable collection efforts” by the Plaintiffs. A.R. at 827. Based on this, the Plaintiffs had no choice but to appeal the matter. Clearly, the agency did not take the Plaintiffs’ reliance on the agency’s prior practice into account when the agency decided to alter its practice. Thus, like the Acadian Gas plaintiff, the Plaintiffs have been unjustly prejudiced by the agency’s failure to adhere to past practice, on which the Plaintiffs relied when filing their FY 2005 cost reports. 4. The Agency’s Retroactive Application of Must Bill Policy Without Prior Notice to the Plaintiffs Was Arbitrary and Capricious As a general rule, the Intermediary and CMS cannot impose new policies retroactively. Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 215 (1988) (CMS cannot promulgate retroactive cost-limit regulations). This basic principle of administrative law is based on notions of fundamental fairness. Landgraf v. USI Film Products, 511 U.S. 244, 207 (1994) (“The presumption against statutory retroactivity has consistently been explained by reference to the unfairness of imposing new burdens on persons after the fact.”). In Landgraf, the Supreme Court addressed whether a new law could be applied to a case that was already pending on enactment: Elementary considerations of fairness dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly; settled expectations should not be lightly disrupted. For that reason, the “principle that the legal effect of conduct should ordinarily be assessed under the law that existed when the conduct took place has timeless and universal appeal.” Id. at 265-266 (quoting Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S. 827, 855 (1990) Scalia, J., concurring). The Intermediary’s arbitrary and capricious insistence on retroactively imposing the RA requirement on non-Medicaid-participating providers thus violates the basic premise that Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 44 of 56 35 regulated parties must have some opportunity to conform their conduct to an agency’s requirements. 5 U.S.C. § 706(2)(A). During these cost reporting periods, the Plaintiffs relied on the Intermediary’s prior treatment of bad debt, consistent with common sense and practicality, that RAs were not required from the state Medicaid programs. However, even if these Plaintiffs were given an opportunity to submit claims to the states for dual eligible cost sharing amounts during the 2005 cost reporting periods, there was no way for them to obtain RAs from the states to show the Intermediary. This has been confirmed by the Plaintiffs actual billings to the states. A.R. at 133-94, 254, 639-42; A.R.S. at 22-24. The Intermediary has been unwilling to consider the practical barriers for non-Medicaid-participating providers associated with its new policy on this issue. Accordingly, basing the adjustments to Plaintiffs’ dual eligible bad debts on the lack of supporting Medicaid RAs was improper. 5. Even if the Must Bill Policy Is an Interpretive Rule, It Is Invalid Under the APA as Applied to Plaintiffs The Court has not decided whether the sudden change in policy to apply the must-bill requirements to Plaintiffs after the FY 2005 cost reporting periods ended was a valid interpretive rule. Dkt. 31. For the reasons discussed below, the Court should decide that it was invalid because it does not pass the reasonableness test of the arbitrary and capricious standard under section 706(2)(A) of the APA. Interpretative rules are “issued by an agency to advise the public of the agency's construction of the statutes and rules which it administers.” Perez v Mortg. Bankers Ass'n, 135 S. Ct. 1199, 1204 (2015); see also Shalala v. Guernsey Mem’l Hosp., 514 U.S. 87, 99 (1995). Unless another statute says otherwise, interpretative rules are not required to adhere to the notice-and-comment requirement. Perez, 135 S. Ct. at 1203-04. Unlike substantive rules, interpretative rules do not have the “force and effect of law” and do not need to adhere to notice- Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 45 of 56 36 and-comment rulemaking. Id. at 1204. In Perez, the Supreme Court determined that since an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures when it amends or repeals that interpretive rule. Id. at 1206. Further the Supreme Court found that “the absence of a notice-and-comment obligation makes the process of issuing interpretive rules comparatively easier for agencies than issuing legislative rules. But that convenience comes at a price: [i]nterpretive rules ‘do not have the force and effect of law and are not accorded that weight in the adjudicatory process.’” Id. at 1204; see also Ass'n of Flight Attendants-CWA, AFL-CIO v. Huerta, 785 F.3d 710, 713 (D.C. Cir. 2015) (holding that Federal Aviation Administration notice regarding an internal guidance document on the use and stowage of portable electronic devices was not a final agency action because it did not “determine any rights or obligations, or produce legal consequences,” therefore the notice did not carry the “force and effect of law”). Perez also illustrates that its “exemption of interpretive rules from the notice-and-comment process is categorical.” Flytenow, Inc. v. F.A.A., 808 F.3d 882, 889 (D.C. Cir. 2015) (holding that the interpretation at issue is in a “quintessential interpretative rule” as it was “issued by an agency to advise the public of the agency's construction of the statutes and rules it administers”). Although interpretive rules are not subject to the formal notice-and-comment rulemaking process, there are limits on an agency’s use of interpretive rules. Importantly, interpretive rules are still subject to the same reasonableness standard under the APA. U.S. Postal Serv. v. Postal Regulatory Comm'n, 785 F.3d 740, 750 (D.C. Cir. 2015) (stating that “the APA requires that an agency's exercise of its statutory authority be reasonable and reasonably explained”). As the Supreme Court stated in Perez: There may be times when an agency's decision to issue an interpretive rule, rather than a legislative rule, is driven primarily by a desire to skirt notice-and-comment Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 46 of 56 37 provisions. But regulated entities are not without recourse in such situations. Quite the opposite. The APA contains a variety of constraints on agency decisionmaking—the arbitrary and capricious standard being among the most notable. As we held in Fox Television Stations, and underscore again today, the APA requires an agency to provide more substantial justification when 'its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account. It would be arbitrary and capricious to ignore such matters.' Perez, 135 S. Ct. at 1209; see also F.C.C. v. Fox Television Stations, Inc., 129 S. Ct. 1800 (2009). As discussed above, CMS did not take into consideration the Plaintiffs’ legitimate reliance on the previous policy not to impose the must-bill requirements on their dual eligible bad debt claims. This renders the agency’s new interpretation invalid under the APA. The Supreme Court in Perez also explained that Congress sometimes uses a statute to limit an agency’s ability to change its interpretation if regulated parties have relied on the existing interpretation: “In addition, Congress is aware that agencies sometimes alter their views in ways that upset settled reliance interests. For that reason, Congress sometimes includes in the statutes it drafts safe-harbor provisions that shelter regulated entities from liability when they act in conformance with previous agency interpretations.” Perez, 135 S. Ct. at 1209. Statutory safe harbors and exceptions to statutory requirements protect the activities of regulated parties from agency actions. E.g., 42 U.S.C. § 1395ww(m)(6)(A)(ii) (exceptions from LTCH site neutral payment rate). It may also take the form of a moratorium on changing an agency’s current rules. E.g., Medicare, Medicaid, and SCHIP Extension Act of 2007 § 114(c)(1)-(2) (statutory moratorium on CMS’s ability to apply 25 percent patient threshold payment adjustment to LTCHs). The agency’s new interpretation of the must-bill policy that suddenly required Plaintiffs to bill the state Medicaid programs and obtain valid RAs violated the bad debt moratorium and is, therefore, invalid under the APA. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 47 of 56 38 In general, an interpretive rule that cannot be considered reasonable will not stand. “When an agency ‘fail[s] to provide a reasoned explanation, or where the record belies the agency's conclusion, [the court] must undo its action.’” Cmty. Health Sys., Inc. v. Burwell, 113 F. Supp. 3d 197, 214 (D.D.C. 2015); see also Cty. of L.A. v. Shalala, 192 F.3d 1005, 1021 (D.C. Cir. 1999) (quoting BellSouth Corp. v. FCC, 162 F.3d 1215, 1222 (D.C.Cir.1999)); see also FiberTower Spectrum Holdings, LLC v. F.C.C., 782 F.3d 692, 699 (D.C. Cir. 2015) (stating that if an agency's “interpretation is ‘plainly erroneous or inconsistent with the regulation[s]’ or there is any other ‘reason to suspect that the interpretation does not reflect the agency's fair and considered judgment on the matter in question,’” courts will not “defer to an agency's interpretation of its regulations”). Moreover, to be reasonable the agency needs to be aware that it is changing position. F.C.C. v. Fox Television Stations, Inc., 129 S. Ct. at 1811. In Medicare cases, such as this one, “[i]nterpretive rules receive a level of deference ‘warranted by the facts and circumstances surrounding their creation,’ including ‘the degree of the agency's care, its consistency, formality, and relative expertness,’ and ‘the persuasiveness of the agency's position.’” Health All. Hosps., Inc. v. Burwell, 130 F. Supp. 3d 277, 298 (D.D.C. 2015) (holding that Acting Deputy Director of the Bureau of Policy Development memorandum to all CMS regional offices which explicitly addresses the exclusion of observation services provided in inpatient beds was an invalid interpretative rule because the memorandum was “written by a subordinate agency official . . . did not cite to any authority or provide any analysis or reasoning for its observation bed days policy [and] . . . was not published or otherwise ‘issued in a manner designed to place the public on notice of this change in policy because the distribution list for the memorandum was only internal’”). Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 48 of 56 39 Contrary to its treatment of bad debts in prior cost reporting periods, the agency abruptly changed its policy when the Intermediary audited these cost reports, insisting that cost-sharing amounts for dual eligible patients of non-Medicaid-participating providers cannot be reimbursed as Medicare bad debt without proof in the form of RAs that Medicaid actually denied claims for such amounts. CMS and the Intermediary knew that the Plaintiffs were not enrolled in Medicaid and therefore must have known that Plaintiffs could not comply with the new policy. A.R. at 767-81. Indeed, the Plaintiffs told them it was not possible to comply. Id. Accordingly, the Administrator’s Decision cannot be considered “a reasoned explanation” because the “record belies the agency's conclusion” and the Court “must undo its action.” The agency’s actions show a total disregard for Plaintiffs’ legitimate services to dual eligible beneficiaries, their right to payment for these services, and their reliance on the consistent policy that previously exempted Plaintiffs from the must-bill requirements. Moreover, the very informal manner in which the change in policy was communicated and applied to Plaintiffs shows little thought and a lack of expertise. Indeed, the agency does not appear to be aware it changed position. All of these factors reduce the “the persuasiveness of the agency’s position” to the point where it cannot be considered reasonable under the APA. 6. It Was Arbitrary and Capricious For the Agency to Refuse To Accept Proof of Indigence to Support the Claimed Bad Debts When the Plaintiffs Have No Ability to Force the States to Process Non- Medicaid-Participating Provider Claims Given the lengths to which the Plaintiffs have gone to confirm that it is and always has been impossible to obtain RAs for the dates of service at issue (A.R. at 839-42; A.R.S. at 22-24), the agency’s and the states’ rules are clearly incompatible, and the Plaintiffs are caught in a “classic Catch-22.” Dkt. 31 at 24. The Intermediary refuses to reimburse dual eligible bad debts without Medicaid RAs, and states refuse to issue Medicaid RAs for the fiscal years at issue— Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 49 of 56 40 even if the Provider enrolled as soon as possible after learning of the agency’s change in policy to require RAs. E.g., A.R.S. at 22-24. Moreover, these states had no procedure by which the Plaintiffs can request Medicaid RAs without enrolling in Medicaid. A.R. at 771, 839-42; A.R.S. at 22-24. If states are required by federal law to issue Medicaid RAs (and, by implication, allow non-Medicaid-participating providers to request RAs), CMS should enforce such laws. More recently, CMS acknowledged that the “Catch-22” which the Plaintiffs find themselves in is real and CMS can provide assistance to the states to resolve these problems. Specifically, on June 7, 2013, CMS published a new Informational Bulletin that for the first time publicly acknowledges the problems that non-Medicaid-participating providers are facing with respect to dual eligible bad debts (specifically, QMB bad debts).24 Specifically, the Bulletin states: We are aware of situations typically occurring when: • the Medicare-certified provider submitting the claim is not enrolled with the state Medicaid agency; or • the MMIS does not recognize the provider identifier; or • the service is covered by Medicare, but not included in the Medicaid State Plan; or • the provider type is recognized by Medicare, but not by the state Medicaid program; or • the service is provided by an out-of-state provider. For each of the situations listed above, CMS has received reports that Medicare- certified providers may not be receiving adjudication of their claim for Medicaid liability, or may not be receiving subsequent notification through the standard RA, as required under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). There may be isolated instances of a state MMIS rejecting a QMB crossover claim because the individual provider has been suspended from participation in the Medicaid program, but continues as a Medicare-certified provider. Even in this circumstance, the state is required to permit the provider to 24 CMCS-MMCO-CM Informational Bulletin to State Medicaid Agencies, Payment of Medicare Cost Sharing for Qualified Medicare Beneficiaries (QMBs) (June 7, 2013) (“Informational Bulletin”) https://www.medicaid.gov/Federal-Policy-Guidance/downloads/CIB-06-07-2013.pdf. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 50 of 56 41 enroll for the limited purpose of obtaining adjudication of the QMB cost-sharing amount. Id. at 2. Unfortunately, this guidance was issued almost six years after the NPRs were issued in this appeal (A.R. at 674) so it could not have helped the Plaintiffs during their cost reporting periods or before they received the adjustments under appeal, and there is no indication that it is retroactive in effect. Moreover, this document is only an “Informational Bulletin.” It lets the states know that “CMS Technical Assistance is Available” (Informational Bulletin at 4), but it does nothing to enforce what CMS considers to be the state’s responsibility to issue RAs. Yet, the Informational Bulletin confirms the problems the Plaintiffs encountered during the cost reporting periods at issue, where Medicaid programs would not issue RAs to Plaintiffs who participate in Medicare but not Medicaid; the Plaintiffs do not have a valid Medicaid provider number; the LTCH services are covered by Medicare but not Medicaid; the LTCH provider-type is recognized by Medicare but not Medicaid; or the Provider treated an out-of-state dual eligible. Thus, the CMS Informational Bulletin publicly acknowledges the problems that non- Medicaid-participating providers are facing with respect to dual eligible bad debts, but it is simply too little, too late. The Plaintiffs are powerless to force the states to issue RAs. Yet, the agency argues that the Plaintiffs’ only recourse is to do just that. Dkt. 23 at 4-5. Instead, CMS should have resolved these administrative inconsistencies between the Medicare and Medicaid programs. Because CMS did not do this before the Plaintiffs’ FY 2005 cost reporting periods began, the Intermediary should have continued to accept Plaintiffs’ proof of indigence to allow Medicare reimbursement of their dual eligible bad debts. 7. The Agency’s Refusal to Continue to Exempt Plaintiffs from the Must Bill Policy is Inconsistent with its Treatment of Other Providers in Similar Situations Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 51 of 56 42 The Secretary continues to insist that no exceptions to the “must-bill” policy exist (A.R. at 17-18), despite the agency’s own court filings in the Community Hospital of Monterey Peninsula case confirming at least two exceptions in similar situations: There are only two unique instances where the Secretary permits providers to claim Medicare crossover bad debt without billing the State Medicaid agency. Community Mental Health Centers (“CMHC’s”) are allowed to claim Medicare crossover bad debt without billing the State agency because CMHC’s cannot bill the State agency given that they are not licensed by the State and, therefore, have no Medi-Cal provider number. CAL. HEALTH & SAFETY CODE § 1200 et. seq. (no licensing provision for CMHC’s. Institutions for Mental Diseases (“IMD’s”) are permitted to claim Medicare crossover bad debts without billing the State agency where the services were provided to an individual aged 22-64. This is because the Medicaid statute and regulations categorically preclude payment for services provided to patients aged 22-64 in IMD’s, and the State accordingly has absolutely no responsibility for the coinsurance/deductibles associated with those particular services. 42 U.S.C. § 1396d(a)(14) and (15); 42 C.F.R. §§ 435.1008(a)(2) and 441.13(a)(2) (State Medicaid Plan receives no Federal Financial Participation for services to this category of individuals). Exhibit P-45, Defendant’s Memorandum in Reply to Plaintiffs’ Opposition to Defendant’s Motion for Summary Judgment at 9, fn 5, Cmty. Hosp. of Monterey v. Thompson, 2001 U.S. Dist. LEXIS 16938 (N.D. Cal. Oct. 11, 2001). The first exception applies to community mental health centers (“CMHCs”), in California. CMHCs are not licensed by the state and therefore cannot enroll in the state Medicaid program called Medi-Cal or have their Medi-Cal claims processed. CAL. HEALTH & SAFETY CODE § 1200 et. seq. (declining to provide licensing provisions for CMHCs in California). The Secretary permits CMHCs to claim Medicare dual-eligible bad debt without billing the state Medicaid agency. As such, they are not subject to the reasonable collection efforts requirement of 42 C.F.R. § 413.89(e)(2) as enforced through the must-bill policy. A.R. at 581-82. The same rationale applies to the Plaintiffs. Many states would not enroll the Plaintiffs’ hospitals in Medicaid because they do not recognize LTCHs. Four states still will not enroll LTCHs in Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 52 of 56 43 Medicaid—Alabama, Delaware, Mississippi and New Jersey. Accordingly, the Plaintiffs’ hospitals should be exempt from the must-bill policy. A.R. at 255-57. The PRRB recognized this CMS exception to the must-bill policy when reversing the Intermediary’s adjustments to dual eligible bad debts in FY 2005. A.R. at 56. The second exception to the must-bill policy applies to institutes for mental diseases (“IMDs”). The Secretary permits IMDs to claim Medicare dual-eligible bad debt without billing the state Medicaid agency when the services were provided to an individual age 22 to 65. The rationale stated by the agency is that the Medicaid statute and the regulations preclude payment for IMD services provided to patients between those ages. 42 U.S.C. § 1396d(a)(14) and (15); 42 C.F.R. § 435.1009(a)(2) (“FFP is not available in expenditures for services provided to . . . (2) Individuals under age 65 who are patients in an institution for tuberculosis or mental diseases unless they are under age 22 and are receiving inpatient psychiatric services under §440.160 of this subchapter.”); 42 C.F.R. § 441.13(a)(2) (“FFP is not available in expenditures for services for . . . (2) Any individual who is under age 65 and is in an institution for mental diseases, except an individual who is under age 22 and receiving inpatient psychiatric services under subpart D of this part.”). Therefore, the state has no responsibility to pay the cost-sharing amounts associated with those services. The rationale for this exception also applies to the Plaintiffs. Many states will not enroll the Plaintiffs’ hospitals in Medicaid because the state Medicaid program does not cover LTCH services. A.R. 511-13, 321-22, 521-39 (Plaintiffs’ enrollment denial letters). As with IMDs, the Plaintiffs are precluded under Medicaid laws from receiving Medicaid payment for their services. On this basis, the Plaintiffs’ hospitals should be exempt from the must-bill policy. A.R. at 255-57. The PRRB also recognized this CMS exception to the must-bill policy when reversing the Intermediary’s adjustments to FY 2005 dual eligible bad debts. A.R. at 56. Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 53 of 56 44 C. The Administrator’s Decision Must Be Reversed Under § 706(2)(E) of the APA Because It Is Not Supported by Substantial Evidence – The Agency’s Application of the “Must Bill” Policy to Non-Medicaid-Participating Providers Is Not Supported The Plaintiffs are entitled to summary judgment on their fourth claim for relief because the Administrator’s Decision is not supported by substantial evidence and is clearly erroneous. Pursuant to 5 U.S.C. § 706(2)(E), this Court shall “hold unlawful and set aside agency action, findings, and conclusions found to be . . . unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute. . . .” The Administrator’s Decision fails to satisfy this standard and should be reversed. In April 2007, the Intermediary informed the Plaintiffs by email that “From this point forward, all providers, Medicaid certified or not, MUST bill the State and obtain a valid RA showing denied or partial payment before we allow the bad debt on the cost report.” A.R. at 548- 49. This was an abrupt change in audit treatment by the Intermediary, who acknowledged in the same email communication that, previously, the CMS Kansas City Regional Office had clarified that “If a provider is not Medicaid certified, they shouldn’t be required to bill the state before we allow the bad debt as the state does not have any liability to non- Medicaid-certified providers.” A.R. at 549. According to the Intermediary, the CMS central office allegedly “issued a statement that this is an incorrect handling of bad debts . . . .” at an internal conference. Id. The Plaintiffs testified at the PRRB hearing that there is nothing in writing to confirm this alleged change in interpretation by the CMS central office, and the Intermediary has not provided any evidence as support. A.R. at 244; see also A.R. at 310-11. There is no written communication in the record confirming that this RA requirement applies in Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 54 of 56 45 all circumstances. Moreover, no “regulatory or other approach for this change” was ever provided by the Intermediary. A.R. at 265. The lack of any evidence supporting the alleged communication from the CMS central office to apply the must-bill policy to non-Medicaid-participating providers underscores the questionable nature of the Intermediary’s adjustments. Whether the Intermediary was implementing a new expression of CMS policy that was not preceded by public notice, or whether it was really an arbitrary and abrupt change in audit treatment enforcing the must-bill policy for the first time, it is legally invalid. Theretofore, the Intermediary had consistently allowed such dual eligible bad debt without Medicaid RAs, consistent with the advice of the CMS Kansas City regional office. We assert that this prior audit treatment allowing such dual eligible bad debt was the correct one, and a change is not supported. VII. CONCLUSION For the reasons discussed herein, the Intermediary’s adjustments and denials of the reimbursement amounts related to the Plaintiffs’ claimed dual eligible bad debts were improper. The Plaintiffs’ respectfully request that the Court grant Plaintiffs’ Motion for Summary Judgment, reverse the Intermediary’s adjustments, and order that the Plaintiffs be reimbursed in the aggregate amount of $438,693 plus statutory interest and fees. Dated: May 30, 2017 Respectfully submitted, /s/ Jason M. Healy Jason M. Healy (D.C. Bar No. 468569) THE LAW OFFICES OF JASON M. HEALY PLLC 1701 Pennsylvania Ave., N.W., Ste 300 Washington, DC 20006 (202) 706-7926 (888) 503-1585 (fax) jhealy@healylawdc.com Attorney for Plaintiffs Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 55 of 56 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on May 30, 2017, copies of the foregoing were served via CM/ECF system upon all counsel of record including the following: Linda L. Keyser U.S. Department of Health and Human Services Office of the General Counsel/CMS Division 330 Independence Ave., S.W. Cohen Building, Room 5344 Washington, DC 20201 Email: linda.keyser@hhs.gov Brian J. Field Assistant United States Attorney 555 4th Street, N.W. Washington, D.C. 20530 Email: Brian.Field@usdoj.gov Attorneys for Defendant /s/ Jason M. Healy Jason M. Healy Case 1:10-cv-01356-BAH Document 49 Filed 05/30/17 Page 56 of 56 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA SELECT SPECIALTY HOSPITAL - DENVER, INC., et al., Plaintiffs, v. THOMAS E. PRICE, M.D., Secretary U.S. Department of Health and Human Services, Defendant. Civil Action No. 10-1356 (BAH) ORDER Upon consideration of Plaintiffs’ Motion for Summary Judgment, Defendant’s Opposition and Cross-Motion for Summary Judgment, and the entire record herein, it is hereby ORDERED that Plaintiffs’ Motion for Summary Judgment is GRANTED; and it is further ORDERED that Defendant’s Cross-Motion for Summary Judgment is DENIED; and it is further ORDERED that the June 9, 2010 Decision of the Administrator (“Decision”) which states, “The Administrator finds that the bad debts claimed by the Providers on their cost reports should be disallowed because the Provider, despite their choice to be Medicare only facilities, failed to determine if the State was liable for any cost sharing amounts and, thus, the Providers failed to determine that the debt was actually uncollectible when claimed as worthless as required under 42 C.F.R. 413.89(e)(3) and Chapter 3 of the PRM,” the Administrator’s March 21, 2016 decision on remand confirming the same, and the Administrator’s findings and conclusions in this case are set aside and stricken in their entirety as arbitrary and capricious, an Case 1:10-cv-01356-BAH Document 49-1 Filed 05/30/17 Page 1 of 3 2 abuse of discretion, unsupported by substantial evidence, and otherwise not in accordance with the law; and it is further ORDERED that the Decision’s findings, and conclusion in this case and their application to Plaintiffs are set aside and stricken in their entirety because the Secretary’s new interpretation of the must-bill policy, or new enforcement of the must-bill policy, constitutes an invalid interpretive rule which does not meet the reasonableness standard of the Administrative Procedure Act, 5 U.S.C. §§ 500-576; and it is further ORDERED that the Decision’s findings, and conclusion in this case and their application to Plaintiffs are set aside and stricken in their entirety because the Secretary’s new interpretation of the must-bill policy, or new enforcement of the must-bill policy, violates the Medicare prohibition on cost-shifting under 42 U.S.C. § 1395x(v)(1)(A) and the bad debt moratorium under 42 U.S.C. § 1395f note (CONTINUATION OF BAD DEBT RECOGNITION FOR HOSPITAL SERVICES). ORDERED that Defendant, through the Plaintiffs’ current Medicare payment contractor, shall pay Plaintiffs the amounts to which they are entitled for fiscal year 2005, in the aggregate of $438,693; and it is further ORDERED that Plaintiffs shall be awarded prejudgment interest to which they are entitled to as a matter of right under 42 U.S.C. § 1395oo(f)(2); and it is further ORDERED that the Court shall retain jurisdiction of this matter until such time as the Defendant or his agent have made the payment set forth above, and the Clerk shall not close the docket for this matter until further order from the Court. Case 1:10-cv-01356-BAH Document 49-1 Filed 05/30/17 Page 2 of 3 3 On this _______ day of ___________________, 2017, IT IS SO ORDERED. __________________________________________ Hon. John D. Bates, United States District Judge Case 1:10-cv-01356-BAH Document 49-1 Filed 05/30/17 Page 3 of 3