UNITED STATES DISTRICT COURT FORTHE DISTRICT OF COLUMBIA
LAKELAND REGIONAL HEALTH SYSTEM ) ) Plaintiff, ) ) v. ) Civil Case No. 12-600 (RJL) ) KATHLEEN SEBELIUS, Secretary ) Departmentof Health andHuman Services ) ) De&ndanL ) 

### <h.- MEMORANDUM OPINION (July/Co, 2013) (Dkts. ##9, 11)

PlaintiffLakeland Regional Health System ("plaintiff' or "Lakeland") broughtthe present action against Kathleen Sebelius, the Secretary ofHealth and Human Services ("defendant" or "the Secretary") pursuantto Title XVIII ofthe Social SecurityAct, 42 U.S.C. §§ 1395-1395kkk-1 (the "Medicare Act") and the Administrative Procedure Act, 5 U.S.C. § 551 etseq. (the "APA"), challengingthe defendant's final administrative decision denying Medicare reimbursement for certainbad debts incurredby plaintiff during the 2005 fiscal year. Defendant held that the debts could notbe deemed "uncollectible" under 42 C.F.R. §413.89(e) while pending at an outside collection agency. Plaintiffargues that defendant's position constitutes a change in policy in violation of42 U.S.C. § 1395fnote (hereinafter "Bad DebtMoratorium" or

1"Moratorium"). In the alternative, plaintiffcontends that defendant's decision is arbitrary, capricious, and inconsistentwith the governing statute and regulations. Before the Court are the parties' cross motions for summaryjudgment. Upon consideration of the parties' pleadings, relevant law, and the entire record in this case, defendant's summaryjudgmentmotion is GRANTED andplaintiffs motion is DENIED. BACKGROUND A. Statutory and Regulatory Background 1. The Medicare Program and Bad DebtReimbursements The Medicare Actprovides health insurance benefits to eligible elderly and disabledpersons. 42 U.S.C. 

### § 1395 etseq. The Centers for Medicare and Medicaid Services ("CMS"), formerly the Health Care FinancingAdministration ("HCFA"), administers the Medicare program for the Secretary. 42 U.S.C. § 1395kk; 42 C.P.R. § 400.200 etseq. Medicare providers like plaintiffenter into written agreements with the Secretary to provide services to eligible beneficiaries. 42 U.S.C. § 1395cc. Pursuantto these agreements, providers are reimbursed for services rendered to eligible beneficiaries. See id. The Secretary has broad discretion to determine which "reasonable costs" may be reimbursed to Medicare providers, see 42 U.S.C. § 1395x(v)(l)(A), and what documentation is required from providers, see 42 U.S.C. § 1395g(a). The Secretary

2contracts with fiscal intermediaries1 to determine andprocess reimbursementpayments to providers. 42 U.S.C. § 1395h. Atthe close ofeach fiscal year, providers submit costreports to their fiscal intermediaries for determination ofprogram reimbursement. 42 C.P.R. § § 413.20,.24. After auditing the report, 42 C.P.R. § 1395g, the fiscal intermediary issues a Notice of Program Reimbursement ("NPR"), 42 C.P.R.§§ 405.180l(a)-.1803. A hospital may challenge an NPRby requesting a hearing before the ProviderReimbursement Review Board ("PRRB"). 42 U.S.C. § 1395oo(a). The PRRB's decision is subjectto reviewby the Administrator ofCMS. 42 U.S.C. § 1395oo(f)(1); 42 C.P.R.§ 405.1875(a)(l). The Administrator's decision constitutes a final agency decision subjecttojudicial review. 42 U.S.C. § 1395oo(f)(l); 42 C.P.R. § 405.1877. Medicare requires its beneficiaries to bear a portion ofthe cost ofcovered services in the form ofdeductibles and coinsurance. 42 C.P.R. §§ 409.80-.83. In orderto prevent shifting the costs ofcovered services to non-Medicare patients, the Medicare programreimburses hospitals when they are unable to collect coinsurance and deductible payments from Medicare beneficiaries. 42 U.S.C. § 1395x(v)(l)(A); 42 C.P.R.§§ 412.115(a), 413.89(a), (d). The regulations governing bad debt reimbursementwere

1 In October 2005, PartA fiscal intermediaries became known as Medicare administrative contractors. See Medicare Prescription Drug, Improvement, and ModernizationAct of2003, Pub. L. No. 108-173, § 911(b), 117 Stat. 2385 (Dec. 8, 2003). 3written to incentivize providers to practice strong and efficient collection efforts before seeking bad debt reimbursement from the Medicare program: A bad debt must meet the following criteria to be allowable: (1) The debt mustbe related to covered services and derived from deductible and coinsurance amounts. (2) The provider must be able to establish that reasonable collection efforts were made. (3) The debt was actually uncollectible when claimed as worthless. (4) Sound businessjudgment established that there was no likelihood of recovery at any time in the future. 42 C.P.R.§ 413.89(e); ARat 580. 42 C.P.R.§ 413.89(e) was first issued in 1966. See DistrictHasp. Partners v. Sebelius, Civ. ActionNo. 11-1717, slip op. at 15 (D.D.C. Mar. 26, 2013) (Kessler, J.). Chapter 3 ofthe Medicare Provider Reimbursement Manual, Part I ("PRM"), contains the Secretary's guidance for interpreting 42 C.P.R.§ 413.89(e). See ARat 582-85. This manual was first issued in 1968. See FoothillHasp. -MorrisL. Johnston Mem 'l v. Leavitt, 558 F. Supp. 2d 1, 11 (D.D.C. 2008). PRM § 308 mirrors 42 C.P.R. § 413.89(e), outlining the four main criteria that must be satisfied for reimbursement. AR at 582. PRM § 310 discusses the "reasonable collection effort" providers must undertake and document before seeking bad debt reimbursement. AR at 582-83. PRM § 310.A states thatproviders may employ the assistance ofa collection agency. ARat 582-83. PRM 

### § 310.B requires "document[ation] in the patient's file by copies ofthebill(s) and 4[other letters orreports]." AR at 583. PRM § 310.2 provides for a "presumption of noncollectibility": Ifafterreasonable and customary attempts to collect a bill, the debtremains unpaid more than 120 days from the date the first bill is mailed to the beneficiary, the debt may be deemed uncollectible. AR at 583. PRM § 314 states that a provider "shouldhave the usual accounts receivable records-ledger cards and source documents to support its claim" and "[u]ncollectible deductibles and coinsurance amounts are recognized as allowable bad debts in the reporting period in which the debts are determined to be worthless." ARat 584. PRM § 316 precludes double-recovery where CMS has reimbursed a provider for a bad debt that the provider is later able to collect from a beneficiary. ARat 584-85. The Secretary has also issued guidelines for fiscal intermediaries to follow in administering the reimbursement system. For example, a 1985 audit guideline regarding the use ofoutside collection agencies states: Where a providerutilizes the services ofa collection agency .... [i]f reasonable collection effort was applied, fees the collection agency charges the provider are recognized as an allowable administrative cost ofthe provider. Hospital AuditProgram§ 4499, Ex. 15 (AR at 349). The 1985 audit guideline further states that "[t]o determine the acceptability ofcollection agency services," the intermediary should ensure that "bothMedicare and non-Medicare uncollectible amounts

are handled in a similarmanner" and the patient's file "isproperly documented to substantiate the collection effort." 

### !d. 5In 1989, the Secretarypublished a Medicare Intermediary Manual ("MIM") instructing fiscal intermediaries that: Ifthe [bad] debt is written-offon the provider's books 120 days after the date ofthe bill and then turned over to a collection agency, the amount cannotbe claimed as a bad debt on the date ofthe write-off. Itcan be claimed as a bad debt only afterthe collection agency completes its customary collection effort. MIM, 13-4, §§ 4198, 4199 (AR at 381, 407-08);Foothill, 558 F. Supp. 2d at 10. An HCFA policy memorandum dated June 11, 1990 provides further guidance on the bad debtpolicy set forth in the PRM: [U]ntil aprovider's reasonable collection efforthas been completed, including both in-house efforts and the use ofa collection agency, a Medicare bad debt may not be reimbursed as uncollectible. This is in accordance with the fourth criterion in [PRM] section 308, which provides that an uncollected Medicare account cannot be considered an allowable Medicare bad debt unless sound businessjudgmentestablished thatthere is no likelihood ofrecovery at any time in the future. We have always believedthat, clearly, there is a likelihood ofrecovery for an account sent to a collection agency and that claiming ofaMedicare bad debt at the point of sending the account to the [collection] agency wouldbe contrary to the bad debt policy in [PRM] sections 308 and 310

.... HFCA Clarification ofBadDebtPolicy ("HFCA Memo"), June 11, 1990 (AR at 414). CMS also issued a Joint Signature Memorandum in 2008 stating: In accordance with the regulation/policy in effectpriorto the August 1, 1987, moratorium, until aprovider's reasonable collection efforts have been completed, including both in-house efforts and the use ofa collection agency, unpaid deductible and coinsurance amounts cannotbe recognized as a Medicare bad debt.

6Joint Signature Memorandum re: Clarification ofMedicare BadDebtPolicy/Bad Debt Policy Related to Accounts at a Collection Agency ("JSM"), May 2, 2008 (AR at 117). 2. The Bad Debt Moratorium In 1987, Congress enacted what is herein referred to as the "BadDebt Moratorium," prohibiting the Secretary from making changes to the agency's bad debt policy in effect onAugust 1, 1987. See Foothill, 558 F. Supp. 2d at 3. The Moratorium states: In making payments to hospitals under title XVIII "42 USC 1395fnote" ofthe Social Security Act, the Secretary ofHealth and Human Services shall not make any change in the policy in effect on August 1, 1987, withrespect to paymentunder title XVIII ofthe Social Security Actto providers ofservice for reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance amounts incurred under such title (including criteria for what constitutes a reasonable collection effort). Omnibus BudgetReconciliation Act of 1987, Pub. L. No. 100-203, § 4008(c), 101 Stat. 1330 (reprinted in 42 U.S.C. § 1395fnote)?

2 In 1988, Congress amended the Moratorium to further define "reasonable collection effort" to include "criteria for indigency determinationprocedures, for record keeping, and for determining whetherto refer a claim to an external agency." Technical Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647, § 8402, 102 Stat. 3798 (reprinted in 42 U.S.C. § 1395fnote). In 1989, Congress added the following sentence to the Moratorium: The Secretary may not require a hospital to change its bad debtpolicy ifa fiscal intermediary, in accordance with the rules ofAugust 1, 1987, with respect to criteria for indigency determination procedures, recordkeeping, and determining whetherto refer a claimto an external collection agency, 7B. Factual and Procedural Background Plaintiffhospital provided covered services to Medicare beneficiaries during the fiscal year ended September 30, 2005 ("FY05"). Some ofthe beneficiaries failed to pay the hospital coinsurance and deductibles. Plaintifffirst made internal efforts to collect the debts. AR at 121-22, 556. Plaintiffsubsequently wrote the debts offas uncollectible and referred them to an outside collection agency. !d. While collection efforts at the outside agency were still pending, plaintiffsubmitted to its fiscal intermediary, National Government Services ("NOS"), an FY05 costreport including the bad debt write-offs. On August 28, 2007 and September 15, 2008, NOS issued an initial and corrected NPR, respectively, regarding plaintiffs FY05 costreport. AR at 90. NOS disallowed payments for debts plaintiffsent to the outside collection agency, which had not been returned to plaintiffs as uncollectible. !d. Plaintifftimely appealed the correctedNPRto the PRRB, arguing that it had met all ofthe statutory criteria for bad debt reimbursement, or in the alternative, that the NOS decision constituted a change in policy in violation ofthe Bad DebtMoratorium. AR at 647-84. Following a hearing on the matter, AR at 251-86, the PRRB concludedthat NOS' decision was erroneous, ARat 86-96. The Administrator ofCMS elected to

has accepted such policy before that date, and the Secretary may not collect from the hospital on the basis ofan expectation ofa change in the hospital's collectionpolicy. Omnibus BudgetReconciliation Act of 1989, Pub. L. No. 101-239, § 6023, 103 Stat. 8review the PRRB decision. AR at 81-82. On February 16, 2012, after receiving comments from CMS and plaintiff, ARat 18-80,the Administratorreversed the PRRB's decision and upheldNGS' adjustments disallowing plaintiffs claimed bad debts, ARat 1-17. On April 16, 20 12, plaintifffiled the instant action, challenging the Administrator's decision. See Compl. [Dkt. #1]. STANDARD OF REVIEW The Medicare Actprovides forjudicialreview ofthe Administrator's final decision under the APA. 42 U.S.C. § 1395oo(f)(l). Underthe APA's strict standard of review, the Court may set aside agency actions, findings, and conclusions that are "arbitrary, capricious, an abuse ofdiscretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 414 (1971). Factual conclusions may be overturned if"unsupportedby substantial evidence in a case ...reviewed on the record ofan agency hearing provided by statute." 5 U.S.C. 

### §706(2)(E); Overton Park, 401 U.S. at 413 n.30. An agency action may be invalidated under the arbitrary and capricious standard only ifit is "notrational and based on consideration ofthe relevant factors." FCCv. Nat'! Citizens Comm.forBroad., 436 U.S. 775,803 (1978). When the agency action at issue is "the construction ofan administrative regulation

... deference is even more clearly in order." Udall v. Tallman, 380 U.S. 1, 16 (1965). "[T]he agency's

2167 (reprinted in 42 U.S.C. 

### § 1935fnote). 9interpretation mustbe given controlling weight unless it is plainly erroneous or inconsistent with the regulation," especially where "the regulation concerns a complex and highly technical regulatory program." Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (quotations and citations omitted). However, "[i]nterpretations such as those in opinion letters-like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all ofwhich lack the force oflaw-do not warrant [heightened] deference." Christensen v. Harris Cnty., 529 U.S. 576, 587 (2000). Under the substantial evidence standard, this Court must "acceptthe agency's factual findings ifthose findings are supported by substantial evidence on the record as a whole." Arkansas v. Oklahoma, 503 U.S. 91, 113 (1992). The Supreme Courthas defined "substantial evidence" as '"suchrelevant evidence as a reasonable mind might accept as adequate to support a conclusion."' Consolo v. Fed. Mar. Comm 'n, 383 U.S. 607, 619-20 (1966) (quoting Canso!. Edison Co. of New York v. NLRB, 305 U.S. 197, 229 (1938)). Substantial evidence "is something less than the weight ofthe evidence, and the possibility ofdrawing two inconsistent conclusions from the evidence does not prevent an administrative agency's findings from being supportedby substantial evidence." !d. at 620. Ifthe Secretary's "choice between two fairly conflicting views" is based on substantial evidence, the choice must be upheld even if"the courtwould justifiablyhave made a different choice had the matter been before it de novo."

Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951).

10ANALYSIS The Administrator found that it has always beenthe Secretary'spolicythat accounts pending at collection agencies cannotbe written offas bad debts until collection activity has terminated ("Policy"). See ARat 13-14. This finding is supportedby substantial evidence in the record as a whole including the plain language of42 C.F.R. § 413.89(e), interpretive guidance issued by the Secretarybefore and afterthe BadDebt Moratorium, andpast administrative practice. The Secretary's Policy is encompassed by 42 C.F.R. § 413.89(e), which expressly provides that a debt is notreimbursable unless it is "actuallyuncollectible when claimed

as worthless" and "[s]oundbusinessjudgmentestablished thatthere was no likelihood of recovery at any time in the future." 42 C.F.R. § 413.89(e). Where, as here, an outside collection agency continues collection efforts on behalfofa provider, these criteria cannotbe met. See Battle CreekHealth Sys. v. Leavitt, 498 F.3d 401, 411 (6th Cir. 2007) ("The very fact that a collection agency was still attempting to collectthe bad debts at issue indicates thatthese debts had notyetbeen determined to be 'actually uncollectible when claimed as worthless' and certainly contraindicates that '[s]oundbusinessjudgment established that there was no likelihood ofrecovery at any time in the future.'"). After all, whatprovider exercising sound businessjudgmentwould spend his precious

resources on the fool's errand ofpursuing an uncollectible debt with no likelihood of

11future recovery? Byprohibiting double-recovery, PRM § 316 eliminates any incentive a provider might conceivably have to simultaneouslypursue collection from a beneficiary and reimbursement from CMS. 

### See Battle Creek, 498 P.3d at 413 (6th Cir. 2007) ("[PRM § 316 is a] common-senseprinciple [that] merely recognizes that ifaprovider

recovers amounts previously included in allowable bad debts, it must reduce reimbursable costs in the period during which the debt was recovered by the same amount."). In addition to 42 C.P.R.§ 413.89(e), the Secretary's Policy is reflected in the agency's pre- and post- Moratorium interpretive guidance. MIM §4198 expressly instructs that bad debts may be claimed "only after the collection agency completes its collection effort." MIM §4198 (ARat 381). The record contains substantial evidence that this has "always"beenthe Secretary's Policy, consistent with the criteria of42 C.P.R. §413.89(e)

as reiterated in PRM § 308. 

### See HPCA Memo (AR at 414); 

### see also JSM (AR at 117) (characterizingthe Policy as "longstanding"). Nothing in the PRM suggests that the Secretarytook a divergent approach to debts pending at collection agencies before August 1, 1987. The plain language ofPRM § 310.2 creates a discretionarypresumption of noncollectibility and does not foreclose the possibility that a debt may still be deemed collectible after 120 days. 

### See PRM § 310.2 (AR at 340); 

### see also Battle Creek, 498 P.3d 401 at 411. Plaintiffs interpretation ofPRM § 310.2 as mandatory would negate the third and fourth criteria of42 U.S.C. §413.89(e). 

### See Battle Creek, 498 P.3d 401at 11-12. Where, as here, aprovider continues collection efforts with an outside agency

12following 120 days ofinternal effort, PRM 

### §310.2 is inapposite and PRM Sections 310.B and 314 require documentationpriorto reimbursement. Here, plaintiffimproperly relied

on PRM §310.2 and soughtpremature reimbursement absentproper documentation. The Secretary's audit guidelines from 1985 also reflect the Secretary's Policy. 

### See Hospital Audit Program§ 4499, Ex. 15 (AR at 349). The guidelines allow a providerto recoup fees paidto an outside collection agency "as an allowable administrative cost" only "[i]freasonable collection effort

### was applied." 

### !d. (emphasis added). The use ofthe pasttense 

### ("was applied") precludes reimbursementpriorto the application ofreasonable collection effort. The guidelines further state that the patient's file must be "properly documented to substantiate the collection effort." 

### !d. Here, plaintiffprematurely soughtreimbursement at the outset ofthe outside agency's collection effort, before a valid determination ofcollectability or uncollectibility could be made, and withoutproper documentation. Itis not, as plaintiffcontends, fatal,

### perse, thatthe Secretary's Policy is not explicitly set forth in apre-Moratorium writing. The interpretive guidance in place on August 1, 1987 "did notpurport to be a comprehensive review ofall conditions that might be placed on reimbursement of'Medicare bad debts in the Secretary's enforcement of42 C.F.R. §413.89(e). 

### See Thomas Jefferson Univ., 512 U.S. at 516. Therefore, it cannot logically be inferred that the Secretary either lacked a policy to disallow reimbursement of accounts pending at collection agencies or had a contrarypolicy. 

### See id.

13Finally, plaintiffalternatively argues that the Court should invalidate the Administrator's decision as arbitrary, capricious, and inconsistent with the governing law. I disagree. Because it is based on an interpretation ofan agency regulation, the Administrator's decision is entitled to great deference. Thomas Jefferson Univ., 512 U.S. at 512. Here, that decision is consistent not only with the plain language of42 C.F.R. § 413.89(e) and the agency's interpretive guidance, but also with the agency's administrative practice. Indeed, to date, the Secretaryhas consistently applied the Policy, with one exception: the LourdesHospital case. See Mesquite Cmty. Hasp. v. Blue Cross andBlue ShieldAss 'n, CMS Admin. Decision (Apr. 18, 2007) at 10 (noting that a policy allowing providers to write offbad debts pending at a collection agency "would not have been in accordance with the rules in effectprior to August 1, 1987"); Foothill PresbyterianHasp. v. Blue Cross andBlue ShieldAss 'n, CMS Admin. Decision (Feb. 14, 2007) at 7 n.7 (concluding that the Moratorium did notpreclude application ofthe Policy); Battle CreekHealth Sys. v. Blue Cross andBlue ShieldAss 'n, HCFAAdmin. Decision (Nov. 12, 2004) at 7 (citing the 1990 HFCA Memorandum as evidence ofthe Policy). Butsee LourdesHasp. v. Blue Cross andBlue ShieldAss 'n, HCFA Admin. decision (October 25, 1995) (AR at 419-23) (allowing reimbursement where aprovider wrote offaccounts as bad debts prior to 120 days ofcollection effort and subsequently sent those accounts to a collection agency). Butthe HCFA Administrator's 1995 decision in Lourdes was an isolated ruling; an outlier inconsistent with the Secretary's

14Policy as cited in prior administrative decisions. See e.g., Humana Hosp. v. Aetna, HFCA Admin. Decision (Sept. 11, 1992) (citing policy that "until aprovider's reasonable collection effort has been completed, including both in-house efforts and the use ofa collection [agency], a Medicare bad debt may not be reimbursed as uncollectible"). CONCLUSION Thus, for all ofthe foregoing reasons, the Court GRANTS defendant's Motion for Summary Judgment and DENIES plaintiffsMotion for Summary Judgment. An Order consistent with this decision accompanies this Memorandum Opinion.

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# ~ I , RICHARD . E N United States District Judge