Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 1 of 26
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
`
`AIKEN REGIONAL MEDICAL CENTERS,
`LLC, dba Aiken Regional Medical Center
`302 University Parkway
`Aiken, SC 29801,
`
`AUBURN REGIONAL MEDICAL
`CENTER, INC., dba Auburn Regional
`Medical Center
`202 North Division Street, Plaza One
`Auburn, WA 98002,
`
`THE BRIDGEWAY, LLC, dba The
`Bridgeway
`21 Bridgeway Road
`North Little Rock, AR 72113,
`
`CENTRAL MONTGOMERY MEDICAL
`CENTER, L.L.C., dba Central Montgomery
`Medical Center
`100 Medical Campus Drive
`Lansdale, PA 19446,
`
`DISTRICT HOSPITAL PARTNERS, LP, dba
`The George Washington University Hospital
`900 23rd Street NW
`Washington, DC 20037,
`
`FOREST VIEW PSYCHIATRIC
`HOSPITAL, INC., dba Forest View Hospital
`1055 Medical Park Drive, SE,
`Grant Rapids, MI 49546,
`
`FORT DUNCAN REGIONAL MEDICAL
`CENTER, L.P. dba Fort Duncan Regional
`Medical Center
`3333 N. Foster Maldonado Boulevard
`Eagle Pass, TX 78852,
`
`HRI HOSPITAL, INC., dba HRI Hospital,
`aka Human Resource Institute
`227 Babcock Street
`Brookline, MA 02446,
`
`Case No. ____________
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 2 of 26
`
`KEYSTONE WSNC LLC, dba Old Vineyard
`Behavioral Health Services
`3637 Old Vineyard Road
`Winston-Salem, NC 27104,
`
`LANCASTER HOSPITAL CORPORATION,
`dba Palmdale Regional Medical Center,
`aka Lancaster Hospital
`38600 Medical Center Drive
`Palmdale, CA 93551,
`
`LAREDO REGIONAL MEDICAL CENTER,
`LP, dba Doctor’s Hospital of Laredo
`10700 McPherson Road
`Laredo, TX 78045,
`
`MANATEE MEMORIAL HOSPITAL, L.P.,
`dba Lakewood Ranch Medical Center
`8330 Lakewood Ranch Blvd.
`Lakewood Ranch, FL 34202,
`
`MANATEE MEMORIAL HOSPITAL, L.P.,
`dba Manatee Memorial Hospital
`206 Second Street East
`Bradenton, FL 34208,
`
`MCALLEN HOSPITALS, L.P., dba Edinburg
`Regional Medical Center
`1102 W. Trenton Road
`Edinburg, TX 78539,
`
`MCALLEN HOSPITALS, L.P.,dba South
`Texas Health System
`1102 W. Trenton Road
`Edinburg, TX 78539,
`
`MCALLEN HOSPITALS, L.P., dba McAllen
`Heart Hospital,
`aka McAllen Medical Heart Hospital
`301 W. Expressway 83
`McAllen, TX 78503,
`
`NORTHWEST TEXAS HEALTHCARE
`SYSTEM, INC., dba Northwest Texas
`Healthcare System
`
`2
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 3 of 26
`
`1501 S. Coulter Street
`Amarillo, TX 79106,
`
`SPARKS FAMILY HOSPITAL, INC., dba
`Northern Nevada Medical Center
`2375 E. Prater Way
`Sparks, NV 89434,
`
`SUMMERLIN HOSPITAL MEDICAL
`CENTER, LLC, dba Summerlin Hospital
`Medical Center
`657 N. Town Center Drive
`Las Vegas, NV 89144,
`
`THE PAVILION FOUNDATION, dba The
`Pavilion Behavioral Health System
`809 W. Church Street
`Champaign, IL 61820,
`
`TURNING POINT CARE CENTER, LLC,
`dba Turning Point Hospital
`3015 Veterans Parkway
`Moultrie, GA 31788,
`
`TWO RIVERS PSYCHIATRIC HOSPITAL,
`INC., dba Two Rivers Behavioral Health
`System
`5121 Raytown Road
`Kansas City, MO 64133,
`
`UHS OF ANCHOR, L.P., dba Southern
`Crescent Behavioral Health System
`aka Anchor Hospital
`Anchor Campus
`5454 Yorktown Drive
`Atlanta, GA 30349,
`
`UHS OF DENVER, INC., dba Highlands
`Behavioral Health System
`8565 S. Polar Way
`Littleton, CO 80130,
`
`UHS OF DOVER, LLC, dba Dover
`Behavioral Health System
`725 Horsepond Road
`Dover, DE 19901,
`
`3
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 4 of 26
`
`UHS OF FAIRMOUNT, INC., dba Fairmount
`Behavioral Health System
`561 Fairthorne Avenue
`Philadelphia, PA 19128,
`
`UHS OF FULLER, INC., dba Fuller Hospital
`200 May Street
`South Attleboro, MA 02703,
`
`UHS OF GREENVILLE, LLC, dba Carolina
`Center for Behavioral Health
`2700 E. Phillips Road
`Greer, SC 29650,
`
`UHS OF HARTGROVE, INC., dba
`Hartgrove Behavorial Health System
`5730 West Roosevelt Road
`Chicago, IL 60644,
`
`UHS OF LAKESIDE, LLC, dba Lakeside
`Behavioral Health System
`29911 Brunswick Road
`Memphis, TN 38133,
`
`UHS OF NEW ORLEANS, INC., dba
`Chalmette Medical Centers
`9001 Patricia Street
`Chalmette, LA 70043,
`
`UHS OF OKLAHOMA, INC., dba St. Mary’s
`Regional Medical Center
`305 South 5th Street
`Enid, OK 73701,
`
`UHS OF PEACHFORD, L.P., dba Peachford
`Hospital
`2151 Peachford Road
`Atlanta, GA 30338,
`
`UHS OF PENNSYLVANIA, INC., dba The
`Horsham Clinic
`722 E. Butler Pike
`Ambler, PA 19002,
`
`4
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 5 of 26
`
`UHS OF PENNSYLVANIA, INC., dba
`Roxbury Treatment Center
`601 Roxbury Road, Box L
`Shippensburg, PA 17257,
`
`UHS OF RIDGE, LLC, dba Ridge Behavioral
`Health System
`3050 Rio Dosa Drive
`Lexington, KY 40509,
`
`UHS OF ROCKFORD, LLC., dba Rockford
`Center
`100 Rockford Drive
`Newark, DE 19713,
`
`UHS OF TEXOMA, INC., dba Texoma
`Medical Center
`5016 S. US Highway 75
`Denison, TX 75020,
`
`UHS OF WESTWOOD PEMBROKE, INC.,
`dba Westwood Lodge Hospital
`45 Clapboardtree Street
`Westwood, MA 02090,
`
`UHS-CORONA, INC., dba Corona Regional
`Medical Center
`800 S. Main Street
`Corona, CA 92882,
`
`UNIVERSAL HEALTH SERVICES OF
`RANCHO SPRINGS, INC., dba Southwest
`Healthcare System
`25500 Medical Center Drive
`Murrieta, CA 92562,
`
`VALLEY HEALTH SYSTEM, LLC, dba
`Valley Hospital Medical Center
`620 Shadow Lane
`Las Vegas, NV 89106,
`
`VALLEY HEALTH SYSTEM, LLC, dba
`Desert Springs Hospital
`2075 E. Flamingo Road
`Las Vegas, NV 89119,
`
`5
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 6 of 26
`
`VALLEY HEALTH SYSTEM, LLC, dba
`Spring Valley Hospital Medical Center
`5400 S. Rainbow Boulevard
`Las Vegas, NV 89118,
`
`VALLEY HEALTH SYSTEM, LLC, dba
`Centennial Hills Hospital Medical Center
`6900 N. Durango Drive
`Las Vegas, NV 89149,
`
`WELLINGTON REGIONAL MEDICAL
`CENTER, LLC, dba Wellington Regional
`Medical Center
`10101 Forest Hill Boulevard
`West Palm Beach, FL 33414,
`
`Plaintiffs,
`
`v.
`
`ALEX M. AZAR II, Secretary,
`United States Department of Health and
`Human Services
`200 Independence Avenue, S.W.
`Washington, D.C. 20201,
`
`Defendant.
`
`6
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 7 of 26
`
`COMPLAINT
`
`The above-captioned Plaintiff-hospitals (collectively, “the Hospitals”), by and through
`
`their undersigned attorneys, bring this action against defendant Alex M. Azar II, in his official
`
`capacity as the Secretary (“the Secretary”) of the Department of Health and Human Services
`
`(“HHS”), and state as follows:
`
`INTRODUCTION
`
`1.
`
`This action arises under Title XVIII of the Social Security Act, 42 U.S.C. §§1395
`
`et seq. (“the Medicare Act”), and the Administrative Procedure Act (“APA”), 5 U.S.C. §§551 et
`
`seq. The Hospitals seek reversal of the Secretary’s final decision (the “Final Decision,” Exhibit
`
`A, hereto)) affirming the disallowance of the Hospitals’ Medicare bad debts for Fiscal Years
`
`(“FYs”) 2006 through 2009 on the ground that the bad debts cannot properly be claimed as
`
`uncollectible because they were still pending at an outside collection agency at the time the
`
`Hospitals wrote them off. Reversal is warranted because (a) the Hospitals’ bad debts are explicitly
`
`allowable under applicable law and (b) the Secretary’s determination that the bad debts cannot be
`
`claimed as uncollectible on the ground that they were still pending at an outside collection agency
`
`was based on a policy that cannot be applied to the bad debts at issue because, as this Court has
`
`previously held in an action involving many of the same hospital-plaintiffs that are plaintiffs here,
`
`applying the policy would violate the Medicare Bad Debt Moratorium.
`
`2.
`
`In District Hospital Partners v. Sebelius, 932 F.Supp.2d 194 (D.D.C. 2013), this
`
`Court decided the same issue present in the instant action in favor of many of the Hospitals1 for
`
`appeals related to their Medicare bad debts disallowed in prior fiscal years. In District Hospital
`
`1 Twenty-five of the Hospitals in the instant action were also plaintiff-hospitals in District
`Hospital Partners. However, all plaintiff-hospitals in both actions share a common ultimate
`corporate parent, Universal Health Services, Inc.
`7
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 8 of 26
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`Partners, this Court examined the Secretary’s policy prohibiting providers from obtaining
`
`reimbursement for Medicare bad debts while those debts remained at an outside collection agency
`
`(the “presumption of collectability”) and found that the policy did not exist prior to August 1,
`
`1987. As a result, this Court found that application of the Secretary’s policy to the bad debts at
`
`issue violated the Medicare Bad Debt Moratorium,2 which prohibited the Secretary from changing
`
`Medicare bad debt policies after that date until October 1, 2012 when the Bad Debt Moratorium
`
`was repealed. See also Foothill Hosp. Morris L. Johnson Meml v. Leavitt, 558 F.Supp.2d 1, 10-
`
`11 (D.D.C. 2008) (“Foothill”) (the “blanket prohibition against reimbursement while collection
`
`efforts are ongoing constitutes a change in policy, for this policy did not exist prior to the effective
`
`date of the Moratorium”); but see Lakeland Regional Health System v. Sebelius, 958 F.Supp.2d 1
`
`(D.D.C. 2013) (determining that the presumption of collectability predated the Bad Debt
`
`Moratorium); Community Health Systems v, Burwell, 113 F.Supp.3d 197 (D.D.C. 2015) (same).
`
`Importantly here, under the doctrine of res judicata3 the Secretary is precluded from re-litigating
`
`the same issue against the same parties and, thus, cannot assert that the presumption of
`
`collectability existed prior to 1987.
`
`3.
`
`The Hospitals, thus, seek an order from this Court (a) reversing the Final Decision,
`
`(b) remanding this action to the Secretary with instructions to reimburse the Hospitals in full for
`
`2 Reprinted at 42 U.S.C. § 1395f note entitled “Continuation of Bad Debt Recognition for
`Hospital Services.”
`3 The doctrine of res judicata encompasses two distinct doctrines—claim preclusion and
`issue preclusion. Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc., 590 U.S. __,
`140 S. Ct. 1589, 1594—95 (2020). Relevant here is issue preclusion (also known as collateral
`estoppel), which precludes a party from relitigating an issue actually decided in a prior case and
`necessary to the judgment in that prior case. See Parklane Hosiery Co. v. Shore, 439 U.S. 322,
`326, n. 5 (1979).
`
`8
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 9 of 26
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`the bad debts at issue, plus interest calculated in accordance with 42 U.S.C. §1395oo(f)(2), and (c)
`
`granting other relief.
`
`JURISDICTION AND VENUE
`
`4.
`
`This Court has jurisdiction under 42 U.S.C. §1395oo(f) (appeal of final Medicare
`
`program agency decision) and 28 U.S.C. §§1331 (federal question) and 1361 (mandamus).
`
`5.
`
`Venue lies in this judicial district under 42 U.S.C. §1395oo(f) and 28 U.S.C.
`
`§1391.
`
`PARTIES
`
`6.
`
`At all times relevant to this action, the Hospitals were qualified as Medicare-
`
`participating, hospital-providers under the federal Medicare program. The Hospitals are set forth
`
`in schedules of providers attached to the Final Decision in Appendix A of Exhibit A (at 21-29),
`
`along with their unique Medicare provider numbers and each Hospitals’ cost reporting periods at
`
`issue in this action, as set forth in their administrative appeals.4
`
`7.
`
`Defendant Alex M. Azar II is the Secretary of the Department of Health and Human
`
`Services, the federal department which contains the Centers for Medicare and Medicaid Services
`
`(“CMS”). The Secretary, the federal official responsible for administration of the Medicare
`
`program, has delegated the responsibility to administer that program to CMS. Before June 14,
`
`2001, CMS was known as the Health Care Financing Administration (“HCFA”). In this complaint,
`
`the Hospitals generally refer to the agency as CMS or the “agency” even for matters arising before
`
`June 14, 2001.
`
`4 McAllen Hospitals, LLC, dba South Texas Health System (Provider No. 45-0119) was
`formed in 2008 when McAllen Hospital, L.P., dba McAllen Heart Hospital (Provider No. 45-
`0811) and McAllen Hospital, L.P., dba Edinburg Regional Medical Center (Provider No. 45-
`0119) were combined. See Exhibit A at 26-29.
`
`9
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 10 of 26
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`STATUTORY AND REGULATORY BACKGROUND
`
`A.
`
`General Background of the Medicare Program
`
`8.
`
`The Medicare Act establishes a system of health insurance for the aged, disabled,
`
`and individuals with end-stage renal disease. 42 U.S.C. §1395c. The Medicare program is
`
`federally funded and administered by the Secretary through CMS and its contractors. 42 U.S.C.
`
`§1395kk; 42 Fed. Reg. 13,282 (Mar. 9, 1977).
`
`9.
`
`Based on delegated authority from the Secretary, CMS implements the Medicare
`
`program, in part, through the issuance of official Rulings. See 42 C.F.R. §401.108. In addition to
`
`the substantive rules published by the Secretary in the Code of Federal Regulations and the
`
`Rulings, CMS publishes numerous other interpretative rules implementing the Medicare program,
`
`which are compiled in one or more CMS Manuals, including the Provider Reimbursement Manual
`
`(“PRM”). The Secretary also issues other subregulatory documents to implement the Medicare
`
`program, which generally do not have the force and effect of law.
`
`10.
`
`The Medicare Act, at 42 U.S.C. §1395hh(a), prohibits the application of any rule
`
`or policy that establishes or changes a substantive legal standard governing the payment for service
`
`unless it is promulgated by the Secretary by notice-and-comment rulemaking. In addition, the
`
`Medicare Act specifies that where a final rule “is not a logical outgrowth of a previously published
`
`notice of proposed rulemaking . . ., such provision shall be treated as a proposed regulation and
`
`shall not take effect.” 42 U.S.C. §1395hh(a)(4); see also Allina Health Services v. Price, 863 F.3d
`
`937 (D.C. Cir. 2017), aff’d, 139 S. Ct. 1804, 1816 (2019). Moreover, under 42 U.S.C.
`
`§1395hh(c)(1), the Secretary is required to “publish in the Federal Register, not less frequently
`
`than every 3 months, a list of all manual instructions, interpretative rules, statements of policy, and
`
`guidelines of general applicability.”
`
`10
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 11 of 26
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`11. Medicare payment to providers of services is commonly carried out by contractors
`
`acting as agents of the Secretary pursuant to contracts with him. These contractors, which are now
`
`called Medicare Appeals Contractors (“MACs”), were formerly called Medicare fiscal
`
`intermediaries. Each Medicare-participating hospital is assigned to a MAC. The lead MAC for
`
`the underlying PRRB appeals here was Novitas Solutions,5 and prior to that the fiscal intermediary
`
`was Wisconsin Physicians Service (formerly Mutual of Omaha).
`
`B. Medicare Bad Debt Payments and the Bad Debt Moratorium
`
`12.
`
`The Medicare statute and regulations prohibit cost shifting. See 42 U.S.C.
`
`§1395x(v)(1)(A)(stating that “the necessary costs of efficiently delivering covered services to
`
`individuals covered by the insurance programs established by this subchapter 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. §413.89(d) (formerly, §413.80(d)). Generally,
`
`cost shifting occurs in the following two ways: (1) the necessary costs of delivering health care to
`
`Medicare enrollees are borne by individuals who are not Medicare recipients, or (2) the necessary
`
`costs of delivering health care to the hospital’s other patients not covered by Medicare are borne
`
`by Medicare. See 42 U.S.C. §1395x(v)(1)(A).
`
`13. When receiving inpatient and outpatient hospitals services, Medicare beneficiaries
`
`are responsible for paying coinsurance and deductible amounts. 42 U.S.C. §§1395e and 1395l.
`
`The failure of beneficiaries to pay the deductible and coinsurance amounts could result in the costs
`
`related to covered services being borne by individuals who are not Medicare beneficiaries. To
`
`assure that such covered service costs are not borne by others, the costs attributable to the
`
`5 Novitas Solutions is the MAC for all Hospitals except Valley Health System, LLC, dba
`Centennial Hills Hospital Medical (Provider No. 20-0054), which has Noridian Healthcare
`Solutions as its MAC. In this Complaint, the term “MAC” includes both of these entities.
`11
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`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 12 of 26
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`deductible and coinsurance amounts that remain unpaid are reimbursed by Medicare as “bad
`
`debts.” 42 C.F.R. §413.89(d).
`
`14.
`
`In order to qualify for reimbursement of Medicare bad debts, providers must show
`
`that the unpaid deductible and coinsurance amounts meet the following criteria set forth in 42
`
`C.F.R. §413.89(e)6:
`
`a.
`
`b.
`
`c.
`
`d.
`
`The debt must be related to covered services and derived from deductible
`
`and coinsurance amounts;
`
`The provider must be able to establish that reasonable collection efforts
`
`were made;
`
`The debt was actually uncollectible when claimed as worthless; and
`
`Sound business judgment established that there was no likelihood of
`
`recovery at any time in the future.
`
`15.
`
`The Medicare bad debt criteria are also interpreted in Chapter 3 of the Medicare
`
`Provider Reimbursement Manual (“PRM”). PRM §308 mirrors the regulation in outlining the four
`
`main criteria that must be satisfied in order for a bad debt to be reimbursable by Medicare. In
`
`interpreting what constitutes a “reasonable collection effort,” PRM §310 states that a provider’s
`
`effort to collect unpaid balances from Medicare beneficiaries and non-Medicare patients must be
`
`similar. Further, reasonable collection efforts include “the issuance of a bill on or shortly after
`
`discharge or death of the beneficiary.” as well as “other actions such as subsequent billings,
`
`collection letters and telephone calls.” PRM §310.
`
`6 The Secretary adopted changes to section 413.89 in the Hospital IPPS for Acute Care
`Hospitals and the Long Term Care Hospital Prospective Payment System and Final Policy
`Changes and Fiscal Year 2021 Rates, 85 Fed. Reg. 58432 (Sept. 18, 2020) (“2021 IPPS Final
`Rule”).
`
`12
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 13 of 26
`
`16.
`
`Regarding the third criteria above (“collectability”), PRM §310.2 sets forth the
`
`“presumption of noncollectability,” providing that “[i]f after reasonable and customary attempts
`
`to collect a bill, the debt remains unpaid more than 120 days from the date the first bill is mailed
`
`to the beneficiary, the debt may be deemed uncollectible.” PRM, §310.2.
`
`17.
`
`As a result of disputes arising because of inconsistent policies regarding bad debts
`
`being applied by MACs, Congress enacted the Bad Debt Moratorium which prohibited the
`
`Secretary from making any changes to the policies relating to bad debts that were in effect on
`
`August 1, 1987. 42 U.S.C. §1395f, note. The Bad Debt Moratorium, never codified but found at
`
`42 U.S.C. §1395f note, was originally enacted in 1987. After various amendments, the Bad Debt
`
`Moratorium stated as follows from 1989 until 2012:
`
`CONTINUATION OF BAD DEBT RECOGNITION FOR
`HOSPITAL SERVICES. – In making payments to hospitals under
`title XVIII of the Social Security Act, the Secretary of Health and
`Human Services shall not make any change in the policy in effect
`on August 1, 1987, with respect to payment under title XVIII of
`the Social Security Act to providers of service for reasonable costs
`relating to unrecovered costs associated with unpaid deductible and
`coinsurance amounts incurred under such title (including criteria
`for what constitutes a reasonable collection effort, including
`criteria for indigency determination procedures, for record
`keeping, and for determining whether to refer a claim to an
`external collection agency).
`
`The Secretary may not require a hospital to change its bad debt
`collection policy if a fiscal intermediary, in accordance with the
`rules in effect as of August 1, 1987, with respect to criteria for
`indigency determination procedures, record keeping, and
`determining whether to refer a claim to an external collection
`agency, has accepted such policy before that date, and the
`Secretary may not collect from the hospital on the basis of an
`expectation of a change in the hospital’s collection policy.
`
`See Pub. L. No. 100-203 §4008, 101 Stat. 1330, 1355 (1987); Pub. L. No. 100-647 §8402, 102
`
`Stat. 3798 (1988); Pub. L. No. 101-239 §6023, 103 Stat. 2106, 2167 (1989).
`
`13
`
`

`

`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 14 of 26
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`18.
`
`On February 27, 2012, President Obama signed the Middle Class Relief Act of
`
`2012 into law. Section 3201 of the Middle Class Relief Act of 2012 amended the Moratorium by
`
`adding at the end the following sentence: “Effective for cost reporting periods beginning on or
`
`after October 1, 2012, the provisions of the previous two sentences shall not apply.” Pub. L. No.
`
`112-96, §3201(d), 126 Stat. 192 (2012) (emphasis added). Thus, by its own terms, this termination
`
`provision does not apply to the cost periods at issue in this case because they all ended before
`
`October 1, 2012 and the amended language only applies to cost reporting periods after that date.
`
`19.
`
`During the relevant time period for the appeals at issue here, the regulations, as well
`
`as the various provisions in the PRM, did not specifically state that bad debts cannot meet the
`
`criteria for reimbursement when they are pending at an outside collection agency.
`
`20.
`
`The first time that the presumption of collectability appeared in writing was in
`
`1989, which was two years after the Bad Debt Moratorium was enacted. See Medicare
`
`Intermediary Manual (“MIM”)13-4, §4198. Importantly, the Secretary did not adopt a rule
`
`containing this requirement, consistent with the Medicare statute’s requirement of notice and
`
`comment, until doing so in the 2021 IPPS Final Rule.
`
`C.
`
`The Medicare Appeal Process
`
`21.
`
`At the close of its FY, a hospital must submit a Medicare “cost report” showing the
`
`costs incurred during the FY and other data used to determine the Medicare reimbursement due to
`
`the hospital for the FY. The hospital’s MAC is required to analyze and audit the cost report and
`
`issue a Medicare Notice of Amount of Program Reimbursement (“NPR”), which informs the
`
`hospital of the final determination of its total Medicare reimbursement for the FY.
`
`22.
`
`If a hospital is dissatisfied with its MAC’s final determination (or any revised final
`
`determination) of the hospital’s total Medicare program reimbursement for a fiscal year, as
`
`14
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`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 15 of 26
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`reflected in the NPR, and the hospital satisfies the amount in controversy requirements, the hospital
`
`has a right to obtain a hearing before the PRRB by filing an appeal within 180 days of receiving
`
`its NPR (or any revised NPR). 42 U.S.C. §1395oo.
`
`23.
`
`The decision of the PRRB constitutes final administrative action unless the
`
`Secretary reverses, affirms, or modifies the decision within 60 days of the hospital’s notification
`
`of the PRRB’s decision. 42 U.S.C. §1395oo(f)(1); 42 C.F.R. §§405.1875 and 405.1877. The
`
`Secretary has delegated his authority under the statute to review PRRB decisions to the CMS
`
`Administrator. Thus, the Secretary’s final administrative decision for purposes of judicial review
`
`is either the decision of the PRRB or the decision of the CMS Administrator after review of the
`
`PRRB’s decision.
`
`24.
`
`A provider may obtain judicial review of the Secretary’s final administrative
`
`decision by filing suit within 60 days of receipt of the final decision in the United States District
`
`Court for the judicial district in which the provider is located or in the United States District Court
`
`for the District of Columbia. 42 U.S.C. §1395oo(f). In any such action, the Secretary is the proper
`
`defendant. See 42 C.F.R. §421.5(b). Under 42 U.S.C. §1395oo(f)(2), interest is to be awarded in
`
`favor of a provider that prevails in an action brought under 42 U.S.C. §1395oo(f).
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`25.
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`Judicial relief is also available under the equitable remedy of mandamus where a
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`hospital has a clear right to the relief sought and the Secretary has a defined and non-discretionary
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`duty to honor that right. Monmouth Med. Ctr. v. Thompson, 257 F.3d 807 (D.C. Cir. 2001).
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`D.
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`Applicability of the APA to Medicare Appeals
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`26.
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`Under 42 U.S.C. §1395oo(f)(1), an action brought for judicial review of final
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`agency action involving PRRB appeals “shall be tried pursuant to the applicable provisions under
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`chapter 7 of title 5” of the U.S. Code, which contains the APA. Under the APA, a “reviewing
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`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 16 of 26
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`court shall…hold unlawful and set aside agency action, findings, and conclusions found to
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`be…arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5
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`U.S.C. §706(2)(A). Furthermore, a “reviewing court shall…hold unlawful and set aside agency
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`action, findings, and conclusions found to be…unsupported by substantial evidence.” 5 U.S.C.
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`§706(2)(E).
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`E.
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`Prior Appeals and Court Decision
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`27.
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`Twenty-five of the hospitals that are plaintiffs in this case previously appealed this
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`exact issue, whether the presumption of collectability was in existence prior to August 1, 1987,
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`but for prior cost report years. In District Hospital Partners, this Court granted the hospitals’
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`Motion for Summary Judgment, and denied the Secretary’s Motion for Summary Judgment. 932
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`F.Supp.2d 194. The Court found that the presumption of collectability did not exist prior to 1987,
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`and therefore, the “application of that policy to disallow [the hospitals] claimed bad debts violates
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`the first prong of the Bad Debt Moratorium prohibiting the Secretary from changing the agency’s
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`bad debt policies.” Id. at 199. The Court, with detailed specificity, found that the evidence set
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`forth by the Secretary did not support the CMS Administrator’s findings. Id. at 200-05. In fact,
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`the Court found that the evidence in the record contradicted the CMS Administrator’s findings.
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`Id. at 205-06. As such, the court vacated the CMS Administrator’s decision, and remanded the
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`case to the Secretary. Id. at 206.
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`28.
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`The Secretary did not appeal the district court’s decision and paid the Hospitals,
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`with interest.
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`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 17 of 26
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`PROCEDURAL BACKGROUND
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`29. When submitting their cost reports for FYs 2006 through 2009, the Hospitals sought
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`reimbursement of their Medicare bad debts sent to outside collection agencies. However, the
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`Hospitals’ MAC denied all reimbursement of these bad debts.
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`30.
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`The Hospitals filed timely appeals to the PRRB, in accordance with 42 U.S.C.
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`§1395oo, for FYs 2006 through 2009. The appeals were consolidated into a “Common Issue
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`Related Party” group appeal known as "UHS 2006-2009 Medicare Bad Debts Still at Agency
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`Group.” In a decision issued on August 31, 2020, the PRRB found that (i) the MAC properly
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`disallowed the Hospitals’ Medicare bad debts for FYs 2006 through 2009, because the bad debts
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`remained at outside collection agencies, (ii) that the disallowances did not violate the Bad Debt
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`Moratorium, and (iii) that the PRRB lacked authority to apply the doctrine of issue preclusion.
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`31.
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`In a letter dated September 16, 2020, the CMS Administrator advised the parties,
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`consistent with 42 C.F.R. §405.1875, that she had decided to review the PRRB decision. However,
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`by letter dated November 4, 2020 (Exhibit B, hereto), the Hospitals were informed that the CMS
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`Administrator subsequently declined to review the decision and that “[p]ursuant to 42 CFR
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`405.1877(b)(4), because the Administrator notified the parties that she would review the PRRB
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`decision, the Administrator’s subsequent decline allows the Provider an additional 60 days in
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`which to file for judicial review, beginning with the date the Administrator’s time expires for
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`taking action under 405.1875.”
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`32.
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`Pursuant to 42 C.F.R. §405.1877(b)(4), the CMS Administrator’s “subsequent
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`inaction [after providing notice that he would review] constitutes an affirmation of the Board’s
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`decision by the Administrator, for purposes of the time in which to seek judicial review.” This
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`action is timely-filed under 42 U.S.C. §1395oo(f).
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`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 18 of 26
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`FACTUAL BACKGROUND
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`33.
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`The MAC had a long term practice of allowing the Hospitals’ Medicare bad debts
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`claimed on their cost reports while the accounts were still pending at an outside collection agency.
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`However, in 2006, the Hospital’s MAC issued a new policy stating that it would no longer allow
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`bad debts pending at an outside collection agency. Thereafter, the MAC began disallowing bad
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`debts pending at outside collection agencies in the Hospitals’ NPRs, including, FYs 2006 through
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`2009. The Hospitals appealed the disallowance of the FY 2006 through 2009 Medicare bad debts
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`to the PRRB. The amount at issue for FYs 2006 through 2009 for the Hospitals is approximately
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`$1,359,216.
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`34.
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`For each of the FYs at issue, the Hospitals claimed their Medicare bad debts in
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`accordance with the Secretary’s requirements, as set forth in 42 C.F.R. §413.89(e) and elsewhere.
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`Specifically, the Hospitals claimed amounts for unpaid Medicare patient deductibles and
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`coinsurance as bad debt only after reasonable collection efforts were made, the account was
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`determined uncollectible, sound business judgment established that there was no likelihood of
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`recovery at any time in the future, and all efforts were documented. After such reasonable
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`collection efforts were made for at least 120 days, all such accounts were forwarded to outside
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`collection agencies except where it was legally prohibited, when payment at a future date was
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`probable, or when the outstanding balance is under a certain threshold amount.
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`35.
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`The factual stipulations entered into between the Hospitals and the MAC during the
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`proceedings before the PRRB establish that, with regard to the bad debt claimed on each of the
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`Hospitals’ cost reports, the only issue in this action is whether the Hospitals’ Medicare bad debts
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`pending at outside collection agencies are allowable. The stipulated facts further provide that the
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`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 19 of 26
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`Hospitals’ Medicare bad debts were disallowed “solely because they were pending at an outside
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`collection agency, purportedly pursuant to CMS policy on this issue.”
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`36.
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`Before the PRRB, the Hospitals argued that:
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`a)
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`The Secretary’s presumption of collectability policy violates the Bad Debt
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`Moratorium because it was a change in bad debt policy after August 1, 1987, and
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`b)
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`the presumption of collectability policy is arbitrary and capricious because
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`it (i) is inconsistent with the governing statute and regulations; (ii) contradicts prior settled CMS
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`policy; and, (iii) was not properly promulgated, and
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`c)
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`this exact issue was previously decided in the Hospitals’ favor in District
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`Hospital Partners and, under the doctrine of issue preclusion, the MAC was prohibited from
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`arguing that the presumption of collectability policy is not barred by the Bad Debt Moratorium
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`with respect to the Hospitals. See Exhibit A at 4-17.
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`37.
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`The PRRB found that the policy of not allowing providers to claim bad debts until
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`they are returned from a collection agency is consistent with the regulations and manual sections
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`in effect on August 1, 1987 and thus, found that the MAC’s disallowance of the Hospitals’ bad
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`debts did not violate the Bad Debt Moratorium. Exhibit A at 10. Further, the PRRB declined to
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`follow either District Hospital Partners or Foothill Hospital, stating that the Board disagreed with
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`this Court’s findings in both cases. Id. at 13-15. Finally, the PRRB found that the Secretary did
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`not confer on the PRRB the authority to apply res judicata principles (including issue preclusion)
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`and, thus, the PRRB did not determine whether issue preclusion applied to bar the disallowance of
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`the Hospitals’ Medicare bad debts. Id. at 17-18.
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`Case 1:20-cv-03828 Document 1 Filed 12/28/20 Page 20 of 26
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`THE FINAL DECISION IS UNLAWFUL AND MUST BE REVERSED
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`38.
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`The Final Decision is unlawful and must be reversed because the Secretary’s