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Maine Medical Center v. Burwell

United States Court of Appeals, First Circuit

January 5, 2015

MAINE MEDICAL CENTER, Plaintiff, Appellant,
SYLVIA M. BURWELL, Secretary, U.S. Department of Health and Human Services, Defendant, Appellee


William H. Stiles, with whom Benjamin E. Ford and Verrill Dana, LLP were on brief, for appellant.

Jeffrey Clair, Attorney, U.S. Department of Justice, Civil Division, with whom Thomas E. Delahanty, II, United States Attorney, Jill L. Steinberg, Special Assistant United States Attorney, Assistant Regional Counsel, District of Maine, John Osborn, Assistant United States Attorney, William B. Schultz, General Counsel, U.S. Department of Health and Human Services, and Nancy S. Nemon, Chief Counsel, Region I, U.S. Department of Health and Human Services, were on brief, for appellee.

Before Lynch, Chief Judge, Torruella and Kayatta, Circuit Judges.


Page 471

LYNCH, Chief Judge.

Maine Medical Center (" Maine Medical" ) challenges a district court ruling upholding the decision of the Secretary for the Department of Health and Human Services (" HHS" ) denying Maine Medical's claim for partial federal reimbursement of " bad debt" for two fiscal years. Maine Med. Ctr. v. Sebelius, No. 2:13-CV-00118-JAW, 2014 WL 1234173, at *1 (D. Me. Mar. 25, 2014). A " bad debt" is an amount considered uncollectible arising from covered medical services that may be eligible for federal reimbursement under certain conditions. 42 C.F.R. § 413.89. The bad debt at issue arose from services that Maine Medical provided to Medicare/Medicaid " dual-eligible" patients during fiscal years 2002 and 2003. The Secretary had required a particular form of proof, a state-issued remittance advice (" RA" ), which Maine Medical had not acquired from Maine's Medicaid program, MaineCare. The parties dispute both the difficulty

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of obtaining such proof and the adequacy of the alternative documentation the hospital offered.

Two legal issues are presented on appeal. The first concerns the appropriate level of deference to afford the decision of the Secretary as to the adequacy of Maine Medical's proof in this case. The second concerns whether, under the appropriate standard, the Secretary's decision denying reimbursement was arbitrary and capricious, an abuse of discretion, otherwise contrary to the law, or unsupported by substantial evidence. See Visiting Nurse Ass'n Gregoria Auffant, Inc. v. Thompson, 447 F.3d 68, 72 (1st Cir. 2006) (citing 5 U.S.C. § 706(2)).

After careful consideration of the record, we affirm the Secretary's decision. It is not arbitrary and capricious for the Secretary to demand that Maine Medical provide documentation from the State, including documentation confirming the identity of Medicaid-eligible beneficiaries and qualified Medicare beneficiaries, the amount that is the State's to pay, and the State's refusal to pay. Nor is it arbitrary and capricious, on the facts of this case, to deny Maine Medical's reimbursement claims that were unsupported by such documentation. The consequence of this decision is that Maine Medical may need to absorb roughly $3 million of bad debt; it will not receive reimbursement from the Secretary unless it succeeds in obtaining the RAs. Whether Maine Medical has any recourse against the State of Maine is not before us.


Maine Medical, a non-profit hospital in Portland, Maine, provides medical services to both Medicare and Medicaid recipients. Some of these patients are " dual-eligible," that is, indigent patients who are covered by both Medicare, a federal health insurance program, and the state-administered Medicaid insurance program, MaineCare.[1] Medicare and MaineCare share responsibility for paying the so-called " crossover claims" for services provided to these dual-eligible patients, with Medicare the primary payer and MaineCare the secondary payer responsible for covering coinsurance and copayments.

Any amount remaining that is both unpaid by MaineCare and for which MaineCare is not liable is generally considered a " bad debt," an " amount[] considered to be uncollectible" for covered services. 42 C.F.R. § 413.89(b)(1), (e), & (h); [2]see Provider Reimbursement Manual (" PRM" ) § 322. Medicare partially reimburses bad debt, from dual-eligible and non-dual-eligible[3] patients alike, provided that reimbursement claims are adequately documented and are supported by evidence demonstrating that the medical provider

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made " reasonable collection efforts" but that the amount is " actually uncollectible." [4] 42 C.F.R. § 413.89(e) (stating regulatory requirements for allowable bad debt); see also id. § 413.89(a) & (h) (governing reimbursement of bad debt).

A. Collection Process

HHS has long interpreted " reasonable collection efforts" to require billing those responsible for payment. See, e.g., Cmty. Hosp. of the Monterey Peninsula v. Thompson (Monterey), 323 F.3d 782, 796, 798 (9th Cir. 2003) (discussing the policy's history and enforcement); see also PRM § § 310, 312, 322 (explaining the requisite collection efforts).[5] Where patients are also eligible for Medicaid, the Secretary has historically required medical providers to submit proof that it billed the relevant Medicaid program but was denied payment. See Monterey, 323 F.3d at 796. This proof usually takes the form of an RA issued by the Medicaid program, reflecting the patient's eligibility, and payment (or nonpayment). See, e.g., PRM-II § 1102.3L (Rev. 4) (assuming that satisfaction of the Billing Requirement will be demonstrated through RAs). These two requirements -- which we denominate the " Billing Requirement" and the " RA Requirement" -- try to ensure that the claimed amounts are in fact bad debt not covered by the relevant Medicaid program.

Some version of this " must-bill policy" has generally been enforced.[6] From 1995 to 2003, however, the Secretary's manual permitted providers to substantiate crossover bad debt by submitting alternative documentation " [i]n lieu of billing." See PRM-II § 1102.3L (Rev. 4). In March 2003, the Ninth Circuit held that this waiver of the Billing Requirement marked a change in bad debt reimbursement policy, violating the Congressional moratorium on such changes, and so could not be enforced. See Monterey, 323 F.3d at 798-99 & n.9. In response, the Secretary removed the offending language from the PRM, effective October 1, 2003. See Change Request 2796 at *1, 3. It is not clear that the Secretary ever permitted broad use of this alternative document billing provision. Compare Transcript of Proceedings at 142-43, Maine Med. Ctr., PRRB Dec. No. 2013-D3 (Nov. 29, 2011) (Nos. 06-1318,

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07-1386) (" [T]his Intermediary never followed the instructions . . . . [T]hey always required Medicaid [RAs]." ), and Monterey, 323 F.3d at 796-99 (suggesting not), with Cove Assocs. Joint Venture v. Sebelius, 848 F.Supp.2d 13, 28-29 (D.D.C. 2012) (providing an example of a case where alternative documentation had been permitted). Regardless, the Secretary provided a grace period, issuing a memorandum instructing the Intermediaries that process claims to " hold harmless" providers who had relied on the provision in settling claims before January 1, 2004. See JSM-370. That memorandum, known as JSM-370, articulated both the Billing Requirement and the RA Requirement. See id. (" [I]n those instances where the state owes none or only a portion . .., the unpaid liability for the bad debt is not reimbursable . . . until the provider bills the State, and the State refuses payment (with a State Remittance Advice)." ). Maine Medical did not rely on this grace period for the alternative documentation.

B. Maine's Process

The Centers for Medicaid and Medicare Services (CMS), acting on behalf of the Secretary, processes crossover claims from Maine pursuant to a trading partner agreement with MaineCare. See Grossmont Hosp. Corp. v. Sebelius, 903 F.Supp.2d 39, 43-45 (D.D.C. 2012) (citing 42 U.S.C. § § 1395h, 1395u). Under the agreement, medical providers like Maine Medical submit crossover claims to an Intermediary, a private-sector contractor that processes the claims for CMS. The Intermediary (1) pays the Medicare portion as primary payer, and (2) identifies and aggregates crossover claims, which (3) it submits -- i.e., " bills" -- to MaineCare on a weekly basis. Ordinarily, MaineCare then processes these billed claims, issuing RAs that confirm receipt of the ...

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