IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
BAPTIST HEALTHCARE SYSTEM * d/b/a BAPTIST REGIONAL * MEDICAL CENTER, * * Plaintiff, * * v. * Civil Action No.: AW-08-0677 * KATHLEEN SEBELIUS, * SECRETARY OF HEALTH AND * HUMAN SERVICES1 * * ****************************************************************
MEMORANDUM OPINION
Baptist Regional Medical Center (“Plaintiff” or “BRMC”) brought
this action seeking judicial review of a decision of the Secretary of
the United States Department of Health and Human Services (“Defendant”
or “Secretary”). Currently pending is BMRC’s Motion for Summary
Judgment (Paper No. 13) and the Secretary’s Cross Motion for Summary
Judgment (Paper No. 18). The Court held a hearing on the pending
Motions on August 7, 2009. The Court has reviewed the entire record,
as well as the Pleadings and Exhibits, with respect to the instant
motions. The issues having been fully briefed by the parties and
argued by the parties, this matter is now ripe for review. For the
reasons set forth below, the Court will grant BRMC’s Motion for
Summary Judgment.
1 On April 28, 2009, Kathleen Sebelius became the Secretary of the United
States Department of Health and Human Services, and therefore is substituted for the former Secretary, Michael O. Leavitt, as the Defendant in this action. Fed. R. Civ. P. 25(d).
1 Factual and Procedural Background
Plaintiff, Baptist Healthcare System (“BHS”) is a not-for-profit
organization that operates an acute care hospital, Baptist Regional
Medical Center,(“BRMC”)in Louisville, KY. BRMC is a provider under
Title XVIII of the Social Security Act, 42 U.S.C. § 1395, et seq., and
the services rendered by BRMC are certified under the Medicare
Program.2 For the cost reporting years at issue, September 1, 1998
through August 31, 2001, as a part of the BRMC’s collection and write-
off policy to determine indigence, BRMC required that patients with
“debts greater than $800 . . . complete a financial disclosure3 form
that included inquiries for both income and assets,” i.e. an “asset
test,” while patients with debts less than $800 did not. (Compl. ¶ 15
and A.R. at 60.) Patients with a balance under $800 were asked only
about their income. (A.R. at 60.) In addition, BRMC determined that
some of its patients were “indigent” through an upfront screening
process. (A.R. at 61.) Patients completed an “assistance qualification
sheet” or a “financial aid worksheet” prior to admission for services,
“to determine if [they were] going to meet some qualification.” (Id.)
BRMC also considered whether a patient resided in a certain “catchment
area,” as a factor to determine indigence. (Id.) For example, when
dealing with patients who lived in “Whitley County,” a high poverty
2 BRMC primarily offers inpatient/outpatient, psychiatric and rehabilitation services. 3 This form serves as a so-called “asset test” as described in paragraph B of the Provider Reimbursement Manual 15-I § 312. Although the term “asset test” does not appear in the HHS regulations or manual, this terminology is used by both Plaintiff and Defendant, and thus the Court will adhere to its use as well.
2 county, BRMC credit counselors did not ask many questions about the
patient’s assets. (Id.) This policy “applied equally to Medicare and
non-Medicare patients.” (Compl. ¶ 14.)
Annually, hospitals must file “cost reports” to their designated 4 fiscal intermediary, that detail the costs attributed to the care of
Medicare patients. 42 C.F.R. § 413.20(b). The fiscal intermediary
reviews and audits the cost reports, and will disallow any costs it
deems inappropriate. The intermediary issues a Notice of Amount of
Program Reimbursement (“NPR”) that indicates the providers expected
reimbursement, and the basis for the calculation. For the cost
reporting years, 1999, 2000 and 2001 the intermediary disallowed all
of BRMC’s “bad debt” claims, when the records did not demonstrate that
BRMC conducted an asset test as a part of their indigence
determination. (A.R. at 3.) The intermediary concluded that “Section
312 of the PRM requires that, in making a determination of indigence,
the Provider should take into account the patients total resources,
including assets, liabilities and income.” (Id.)
BRMC timely appealed the intermediary’s determination to the
Provider Reimbursement Review Board (“Board”). 42 U.S.C. § 1395oo(a);
A.R. at 3.) The Board’s review focused on “whether the asset test
guideline at CMS Pub.15-1, Section 312(B) of the [PRM] must be applied
to determine a Medicare beneficiary’s indigence. After an in-depth
examination of Section 312, the Board concluded that Section 312 “does
4 A fiscal intermediary is a contractor, hired by the federal government to
process hospital claims. 42 U.S.C. § 1395(h). During the time in question, BMRC’s intermediary was AdminaStar Federal, Inc. See Compl. at 4.
3 not create a mandatory asset test and found that [BRMC’s} bad debts
should be reimbursed . . . .” (A.R. at 3.)
Review authority of decisions issued by the Board is invested in
the Secretary of the Department of Health and Human Services. The
Secretary may, on her own motion, reverse, affirm or modify the
Board’s decision. 42 U.S.C. § 1395oo(f)(1). The Secretary has
delegated her review authority to the Administrator of the Centers for
Medicare & Medicaid Services (“CMS”). 42 C.F.R. 405.1875. The
Administrator undertook a review of the Board’s decision. The
Administrator concluded that,
contrary to the Board’s finding, Section 312 of the PRM does create a mandatory asset test. It is critical that the provider meet the indigency criteria set forth in § 312 of the PRM in order to take into account all necessary information needed to properly deem any patient indigent and, thus, meet the regulatory requirements that a reasonable collection effort was made and that the debt was uncollectible when claimed as worthless.
(A.R. at 8.)
Moreover, the Administrator noted that the “introduction and
paragraphs B and D of [S]ection 312 of the PRM uses ‘should’ whereas
paragraphs A and C use ‘must,’” yet found that “within the context of
the regulation and the PRM, “should” is synonymous with “must.” (Id.
at 9 n.3.)
BRMC now appeals the Administrator’s decision. 42 C.F.R. §
405.1875.
4 Standard of Review
The parties have filed cross-motions for summary judgment.
Summary judgment is only appropriate “if the pleadings, the discovery
and disclosure materials on file, and any affidavits show that there
is no genuine issue as to any material fact and that the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); see
Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). The court must
“draw all justifiable inferences in favor of the nonmoving party,
including questions of credibility and of the weight to be accorded to
particular evidence.” Masson v. New Yorker Magazine, Inc., 501 U.S.
496, 520 (1991) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
255 (1986)). When parties file cross motions for summary judgment,
the court must view each motion in the light most favorable to the
non-movant. Quigley v. Giblin, 569 F.3d 449, 453 (D.C. Cir. 2009);
Mellen v. Bunting, 327 F.3d 355, 363 (4th Cir. 2003).
Under the Federal Administrative Procedures Act, a reviewing
court “shall hold unlawful and set aside agency action, findings and
conclusions found to be, arbitrary, capricious, an abuse of discretion
or otherwise not in accordance with law . . . .” 5 U.S.C. § 706(2)(A).
This standard of review is highly deferential and presumes agency
action to be valid. Am. Wildlands v. Kempthorne, 530 F.3d 991, 997
(D.C.Cir.2008). Under the arbitrary and capricious standard, the
scope of review is narrow, and a court should not substitute its
judgment for that of the agency. Motor Vehicle Mfrs. Ass’n of U.S.,
Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). An
5 agency determination is arbitrary and capricious “if 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.”
Id. An agency decision is an abuse of discretion if it is “based on an
erroneous interpretation of the law, on factual findings that are not
supported by the substantial evidence or represents and represents an
unreasonable judgment in weighing relevant factors.” Star Fruits
S.N.C. v. U.S., 393 F.3d 1277, 1281 (Fed.Cir.2005). Although the
decision of the Department of Health and Human Services (“HHS”) is
entitled to a presumption of validity, that presumption does not
shield the decision from a substantial, “thorough, probing, in-depth
review” by the reviewing court as opposed to a rubber stamp. Citizens
to Preserve Overton Park, Inc. v. Volpe, 41 U.S. 402, 415 (1971).
Medicare Regulations and Manuals Overview
Medicare is a federally funded health insurance program for
people age 65 or older, or who meet certain other criteria. Medicare
consists of two parts: “Part A [42 U.S.C. § 1395(c)-1395(i)], provides
reimbursement for inpatient hospital and related post-hospital, home
health and hospice care; and Part B [42 U.S.C. § 1395(j)-1395(w)] is a
supplementary voluntary insurance program for hospital outpatient
services, physician services and other services not covered under Part
A.” (A.R. at 5.) “Medicare providers are reimbursed by the Medicare
6 program through fiscal intermediaries for Part A and carriers for Part
B, under contract with the Secretary.” At issue in this case is Part A
of the Medicare program.
Medicare Part A, reimburses providers for the reasonable and
necessary costs incurred to care for Medicare beneficiaries. 42 C.F.R
§ 413.9(b)(1) defines reasonable costs as those costs, direct and
indirect, related to the treatment of Medicare beneficiaries.
Utilizing the methods in the regulations for determining reasonable
costs, the goal is that costs related to individuals covered by the
program not borne by other not covered by the program. Id. To this
end, Medicare recognizes that,
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, [and therefore,] 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).
Before unpaid deductible and coinsurance balances or “bad debts”
are added to a provider’s allowable costs, the following criteria must
be satisfied,
(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.
7 (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). (emphasis added)
Due to the complexity of the regulations, however, the Secretary
has issued interpretive manuals, guidelines, letters and other
publications to help intermediaries and providers better understand
the regulations. See American Hosp. Ass’n v. Bowen, 834 F.2d 1037,
1045 (D.C.Cir.1987). One such manual is the CMS Pub. 15-1, also known
as the Provider Reimbursement Manual (“PMR”). (Paper 18 at 5.) The
provisions of the PRM “do not have the effect of substantive law or
regulation, rather they are interpretive rules” that clarify existing
law or regulations, and “set practical processes.” Harris County, 863
F.Supp. at 409 (citing Mother Frances Hosp. of Tyler, Texas v.
Shalala, 15 F.3d 423 (5th Cir. 1994)). Section 310 and 312 of the PRM
set forth guidelines to assist providers in understanding when a bad
debt is an allowable cost. As a general starting point, a provider is
required to make “reasonable collection efforts” before a bad debt can
be considered an allowable cost. Section 310 states:
To be considered a reasonable collection effort, a provider’s effort to collect Medicare deductible and coinsurance amounts must be similar to the effort the provider puts forth to collect comparable amounts from non-Medicare patients. It must involve the issuance of a bill on or shortly after discharge or death of the beneficiary to the party responsible for the patient’s personal financial obligations. It also includes other actions such as subsequent billings, collection letters and telephone calls or personal contacts with this party which constitute a genuine rather than token collection effort.
8 PRM § 310. (emphasis added)
In the case of an indigent patient, however, Section 312 of the
PRM dispenses with the reasonable collection efforts and gives
providers different guidance. Section 312 states:
In some cases, the provider may have established before discharge, or within a reasonable time before the current admission, that the beneficiary is either indigent or medically indigent. Providers can deem Medicare beneficiaries indigent or medically indigent when such individuals have also been determined eligible for Medicaid as either categorically needy individuals or medically needy individuals, respectively. Otherwise, the provider should apply its customary methods for determining indigence of patients to the case of the Medicare beneficiary under the following guidelines:
A. The patient’s indigence must be determined by the provider, not by the patient; i.e. a patient’s signed declaration of his inability to pay his medical bills cannot be considered proof of indigency; B. The provider should take into account a patient’s total resources which would include, but are not limited, to an analysis of assets (only those convertible to cash, and unnecessary for the patient’s daily living), liabilities and income and expenses. In making this analysis the provider should take into account any extenuating circumstances that would affect the determination of the patient’s indigence; C. The provider must determine that no source other than the patient would be legally responsible for the patient’s medical bill . . .; and D. The patient’s file should contain documentation of the method by which indigence was determined in addition to all back up information to substantiate the determination.
Once indigence is determined and the provider concludes that there has been no improvement in the beneficiary’s
9 financial condition, the debt may be deemed uncollectible without applying the Section 310 procedures.5
CMS regulations and the PRM allow a provider to “waive collection
of charges to any patients, Medicare or non-Medicare, including low-
income, uninsured or medically indigent individuals, if it is done as
part of the [provider’s] indigency policy. By ‘indigency policy’ [the
Secretary] mean[s] a policy developed and utilized by the hospital to
determine patients’ financial ability to pay for services,” (A.R. at
164)(quoting a 2004 news release of former Secretary of HHS, Thommie
Thompson.) as long as the policy applies to Medicare and non-Medicare
patients uniformly. (A.R. 166-67.)
At issue in this case is the application of paragraph B of
Section 312 of the PRM when a provider seeks reimbursement of bad
debts for indigent Medicare beneficiaries.
Analysis
The Administrator determined that “Section 312 of the PRM does
create a mandatory asset test.” (A.R. at 8.) He concluded that, the
“Provider failed to employ an asset test and did not properly evaluate
the indigency status of its patients and thus, the Intermediary
properly disallowed the Provider’s claimed bad debts.” (A.R. at 9.)
Thus, the question before the Court is whether a reasonable
interpretation of PRM 312 requires that BRMC perform an asset test in
5Available at http://www.cms.hhs.gov/Manuals/PBM/itemdetail.asp?filterType=none&filterByDID=- 99&sortByDID=1&sortOrder=ascending&itemID=CMS021929 (Chapter 3)
10 order to determine whether a Medicare beneficiary is indigent.6 The
Court’s determination in this case boils down to the meaning of two
simple words — must and should, and contrary to the Administrator’s
finding, this Court concludes that the words must and should are not
synonymous neither in the context of government regulations and
manuals nor in everyday usage.
The Administrator acknowledged that the appearance of the
auxiliary verbs, must and should, alternated from paragraph to
paragraph in Section 312, (A.R. at 7-8.) yet she found that pursuant
to Medicare regulations and the PRM, providers are required to follow
certain procedures in making indigency determinations, . . . [and that
a] provider’s strict compliance with these procedures flows from the
plain, mandatory language of [all of] Section 312 . . . .” (A.R. at
9.)(emphasis added) The Administrator rejected the court’s finding in
Harris County that the word “should” is synonymous with must, but
offered no case law or other legal precedent to support his findings.
(A.R. at 9 n.3) The Administrator simply concluded that BRMC’s policy
“constitute[d] insufficient and improper collection efforts.” (A.R. at
10.)
The Administrator’s conclusions stand in stark contrast to the
Agency’s unequivocal statement that, a hospital may determine its own
individual indigency criteria. (Id.) When the Court examines Section
312 in the context of this unequivocal statement, however, it becomes
6 Defendant mischaracterized the issue for the Court as whether Plaintiff performed an asset test. (Paper 18 at 9)
11 clear paragraph B, as well as paragraph D are best construed as
strong, but noncompulsory recommendations.
Starting from the premise that providers may determine their own
individual indigency criteria,7 Section 312 makes sense. The Section
begins by setting forth the primary ways a provider may classify a
beneficiary as indigent. Section 312 then states, “[o]therwise the
provider should apply its customary methods for determining indigence
of patients . . . .” PRM Section 312. The Court presumes that by
“customary methods” the PRM is referring to the individual indigency
criterion that providers are allowed to create. Section 312 then sets
forth guidelines for how those customary methods should be applied to
Medicare beneficiaries.
Paragraph A states: “the patient’s indigence must be determined
by the provider, not by the patient;. . . .” PRM Section 312(A). No
one disputes that the word must connotes an obligation, and thus it
follows that the drafters of Section 312 used the word must in
paragraph A because they wanted to ensure that providers, in creating
their own indigency criteria, did not leave the determination up to
the patient, and thus render Section 312 impotent. But it also
follows that the drafters used the word “should” in paragraph B.
Paragraph B states: “the provider should take into account a
patient’s total resources which would include, but are not limited, to
7 The parties agree that a provider is allowed to determine its own indigency policy as long as the criteria are applied consistently to Medicare and non-Medicare patients. (A.R. 166-67) It is undisputed that BRMC’s indigency policy applied consistently to Medicare and non-Medicare patients.
12 an analysis of assets . . . , liabilities and income and expenses. In
making this analysis the provider should take into account any
extenuating circumstances . . . .” PRM Section 312(B)(emphasis added).
The drafters used the word should not once, but twice, and the Court
finds that they used the word should as a suggestion of the ideal
criteria a provider could use. The drafters did not use the word must
because had they done so, they would have effectively dictated to
providers exactly how they had to structure their indigence criteria,
which would contradict the initial premise. Likewise it makes sense
that the drafters chose to use word should in second sentence of
paragraph B to express a strong suggestion that providers take into
account a patients extenuating circumstances. For the same reasons,
the use of the word must in paragraph C and should in paragraph D is
logical as well.
With respect to paragraph C, were the provider able to bill
Medicare for a bad debt that someone else other than the patient was
legally required to pay, it would create a gaping loophole in the
indigence determination. Hence, the use of the unequivocal auxiliary
verb must. The Court finds paragraph D particularly instructive, not
only on the issue of whether must and should are synonymous, but also
on the asset test on the whole. Paragraph D states: “The patient’s
file should contain documentation of the method by which indigence was
determined in addition to all back up information to substantiate the
determination.” PRM Section 312(D)(emphasis added). During the
hearing, the Defendant pointed to the use of should in this paragraph
as proof that the word should carries a mandatory connation because no
13 one can dispute a provider must submit documentation in order to
receive reimbursement from Medicare. The Plaintiff countered that
while documentation is certainly necessary, the real meaning of
paragraph D emanates from the words preceding should. Plaintiff
argues that in the context of the words, “the patient’s file,” the
word should is still precatory and not mandatory, because it explains
the ideal location for the documentation. The Court agrees, but also
notes that the word method indicates that the manual contemplates
others ways that a provider can determine a person’s indigence, aside
from an asset test.
The case law is clear and. Several Courts of Appeals discussing
the word should repudiate the notion that it is synonymous with must.
See Marshall v. Anaconda Co., 586 F.2d 370, 375 (9th Cir.
1979)(stating that the words “should . . . unless” are more advisory
than the words “shall . . . unless”); United States v. Maria, 186 F.3d
65,70 (2d Cir. 1999)(stating that the common meaning of “should”
suggests or recommends a course of action, while the ordinary
understanding of “shall” describes a course of action that is
mandatory.); United States v. Harris, 63 F.3d 555, 559 (2d Cir.
1994)(opining that because the regulation does not say that the court
“must” but rather the court “should,” it suggests an approach and does
not mandate it.) Moreover, the court in Harris County squarely dealt
with this issue in sum and substance, and here, just as in Harris
County, the Secretary “goes to heroic efforts to assert that should
means must,” but offers nothing to refute the plain meaning of the two
words, and thus her argument must fail. Harris County, 863 F.Supp. at
14 410. And while the Secretary beseeches this Court that her
interpretation of the PRM’s language is entitled to substantial
deference, the Court finds this interpretation arbitrary because it
disregards the purposeful word choice undertaken when drafting
regulations and guidelines that have far reaching legal implications.
This is especially the case when drafters of such documents toggle
between words within a particular provision.
Thus for the reasons cited above, the Court believes that words
must and should do not carry the same meaning in the context of
Section 312 of the PRM.
Conclusion
The Secretary has the discretion to change the language of the
PRM so that each paragraph uses the auxiliary verb must, but for some
reason she has chosen not to. In order to preclude courts from
reaching the same conclusion in future decisions, the Secretary should
amend Section 312 of the PRM.
____August 18, 2009_______ ___________/s/_______________ Date Judge Alexander Williams, Jr. United States District Judge