New Lifecare Hospitals of North Carolina LLC v. Cochran

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

NEW LIFECARE HOSPITALS OF
NORTH CAROLINA LLC, et al.,

Plaintiffs,
Case No. 1:17-cv-00237 (TNM)
v.

ALEX M. AZAR, II, Secretary of the U.S.
Department of Health and Human Services, in
his official capacity,

Defendant.

MEMORANDUM OPINION

Four long-term care hospitals (“the Providers”) seek judicial review of the Secretary of

Health and Human Services’ denial of their claims for reimbursement of deductible and

coinsurance payments that Medicare beneficiaries did not pay. 1 The Centers for Medicare and

Medicaid Services (“CMS”), which administer the Medicare program on behalf of the Secretary,

denied their reimbursement claims because the Providers did not comply with CMS’s so-called

“must-bill” policy. The Providers admit as much, but they insist that CMS’s application of that

policy was unlawful.

Both the Providers and the Secretary now move for summary judgment. Given the

deferential standard of review and the limited record before it, the Court will grant summary

judgment to the Secretary.

1
Alex M. Azar, II, the Secretary for the U.S. Department of Health and Human Services,
is automatically substituted for former Acting Secretary Norris Cochran under Fed. R. Civ. P.
25(d).
 I. BACKGROUND

A. Legal Background

1. The Medicare Program

The Medicare program “is a federally funded medical insurance program for the elderly

and disabled.” Fischer v. United States, 529 U.S. 667, 671 (2000). CMS administers the

Medicare program on behalf of the Secretary, see Ark. Dep’t of Health & Human Servs. v.

Ahlborn, 547 U.S. 268, 275 (2006), “through contracts with [M]edicare administrative

contractors,” 42 U.S.C. §§ 1395h(a), 1395u(a). A provider must submit cost reports annually to

a contractor who, in turn, determines the payment to be made to that provider. See 42 C.F.R.

§§ 413.20, 413.24(f). A contractor then issues a Notice of Program Reimbursement that

specifies the allowable Medicare payment. Id. § 405.1803.

If a provider is “dissatisfied with a final determination” of the contractor, it may appeal

that determination to the Provider Reimbursement Review Board (“the Board”). 42 U.S.C.

§ 1395oo(a). The Board’s decision is final unless the Secretary “reverses, affirms, or modifies

the Board’s decision.” Id. § 1395oo(f). The Secretary has delegated his authority to review the

Board’s decisions to the CMS Administrator. See 42 C.F.R. § 405.1875(a)(1). If a provider is

dissatisfied with the Board’s decision or the Secretary’s decision, it may seek judicial review of

that decision by filing a civil action in federal court. 42 U.S.C § 1395oo(f)(1); 42 C.F.R.

§ 405.1877(b).

2. The Medicaid Program

“The Medicaid program is a cooperative federal-state program to provide medical care

for eligible low-income individuals . . . jointly funded by federal and state governments.”

Grossmont Hosp. Corp. v. Burwell, 797 F.3d 1079, 1081 (D.C. Cir. 2015). For a state to qualify

2
for federal funding, the Secretary must approve the state’s Medicaid plan, which sets out, among

other things, covered medical services. 42 U.S.C. §§ 1396a, 1396b.

Some patients, so-called “dual eligibles,” are eligible for both Medicare and Medicaid.

See Grossmont Hosp. Corp., 797 F.3d at 1081. In many cases, these patients cannot afford to

pay their Medicare deductibles and coinsurance costs. States must use their Medicaid dollars to

pay Medicare cost-sharing obligations for dual eligible patients. See 42 U.S.C.

§ 1396a(a)(10)(E)(i).

3. “Bad Debts”

If Medicare patients fail to pay the deductible and coinsurance payments that they owe to

providers, the providers may seek reimbursement from CMS for these amounts—called “bad

debts.” See 42 C.F.R. § 413.89(e). Medicare “reimburses the health care provider for this ‘bad

debt’” to prevent cross-subsidization, i.e., “a cost shift from the Medicare recipient to individuals

not covered by Medicare.” Cmty. Hosp. of Monterey Peninsula v. Thompson, 323 F.3d 782, 786

(9th Cir. 2003).

To obtain reimbursement for bad debt, providers must establish that these criteria are

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.
(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). Chapter 3 of CMS’s Provider Reimbursement Manual (“the Manual”)

provides more instruction about bad debt reimbursement. See generally The Provider

Reimbursement Manual—Part 1, https://www.cms.gov/Regulations-and-

3
Guidance/Guidance/Manuals/Paper-Based-Manuals-Items/CMS021929.html. First, Section 310

of the Manual requires that “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.” Manual § 310. Section 312, however—which addresses bad debts

associated with “indigent or medically indigent” patients—provides that “[o]nce indigence is

determined and the provider concludes that there ha[s] been no improvement in the beneficiary’s

financial condition, the debt may be deemed uncollectible without applying the § 310

procedures.” Id. § 312.

Section 322 of the Manual provides specific instruction on bad debts associated with dual

eligible patients. Id. § 322. It provides that

Where the State is obligated either by statute or under the terms of its [Medicaid]
plan to pay all, or any part, of the Medicare deductible or coinsurance amounts,
those amounts are not allowable as bad debts under Medicare. Any portion of
such deductible or coinsurance amounts that the State is not obligated to pay can
be included as a bad debt under Medicare, provided that the requirements of § 312
or, if applicable, § 310 are met.

Id. Additionally, Section 322 addresses situations in which “the State has an obligation to pay,

but either does not pay anything or pays only part of the deductible or coinsurance because of a

State payment ‘ceiling.’” Id. In those situations, Section 322 instructs that, “any portion of the

deductible or coinsurance that the State does not pay that remains unpaid by the patient, can be

included as a bad debt under Medicare, provided that the requirements of § 312 are met.” Id.

4. The “Bad Debt Moratorium”

In 1987, Congress enacted legislation to “freeze” the Secretary’s Medicare bad debt

reimbursement policies. Hennepin Cnty. Med. Ctr. v. Shalala, 81 F.3d 743, 747, 751 (8th Cir.

1996); Foothill Hosp. v. Leavitt, 558 F. Supp. 2d 1, 3–5 (D.D.C. 2008). This legislation, called

the “Bad Debt Moratorium,” provides that “the Secretary of Health and Human Services shall

4
not make any change in the policy in effect on August 1, 1987, with respect to payment . . . for

reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance

amounts incurred under [the Medicare program] (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).”

See Omnibus Budget Reconciliation Act of 1987 (“OBRA”), Pub. L. No. 100–203, tit. IV,

§ 4008(c), 101 Stat. 1330–55, as amended by Technical and Miscellaneous Revenue Act of

1988, Pub. L. No. 100–647, tit. VIII, § 8402, 102 Stat. 3342, 3798, reprinted as amended at 42

U.S.C. § 1395f note (2012).

B. Factual Background

At issue here is CMS’s “must-bill” policy. Under the “must-bill” policy, providers must

both (1) bill their state Medicaid programs; and (2) receive a Remittance Advice (“RA”), a

specific document from the state Medicaid programs asserting that the states are not liable for

any portion of the bad debts. A.R. 15. The Providers are long-term care hospitals, or “LTCHs.”

For the fiscal years at issue, the Providers were not enrolled in Medicaid. See A.R. 16.

According to the Providers, before April 2008, CMS contractors—who review the Providers’

annual claims for reimbursement—treated proof of a beneficiary’s indigence, for example, his

dual eligible status, as a sufficient basis for bad debt reimbursement. Pls.’ Mot. for Summ. J.

(“Pls.’ Br.”) at 11, ECF No. 12. 2 In other words, the Providers claim that, in the past, if the CMS

contractors knew that a beneficiary was a dual eligible, they treated the debt associated with him

as reimbursable bad debt and did not require the providers to comply with the must-bill policy.

Id.

2
All page citations are to the page numbers generated by the Court’s CM/ECF system.

5
 But not anymore. In April 2008, contractors issued Notices of Program Reimbursement

denying about three million dollars’ worth of reimbursement claims because the Providers had

not complied with the CMS’s must-bill policy. A.R. 409–13; 919. They had not billed their

state Medicaid programs or received RAs. Id. In this lawsuit, the Providers object to this alleged

abrupt change.

The Providers appealed the contractors’ determinations to the Board, which held a

hearing on their claims. See A.R. 51. In its decision, the Board split the Providers into two

groups. See A.R. 51–62. First, the Board found that the Louisiana and Texas Providers could

have enrolled in their state Medicaid programs but “made a business decision not to participate.”

A.R. 59–60 (emphasis in original). The Board thus upheld the CMS contractors’ determinations

for those Providers. A.R. 60. But, according to the Board, the North Carolina and Pennsylvania

Providers were differently situated. See A.R. 60. The Board found that neither state Medicaid

program allowed them to enroll for the fiscal years at issue. A.R. 60. So the Board reversed the

CMS contractors’ decisions as to these Providers and ordered the contractors to consider

documentation that did not include a State-issued RA in determining the amount of reimbursable

bad debt. A.R. 61. That was not the end of the matter though.

Next, the Administrator took up review of the Board’s decision. A.R. at 2. He affirmed

the Board’s decision as to the Louisiana and Texas Providers but reversed it as to those in North

Carolina and Pennsylvania. A.R. 2–22. In short, he concluded that CMS’s must-bill policy

applies to all the Providers. A.R. 2–22. He opined that “[w]here States are made aware of their

duty and still refuse to enroll Providers for the purpose of billing and receiving remittance

advices, or otherwise refuse to process nonenrolled providers’ claims, then the appropriate

course would be for the Providers to take legal action with their states.” A.R. 18. According to

6
the Administrator, “[t]he Providers’ assertions, that in some States the cost sharing liability

would be zero, fails to recognize that States are in the best situation to make that determination.”

A.R. 21. So the reimbursement claims for three million dollars were ultimately denied.

The Providers then sued here. See Compl., ECF No. 1. Both parties have now cross-

moved for summary judgment. See Pls.’ Br.; Def.’s Mot. for Summ. J. (“Def.’s Br.”), ECF No.

36.

II. LEGAL STANDARDS

Summary judgment is usually only appropriate if there is no genuine issue as to any

material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. Pro.

56. But when a court is reviewing an administrative agency’s decision, the standard set out in

Federal Civil Procedure Rule 56 does not apply. See Richards v. I.N.S., 554 F.2d 1173, 1177

(D.C. Cir. 1977). Instead, as both parties acknowledge, courts review an agency’s decision

under the Administrative Procedure Act. See Ramaprakash v. Fed. Aviation Admin., 346 F.3d

1121, 1124 (D.C. Cir. 2003).

A court must set aside agency action that is “arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). “The arbitrary and capricious

standard is deferential; it requires that agency action simply be reasonable and reasonably

explained.” Comtys. for a Better Env’t v. E.P.A., 748 F.3d 333, 335 (D.C. Cir. 2014) (cleaned

up). And the agency must “articulate a satisfactory explanation for its action including a

‘rational connection between the facts found and the choice made.’” Motor Vehicle Mfrs. Ass’n

v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (cleaned up).

7
 III. ANALYSIS

The Providers do not object to the general must-bill policy per se. Rather, they claim

that—until April 2008—CMS did not impose the must-bill policy on them. 3 Pls.’ Br. at 12.

This reversal, they contend, is unlawful. Id.

The Providers claim that the Administrator’s decision (1) violates Medicare’s prohibition

against cost-shifting; (2) is inconsistent with the voluntary nature of Medicaid participation; (3)

violates the Bad Debt Moratorium; (4) is arbitrary and capricious; and (5) is otherwise unlawful

as applied to providers that do not participate in Medicaid. See Pls.’ Br. at 6.

A. The Administrator’s Decision Did Not Violate Medicare’s Prohibition Against

Cost-Shifting.

The Providers argue that the Administrator’s refusal to reimburse them for their bad debts

violates the statutory prohibition on cost-shifting because now the Providers must shift costs

associated with Medicare beneficiaries to non-Medicare beneficiaries. See 42 U.S.C.

§ 1395x(v)(1)(A)(i) (explaining that the Secretary must “take into account both direct and

indirect costs of providers of services . . . in order that, under the methods of determining costs,

the necessary costs of efficiently delivering covered services to individuals covered by the

insurance programs established by this title will not be borne by individuals not so

covered . . . .”).

But if the Providers’ view were correct, the Administrator could not deny any bad debt

reimbursement claims—no matter how frivolous. That is not the law. There is always a chance

3
Although the parties refer to this policy as simply the “must-bill policy,” there are two
separate components: the requirement to bill the state Medicaid program and the requirement to
secure the Remittance Advice from the state Medicaid program. See Select Specialty Hosp.-
Denver, Inc. v. Azar, 391 F. Supp. 3d 53, 58 (D.D.C. 2019).

8
that providers might shift costs to non-Medicare patients in some way. See Detroit Receiving

Hosp. v. Shalala, 194 F.3d 1312 (6th Cir. 1999). The cost-shifting provisions must be read

together with the provision authorizing the Secretary to refuse to reimburse costs when the

provider has failed to “furnish such information as the Secretary may request in order to

determine the amounts due such provider.” 42 U.S.C. § 1395g(a). The Administrator has the

authority to enforce the statute’s reasonable collection efforts requirements. So the Court rejects

the Providers’ cost-shifting argument.

B. The Administrator’s Decision Does Not Unlawfully Require the Providers to

Participate in Medicaid.

Next, the Providers argue that the Administrator’s decision is unlawful because it

requires the Providers to participate in Medicaid. Pls.’ Br. at 29. And “participation in the

Medicaid program is entirely optional.” Harris v. McRae, 448 U.S. 297, 301 (1980).

The Providers claim that “[t]he effect of the Administrator’s decision is to make

Medicaid participation mandatory for all providers who intend to claim Medicare reimbursement

for bad debts.” Pls.’ Br. at 29. This argument fails for at least two reasons.

First, the Providers offer no authority—legal or otherwise—for their predictive claim.

According to the Administrator, state Medicaid programs must allow providers to enroll for the

limited purpose of obtaining RAs. See A.R. 1098–1101. 4 Second, even though participation in

Medicaid is optional, that says little about CMS’s power to assess “reasonable collections

efforts.” Recall that the Secretary has the authority to refuse to reimburse costs if the provider

has failed to “furnish such information as the Secretary may request in order to determine the

4
In their reply brief, the Providers insist that this instruction came too late: in 2013. See
Pls.’ Reply at 36, ECF No. 39. But as the Court will discuss below, the Providers have not
successfully shown that there was a change in policy.

9
amounts due such provider.” 42 U.S.C. § 1395g(a). Cf. Spectrum Health Continuing Care Grp.

v. Anna Marie Bowling Irrecoverable Tr. Dated June 27, 2002, 410 F.3d 304, 313 (6th Cir.

2005) (“A state is not required to participate in the [Medicaid] program, but once it chooses to do

so, the state’s plan must comply with federal statutory and regulatory standards.”). So the Court

rejects the Providers’ argument that the Administrator’s decision unlawfully requires them to

participate in Medicaid.

C. The Providers Waived Their Argument That CMS Violated the Bad Debt

Moratorium.

The Providers argue that CMS’s application of the must-bill policy is unlawful because it

violates the Bad Debt Moratorium. Pls.’ Br. at 29. CMS, in response, insists that its application

of the must-bill policy to all providers is longstanding and predates the Bad Debt Moratorium in

1987. Def.’s Br. at 23. This might have been a potent argument, but the Providers waived it by

failing to raise it to the Administrator. See generally A.R. 37–45 (Providers’ Comments to the

CMS Administrator).

In Grossmont Hospital, the D.C. Circuit held that a plaintiff “failed to preserve its

challenge that the mandatory state determination policy violates the bad debt moratorium” by

“failing to raise it in the administrative proceedings below.” 797 F.3d at 1083–84. So too here.

“It is a hard and fast rule of administrative law, rooted in simple fairness, that issues not

raised before an agency are waived and will not be considered by a court on review.” Nuclear

Energy Inst. v. E.P.A., 373 F.3d 1251, 1297 (D.C. Cir. 2004). In the context of administrative

law, the waiver rule “provides this Court with a record to evaluate complex regulatory issues.”

ExxonMobil Oil Corp. v. F.E.R.C., 487 F.3d 945, 962 (D.C. Cir. 2007). “Generally speaking,

district courts reviewing agency action under the APA’s arbitrary and capricious standard do not

10
resolve factual issues, but operate instead as appellate courts resolving legal questions.” James

Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1096 (D.C. Cir. 1996).

The Providers’ mistake is fatal to its argument. Because the Providers did not raise their

Bad Debt Moratorium argument to the Administrator, he made no factual finding on whether the

CMS applied its must-bill policy in this way before 1987. See generally A.R. 1–22 (CMS

Administrator’s Decision). The Court cannot determine whether the Administrator’s factual

finding is supported by substantial evidence because there is no factual finding.

True, the Providers did argue to the Board that “[t]he recent change in CMS policy

requiring these non-Medicaid-participating Providers to bill state Medicaid programs . . . violates

the bad debt moratorium.” A.R. 114. And the Board found that “pre-1987 bad debt policy in the

[Manual] clearly established that providers have an obligation to bill ‘the responsible party.’”

A.R. 57. But briefing it to the Board was not enough. The Board’s opinion was not CMS’s final

word once the Administrator decided to review the case. See 42 U.S.C. 1395oo(f) (“A decision

of the Board shall be final unless the Secretary . . . reverses, affirms, or modifies the Board’s

decision.”) (emphasis added); cf. Howard Young Med. Ctr. Inc. v. Shalala, 207 F.3d 437, 443

(7th Cir. 2000) (declining to bind the Secretary to a factual stipulation from the Board hearing,

acknowledging that the Secretary was not a party to the Board proceeding). Because the

Providers failed to preserve the issue in front of the Administrator, there is nothing on this point

for the Court to review.

By contrast, consider Mercy General Hospital v. Azar, 344 F. Supp. 3d 321, 335 (D.D.C.

2018). There, the CMS Administrator had concluded that the must-bill policy did not violate the

Bad Debt Moratorium based on his finding that the “policy [had] been in effect since before

August 1, 1987, as is evidenced in numerous Administrator and Board decisions, . . . the

11
longstanding PRM sections 310 and 312 and 322, . . . [and] the longstanding regulations and

statute.” Mercy General Hosp., 344 F. Supp. 3d at 335. So the Mercy General Hospital court

then reviewed the same evidence presented to the Administrator. See id. at 335–53. For

instance, it reviewed Board decisions from before the Bad Debt Moratorium, Administrator

decisions from after the Bad Debt Moratorium, and statements by CMS officials. Id. It used that

evidence to evaluate whether the Administrator’s factual finding was supported by substantial

evidence. Id.

But here, the Court simply does not have a comparable factual record. The Mercy

General Hospital court was equipped to decide whether the must-bill policy violated the Bad

Debt Moratorium: it had both the Administrator’s factual finding and a developed evidentiary

record. But no such findings or record are before this Court. For that, the Providers have

themselves to blame.

For these reasons, the Court finds that the Providers did not preserve their Bad Debt

Moratorium argument. 5

5
To be sure, the Providers likely would have had a non-frivolous argument. While courts
have generally enforced the so-called must-bill policy, “[i]t is not clear that the consistently
enforced version of the ‘must-bill policy’ includes both the Billing Requirement and the RA
Requirement.” Maine Med. Ctr. v. Burwell, 775 F.3d 470, 473 n.6 (1st Cir. 2015).
In fact, another judge in this District recently concluded that the Administrator’s finding
that “remittance advice requirement existed prior to the Moratorium [was] not supported by
substantial evidence.” Mercy Gen. Hosp., 344 F. Supp. 3d at 351. See also Select Specialty
Hosp.-Denver, Inc., 391 F. Supp. 3d at 55 (concluding that before 2007, CMS had reimbursed
long-term care hospitals for their dual eligible patients’ bad debt “without requiring [them] to bill
state Medicaid programs for a formal determination of how much of that bad debt would be
covered by state Medicaid programs”); Dist. Hosp. Partners, L.P. v. Sebelius, 932 F. Supp. 2d
194, 206 (D.D.C. 2013) (concluding that the challenged policy violated the Moratorium in part
because “the Secretary ha[d] pointed to no persuasive evidence that supports her contention,
much less pre-1987 evidence”); Foothill Hosp., 558 F. Supp. 2d at 10 (concluding that the
challenged policy “did not exist prior to the effective date of the Moratorium”). But the Court is
bound by the limited record before it. See CTS Corp., 759 F.3d at 64 (D.C. Cir. 2014).

12
 D. The Providers Did Not Prove that CMS Changed How It Applied Its Must-Bill

Policy.

So the Court reaches the heart of this dispute: the Providers insist that before 2008, the

contractors reimbursed them for dual eligible bad debts without requiring the Providers to submit

RAs from the state Medicaid programs. See Pls.’ Br. at 11. Then, according to the Providers,

the contractors abruptly began denying the bad debts by applying the must-bill policy,

retroactively and without formal notice. See id. But the Providers have not proven that the

contractors, in the past, did reimburse them for bad debts without requiring RAs. In short, the

Providers have not shown a change, abrupt or otherwise.

During the Board hearing, John Michael Cronin, the Providers’ Vice President for

Reimbursement, testified. See A.R. 343. He claimed that the contractors used to reimburse

claims for dual eligible beneficiaries’ bad debts without RAs. Id. at 343, 345. He also testified

that before 2008, the Providers “never received anything in writing” that the must-bill policy

would be applied to them. Id. at 347–48.

The Providers, however, point to no other evidence in the record to substantiate Mr.

Cronin’s assertions. True, the record confirms that the Providers submitted claims for

reimbursement without RAs before April 2008. See A.R. 934. But the Providers have not

identified evidence that contractors ever accepted such claims. They insist that CMS possesses

their “prior cost reports and cost report data.” Pls.’ Reply at 27, ECF No. 39. Presumably, the

Providers have this documentation, too. But they are not in the record before the Court.

In any event, the Providers are in the—however difficult—procedural posture where they

must show that the Administrator’s decision was arbitrary and capricious. And because they

13
have not established that CMS previously reimbursed them for bad debts without requiring RAs,

the bulk of their arguments failed.

The Administrator’s decision is entitled to a “presumption of regularity,” and although

“inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow

one.” Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415–16 (1971). In cases

involving APA claims, such as this one, “the district judge sits as an appellate tribunal. The

‘entire case’ on review is a question of law.” Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077,

1083 (D.C. Cir. 2001).

In Select Specialty Hospital-Denver, Inc. v. Azar, by contrast, the plaintiffs established

that CMS had changed how it applied its must-bill policy. 391 F. Supp. 3d 53, 61–63 (D.D.C.

2019). There, the plaintiffs also claimed that CMS abruptly began denying their reimbursement

claims for dual-eligible patients’ bad debts unless they had complied with CMS’s must-bill

policy. Id. at 55. But there they presented evidence of this abrupt change. See id. at 61–63. For

instance, they offered a pre-2007 Adjustment Report that showed that no deductions were made

for failure to comply with the must-bill policy. See id. at 61. They also presented

“contemporaneous correspondence,” such as emails from the CMS contractors to plaintiffs,

confirming that CMS’s application of the must-bill policy was a change in policy. Id. at 62. But

the Providers here have failed to develop a similar record. They do not point to pre-2008

Adjustment Reports and they do not proffer emails or letters from CMS or its contractors

confirming that there was a change in policy around this time.

The Court’s role is limited and confined by the record in front of it. See CTS Corp. v.

E.P.A., 759 F.3d 52, 64 (D.C. Cir. 2014) (“It is black-letter administrative law that in an

Administrative Procedure Act case, a reviewing court should have before it neither more nor less

14
information than did the agency when it made its decision.” (cleaned up)). And the Providers

have the burden of proving that the Administrator’s decision was unlawful. See id. at 59.

Because the Providers have not proven that CMS changed how it applied the must-bill

policy, many of the Providers’ claims fail. The Court must reject the Providers’ arguments that

CMS’s decision was arbitrary and capricious because it (1) constituted “an unexplained

departure” from its prior practice, as there was no proven departure; (2) ignored the Providers’

legitimate reliance on CMS’s longstanding practice, as there was no proven new practice; and (3)

was a “retroactive application” of a new policy without notice, as there was no proven new

policy.

The Court also must reject the Providers’ argument that the Administrator’s decision is

not supported by substantial evidence. Pls.’ Br. at 53. According to the Providers, the

contractors told them that CMS abruptly required them to “follow the must-bill policy on these

particular Providers” and apply the must-bill policy to all providers. Id. at 54. And the Providers

complain that there is no evidence in the record showing that CMS ever ordered the contractors

to start applying the must-bill policy to them. Id. They point out that “[t]here is nothing in

writing to confirm this change in interpretation by the CMS central office, and the [contractors]

have not provided any evidence as support.” Id. But, again, the Providers have not shown that

there was a change. If there there was no change, it follows that there would be no evidence in

the record of CMS suddenly ordering the contractors to apply the must-bill policy. So because

the Providers have not shown a change in how CMS applies its must-bill policy, this claim also

fails.

15
 E. The Providers Have Not Shown that the Administrator’s Decision was Otherwise

Arbitrary and Capricious or an Abuse of Discretion.

The Providers also argue that the Administrator’s decision was arbitrary and capricious

because they had no way to comply with the must-bill policy. Pls.’ Br. at 31. They claim that

North Carolina and Pennsylvania had Medicaid regulations and policies that prevented them

from obtaining RAs because they were non-Medicaid participating providers. Id.

In his decision, the Administrator explained that “States must be able to process dual

eligible beneficiary claims to determine the State’s cost sharing liability.” A.R. 18. And if a

state does not process a dual-eligible claim, “a Provider’s remedy must be sought within the

State.” A.R. 18. In short, if a state refuses to issue RAs, for whatever reason, the Providers must

seek relief against that state.

On this record, it is far from clear that the Providers could not have billed North Carolina

and Pennsylvania to acquire RAs—even if they could not enroll in those states’ Medicaid

program. 6 To prove that they could not have complied with the must-bill policy in these states,

the Providers cite only testimony of their own employee and their own prepared statements. See

Pls.’ Br. at 29–30. Indeed, the Providers admit that they “were able to get the North Carolina

and Pennsylvania Medicaid programs to eventually allow them to bill Medicare cost-sharing

claims, after the cost reporting periods at issue.” See Pls.’ Reply at 24 (citing A.R. at 354–55).

While this fact alone does not prove that they could have complied, it undermines their

arguments to the contrary.

6
The Providers do not dispute that they could have enrolled in the state Medicaid
programs in Louisiana and Texas. See generally Pls.’ Br. and Pls.’ Reply.

16
 In any event, a court must uphold an agency’s decision if the agency shows that it has

“examin[ed] the relevant data and articulat[ed] a satisfactory explanation for its action including

a ‘rational connection between the facts found and the choice made.’” State Farm, 463 U.S. at

43 (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)). That is what

happened here. CMS does not have to change how it enforces its bad debt policy based on

whether states comply with federal regulations. And the Providers do not argue otherwise.

While navigating both the federal and state bureaucracies involved is no doubt frustrating, given

the deferential standard of review here, the Court cannot find that CMS failed to “articulate a

satisfactory explanation for its action including a ‘rational connection between the facts found

and the choice made.’” State Farm, 463 U.S. at 43 (cleaned up). 7

The Providers also argue that the Court should reverse the Administrator’s decision

because it is inconsistent with its treatment of other providers in similar situations. Pls.’ Br. at

44. As both parties acknowledge, community mental health centers (“CMHCs”) in California

and institutes for mental diseases (“IMDs”) may claim dual eligible bad debt without billing the

state. See Pls.’ Reply at 32; Def.’s Reply at 11, ECF No. 41. CMS insists that these are not

exceptions to its must-bill policy but rather these two types of providers are “recognized by

statute as exempt from the policy.” Def.’s Br. at 29.

California does not license CMHCs, see Cal. Health & Safety Code § 1200 et seq., so it is

impossible for them to enroll in California’s Medicaid program or have claims processed. And

while IMDs provide services to patients between the ages of 22 and 64, the Medicaid statute and

7
For the same reasons, the Court rejects the Providers’ argument that “it was arbitrary and
capricious for the agency to refuse to accept proof of indigence to support the claimed bad debts
when [they] have no ability to force the states to process non-Medicaid-participating provider
claims.” Pls.’ Br. at 42. The Providers have not shown that it was arbitrary and capricious for
CMS to conclude that the Providers could acquire RAs during the relevant years.

17
regulations categorically precludes payment for services provided to these younger patients. See

42 U.S.C. § 1396d(a)(14); 42 C.F.R. §§ 435.1008(a)(2), 441.13(a)(2).

The party complaining of an inconsistency must “bring before the reviewing court

sufficient particulars of how [it] was situated, how the allegedly favored party was situated, and

how such similarities as may exist dictate similar treatment and how such dissimilarities as may

exist are irrelevant or outweighed.” P.I.A. Mich. City, Inc. v. Thompson, 292 F.3d 820, 826

(D.C. Cir. 2002). The Providers have not carried their burden here. In short, the Providers differ

from CMHCs in California and IMDs. While California refuses to license CMHCs, a fact

memorialized in a state statute, the Providers have not identified similar statutes in their own

states. As to IMDs, while the Medicaid statute categorically precludes payment for younger

patients, the Providers offer no comparable categorical provision in federal law.

Even if “[t]here is . . . nothing preventing the Secretary from applying the same type of

exception or exemption to the [Providers],” Pls.’ Reply at 32, it is hardly arbitrary and capricious

for CMS to treat the Providers differently. With IMDs and California CMHCs, CMS is

confident that the states have no obligation to pay the debt at issue, and there are good reasons

for such a belief. In the context of the Providers, however, CMS is less confident, so it requires

them to bill the state Medicaid programs. “The arbitrary and capricious standard . . . requires

that agency action simply be reasonable and reasonably explained.” Comtys. for a Better Env’t,

748 F.3d at 335. CMS’s decision not to exempt the Providers clears this low bar.

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 IV. CONCLUSION

For these reasons, the Plaintiffs’ Motion for Summary Judgent will be denied, and the

Defendant’s Motion for Summary Judgment will be granted. A separate order will issue. 8

2019.09.27
11:03:11 -04'00'
Dated: September 27, 2019 TREVOR N. McFADDEN, U.S.D.J.

8
The Secretary filed an opposed motion for leave to file a sur-reply about the Bad Debt
Moratorium issue, see ECF No. 45, and then filed a sur-reply, see ECF No. 47. The Providers
later moved to strike the Secretary’s sur-reply, see ECF No. 48. Because the Court finds that the
Providers did not preserve their Bad Debt Moratorium argument, the Court will deny both
motions as moot.

19