University Health Services, Inc. v. Health & Human Services

United States Court of Appeals,

Eleventh Circuit.

No. 95-9493.

UNIVERSITY HEALTH SERVICES, INC., Plaintiff-Appellee,

v.

HEALTH & HUMAN SERVICES, Donna Shalala, in her official capacity as Secretary,
Defendant-Appellant.

Aug. 28, 1997.

Appeal from the United States District Court for the Southern District of Georgia. (No. CV193-180),
Dudley H. Bowen, Jr., Judge.

Before BIRCH, BLACK and CARNES, Circuit Judges.

BIRCH, Circuit Judge:

This appeal requires that we examine regulations and interpretive guidelines promulgated

pursuant to Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395cc ("the Medicare Act").

The Secretary of Health and Human Services ("Secretary") appeals the judgment of the district court

in favor of University Health Services ("University"). University sought review in the district court

of the Secretary's decision to disallow a portion of its claims for reimbursement of bad debts related

to Medicare patients. The district court determined that the Secretary was precluded from

disallowing University's bad debt claims and granted summary judgment in favor of University. For

the reasons that follow, we REVERSE.

I. BACKGROUND

The Medicare Act permits hospitals and other health care providers to enter into an

agreement with the Secretary by which the Secretary reimburses providers through private fiscal

intermediaries for amounts owed, but not paid, by Medicare patients. 42 U.S.C. § 1395cc. To

qualify for reimbursement with respect to these bad debt claims, hospitals must comply with

regulations directing them to make reasonable efforts to collect Medicare deductible and coinsurance

amounts. Specifically, Medicare bad debt constitutes an allowable cost if the following criteria are

met:
 (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. § 413.80(e).

The Secretary has delineated further the regulation's bad debt collections requirement in its

Provider Reimbursement Manual ("PRM"). Provisions of the PRM relevant to this action state in

pertinent part:

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 for non-Medicare patients....

A. Collection Agencies.—A provider's collection effort may include the use of a collection
agency in addition to or in lieu of subsequent billings, follow-up letters, telephone and
personal contacts. Where a collection agency is used, Medicare expects the provider to refer
all uncollected patient charges of like amount to the agency without regard to class of
patient. The "like amount" requirement may include uncollected charges above a specified
minimum amount. Therefore, if a provider refers to a collection agency its uncollected
non-Medicare patient charges which in amount are comparable to the individual Medicare
deductible and coinsurance amounts due the provider from its Medicare patient, Medicare
requires the provider to also refer its uncollected Medicare deductible and coinsurance
amounts to the collection agency.

PRM § 310.

Presumption of Noncollectibility.—If 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.

In 1987, Congress enacted the Omnibus Budget Reconciliation Act ("OBRA") that placed

a moratorium on, among other things, the Secretary's authority retroactively to modify Medicare bad

debt reimbursement policy that was in effect on August 1, 1987. The moratorium provides, in

pertinent part:

In making payments to hospitals under [the Medicare Program], 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 [the Medicare program] to providers of service for

2
 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).

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.

OBRA of 1987, Pub.L. No. 100-203, § 4008(c), as amended by Technical and Miscellaneous

Revenue Act of 1988, § 8402 and OBRA of 1989, § 6023.

University is a non-profit hospital located in Augusta, Georgia. The intermediary in this case

is Blue Cross and Blue Shield of Georgia ("Blue Cross"). It is undisputed that University

historically has pursued comparable in-house collection efforts for both Medicare and non-Medicare

accounts for the first 120 days after the last activity on each account, consistent with the applicable

Medicare regulations. Until 1989, University wrote off as bad debt all delinquent accounts

following this 120-day period and referred all non-Medicare accounts to an in-house collection

agency. University did not forward outstanding Medicare accounts to the collection agency but,

rather, claimed and received, through Blue Cross, reimbursement for these amounts from the

Medicare program. In 1989, Blue Cross conducted a full audit of the 1986 cost year and determined

that University's bad debt collection practice, specifically with respect to the referral of solely
non-Medicare overdue accounts to a collection agency, was inconsistent with Medicare policy.

Accordingly, Blue Cross disallowed the 1986 bad debt claim.

University sought administrative review of Blue Cross's decision. The Provider

Reimbursement Review Board ("PRRB") found that University had demonstrated that sound

business judgment justified its dissimilar treatment of Medicare and nonMedicare accounts after 120

days following the last activity on these accounts. In support of its findings, the PRRB noted that

University had shown financial losses in connection with collection efforts in the 1989-1991 cost

3
years, during which University complied with the intermediary's directive to refer all accounts, both

Medicare and non-Medicare, to its internal collection agency.

The Secretary reversed the PRRB decision and concluded that University had failed to show

that it had engaged in reasonable collection efforts with respect to its Medicare accounts. The

Secretary premised her conclusion on the grounds that (1) University's bad debt collection method

was inconsistent with the plain language of the Secretary's interpretive guidelines of the Medicare

Act, embodied in the PRM, directing providers to treat similarly Medicare and non-Medicare

overdue accounts; (2) University had failed to show that sound business judgment justified its

decision not to refer Medicare accounts to its collection agency; and (3) because University had not

acted in compliance with the pertinent Medicare regulations in 1986, the moratorium articulated in

OBRA did not apply to the facts of this case and, thus, did not bar the intermediary's disallowance

of reimbursement costs for that cost year.

The district court reversed the Secretary's decision and ordered that summary judgment enter

in favor of University. The court found that, for many years prior to 1986, University had employed

the same collection practices as those used in 1986 and that Blue Cross previously had allowed

reimbursement of University's bad debt claims. The court further stated that the Secretary tacitly

had ratified University's collection efforts through the acts of her intermediary and, consequently,

her change in policy with respect to the 1986 cost year had an unfair retroactive effect. Based on
this reasoning, the court concluded that the Secretary was equitably estopped from disallowing

reimbursement for 1986. Alternatively, the court found that the OBRA moratorium barred the

Secretary from denying University's claim for bad debt reimbursement. This appeal followed.

II. DISCUSSION

"In reviewing the Secretary's decisions, both the district court and [our] court must abide

by those decisions "unless [they are] arbitrary, capricious, an abuse of discretion, not in accordance

with law, or unsupported by substantial evidence in the record taken as a whole.' " Alacare Home

Health Serv., Inc. v. Sullivan, 891 F.2d 850, 854 (11th Cir.1990) (quoting Carraway Methodist Med.

4
Center v. Heckler, 753 F.2d 1006, 1009 (11th Cir.1985)) (alteration in original). "We previously

have noted that the Secretary has amassed considerable expertise in the health care area and absent

a strong showing by the plaintiff, "this court will not substitute its judgment for that of the agency.'

" Id. (quoting Lloyd Noland Hosp. & Clinic v. Heckler, 762 F.2d 1561, 1565 (11th Cir.1985).

Although an agency's interpretive rules do not have the force of law, Shalala v. St. Paul-Ramsey

Med. Ctr., 50 F.3d 522, 527 n. 4 (8th Cir.1995), the Secretary's interpretation of her own regulations

are "controlling unless plainly erroneous or inconsistent with the regulation," Auer v. Robbins, ---

U.S. ----, ----, 117 S.Ct. 905, 911, 137 L.Ed.2d 79 (1997) (internal quotation marks omitted)).

The Secretary advances several arguments on appeal in support of the request that her

decision to disallow University's bad debt reimbursement claim for the 1986 fiscal year be upheld:

(1) because the plain language of the applicable regulations and PRM provisions prohibit dissimilar

treatment of Medicare and non-Medicare outstanding accounts, and the intermediary only learned

of University's bad debt collection practices after a full audit in 1989, the Secretary's disallowance

of the 1986 reimbursement claim was fair, consistent with the regulations, and did not constitute

retroactive, unfair rule-making; (2) the legislative moratorium on disallowance of Medicare bad

debts was not triggered under the facts of this case; and (3) the record does not adequately support

University's contention that its bad debt collection practices were justified by sound business

judgment.1 University responds that the Secretary's decision is arbitrary, capricious, and in conflict

with both Medicare policy and OBRA. We address each of these arguments in turn.

A. Fairness of Secretary's Decision

University submits, in essence, that the Secretary's decision in this case is unfair. This

argument consists of three facets: (1) the Secretary's decision is based on an unreasonable

1
Although the Secretary also takes issue with the district court's analysis with respect to
equitable estoppel, University does not squarely present this argument in its brief and appears to
not rely on it as a basis for affirming the district court's judgment. We note, in addition, that
equitable estoppel against the government does not serve as an appropriate legal theory on which
to base reversal of the Secretary's decision in this case. We therefore deem this argument to be
abandoned and, more importantly, without merit.

5
interpretation of the governing interpretive rules; (2) the Secretary's retroactive disallowance of the

reimbursement claim constitutes retroactive rulemaking and, thus, is arbitrary and not entitled to

deference; and (3) the decision is not supported by substantial evidence and, if permitted to stand,

would conflict with the policy underlying the applicable Medicare regulation.

We disagree. The administrative guidelines germane to this action are found in PRM §§ 310

and 310.2, outlined above. These rules guide both a provider and intermediary as to what constitutes

reasonable collection efforts, on the one hand, and the point in time at which a debt may be deemed

uncollectible, on the other hand. The only issue in this case is whether University pursued

reasonable collection efforts with respect to its Medicare accounts; this is the subject solely of PRM

§ 310, which unambiguously directs providers to treat similarly uncollected charges of Medicare and

non-Medicare patients. University contends that PRM § 310 read in tandem with PRM § 310.2,

which deems a debt uncollectible if unpaid beyond 120 days after the last activity on an account, is

subject to only one logical interpretation: that is, once a provider has pursued Medicare and

non-Medicare accounts equally for the first 120 days, it then may deem both accounts to be

uncollectible and refer only non-Medicare accounts to a collection agency.2 Under the Secretary's

reading of the two relevant provisions, however, PRM § 310 requires similar treatment of all patient

accounts of comparable size regardless of the point in time at which the collection effort is

measured. PRM § 310.2 does not come into effect unless the provider has complied with PRM §
310 in treating identically all Medicare and non-Medicare accounts and has ceased collection efforts

with regard to all accounts after 120 days.

2
University further suggests that a provider may engage in this debt collection practice if the
decision to do so is supported by sound business reasons. In adding this requirement, University
appears to concede that its practice of treating uncollected Medicare and non-Medicare accounts
dissimilarly, in the absence of a financial justification, see 42 C.F.R. § 413.80(e)(4), does not
comply with PRM § 310. Assuming that a showing of sound business judgment may, in certain
circumstances, justify non-compliance with the rule at issue but does not alter our reading of that
rule. At any rate, the Secretary determined that University had failed adequately to demonstrate
that its practice was supported by sound business judgment. We discuss this aspect of the
Secretary's decision in greater detail below.

6
 We find the Secretary's interpretation of PRM §§ 310 and 310.2 to be entirely plausible and

consistent with the regulation's directive that a provider expend reasonable collection efforts before

claiming and receiving reimbursement from the Medicare program for uncollected charges. The

undisputed purpose of this requirement is to ensure that a provider treat similarly those accounts for

which the provider has no guarantor as those for which the government acts as guarantor.

Compliance with this policy presumably prevents Medicare from being used as a payor for unpaid

bills that might yet be paid by the responsible party. We cannot conclude that the Secretary's

interpretation of the PRM guidelines drafted pursuant to the "reasonable collection effort" regulation

is arbitrary, plainly erroneous, or inconsistent with Medicare policy. We therefore are bound to give

controlling weight to the Secretary's interpretation of the governing regulation and accompanying

guidelines. See Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 2386, 129

L.Ed.2d 405 (1994).

We similarly are unpersuaded by University's suggestion that, because the intermediary

previously had allowed University's claims for reimbursement, the Secretary's subsequent

disallowance of the claim constitutes unfair, retroactive rulemaking. It is undisputed that the PRM

guidelines relevant to this case were available to University prior to the 1986 fiscal year. It also is

undisputed that Blue Cross first discovered University's bad debt collection practices and its

concomitant non-compliance with PRM § 310 in its 1989 full audit of the 1986 cost year; there is
no allegation or indication that Blue Cross had been supplied with the necessary information to

discover University's practices prior to the audit. The intermediary thus discovered new, material

information previously unavailable to it that informed its decision to disallow certain claims not in

conformity with governing Medicare rules and policies. University fails to demonstrate how this

decision constitutes a substantive change or a different application of the Secretary's policy

7
prohibiting dissimilar treatment of Medicare and non-Medicare accounts as embodied in PRM §

310.3
Finally, we note briefly that the Secretary's decision not to credit University's business

reasons as justifying non-compliance with the similar-treatment policy with respect to Medicare and

non-Medicare accounts is supported by substantial evidence. In support of its business-related

justification, the Secretary found that University relied principally on "(1) historical evidence

showing that the Provider was more successful in collecting amounts due from Medicare accounts

than from non-Medicare accounts; and (2) a generalized perception that the Medicare patients

would likely either pay their deductible and coinsurance obligations during the initial 120-day

collection period or would not be inclined or able to pay." R2-11 (footnote omitted). In addition,

the Secretary considered evidence submitted by University indicating that costs with respect to

collection efforts increased in the 1989-1991 fiscal years, during which University referred both

Medicare and non-Medicare accounts to its collection agency. Significantly, the Secretary

determined that, although University had provided some financial rationale for its decision to treat

3
In support of the proposition that its 1986 bad debt collection efforts were reasonable,
University points to a memorandum issued in 1990 by the Health Care Financing Administration
clarifying PRM § 310.2 in light of the OBRA moratorium. The memorandum states, in relevant
part:

We believe that an intermediary could reasonably have interpreted the title of
section 310.2, Presumption of Noncollectibility, to provide that an uncollectible
account could be presumed to be a bad debt if the provider has made a reasonable
and customary attempt to collect the bill for at least 120 days even though the
claim has been referred to a collection agency. Such an interpretation is
reasonable unless it is apparent that the debt is not a bad debt, for example,
because the beneficiary is currently making payments on account, or has currently
promised to pay the debt.

University contends that this passage ratifies University's interpretation of the applicable
guidelines and confirms that the language of the PRM is ambiguous. However, as noted
by the Secretary, the clarifying memorandum refers expressly to PRM § 310.2, which is
not at issue in this case. The memorandum also explicitly emphasizes that,
notwithstanding any possible confusion with regard to PRM § 310.2, "the bad debt policy
is otherwise unaffected by the above discussion." Contrary to University's position, we
do not find that the above-memorandum shows either that the Secretary has acted
arbitrarily here or that the provider is not necessarily required to treat similarly Medicare
and non-Medicare accounts.

8
dissimilarly Medicare and non-Medicare accounts after 120 days, its stated reasons were largely

speculative, inconclusive, and inconsistent.

We need not express a view as to whether we agree or disagree with the Secretary's

determination. Our review of the record reveals that the Secretary's conclusion that University failed

adequately to show that it had engaged in reasonable collection efforts based on sound business

judgment is supported by substantial evidence. See Bama Tomato Co. v. U.S. Dept. of Agric., 112

F.3d 1542, 1546 (11th Cir.1997) ("Substantial evidence means "such relevant evidence as a

reasonable mind might accept as adequate to support a conclusion.' ") (quoting Consolidated Edison

Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 217, 83 L.Ed. 126 (1938)). Although University

submitted evidence of some increased costs in the 1989-1991 fiscal years, it did not conclusively

demonstrate that these increased costs would have been incurred in 1986 if Medicare accounts had

been referred along with non-Medicare accounts. Moreover, the Secretary noted but dismissed as

speculative University's assertion that, based on its experience in the community, pursuit of

Medicare patients who had not paid their accounts after 120 days was not likely to result in further

recovery; we cannot say that the Secretary's conclusion in this regard is insupportable.4 In sum, we

find that the Secretary's determination that University had failed adequately to support its dissimilar

4
At oral argument, University argued that two former PRRB decisions, St. Francis Hosp. and
Med. Ctr. v. Blue Cross and Blue Shield Ass'n/Kansas Hosp. Ass'n, PRRB Decision No. 86-D21
(Nov. 12, 1985), and Reed City Hosp. v. Blue Cross and Blue Shield Ass'n, (Feb. 20, 1986), in
which the PRRB found that sound business judgment justified dissimilar treatment of Medicare
and non-Medicare bad debt claims, constitute the Secretary's expression of policy and, thus,
mandate that the Secretary reach the same determination with respect to the facts of this case.
Although it is true that, given the facts and records presented in connection with St. Francis
Hospital and Reed City Hospital, the Secretary found that the providers had engaged in
reasonable business practices notwithstanding their dissimilar treatment of Medicare and
non-Medicare accounts, these decisions constitute specific applications of the relevant
regulations and guidelines and, therefore, do not dictate a given result in light of the specific
circumstances presented here. Stated differently, the records in St. Francis Hospital and Reed
City Hospital apparently supported the providers' contentions that sound business judgment
justified their respective treatment of Medicare accounts; in this case, the Secretary found that
the record and hearing testimony were inadequate to support the same claim. Because we cannot
say the Secretary's decision is inconsistent with the weight of the administrative record in
connection with this case, any further inquiry regarding University's sound-business-judgment
justification necessarily must end.

9
treatment of Medicare and non-Medicare accounts is supported by the record and, therefore, must

be affirmed on that basis.

B. Effect of Legislative Moratorium (OBRA)

As an alternative basis on which to grant summary judgment in favor of University, the

district court found that the legislative moratorium embodied in OBRA of 1987, as amended, barred

the Secretary's retroactive disallowance of Medicare bad debt reimbursement for fiscal year 1986.

As previously noted, the moratorium prohibits the Secretary from imposing new or different bad

debt criteria on a provider after August 1, 1987, if the intermediary had "accepted" the provider's

policies before that date in accordance with the rules then in effect. The district court reasoned that

Blue Cross's previous allowance of University's bad debt claims constituted acceptance of

University's bad debt criteria. The court further determined that, because University's bad debt

collection practices were reasonable and consistent with PRM §§ 310 and 310.2, they were in

accordance with the rules in effect prior to the moratorium.

University essentially reiterates on appeal the district court's discussion and adds that the

Secretary's retroactive disallowance would constitute an application of either a new rule or a more

stringent version of the rule known to the provider prior to OBRA's enactment. University again

suggests that the Secretary's reading of PRM § 310 is strained and gives rise to a substantive

retroactive modification of Medicare policy that OBRA was intended to prevent.
The Secretary argues that OBRA is not triggered under the facts of this case. The Secretary

suggests that the intermediary's previous allowance of University's bad debt claim cannot be

construed as acceptance pursuant to OBRA because (1) acceptance must be express and based on

full, accurate information, unavailable to Blue Cross in this instance until after a full audit; (2) even

if the intermediary's allowance of a claim is deemed to be equivalent to tacit acceptance by the

Secretary, the intermediary's approval of a provider's bad debt collection practice is ineffective if

the practice later is found to be inconsistent with Medicare policy and rules; and (3) the moratorium

prohibits the Secretary from requiring a provider to change its bad debt policy (assuming a fiscal

10
intermediary previously has accepted such policy) with respect to referral of claims to an external

collection agency; the collection agency used by University was in-house and, therefore, not within

the scope of OBRA.

Two circuits courts to have addressed the effect of OBRA on retroactive disallowance of

Medicare bad debt claims have reached somewhat conflicting (though not necessarily contrary)

results. Harris County Hospital District v. Shalala, 64 F.3d 220 (5th Cir.1995), relied on by

University, involved the Secretary's decision retroactively to disallow a hospital's Medicare bad debt

claim based on the hospital's alleged non-compliance with regulations outlining the method of

determining whether a patient is indigent. The Fifth Circuit held that, although OBRA does not

explicitly define the term "acceptance," an intermediary's previous repayment of a provider's claim

for Medicare reimbursement of bad debt following an investigation and audit constitutes

"acceptance" for purposes of triggering the moratorium. Id. at 222. Because the acceptance

occurred prior to August 1, 1987, OBRA barred the Secretary from later disallowing an earlier claim

for reimbursement. See id.

Hennepin County Medical Center v. Shalala, 81 F.3d 743 (8th Cir.1996), concerned the

Secretary's decision to reopen and re-audit its recommendation for reimbursement for a previous

fiscal year based on new information indicating that the hospital had not engaged in equally vigorous

collection efforts with respect to Medicare and non-Medicare accounts prior to the 120-day mark.
The Eighth Circuit observed that, because "[a] notice of program reimbursement and the

reimbursement that flows from it, are the only tangible forms of acceptance a provider can expect

from an intermediary," allowance of a bad debt claim by an intermediary could, in the majority of

cases, function as a form of acceptance of the provider's bad debt practices. Id. at 749. The court

further held, however, that

[a] reimbursement notice will not always be equivalent to an acceptance.... Congress
enacted the moratorium with the intention of preserving the bad debt reimbursement rules
and regulations as they existed prior to August 1, 1987....

11
 If issuance of a notice of program reimbursement were invariably an acceptance ....
the reopening regulation and others issued before August 1, 1987 would be superfluous.
This would frustrate the intent of Congress that existing regulations be enforced.

Id. The court also interpreted OBRA's requirement that acceptance be "in accordance with the rules

in effect as of August 1, 1987" to mean that, for acceptance to trigger the terms of the moratorium,

the provider's bad debt collection practices must have been consistent with Medicare rules existing

in 1987:

In passing the moratorium, Congress was motivated to prevent unexpected consequences to
providers from the inspector general's proposed changes in the criteria for bad debt
reimbursement. Permitting correction of errors made by intermediaries in the application
of rules existing on August 1, 1987 is consistent with that policy. It appears Congress
merely sought to freeze a moment in time, forbidding the Secretary to change the criteria
after that date, but allowing full enforcement of the policies before it

....

We conclude on this analysis that Congress intended the moratorium to apply only
where a provider was in compliance with rules existing on August 1, 1987, as embodied in
the regulations, the PRM, and PRRB decisions.

Id. at 751.

We find the reasoning advanced by the Eighth Circuit in Hennepin to be persuasive and,

therefore, adopt it in light of the facts of this case.5 As noted by that court, in the vast majority of

cases, an intermediary's allowance of a claim remains unchallenged and undisturbed; it therefore

serves as the functional equivalent of acceptance of the provider's claim in those cases. Where the

intermediary conducts a full audit and discovers new, previously unavailable information indicating
that the provider's practices were not consistent with Medicare rules and guidelines in existence

prior to August 1, 1987, however, the moratorium is not triggered and retroactive disallowance may

be appropriate. We also reject University's restatement of the proposition that the Secretary's

5
Significantly, the Hennepin court noted that its decision might not be directly contrary to that
reached by the Fifth Circuit in Harris. See Hennepin, 81 F.3d at 750 n. 4. In Harris, the
intermediary already had conducted an audit before allowing the provider's bad debt claim. The
decision does not indicate whether the audit specifically targeted the provider's Medicare bad
debt collection practices, nor is there any suggestion that new, material evidence had been made
available to the intermediary subsequent to its allowance. Harris, therefore, is factually
distinguishable from both Hennepin and the instant case.

12
disallowance of its Medicare bad debt claim constitutes either a new substantive rule or a stiffer

application of a pre-existing rule; as discussed previously, we do not view the Secretary's

application of PRM § 310 in this instance to be tantamount to rulemaking, nor is it an unfair,

inconsistent application of a policy not previously known to providers. We conclude that the

Secretary's disallowance of University's Medicare bad debt claim for the 1986 fiscal year is not

barred by the OBRA moratorium.

III. CONCLUSION

In this appeal, the Secretary asks that we affirm the decision to disallow retroactively

University's Medicare bad debt claim for the cost year 1986. The Secretary bases this retroactive

disallowance on evidence acquired by the fiscal intermediary in connection with a 1989 full audit

of University's Medicare bad debt collection practices indicating that University had failed to engage

in reasonable collection efforts of unpaid Medicare accounts. More specifically, it is undisputed

that, during the audit, the intermediary discovered that University had not treated similarly Medicare

and non-Medicare accounts that remained outstanding following a 120-day billing cycle. University

contends that the Secretary's disallowance constitutes unfair, retroactive rulemaking and is barred

by the OBRA moratorium of 1987. We conclude that the Secretary's decision is (1) neither arbitrary

nor inconsistent with the governing Medicare policies, rules, and guidelines; (2) supported by

substantial evidence adduced in the administrative record; and (3) not barred by the legislative
moratorium embodied in OBRA of 1987. Accordingly, we REVERSE the district court's order and

REMAND with instructions to enter judgment in favor of the Secretary.

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