Harris County Hospital District v. Shalala

United States Court of Appeals,

Fifth Circuit.

No. 94-20822.

HARRIS COUNTY HOSPITAL DISTRICT, Plaintiff-Appellee,

v.

Donna E. SHALALA, Secretary of Health, and Human Services,
Defendant-Appellant.

Sept. 19, 1995.

Appeal from the United States District Court for the Southern
District of Texas.

Before WISDOM, DUHÉ, and BARKSDALE, Circuit Judges.

WISDOM, Circuit Judge:

The defendant/appellant, the Department of Health and Human

Services, seeks review of the district court's decision that its

disallowance of the Harris County Hospital District's bad debt

claim is contrary to the law. We AFFIRM the decision of the

district court.

I.

Harris County Hospital District (Hospital),

plaintiff/appellee, supplies Medicare services to patients in the

Houston area and is, therefore, a provider under the Medicare Act.

As a provider, the Hospital is entitled to reimbursement for

certain expenses from the Department of Health and Human Services

(HHS). Blue Cross/Blue Shield of Texas (BCBS) acts as an

intermediary between the Hospital and the HHS and audits the

Hospital's requests for reimbursements.

In 1989, BCBS disallowed the Hospital's claim for

reimbursement of "bad debts," or uncollected copayments, in the
amount of $1,168,022 for the fiscal year of 1988. This

disallowance was based on a determination by BCBS that the Hospital

had not complied with all of the requirements of Medicare in

properly verifying the indigency of patients who were not held

responsible for regular Medicare copayments. Specifically, the

BCBS concluded that the Hospital failed to consider assets in

determining indigency as required by § 312 of the Provider

Reimbursement Manual. Currently, the appellant also contends that

the Hospital failed to verify patients' statements of income and

failed to reevaluate patients in a timely fashion.

The Hospital appealed to the Provider Reimbursement Board

(PRRB), arguing that BCBS had previously accepted its policies on

establishing patient indigency and any attempt to impose a

different policy would violate the Omnibus Budget Reconciliation

Act of 1989 (OBRA). The PRRB reversed the decision of BCBS and

held in favor of the Hospital. This decision was reversed by the

Health Care Financing Administration (HCFA), which manages Medicare

and, therefore, represented the final decision of the Secretary of

HHS. The Hospital then sought review of the decision of the HHS in

the United States District Court for the Southern District of

Texas. The district court reversed the decision of the HHS and

held in favor of the Hospital. The HHS currently appeals that

decision.

II.

A. Standard of review

Our review of the decision of the Secretary is limited by the
Administrative Procedure Act.1 On review, "[t]he district court,

and this court, ... may overturn the Secretary's decision only if

it is arbitrary, capricious, an abuse of discretion, not in

accordance with the law, or unsupported by substantial evidence on

the record taken as a whole".2 In addition, this Court must defer

to the Secretary's interpretation of Medicare legislation and its

attendant regulations. The Secretary's interpretation of Medicare

regulations is given "controlling weight unless it is plainly

erroneous or inconsistent with the regulation".3 And if, as here,

a statute is involved and its meaning is unambiguous, this Court

must give effect to the intent of Congress.4

B. The Hospital's reimbursement claim

The district court reversed the decision of the Secretary

because it determined that the OBRA prohibited the Secretary's

disallowance of the Hospital's reimbursement claim for bad debts.

In addition, the district court concluded that the Hospital had

complied with all Medicare regulations and, therefore, there was no

basis upon which to disallow the Hospital's reimbursement claim.

On appeal, the Secretary challenges both of these conclusions.

The Secretary argues that BCBS's disallowance of the

1
5 U.S.C. § 706 et seq.
2
Brackenridge Hospital v. Heckler, 753 F.2d 1307, 1313 (5th
Cir.1985) (quoting Sun Towers, Inc. v. Schweiker, 694 F.2d 1036
(5th Cir.1983)).
3
Sta-Home Home Health Agency, Inc. v. Shalala, 34 F.3d 305,
308 (5th Cir.1994) (quoting Thomas Jefferson University v.
Shalala, --- U.S. ----, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994)).
4
Chevron U.S.A., Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837, 842, 104 S.Ct. 2778, 2781, 81 L.Ed.2d 694
(1984).
Hospital's reimbursement claim does not violate the OBRA. The OBRA

provides, in pertinent part:

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 indigence determination procedures, record
keeping, and determining whether to refer such 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.

Based on this statute, the Hospital argues, and the district court

agreed, that the Secretary's disallowance of the hospital's claim

was "not in accordance with the law".5

On appeal, the Secretary argues that BCBS never formally

accepted the Hospital's policy on determining indigency. Without

formal acceptance, the Secretary argues, OBRA does not apply. In

response, the Hospital argues that BCBS did accept its policy by

reimbursing the Hospital for bad debts incurred in previous years

while the current policy was in place. Specifically, the Hospital

was reimbursed for $1,109,843 in bad debts for 1985 and $2,909,973

in bad debts for 1986. Each year before reimbursement, the BCBS

completed a detailed audit of the reimbursable expenses filed by

the Hospital. In addition, the Hospital points out that there is

no method of formal acceptance provided by Medicare legislation or

regulations. The Hospital insists that BCBS accepted the

Hospital's policy when it agreed to reimburse bad debt expenses in

previous years.

A similar argument was discussed by the United States District

Court for the District of Minnesota in Hennepin County Medical

5
Administrative Procedure Act, 5 U.S.C. § 706.
Center v. Shalala.6 In Hennepin, a hospital sought judicial review

of the Secretary's decision to disallow the hospital's

reimbursement claim for bad debts. The hospital argued that the

Secretary's action, in the light of the intermediary's previous

acceptance of the hospital's policies on establishing indigency,

violated the OBRA.7 The Hennepin court held that when the

intermediary audited the hospital's reimbursement claims and then

repaid the hospital for unpaid copayments, the intermediary

accepted the hospital's policies within the meaning of the OBRA.8

The court stated that "[t]o suggest that the approval of bad debt

policies and procedures by the Intermediary and reimbursement of

costs incurred in accordance with those policies did not constitute

acceptance of those policies is to reject the clear meaning of the

words of the statute in favor of a more strained construction".9

We agree. The Hennepin court's conclusion is based on a fair

reading of the statute. The OBRA's prohibition against forcing a

change in hospital policy is triggered by the intermediary's

acceptance of the hospital's existing policies before August 1,

1987. The term "acceptance" is not defined and the statute

includes no specific requirements for acceptance. We hold that

BCBS's previous repayment of the Hospital's claim for reimbursement

of bad debts after an investigation and audit constitutes

acceptance under the OBRA. Since this acceptance occurred before

6
1993 WL 546591 (D.Minn.).
7
Id. at *3.
8
Id.
9
Id.
August 1, 1987, the Secretary cannot now attempt to force the

Hospital to change its policies by disallowing its claim for

reimbursement. Thus, the district court correctly determined that

the Secretary's action was contrary to law because it violated the

OBRA. We need not address the issue of whether the Hospital

complied with all Medicare regulation because violation of the OBRA

provides a sufficient basis for affirming the district court's

judgment in favor of the Hospital.10

III.

We AFFIRM the decision of the district court because we agree

that the Secretary's action violated the OBRA.

10
The Secretary also argues that even if BCBS accepted the
Hospital's policies, that acceptance cannot excuse violations of
the applicable guidelines and regulations. That interpretation
of the OBRA, however, is inconsistent with its language. The
clear intent of Congress was to prevent the HHS from forcing
hospital-providers to change their policies regarding indigency
determinations by withholding reimbursement for bad debts.