MAINE MEDICAL CENTER v. SEBELIUS

Filing 23

ORDER denying 13 Motion for Judgment on the Administrative Record; granting 14 Cross-Motion for Judgment on the Administrative Record. By JUDGE JOHN A. WOODCOCK, JR. (MFS)

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
MAINE MEDICAL CENTER,
Plaintiff,
v.
KATHLEEN SEBELIUS,
Secretary of the U.S. Department of
Health and Human Services,
Defendant.

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2:13-cv-00118-JAW

ORDER ON MOTION AND CROSS-MOTION FOR JUDGMENT ON
ADMINISTRATIVE RECORD
In this motion and cross-motion for judgment on the administrative record,
Maine Medical Center challenges the final decision of Kathleen Sebelius, Secretary
of the United States Department of Health and Human Services, in which she
concluded that the hospital was not entitled to reimbursement under the Medicare
program for certain claims because it had failed to produce required documentation.
The Court concludes that Secretary Sebelius’ decision was supported by substantial
evidence and was not arbitrary, capricious, an abuse of discretion, or otherwise
unsupported by the law. It therefore denies Maine Medical Center’s motion and
grants the Secretary’s cross-motion.
I.

STATEMENT OF FACTS
A.

Procedural History

On April 2, 2013, Maine Medical Center (MMC) filed a complaint, seeking
reversal of the administrative decision of Kathleen Sebelius, Secretary of the United

States Department of Health and Human Services (the Secretary). Compl. at 1
(ECF No. 1). The Secretary’s decision denied MMC Medicare reimbursement for
certain “bad debts” arising from unpaid Medicare coinsurance and deductible
amounts of patients eligible for both Medicare and Medicaid. See Admin. R. at 2-21
(“Decision of the Administrator”) (ECF No. 7). The Secretary reasoned that MMC
failed to comply with her “must-bill” policy. Id.
The Secretary answered on June 6, 2013, generally responding that the
administrative decision should be affirmed because it is supported by substantial
evidence and is not arbitrary and capricious, based on an abuse of discretion, or
otherwise contrary to the law. Answer at 4 (ECF No. 9). On August 23, 2013, MMC
moved for judgment on the administrative record, seeking reversal of the
Secretary’s decision. Mot. for J. on Admin. R. with Incorporated Mem. of Law (ECF
No. 13) (Pl.’s Mot.). On September 9, 2013, the Secretary responded and also moved
for judgment on the administrative record, asserting that her decision should be
affirmed. Def.’s Mot. and Incorporated Mem. for J. on the Admin. R. and in Opp’n to
Pl.’s Mot. for J. on the Admin. R. (ECF No. 14) (Def.’s Opp’n). MMC replied to the
Secretary’s opposition and cross-motion on October 4, 2013. Pl.’s Reply to Def.’s
Mot. and Incorporated Mem. for J. on the Admin. R. (ECF No. 16) (Pl.’s Reply). The
Secretary replied on October 30, 2013.1 Def.’s Reply Br. (ECF No. 21) (Def.’s Reply).

On October 17, 2013, the Secretary requested a 14-day extension to file its reply, based on
the federal government shutdown in early October, which prohibited certain Department of Health
and Human Services attorneys and other employees from working during the shutdown. Consent
Mot. and Incorporated Memo for a 14-day Extension of Time to Reply (ECF No. 19). The Magistrate
1

2

B.

Statutory and Regulatory Framework

Enacted in 1965, the Medicare statute establishes a national program of
health insurance for the aged and disabled by funding the costs of covered medical
care on behalf of eligible individuals.

See 42 U.S.C. §§ 1395—1395kkk-1.

The

statute sets out that “[t]he Secretary shall prescribe such regulations as may be
necessary to carry out the administration” of Medicare.” 42 U.S.C. 1395hh(a)(1).
Pursuant to the Secretary’s delegation, the Administrator of the Centers for
Medicare & Medicaid Services (CMS)—a sub-agency within DHHS—carries out
these responsibilities and administers the Medicare program. Central Maine Med.
Ctr. v. Leavitt, 552 F. Supp. 2d 50, 53 (D. Me. 2008); United States v. White, 492
F.3d 380, 387 (6th Cir. 2007).
When treating a Medicare beneficiary, a participating provider generally
collects coinsurance and/or deductible payments from the patient and then seeks
reimbursement of its remaining costs through Medicare by filing an annual cost
report.

See Grossmont Hosp. Corp. v. Sebelius, 903 F. Supp. 2d 38, 43 (D.D.C.

2012).

Providers file these annual reports with private insurance companies,

referred to as fiscal intermediaries, whom CMS has tasked with performing various
administrative functions under Medicare, including “[d]etermining the amount of
payments to be made to providers for covered services furnished to Medicare
beneficiaries.”

42 C.F.R. § 421.100(a)(1); see 42 U.S.C. § 1395h(a).

The

intermediary reviews the annual report and performs audits if necessary,
Judge granted the motion on October 18, 2013, extending the reply deadline to October 31, 2013.
Order (ECF No. 20).

3

determines the total amount of Medicare reimbursement due to providers, and
issues a Notice of Program Reimbursement which sets forth the amount of
allowable Medicare payments. See 42 U.S.C. § 1395kk-1; 42 C.F.R. § 405.1803(a).
A

provider

dissatisfied

with

the

intermediary’s

determination

of

total

reimbursement may file an appeal with the Provider Reimbursement Review Board
(Board). 42 U.S.C. § 1395oo(a). If the amount in controversy exceeds $10,000, the
provider is entitled to a hearing before the Board. Id. § 1395oo(a)(2). The Board’s
decision must be based on “substantial evidence when the record is viewed as a
whole” and the Board has the “power to affirm, modify, or reverse a final
determination of the fiscal intermediary.” Id. § 1395oo(d). The Board’s decision is
final unless the Secretary reverses, affirms, or modifies the decision within 60 days.
Id. § 1395oo(f)(1). The statute grants the provider the right to judicial review of the
Secretary’s decision. Id.
The Medicaid statute, 42 U.S.C. §§ 1396—1396w-5, establishes a cooperative
federal-state program that finances medical care for certain categories of lowincome persons.

Under Medicaid, the federal government provides financial

support that assists each state in operating a state-administered program.

42

U.S.C. §§ 1396b. Under these programs, the state pays for health care services
according to the particular specifications of its plan (although CMS must approve a
state’s plan before it qualifies for federal assistance) regarding matters such as
financial eligibility, types of services covered, and payment amounts. See id. §§
1396b, 1396d. MaineCare is the Medicaid plan run by the state of Maine.

4

Where a person qualifies for both Medicare and Medicaid (MaineCare)
(principally elderly low-income individuals), federal law sets out who bears financial
responsibility for the medical costs of these so-called dual eligible patients.
Medicare is the primary payer and MaineCare is the secondary payer for “dual
eligibles,” less any applicable Medicare coinsurance or deductibles. Pl.’s Mot. at 4
(citing Ans. ¶ 11-12). Once Medicare has made its payment to the provider, the
claim for any Medicare coinsurance and deductible amounts “crosses over” and
becomes the responsibility of MaineCare.

Id. (citing Ans. ¶ 13).

The Medicare statute prohibits cost-shifting, so that costs associated with
covered Medicare services may not be borne by non-Medicare patients or third-party
payers, such as private insurance companies and Medicaid.
1395x(v)(1)(A)(i).

42 U.S.C. §

To effect this statutory policy, the Secretary promulgated a

regulation, 42 C.F.R. § 413.89(e),2 allowing providers to add the unpaid deductible
and coinsurance amounts of its Medicare patients—so-called “bad debts”—to its
allowable Medicare costs, but only when certain conditions are met:
(1)
(2)
(3)
(4)

The debt must be related to covered services and derived from
deductible and coinsurance amounts.
The provider must be able to establish that reasonable collection
efforts were made.
The debt was actually uncollectible when claimed as worthless.
Sound business judgment established that there was no
likelihood of recovery at any time in the future.

Id.; see Def.’s Opp’n Attach 1 Chapter 3: Bad Debts, Charity, and Courtesy
Allowances at 4 (“Criteria for Allowable Bad Debt”) (ECF No. 14) (PRM).
This regulation was redesignated without substantive change in 2004. Before the change, it
was designated at 42 C.F.R. § 413.80 (2003).
2

5

CMS produces a Provider Reimbursement Manual (PRM), which provides
additional guidance on the Secretary’s interpretation and application of the
regulations it has promulgated. See Shalala v. Guernsey Mem. Hosp., 514 U.S. 87,
99 (1995). Chapter 3 of the PRM addresses circumstances under which Medicare
will reimburse “bad debts” under 42 C.F.R. § 413.89(e). PRM at 1-8. Section 310 of
the PRM expands on “reasonable collection efforts,” explaining 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.” Id. at 4-5. Section 310 also instructs that these efforts “must involve the
issuance of a bill . . . to the party responsible for the patient’s personal financial
obligations.” Id. at 4. However, a dual eligible patient can be deemed “indigent,” in
which case a presumption of uncollectibility may apply where the provider would
not have to comply with Section 310 procedures. Id. at 5-6 (§ 312). If a Medicare
patient has not been deemed indigent due to his or her Medicaid eligibility, Section
312 states that a determination of indigency may also be made using the
“customary methods for determining the indigence of patients.”

Id. at 6.

This

alternative method includes the following instruction: “The provider must
determine that no source other than the patient would be legally responsible for the
patient’s medical bill.” Id. at 7.
Section 312 does not directly discuss the financial obligation of state
Medicaid programs for the deductible and coinsurance payments of indigent
patients. It does, however, instruct that once indigency has been determined, “the

6

debt may be deemed uncollectible without applying the § 310 procedures. (See §
322 for bad debts under State Welfare Programs.)”

Id.

Section 322 expressly

addresses the financial obligation of a state Medicaid program in such situations.
Id. at 7-8 (§ 322). “Where the state is obligated either by statute or under the terms
of its plan to pay all, or any part of, the Medicare deductible or coinsurance
amounts, those amounts are not allowable as bad debts under Medicare.” Id. By
contrast, “[a]ny 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.”3 Id. at 8.
On August 10, 2004, CMS issued Joint Signature Memorandum 370 (JSM370), which addresses its policy regarding Medicare reimbursement of dual
eligibles’ bad debts. JSM-370 notes that language had been added to the cost report
questionnaire section of the PRM in 1995 that “allowed providers to show other
documentation in lieu of billing the states,” but in 2003, the Ninth Circuit found the
language to be unenforceable. Admin. R. at 597 (citing Cmty. Hosp. of Monterey
Peninsula v. Thompson, 323 F.3d 782, 798 (9th Cir. 2003) (holding the language
added in 1995 was “inconsistent with the Secretary’s must-bill policy”) (Monterey)).
JSM-370 states that the Secretary had, in response, “changed the language . . . to
revert back to pre-1995 language, which requires providers to bill the individual
states for dual-eligibles’ co-pays and deductibles before claiming Medicare bad
Analogous to this provision, Section 322 also addresses the situation where a state Medicaid
program has an applicable payment ceiling, in which case the “amount that the State does not pay
[because of the ‘ceiling’] that remains unpaid by the patient[] can be included as a bad debt under
Medicare, provided that the requirements of § 312 are met.” PRM at 9.
3

7

debt.” Id. at 598. JSM-370 thus serves to rearticulate the Secretary’s “must-bill”
policy:
In order to fulfill the requirement that a provider make a “reasonable”
collection effort with respect to the deductibles and co-insurance
amounts owed by dual-eligible patients, our bad debt policy requires
the provider to bill the patient or entity legally responsible for the
patient’s bill before the provider can be reimbursed for uncollectible
amounts.
…
[I]n those instances where the state owes none or only a portion of the
dual-eligible patient’s deductible or co-pay, the unpaid liability for the
bad debt is not reimbursable to the provider by Medicare until the
provider bills the State, and the State refuses payment (with a State
Remittance advice).
Id. at 597.
C.

Factual Background

MMC is a non-profit, duly licensed acute care hospital with a principal place
of business in Portland, Maine. Compl. ¶ 1. It provides medical services to both
Medicare and MaineCare beneficiaries, including dual eligible patients. Compl. ¶ 2.
At the time relevant to this dispute, MaineCare and Medicare had a Trading
Partner Agreement, which addressed the coordination of benefits for crossover
patients.

Admin. R. at 174.4

MaineCare provided certain patient eligibility

information to Medicare, which allowed Medicare to identify and report crossover
patients to MaineCare. Id. During fiscal years 2002 and 2003, MMC submitted its
crossover claims—claiming “bad debts” for uncollected coinsurance and deductible
amounts related to the care of dual eligibles—to MaineCare on a weekly basis,
The parties filed the administrative record with the Court. Admin. R. (ECF No. 7). The
administrative record reveals that during the administrative proceeding, the parties stipulated to
this and other facts. Id. at 172-75. The Court has accepted these stipulations.
4

8

pursuant to the Trading Partner Agreement between Medicare and MaineCare. Id.
at 13, 174.
Prior to July 1, 1999, MaineCare paid providers some or all of the
coinsurance and deductible amounts associated with dual eligible patients. Admin.
R. at 173. For dates of service on or after July 1, 1999, however, the MaineCare
Benefits Manual states that MaineCare had eliminated all payments for crossover
claims. Id. at 173, 1562. According to MMC, MaineCare would “[g]enerally . . .
process the crossover claims [submitted by MMC] and issue remittance advices to
the Plaintiff showing a zero payment.” Pl.’s Mot. at 5 (citing Admin. R. at 132,
2344-45).

But, in November of 2001 “an anomaly of unknown origin occurred

wherein a large number of Medicare crossover claims from [MMC] which were
apparently sent to MaineCare by the [intermediary] were never processed by
MaineCare.”

Admin. R. at 174.

Due to this problem with the state’s claims-

processing system, MaineCare remittance advices (RAs) for these crossover claims
were never issued and MaineCare still cannot identify and process such claims. Id.
at 173-74.

After MaineCare failed to produce the claims, MMC worked with

Medicaid eligibility data held by the Muskie Institute5 to provide alternative
documentation in support of the crossover bad debt claims. Admin. R. at 53, 13537. On July 25, 2005, MMC was notified that the intermediary would not accept
the submission of crossover bad debts claims not supported by a MaineCare

The Muskie Institute is a quasi-state agency that assists MaineCare with certain functions
and has MaineCare eligibility data. Admin. R. at 128.
5

9

remittance advice—claims totaling $1,114,091 for fiscal year 2002 and $1,744,992
for fiscal year 2003. Admin. R. at 172-73.
The parties vigorously dispute whether MaineCare would have or could have
lawfully denied all reimbursement for crossover claims during the fiscal years in
question. See, e.g., Pl.’s Reply at 5 (“[T]here is no uncertainty here. MaineCare’s
duly enacted regulation was clear that no payment was allowed, and . . . this was
exactly how MaineCare implemented the regulation”); Def.’s Reply at 2-3
(“Plaintiff’s failure to address the issue of the State’s payment responsibility thus
reveals a fundamental flaw in its position: the hospital contends that the Federal
Medicare program should be required to pay for the total amount of its crossover
bad debt, even though it is virtually certain that the State was responsible under
Federal law for a significant portion of this debt”). See also discussion infra note 9.
D.

Administrative Proceedings

While MMC maintained that remittance advices were not required “under
the unique circumstances involved in these cases,” the intermediary denied the
claims on the basis that such RAs are required by CMS policy before the unpaid
amounts may be claimed as a bad debt. Admin. R. at 174.
MMC

appealed

to

the

Board,

which

reversed

the

intermediary’s

determination in a decision dated November 29, 2012. Id. at 57-58. The Board first
parsed the language of 42 C.F.R. § 413.89(e) and Chapter 3 of the PRM and found
“that neither the regulation nor the manual sections contained a requirement to bill
the state Medicaid agency.”

Id. at 55.

10

It reasoned that to read the relevant

provisions of the PRM (Sections 310, 311, and 322) “as an absolute bar, regardless
of the collection effort, would conflict with the statute and regulation allowing
payments for Medicare bad debts,” and noted that “the concept of reimbursement
for bad debts . . . is premised on the inability to collect, despite reasonable collection
efforts.” Id. at 56. It next found that JSM-370, which sets forth the must-bill
policy, “is entitled to little weight . . . because a JSM is not to be used to set policy,
nor convey new instructions or clarification of existing requirements to
intermediaries.” Id. Finally, the Board concluded that “the Provider had actively
pursued obtaining the remittance advices, but due to circumstances beyond [its]
control . . . was unable to obtain the advices,” that “the bad debts were actually
uncollectible when [MMC] claimed them as worthless[,] and that sound business
judgment established that there was no likelihood of recovery at any time in the
future.” Id. at 57. On this basis, the Board held that MMC “met the requirements
for a reasonable collection effort related to the dual eligible beneficiaries as required
by 42 C.F.R. §413[.]89 and the manual instructions,” and therefore “[t]he
Intermediary improperly disallowed the bad debts arising from coinsurance and
deductibles for dual eligible Medicare and Medicaid beneficiaries.” Id.
On January 28, 2013, the Secretary reversed the Board’s decision.6 Admin.
R. at 2-21. After reviewing the applicable law and Medicare policy, the Secretary
concluded that “the failure to produce the Medicaid remittance advices represents a

Review of the Board’s decision was conducted by the CMS Administrator; the
Administrator’s decision constituted the final administrative decision of the Secretary. Admin. R. at
2, 21.
6

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failure on the part of the Provider to meet the necessary criteria for Medicare
payment . . . related to these claims and the Intermediary was correct to deny the
crossover bad debt claims.”

Id. at 14, 21.

The Secretary reasoned that upon

“[r]eading the sections [of the PRM] together,” the must-bill requirement was
implied and had “been consistently articulated in the final decisions of the
Secretary addressing this issue, since well before the cost year in this case.” Id. at
14-15.

The Secretary asserted that remittance advices were necessary both to

confirm the validity of bad debt claims and safeguard against duplicative recoveries,
and because it serves as an “essential and required record keeping criteria for
Medicare reimbursement.” Id. at 17. Finally, the Secretary noted that MMC did
not meet the criteria for the “hold harmless” provision of JSM-370, which allows a
provider to obtain reimbursement based on an alternative billing method if the
provider had previously relied on that method—before publication of JSM-370—and
the method had been accepted by the intermediary. Id. at 19.
II.

THE PARTIES’ POSITIONS
A.

MMC’s Motion
1.

Legal Standard

MMC maintains that the “reasonable collection efforts” requirement, as set
out in 42 C.F.R. § 413.89(e) and Chapter 3 of the PRM, need not include production
of a remittance advice. Pl.’s Mot. at 13-15. MMC notes that the PRM “describes
several situations in which a Provider may be presumed to have taken such efforts,
or excused there[]from.” Id. at 13 (noting Section 312’s instruction that the “debt

12

may be deemed uncollectible without applying the § 310 procedures” after indigence
is determined). MMC contends that a second situation is found in Section 322,
“Medicare Bad Debts Under State Welfare Programs,” which states in part:
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 the requirements of § 312 or, if applicable, § 310 are met.
Id. (quoting PRM at 7-8).

Based on these provisions, MMC argues “the plain

language of the PRM does not specifically require a Medicaid remittance advice for
Crossover Bad Debts. Id. at 14.
MMC next notes in November 1995, CMS added language to the PRM that
“allowed providers to show other documentation in lieu of billing the states.”
Admin. R. at 2328; see Pl.’s Mot. at 14. Under then-existing Section 1102.3L, there
was “a process for claiming Crossover Bad Debts in lieu of billing the Medicaid
program,” which required:
1.

Medicaid eligibility at the time services were rendered (via valid
Medicaid eligibility number), and

2.

Non-payment that would have occurred if the crossover claim
had actually been filed with Medicaid.

Pl.’s Mot. at 14 (quoting Admin. R. at 2365). This, according to MMC, demonstrates
that “the Secretary has issued guidance, applicable to FY 2002 and FY 2003, that a
Medicaid remittance advice was not required as documentation for a Medicare
crossover bad debt.” Id. at 14 (emphasis in original). Critically, even though CMS
noted in JSM-370 that the language in Section 1102.3L had been changed and was
in any event unenforceable in light of the must-bill policy, id. at 14 n.5, 27, MMC
argues that the following “hold harmless provision” in the JSM applies to its claim:
13

This memorandum serves as a directive to hold harmless providers
that can demonstrate that they followed the instructions previously
laid out in 1102.3L, for open cost reporting periods beginning prior to
January 1, 2004.
Id. at 27 (quoting Admin. R. at 2329).
2.

Argument

MMC asserts that the Secretary’s decision “exalts form over substance,” id. at
1, 19, 29, and argues that “it satisfied each of the four criteria set for[th] in the plain
language of 42 C.F.R. § 413.8[9](e).” Id. at 15. Focusing heavily on the second
criterion—“reasonable collection efforts”—the Provider insists that its “collections
efforts went beyond reasonable.” Id. at 16. MMC asserts that it made reasonable
attempts to obtain the remittance advices from MaineCare, and when MaineCare
failed to provide the remittance advices as required by the Trading Partner
Agreement, MMC worked with the Muskie Institute to provide alternative
documentation verifying that each patient for whom reimbursement was sought
was in fact a dual eligible.7 Id. In furtherance of its argument that the efforts

7

Ronald Mercier, accounting consultant for MMC, testified before the Board:
[T]he next step that we undertook was to verify Medicaid eligibility because we have
to be certain that Medicaid eligibility is in place for processing and payment on a
Medicare cost report[.] So we utilize the hospital’s records, internal records, which
came from their patient accounting system where every discharge, every patient that
comes into the hospital is in their system and is a Medicaid patient with a Medicare
primary that’s going to show up on their patient accounting system. And so we
access many years of those. But most importantly, we work with the Muskie
Institute and we supply them with the entire Medicare electronic remittance to have
them verify Medicaid eligibility, which is exactly the same process that would be
undertaken had the tapes crossed over like they should have. So this log would be no
different than what would have been produced on a paper remit by Medicaid. All the
Medicare demographics would deduct to one coinsurance, they’d service the patient
ID, the patient name, and most importantly, Medicaid eligibility has been proven
through the Muskie Institute on these logs.

14

taken were reasonable, MMC argues that “[i]t was not required to sue the State of
Maine to receive the remittance advices.” Id. at 17.
MMC also argues that legal action would have been futile in this situation
because MaineCare had eliminated “[p]ayments for crossover claims . . . for dates of
services on or after July 1, 1999.” Id. at 14-15 (quoting Admin. R. at 2332 (Maine
Medicare Assistance Manual, Chapter III, § 45)). The practical impact, according to
MMC, was that “MaineCare denied payment for all acute care hospital crossover
claims beginning July 1, 1999,” so that any hypothetical remittance advice would
have offered zero payment.

Id. at 15 (emphasis in original).

Further, since

MaineCare’s malfunctioning system “was never able to process crossover claims,”
MaineCare could not have complied with a court order compelling the processing of
such claims in any case. Id. at 17. MMC also argues that neither a state nor
federal court has the authority to order MaineCare to process the remittance
advices. Id. at 17-18 (citing Doe v. Gonzaga, 536 U.S. 273 (2002); H.D. Goodall
Hosp. v. Dep’t of Health & Human Servs., 2008 ME 105, ¶¶ 10-12, 951 A.2d 828,
830-31).

In short, MMC argues that “[t]he PRM only requires ‘reasonable’

collection efforts. It does not require a provider to undertake litigation, especially
when – as here – such action would be futile.” Id. at 18.
Next, MMC insists it has met the third and fourth criteria. Reasserting that
if the MaineCare claims processing system had actually worked during the time in
question, “each and every remittance advice would have set forth a zero payment

Admin. R. at 135-36.

15

amount,” it argues that “there is no dispute that the Crossover Bad Debts were
actually uncollectible.” Id. (emphasis in original). MMC also points out that it
could not collect the coinsurance and deductible amounts from the patients, because
federal Medicaid law prohibits providers from attempting to collect such amounts
from Medicaid recipients.

Id. at 18-19 (citing 42 U.S.C. § 1396a(a)(25)(C)). As

further proof that the claims were “actually uncollectible when claimed as
worthless,” MMC notes that the intermediary “had accepted the zero pay crossover
claims remittance advices from the Plaintiff in past cost reporting periods, and from
other Maine hospitals during this time period.” Id. MMC’s characterization of the
final criterion follows a similar line of reasoning: since MaineCare had “clearly
eliminated” crossover claim payments during the period at issue, “the Provider
exercised sound business judgment when it determined that there was no likelihood
of recovery at any time in the future.” Id. at 19.
MMC next addresses the standard of review, characterizing the Secretary’s
interpretation of 42 C.F.R. § 413.89(e) and the PRM as a “one-size-fits all ‘policy’
[that] cannot withstand this court’s proper review.”

Id. at 20.

Instead, MMC

maintains that neither the applicable regulation (42 C.F.R. § 413.89(e)) nor the
PRM “mandate[s] specific actions or items, such as a remittance advice, but rather
outlines general concepts like ‘reasonable collection efforts’ and ‘sound business
judgment.’”

Id. at 21.

MMC argues that the Secretary’s interpretation poses

“additional, unstated rules,” and is therefore “arbitrary and capricious, and not in
accordance with the applicable law.” Id.

16

Next, MMC claims that the Secretary’s “must-bill” policy does not deserve
deference because of her inconsistent interpretation of the regulation. Id. Citing
St. Luke’s Hosp. v. Secretary of Health & Human Services, 810 F.2d 325, 331 (1st
Cir. 1987), for the proposition that “an agency’s inconsistency detracts considerably
from the force of the Secretary’s argument for deference,” MMC insists that the
Secretary’s interpretation appears neither in a regulation, nor in the PRM, and that
the policy “has not been consistently applied by CMS, as evidenced by the CMS’ own
cost report filing instructions, which specifically permitted alternatives to a
Medicaid remittance advice when documenting crossover bad debts.” Pl.’s Mot. at
21 (citing since-repealed § 1102.3L).
MMC also maintains that cases upholding the Secretary’s must-bill policy
presented different facts and are distinguishable from the instant case. Id. at 2427. MMC explains that in Monterey, where the Ninth Circuit upheld the policy, “the
hospitals did not present their crossover claims to the California Medicaid program
even though there was a possibility of payment.” Id. at 24 (citing Monterey, 323
F.3d 782). Similarly, a federal district court in the District of Columbia upheld the
Secretary’s policy, but MMC contends that the Medicaid program there “clearly
could” process the provider’s crossover claims, there was a possibility of repayment,
and the Secretary had even “stepped in” to enforce the state Medicaid plan and
reach an agreement. Id. at 25 (citing Grossmont Hosp. Corp. v. Sebelius, 903 F.
Supp. 2d 39 (D.D.C. 2012)).

By contrast, MMC submits that it presented its

crossover claims to the Medicaid program, there was no possibility of payment for

17

the claims, and the Secretary did not exercise her enforcement authority to require
MaineCare to issue any remittance advices. Id. at 24-25.
MMC characterizes a separate District of Columbia district court decision,
Cove Associates Joint Venture v. Sebelius, 848 F. Supp. 2d 13 (D.D.C. 2012), as
“more closely align[ed] with the present matter.”

Pl.’s Mot. at 25.

There, the

district court commented in dictum that if a “non-participating provider”8 could
“establish that they have submitted the correct forms and made the right
applications, it may in fact, in those circumstances, be arbitrary and capricious for
the Secretary to not accept an alternative form of documentation or to require that
the states comply with her regulations.” Cove Associates, 848 F. Supp. 2d at 28.
MMC argues that its position is even more favorable because, “unlike the Cove
Associates providers, the Plaintiff has done all it could do” in attempting to receive
remittance advices, and also because “although the Cove Associates providers had a
potential for payment from a Medicaid program, the Plaintiff here did not.” Pl.’s
Mot. at 26.
Finally, notwithstanding its other arguments, MMC asserts that the “hold
harmless” provision within JSM 370 “plainly applies” to its claims. Id. at 27. It
states that the language in the JSM instructing intermediaries to “hold harmless
providers that can demonstrate that they followed the instructions previously laid
out in 1102.3L,” id. (quoting Admin. R. at 2329), must apply to this case because the

As the district court defined it, the “non-participating provider” did not participate in the
state’s Medicaid program but did provide services to dual-eligible patients. Cove Associates, 848 F.
Sup. 2d at 28.
8

18

“cost reporting periods began prior to January 1, 2004, and were open as of the date
of the JSM (August 10, 2004).”

Id.

MMC insists that it “clearly relied upon

alternative documentation for these open cost reporting periods . . . [that]
undoubtedly satisfied the requirements of 1102.3L.” Id. at 27-28.
B.

The Secretary’s Cross-Motion and Opposition
1.

Legal Standard

The Secretary notes her authority to promulgate “‘reasonable and proper
rules’ establishing ‘the nature and extent of the proofs and evidence and the method
of taking and furnishing the same in order to establish [the payments due under the
program].’” Def.’s Opp’n at 4-5 (quoting 42 U.S.C. § 1395ii (incorporating 42 U.S.C.
§ 405(a))). The Secretary points out that the Medicare statute further provides that
“no [Medicare] payments shall be made to any provider unless it has furnished such
information as the Secretary may request in order to determine the amount due
such provider.” Id. at 5 (quoting 42 U.S.C. § 1395g(a)). In accordance with this
authority, the Secretary promulgated a regulation, 42 C.F.R. §§ 413.20(a),
413.24(a), (c), requiring providers to maintain financial records that are sufficiently
detailed to determine which costs are payable under Medicare. Def.’s Opp’n at 5.
With respect to Chapter 3 of the PRM, the Secretary maintains that the
manual specifies a provider’s efforts may be considered reasonable only if collection
efforts include “the issuance of a bill on or shortly after discharge . . . to the party
responsible for the patient’s personal financial obligations.” Id. at 6-7 (alteration in
original) (quoting PRM at 4 (§ 310)). The Secretary asserts that although Section

19

312 waives the “reasonable collection efforts” requirement of Section 310 when the
Medicare beneficiary is a dual eligible, the provider must still “determine that no
source other than the patient would be legally responsible for the patient’s medical
bills” in such situations. Id. at 7 (quoting PRM at 6 (§ 312)).
The Secretary then states that the must-bill policy was established in 1983 in
order to put into effect the relevant Medicare regulations and manual provisions.
Id. at 8. Congress later imposed a moratorium on bad debt reimbursement policies,
which “prohibited the Secretary from changing ‘the policy in existence as of August
1, 1987.’” Id. (citing Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100203, § 4008(c), 101 Stat. 1330-55).
The Secretary next references the November 1995 amendment to Section
1102.3 of the PRM. Id. at 8-9. Admitting that this section allowed for alternative
forms of documentation, the Secretary notes that on March 18, 2003, the Ninth
Circuit found Section 1102.3L unenforceable to the extent that it authorized
“reimbursement on the basis of a noncontemporaneous, ‘surrogate data system.’”
Id. at 9 (quoting Monterey, 323 F.3d at 799). In response to Monterey, the Secretary
rewrote the 1995 amendment and “reiterated her must-bill policy in JSM-370.” Id.
at 9-10.

Regarding the “hold harmless” provision of that memorandum, the

Secretary notes that relief under this provision “was available only for ‘cost reports
that were open as of the date of issuance of this memorandum,’ and only to
providers ‘who relied on the previous language of section 1102.3L in providing
documentation.’” Id. at 10-11 (quoting Admin. R. at 598).

20

Finally, the Secretary notes that her interpretation of her own regulation is
entitled to “particular deference,” and should only be overturned if “plainly
erroneous or inconsistent with” the regulations. Id. at 16 (quoting South Shore
Hosp., Inc. v. Thompson, 308 F.3d 91, 97 (1st Cir. 2002) (internal citation omitted)).
2.

Argument

The Secretary insists that the must-bill policy is based on a reasonable
interpretation of her Medicare regulation requiring a provider to make “reasonable
collection efforts” and establish that a crossover bad debt was “actually uncollectible
when claimed as worthless.” Id. at 17 (quoting 42 C.F.R. § 413.89(e)(2), (3)). The
Secretary also contends that the policy promotes Medicare recordkeeping
regulations by requiring contemporaneous documentation of the provider’s efforts to
recover the debt from MaineCare. Id. at 19.
The Secretary further argues that her policy is reasonable because it “rests
on the reasonable proposition that the only way of knowing for certain whether a
State will pay a portion of a particular claim is to bill the state and obtain an RA.”
Id. at 27. The Secretary observes that the extent to which a state is obligated to pay
for crossover claims depends on the provisions of each individual state plan (of
which there are fifty-six), including the varied rates for services under each plan
and a comparison of those rates to the amounts paid by Medicare for such services.
Id. at 20. She points out that under 42 U.S.C. § 1396a(n)(2), a State may avoid
paying deductibles and coinsurance for crossover claims only to a limited extent, id.
at 22-23, and the providers should not foist upon the Secretary the “nightmarish

21

task of determining whether a given State Medicaid program would have made any
payment for a crossover claim during a particular time period.” Id. at 27. The
Secretary argues that these considerations are directly applicable to this case:
“[T]he State could not have lawfully implemented a complete ban on the payment of
a crossover claim.” Id. at 22. See also id. at 26 (“There is no evidence in the record
as to when the State repealed its ban on the payment of crossover claims . . . . [I]t
should not be presumed that MaineCare would continue to enforce a facially-invalid
restriction on the payment of crossover claims”).
Further, the Secretary explains that the policy allows for verification that
each patient was actually eligible for Medicaid—a status which may change over a
very short period—at the time services were rendered. Id. at 28. Billing the state
and obtaining remittance advices also “allow[] the provider to comply with Medicare
record-keeping requirements,” which demand contemporaneous documentation. Id.
at 28-29. The Secretary maintains MMC’s “documentation did not establish the
amounts that MaineCare was obligated to pay” and thus that MMC’s alternative
methodology failed to meet the alternative documentation requirements of former
section 1102.3L. Id. at 31. Apart from that failure, the Secretary asserts that the
former manual provision was unenforceable in any case, as it was contrary to the
moratorium on changes to reimbursement policy Congress imposed in 1987 and
therefore the Secretary lacked the authority to make an exception to the must-bill
requirement. Id. In addition, she argues that the documentation MMC provided
that did comply with former section 1102.3L was inconsistent with yet another

22

regulation, which requires Medicare cost determinations to be based upon “data
available from the institution’s basis accounts, as usually maintained.” Id. at 32.
As “a PRM provision that is inconsistent with a regulation is invalid,” id. (citing
Monterey, 323 F.3d at 799), the Secretary contends that section 1102.3L was
unenforceable as applied to this case. Id.
The Secretary contests MMC’s assertion that it “‘did all that it could
reasonably do’ to obtain the necessary RAs.” Id. at 32 (quoting Pl.’s Mot. at 3). The
Secretary maintains that “[t]he record in this case confirms that Maine providers
have the ability to manually bill MaineCare, yet plaintiffs made no attempt to do
so.” Id. at 33 (citing Admin. R. at 138, 146). Further, the Secretary contends that
the record “strongly suggests that plaintiff’s inability to obtain the RAs is
attributable to its own failure to diligently pursue its claims,” id., noting that
MaineCare ceased issuing RAs on crossover claims in 2001 but that MMC “did not
request the State to issue the missing RAs until . . . March 22, 2006.” Id. at 33-34
(citing Admin. R. at 850, 1608-09). She concludes that “[n]ot surprisingly, the State
responded to this untimely request by professing that it did not have the ability to
process the claims ‘[a]t this point in time.” Id. (citing Admin. R. at 1606).
Finally, the Secretary insists that her administrative decision reasonably
determined that the hold-harmless provision of JSM-370 does not apply to this case.
Id. at 34-37. The Secretary contends the intermediary never allowed for MMC or
any other Maine providers to support crossover claims with alternative
documentation.

Id. at 35.

Therefore, she argues that MMC meets neither the

23

requirement that the intermediary “must have followed” the previous instruction
nor the requirement of reliance on the instruction. Id. at 35-36. Accordingly, the
Secretary concludes that this Court should reject MMC’s request for hold-harmless
relief. Id. at 36.
C.

MMC’s Reply

In reply, MMC reiterates its contention that the “Secretary continues to exalt
form over substance.” Pl.’s Reply at 1. It suggests that “[t]he Secretary would have
the Court review this case in a vacuum,” and that her accusations that it did not
pursue the RAs vigorously enough are unsupported in the record; instead,
“whatever attempts the Plaintiff may have made, it was simply not possible to
obtain the RAs.” Id. at 3. MMC also rejects the Secretary’s claim that the must-bill
policy is supported by Medicare record-keeping regulations, noting that it did in fact
submit the claims at issue to MaineCare and insisting that [a]ny sins by the
MaineCare program should not be visited upon the Plaintiff.” Id. at 3-4.
MMC next takes issue with the Secretary “speculat[ing] that maybe the State
should have paid something for some of the crossover claims.” Id. at 5 (emphasis in
original). It rejects any inference that a potential MaineCare payment obligation
creates uncertainty that supports the reasonableness of the Secretary’s policy,
instead putting forth that “there is no uncertainty” in this situation because a
Maine regulation “was clear that no payment was allowed.” Id. at 4-5. Moreover,
MMC asserts it is “disingenuous to now suggest that the Court should not believe
that all of Plaintiff’s RAs would have identified a zero payment amount,” because

24

the Secretary had accepted the “no pay” RAs before, during, and after the years in
question. Id. at 5. Furthermore, MMC insists that even if MaineCare was wrong in
refusing to make crossover payments or issue RAs, “providers do not have private
enforcement rights with respect to challenging reimbursement rates,” id. at 6 (citing
Long Term Care Pharmacy Alliance v. Ferguson, 362 F.3d 50, 59 (1st Cir. 2004));
only the Secretary maintains enforcement authority over state Medicaid programs.
Id. at 5-6. For these reasons, MMC argues the Secretary should not be allowed to
rely on the argument that remittance advices could have been produced. Id. at 6.
MMC also rejects the Secretary’s accusation that it waited too long to ask
MaineCare for the RAs or that filing manual claims would have allowed MaineCare
to produce them.

Id. at 6-9.

MMC contends evidence in the record “clearly

demonstrate[s] that the MaineCare program had previously advised [an accounting
consultant for MMC] that the only possible solution was to work with the Muskie
Institute, which the Plaintiff did before submitting its alternative documentation to
the [intermediary] in 2005.” Id. at 7 (citing Admin. R. at 2499-2502). MMC also
claims that its accounting consultant’s testimony before the Board demonstrates
that the manual claims process was not a viable option in this case, because it “was
designed for isolated situations” as opposed to the “tens of thousands of manual
(paper) claims . . . that would be associated with nearly two years of claims at
Maine’s largest hospital.” Id. at 8 (citing Admin. R. at 138).
Finally, MMC claims that the Secretary has improperly relied on the 1987
moratorium on bad debts, maintaining that it was “enacted by Congress to shield

25

providers from retroactively applied changes to the Secretary’s . . . bad debt audit
practices. Here, however, she hopes to use this shield as a sword to strike down the
Plaintiff’s reasonable interpretation argument.” Id. at 9.
D.

The Secretary’s Reply

The Secretary contends that MMC’s position is fundamentally flawed,
because MMC argues that “Medicare . . . should be required to pay for the total
amount of its crossover bad debt, even though it is virtually certain that the State
was responsible under federal law for a significant portion of this amount.”

Def.’s

Reply at 2-3. The Secretary dismisses what she characterizes as MMC’s “several
attempts to justify its failure to look to MaineCare for the State’s share of its
crossover bad debt,” referring to MMC’s suggestion that it had no interest or ability
to pursue a claim against MaineCare as “perplexing – after all, any payments made
by the State on plaintiff’s crossover claims would have been made to plaintiff.” Id.
at 3. The Secretary rejects MMC’s argument that no legal recourse was available to
it, arguing “there is post-Gonzaga precedent in this circuit that Medicaid providers
may bring suit under section 1983 to compel States to comply with mandatory
Medicaid payment obligations.” Id. at 4 (citing Rio Grande Community Health Ctr.
v. Rullan, 397 F.3d 56, 72 (1st Cir. 2005)). By contrast, she contends that her own
enforcement ability against the state is limited to a “compliance action,” which does
not include the authority to order MaineCare to provide benefits and could result
only in a general cutoff of federal funding. Id. at 3.

26

The Secretary also contends that “[r]ather than simply acquiescing in
MaineCare’s position that it could not process the claims electronically, plaintiff
could have submitted its claims manually . . . . [T]here is nothing in the record that
clearly supports [the] assertion [that MaineCare would have refused to process such
claims].” Id. at 5-6. Finally, the Secretary suggests that MMC could have asked
MaineCare to reconsider its claims after the state amended its policy manual to
recognize MaineCare’s obligation to pay cost-sharing amounts, or that MMC could
have attempted to document the amount that MaineCare should have paid on its
claims as part of the alternative documentation it provided. Id. at 6.
In sum, the Secretary argues “[i]t is understandable that plaintiff would
prefer to have Medicare pay for all of its crossover bad debt . . . . However, plaintiff’s
desire to avoid a quarrel with the State cannot be reconciled with the Medicare
regulations, which require a provider to make ‘reasonable collection efforts’ . . . and
which preclude Medicare from reimbursing . . . a bad debt for which another payer,
such as Medicaid, is responsible.” Id. at 6-7.
III.

DISCUSSION
A.

Standard of Review

MMC seeks judicial review pursuant to the Medicare statute, 42 U.S.C. §
1395oo(f), which permits providers to seek judicial review of any final decision by
the Secretary in a federal district court pursuant to the standard of review set forth
in the Administrative Procedure Act (APA). 5 U.S.C. § 706; Central Maine Med.,
552 F. Supp. 2d at 52. Under that standard, an inquiring court “may only set aside
agency actions, findings, and conclusions if they are ‘arbitrary, capricious, an abuse
27

of discretion, or otherwise not in accordance with the law’ or ‘unsupported by
substantial evidence.’” Visiting Nurse Ass'n Gregoria Auffant, Inc. v. Thompson,
447 F.3d 68, 72 (1st Cir. 2006) (quoting 5 U.S.C. § 706(2)); South Shore, 308 F.3d at
97. “This standard precludes a reviewing court from substituting its own judgment
for that of the agency.” Rhode Island Hosp. v. Leavitt, 548 F.3d 29, 33-34 (1st Cir.
2008).
An agency’s interpretation of its own regulations are normally accorded
particular deference, and “[c]ourts withhold such deference only when the agency’s
interpretation of its regulation is ‘plainly erroneous or inconsistent with’ its
language.” Visiting Nurse Ass’n, 447 F.3d at 72 (quoting South Shore, 308 F.3d at
97). Put differently, “[t]o receive this deference, the agency need not write a rule
that serves the statute in the best or most logical manner; it need only write a rule
that flows rationally from a permissible construction of the statute.” Rhode Island
Hosp., 548 F.3d at 34 (internal quotation marks and citation omitted). Additionally,
“[i]n situations in which the meaning of regulatory language is not free from doubt,
the reviewing court should give effect to the agency’s interpretation so long as it is
reasonable, that is, so long as the interpretation sensibly conforms to the purpose
and wording of the regulations.” Visiting Nurse Ass’n, 447 F.3d at 72-73 (quoting
Martin v. Occupational Safety & Health Review Comm’n, 499 U.S. 144, 150-51
(1991)).
The First Circuit has instructed that “[w]hile it is true that rules found in
manuals such as the PRM are entitled to less deference than interpretations arrived

28

at after a formal adjudication or notice-and-comment rulemaking, this does not
mean the rules . . . are not entitled to any deference at all.” Id. at 76. Instead, “[i]f
an interpretative rule is neither inconsistent with promulgated regulations, nor
outside of the coverage of the Act, it is valid. Furthermore . . . ‘broad deference [to
the administrative agency] is all the more warranted when, as here, the regulation
concerns a complex and highly technical regulatory program.’” Id. (quoting Thomas
Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994)); accord Rhode Island Hosp.,
548 F.3d at 36 (“Deference is particularly appropriate in an area that is as complex
as the field of Medicare reimbursement”). Such programs “necessarily require
significant expertise and entail the exercise of judgment grounded in policy
concerns.” Id. (quoting Thomas Jefferson, 512 U.S. at 512). As specifically regards
the PRM, the Visiting Nurse Ass’n Court concluded that “[b]ecause the manner in
which the [PRM] is implemented is so integral to its operation, it would be odd not
to defer to the Secretary’s method of applying those rules, as well as those rules
themselves.”

Id. at 78.

What is at issue in this case is the Secretary’s

interpretation—through the PRM and must-bill policy—of her own regulations, and
this Court concludes that the appropriate standard of review for that interpretation
is “substantial deference,” as described by the First Circuit in Visiting Nurse Ass’n
and South Shore.
Finally, the party “challenging the Secretary’s reasoning” has the burden to
show that the reasoning “fails to pass muster under the reasonableness

29

standard.” South Shore, 308 F.3d at 101; Central Maine Med., 552 F. Supp. 2d at
52-53.
B.

Analysis

The issue on this motion and cross-motion can be distilled into a short
overriding question: was the Secretary’s administrative decision—that the
intermediary properly denied the bad-debt claims submitted by MMC based upon
the must-bill policy—arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law, or unsupported by substantial evidence? 5 U.S.C. § 706(2).
To resolve this question, the Court addresses the following sub-issues: (1) whether
the Secretary has the authority to implement the must-bill policy as a general
matter (without regard to the facts of this case); and if so, (2) whether that policy is
inapplicable here due to the “hold-harmless” provision of JSM-370; and (3) whether
the Secretary’s authority encompasses the application of that policy to MMC’s baddebt reimbursement claims.
1.

Does the Secretary Have the Authority to Implement the
Must-Bill Policy?

The Medicare statute authorizes the Secretary to “prescribe such regulations
as may be necessary” to administer Medicare. 42 U.S.C. § 1395hh(a)(1). Congress
has also instructed that the Secretary “shall adopt reasonable and proper rules and
regulations to regulate and provide for the nature and extent of the proofs and
evidence and the method of taking and furnishing the same in order to establish the
right to benefits” under Medicare, such as payments due to providers. Id. § 1395ii
(incorporating 42 U.S.C. § 405(a))). The statute places an additional emphasis on

30

providing the Secretary with wide discretion in determining what documentation a
provider must submit when requesting payment under the statute. Id. § 1395g(a)
(“[N]o such payments shall be made to any provider unless it has furnished such
information as the Secretary may request in order to determine the amounts due
such provider”).
In response to this congressional mandate, the Secretary promulgated
regulations articulating general principles to guide the administration of Medicare.
One guiding principle instructs that providers must “maintain sufficient financial
records and statistical data for proper determination of costs payable under the
program,” 42 C.F.R. § 413.20(a), and further that “the requirement of adequacy of
data implies that the data be accurate and in sufficient detail to accomplish the
purposes for which it was intended.”

Id. § 413.24(c).

These general operating

principles are put into effect by more specific regulations, such as the Secretary’s
instruction on when a provider’s “bad debts” may be “allowable.” Id. § 413.89(e). To
be allowable, or eligible for reimbursement, a bad debt must meet the following
criteria:
(1)
(2)
(3)
(4)

The debt must be related to covered services and derived from
deductible and coinsurance amounts.
The Provider must be able to establish that reasonable collection
efforts were made.
The debt was actually uncollectible when claimed as worthless.
Sound business judgment established that there was no
likelihood of recovery at any time in the future.

Id.

31

The First Circuit has viewed these regulations as within the Secretary’s
authority. See Visiting Nurse Ass’n, 447 F.3d at 72; South Shore, 308 F.3d at 97.
The question to resolve here is whether the “must-bill policy” is what the First
Circuit refers to as a “valid” interpretive rule—a permissible interpretation of the
above-mentioned Medicare statutory and regulatory provisions. See Visiting Nurse
Ass’n, 447 F.3d at 76 (“If an interpretive rule is neither inconsistent with
promulgated regulations, nor outside of the coverage of the Act, it is valid”). The
Secretary asserts that the most efficient and accurate way to determine whether a
state Medicaid program bears any responsibility for a crossover claim is to require
the provider to bill the state program and obtain a remittance advice, which
documents the state’s official position on the matter. Admin. R. at 16; Def.’s Opp’n
at 18. This proposition is articulated in JSM-370: “[T]he unpaid liability for the
bad debt is not reimbursable to the provider by Medicare until the provider bills the
State, and the State refuses payment (with a State Remittance advice).” Admin. R.
at 597.
The Court concludes that the must-bill policy “flows rationally from a
permissible construction of the statute.” Rhode Island Hosp., 548 F.3d at 34. Here,
the Secretary has contended—and the Court agrees—that the policy reflects
reasonable concerns about the viability and efficacy of an alternative requirement.
Significantly, there are 56 different Medicaid plans, Def.’s Opp’n at 21 n.3, and the
extent to which a state bears financial responsibility for a particular crossover claim
may turn on provisions unique to each plan as well as a comparison of each plan’s

32

rates to the Medicare rates for comparable services.

Id. at 20.

The Secretary

contends that such variables would make it a “nightmarish task” were CMS
required to undergo individualized determinations of whether a given state
program would have made a particular crossover payment during a particular fiscal
year. Id. at 27. Relatedly, the Secretary also insists that the must-bill requirement
reflects the regulatory requirement that cost data be accurate and sufficiently
detailed, 42 C.F.R. § 413.24(c), because “the State maintains the most current and
accurate information to determine if the beneficiary is dually eligible at the time of
service.” Admin. R. at 16.
As the record provides ample support for these assertions, the Court will not
substitute its own judgment for that of the Secretary on these matters.

Rhode

Island Hosp., 548 F.3d at 33-34. As noted by the First Circuit, broad deference to
the administrative agency tasked with carrying out legislation is particularly
important in an area as complex as Medicare, because the Secretary’s decisions in
administering the program “necessarily require significant expertise and entail the
exercise of judgment grounded in policy concerns.” Visiting Nurse Ass’n, 447 F.3d at
76. The First Circuit’s admonition is fitting here, as the Secretary enacted the
must-bill policy to implement general Medicare principles, e.g., 42 C.F.R. §
413.24(c), and to impose more specific operating requirements such as documenting
that “reasonable collection efforts were made” and “[t]he debt was actually
collectible when claimed as worthless.” Id. § 413.89.

33

Chapter 3 of the PRM does not change the analysis. MMC argues that “the
plain language of the PRM does not specifically require a Medicaid remittance
advice for Crossover Bad Debts.” Pl.’s Mot. at 14. Section 312 provides that a “debt
may be deemed uncollectible without applying the 310 procedures” in certain
situations, PRM at 6, and Section 322 provides that a bad debt “that the State is not
obligated to pay can be included as a bad debt under Medicare, provided the
requirements of § 312 . . . are met.” Id. at 8.

MMC’s assertion that Chapter 3

contains no hard-and-fast requirement of a Medicaid remittance advice is justified
by the express language of the provisions.
However, Chapter 3 is far from unambiguous.

In her administrative

decision, the Secretary concluded: “Reading the sections [310, 312, and 322]
together . . . in situations where a State is liable for all or a portion of the deductible
and coinsurance amounts, the State is the responsible party and is to be billed and
a remittance advice issued in order to establish the amount of bad debts under
Medicare.” Admin. R. at 14. That interpretation is also reasonable, particularly
given the Visiting Nurse Ass’n Court’s observation that “[b]ecause the manner in
which the [PRM] is implemented is so integral to its operation, it would be odd not
to defer to the Secretary’s method of applying those rules.”

447 F.3d at 78.

Although Section 312 may allow providers to forego the collection procedures of
Section 310 with respect to dual eligible patients, it does not discuss the financial
obligation of state Medicaid programs in such situations; it states instead: “See §
322 for bad debts under State [Medicaid] Programs.” See PRM at 6. Section 322

34

declares that “[w]here the State is obligated . . . to pay all, or any part, of the
Medicare deductible or coinsurance amounts, those amounts are not allowable as
bad debts under Medicare.” Id. at 7-8. Multiple courts have found it reasonable to
deduce that “the requirement under [Section] 322 that the state not have [any
obligation to pay for] the patient’s debt would be illusory if the regulations did not
impose a duty to demand payment from the state.” Cove Associates, 848 F. Supp. 2d
at 25 (citing Monterey, 323 F.3d at 794-95).

This Court agrees that such an

implication is reasonable, and thus concludes that Chapter 3 of the PRM may be
reasonably read to impose a must-bill requirement. See Monterey, 323 F.3d at 796
(“[O]ur conclusion would be no different if we believed the Providers’ reading were a
permissible one. At most, these provisions are ambiguous, and we must defer to the
Secretary’s reasonable determination that billing is required”); Cove Associates, 848
F. Supp. 2d at 25.
Nor is the must-bill policy otherwise “inconsistent with promulgated
regulations, [or] outside the coverage of the [Medicare] Act.” Visiting Nurse Ass’n,
447 F.3d at 76.

The record contains ample evidence to support the Secretary’s

contention that the must-bill policy is a reasonable implementation of her Medicare
regulations—both general regulations such as the requirement for data to be
“accurate and in sufficient detail,” 42 U.S.C. § 413.24(c), as well as the specific
regulation requiring “reasonable collection efforts” and a showing that the debt
“was actually uncollectible.” 42 C.F.R. § 413.89(e).
2.

Does the “Hold Harmless” Provision of JSM-370 Apply?

35

If the hold harmless provision of JSM-370 applied to MMC’s claims, the
Court would have to determine how that conclusion impacted whether the
Secretary’s application of the must-bill policy to MMC’s bad debt claims was
arbitrary and capricious or contrary to law. However, the Court does not reach that
issue, because the Secretary reasonably concluded in her administrative decision
that the hold-harmless provision did not apply.
In her administrative judgment, the Secretary found that MMC
failed to demonstrate that it relied on section 1102.3L and alternative
documentation to support its crossover bad debt claims and, as a
critical criteria, that the Intermediary accepted such documentation
and made payment based upon such documentation for [previous] cost
reporting periods.
Admin. R. at 19 (emphasis in original). JSM-370 provides, in part:
This memorandum is to serve as a directive to hold harmless providers
that can demonstrate that they followed the instructions previously
laid out in 1102.3L, for open cost reporting periods beginning prior to
January 1, 2004.
…
Intermediaries that required the provider to file a State Remittance
Advice for cost reporting periods prior to January 1, 2004, may NOT
reopen provider’s costs reports to accept alternative documentation . . .
. This “hold harmless policy” affects only those providers with cost
reports that were open as of the date of issuance of this memorandum,
relating to cost reporting periods before January 1, 2004, and who
relied on the previous language of section 1102.3L in providing
documentation.
Id. at 2329. MMC argues that “[t]he JSM does not prohibit . . . the application of
this hold harmless provision where an Intermediary previously required the
provider use Medicaid remittance advices.”

Pl.’s Mot. at 27.

That argument,

however, is an argument against judicial deference to an agency’s interpretations of

36

its own regulations and opinions.

The Court does not adjudicate whose

interpretation is better, only whether the Secretary’s conclusion was “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with the law or
unsupported by substantial evidence.” Visiting Nurse Ass’n, 447 F.3d at 72.
By its own terms, the hold harmless provision only affects providers “who
relied on the previous language of section 1102.3L in providing documentation,” and
based on this language the Court does not conclude that it was unreasonable for the
Secretary to limit the hold-harmless provision’s applicability to situations in which
an intermediary had previously accepted alternative documentation in support of
crossover bad debt claims.

The Secretary’s construction sensibly interprets the

requirement that the provider must have “relied on the previous language.” Admin.
R. at 2329.
3.

Was the Secretary’s Application of the Must-Bill Policy to
MMC’s Bad Debt Claims Arbitrary and Capricious or
Otherwise Not in Accordance With Law?

Having concluded that the must-bill policy is a proper exercise of the
Secretary’s authority and that the “hold harmless” provision of JSM-370 does not
apply to this case, the remaining question is whether the Secretary’s application of
the must-bill policy to MMC’s claims was “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with the law or unsupported by
substantial evidence.” Visiting Nurse Ass'n, 447 F.3d at 72 (quoting 5 U.S.C. §
706(2)); South Shore, 308 F.3d at 97. MMC argues that “the Secretary’s application
of her so-called ‘must-bill’ policy is unsupported by the plain language of the

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applicable regulation, and is arbitrary and capricious as applied to the undisputed
facts.”

Pl.’s Mot. at 9.

MMC suggests that because it “did all that it could

reasonably do in response to this usual situation,” id. at 3, “application of the
Secretary’s ‘must-bill’ policy leads to an absurd result, when, as here, the State
failed to provide the RAs.” Pl.’s Reply at 10. The Secretary counters that excusing
or waiving MMC’s failure to comply with the must-bill policy would be contrary to
the Secretary’s regulations and would adversely affect CMS’s “ability to manage the
complex interrelationships between [Medicare] and the various state-administered
Medicaid programs.” Def.’s Opp’n at 3-4.
The Court recognizes MMC’s argument that the must-bill policy as applied to
the facts of this case may appear inconsistent with the “reasonable collection
efforts” bad debt criterion, 42 C.F.R. § 413.89(e)(2). MMC submitted the claims at
issue to MaineCare, but MaineCare never produced a remittance advice for them.
Admin. R. at 174. The MaineCare program advised MMC to work with the Muskie
Institute, which had access to the same Medicaid eligibility information that
MaineCare would have used in processing the remittance advices. Id. at 134. MMC
accepted MaineCare’s suggestion and worked with the Muskie Institute to
document MaineCare eligibility for each patient on the crossover listings at issue in
this case, based on the same information that Medicaid would have used. Id. at
134-35.
The Court’s task, however, is not to determine whether MMC did all it could
reasonably do to satisfy the particular requirement that “reasonable collection

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efforts were made.”9 See 42 C.F.R. § 413.89(e)(2). Instead, the inquiry is whether
the Secretary’s finding that the must-bill policy applied to MMC’s claims failed to
meet the deferential standard of review the First Circuit articulated in Visiting
Nurse Ass’n and South Shore. The Secretary does not assert that her interpretive
MMC’s argument in support of its position that its alternative documentation was
reasonable presupposes certain considerations, including that MaineCare’s counterfactual
remittance advices would have documented a zero payment obligation. However, as the Court noted
earlier, the parties vigorously dispute whether MaineCare would have, or lawfully could have,
denied all reimbursement for MMC’s 2002 and 2003 crossover claims. The parties charge each other
with speculation: MMC insists the Secretary is speculating that MaineCare would have had to pay at
least some of these amounts, Pl.’s Reply at 5, whereas the Secretary insists that MMC is speculating
that MaineCare would not have paid any of these amounts. Def.’s Opp’n at 22-27.
Determining whether MaineCare would have accepted responsibility for some or all of these
payments for services rendered in 2002 and 2003 turns on not only a close parsing of the contested
factual record but also interpretation of dense language deep in the Medicare statute. See 42 U.S.C.
1396a(n)(1)-(3). In making its argument, MMC heavily relies upon the Maine Supreme Judicial
Court case of H.D. Goodall Hospital. Pl.’s Mot. at 17 (“Finally, Maine[’s] highest court has held that,
in the absence of a specific deadline contained in MaineCare regulations, the court is without
authority to order the agency to act” (citing Goodall, 2008 ME 105, ¶¶ 10-12, 951 A.2d 828, 830-31)).
MMC, however, reads too much into Goodall. In Goodall, the Maine Law Court refused to read into
the Provider Agreement between the state of Maine and the provider or into Maine statutes and
regulations an obligation to make payment within a reasonable time. Id. However, the Maine
Supreme Judicial Court did not address the prospect of the state of Maine never processing the
claims at all. Whether MMC could have successfully sued the state of Maine to force it to do its job
remains to be seen, because MMC never did so.
Another assumption is that the transcript of MMC’s accounting consultant’s testimony before
the PRRB conclusively establishes that MaineCare would not have produced remittance advices if
MMC had manually billed the crossover claims. See, e.g., Pl.’s Reply at 7-9. The Secretary rejects
that this assumption is supported by the record, in part by correctly noting that Mr. Mercier only
testified that the state “advised hospitals not to bill manually” in 2005 or 2006, well after the fiscal
years in question. Def.’s Opp’n at 33 n.12. Mr. Mercier did not comment on the State’s position in
2002-2003, and even with respect to the 2005-2006 period, he testified only that “there were isolated
hospitals that [billed manually]. And . . . I won’t say they were reprimanded but they were told not
to do that.” Admin. R. at 146. He did not unambiguously say, for example, that MaineCare “still
would not have been able to produce the RAs.” Pl.’s Reply at 9.
To decide this case, the Court is not required to determine who is right on either of these
issues. The applicable standard for review is not which party has proven the case by a
preponderance of the evidence. Rather, it is whether MMC has demonstrated that the Secretary’s
decision is arbitrary, capricious, an abuse of discretion, contrary to law, or unsupported by
substantial evidence. For the reasons set out in the remainder of this section, applying this onerous
standard, the Secretary’s larger argument carries the day: before MMC may demand payment under
Medicare, it must comply with particular federal requirements, including the must-bill policy. The
Court accepts the Secretary’s argument, not that MaineCare would have capitulated or that manual
submissions would have resulted in RAs being issued, but instead that MMC’s failure to produce the
RAs amounted to a failure to comply with the Secretary’s precondition for reimbursement and has
led to arguments in 2014 that should have been resolved by MMC’s compliance in 2002 and 2003.
9

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rule relates only to the bad debt criteria, id. § 413.89(e), and therefore the Court
must consider other relevant regulations alongside the bad debt criteria in its
review of the Secretary’s must-bill policy, such as “the requirement . . . that the data
be accurate and in sufficient detail to accomplish the purposes for which it was
intended.” Id. § 413.24(c). Furthermore, even when read in isolation, 42 C.F.R. §
413.89(e) may be read to infer additional requirements. It states that “bad debts
must meet the following criteria” to be “allowable” for reimbursement. 42 C.F.R.
413.89(e).

In other words, compliance with these criteria is a necessary

precondition to reimbursement, but may not by itself be sufficient to mandate
reimbursement. Thus, this language presupposes the existence of other matters
applicable to the determination of whether a certain “debt” should receive Medicare
funding.
In her review of the Provider Reimbursement Review Board decision, the
Secretary concluded with following observation:
[T]he remittance advices are critical as they document the proper
payments that should be made from the respective programs.
Moreover, a fundamental principle of the [Medicare] program is that
payment be fair to the providers, the ‘contributors to the Medicare
trust fund’ and to other patients. In this instance the program is
reasonably balancing the accuracy of the bad debt payment and the
timing of when these bad debts can be paid and the need to ensure the
fiscal integrity of the Medicare funding, with the providers[’] claims for
payment which can be made under two different program[s] for which
Medicare is the payor of last resort.
Admin. R. at 20. The Court has already concluded that the administrative opinions
upon which the Secretary relied in reaching this position are “neither inconsistent

40

with promulgated regulations, nor outside of the coverage of the Act,” Visiting
Nurse Ass’n, 447 F.3d at 76.
This leaves MMC with the onerous burden to show that such reasoning “fails
to pass muster under the reasonableness standard.” South Shore, 308 F.3d at 101.
MMC’s arguments do not address these broader considerations for the must-bill
policy.

Again, allowing hospitals to be reimbursed for “bad debts” was not the

Secretary’s sole consideration in adopting the must-bill policy and applying it to
MMC’s claims. Instead, the Secretary properly notes that the policy is integral to
her obligation to “reasonably balance” the numerous factors that she deems
important in administering a “complex and highly technical program” such as
Medicare. See Visiting Nurse Ass’n, 447 F.3d at 76. In short, the Secretary has
adopted a bright-line rule based on sound considerations relating to the
administration of Medicare, and she applied that rule to MMC’s claims.
This Court sympathizes with the MMC’s predicament. The hospital
submitted its crossover claims to MaineCare, and it was MaineCare, not MMC, that
failed to do its job. MMC provided hospital care to elderly people of modest means
and the Secretary has never asserted that it did not. It is also true that either the
federal or state government should by rights be paying the nearly three million
dollars in bills that MMC issued for its treatment, but neither entity has nor
appears likely to pay. Thus, the actual provider is not getting paid for reimbursable
services it rendered that either or both governments in some proportion would
admittedly owe had all procedural requirements been satisfied.

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The policy counterargument, however, is that it is the provider, not state or
federal government, that is interested in obtaining reimbursement and Medicare
remains the payor of last resort. The Secretary oversees and guards payments from
the federal fisc, and rather than placing the burden on the federal government to
demonstrate it does not owe reimbursement, the Secretary’s implementing
regulations place the burden on the potential recipient of federal money to prove
that it does.

In this way, the Secretary’s implementing requirements force

Medicare and Medicaid providers—who have rendered the services, who have
access to the hospital and billing records justifying them, and who have the
financial incentive to obtain reimbursement—to make reasonable efforts to force the
issue before they are allowed to extract money from the federal treasury. Here, the
Secretary concluded—through the proxy of its must-bill policy, as opposed to a
narrow individualized inquiry into the facts and equities of this matter—that MMC
failed to do what it should have in pressing the issue with the state of Maine. See
Def.’s Reply at 6 (“[P]laintiff made no attempt to take any of these actions,
presumably concluding that the path of least resistance would be to bill Medicare
for the entire amount of its crossover bad debt”).
Nor does this Court view this dispute in a vacuum. This Court is not called
upon to decide whether MMC did in fact do everything it could do to fight for
reimbursement from MaineCare.

It is only called upon to decide whether the

Secretary’s conclusion—that MMC did not comply with particular federal
requirements in dealings with MaineCare regarding reimbursement for services

42

rendered over a decade ago—is arbitrary, capricious, an abuse of discretion, not in
accordance with the law, or unsupported by substantial evidence. Visiting Nurse
Ass’n, 447 F.3d at 72. It is under this exacting standard that MMC’s claim must be
judged.
The First Circuit has commented that “[c]ourts should not cavalierly discount
the value of agency expertise painstakingly garnered in the administration, over
time, of [administrative] programs of remarkable intricacy.” Rhode Island Hosp.,
548 F.3d at 34 (quoting Stowell v. Sec’y of Health & Human Servs., 3 F.3d 539, 544
(1st Cir. 1993)).

This Court will not do so here.

It finds that the Secretary’s

administrative decision was neither plainly erroneous nor inconsistent with the
applicable regulations, and therefore affirms the administrative decision.
IV.

CONCLUSION
The Court DENIES Maine Medical Center’s Motion for Judgment on the

Administrative Record (ECF No. 13) and GRANTS Kathleen Sebelius’s CrossMotion for Judgment on the Administrative Record (ECF No. 14).
SO ORDERED.

/s/ John A. Woodcock, Jr.
JOHN A. WOODCOCK, JR.
CHIEF UNITED STATES DISTRICT JUDGE
Dated this 25th day of March, 2014

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