Maine Medical Center v. Burwell, 1st Cir. (2015)

7/26/2019 Maine Medical Center v. Burwell, 1st Cir. (2015)

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United States Court of AppealsFor the First Circuit

No. 14- 1557

MAI NE MEDI CAL CENTER,

Pl ai nt i f f , Appel l ant ,

v.

SYLVI A M. BURWELL, Secr et ar y,U. S. Depar t ment of Heal t h and Human Servi ces,

Def endant , Appel l ee.

APPEAL FROM THE UNI TED STATES DI STRI CT COURT

FOR THE DI STRI CT OF MAI NE

[ Hon. J ohn A. Woodcock, J r . , U. S. Di st r i ct J udge]

Bef or e

Lynch, Chi ef J udge,Tor r uel l a and Kayat t a, Ci r cui t J udges.

Wi l l i am H. St i l es, wi t h whom Benj ami n E. For d and Ver r i l lDana, LLP wer e on br i ef , f or appel l ant .

J ef f r ey Cl ai r , At t or ney, U. S. Depar t ment of J ust i ce, Ci vi lDi vi si on, wi t h whom Thomas E. Del ahant y, I I , Uni t ed St at esAt t or ney, J i l l L. St ei nber g, Speci al Assi st ant Uni t ed St at esAt t or ney, Assi st ant Regi onal Counsel , Di st r i ct of Mai ne, J ohnOsbor n, Assi st ant Uni t ed St at es At t or ney, Wi l l i am B. Schul t z,

General Counsel , U. S. Depar t ment of Heal t h and Human Servi ces, andNancy S. Nemon, Chi ef Counsel , Regi on I , U. S. Depart ment of Heal t hand Human Ser vi ces, wer e on br i ef , f or appel l ee.

J anuar y 5, 2015


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LYNCH, Chief Judge. Mai ne Medi cal Cent er ( "Mai ne

Medi cal ") chal l enges a di st r i ct cour t r ul i ng uphol di ng t he deci si on

of t he Secretary f or t he Depar t ment of Heal t h and Human Servi ces

( "HHS") denyi ng Mai ne Medi cal ' s cl ai m f or par t i al f eder al

r ei mbur sement of "bad debt " f or t wo f i scal years. Mai ne Med. Ct r .

v. Sebel i us, No. 2: 13- CV- 00118- J AW, 2014 WL 1234173, at *1 ( D. Me.

Mar . 25, 2014) . A "bad debt " i s an amount consi der ed uncol l ect i bl e

ar i si ng f r om cover ed medi cal ser vi ces t hat may be el i gi bl e f or

f eder al r ei mbur sement under cer t ai n condi t i ons. 42 C. F. R.

413. 89. The bad debt at i ssue arose f r om servi ces that Mai ne

Medi cal pr ovi ded to Medi car e/ Medi cai d "dual - el i gi bl e" pat i ent s

dur i ng f i scal years 2002 and 2003. The Secr et ary had r equi r ed a

par t i cul ar f or mof pr oof , a st at e- i ssued r emi t t ance advi ce ( "RA") ,

whi ch Mai ne Medi cal had not acqui r ed f r omMai ne' s Medi cai d pr ogr am,

Mai neCar e. The par t i es di sput e bot h t he di f f i cul t y of obt ai ni ng

such pr oof and t he adequacy of t he al t er nat i ve document at i on t he

hospi t al of f er ed.

Two l egal i ssues ar e pr esent ed on appeal . The f i r st

concer ns t he appr opr i at e l evel of def er ence t o af f or d t he deci si on

of t he Secr et ar y as t o the adequacy of Mai ne Medi cal ' s proof i n

t hi s case. The second concer ns whet her , under t he appr opr i ate

st andard, t he Secr et ary' s deci si on denyi ng r ei mbur sement was

ar bi t r ar y and capr i ci ous, an abuse of di scret i on, ot her wi se

cont r ar y t o t he l aw, or unsuppor t ed by subst ant i al evi dence.

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See Vi si t i ng Nur se Ass' n Gr egor i a Auf f ant , I nc. v. Thompson, 447

F. 3d 68, 72 ( 1st Ci r . 2006) ( ci t i ng 5 U. S. C. 706( 2) ) .

Af t er car ef ul consi der at i on of t he r ecor d, we af f i r mt he

Secret ar y' s deci si on. I t i s not arbi t r ar y and capr i ci ous f or t he

Secretary t o demand t hat Mai ne Medi cal pr ovi de document at i on f r om

t he St at e, i ncl udi ng document at i on conf i r mi ng t he i dent i t y of

Medi cai d- el i gi bl e benef i ci ar i es and qual i f i ed Medi car e

benef i ci ar i es, t he amount t hat i s t he St at e' s t o pay, and t he

St at e' s r ef usal t o pay. Nor i s i t arbi t r ar y and capr i ci ous, on t he

f act s of t hi s case, t o deny Mai ne Medi cal ' s r ei mbur sement cl ai ms

t hat were unsuppor t ed by such document at i on. The consequence of

t hi s deci si on i s t hat Mai ne Medi cal may need t o absor b r oughl y $3

mi l l i on of bad debt ; i t wi l l not r ecei ve r ei mbur sement f r om t he

Secr et ary unl ess i t succeeds i n obt ai ni ng t he RAs. Whet her Mai ne

Medi cal has any recour se agai nst t he St at e of Mai ne i s not bef or e

us.

I .

Mai ne Medi cal , a non- pr of i t hospi t al i n Por t l and, Mai ne,

pr ovi des medi cal servi ces t o bot h Medi car e and Medi cai d r eci pi ent s.

Some of t hese pat i ent s ar e "dual - el i gi bl e, " t hat i s, i ndi gent

pat i ent s who are cover ed by bot h Medi care, a f ederal heal t h

i nsurance pr ogr am, and t he st ate- admi ni st er ed Medi cai d i nsurance

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progr am, Mai neCar e. 1 Medi car e and Mai neCar e shar e r esponsi bi l i t y

f or payi ng t he so- cal l ed "cr ossover cl ai ms" f or ser vi ces pr ovi ded

t o t hese dual - el i gi bl e pat i ent s, wi t h Medi car e t he pr i mar y payer

and Mai neCare t he secondary payer r esponsi bl e f or cover i ng

coi nsur ance and copayment s.

Any amount r emai ni ng t hat i s bot h unpai d by Mai neCare and

f or whi ch Mai neCar e i s not l i abl e i s gener al l y consi der ed a "bad

debt , " an "amount [ ] consi der ed t o be uncol l ect i bl e" f or cover ed

ser vi ces. 42 C. F. R. 413. 89( b) ( 1) , ( e) , & ( h) ; 2 see Provi der

Rei mbur sement Manual ( "PRM") 322. Medi care par t i al l y r ei mbur ses

bad debt , f r omdual - el i gi bl e and non- dual - el i gi bl e3 pat i ent s al i ke,

provi ded that r ei mbur sement cl ai ms ar e adequat el y document ed and

are suppor t ed by evi dence demonst r at i ng t hat t he medi cal pr ovi der

1 Medi car e i s a nat i onal heal t h i nsur ance pr ogr am f or t he

el der l y and di sabl ed t hat uses f eder al f undi ng t o, among ot hert hi ngs, r ei mbur se pr ovi der s f or r easonabl e cost s of ser vi ces. 42U. S. C. 1395 et seq. ; see al so Sout h Shor e Hosp. , I nc. v.Thompson, 308 F. 3d 91, 95 ( 1st Ci r . 2002) ( descr i bi ng t he st at ut or yscheme) ; Gr ossmont Hosp. Corp. v. Sebel i us, 903 F. Supp. 2d 39, 43( D. D. C. 2012) ( same) .

Medi cai d i s a "cooper at i ve f eder al - st at e pr ogr amt hat f i nancesmedi cal car e f or t he poor , r egar dl ess of age. " Gr ossmont , 903 F.Supp. 2d at 43- 44 ( ci t i ng 42 U. S. C. 1396 et seq. ) . St at es canbot h el ect t o par t i ci pat e i n Medi cai d or not , and deci de t he nat ur eof cover age, subj ect t o appr oval by t he Cent er s f or Medi cai d andMedi care Ser vi ces ( CMS) . See i d.

2 42 C. F. R. 413. 89 was f ormer l y desi gnated as 42 C. F. R. 413. 80. See 69 Fed. Reg. 49, 254 ( Aug. 11, 2004) . The r el evantt ext r emai ns unchanged.

3 Non- dual - el i gi bl e pat i ent s ar e Medi car e pat i ent s who ar enot el i gi bl e f or Medi cai d.

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made " r easonabl e col l ect i on ef f or t s" but t hat t he amount i s

"act ual l y uncol l ect i bl e. " 4 42 C. F. R. 413. 89( e) ( st at i ng

r egul at or y requi r ement s f or al l owabl e bad debt ) ; see al so i d.

413. 89( a) & ( h) ( governi ng r ei mbur sement of bad debt ) .

A. Col l ect i on Pr ocess

HHS has l ong i nt er pr et ed " r easonabl e col l ect i on ef f or t s"

t o r equi r e bi l l i ng t hose r esponsi bl e f or payment . See, e. g. , Cmt y.

Hosp. of t he Mont erey Peni nsul a v. Thompson ( Mont erey) , 323 F. 3d

782, 796, 798 ( 9t h Ci r . 2003) ( di scussi ng t he pol i cy' s hi st or y and

enf or cement ) ; see al so PRM 310, 312, 322 ( expl ai ni ng t he

requi s i t e col l ect i on ef f or t s) . 5 Wher e pat i ent s ar e al so el i gi bl e

f or Medi cai d, t he Secret ar y has hi st or i cal l y requi r ed medi cal

pr ovi der s t o submi t pr oof t hat i t bi l l ed t he r el evant Medi cai d

progr am but was deni ed payment . See Mont erey, 323 F. 3d at 796.

Thi s proof usual l y t akes t he f or m of an RA i ssued by t he Medi cai d

4 Bad debt s f r om cer t ai n sour ces ar e r ei mbur sabl e t o ensur et he cost s of t r eat i ng Medi car e benef i ci ar i es ar e not shi f t ed t onon- Medi car e benef i ci ar i es. 42 U. S. C. 1395x( v) ( 1) ( A)( pr ohi bi t i ng cost - shi f t i ng) ; 42 C. F. R. 413. 89( d) ( same) .

5 PRM 310 expl ai ns t hat a pr ovi der ' s "r easonabl e col l ect i onef f or t s" t o obt ai n deduct i bl e and coi nsurance amount s "must besi mi l ar " t o ef f or t s t o col l ect f r om non- Medi car e pat i ent s,i ncl udi ng "t he i ssuance of a bi l l . . . t o t he par t y r esponsi bl e"

and "ot her act i ons such as subsequent bi l l i ngs. "PRM 312 wai ves t he PRM 310 pr ocedur es f or i ndi gent

pat i ent s f or whom "no sour ce ot her t han t he pat i ent woul d bel egal l y respons i bl e f or t he . . . bi l l . "

PRM 322 expl ai ns t hat amount s t he st ate Medi cai d pr ogr am"i snot obl i gated t o pay can be i ncl uded as bad debt . . . pr ovi dedt hat t he r equi r ement s of 312 or , i f appl i cabl e, 310 ar e met . "

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pr ogr am, r ef l ect i ng t he pat i ent ' s el i gi bi l i t y, and payment ( or

nonpayment ) . See, e. g. , PRM- I I 1102. 3L ( Rev. 4) ( assumi ng t hat

sat i sf act i on of t he Bi l l i ng Requi r ement wi l l be demonst r at ed

t hrough RAs) . These t wo r equi r ement s - - whi ch we denomi nat e t he

"Bi l l i ng Requi r ement " and t he "RA Requi r ement " - - t r y t o ensur e

t hat t he cl ai med amount s ar e i n f act bad debt not covered by the

r el evant Medi cai d pr ogr am.

Some ver si on of t hi s "must - bi l l pol i cy" has gener al l y

been enf orced. 6 Fr om1995 t o 2003, however , t he Secretary' s manual

per mi t t ed pr ovi der s t o subst ant i at e cr ossover bad debt by

submi t t i ng al t er nat i ve document at i on "[ i ] n l i eu of bi l l i ng. " See

PRM- I I 1102. 3L ( Rev. 4) . I n Mar ch 2003, t he Ni nt h Ci r cui t hel d

t hat t hi s wai ver of t he Bi l l i ng Requi r ement marked a change i n bad

debt r ei mbur sement pol i cy, vi ol at i ng t he Congr essi onal mor at or i um

on such changes, and so coul d not be enf orced. See Mont erey, 323

F. 3d at 798- 99 & n. 9. I n r esponse, t he Secret ary r emoved t he

of f endi ng l anguage f r om t he PRM, ef f ect i ve Oct ober 1, 2003. See

6 I t i s not cl ear t hat t he consi st ent l y enf or ced ver si on oft he "must - bi l l pol i cy" i ncl udes bot h t he Bi l l i ng Requi r ement andt he RA Requi r ement . Cf . Gr ossmont , 903 F. Supp. 2d at 49, 52( r ecogni zi ng t he "must - bi l l pol i cy" as r equi r i ng bi l l i ng, anddi scussi ng a di st i nct " ' mandat or y St at e det er mi nat i on' pol i cy") .The now- r epeal ed l anguage of PRM- I I 1102. 3L suggest s t hat HHS

assumed t hat bi l l i ng t he st at e Medi cai d pr ogr am woul d gener at e aMedi cai d RA, such t hat sat i sf act i on of t he Bi l l i ng Requi r ementent ai l ed sat i sf act i on of t he RA Requi r ement . See PRM- I I 1102. 3L( Rev. 4) ( "Evi dence of [ cr ossover ] bad debt . . . may i ncl ude acopy of t he Medi cai d [ RA] . . . . However , i t may not be necessar yf or a pr ovi der t o actual l y bi l l t he Medi cai d pr ogr am. . . . ") . Toavoi d ambi gui t y, we r ef er t o t he t wo r equi r ement s separatel y.

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Change Request 2796 at *1, 3. I t i s not cl ear t hat t he Secr et ar y

ever per mi t t ed br oad use of t hi s al t er nat i ve document bi l l i ng

pr ovi si on. Compare Transcr i pt of Proceedi ngs at 142- 43, Mai ne Med.

Ct r . , PRRB Dec. No. 2013- D3 ( Nov. 29, 2011) ( Nos. 06- 1318, 07- 1386)

( "[ T] hi s I nt er medi ar y never f ol l owed t he i nst r ucti ons . . . .

[ T]hey al ways r equi r ed Medi cai d [ RAs] . " ) , and Mont er ey, 323 F. 3d at

796- 99 ( suggest i ng not ) , wi t h Cove Assocs. J oi nt Vent ur e v.

Sebel i us, 848 F. Supp. 2d 13, 28- 29 ( D. D. C. 2012) ( pr ovi di ng an

exampl e of a case wher e al t ernat i ve document at i on had been

per mi t t ed) . Regar dl ess, t he Secr et ar y pr ovi ded a gr ace per i od,

i ssui ng a memor andum i nst r uct i ng t he I nt er medi ar i es t hat pr ocess

cl ai ms t o "hol d har ml ess" pr ovi der s who had r el i ed on t he pr ovi si on

i n set t l i ng cl ai ms bef or e J anuary 1, 2004. See J SM- 370. That

memorandum, known as J SM- 370, ar t i cul at ed bot h t he Bi l l i ng

Requi r ement and t he RA Requi r ement . See i d. ( " [ I ] n t hose i nst ances

wher e t he st ate owes none or onl y a por t i on . . . , t he unpai d

l i abi l i t y f or t he bad debt i s not r ei mbur sabl e . . . unt i l t he

pr ovi der bi l l s t he St at e, and t he St at e r ef uses payment ( wi t h a

St at e Remi t t ance Advi ce) . " ) . Mai ne Medi cal di d not r el y on t hi s

gr ace per i od f or t he al t er nat i ve document at i on.

B. Mai ne' s Pr ocess

The Center s f or Medi cai d and Medi car e Servi ces ( CMS) ,

act i ng on behal f of t he Secr et ar y, pr ocesses cr ossover cl ai ms f r om

Mai ne pur suant t o a t r adi ng par t ner agr eement wi t h Mai neCare. See

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Gr ossmont Hosp. Corp. v. Sebel i us, 903 F. Supp. 2d 39, 43- 45

( D. D. C. 2012) ( ci t i ng 42 U. S. C. 1395h, 1395u) . Under t he

agr eement , medi cal pr ovi ders l i ke Mai ne Medi cal submi t cr ossover

cl ai ms t o an I nt er medi ar y, a pr i vat e- sect or cont r act or t hat

pr ocesses t he cl ai ms f or CMS. The I nt er medi ary ( 1) pays t he

Medi car e por t i on as pr i mar y payer , and ( 2) i dent i f i es and

aggr egat es crossover cl ai ms, whi ch ( 3) i t submi t s - - i . e. , "bi l l s"

- - t o Mai neCar e on a weekl y basi s. Or di nar i l y, Mai neCar e t hen

pr ocesses t hese bi l l ed cl ai ms, i ssui ng RAs t hat conf i r mr ecei pt of

t he bi l l ed cl ai ms and i dent i f y Mai neCar e' s obl i gat i ons f or each

cl ai m. Pr ovi der s use t hese RAs t o subst ant i at e t hei r bad debt

r ei mbur sement cl ai ms f or amounts exceedi ng Mai neCare' s obl i gat i ons.

For FY 2002 and FY 2003, t he cost years at i ssue, Mai ne

Medi cal submi t t ed i t s crossover cl ai ms t o t he I nt er medi ar y. The

I nt er medi ary then submi t t ed t hese cl ai ms t o Mai neCare, pur suant t o

t he t r adi ng part ner agr eement . 7 But f r om November 15, 2001 t o

August 21, 2003, Mai neCare f ai l ed t o pr ocess t hese crossover cl ai ms

and t o i ssue RAs f or t hem due to an "anomal y of unknown or i gi n" i n

Mai neCare' s cl ai m management syst em ( "MMI S" ) . Mai ne Med. Ct r . ,

2014 WL 1234173 at *4. Mai ne Medi cal does not appear t o have

7 The part i es do not meani ngf ul l y di sput e t hat Mai ne Medi calsubmi t t ed t hese cr ossover cl ai ms t o t he I nt er medi ar y, or t hat t heI nt er medi ary submi t t ed t hese cl ai ms t o Mai neCare, pur suant t o t het r adi ng par t ner agr eement . We woul d r each t he same out come i n anyevent : i f Mai ne Medi cal f ai l ed t o submi t i t s cl ai ms t o t heI nt er medi ar y, t hen t her e woul d be absol ut el y no evi dence t hat i tmade "r easonabl e col l ect i on ef f or t s. "

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sought t he mi ssi ng RAs f r om Mai neCar e or t aken ot her st eps t o

r ect i f y t he pr obl em dur i ng t hi s per i od of over t went y mont hs.

The MMI S program cont i nued t o encount er t echni cal

di f f i cul t i es, and by the end of 2004 was unabl e t o pr ocess any

cl ai ms f or anyone. I n November 2004, t he Mai ne Hospi t al

Associ at i on, of whi ch Mai ne Medi cal i s a member , ur ged t he Mai ne

Depar t ment of Heal t h and Human Ser vi ces ( "Mai ne DHHS") t o adopt

r egul at i ons r equi r i ng t he i ssuance of RAs wi t hi n si xt y days af t er

t he cl ose of t he hospi t al f i scal year . But Mai ne DHHS deni ed t he

r equest as out si de t he scope of t he rul emaki ng because i t concer ned

r epor t s t hat "d[ i d] not af f ect Medi cai d r ei mbur sement . " MMI S was

t aken of f l i ne i n J anuary 2005, and r epl aced by a new syst em, MeCMS.

The new syst em st i l l encount er ed di f f i cul t i es, whi ch Mai ne i s

wor ki ng t o r esol ve. 8

Despi t e t hese pr obl ems, Mai ne Medi cal does not appear t o

have t aken any i ndi vi dual act i on t o acqui r e t he mi ssi ng RAs unt i l

ear l y 2005, t hr ee years af t er t he pr obl em began i n November 2001

8 Evi dence i n t he r ecor d suggest s t hat Mai ne i s wor ki ng bot ht o r esol ve t he t echnol ogi cal gl i t ch and t o ar r i ve at set t l ement swi t h pr ovi der s. For exampl e, Mai neCare has agai n aut hor i zed Mai neMedi cal ' s CPA i n t hi s case, Rol and Mer ci er , on behal f of ot hercl i ent s, t o wor k wi t h Mai neCar e El i gi bi l i t y f i l es and "t o per f or m

cl ai ml evel det ai l t o Mai neCar e el i gi bi l i t y ver i f i cat i on f or Mai nePr ovi der s who cannot ver i f y Mai neCar e el i gi bi l i t y pr i or t oSeptember 1, 2010. " Mai ne DHHS grant ed t he aut hor i zat i on becauseMai ne DHHS had " r ecent l y r ecei ved data r equest s f r om Mai nePr ovi der s r egar di ng ver i f i cat i on of Mai neCar e El i gi bi l i t y" but di d"not have t he t i me or r esour ces t o dedi cat e t o r espond t o t hesei ndi vi dual cl ai m l evel det ai l dat a r equests. "

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and over a year af t er t he r el evant cost year s concl uded i n

Sept ember 2003. At t hat t i me, Mai ne Medi cal ' s CPA, Rol and Merci er ,

"r equest [ ed] assi st ance [ f r om Mai neCar e] . . . f or t h[ e]

di scr epancy i n cr ossover pr ocessi ng f or [ Mai ne Medi cal ] . "

Accordi ng t o Mer ci er , Mai neCare' s r esponse suggest ed t hat bet ween

t he uncer t ai nt y of t he cause and ongoi ng di f f i cul t i es wi t h t he

MeCMS, " i t was appar ent t hat t hi s ol der pr obl em coul d not be

r emedi at ed [ si c] wi t h t he new envi r onment . " I nst ead, Mer ci er

sought and r ecei ved per mi ssi on f r om Mai neCar e of f i ci al s t o wor k

wi t h t he Muski e I nst i t ut e, a "quasi - st at e agency t hat assi st s

Mai neCar e wi t h cer t ai n f unct i ons and has Mai neCar e el i gi bi l i t y

dat a, " t o devel op al t er nat i ve document at i on.

Mer ci er submi t t ed t he bad debt l ogs and al t er nat i ve

document at i on t o t he I nt er medi ary i n J ul y 2005. But t he CMS

Cent r al Of f i ce r ej ect ed Mer ci er ' s al t er nat i ve met hodol ogy f or

compi l i ng cr ossover bad debt s, ci t i ng t he Congr essi onal mor at or i um

on CMS' s bad debt pol i cy. When i nf or mi ng Mer ci er of t hi s deci si on,

t he I nt er medi ar y l ament ed t hat "[ i ] t i s unf or t unat e t hat [ Mer ci er ]

di d not pr esent hi s met hodol ogy t o our of f i ce pr i or t o us bei ng i n

t he f i el d f or [ Mai ne Medi cal ' s] audi t , so t hat an ear l i er deci si on

coul d have been obt ai ned f r om CMS and communi cat ed t o [ Mai ne

Medi cal ] . "

Mer ci er agai n pr essed t he I nt er medi ar y i n ear l y 2006, and

t he I nt er medi ar y agai n i t er at ed i t s posi t i on t hat RAs woul d be

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r equi r ed and t hat bad debt r ei mbur sement cl ai ms f or FY 2002 and FY

2003 woul d be r ej ect ed wi t hout t hem. I t added t hat Mer ci er ' s cl ai m

t hat " t he St at e cannot pr oduce t hese [RAs] cont r adi ct s" what st at e

r epr esent at i ves had t ol d t hem. The I nt er medi ary t hen deni ed Mai ne

Medi cal ' s r ei mbur sement cl ai ms f or cr ossover bad debt f r omFY 2002

and FY 2003, t ot al i ng $2, 859, 083, because t he bad debt

r ei mbur sement cl ai ms were not subst ant i ated by t he requi si t e RAs

denyi ng payment .

A week l at er , on Mar ch 22, 2006, Mer ci er f i nal l y

cont act ed Mai neCare t o r equest t he mi ss i ng RAs f or FY 2002 and

FY 2003. But Mai neCare decl i ned t o i ssue t hem. The cl ai ms had

never been processed i n Mai neCare' s syst em, and so Mai neCare coul d

not "at t hi s poi nt ver i f y that [ t he cl ai ms] wer e ever r ecei ved as

cl ai med by t he Medi car e i nt er medi ar y. " Si mi l ar l y, because t he

cl ai ms were never processed, an RA was never i ssued "and i n

addi t i on, obvi ousl y cannot now be gener at ed" t wo t o f our years

af t er t he f act . "[ I ] n an ef f or t t o r esol ve [ t he] i ssue" bet ween

Mai ne Medi cal and Medi care audi t ors, t he Di r ect or of Mai ne DHHS

emphasi zed t hat he was "compl et el y conf i dent i n t he anal ysi s of

[ t he Muski e I nst i t ut e] . . . and bel i eve[ d] i t t o be t he best

avai l abl e sol ut i on t o t hi s pr obl em. " I n suggest i ng t hi s sol ut i on,

Mai ne DHHS di d not deny or ot her wi se speci f y Mai neCar e' s l i abi l i t y

f or t he cl ai ms, or conf i r mt hat , had t hey been pr ocessed, Mai neCar e

woul d have deni ed t hem compl et el y.

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The Muski e I nst i t ut e had used Mai neCar e' s el i gi bi l i t y

dat a t o ver i f y Mai neCar e el i gi bi l i t y f or pat i ent s on crossover

l i st i ngs f r om FY 2002 and FY 2003. But t he al t er nat i ve

document at i on pr oduced omi t t ed t wo i mpor t ant t ypes of i nf ormat i on

or di nar i l y pr esent on RAs. Fi r st , t he al t er nat i ve document at i on

f ai l ed t o di st i ngui sh bet ween crossover cl ai ms f or Qual i f i ed

Medi car e Benef i ci ar i es ( "QMB") and cr ossover cl ai ms f or non-

Qual i f i ed Medi car e Benef i ci ar i es ( "non- QMB") . 9 Second, t he

document at i on di d not i ncl ude a cl ai m- by- cl ai m anal ysi s of

Mai neCare' s obl i gat i ons because t he Muski e I nst i t ut e assumed t hat

Mai neCar e' s payment woul d have been $0 under a Mai neCar e regul at i on

el i mi nat i ng payment f or al l cr ossover cl ai ms t hat had been i n

ef f ect dur i ng t he r el evant per i od. 10 But t he par t i es vi gor ousl y

di sput e whet her Mai neCare woul d have, or l awf ul l y coul d have,

deni ed al l r ei mbursement f or Mai ne Medi cal ' s FY 2002 and FY 2003

crossover cl ai ms. I n par t i cul ar , t he Secret ar y ar gues t hat st at es

cannot escape at l east some l i abi l i t y f or QMB cr ossover cl ai ms.

9 To t he best of our under st andi ng, t he ver i f i cat i on ofMedi cai d el i gi bi l i t y f or al l cr ossover cl ai ms, QMB and non- QMBal i ke, i s i mpor t ant t o pr ovi der s because dual - el i gi bl e pat i ent s ar epr esumed i ndi gent under PRM 312, r el i evi ng t he pr ovi der of t heneed t o bi l l t he pat i ent f or t he out st andi ng debt . The di st i nct i onbet ween QMB and non- QMB pat i ent s i s i mpor t ant , however , because

whi l e t he st at e coul d el i mi nat e payment f or non- QMB cr ossovercl ai ms, i t cannot escape at l east some l i abi l i t y f or QMB cr ossovercl ai ms.

10 Mai neCar e adopt ed t hi s r egul at i on on J ul y 1, 1999, and i tcont i nued t hr ough 2006. Accor di ng t o Mai ne Medi cal , Mai neCareconsi st ent l y appl i ed t hi s pol i cy t o cr ossover cl ai ms.

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See 42 U. S. C. 1396a( a) ( 10) ( E) ( i ) ( r equi r i ng st at e pl ans t o

pr ovi de f or Medi car e cost - shar i ng f or QMBs) ; see al so PRM 322

( st at i ng t hat amount s t he st at e i s st at ut or i l y obl i gat ed t o pay ar e

"not al l owabl e as bad debt s" ) . Yet t he al t er nat i ve document at i on

di d not i dent i f y any of t hese QMB cr ossover cl ai ms, or cal cul at e

t he ext ent of t he r esul t i ng obl i gat i on.

C. Pr ocedur al Hi st or y

Despi t e t hese short comi ngs, Mai ne Medi cal used t hi s

al t er nat i ve document at i on t o appeal t he I nt er medi ar y' s deci si on

denyi ng r ei mbur sement t o t he Medi car e Provi der Rei mbur sement Revi ew

Boar d ( "PRRB") . The PRRB r ul ed i n f avor of Mai ne Medi cal , f i ndi ng

t hat t her e i s not an "absol ut e r equi r ement " t o bi l l st at e Medi cai d

pr ogr ams and obt ai n a Medi cai d RA bef ore cl ai mi ng crossover bad

debt . The PRRB r easoned t hat nei t her t he r egul at i on ( 42 C. F. R.

413. 89( e) ) nor t he r el evant manual pr ovi si ons ( PRM 308, 310,

312, and 322) cont ai n a Bi l l i ng Requi r ement , but r at her r equi r e

onl y "t hat a pr ovi der make r easonabl e col l ect i on ef f or t s and appl y

sound busi ness j udgment t o determi ne t hat t he debt was act ual l y

uncol l ect i bl e when cl ai med. " The PRRB r el i ed i n par t on anot her

manual pr ovi si on, PRM- I I 1102. 3L, whi ch expr essl y per mi t t ed

al t er nat i ve document at i on i n l i eu of bi l l i ng and whi ch was i n

ef f ect dur i ng t he r el evant cost year s. I t accor ded J SM- 370' s

ar t i cul at i on of t he RA Requi r ement " l i t t l e wei ght " because i t

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nei t her "set pol i cy, nor convey[ ed] new i nst r uct i ons or

cl ar i f i cat i on of exi st i ng r equi r ement s to i nt er medi ar i es. "

The CMS Admi ni st r at or , on t he Secr et ar y' s behal f ,

r ever sed, r easoni ng t hat t he PRRB had been i ncorr ect t o di scount

J SM- 370, because i t r est at ed HHS' s " l ongst andi ng" must - bi l l pol i cy

i ncl udi ng t he RA Requi r ement . The deci si on t hen pr oceeded t o make

what we i nt er pr et t o be t wo f i ndi ngs.

Fi r st , i t appear ed t o have appl i ed a per se RA

Requi r ement ( r egar dl ess of ci r cumst ances) , f i ndi ng t hat " t he

f ai l ur e t o pr oduce t he Medi cai d [ RAs] r epr esent s a f ai l ur e on t he

par t of [ Mai ne Medi cal ] t o meet t he necessary cr i t er i a f or Medi car e

payment . . . . " The Secr et ar y al so sai d: " [ R] egar dl ess of any

omi ssi ons by t he St at e t o pr ovi de t he Medi cai d [ RAs] , [ Mai ne

Medi cal ] was r equi r ed t o bi l l f or and pr oduce t he [RA] bef or e

i ncl udi ng cr ossover bad debt cl ai ms on i t s cost r epor t s. "

Second, i t f ound t hat Mai ne Medi cal ' s at t empt t o pr ovi de

al t er nat i ve document at i on di d not demonst r at e, i n any event , t hat

t he r egul atory requi r ement s of 42 C. F. R. 413. 89( e) had been met .

The al t er nat i ve documentat i on assumed t hat Mai neCar e l i abi l i t y

woul d have been zer o. But t hi s was based on Chapt er I I I , Sect i on

45 f r om t he Mai ne Medi cai d Manual t hat pur por t ed t o "el i mi nat e"

payment s f or crossover cl ai ms. The di f f i cul t y i s t hat Sect i on

1905( p) ( 3) of t he Soci al Secur i t y Act i mposes cost - shar i ng on

st at es f or Qual i f i ed Medi car e Benef i ci ar i es. See 42 U. S. C.

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1396a( a) ( 10) ( E) ( i ) . Whi l e a st at e may ef f ect i vel y l i mi t

l i abi l i t y by cappi ng Medi cai d r at es bel ow Medi car e r at es, i t may

not decl i ne payment al t oget her . 11 The Admi ni st r ator expl ai ned why

t hi s makes obt ai ni ng a det er mi nat i on f r om t he st ate necessar y:

[ T] he St ate mai nt ai ns t he most cur r ent and accur atei nf or mat i on t o det er mi ne i f t he benef i ci ar y i s dual l yel i gi bl e at t he t i me of ser vi ce, and t he St at e' sl i abi l i t y f or any unpai d deduct i bl e and coi nsur anceamount s t hr ough the St at e' s i ssuance of a [ RA] af t erbei ng bi l l ed by t he pr ovi der . Regar dl ess of a St at e' spr onouncement s, onl y t hr ough bi l l i ng and r ecei vi ng aSt at e Medi cai d [ RA] can a pr ovi der demonst r ate that aSt at e i s or i s not l i abl e f or any por t i on t her eof .

Because t he St at e i s r equi r ed t o "process t he bi l l s or cl ai ms, "

pr ovi ders may not "wr i t e- of f a Medi care bad debt as wort hl ess

11 PRM 322, Medi car e Bad Debt s under St at e Wel f are Progr ams,expl ai ns t hat :

Wher e t he St at e i s obl i gat ed ei t her by st at ut e or under t het er ms of i t s pl an t o pay al l , or any par t , of t he Medi car ededuct i bl e or coi nsur ance amount s, t hose amount s ar e not

al l owabl e as bad debt s under Medi care. Any port i on of suchdeduct i bl e or coi nsur ance amount s t hat t he St at e i s notobl i gat ed t o pay can be i ncl uded as a bad debt under Medi care,pr ovi ded t hat t he r equi r ement s of 312 or , i f appl i cabl e, 310 ar e met .

I n some i nst ances, t he St at e has an obl i gat i on t o pay, butei t her does not pay anythi ng or pays onl y par t of t hededuct i bl e or coi nsur ance because of a St at e payment"cei l i ng. " For exampl e, assume t hat a St at e pays a maxi mumof$42. 50 per day f or SNF ser vi ces and t he pr ovi der ' s cost i s$60. 00 a day. The coi nsur ance i s $32. 50 a day so t hat

Medi car e pays $27. 50 ( $60. 00 l ess $32. 50) . I n t hi s case, t heSt ate l i mi t s i t s payment t owar ds t he coi nsur ance t o $15. 00( $42. 50 l ess $27. 50) . I n t hese si t uat i ons, any por t i on of t hededuct i bl e or coi nsur ance that t he St at e does not pay t hatr emai ns unpai d by t he pat i ent , can be i ncl uded as a bad debtunder Medi car e . . . .

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wi t hout f i r st bi l l i ng and r ecei vi ng t he [ RA] f r om t he St at e, " even

i n cases wher e t he "pr ovi der has cal cul at ed t hat t he St at e has no

l i abi l i t y. " As t he Admi ni st r at or expl ai ned, t hi s i s consi st ent

wi t h t he r egul at i on i n 42 C. F. R. 413. 89( f ) gover ni ng " t he t i mi ng

of when a bad debt can be cl ai med consi st ent wi t h t he general

Medi care document at i on r equi r ement s. " Sect i on 413. 89( f ) pr ovi des

t hat "amount s uncol l ect i bl e f r om speci f i c benef i ci ar i es ar e t o be

char ged of f as bad debt s i n t he account i ng per i od i n whi ch the

account s are deemed t o be wort hl ess. " That i s, a pr ovi der may not

cl ai m a bad debt unt i l t he account has been deemed wor t hl ess, and,

because t he st at e has t he f i nal wor d on whet her i t wi l l pay, a

pr ovi der cannot deeman account ' s cr ossover cl ai ms wor t hl ess unt i l

i t has af f i r mat i vel y been deni ed payment f r om t he st at e. 12

12 The Secret ar y' s deci si on expl ai ned t hat "[ t ] he basi c ef f ectof [ 42 C. F. R. 413. 89 and t he PRM 314] i s t o bar pr ovi der s f r om

r epor t i ng bad debt s on an accr ual account i ng basi s. " Pal ms ofPasadena Hosp. v. Sul l i van, 932 F. 2d 982, 983- 84 ( D. C. Ci r . 1991)( ci t i ng 42 C. F. R. 413. 80) . I nst ead, 42 C. F. R. 413. 89 r equi r est hat Medi car e bad debt s be t r eat ed "on a cash basi s. " I d.

"Accr ual " account i ng r ecogni zes r evenue "when ear ned,r egardl ess of when col l ect ed, " and expenses " when i ncur r ed,r egar dl ess of when pai d. " I d. at 983 ( ci t at i ons omi t t ed) .Si mi l ar l y, accr ual account i ng est i mat es bad debt " [ w] hen an accountr ecei vabl e i s cr eat ed, " r egar dl ess of when payment i s deni ed, " i nl i ght of exper i ence. " I d. By cont r ast , " cash- based" account i ngonl y recogni zes bad debt s " i n t he account i ng per i od when t hepar t i cul ar account r ecei vabl e act ual l y becomes wor t hl ess. " I d. at

984.Because 42 C. F. R. 413. 89 r equi r es t hat pr ovi der s t r eat

Medi care bad debt on a cash basi s, pr ovi der s may onl y r eport ( andr ecei ve r ei mbur sement f or ) Medi care bad debt s i n t he account i ngper i od i n whi ch t he account "act ual l y becomes wort hl ess. " Pal ms ofPasadena Hosp. , 932 F. 2d at 983- 84 ( r ej ect i ng bad debtr ei mbur sement cl ai m based on "an est i mat e of t he recei vabl es [ t he

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The di st r i ct cour t af f i r med, accor di ng subst ant i al

def er ence t o what i t char act er i zed as " t he Secr et ar y' s

i nt er pr et at i on - - t hr ough t he PRM and must - bi l l pol i cy - - of her

own r egul at i ons. " Mai ne Med. Ct r . , 2014 WL 1234173 at *1, 14. The

di st r i ct cour t uphel d t he appl i cat i on of a "br i ght - l i ne r ul e, " as

i t was appr opr i at e t o keep t he bur den "on t he pot ent i al r eci pi ent "

r ather t han on t he f eder al gover nment " t o demonst r ate i t does not

owe r ei mbur sement . " I d. at *20.

I I .

Our r evi ew of t he di st r i ct cour t ' s j udgment on t he r ecor d

i s de novo, "appl yi ng t he same st andar ds t o t he Secr et ar y' s f i nal

act i on t hat t he di st r i ct cour t was bound t o appl y. " Doe v.

Leavi t t , 552 F. 3d 75, 78 ( 1st Ci r . 2009) . We may r ever se and set

asi de agency act i ons, f i ndi ngs, or concl usi ons onl y "i f t hey ar e

' ar bi t r ar y, capr i ci ous, an abuse of di scret i on, or ot her wi se not i n

accor dance wi t h l aw' or ' unsuppor t ed by subst ant i al evi dence. ' "

Vi si t i ng Nur se, 447 F. 3d at 72 ( quot i ng 5 U. S. C. 706( 2) ) . I n so

doi ng, we ar e not wed t o the di st r i ct cour t ' s r easoni ng and may

af f i r m "on any gr ound made mani f est by t he record, " see Doe, 552

F. 3d at 78, but we ar e l i mi t ed t o t he " r at i onal e advanced by the

agency i n t he admi ni st r at i ve pr oceedi ng, " Ci t i zens Awar eness

Net wor k, I nc. v. Uni t ed St at es, 391 F. 3d 338, 349 ( 1st Ci r . 2004)

( ci t i ng SEC v. Chener y Cor p. , 318 U. S. 80, 95 ( 1943) ) .

pr ovi der ] ul t i mat el y woul d not col l ect ") .

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The par t i es agree on t hese st andar ds, but di sput e t he

appr opr i at e l evel of def er ence t o accor d t hi s appl i cat i on of t he

Secr et ar y' s must - bi l l pol i cy, and t he RA Requi r ement i n par t i cul ar .

The f i r st quest i on, one of t he appr opr i at e def er ent i al

f r amework, depends on t he char act er i zat i on of t he Secr et ar y' s

deci si on. Mai ne Medi cal di sput es i n t hi s appeal t he di st r i ct

cour t ' s char act er i zat i on of t he Secret ar y' s deci si on as appl yi ng

t he Secret ar y' s di r ect i nt er pr et at i on of t he r el evant r egul at i ons.

Mai ne Medi cal i nsi st s i nst ead t hat t he RA Requi r ement i nt er pr et s

t he i nt er pr et at i ve r ul es ( ar t i cul at ed i n t he PRM) t hat t hemsel ves

i nt er pr et t he r egul at i ons. Mai ne Medi cal now al so ar gues t hat t he

RA Requi r ement i nt er pr et s J SM- 370, a memorandum t hat i t sel f

i nt er pr et s t he PRM, addi ng a f ur t her l ayer of i nt er pr et at i on.

Mai ne Medi cal ar gues t hat because the deci si on i s appr opr i at el y

char act er i zed as t he l at t er , consi der abl y l ess def er ence i s owed;

ot her wi se agenci es woul d be abl e t o i nsul at e t hemsel ves f r om

j udi ci al r evi ew by promul gat i ng vague r egul at i ons and vague

i nt er pr et at i ons of t hose r egul at i ons. See, e. g. , El gi n Nur si ng &

Rehab. Ct r . v. U. S. Dep' t of Heal t h & Human Ser vs. , 718 F. 3d 488,

493- 94 ( 5t h Ci r . 2013) ( hol di ng t hat agency' s "i nt er pr et at i on of

i t s manual i nt er pr et i ng i t s [ publ i shed] i nt er pr et at i ve r egul at i on"

was not ent i t l ed t o def er ence, ci t i ng concer ns about ensur i ng f ai r

not i ce and pr event i ng agenci es f r om i nsul at i ng t hemsel ves agai nst

r evi ew) .

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Whatever i t s mer i t s, t hi s ar gument has been wai ved.

Mai ne Medi cal not onl y f ai l ed t o r ai se t hi s t heor y bef or e t he

di st r i ct cour t , but i t sel f char act er i zed t he chal l enged RA

Requi r ement as " t he Secr et ar y' s i nt er pr et at i on of her own

r egul at i ons. " Pl . ' s Mot . J . Admi n. R. at *12, Mai ne Med. Ct r . v.

Sebel i us, No. 2: 13- CV- 00118- J AW, 2014 WL 1234173 ( D. Me. Mar . 25,

2014) , ECF No. 13 ( emphasi s added) . See Rockwood v. SKF USA, I nc. ,

687 F. 3d 1, 9 ( 1st Ci r . 2012) ( " [ A] r gument s not r ai sed i n t he

di st r i ct cour t cannot be r ai sed f or t he f i r st t i me on appeal . "

( ci t at i ons and i nt er nal quot at i on mar ks omi t t ed) ) . We pr oceed t o

t r eat t he Secret ar y' s deci si on as appl yi ng an i nt er pr et at i on of t he

r egul at i ons i n 42 C. F. R. 413. 89. 13

Si mi l ar l y, Mai ne Medi cal wai ved any argument t hat

Ski dmor e def er ence appl i es under our pr ecedent i n Vi si t i ng Nur se

Ass' n Gr egor i a Auf f ant , I nc. v. Thompson, 447 F. 3d 68, 73 ( 1st Ci r .

2006) , r at her t han Semi nol e Rock subst ant i al def er ence. I n ar gui ng

bef or e t he di st r i ct cour t , Mai ne Medi cal onl y ci t ed cases appl yi ng

Semi nol e Rock subst ant i al def er ence ( and except i ons t her et o) , l i ke

Thomas J ef f er son Uni ver si t y v. Shal al a, 512 U. S. 504 ( 1994) . As a

r esul t , we appl y t he subst ant i al def er ence f r amewor k t o t he whol e

of t he Secret ar y' s deci si on.

13 I ndeed, t hi s out come may be appr opr i ate i n t hi s case f ora di f f er ent r eason. Even i f t he RA Requi r ement i s not a di r ecti nt er pr et at i on of t he r egul at i ons, t he Secret ar y di r ect l yi nt er pr et ed t he C. F. R. r egul at i ons i n concl udi ng t hat t heal t er nat i ve document at i on was i nadequat e. See Par t s I & I I I .

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Accor di ngl y, we af f or d subst ant i al def er ence t o t he

appl i cat i on of t he must- bi l l pol i cy unl ess i t i s a "pl ai nl y

er r oneous" i nt er pr et at i on or "i nconsi st ent wi t h" t he r egul at i on' s

l anguage. Sout h Shore Hosp. , I nc. v. Thompson, 308 F. 3d 91, 97

( 1st Ci r . 2002) ( quot i ng Thomas J ef f er son, 512 U. S. at 512) . On

i t s f ace, t he must - bi l l pol i cy i s nei t her a pl ai nl y er r oneous

i nt er pr et at i on nor i nconsi st ent wi t h t he r egul at i ons. Nei t her

por t i on of t he must - bi l l pol i cy, t he Bi l l i ng Requi r ement and t he RA

Requi r ement , cont r adi ct s t he f our " [ c] r i t er i a f or al l owabl e bad

debt " under 42 C. F. R. 413. 89( e) : ( 1) t hat t he debt i s " r el at ed t o

cover ed ser vi ces and der i ved f r om deduct i bl e and coi nsur ance

amount s, " ( 2) t hat t he pr ovi der made " r easonabl e col l ect i on

ef f or t s, " ( 3) t hat t he debt was "act ual l y uncol l ect i bl e when

cl ai med as wor t hl ess, " and ( 4) t hat " [ s] ound busi ness j udgment

est abl i shed t hat t her e was no l i kel i hood of r ecover y at any t i me i n

t he f ut ur e. " 42 C. F. R. 413. 89( e) ; see al so, e. g. , Mont er ey, 323

F. 3d at 790 n. 7; Gr ossmont , 903 F. Supp. 2d at 52. Rat her , t he

Bi l l i ng Requi r ement i s a nat ur al i nt er pr et at i on of t hese

r egul at i ons, and t he RA Requi r ement pr ovi des a st andardi zed way t o

document t hat i t has been met . Cf . , e. g. , Gr ossmont , 903 F. Supp.

2d at 52 ( " [ T] he Secr et ar y reasonabl y bel i eves t hat per mi t t i ng

i ndi vi dual St at es t o r el y on t hei r own pr ot ocol s f or bad debt

r ei mbur sement - - whet her wi t h r espect t o bi l l i ng or suppor t i ng

document at i on - - coul d wr eak admi ni st r at i ve havoc on t he Medi care

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syst em. ") . I ndeed, t he Secret ar y i s aut hor i zed by st at ut e t o

r equi r e a pr ovi der t o "f ur ni sh[ ] such i nf or mat i on as t he Secret ar y

may r equest . " 42 U. S. C. 1395g( a) .

Whi l e we f i nd that a general RA r equi r ement appear s

ent i t l ed t o def er ence ( subj ect t o one concer n, bel ow) , we agr ee

wi t h Mai ne Medi cal t hat a per se RA Requi r ement woul d not be. The

Secr et ary has made except i ons and accept ed al t er nat i ve

document at i on f r om t he St ate wher e ci r cumst ances warr ant ed t he

except i on. See Gr ossmont , 903 F. Supp. 2d at 45- 46, 48. A per se

RA Requi r ement i s al so i nconsi st ent wi t h t he r egul at or y l anguage

t hat r equi r es "r easonabl e col l ect i on ef f or t s" and t he exer ci se of

" [ s] ound busi ness j udgment " t o det er mi ne that t her e i s " no

l i kel i hood of [ f ut ur e] r ecover y. " 42 C. F. R. 413. 89( e) ( 2) & ( 4)

( emphasi s added) ; see al so Cove, 848 F. Supp. 2d at 28 ( r ecogni zi ng

t he possi bi l i t y t hat a pr ovi der mi ght be deni ed Medi cai d RAs

despi t e r easonabl e col l ect i on ef f or t s) . And t he now- r epeal ed PRM-

I I 1102. 3L demonst r ates t hat RAs ar e not t he si ne qua non of

pr oof . But whi l e t he enf orcement of a per se RA Requi r ement woul d

not be ent i t l ed t o def er ence, i t i s not i nconsi st ent wi t h t he

r egul at i ons t o r equi r e a par t i cul ar t ype of document at i on, except

under cer t ai n ci r cumst ances, t o demonst r at e t hat t he Bi l l i ng

Requi r ement has been met . Cf . Gr ossmont , 903 F. Supp. 2d at 52.

That sai d, t here may be another hurdl e l ess r eadi l y

overcome: Whi l e i n our vi ew t he Bi l l i ng Requi r ement and a general

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RA Requi r ement ( whi ch i s not a per se rul e but admi t s l i mi t ed

except i ons) ar e consi st ent wi t h t he st at ut e and r egul at i ons, see 42

U. S. C. 1395hh( a) ( 1) ; 42 C. F. R. 413. 89( e) , t he Secr et ar y has not

consi st ent l y adher ed t o t hi s i nt er pr et at i on. See Sout h Shor e, 308

F. 3d at 102 ( ci t i ng Good Samar i t an Hosp. v. Shal al a, 508 U. S. 402,

417 ( 1993) ; I NS v. Cardoza- Fonseca, 480 U. S. 421, 446 n. 30 ( 1987) )

( "[ I ] f , over t i me, an agency i nt er pr et s a r egul at i on er r at i cal l y,

t hat i nconsi st ency may war r ant a cour t i n decl i ni ng t o def er t o t he

agency i n a par t i cul ar si t uat i on. ") . Dur i ng t he cost year s i n

quest i on, t he si nce- r epeal ed PRM- I I 1102. 3L expr essl y wai ved t he

Bi l l i ng Requi r ement and, wi t h i t , t he RA Requi r ement . See PRM- I I

1102. 3L ( Rev. 4) ( r epeal ed Sept ember 2003) . " I n l i eu of

bi l l i ng, " t he Secr et ar y woul d accept al t er nat i ve document at i on of :

" Medi cai d el i gi bi l i t y at t he t i me ser vi ces wer er ender ed ( vi a val i d Medi cai d el i gi bi l i t y number ) ,and

" Non- payment t hat woul d have occur r ed i f t hecrossover cl ai m had actual l y been f i l ed wi t hMedi cai d.

I d. The payment cal cul at i on woul d t hen be audi t ed "based on t he

st at e' s Medi cai d pl an i n ef f ect on t he dat e t hat ser vi ces wer e

f ur ni shed. " I d. Mai ne Medi cal argues t hat t hi s i nconsi st ency

ent ai l s t hat t he Secret ar y' s deci si on - - denyi ng al t er nat i ve

document at i on i t pr evi ousl y woul d have f ound adequate - - i s

ent i t l ed t o l ess def er ence, even wi t hi n t he subst ant i al def er ence

f r amewor k appl i cabl e t o agency i nt er pr et at i ons of t hei r own

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r egul at i ons. Cf . Sout h Shor e, 308 F. 3d at 102 ( ci t i ng Good

Samar i t an, 508 U. S. at 417) .

The ext ent t o whi ch i nconsi st ency i n i nt er pret at i on

under mi nes Semi nol e Rock def erence r emai ns uncer t ai n, but i t i s

wel l - est abl i shed i n t hi s ci r cui t t hat agenci es ar e af f or ded "a

subst ant i al measur e of f r eedom t o r ef i ne, r ef or mul at e, and even

r ever se t hei r pr ecedent s i n t he l i ght of new i nsi ght s and changed

ci r cumst ances. " See Sout h Shor e, 308 F. 3d at 102 ( ci t at i on and

i nt er nal quot at i on mar ks omi t t ed) ; M. C. St ephenson & M. Pogor i l er ,

Semi nol e Rock' s Domai n, 79 Geo. Wash. L. Rev. 1449, 1472- 81 ( 2011)

( col l ect i ng cases) ( di scussi ng ambi gui t y i n t he doct r i ne r egar di ng

t he si gni f i cance of i nconsi st ency) . The r epeal of t hi s pr ovi si on

occur r ed under unusual ci r cumst ances: t he Ni nt h Ci r cui t f ound t hat

t he si nce- r epeal ed PRM- I I 1102. 3L i t sel f mar ked a change i n t he

Secr et ar y' s bad- debt - r ei mbur sement pol i cy away f r om t he must - bi l l

pol i cy we are now asked t o af f i r m. See Mont erey, 323 F. 3d at 797-

99. But Congress had i mposed a morat or i umon changes i n bad- debt -

r ei mbur sement pol i ci es. See i d. at n. 9 ( not i ng t hat " t he Secr et ar y

l acked aut hor i t y" t o ef f ect a change) . Fol l owi ng t hi s deci si on,

t he Secr et ar y r ei nst at ed the pr e- 1995 l anguage of PRM- I I 1102. 3L,

r epeal i ng t he bi l l i ng wai ver . See J SM- 370. Thi s suggest s that t he

Secr et ar y di d not al t er her pol i cy wi t hout r eason. 14

14

Mont erey al so addr essed t hi s i nconsi st ency between the PRM-I I 1102. 3L and t he Secret ar y' s appl i cat i on of t he must - bi l lpol i cy, def er r i ng t o t he l at t er . 323 F. 3d at 798- 99. However ,

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The concer ns t hat such a r adi cal shi f t i n pol i cy mi ght

cr eat e ar e al so not evi dent her e. Mai ne Medi cal concedes t hat i t

di d not r el y on PRM- I I 1102. 3L when r espondi ng t o the l ack of

RAs. Cf . Cove, 848 F. Supp. 2d at 30 ( r emandi ng f or det er mi nat i on

"of whet her Pl ai nt i f f s wer e j ust i f i ed i n r el yi ng on CMS' pr i or

f ai l ur e t o enf or ce t he must - bi l l pol i cy" ( emphasi s added) ) . And

Mai ne Medi cal al so does not suggest t hat t he gr ace per i od, cr eat ed

by t he Secr et ar y t o "hol d har ml ess" t hose who act ed i n rel i ance on

t he al t er nat i ve document at i on scheme bef ore J anuary 2004, shoul d

appl y. See J SM- 370. That i s, on t he f act s of t hi s case, t he

pol i cy shi f t does not i mpl i cat e concer ns about r el i ance i nt er est s

or i nconsi st ent t r eat ment .

I n l i ght of t hese ci r cumst ances, we r ej ect Mai ne

Medi cal ' s ar gument t hat t he Secr et ar y' s i nconsi st ency under mi nes

t he def er ence owed t o t he Secr et ary' s det er mi nat i on that t he

r egul at i ons demand sat i sf act i on of t he Bi l l i ng and gener al RA

Requi r ement s, subj ect t o l i mi t ed except i ons. Because such

except i ons t o thi s pol i cy appear t o be made on a case- by- case

basi s, t her e r emai ns onl y t he quest i on of whet her t he Secr et ar y' s

t her e ar e t wo si gni f i cant di f f er ences bet ween Mont er ey and t hi scase. Fi r st , Mont er ey i nvol ved t he Secret ar y' s r ej ect i on of ascheme t hat woul d avoi d bi l l i ng al t oget her , not t he st at e' s deni alof RAs due t o a t echni cal gl i t ch by t he st at e. See i d. Second,PRM- I I 1102. 3L was not i n exi st ence dur i ng t he rel evant costyear s i n Mont er ey, but was i n exi st ence dur i ng t he cost year s her e.See i d.

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det er mi nat i on t hat t hi s was not such an except i onal case was

ar bi t r ar y and capr i ci ous.

I I I .

We f i nd t hat t he r ej ect i on of Mai ne Medi cal ' s al t er nat i ve

document at i on was not ar bi t r ar y and capr i ci ous, and af f i r mon that

basi s. Al t hough t he Secr et ar y' s deci si on r el i ed heavi l y on Mai ne

Medi cal ' s f ai l ur e t o pr ovi de RAs, t he Secr et ar y al so f ound t hat

Mai ne Medi cal f ai l ed t o demonst r at e sat i sf act i on of t he stat ut or y

and r egul at or y r equi r ement s. I n par t i cul ar , t he Secr et ar y f ound

t hat Mai ne Medi cal ' s document at i on f ai l ed t o show t hat at l east t wo

of t he f our r equi r ed bad debt cr i t er i a had been met , namel y, t hat

" [ t ] he debt was act ual l y uncol l ect i bl e when cl ai med as wor t hl ess, "

42 C. F. R. 413. 89( e) ( 3) , and t hat Mai ne Medi cal had made

"r easonabl e col l ect i on ef f or t s, " 42 C. F. R. 413. 89( e) ( 2) . 15

The Secr et ar y f ound t hat Mai ne Medi cal f ai l ed t o sat i sf y

t he r egul at or y r equi r ement t hat t he debt be "act ual l y uncol l ect i bl e

when cl ai med as wor t hl ess" because i t l acked adequat e document at i on

t hat Mai neCar e was not l i abl e f or any por t i on of t he cl ai med debt .

42 C. F. R. 413. 89( e) ( 3) ; see al so PRM 322 ( expl ai ni ng t hat

amount s t he st at e i s obl i gat ed t o pay by st at ut e ar e not al l owabl e

as bad debt s) . Rat her , Mai ne Medi cal - - t oget her wi t h t he Muski e

15 Because al l f our cr i t er i a must be met t o cl ai m a bad debt ,we need not r each t he Secr et ar y' s f i ndi ng t hat Mai ne Medi cal f ai l edt o demonst r ate t hat " [ s] ound busi ness j udgment est abl i shed t hatt her e was no l i kel i hood of r ecover y at any t i me i n t he f ut ur e. " 42C. F. R. 413. 89( e) ( 4) .

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I nst i t ut e - - assumed t hat Mai neCar e' s l i abi l i t y woul d be zer o based

on a pr ovi si on i n t he Mai ne Medi cai d Manual pur port i ng t o

"el i mi nat e[ ] " payment f or cr ossover cl ai ms. The Secr et ar y r ej ect ed

t hi s i nf er ence. By st at ut e, st at es may onl y l i mi t t hei r cost -

shar i ng l i abi l i t y f or QMB crossover cl ai ms t o t he Medi cai d r at e.

See 42 U. S. C. 1396a( a) ( 10) ( E) ( i ) . The st at e has t he "most

cur r ent and accur at e i nf or mat i on . . . t o det er mi ne t he St at e' s

cost shar i ng l i abi l i t y, " and t hus r emai ns t he f i nal aut hor i t y on

t he st at e' s l i abi l i t y. We obser ve t hat Mai ne Medi cal nei t her

secur ed expr ess deni al of l i abi l i t y - - even i n t he l et t er f r omt he

st at e aut hor i zi ng cooper at i on wi t h t he Muski e I nst i t ut e - - nor

per f or med i t s own cl ai m- by- cl ai m anal ysi s t o ei t her i dent i f y QMB

cr ossover cl ai ms f or whi ch Mai neCar e was st at ut or i l y l i abl e or t o

det er mi ne t he ext ent of t he resul t i ng obl i gat i on based on

Mai neCar e' s rat e f or t he servi ces pr ovi ded. I t si mpl y assumed t hat

t he st at e woul d not pay.

The Secr et ar y f ound t hat t hi s f i r st f ai l ure al so vi ol at ed

t he regul at or y requi r ement i n 42 C. F. R. 413. 89( f ) t hat account s

may onl y be "char ged of f as bad debt s i n t he account i ng per i od i n

whi ch t he account s are deemed t o be wort hl ess. " "The basi c ef f ect

of t hese pr ovi si ons i s t o bar pr ovi der s f r omr epor t i ng bad debt s on

an accr ual account i ng basi s. " Pal ms of Pasedena Hosp. v. Sul l i van,

932 F. 2d 982, 983- 84 ( D. C. Ci r . 1991) . The Secr et ar y t hus f ound

t hat Mai ne Medi cal ' s assumpt i on t hat Mai neCare woul d not pay was

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essent i al l y an at t empt t o r eport t hese bad debt s on an accrual

account i ng basi s, ant i ci pat i ng that t he account s woul d become

unr ecover abl e r ather t han havi ng conf i r mat i on t hat t he account s had

act ual l y become unr ecover abl e. Because t her e i s no st at e- i ssued

det er mi nat i on cont empor aneous wi t h t he cost - r epor t i ng per i ods of FY

2002 and FY 2003, t he debt s di d not "become wor t hl ess" dur i ng t hose

per i ods.

Wi t h r espect t o t he second bad debt cr i t er i on, t he

Secr et ary was skept i cal t hat Mai ne Medi cal had demonst r ated t hat i t

had made " r easonabl e col l ect i on ef f or t s" as r equi r ed by 42 C. F. R.

413. 89( e) ( 2) . Al t hough t he Secr et ar y' s deci si on does not

expr essl y di scuss t he t i me gap bet ween t he f i r st mi ssi ng RAs i n

l at e 2001 and t he r equest f or assi st ance i n ear l y 2005, t he

Secret ar y di d di scuss Mai ne Medi cal ' s f ai l ur e t o "mai nt ai n

ver i f i abl e and suppor t i ng document s t o j ust i f y thei r r equest s f or

payment . " The Secr et ary' s repeated i nsi st ence t hat Mai ne Medi cal

"bi l l " Mai neCar e or "submi t [ ] cl ai ms" t o t he st at e i ndi cat es t hat

Mai ne Medi cal had an obl i gat i on t o seek t he document at i on

conf i r mi ng Mai neCare' s deni al of payment , and so t oo t o pr ompt l y

i nqui r e when such document at i on was not f or t hcomi ng. Thi s

obl i gat i on al so st ems f r om t he r ecor d- keepi ng r equi r ement s of 42

C. F. R. 413. 20, whi ch t he Secret ar y i nt er pr et s as requi r i ng

pr ovi ders " t o keep ' cont emporaneous' r ecor ds and document at i on

t hr oughout t he cost year and t o t hen make avai l abl e t hose r ecords

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t o t he i nt er medi ar y. " See 42 C. F. R. 413. 20( a) ( "The pr i nci pl es

of cost r ei mbur sement r equi r e t hat pr ovi der s mai nt ai n suf f i ci ent

f i nanci al r ecor ds . . . f or pr oper det er mi nat i on of cost s payabl e

under t he pr ogr am. " ( emphasi s added) ) . But Mai ne Medi cal f ai l ed t o

acknowl edge or seek t he mi ssi ng RAs unt i l sever al year s l at er , i n

vi ol at i on of 413. 20' s r ecor d- keepi ng r equi r ement s. Thi s

vi ol at i on of 413. 20 suggest s t hat Mai ne Medi cal f ai l ed t o make

r easonabl e col l ect i on ef f or t s under 413. 89.

Fi nal l y, we rej ect Mai ne Medi cal ' s ar gument based on

di ct a i n Cove, 848 F. Supp. 2d at 28, t hat t he Secr et ar y' s r ef usal

t o make an except i on and accept t he al t er nat i ve document at i on i s

ar bi t r ar y and capr i ci ous under t he ci r cumst ances. Thi s i s not a

case, al l uded t o i n Cove, wher e Mai ne Medi cal has " est abl i sh[ ed]

t hat t hey have submi t t ed t he cor r ect f orms and made t he r i ght

appl i cat i ons, " but t he Secret ar y has " not accept [ ed] an al t er nat i ve

f or m of document at i on or . . . r equi r e[ d] t hat t he st at es compl y

wi t h her r egul at i ons. " Cove, 848 F. Supp. 2d at 28 ( suggest i ng

such a deci si on woul d be ar bi t r ar y and capr i ci ous) . Al t hough Mai ne

Medi cal i ni t i al l y submi t t ed t he cor r ect f or ms t o t he I nt er medi ar y,

i t f ai l ed t o addr ess t he mi ssi ng RAs i n a t i mel y manner . Thi s i s

not a case wher e Mai neCar e has f l at l y ref used t o i ssue t he RAs; i t

i s a case wher e a t echni cal gl i t ch i mpeded t he i ssuance of RAs, and

t he pr ovi der wai t ed year s bef or e seeki ng t o addr ess t he i ssue. As

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t he Secret ary had been aware, Mai ne Medi cal was t he onl y hospi t al

t o encount er t hi s probl em. 16

What happened her e i s unf or t unat e: Mai neCare' s comput er

dysf unct i ons depr i ved Mai ne Medi cal of t he RAs i t coul d have

expect ed t o recei ve i n ordi nar y cour se; Mai ne Medi cal di d not

not i ce t he absence of t hese RAs r i ght away; and the Secr et ary ( who

needs t o have a syst em t hat can r el i abl y pr ocess mi l l i ons of

t r ansact i ons f r om a l ar ge number of pr ovi der s i n 50 st at es)

concl uded t hat Mai ne Medi cal ' s ef f or t s t o addr ess t he pr obl emwer e

not enough t o j ust i f y r ei mbur sement i n t he absence of RAs. I n

af f i r mi ng t hat concl usi on, we do not our sel ves det er mi ne that Mai ne

Medi cal act ed unr easonabl y. Rather , we mer el y sust ai n t he

Secr et ar y' s det er mi nat i on t hat Mai ne Medi cal ' s ef f or t s di d not

j ust i f y an except i on t o t he RA Requi r ement because we cannot say

t hat det er mi nat i on was arbi t r ar y and capr i ci ous.

We af f i r m. No cost s are awarded.

16 I t i s not appar ent f r omt he r ecor d whet her ot her hospi t al ssuccessf ul l y pr oduced RAs because t hey f ol l owed up on t he er r orwi t hi n an adequate t i me or because t he t echni cal i ssue di d notaf f ect t he pr ocessi ng of t hei r cl ai ms i n FY 2002 and FY 2003.

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Documents

Maine Medical Center v. Burwell, 1st Cir. (2015)