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Hospitals Sue HHS Secretary Over Alleged Unlawful Decision to Not Reimburse Bad Medicare Debt

The sign outside the Washington, D.C. building of the Department of Health and Human Services.

Washington D.C., USA - February 29, 2020: Sign of U.S. Department of Health & Human Services (HHS) at its headquarters building in Washington, D.C. USA.

On Monday in the District of Columbia District Court, 46 Medicare-participating hospitals filed a complaint against Department of Health and Human Services (HHS) Secretary Alex M. Azar, arguing that he should reverse a final decision that bad debts incurred by the hospitals between fiscal years 2006 and 2009, totaling approximately $1,359,216, cannot be reimbursed because the amount was pending at an outside collection agency.

According to the complaint, when Medicare beneficiaries fail to pay their deductible or coinsurance, “(t)o assure that such covered service costs are not borne by others, the costs attributable to the deductible and coinsurance amounts that remain unpaid are reimbursed by Medicare as ‘bad debts.’” To qualify for reimbursement, a provider has to show that the bad debt is from “covered services and derived from deductible and coinsurance amounts” and that it was “actually uncollectible when claimed as worthless.” A provider also must show that it made “reasonable collection efforts” and had “sound business judgment” proving collection was unlikely, the complaint said.

The complaint noted that every Medicare-participating hospital is assigned to a Medicare appeals contractor (MAC), who act as agents of the HHS secretary to provide reimbursement to providers of Medicare services. “When submitting their cost reports for FYs 2006 through 2009, the Hospitals sought reimbursement of their Medicare bad debts sent to outside collection agencies. However, the Hospitals’ MAC denied all reimbursement of these bad debts,” the complaint said.

The plaintiffs argued that this denial of reimbursement is in violation of the Bad Debt Moratorium, which took effect on Aug. 1, 1987, and was enacted by Congress to bar the HHS Secretary from making changes in policies related to bad debt. They claimed this denial was based on “presumption of collectability,” which prohibits providers from being reimbursed for bad debt incurred by Medicare beneficiaries as long as the debts were at an outside collection agency, and that it is unlawful because, according to findings in District Hospital Partners v. Sebelius, the policy did not exist before Aug. 1, 1987.

However, after an initial appeal by the hospitals, the Provider Reimbursement Review Board (PRRB) “declined to follow either District Hospital Partners or Foothill Hospital, stating that the Board disagreed with this Court’s findings in both cases,” and found that the decision was not unlawful.

The plaintiffs maintained that “(t)he PRRB’s Final Decision upholding the disallowance of the Hospitals’ Medicare bad debts at issue on the ground that they were still pending at an outside collection agency at the time they were written off is contrary to law because (a) the Hospitals’ bad debts are explicitly allowable … and (b) the Secretary’s determination that the bad debts cannot be claimed as uncollectible on the ground that they were still pending at an outside collection agency at the time they were written off is contrary to law because it violates the Bad Debt Moratorium, as there was no such agency ‘policy’ in effect prior to August 1, 1987.”

The plaintiffs requested an order reversing the final decision upholding the disallowance of the bad debts; an order remanding the action to the defendant, instructing him to reimburse the hospitals in full, plus interest, and a writ of mandamus to do so; and legal fees and costs; among other reasonable relief.

The plaintiffs are represented by Hooper, Lundy & Bookman PC.

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