In Summer Hill Nursing Home v. Mutual of Omaha Insurance Co., the Board considered whether a provider must bill a state's Medicaid program for dual eligible claims prior to claiming unpaid Medicare coinsurance and deductible amounts, i.e., bad debt, as uncollectible.

In this case, the Provider applied its State's Medicaid payment formula to determine the State's liability for any portion of the Provider's dual-eligible residents' coinsurance and deductible. The Provider billed the State Medicaid program only in those instances where it determined that a liability existed. If the calculations revealed no State liability, the Provider wrote-off the outstanding amounts as a bad debt. After the bad debts were written off, the Provider billed the Medicaid program to confirm its finding regarding the State's liability.

The Intermediary asserted that the Provider was required to bill the State Medicaid program prior to writing off the uncollected amounts as bad debt. The Intermediary claimed that the Provider's policy was contrary to the bad debt regulations at 42 C.F.R. § 413.89(e) and the Medicare Provider Reimbursement Manual (PRM) provisions at § 308. These provisions require that a bad debt must be determined to be "uncollectible" in order to be considered an allowable cost for purposes of Medicare reimbursement. The Intermediary also claimed that the requirement that providers must bill a state Medicaid program to establish uncollectiblity of a dual eligible bad debt, i.e, the "must bill" policy, was communicated to the Provider in a Medicare Newsletter, dated October 15, 2003. The Newsletter stated that the Medicare program would not accept forms of documentation in support of the uncollectibility of a dual eligible bad debt, other than a billing to and remittance from a state's welfare agency.

Rejecting the Intermediary's position, the Board found that the Medicare regulations and the PRM do not contain a requirement that providers bill their state Medicaid program prior to concluding a bad debt is uncollectible. Rather, the Medicare bad debt regulations and the PRM only require that providers apply a reasonable collection effort and sound business judgment to determine the uncollectibility of a Medicare bad debt. The Board found that the Intermediary's reliance on the Newsletter was without merit as the Newsletter is unsupported by the Medicare regulation or the PRM, and therefore could not impose an additional requirement for bad debt reimbursement. In sum, the Board concluded that the imposition of a "must bill" policy was improper.

On December 20, 2007, the CMS Administrator reversed the Board's decision based on its finding that the "must bill" policy is supported by the Medicare statute and regulations. The Administrator relied on past Administrator decisions as well as a decision of the 9th Circuit in Community Hospital of the Monterey Peninsula v. Thompson, 323 F.3d 782 (9th Cir. 2003), which came to the same conclusion as to the propriety of the "must bill" policy. Not only did the Administrator conclude that billing a state's Medicaid program is required to verify the allowability of bad debts, but in a footnote to its decision, the Administrator stated such billing is also a recordkeeping requirement under the Medicare statute. The Provider has appealed the Administrator's decision to the United States District Court for the District of Columbia.

Baptist Regional Medical Center v. BlueCross BlueShield¸ PRRB Dec. No 2008-D12, (December 10, 2007); CMS Adm'r Dec. (February 8, 2008)

In Baptist Regional Medical Center v. BlueCross BlueShield¸ the Board considered whether the Intermediary correctly denied reimbursement to the Provider for its Medicare indigent bad debts. The Intermediary disallowed the bad debts on the basis that the Provider's charity care policy for indigent patients did not include an analysis or "test" of the indigent patients' assets. The Intermediary claimed that the Medicare Provider Reimbursement Manual (PRM), § 312(B) requires providers to take a patient's assets into consideration. The language of § 312(B) states, "[t]he provider should take into account a patient's total resources which would include, but are not limited to, an analysis of assets … liabilities, and income and expenses…."

In support of its charity care policy, the Provider relied on a United States District Court's decision in Harris County Hospital v. Shalala, in which, contrary to the Administrator's decision on appeal, the Court concluded that PRM § 312 used precatory language, i.e., "should," as opposed to mandatory language in suggesting the use of an asset test when determining an indigent patient's eligibility for charity care. Harris County Hospital v. Shalala, 863 F. Supp. 404 (S.D. 1994), aff'd, 64 F.3d 220 (5th Cir. 1995). The Court found that the Medicare bad debt regulations only require that a provider use its "sound business judgment" in determining the likelihood of recovering a bad debt. The Board agreed with the reasoning in the Harris County Hospital decision and concluded that the PRM does not create a mandatory asset test; rather, the Board found that though a determination of patients' indigence must take each patient's circumstances into account, sometimes such determinations will require an asset test and sometimes they will not. As a result, the Board ruled in favor of the Provider. However, on February 8, 2008, the Administrator reversed the Board's decision. It is our understanding that the Provider will appeal the Administrator's decision to court.

Ober|Kaler's Comments: These two cases illustrate the CMS Administrator's continuing trend of striking down providers' appeals related to Medicare bad debt. However, the courts could reverse the Administrator's decisions and rule in favor of the providers in these cases. In this environment, providers should be ready to take their appeals beyond the administrative level in order to prevail.