Providers with Medicare bad debts from dual-eligible beneficiaries must first bill Medicaid


March 15, 2017

A hospital could not bill Medicare for unpaid deductibles and coinsurance amounts from Medicare beneficiaries who were also Medicaid-eligible until the hospital had first billed the state Medicaid program and obtained a remittance advice establishing that the state Medicare program was not liable for the debt, the Provider Reimbursement Review Board (PRRB) ruled. This "must-bill" policy to collect bad debts from dual-eligible beneficiaries applied to this hospital, even though it did not participate in Medicaid and thus could not bill the state Medicaid program, because the hospital was eligible to enroll in the Medicaid program but chose not to for business reasons. The PRRB’s decision to accept the validity of the must-bill policy for dual-eligible beneficiaries represents a reversal of the position it took in a 2010 decision (Memorial Hermann Continuing Care Hospital v. Cahaba Safeguard Administrators, LLC, PRRB Decision 2017-D6, February 9, 2017).

Background. Memorial Herman Continuing Care Hospital, a long-term care hospital in Houston, Texas, sought Medicare reimbursement for fiscal years 2005 and 2007 that included bad debts attributable to beneficiaries who failed to pay deductibles and coinsurance amounts. The Medicare contractor, Cahaba Safeguard Administrators, disallowed the bad debts on those beneficiaries who were dual eligible (that is, eligible for both Medicare and Medicaid) because Memorial Herman never sought reimbursement from the Texas Medicaid program and, thus, never produced remittance advices showing that the Texas Medicaid program was not liable for the debt. Memorial Herman, which could not bill the state Medicaid program because it did not participate in Medicaid, appealed the Medicare contractor’s decision to the PRRB, arguing that (1) the must-bill policy had no basis in Medicare statute or regulations; (2) application of the must-bill policy violated CMS’s Bad Debt Moratorium; and (3) the contractor had a past practice of allowing collection of bad debts without billing Medicaid.

Must-bill policy. In denying the reimbursement, Cahaba Safeguard relied on Joint Signature Memorandum 370, which CMS issued on August 10, 2014, to clarify its must-bill policy requiring providers both to bill the state Medicaid program for unpaid deductibles and copayments and to obtain the remittance advice. Medicare regulations, which were less explicit, permit reimbursement of bad debts but they also require that providers undertake reasonable collection efforts and that the debt be "actually uncollectible" (42 C.F.R. Sec. 413.89(a)). CMS’s Provider Reimbursement Manual Part 1, in addition, requires that providers determine that no other source would be responsible for the bill (PRM 15-1 Sec. 312), and it further establishes that Medicare bad debts are not allowable if the state Medicare plan would pay the debt (Sec. 322).

The hospital, however, argued that CMS’s actions in establishing the must-bill policy violated what is known as the Bad Debt Moratorium, which Congress established in 1987 (Omnibus Budget Reconciliation Act, Sec. 4008(c)). The Moratorium had two prongs, which prevented (1) the Secretary of Health and Human Services from making any changes to HHS’s bad debt policy that was in effect as of August 1, 1987; and (2) the Secretary from changing any provider’s bad debt collection policy if that policy was in effect as of August 1, 1987. Memorial Herman argued that both prongs were violated in this case and that upholding the must-bill policy would force it and similarly situated providers into the untenable situation of either treating no Medicaid-eligible patients or absorbing the bad debts.

The PRRB concluded in this case that HHS’s bad debt policy, which predated 1987, had always established that providers were obligated to bill the responsible party. As a result, it said, the more recent "must-bill" pronouncement in Signature Memorandum 370 was simply a clarification of a policy that predated the Bad Debt Moratorium. Standing squarely in the PRRB’s way, however, was its own 2010 decision in Select Specialty ’05 Medicare Dual Eligible Bad Debt Grp. v. Blue Cross Blue Shield Ass’n, PRRB Dec. No. 2010-D25 (April 13, 2010), rev’d, CMS Adm’r Dec. (March 2016), in which the PRRB had reached the opposite conclusion. The PRRB was now changing course, it said, in light of several recent federal court decisions and the Administrator’s decision on remand in Select Specialty. Those decisions, which did not specifically apply the Moratorium, nevertheless were instructive, the PRRB said, in establishing that the Secretary’s requirement that providers obtain a remittance advice for Medicaid-eligible beneficiaries be given deference. Reasonable collection efforts must be made, the federal courts said, to determine that the debts were actually uncollectible.

Non-participation in Medicaid. The PRRB went on to note that the bad debt policy expressed in PRM 15-1 Sec. 322 was a blanket requirement, made without regard to whether the provider participated in the state Medicaid program. This PRM section also predated the Bad Debt Moratorium, the PRRB said, and thus complied with the Moratorium’s first prong. Furthermore, Memorial Herman was forced into what it contends was an untenable position because of its own business decision not to participate in Medicaid. The result might have been different if, for some reason, the Texas Medicaid program would not allow Memorial Herman to become a Medicaid participating provider, but Memorial Herman was free to join. Memorial Herman’s solution, therefore, to avoid a similar result in the future would be to enroll in the Texas Medicaid program.

Past practice. In its final argument, Memorial Herman contended that the contractor abused its discretion by disallowing the bad debt when it had previously allowed it. It cited Harris County Hosp. District v. Shalala, 64 F.3d 220 (5th Cir. 1995), in which the Fifth Circuit had ruled that the contractor violated the Bad Debt Moratorium’s second prong when it forced the provider to change is policy by rejecting a policy that in prior years it had accepted. The PRRB, however, pointed to dicta in Harris County that the Fifth Circuit’s decision relied on an acceptance of what constituted the hospital’s policy before August 1, 1987. In this case, the PRRB noted, no evidence was ever introduced to establish what Memorial Herman’s billing policy was before August 1, 1987, that the contractor had accepted reimbursement for similar claims under that policy, or that the contractor failed to consistently apply the must-bill policy in other audits. As a result, the second prong of the Moratorium was not violated because no evidence existed that the provider was forced to change its Medicaid billing policy.

The PRRB, therefore, upheld the Medicare contractor’s conclusion that the provider’s Medicare bad debts were not reimbursable.

Cost reporting periods ending February 28, 2005; February 28, 2007.

Companies: Memorial Hermann Continuing Care Hospital; Cahaba Safeguard Administrators, LLC

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