New LifeCare Hospitals v. Xavier Becerra ( 2021 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 22, 2021 Decided August 10, 2021
No. 20-5227
NEW LIFECARE HOSPITALS OF NORTH CAROLINA, LLC, DOING
BUSINESS AS LIFECARE HOSPITALS OF NORTH CAROLINA, ET
AL.,
APPELLANTS
v.
XAVIER BECERRA, IN HIS OFFICIAL CAPACITY AS SECRETARY,
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN
SERVICES,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 1:17-cv-00237)
Jason M. Healy argued the cause and filed the briefs for
appellants.
Dennis Fan, Attorney, U.S. Department of Justice, argued
the cause for appellee. With him on the brief were Brian M.
Boynton, Acting Assistant Attorney General, and Alisa B.
Klein, Attorney.
Before: HENDERSON, WILKINS and WALKER, Circuit
Judges.
2
Opinion for the Court filed by Circuit Judge WILKINS.
WILKINS, Circuit Judge: Appellants are four long-term
care hospitals located in North Carolina, Pennsylvania, Texas,
and Louisiana. The hospitals treat patients who are dually
eligible for the Medicare and Medicaid programs. In 2008, the
hospitals were denied reimbursement by the Secretary of
Health and Human Services for “bad debts”—i.e., unpaid
coinsurances and deductibles owed by patients. The Secretary
denied reimbursement on the grounds that the hospitals failed
to comply with the “must-bill” policy, which requires providers
to first seek payment from Medicaid before seeking
reimbursement from Medicare for the bad debts of patients
covered by both programs. The hospitals sought judicial
review of the reimbursement denial, and the District Court
granted summary judgment to the Secretary. For the reasons
explained below, we affirm the District Court.
I
A
Medicare is a federally funded program that reimburses
healthcare providers for delivering medical care to qualifying
elderly and disabled individuals. See 42 U.S.C. § 1395 et seq.
Medicaid is a cooperative federal-state program—administered
by states, and subject to federal guidelines—that pays for
medical care provided to eligible low-income individuals. See
42 U.S.C. § 1396 et seq. Medicare is administered by the
Centers for Medicare and Medicaid Services (“CMS”) on
behalf of the Secretary of Health and Human Services.
Notably, because Medicare does not cover the full cost of care,
patients are responsible for paying deductible and coinsurance
fees for inpatient hospital services received. See 42 U.S.C. §
1395e; 42 C.F.R. §§ 409.82, 409.83.
3
This case concerns several hospitals that treat “dual-
eligible” patients—i.e., individuals who qualify for both
Medicare and Medicaid. Often, these patients are unable to
afford the coinsurances and deductibles required of them under
Medicare. When that happens, state Medicaid programs may
fill the gap by requiring the state Medicaid agency to cover the
unpaid fees. Grossmont Hosp. Corp. v. Burwell, 797 F.3d
1079, 1081 (D.C. Cir. 2015). The Medicaid statute requires
states to determine what cost-sharing liability they bear for
dual-eligible patients. See 42 U.S.C. § 1396a(a)(10)(E)(i).
If the state does not cover the deductibles and coinsurances
of dual-eligible patients through Medicaid, then those missing
payments can be designated as “bad debts,” and healthcare
providers can seek reimbursement through Medicare. See 42
C.F.R. § 413.89; see also CMS Provider Reimbursement
Manual Part 1, § 322, https://www.cms.gov/Regulations-and-
Guidance/Guidance/Manuals/Paper-Based-Manuals-
Items/CMS021929. Medicare reimburses bad debts to prevent
hospitals from shifting the cost of Medicare-related services
onto non-Medicare patients. See 42 U.S.C. § 1395x(v)(1)(A)
(requiring the Secretary to regulate in such a way that “the
necessary costs of efficiently delivering covered services to
individuals covered by the insurance programs established by
this subchapter will not be borne by individuals not so
covered”).
Before a provider can seek reimbursement of bad debt
from Medicare, CMS requires the provider to demonstrate that
“reasonable . . . efforts were made” to collect payment from the
party responsible for the bill. 42 C.F.R. § 413.89(e)(2). In its
Provider Reimbursement Manual (“PRM”), CMS explains
what a “reasonable collection effort” means. See Provider
Reimbursement Manual § 310. Section 310 of the PRM
explains that providers must “issu[e] . . . a bill . . . to the party
responsible” for the patient’s payments. CMS Provider
4
Reimbursement Manual § 310. Section 322 of the PRM further
explains that when a state Medicaid program 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.
§ 322 (emphasis added). Medicare thus allows “[a]ny portion
of such deductible or coinsurance amounts that the State is not
obligated to pay [to] be included as a bad debt[.]” Id.
(emphasis added).
CMS addressed the bad debt reimbursement policy in a
joint memorandum (“JSM”) issued to all fiscal intermediaries
in 2004. At that time, CMS explained that:
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.
J.A. 238. The 2004 memorandum referred to this pre-
reimbursement requirement as the “must-bill” policy, and it
outlined the steps a provider must take to comply with the
policy before seeking bad debt reimbursement for dual-eligible
patients:
[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).
5
Id. In short, CMS’s must-bill policy requires hospitals to: (1)
bill the state Medicaid program to determine whether Medicaid
will cover the bad debts first, and (2) obtain a document known
as a “remittance advice” (“RA”) indicating whether the state
“refuses payment,” before seeking reimbursement under
Medicare. Id.; see also Grossmont, 797 F.3d at 1086.
Bad debt reimbursement claims are ultimately processed
by private insurance companies (fiscal intermediaries) serving
as contractors for CMS. See 42 U.S.C. §§ 1395h(a), 1395u(a),
1395kk-1. Healthcare providers file annual cost reports with
these contractors, 42 C.F.R. § 413.20(b), and the contractors
issue notices indicating which payments Medicare will cover,
id. § 405.1803(a). Providers can then appeal reimbursement
decisions from the contractors to the Provider Reimbursement
Review Board (“Board”), an administrative tribunal within
HHS. 42 U.S.C. § 1395oo(a). The Board’s decision is final
unless the Secretary—acting through the CMS
Administrator—“reverses, affirms, or modifies” the Board. Id.
§ 1395oo(f)(1); see also 42 C.F.R. § 405.1875(a). From there,
a provider may seek judicial review by filing a civil action in
district court. 42 U.S.C. § 1395oo(f); 42 C.F.R. § 405.1877(b).
Relevant here, Congress froze any changes to CMS’s bad
debt reimbursement policy in 1987. Grossmont, 797 F.3d at
1083; see also Omnibus Budget Reconciliation Act of 1987,
Pub. L. No. 100-203, § 4008(c), 101 Stat. 1330–55. This
freeze, known as the “Bad Debt Moratorium,” prevents CMS
from making “any change in the policy in effect on August 1,
1987, with respect to payment” for “unpaid deductible and
coinsurance amounts.” Pub. L. No. 100-203, § 4008(c).
B
Appellants (“the hospitals”) are long-term care facilities in
North Carolina, Pennsylvania, Texas, and Louisiana. In April
2008, the hospitals were denied over $3 million in bad debt
6
reimbursement claims they submitted to CMS contractors. The
contractors denied the claims on the grounds that the hospitals
failed to comply with the must-bill policy. During the relevant
time period, the hospitals were not enrolled in Medicaid and
were thus unable to bill their respective state Medicaid
programs. Central to this appeal, the hospitals claim that CMS
contractors previously reimbursed bad debt claims without
requiring proof that the hospital followed the must-bill policy.
According to the hospitals, contractors only began enforcing
the policy against them in April 2008.
The hospitals appealed the denial of reimbursement to the
Board. The Board upheld the contractors’ decisions for half of
the hospitals, but reversed as to the other half. With respect to
the hospitals in Louisiana and Texas, the Board found that they
had “made a business decision” not to enroll in Medicaid, and
that nothing prevented them from complying with the must-bill
policy except for their own decision not to enroll in Medicaid.
As to the hospitals in North Carolina and Pennsylvania, the
Board found that those hospitals were not permitted to enroll
in their state Medicaid programs during the relevant period, and
were thus unable to bill Medicaid through no fault of their own.
As a result, the Board ordered the contractors to accept an
alternative form of documentation (something other than the
RA) and reconsider the reimbursement claims.
The CMS Administrator took up review of the Board’s
decision. The parties filed comments for the Administrator, see
42 C.F.R. § 405.1875, but the hospitals failed to raise one
argument at issue in this appeal—namely, that CMS violated
Congress’s 1987 Bad Debt Moratorium by suddenly enforcing
the must-bill policy in 2008.
The Administrator partially reversed the Board and denied
all of the hospitals’ reimbursement claims. The Administrator
reasoned that the must-bill policy applies to all hospitals,
regardless of Medicaid enrollment status, because state
7
Medicaid programs are required to allow limited enrollment for
the purpose of complying with the must-bill policy. J.A. 729–
30. The Administrator also noted that if a state refuses to allow
a hospital to enroll and thereby comply with the must-bill
policy, then the hospital’s recourse is to “take legal action with
the[] state[].” J.A. 730.
The hospitals filed suit in the District Court, raising several
challenges to CMS’s application of the must-bill policy. The
hospitals did not challenge the must-bill policy per se. J.A.
109. Rather, they challenged CMS’s sudden enforcement of
the policy in April 2008—an enforcement which they claim
violated the Medicare Act, the Administrative Procedure Act,
and the Bad Debt Moratorium. J.A. 30–32.
The parties cross-moved for summary judgment. The
District Court granted summary judgment to the Secretary,
finding that most of the hospitals’ challenges failed because the
hospitals did not prove CMS changed its application of the
must-bill policy. The District Court also declined to reach the
hospitals’ argument that CMS violated the Bad Debt
Moratorium, because the hospitals did not raise it before the
Administrator. The hospitals filed a motion for
reconsideration, arguing that it was both clear error and
fundamentally unfair to preclude judicial review of a claim not
presented to the Administrator so long as the claim was
developed before the Board. After a hearing, the District Court
denied the motion, holding again that the hospitals waived the
Bad Debt Moratorium argument by failing to present it at all
stages of administrative review. The hospitals timely appealed.
II
The hospitals argue that the Administrator’s decision was
unlawful for several reasons, and they ask us to reverse the
District Court’s grant of summary judgment to the Secretary.
We review de novo the District Court’s summary judgment
8
decision. Grossmont, 797 F.3d at 1082. But because the
District Court reviewed an administrative decision, “our task is
the same as that performed by the district judge. In other words,
we review the administrative record to determine whether the
agency’s decision was arbitrary and capricious, and whether its
findings were based on substantial evidence.” Forsyth Mem’l
Hosp., Inc. v. Sebelius, 639 F.3d 534, 537 (D.C. Cir. 2011)
(citing Troy Corp. v. Browner, 120 F.3d 277, 281 (D.C. Cir.
1997)). We ask whether the agency “examine[d] the relevant
data and articulate[d] a satisfactory explanation for its action
including a rational connection between the facts found and the
choice made.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (internal
quotation marks omitted).
According to the hospitals, CMS abruptly changed its
policy and began enforcing the must-bill requirement against
the hospitals in April 2008, resulting in the denial of $3 million
in reimbursement claims. The hospitals contend that this
sudden enforcement violated the Medicare Act and the APA.
We address each argument in turn.
A
The hospitals first argue that the Administrator’s decision
violated the Medicare Act, 42 U.S.C. § 1395hh(a)(2). They
reason that the sudden enforcement of the must-bill policy in
April 2008 amounted to an interpretive rule, and the Medicare
Act requires notice-and-comment rulemaking for changes in
interpretive rules. See Azar v. Allina Health Servs., 139 S. Ct.
1804, 1814 (2019) (holding that the Medicare Act does not
incorporate the APA’s exception to notice-and-comment
rulemaking for interpretive rules).1 The hospitals also argue
1
The Medicare Act, 42 U.S.C. § 1395oo(f)(1), incorporates the
APA’s standard of review. See Thomas Jefferson Univ. v. Shalala,
512 U.S. 504, 512 (1994).
9
that this interpretive rule was arbitrary and capricious under the
APA, because it represented an abrupt change in policy with
no reasoned explanation. See FCC v. Fox Television Stations,
Inc., 556 U.S. 502, 515 (2009).
The problem for the hospitals is that they identify no
change in CMS policy taking place in 2008. As noted above,
CMS outlined its must-bill policy in a 2004 joint memorandum
(“JSM”) sent to all intermediary contractors. The hospitals do
not challenge that memorandum; at oral argument, counsel for
the hospitals explained that the only challenge here is to CMS’s
“decision to impose the remittance advice requirement on [the
hospitals] beginning in April 2008.” Oral Arg. Recording
5:45–6:05. The hospitals presume that CMS somehow altered
the must-bill policy in 2008 or issued a new interpretive rule
suddenly enforcing the policy against them, but the
Administrator determined otherwise based on the record.
First, the Administrator found that there was no evidence
of a change in agency policy in 2008: Prior to 2008, “no
statement in the JSM, related PRM sections, or prior
Administrator decisions” exempted the hospitals from the
must-bill policy. J.A. 731. Second, the Administrator found
that intermediary contractors may have reimbursed bad debts
in the past without enforcing the must-bill policy (“without
[requiring] appropriate documentation”), but even so, the
actions of contractors did not set agency policy. Id. In other
words, a failure by contractors to properly enforce the must-bill
policy against the hospitals in years past did “not constitute an
explicit or affirmative agency action on policy.” Id. The
Administrator found that even if the hospitals were previously
reimbursed without adhering to the must-bill policy, evidence
of those reimbursements was consistent with the conclusion
that the contractors must have erred when reviewing and
auditing previous claims. See id. As the Administrator
explained: “[I]t is not always possible to review every item of
10
the cost report every year . . . . Such an error also does not
demonstrate that CMS has abandoned or changed a policy.” Id.The Administrator concluded that prior failures of contractors
did not “relieve [a hospital] of its responsibility to follow the
rules and regulations of CMS.” Id.On appeal, the hospitals point to nothing in the record to
undermine the Administrator’s determination. Instead, the
hospitals assume that the actions of contractors signaled a
change in agency policy in 2008. See Appellants’ Br. at 15
(referring to “CMS’s change in interpretation of the must-bill
policy”); id. at 16–19 ( “CMS changed a substantive legal
standard . . . .”); id. at 23 (“CMS abruptly changed its policy
. . . .”). Here, as in the District Court, the hospitals rely
primarily upon a set of statements from their Vice President for
Reimbursement, who testified that “[p]rior to the years at issue,
the intermediaries did not require . . . an RA,” and “that was
the audit treatment up until April of 2008.” J.A. 616. The Vice
President also stated that contractors “started requiring a valid
. . . RA with a valid denial code” in April 2008, id., and even
though CMS issued a joint memorandum outlining the must-
bill policy in 2004, the contractors “accepted documentation
just supporting Medicaid eligibility” between 2004 and 2008,
id. at 618. The hospitals also cite a letter sent by the hospitals
to an auditor in March 2008 with alternative documentation
(not an RA), along with redacted copies of forms showing
patient Medicaid eligibility. See Appellants’ Br. at 21; J.A.
298. None of this evidence undermines the Administrator’s
finding: While contractors may have failed to properly audit
the hospitals’ must-bill compliance before April 2008, those
errors do not amount to a change in CMS policy.
In addition, the hospitals argue that the District Court
should have followed Select Specialty Hospital-Denver, Inc. v.
Azar, 391 F. Supp. 3d 53 (D.D.C. 2019). In Select, the district
court held that CMS was “required, under the Medicare Act . .
11
. to conduct notice-and-comment rulemaking” before imposing
the “must-bill policy and the RA requirement” on a group of
“non-Medicaid-participating providers.” 391 F. Supp. 3d at 67.
There, as here, a group of hospitals that participated in
Medicare but not Medicaid challenged the denial of their
reimbursement claims for dual-eligible bad debts. Id. at 55. On
cross-motions for summary judgment, the district court held for
the hospitals. Id. at 56. But Select involved a different
administrative record. As the District Court correctly noted
here, its review of the Administrator’s decision is “limited [to]
and confined by the record in front of it.” New LifeCare Hosps.
of N. Carolina LLC v. Azar, 416 F. Supp. 3d 11, 22 (D.D.C.
2019), reconsideration denied, 466 F. Supp. 3d 124 (D.D.C.
2020). “It is black-letter administrative law that in an
Administrative Procedure Act case, a reviewing court should
have before it neither more nor less information than did the
agency when it made its decision.” CTS Corp. v. EPA, 759 F.3d
52, 64 (D.C. Cir. 2014) (internal quotation marks and brackets
removed). The record before us does not indicate a change in
agency policy in 2008.
Because we conclude that the Administrator’s finding of
no change in CMS policy was supported by substantial
evidence, we reject the hospitals’ arguments that CMS violated
the Medicare Act or the APA by changing an interpretive rule
in 2008.
B
The hospitals next argue that the District Court should
have considered whether the Administrator’s decision violated
the Bad Debt Moratorium. The District Court held that this
issue was waived by the hospitals’ failure to exhaust it at the
administrative level, because the hospitals did not raise the
argument to the Administrator despite raising it before the
Board.
12
As noted above, the must-bill policy has two requirements:
1) a requirement to bill the state Medicaid agency, and 2) a
requirement to obtain an RA. Here, the Board found that the
first requirement predates the Bad Debt Moratorium, and the
Board declined to reach whether the second requirement
violates the Moratorium. See J.A. 707 (“[T]he Board finds that
pre-1987 bad debt policy in the PRM clearly established that
providers have an obligation to bill ‘the responsible party.’”);
J.A. 709 n.49 (citing “examples of pre-1987 agency statements
and Board cases applying CMS’ bad debt policy”); J.A. 709
n.48 (“[T]he Board need not address . . . whether the CMS’
position that the ‘must bill’ policy necessarily includes
obtaining an RA from a state even when that state has no
responsibility violates the Bad Debt Moratorium.”). The
Board’s finding was not disturbed by the Administrator.
Although the Administrator provided several reasons for
denying the hospitals’ claims, at least one of the reasons was
the hospitals’ “failure to timely bill the State.” J.A. 729; see
also J.A. 728 (“[T]here are two types of situation[s] under
which the Providers did not bill and receive a remittance advice
from the respective State in which they were located in this
case.” (emphasis added)); see also J.A. 726 (citing Cmty. Hosp.
of Monterey Peninsula v. Thompson, 323 F.3d 782 (9th Cir.
2003), and noting that “unpaid liability for the bad debt is not
reimbursable until the provider bills the State and the State
refuses payment, all of which is demonstrated through a
Remittance Advice”).
On appeal, the hospitals do not argue that the billing
requirement in fact violates the Moratorium. Rather, they
argue that the RA requirement—the second half of the must-
bill policy—violates the Moratorium, and that the District
Court should have addressed this issue. See Appellants’ Br. at
28. But the Government points out that we need not reach this
issue, because the hospitals never complied with the billing
requirement which the Board found predates 1987. Gov’t Br.
13
at 24–26. In their reply brief, the hospitals argue they did
properly comply with the billing requirement. See Appellants’
Reply Br. at 17, 23. This argument is not timely, not only
because it first appears in the reply brief, but also because it
was not raised in the District Court, as it is not our role to
resolve a factual dispute on appeal. “[W]e are a court of
review, not of first view.” Capitol Servs. Mgmt., Inc. v. Vesta
Corp., 933 F.3d 784, 789 (D.C. Cir. 2019) (internal quotation
marks and brackets omitted).
The hospitals correctly note that other district courts have
found the RA requirement violates the Bad Debt Moratorium
based on different administrative records. See Kindred
Healthcare, Inc. v. Azar, No. 1:18-cv-650, 2020 WL 3574614,
at *8 (D.D.C. July 1, 2020); Select, 391 F. Supp. 3d at 59,
reconsideration denied, No. 1:10-cv-1356, 2019 WL 5697076(D.D.C. Nov. 4, 2019), appeal dismissed, No. 20-5004, 2020
WL 768266 (D.C. Cir. Jan. 28, 2020) (“The Secretary cites
nothing in the record articulating an absolute RA requirement
before the issuance of JSM-370 . . . .”); Mercy Gen. Hosp. v.
Azar, 410 F. Supp. 3d 63, 77 (D.D.C. 2019). But we agree with
the Government that these cases are inapplicable given the
record before us. Here, the Board found that the hospitals did
not comply with the billing requirement that predates the
Moratorium, and the hospitals have not pointed to anywhere in
the record where they challenged these findings for lack of
substantial evidence. Under the circumstances of this case, the
District Court did not need to address whether the RA
requirement violates the Bad Debt Moratorium.2
2
The hospitals also argue that the District Court made this Bad Debt
Moratorium argument reviewable by ordering the hospitals to
address, in a sur-reply, “whether the must-bill policy, both generally
and as applied to non-Medicaid-participating providers, violates the
Bad Debt Moratorium.” Minute Order, New LifeCare Hosps. Of N.
Carolina LLC v. Cochran, No. 1:17-cv-237 (D.D.C. July 26, 2019)
14
C
The hospitals’ remaining arguments fare no better. First,
the hospitals contend that the Administrator’s decision violated
Medicare’s prohibition against cost-shifting. As noted above,
the Medicare Act prohibits shifting costs of Medicare services
onto non-Medicare patients. It also prohibits shifting costs
from non-Medicare services onto the Medicare program. See
42 U.S.C. § 1395x(v)(1)(A) (“[T]he necessary costs of
efficiently delivering covered services to individuals covered
by the insurance programs established by this subchapter will
not be borne by individuals not so covered, and the costs with
respect to individuals not so covered will not be borne by such
insurance programs[.]”). The hospitals argue that the
Administrator’s decision to deny them over $3 million in
reimbursement for Medicare patients violates this anti-cost-
shifting provision.
We agree with the District Court that this argument
amounts to a claim that “the Administrator [cannot] deny any
bad debt reimbursement claims—no matter how frivolous.”
New LifeCare Hosps., 416 F. Supp. 3d at 18. And we decline
to adopt that reading of the anti-cost-shifting provision. While
the Medicare Act prohibits shifting costs onto non-Medicare
patients, it also “authoriz[es] the Secretary to refuse to
reimburse costs when the provider has failed to ‘furnish such
information as the Secretary may request in order to determine
the amounts due such provider.’” Id. (citing 42 U.S.C. §
1395g(a) (emphasis added)).
(emphasis added). It is unclear why the District Court ordered the
sur-reply, but the hospitals do not challenge the “must-bill policy
. . . generally,” and the District Court ultimately noted that in its
opinion. See New LifeCare Hosps., 416 F. Supp. 3d at 18. The
hospitals challenge only the April 2008 decision on their
reimbursement claims.
15
Second, the hospitals argue that the Administrator’s
decision impermissibly requires them to enroll in Medicaid,
despite the fact that Medicaid participation is voluntary. But,
as the Government notes, Medicare participation is also
voluntary. Here, the Administrator explained that the decision
of a provider not to enroll in Medicaid does not relieve a state
of its responsibility to share the costs of dual-eligible patients’
bad debts. See J.A. 729 (“The non-Medicaid enrollment status
of a provider does not change the legal responsibilities that
result from the dual eligible status of a Medicare beneficiary
for which a State may be liable for cost sharing[.]”). If a
hospital treats dual-eligible patients, incurs bad debts, and
seeks reimbursement of those debts from Medicare, then the
hospital must contend with the statutory and regulatory
requirements for obtaining reimbursement. See, e.g., 42 U.S.C.
§ 1396a(a)(10)(E)(i) (requiring a state Medicaid plan to
provide “for making medical assistance available for
[M]edicare cost-sharing (as defined in section 1396d(p)(3) of
this title) for qualified [M]edicare beneficiaries”). We do not
mean to understate the practical burden on the hospitals here,
but as the Administrator’s decision explained, these
requirements stand apart from—and do not dictate—a
provider’s decision to participate in Medicaid.
Third, the hospitals contend that the Administrator’s
decision was arbitrary and capricious or unsupported by
substantial evidence for a few reasons. They argue that the
Administrator failed to consider that the hospitals had “no way
to comply with CMS’s new interpretation of the must-bill
policy” because they were prevented from enrolling in
Medicaid by certain states. Appellants’ Br. at 47–48. But the
Administrator considered this argument and reasonably
explained its reasons for rejecting it. J.A. 728 (“[N]one of the
Providers were enrolled in Medicaid. The Providers alleged
they could not conform to the [m]ust bill policy . . . .”).
Specifically, the Administrator noted that states are obligated
16
by the Medicaid statute to process claims for dual-eligible
patients and to determine their cost-sharing liability for those
patients. J.A. 730. As a result, the Administrator concluded
that providers should “take legal action with their states” if a
state prohibits enrollment for the purpose of dual-eligible
billing. Id. Most importantly, the Administrator found that
even in the two states where the hospitals were previously
excluded from Medicaid enrollment, those states permitted
enrollment “in order to bill and receive RAs” after the hospitals
“reach[ed] out and explain[ed] the circumstances to NC and PA
State officials.” J.A. 730. Thus, while it was “no doubt
frustrating” for the hospitals to enroll in Medicaid, it was not
impossible. New LifeCare Hosps., 416 F. Supp. 3d. at 23.
Next, the hospitals claim it was arbitrary and capricious
for the Administrator to require compliance with the must-bill
policy by some providers while certain other providers are
exempt from the policy. Specifically, the hospitals point to
community mental health centers in California which are
exempt from bad debt billing because the state does not license
them, and they are thus unable to enroll in Medicaid. The
hospitals also point to institutions for mental disease (“IMDs”),
which receive an exemption from the bad debt policy. See id.
at 23–24. But the Administrator reasonably explained why
these exemptions differ from the hospitals’ case. Unlike the
California community mental health centers, the hospitals are
licensed by their states. J.A. 732. Also unlike the hospitals,
the IMDs serve patients who, due to age, are excluded from
Medicaid payments by statute and regulation. Id.; see also 42
U.S.C. § 1396d(a)(14); 42 C.F.R. §§ 435.1009(a)(2),
441.13(a)(2). The hospitals, in contrast, are capable of
enrolling in Medicaid and obtaining reimbursement for their
patients’ bad debts under the terms of the must-bill policy.
The hospitals’ final arbitrary-and-capricious claims fail for
the same reasons addressed above. They contend that the
17
Administrator’s decision was arbitrary and capricious because
it departed from how CMS treated reimbursement requests
before April 2008. But again, the hospitals cite only to their
own Vice President’s testimony about reimbursements
received before 2008—and as the Administrator found, this
evidence did not establish that CMS changed policy in 2008.
The hospitals’ final argument, relying on FCC v. Fox
Television, is that CMS changed a policy or past practice on
which the hospitals had relied, because CMS “consistently
exempted Hospitals from its must-bill policy” in years past.
Appellants’ Br. at 54; see also Fox Television, 556 U.S. at 515.
The Administrator found no such exemption in the record, and
as explained above, the hospitals have pointed to nothing to
undermine the Administrator’s determination. See J.A. 731.
We therefore conclude that the Administrator’s decision was
not arbitrary and capricious.
III
For the foregoing reasons, we affirm the judgment of the
District Court.
So ordered.