76 California Hospitals Sue HHS Over Medicare, Medcaid Payment Amounts

On Friday, 76 hospitals collectively filed suit against Xavier Becerra, Secretary of Health and Humans Services. The suit, filed in the District of Columbia District Court, concerns allegations of systemic underpayment of Medicare and Medicaid benefits due to recalculations of how these payments are allotted between Medicare and Medicaid. All plaintiff hospitals are located in California and are participants in the California Medicaid system.

The Medicare program contracts with local hospitals to provide treatment for Medicare eligible patients. The inpatient claims are processed under a system known as the inpatient prospective payment system (IPPS) which is administered regionally by Medicare Administrative Contractors (MACS) on Medicare’s behalf as fiscal intermediaries. Because the Medicare statute prohibits debt shifting from Medicare patients to other patients or vice versa, when a debt is uncollectible from a Medicare patient, usually due to a Medicare patient not paying a deductible or coinsurance amount, the bad debt is reviewed by the MAC for possible further reimbursement from Medicare directly. These bad debts must meet four requirements for reimbursement from Medicare, including:

(1)  The  debt  must  be  related  to  covered  services  and  derived  from  deductible  and coinsurance amounts.   

(2) The provider must be able to establish that reasonable collection efforts were made.   

(3) The debt was actually uncollectible when claimed as worthless.   

(4) Sound business judgment established that there was no likelihood of recovery at any time in the future. 

For the patient bad debts at issue in this suit, the patients were members of both Medicare and the California State Medicaid plan (Medi-Cal). Up until 1997, Medi-Cal paid Medicare deductibles and co-insurance amounts in full. After the Balanced Budget Act of 1997, Medi-Cal was permitted to pay only the difference between the portion paid by Medicare and the amount Medi-Cal would have paid if they had been the sole payor on the bill. This process was then made retroactive to 1994. However, in processing the bills from 1994-1997, Medi-cal made the presumption that the amount paid by Medicare was greater than the amount that Medi-cal would have paid and denied all payments for all deductibles and coinsurance amounts. However, this was not the case, and there are a set of claims for which Medi-cal should still have made payment.

This process was further complicated by the original processing by the MAC for California not having differentiated in its processing the amounts which would have been payable as co-insurance versus deductible, which complicated the processing as bad debt under the Medi-cal standards. Also, Medi-cal at the time did not provided sufficiently detailed remittance advice forms to meet Medicare’s bad debt program specifications as the zero pay remittance requirements were only made retro active in 1997. This resulted in underpayments by Medicare of the claims processed during this time period. Though Medicare has specifically permitted alternative documentation to be presented for review of the bad debt, they are simultaneously requiring zero pay remittances from Medi-cal to process the individual claims, a requirement that would force the hospitals to rebill claims that are over 30 years old in some cases solely for the purposes of documenting that the claim would have received zero payment on the official remittance form.

The plaintiffs allege that this requirement to re-bill represents a violation of the APA in terms of being arbitrary and capricious when alternative documentation is permitted. They also note that the requirement for zero pay remittances is unfairly retro-active under the APA, that the retroactivity also violates the Social Security Act and results in an ultra vires rulemaking. The plaintiffs are represented by Foley & Lardner LLP.