In a case of first impression in the U.S. District Court for the District of Columbia, brought by King & Spalding on behalf of Mountain States Health Alliance, the court held that CMS’s disallowance of certain Medicare bad debts, which had been returned from a collection agency simply because non-Medicare accounts remained at the collection agency, violated the bad debt moratorium.  See Mountain States Health Alliance v. Burwell, Dec.  No. 13-cv-00641 (D.D.C. Sept. 10, 2015).  The court remanded the case back to the Provider Reimbursement Review Board (Board) with instructions “to apply the more flexible pre-Moratorium approach . . .  to determine whether the Providers engaged in ‘reasonable collection efforts’ notwithstanding their differential treatment of Medicare and non-Medicare bad debt.”  (Emphasis added.)  While the bad debt moratorium expired in FY 2012, the rationale announced in the decision would apply to all appeals of this issue from pre-2012 cost reporting periods.  The Providers were represented by King & Spalding partner Daniel J. Hettich. 

In Mountain States, the Providers subjected all of their accounts to a full 365 days of collection efforts, at which point, if no payments had been received on a Medicare account for at least 180 days, the Providers recalled those accounts from collection and claimed them for Medicare reimbursement.  Meanwhile, most of the Providers’ non-Medicare accounts remained at the collection agency.  The Providers’ collection agency expert explained that unique characteristics of Medicare accounts rendered them less susceptible to typical collection strategies and that the expense of engaging in those activities outweighed any potential return. 

Although the Providers’ Medicare administrative contractor (MAC) recognized that the Providers’ collection efforts had been “thorough,” it nonetheless disallowed all of their Medicare bad debts, totaling approximately $700,000, because the Providers did not also cease collection efforts on their non-Medicare bad debts.  Relying on CMS’s manual policy stating that a provider “must” refer its Medicare accounts to a collection agency whenever it refers its non-Medicare accounts of like amounts to a collection agency, the Board upheld the MAC’s disallowance.  The court, however, explained that the “denial of reimbursement was unreasonable because the rigid policy applied by the Board is inconsistent with the more flexible approach applied prior to the Bad Debt Moratorium,” in which the agency had found that disparate treatment of Medicare and non-Medicare accounts could be justified by sound business judgment.  

On a broader level, the Mountain States decision shows that the bad debt moratorium still has clout and that courts will not automatically accept the Secretary’s contention that her current policies are consistent with her pre-1987 policies. 

The Secretary has until November 9, 2015 to appeal the decision to the U.S. Court of Appeals for the D.C. Circuit.  A favorable decision in the D.C. Circuit would effectively set national policy on this issue.