                           UNITED STATES DISTRICT COURT
                           FOR THE DISTRICT OF COLUMBIA


GROSSMONT HOSPITAL CORP., et al.,

                      Plaintiffs,

                      v.                                Civil Action No. 10-cv-1201 (RLW)

KATHLEEN SEBELIUS, Secretary, U.S.
Department of Health and Human Services,

                      Defendant.


                                    MEMORANDUM OPINION

       Plaintiffs Grossmont Hospital Corporation, Sharp Healthcare, Sharp Chula Vista Medical

Center, Sharp Memorial Hospital, and Tri-City Healthcare District (collectively, the

“Providers”), five hospitals located in San Diego County, California, bring this action against

Kathleen Sebelius in her official capacity as the Secretary of Health and Human Services. The

Providers seek judicial review under the Administrative Procedure Act (“APA”), 5 U.S.C. § 701,

et seq., of the Secretary’s final decision denying their requests for Medicare reimbursements on

certain “bad debts” arising from inpatient services provided from May 1, 1994 through June 30,

1998 for patients dually eligible for both Medicare and Medicaid.

       This matter is before the Court on cross-motions for summary judgment. The Providers

moved for summary judgment, arguing that the Secretary’s decision was not based on substantial

evidence and was arbitrary and capricious. (See generally Dkt. No. 16 (“Pls.’ Mem.”)). The

Secretary opposed the Providers’ motion and cross-moved for summary judgment, arguing that

the Court should affirm the Secretary’s decision because it was based on a reasoned and rational

interpretation of the Secretary’s own regulations and is supported by the administrative record.


                                               1
(See generally Dkt. No. 18 (“Def.’s Mem.”)). The Court heard oral argument on the motion and

the cross-motion on November 5, 2012.

       Upon a complete review of the administrative record in this case, and for the following

reasons, the Court concludes that the Secretary’s decision is the product of reasoned

decisionmaking and that the administrative record amply supports the Secretary’s decision.

Accordingly, the Court will DENY the Providers’ Motion for Summary Judgment and GRANT

the Secretary’s Motion for Summary Judgment.



                                      BACKGROUND

A.     Medicare and Medicaid Statutory and Regulatory Framework

       The Medicare program, established by Title XVIII of the Social Security Act, pays for

covered medical care provided primarily to eligible elderly and disabled persons. 42 U.S.C. §

1395, et seq. The Secretary of Health and Human Services is responsible for the program, but

she has delegated its administration to the Center for Medicare and Medicaid Services (“CMS”). 1

See 42 U.S.C. §§ 1395h, 1395u. The Medicare statute consists of four major components—Parts

A through D—but the parties agree that only Part A is relevant to this litigation. Medicare Part

A covers the costs of inpatient hospital care, post-hospital home health services and care in

skilled nursing facilities, and hospice care. See id. §§ 1395c, 1395d, 1395x(u); 42 C.F.R. §

409.5. Hospitals may participate in the Medicare program as providers of services by entering

into provider agreements with the Secretary, 42 U.S.C. §§ 1395x(u), 1395cc, and participating

hospitals are generally reimbursed under the Medicare statute for their “reasonable costs” of

services provided to Medicare beneficiaries. § 1395x(v)(1)(A). Under the statute, “reasonable



1
       CMS was formerly known as the Health Care Financing Administration (“HCFA”).
                                               2
cost” is defined as “the cost actually incurred, excluding therefrom any part of incurred cost

found to be unnecessary in the efficient delivery of needed health services,” and Congress

expressly authorized the Secretary to promulgate regulations “establishing the method or

methods to be used, and the items to be included, in determining” reasonable costs. Id.

       When a participating provider treats a Medicare beneficiary, it generally collects

coinsurance and/or deductible payments from the patient and then seeks reimbursement for the

remainder of its costs through the Medicare program. The provider obtains reimbursement by

filing an annual cost report with its fiscal intermediary, generally a private insurance company

that processes payments on behalf of Medicare. After reviewing and auditing those reports, the

intermediary issues a Notice of Program Reimbursement (“NPR”) to the provider setting forth

the amount of allowable Medicare payments. 42 C.F.R. § 405.1803.             A provider that is

dissatisfied with an NPR decision may appeal to the Provider Reimbursement Review Board

(“PRRB” or the “Board”), an administrative tribunal within the Department of Health and

Human Services. 42 U.S.C. § 1395oo(a). From there, the Secretary is authorized to review a

PRRB determination on her own motion, but she has delegated that authority to the CMS

Administrator. Id. § 1395oo(f); 42 C.F.R. § 405.1875(a)(1). A provider that is dissatisfied with

the final decision of the Secretary, vis-à-vis the CMS Administrator, may seek judicial review by

initiating a civil action. 42 U.S.C. § 1395oo(f); 42 C.F.R. § 405.1877(b).

       Along with Medicare, Title XIX of the Social Security Act, commonly known as the

Medicaid statute, establishes a cooperative federal-state program that finances medical care for

the poor, regardless of age. See 42 U.S.C. §§ 1396-1396v. States that choose to participate in

the Medicaid program must submit plans to CMS for approval that detail financial eligibility

criteria, covered medical services, and reimbursement methods and standards. Id. §§ 1396a(a),



                                                3
1396b.     Once a State’s plan is approved, the State will receive financial assistance from the

federal government to administer its Medicaid program according to a percentage formula tied to

the State’s per-capita income. Id. §§ 1396b, 1396d(b). In some cases, individuals qualify for

both Medicare and Medicaid. These individuals, commonly known as “dual-eligibles,” may be

unable to afford the costs of Medicare deductible or coinsurance payments. As a result, the

Medicaid statute allows States to use Medicaid funds to pay the cost-sharing obligations of dual-

eligibles, enabling States to shift a large portion, though not all, of the cost of providing health

insurance for their elderly poor to the federal treasury. See id. §1396a(a)(10)(E)(i).



B.       “Bad Debts” Under The Medicare Program

         The Medicare statute prohibits cost-shifting, which means that costs associated with

services provided to Medicare beneficiaries cannot be borne by non-Medicare patients, and vice

versa. 42 U.S.C. § 1395x(v)(1)(A)(i). Hence, when a provider is unable to collect coinsurance

or deductible payments from a Medicare beneficiary, it can claim those amounts as “bad debts”

and treat them as “reasonable costs” subject to reimbursement under the Medicare program,

provided that certain conditions are met. Specifically, to obtain reimbursement for these types of

“bad debts,” a provider must satisfy four criteria:

         (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.




                                                  4
42 C.F.R. § 413.89(d), (e). 2

       In turn, the Provider Reimbursement Manual (“PRM”), a collection of interpretative

rules, provides further guidance as to the applicable circumstances under which “bad debts” can

be treated as reimbursable costs. PRM-I section 310 explains that a provider’s collection efforts

are “reasonable” where they are “similar to the effort the provider puts forth to collect

comparable amounts from non-Medicare patients.” (Administrative Record (“AR”) at 11 (citing

PRM-I § 310)). The collection efforts must involve the issuance of a bill. (Id.).         However,

where a provider can establish that a beneficiary is indigent—among other ways, by showing

that the beneficiary was Medicaid-eligible at the time of services—a presumption of

uncollectibility applies.   (AR at 11-12 (citing PRM-I § 312)).         In those cases, while the

provider’s obligation to send a bill to the patient is excused, Section 312 nevertheless requires a

provider to “determine that no source other than the patient,” including Medicaid, is responsible

for the patient’s bill. (Id.). Section 322 expressly deals with bad debt claims for “dual-eligibles”

and provides that, where a State is obligated to pay all or part of the Medicare deductible or

coinsurance amounts, including where a State imposes a payment “ceiling,” those amounts are

not allowable as bad debts. (AR at 11-12 (citing PRM-I § 322)). By contrast, any amounts that

the State is not obligated to pay may be included as a bad debt under Medicare only where the

requirements of Section 312, and if applicable, Section 310 are met. (Id.).

       CMS issued Joint Signature Memorandum 370 (“JSM-370”) on August 10, 2004, to

clarify the Medicare “must bill” policy for reimbursing dual-eligibles’ bad debts. (AR at 13-14,

383-384). JSM-370 specifies that “in those instances where the State owes none or only a

portion of the dual-eligible patient’s deductible or co-pay, the unpaid liability is not reimbursable

2
       This regulation was formerly designated at 42 C.F.R. § 413.80 but was redesignated in
2004 at 42 C.F.R. § 413.89 without substantive change.
                                                 5
to the provider by Medicare until the provider bills the state, and the State refuses payment (with

a State Remittance advice).” (Id. (citing JSM-370)). The Secretary issued this memorandum to

reiterate the parameters of her “must bill” policy after the language of former PRM-II § 1102.3L

was found “unenforceable” by the Ninth Circuit Court of Appeals. See Cmty. Hosp. of the

Monterey Peninsula v. Thompson, 323 F.3d 782, 793, 797 (9th Cir. 2003). More specifically,

JSM-370 reemphasized the need for providers to actually bill the State Medicare program on

dual-eligibles’ claims and obtain a State determination as to its financial responsibility, if any, on

those claims. (AR at 13-14).



C.     California’s Medicaid Program And The Providers’ Reimbursement Claims

       California participates in the Medicaid program by operating a State program commonly

known as Medi-Cal. (Def.’s Mem. at 11 (citing CAL. WELF. & INST. CODE § 14000.4)). Prior to

May 1, 1994, the Medi-Cal program paid 100 percent of dual-eligibles’ Medicare deductibles

and coinsurance costs, such that there were generally no bad debts associated with claims for

such patients. (AR at 16). On May 1, 1994, however, California stopped paying these cost-

sharing amounts altogether without consulting the Secretary, in contravention of its Medicaid

State plan. (Id.). In light of California’s new policy to decline payments on dual-eligibles’

claims, the Secretary instructed Medicare intermediaries not to reimburse these amounts as

Medicare bad debts.      (AR at 255, 258).      Several hospitals filed suit against the State of

California, and, in the midst of that litigation, California submitted an amendment to its State

Medicaid plan that the Secretary approved on February 28, 1996, applied retroactively to May 1,

1994. (AR at 255). Under the new plan, California established a payment “ceiling,” whereby it

would pay for the deductible and coinsurance costs only if the rate that Medicaid would



                                                  6
otherwise pay for the service exceeded the amount paid by Medicare. (AR at 16-17, 255). For

claims subject to this payment ceiling, California would perform a claim-by-claim comparison of

the Medi-Cal and Medicare payment rates to determine its payment responsibility, if any. (AR at

255-56, 274).

       The Secretary ultimately reached an agreement with the State of California, through

which the State agreed to reprocess the previously unpaid claims covering the cost reporting

periods from May 1, 1994 through April 4, 1999. (AR at 18). Once the State completed this

reprocessing, it furnished reports to the intermediaries that showed the claim comparison of

amounts paid by Medicare and the Medicaid payment rate for the Medicare coinsurance and

deductible amounts. (Id.). Based on these reports, the unpaid coinsurance and deductible

amounts were allowable as “bad debt,” and the intermediaries were instructed to issue payments

to providers for these amounts retroactive to May 1, 1994. (Id.).

       The Providers in this case received their two lump-sum payments in August 1999, along

with copies of the final reports prepared by the State showing a claim-by-claim comparison of

the Medicare payment with the Medi-Cal payment. (Id.). Upon review of the reports, the

Providers believed that they did not encompass all of their inpatient claims during the period

covered by the lump sum payments.          The Providers contacted Medi-Cal and requested a

correction of the claims data, but the State of California never took action on this request. (Id.).

In response, the Providers opted to calculate on their own the amounts they believed were not

included in the lump-sum payments, using information obtained from Medicare and Medi-Cal.

(Pls.’ Mem. at 21-24).




                                                 7
D.     Administrative Proceedings

       The Providers timely appealed the intermediary’s determination to the PRRB, providing

the Board with their own calculations on the claims at issue. On January 17, 2008, the PRRB

held a hearing on the issue of “[w]hether the Providers have been properly paid for bad debts for

Medicare deductible and coinsurance amounts associated with Medicaid-eligible inpatients for

services between May 1, 1994 and June 30, 1998.” (AR at 41). The Board concluded that the

Providers had billed Medicare “as supported by Medicare [Provider Statistical &

Reimbursement] reports,” and that “the inpatient crossover claims data was directly transferred

to the state Medicaid agency, Medi-Cal, by the intermediary.” (AR at 48). As a result, the

Board held that the Providers “complied with the Medicare billing requirements” and determined

that the intermediary had sufficient information to determine “the amounts which the state is not

obligated to pay.” (Id.). In other words, the PRRB deemed the Providers’ self-prepared claims

reports sufficient to justify reimbursement on the bad debts at issue.

       Both the intermediary and CMS sought administrative review of the Board’s decision and

provided comments requesting reversal, but the Providers did not comment. (AR at 2-23, 24-31,

34-35). On May 17, 2010, the CMS Administrator reversed the Board’s decision. In so doing,

the Administrator stated that, under PRM § 322, only the amount that the State “does not pay can

be reimbursed as bad debt,” finding that “[t]his language plainly requires that the provider bill

the State as a prerequisite of payment of the claim by Medicare as a bad debt and that the State

make a determination on that claim.” (AR at 15). In turn, the Administrator stated that “it is

unacceptable for a provider to write-off a Medicare bad debt as worthless without ensuring that

the State has been billed (whether through the automated crossover claim or direct billing) and

having received a determination from the State as to the amount of its financial obligation.”

(AR at 16). Although the Providers maintained that all of the claims at issue had been billed to
                                                 8
the State—automatically through a “crossover” system—the Administrator found that the

evidence in the record showed otherwise. While clear to state that this conclusion was “not

determinative of this case,” the Administrator stated that “the record thus supports a conclusion

that these claims were not in the State’s system, that is, they were not billed whether through the

automated crossover claims billing or direct billing.” (AR at 21). Ultimately, the Administrator

concluded that the case “turns on the undisputed fact that there are no determinations by the State

on these claims.” (Id.). Therefore, the Administrator held, “until such time as the Providers

receive a determination from the State on these claims, the claims cannot be allowed as Medicare

bad debts.” (AR at 22).

       The Providers initiated this lawsuit on July 15, 2010, arguing that the Secretary’s final

decision denying their reimbursement claims was both unsupported by substantial evidence and

was arbitrary and capricious under the APA.



                                           ANALYSIS

   A. Standard of Review

       Under the Medicare Act, judicial review of the Secretary’s reimbursement decisions is

governed by the APA. Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (citing 42

U.S.C. § 1395oo(f)(1)); Tenet HealthSystems HealthCorp. v. Thompson, 254 F.3d 238, 243-44

(D.C. Cir. 2001). The Secretary’s decision may only be set aside if it is “‘arbitrary, capricious,

an abuse of discretion, or otherwise not in accordance with law’ or unsupported by substantial

evidence in the administrative record.” Marymount Hosp., Inc. v. Shalala, 19 F.3d 658, 661

(D.C. Cir. 1994) (quoting 5 U.S.C. § 706(2)(A), (E)). Under both the “arbitrary and capricious”

and “substantial evidence” standards, the scope of review is narrow, and a court must not



                                                9
substitute its judgment for that of the agency. Motor Vehicle Mfrs. Ass’n v. State Farm Mut.

Auto Ins. Co., 463 U.S. 29, 43 (1983); Gen. Teamsters Local Union No. 174 v. Nat'l Labor

Relations Bd., 723 F.2d 966, 971 (D.C. Cir. 1983). As long as an agency has “‘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,’” the reviewing court will not disturb

the agency’s action. MD Pharm., Inc. v. Drug Enforcement Admin., 133 F.3d 8, 16 (D.C. Cir.

1998) (quoting State Farm, 463 U.S. at 43); Alpharma, Inc. v. Leavitt, 460 F.3d 1, 6 (D.C. Cir.

2006). The burden of establishing that the Secretary’s action in this case violates the APA

standards lies with the Providers. Diplomat Lakewood, Inc. v. Harris, 613 F.2d 1009, 1018

(D.C. Cir. 1979).

       Where the Secretary is interpreting her own regulations, her interpretation is entitled to

“substantial deference” and “must be given controlling weight unless it is plainly erroneous or

inconsistent with the regulation.” Thomas Jefferson Univ., 512 U.S. at 512. Indeed, “broad

deference is all the more warranted when, as [with Medicare], the regulation concerns ‘a

complex and highly technical regulatory program,’ in which the identification and classification

of relevant ‘criteria necessarily require significant expertise and entail the exercise of judgment

grounded in policy concerns.’” Id. (quoting Pauley v. BethEnergy Mines, Inc., 501 U.S. 680,

697 (1991)); St. Luke’s Hosp. v. Sebelius, 611 F.3d 900, 904-05 (D.C. Cir. 2010). In sum, courts

must “defer to the Secretary’s interpretation unless an ‘alternative reading is compelled by the

regulation’s plain language or by other indications of the Secretary’s intent at the time of the

regulation’s promulgation.’” Thomas Jefferson Univ., 512 U.S. at 512 (quoting Gardebring v.

Jenkins, 485 U.S. 415, 430 (1988)).




                                                10
   B. The Parties’ Arguments

       Through this case, the Providers mount a number of challenges to the Secretary’s

decision denying their reimbursement claims. First, the Providers contend that, by interpreting

the “must bill” policy as requiring a State determination on the bad debt claims at issue, the

Secretary violated Congress’ “Bad Debt Moratorium,” which generally prohibits the application

of debt reimbursement policies that were not in existence prior to 1987. (Pls.’ Mem. at 31-34).

Second, the Providers argue that the Secretary’s application of the “must bill” policy in this case

was arbitrary and capricious in any event, because all of the claims were billed to the State

through an automated “crossover” system and because the State of California made the

“substantive determination” necessary to calculate its payments obligations on the claims at

issue. (Id. at 35-38). Third, the Providers attack the Secretary’s justification for denying their

claims as “inconsistent” with her own practices, claiming that the Secretary accepted information

other than remittance advices in issuing the two “lump sum” payments and should have done so

with respect to these additional claims. (Id. at 38-39). Fourth, the Providers complain that the

corrections process for potential underpayments during the lump sum process was “illusory,”

arguing that the Secretary’s decision must be set aside as a result. (Id. at 39-42). Fifth, the

Providers challenge the Secretary’s decision not to apply the “hold harmless” provisions of JSM-

370. (Id. at 42-43). And, finally, the Providers contend that the Secretary’s decision violates the

statutory prohibition against Medicare cost-shifting. (Id. at 43-44).

       For her part, the Secretary counters that her application of the “must bill” policy was

entirely proper and based on a lawful, longstanding interpretation of agency regulations. (Def.’s

Mem. at 24-29). Specifically, the Secretary contends that she properly found that the Providers

both: (1) failed to bill the State Medicaid programs for the claims at issue before seeking



                                                11
reimbursement and (2) failed to obtain any State determinations of payment responsibility on

those claims. (Id. at 29-34). The Secretary also asserts that she properly found the “hold

harmless” provisions of JSM-370 inapplicable to the Providers in this case. (Id. at 35-39).

Finally, she maintains that her denial of the Providers’ reimbursement claims does not violate the

statutory prohibition on cost-shifting. (Id. at 39-40). If anything, the Secretary concludes, the

Providers’ remedy lies not against Medicare, but against the Medi-Cal program, given that the

Providers never pursued any administrative or judicial remedy against the State for failing to

issue determinations of its payment responsibility on these claims. (Id. at 40-42).



    C. The “Bad Debt Moratorium”

       As an initial matter, the Providers argue that the Secretary’s “must bill” policy—which

served as the basis for the Secretary’s denial of the claims at issue, and which lies at the heart of

this dispute—is invalid on its face because it violates Congress’ “Bad Debt Moratorium.”

However, Plaintiffs failed to raise this argument whatsoever during the administrative

proceedings below—either before the Board or through comments to the CMS Administrator3—

and the Administrator did not render any determination as to the moratorium’s impact on the

Secretary’s “must bill” policy. (AR at 2-23, 40-50, 91-155, 335-351). Consequently, the Court

will not consider this argument now, given that “[a] party must first raise an issue with an agency

before seeking judicial review.” ExxonMobil Oil Corp. v. FERC, 487 F.3d 945, 962 (D.C. Cir.

2007); Nuclear Energy Inst. v. EPA, 373 F.3d 1251, 1297 (D.C. Cir. 2004) (“It is a hard and fast

rule of administrative law, rooted in simple fairness, that issues not raised before an agency are

waived and will not be considered by a court on review.”); Loma Linda Univ. Med. Ctr. v.

3
        In fact, the record reveals that the Providers declined to submit any comments after being
notified of the Administrator’s intention to review the Board’s decision. (AR at 2-23).
                                                 12
Sebelius, 684 F. Supp. 2d 42, 56 n.13 (D.D.C. 2010) (refusing to consider new arguments not

raised before the Board or CMS Administrator). 4           Nor will the Court consider Amicus’

arguments, which relate exclusively to the issue of whether the Secretary violated the

moratorium. (See Dkt. No. 31, Amicus Brief).



    D. The Secretary’s “Must-Bill” Policy

       The Providers also argue that, regardless of whether the “must bill” policy is valid vis-à-

vis the moratorium, the Secretary’s interpretation of that policy is improper and should not be

endorsed by this Court. In so arguing, the Providers characterize this as a case that turns on two

distinct policies: (1) the “must bill” policy, a standalone policy that requires providers to bill the

State for dual-eligible-related claims; and (2) the “mandatory State determination” policy, a

separate policy that requires providers to obtain a State determination on those billed claims.

Insofar as the Secretary’s denial of their claims was based on the absence of State

determinations, the Providers argue that the decision cannot stand because the “mandatory State

determination” policy conflicts with the Secretary’s own regulations and prior policy

interpretations governing the recovery of bad debts as “reasonable costs.”            The Secretary

disagrees and insists that the “must bill” policy, since its inception, has been applied as a single

4
        Along with safeguarding “simple fairness,” insisting that an issue be raised during
administrative proceedings provides “this Court with a record to evaluate complex regulatory
issues; after all, the scope of judicial review under the APA would be significantly expanded if
courts were to adjudicate administrative action without the benefit of a full airing of the issues
before the agency.” ExxonMobil Oil Corp., 487 F.3d at 962 (citing Advocates for Hwy. & Auto.
Safety v. Fed. Motor Carrier Safety Admin., 429 F.3d 1136, 1150 (D.C. Cir. 2005)). Unlike in
the instant matter, those cases that have addressed the bad debt moratorium had the benefit of
considering the issue with a fully-developed administrative record because that argument had
been presented to the Board and to the CMS Administrator. Cf. Foothill Hosp. v. Leavitt, 558 F.
Supp. 2d 1 (D.D.C. 2008); Detroit Receiving Hosp. & Univ. Health Ctr. v. Shalala, 1999 U.S.
LEXIS 26428 (6th Cir. Oct. 15, 2009); Dameron Hosp. Ass’n v. Leavitt, 2007 U.S. Dist. LEXIS
57796 (E.D. Cal. Aug. 8, 2007).
                                                 13
policy encompassing both requirements—not only have providers been required to bill the State

Medicaid program for the claims, but they have also been required to obtain the State’s

determination as to its financial responsibility on those claims.

       Under the Medicare statute, Congress expressly vested the Secretary with authority to

“prescrib[e] regulations” establishing the “method or methods to be used, and the items to be

included,” in determining the “reasonable costs” of Medicare services that can be reimbursed to

providers. 42 U.S.C. § 1395v(1)(A). Congress also granted the Secretary substantial discretion

to determine the type of information required as a condition of reimbursement under the

Medicare program. Id. § 1395g(a). Given that Congress “explicitly left a gap for [the Secretary]

to fill,” the Secretary’s regulations on these issues “are given controlling weight unless they are

arbitrary, capricious, or manifestly contrary to the statute.” Buongiorno v. Sullivan, 912 F.2d

504, 508 (D.C. Cir. 1990) (quoting Chevron, U.S.A., Inc. v. Natural Resources Defense Council,

Inc., 467 U.S. 837, 833-34 (1984)).

       In keeping with this delegated authority, the Secretary promulgated regulations

establishing when a provider’s bad debts qualify as “reasonable costs” eligible for

reimbursement under the Medicare program. Under those regulations, providers must meet

several requirements to render bad debts eligible as reimbursable amounts:

       (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 there was no likelihood of recovery at
           any time in the future.
42 C.F.R. § 413.89(d). In addition, the Secretary, through her delegated authority to CMS,



                                                 14
issued further interpretive guidance as to those criteria through the PRM. Section 310 elaborates

on the “reasonable collection efforts” requirement of Section 413.89(e)(2), stating that “a

provider’s effort to collect Medicare deductible and coinsurance amounts . . . must involve the

issuance of a bill . . . to the party responsible for the patient’s personal financial obligations.”

(AR at 10-11 (citing PRM-I § 310) (emphasis added)). But when a provider can establish that

beneficiaries are indigent—including “when such individuals have also been determined eligible

for Medicaid”—a presumption of uncollectibility applies. (Id. at 11 (citing PRM-I § 312)). In

those cases, while the provider’s obligation to send a bill to the beneficiary is excused, Section

312 nevertheless requires a provider to “determine that no source other than the patient,”

including Medicaid, is responsible for the patient’s bill. (Id. (directing the reader to “§ 322 for

bad debts under State Welfare Programs”)).

       Section 322 of the PRM, in turn, provides:

       Where the State is obligated either by statute or under the terms of its [Medicaid]
       plan to pay all, or any part, of the Medicare deductible or coinsurance amounts,
       those amounts are not allowable as bad debts under Medicare. Any portion of
       such deductible or coinsurance amounts that the State is not obligated to pay can
       be included as a bad debt under Medicare provided that the requirements of § 312
       or, if applicable, § 310 are met.

(Id. at 11 (citing PRM-I § 322) (emphasis added)). This section also addresses circumstances in

which a State payment “ceiling” exists:

       In some instances the State has an obligation to pay, but either does not pay
       anything or pays only part of the deductible, or coinsurance because of a State
       payment “ceiling.” For example assume that a State pays a maximum of $42.50
       per day . . . and the provider’s cost is $60.00 a day. The coinsurance is $32.50 a
       day so that Medicare pays $27.50 ($60.00 less $32.50). In this case, the State
       limits its payment towards the coinsurance to $15.00 ($42.50 less $27.50). In
       these situations, any portion of the deductible or coinsurance that the State does
       not pay that remains unpaid by the patient, can be included as a bad debt under
       Medicare, provided that the requirements of § 312 are met.

(Id. (emphasis added)).


                                                15
       Interpreting the language of Section 413.89(e), the Secretary, speaking through the CMS

Administrator, concluded that “a fundamental requirement to demonstrate that an amount is, in

fact, unpaid and uncollectible, is to bill the responsible party.” (Id. at 15). The Secretary also

explained that PRM § 322’s reference to the amount “that the State does not pay . . . plainly

requires that the provider bill the State as a prerequisite of payment of the claims by Medicare as

a bad debt and that the State make a determination on the claim.” (Id.). The Secretary therefore

reasoned that “it is unacceptable for a provider to write-off a Medicare bad debt as worthless

without ensuring that the State has been billed . . . and having received a determination from the

State as to the amount of its financial obligation.” (Id. at 16).

       The Secretary also relied on the language of Joint Signature Memorandum 370, issued in

August 2004, through which CMS reiterated the Secretary’s interpretation that “reasonable”

collection efforts consist of providers billing the State Medicaid program and obtaining a

determination on those claims from the State:

       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 patients’ bill before the provider can be
       reimbursed for uncollectible amounts . . . . [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).

(Id. at 383-384 (emphasis added)).

       Our Circuit has made clear that, when reviewing “the Secretary’s interpretation of her

own regulations,” such as the PRM instructions detailed above, courts must apply an even “more

deferential standard than that afforded under Chevron.” Nat’l Medical Enters. v. Shalala, 43

F.3d 691, 696-97 (D.C. Cir. 1995) (construing appropriate deference in reviewing PRM

provisions); Cmty. Care Found. v. Thompson, 412 F. Supp. 2d 18, 22-23 (D.D.C. 2006) (“The
                                                  16
high degree of deference due to the Secretary’s interpretation of Medicare regulations extends to

the PRM provisions, which are themselves interpretations of regulations.”). The Court must

“defer to the Secretary’s interpretation unless an alternative reading is compelled by the

regulation’s plain language or by other indications of the Secretary’s intent at the time of the

regulation’s promulgation.” Thomas Jefferson Univ., 512 U.S. at 512. Given the significant

deference owed to the Secretary’s interpretation of the bad debt regulations, the Court concludes

that her position is not “plainly erroneous or inconsistent with the regulation[s].” Id.; Marymount

Hosp., 19 F.3d at 661.

       The parties all agree that the “must bill” policy is an essential component of the Medicare

reimbursement structure because the State has the most current information regarding a

beneficiary’s Medicaid status at the time of treatment, which, in turn, enables the State to make

the most accurate determination of its own cost-sharing liability. (Pls.’ Mem. at 8; Def.’s Mem.

at 27). Because individual States “administer their [Medicaid] programs differently and maintain

billing and documentation requirements unique to each State program,” (AR at 22), it is all the

more important for the States themselves to determine a beneficiary’s Medicaid status. In

addition, as the Secretary rightly points out, “submission of the claim to the State and

preservation of the remittance advice is an essential and required record keeping criteria for

Medicare reimbursement.” (Id. at 16 n.15 (citing 42 C.F.R. § 413.20)). Furthermore, the Court

agrees that a uniform policy concerning bad debt billing and documentation requirements is

critical to the administration of the Medicare program. All fifty States and the District of

Columbia operate separate, unique Medicaid programs. Thus, the Secretary reasonably believes

that permitting individual States to rely on their own protocols for bad debt reimbursement—




                                                17
whether with respect to billing or supporting documentation—could wreak administrative havoc

on the Medicare system.

       The Court also notes that several other courts, including the Ninth Circuit Court of

Appeals and a number of judges in this District, have upheld the Secretary’s “must bill” policy.

See Monterey Peninsula, 323 F.3d at 793, 797 (finding the “must-bill policy to be a reasonable

interpretation of the reimbursement system and not inconsistent with the status and regulations”);

Cove Assocs. Joint Venture v. Sebelius, 848 F. Supp. 2d 13, 26 (D.D.C. 2012) (Rothstein, J.)

(“[T]he must-bill policy is consistent with the Medicare statute and regulations, and is not an

unreasonable implementation of either.”); GCI Health Care Ctrs. v. Thompson, 209 F. Supp. 2d

63, 72 (D.D.C. 2002) (Kollar-Kotelly, J.).



   E. The Secretary’s Application Of The “Must-Bill” Policy To The Providers’ Claims

           1. The Providers’ Obligation To Obtain State Determinations

       Having found the “must bill” policy valid as a general matter, including the Secretary’s

requirement that providers obtain a State determination on dual-eligible-related claims, the Court

turns to the Providers’ argument that the Secretary’s application of that policy in this case was

unsupported by substantial evidence and/or arbitrary and capricious.

       The Providers principally challenge the Secretary’s finding that “there are no

determinations by the State on [their] claims,” along with her conclusion that “until such time as

the Providers receive a determination from the State on these claims, the claims cannot be

allowed as Medicare bad debts.” (AR at 21-22). They contend that the Secretary denied their

claims based on the “wooden application of a ministerial requirement.” (Pls.’ Mem. at 29, 31).

In their view, the Secretary’s denial of their claims based on the “State determination”

requirement is particularly arbitrary and inappropriate in this case because they followed the
                                               18
exact same procedure that the Secretary accepted when issuing the underlying lump-sum

payments that they believe should have encompassed these claims in the first place. (Id. at 35-

39). In addition, the Providers contend that they did obtain a “State determination” on these

claims in any event because the State of California made “the only substantive determination

necessary to establish its obligation for the claims at issue.” (Id. at 38).

       For the 1999 lump-sum payments covering the broader universe of claims, the Providers

are correct that the Secretary issued reimbursements without requiring formal remittance advices

from the State. Instead, after the State reprocessed the applicable range of claims, the State

prepared reports that listed, on a claim-by-claim basis: (a) the amounts previously paid by

Medicare for each claim; (b) the applicable Medi-Cal rate for each claim; and (c) any resultant

Medi-Cal payment responsibility for each claim. (AR at 18). Based on these reports, which

were calculated and prepared by the State Medi-Cal program, the Secretary allowed the resulting

unpaid deductible and coinsurance amounts to be reimbursed as Medicare bad debt. (Id.). The

Providers insist that they submitted the same sort of reports to the Secretary when they sought

reimbursement for the claims at issue here. After confirming the patients’ Medicaid eligibility

using information obtained directly from the State, 5 the Providers attest that they went through

the same type of “formulaic” calculations that were previously done by the State: (a) identifying



5
        According to the Providers, they identified patients’ Medi-Cal eligibility using
spreadsheets provided by the State of California to help hospitals calculate their
“Disproportionate Share Hospital” (“DSH”) payments. By statute, hospitals that treat a
disproportionately large number of low-income patients are eligible for a DSH payment in
addition to their standard Medicare payments. 42 U.S.C. § 1395ww(d)(5)(F). These DSH
payments are based on the number of “Medicaid-eligible days” during the fiscal year at issue,
and providers and intermediaries calculate those numbers using Medicaid eligibility information
received from the State. (Pls.’ Mem. at 21-23). Insofar as the Secretary does not dispute the
Providers’ position or the reliability of this information, the Court presumes the accuracy of the
data for purposes of this decision. Nevertheless, as explained herein, this fact still does not
render the Secretary’s decision below improper.
                                                  19
the amounts already paid by Medicare for each claim; (b) applying a fixed, per diem Medi-Cal

rate for each claim; and (c) calculating the amounts that would remain unpaid by Medi-Cal on

each claim. (Pls.’ Mem. at 36-37).

       The Providers seem to ignore the critical fact that distinguishes their subsequent

reimbursement requests from those previously accepted by the Secretary—the reports were

prepared by the Providers themselves, and not by the State of California. The Providers concede

as much: “Because Medi-Cal would not provide a determination of its payment liability, the

Hospitals identified that liability in accordance with the Secretary’s lump-sum payment

methodology using eligibility and payment information from Medi-Cal and Medicare.” (Dkt.

No. 21 (“Pls.’ Reply”) at 11). By contrast, the prior reports were prepared by the State Medi-Cal

program and were therefore accepted by the Secretary as the requisite “State determinations”:

       The State processed claims for the dates May 1, 1994 through April 4, 1999, and
       determined its cost sharing obligations. The State Medi-Cal program furnished
       reports to the Intermediary that showed the claim comparison of the amount paid
       by Medicare and the Medicaid payment rate for inpatient dual eligible claims . . . .
       Having received a State determination on the claims listed, the related unpaid
       coinsurance and deductible amounts were considered allowed Medicare bad debts
       by CMS.

(AR at 18 (emphasis added)). 6 According to the Secretary, “only a State determination of its

payment responsibility can establish that a debt is uncollectible,” which means that “a provider

may not substitute its own estimates of the likely amount of Medicare reimbursement in place of

the required State determinations of payment responsibility.” (Def.’s Mem. at 32). The Court

does not find that this interpretation was applied inconsistently as between the underlying lump-

sum payments and the reimbursement requests at issue in this case, as the Providers argue; the
6
         Indeed, the Secretary expressly stated that “[d]espite suggestions otherwise, the Medicare
bad debt lump payment was consistent with the ‘must bill’ policy as it was based on claims
(bills) submitted to the Medicaid agency (whether by direct billing or crossover claims) upon
which the State made determinations of its obligation prior to Medicare allowing the bad debt.”
(AR at 19 n.19).
                                                20
Secretary found that the former requests were accompanied by State determinations, while she

determined that the latter were not. 7 (AR at 21-22).

       In spite of this, the Providers argue that their reports should be characterized as “State

determinations” because, while the Providers might have performed the “formulaic” calculations

in the reports themselves, they insist that the State of California made the only “substantive”

determination necessary—i.e., determining the patients’ Medi-Cal eligibility status at the time of

payment.    (Pls.’ Mem. at 35-38).        Once the patients’ underlying substantive liability is

determined by the State, the Providers assert, Medi-Cal is in no better position to calculate their

financial obligation because those calculations are simply “formulaic” and based on pre-

determined, fixed amounts. (Id. at 30). The Secretary takes a different position and maintains

that the “must bill” policy does not simply require a State determination of an individual’s

Medicaid eligibility; it requires a State determination as to its financial responsibility, of which

Medicaid eligibility is simply one component. (Def.’s Mem. at 34). The Secretary asserts that

this policy is not simply a matter of “bureaucractic inflexibility” designed to “inconvenience

providers.” (Dkt. No. 24 (“Def.’s Reply”) at 12). She explains that, in her view:

        [I]t is wisest, to protect the fiscal integrity of the [Medicare program] . . ., to rely
        upon the State governments to accurately determine their payment responsibility
        for dual eligibles’ cost-sharing amounts, rather than to entrust these important
        calculations to innumerable individual providers operating under a multitude of
        State plans, each with distinct payment methodologies.

(Id. at 12-13). On balance, while the Court does not necessarily disagree with the Providers that,

in some circumstances, their alternative methodology could be equally as effective and accurate

as the process endorsed by the Secretary, the Court is unable to conclude that the Secretary’s
7
       Put differently, and as the Secretary explains in her brief, “[s]ince [the Providers] allege
that the lump-sum payments did not include the claims at issue, and since the lump-sum
payments included all claims for which the State had made determinations of its payment
responsibility, there were no State determinations produced for the claims at issue.” (Def.’s
Mem. at 19).
                                                  21
interpretation is “plainly erroneous or inconsistent with [her] regulation[s].” Thomas Jefferson

Univ., 512 U.S. at 512; Psychiatric Inst. of Wash., D.C., Inc. v. Schweiker, 669 F.2d 812, 813-14

(D.C. Cir. 1981) (“[W]here the decision under review involves an agency’s interpretation of its

own regulations, forming part of a complex statutory scheme which the agency is charged with

administering, the arguments for deference to administrative expertise are at their strongest.”).

       Finally, the Court notes that, although the Providers contend that the case of Summer Hill

Nursing Home LLC v. Johnson, 603 F. Supp. 2d 35 (D.D.C. 2009) (Collyer, J.), supports their

position, their reliance on that decision is misplaced. There, the court remanded to the Secretary

because, although the providers had not billed the State of New Jersey and obtained remittance

advices prior to submitting reimbursement requests to their intermediary, they subsequently

billed the State and obtained remittance advices on the claims before filing their appeal with the

PRRB. Id. at 36-39. Insofar as the Secretary failed to explain how these subsequent remittance

advices ran afoul of the “must bill” policy, the Court concluded that the Secretary’s decision was

arbitrary and capricious. Id. at 39. Of course, Summer Hill is a far cry from this case because

the Providers here never obtained any State determinations, let alone formal remittance advices,

on these particular claims.

       Accordingly, the Court finds that the evidence in the administrative record amply

supports the Secretary’s conclusion that the Providers did not receive any State determinations

on the claims at issue, and the Court will not disturb that result. In addition, the Secretary’s

determination was the product of reasoned decisionmaking, consisting of a “rational connection




                                                22
between the facts found and the choice made.” State Farm, 463 U.S. at 43; GCI Health Care

Ctrs., 209 F. Supp. 2d at 74. Therefore, the Secretary’s finding was not arbitrary or capricious. 8



           2. The Providers’ Obligation To Bill The State Medicaid Program

       The Secretary also asks the Court to uphold her decision on the separate and

“independent” ground that not all of the claims at issue were necessarily billed to the State Medi-

Cal program in the first place. (Def.’s Mem. at 29-31; Def.’s Reply at 8-9). The Providers argue

otherwise, citing to the following language from the Secretary’s decision and claiming that no

such finding served as the basis for the agency’s denial of their claims at the administrative level:

       While not determinative of this case, the record thus supports a conclusion that
       these claims were not in the State’s system, that is, they were not billed whether
       through the automated crossover claims billing or direct billing and, therefore, as
       they were not in the State system they were not part of the claims reprocessed by
       the State in the listing.

(Pls.’ Reply at 10 n.8 (quoting AR at 21) (emphasis added)). They go on to “presum[e],” in


8
        The Court is also unpersuaded by the Providers’ argument that the dispute process
developed by the Secretary in connection with the 1999 lump-sum payments was “illusory.” The
Providers assert that they find themselves in the proverbial “Catch-22” because, on the one hand,
the State declined to “rerun” the claims and issue determinations, while, on the other hand, the
Secretary will not issue reimbursements until the Providers can present State determinations on
the claims. (Pls.’ Mem. at 39-41). While the Court is certainly sympathetic to the Providers’
predicament, the Court is not convinced that the process is “illusory.” While the record
establishes that the Providers initially asked the Medi-Cal program to “rerun” the original claims
reports in the immediate timeframe after receiving the lump-sum payments in 1999, it appears
that the Providers then waited years before pursuing any further resolution efforts with the State.
(Dkt. Nos. 21-2, 21-3). Further, as the Secretary points out, it does not appear that the Providers
ever pursued any administrative or judicial action against the State of California for refusing to
discharge its responsibility under its State Medicaid program by processing the claims at issue.
The Court also notes that the Providers completely fail to mention whether the State ever
reimbursed the portions of these claims for which the Medi-Cal program was responsible and, if
not, whether the Providers have pursued any legal action against the State of California to obtain
those payments. Were the Providers to do so, they could credibly contend that the State’s
resultant payments serve as the State determinations that the Secretary requires to treat the
remaining amounts as Medicare bad debts.


                                                 23
conclusory fashion, that that Secretary characterized this finding as “not determinative” because

“the [administrative record] shows the claims were, in fact, billed to Medi-Cal even though

Medi-Cal apparently did not process them.” (Id.). The Court does not agree with this leap of

logic, considering that the Secretary expressly found otherwise, both in the plain text of the cited

passage above and later in her decision:

       Moreover, while not determinative of this case, the Providers were aware that
       some claims were not crossing over and were not showing up on the Medicaid
       remittance advices and required direct billing of the State. The Providers decided
       not to take such action to direct bill in all such cases.

(AR at 22).

       Under the APA, the Court should accept an agency’s factual findings “if those findings

are supported by substantial evidence on the record as a whole.” Arkansas v. Oklahoma, 503

U.S. 91, 113 (1992); Allied Mech. Servs. v. NLRB, 668 F.3d 758 (D.C. Cir. 2012). This standard

is “something less than the weight of the evidence,” which means that “the possibility of drawing

two inconsistent conclusions from the evidence does not prevent an administrative agency’s

finding from being supported by substantial evidence.” GCI Health Care Ctrs., 209 F. Supp. at

73-74 (quoting Consolo v. Fed. Maritime Comm’n, 383 U.S. 607, 619-20 (1966)). Applying this

standard, the Court finds that, as a factual matter, the administrative record when viewed as a

whole could support the Secretary’s finding that the Providers were unable to establish that all of

the claims at issue were actually billed to the State of California. As a legal matter, however,

the Court is simply unable to attribute the legal significance to this factual finding that the

Secretary now seeks. It is well settled that “[t]he grounds upon which an administrative order

must be judged are those upon which the record discloses that its action was based.” SEC v.

Chenery Corp., 318 U.S. 80, 87 (1943); America’s Cmty. Bankers v. FDIC, 200 F.3d 822, 835

(D.C. Cir. 2000) (“Courts are not commissioned to remake administrative determinations on


                                                24
different bases than those considered and relied upon by the administrative agencies charged

with the making of those decisions.”). Thus, in view of the Secretary’s explicit caveat—not just

once, but twice—that this finding was “not determinative” of her decision, the Court declines to

affirm the Secretary’s decision on this alternative ground.



   F. Former PRM-II Section 1102.3L And The “Hold Harmless Provision” Of JSM-370

       The Providers also argue that the Secretary’s decision should be reversed based on the

alternative reimbursement approach ostensibly endorsed by the language of former PRM-II §

1102.3L. Former Section 1102.3L—a manual provision that the Secretary has since revised—

provided that “it may not be necessary for a provider to actually bill the Medicaid program to

establish a Medicare crossover bad debt where the provider can establish that Medicaid is not

responsible for payment.”     (AR at 478-480).       Instead, providers were required to furnish

documentation of “Medicaid eligibility at the time services were rendered (via valid Medicaid

eligibility number),” and establish that “[n]onpayment that would have occurred if the crossover

claim had actually been filed with Medicaid.” (Id.). The Providers assert that the reports they

submitted with their claims properly satisfied these requirements.

        The Secretary responds that, insofar as former PRM-II § 1102.3L conflicts with the

“must bill” policy and its reimbursement requirements, the now-defunct provision “cannot be

enforced.” (Dkt. No. 24 at 13). The Secretary cites the Ninth Circuit’s decision in Monterey

Peninsula, which stated that “[b]ecause a regulation has the force of law, an interpretation of a

regulation in Part II of the PRM that is inconsistent with the regulation should not be enforced.”

323 F.3d at 798-99; see also Cove Assocs. Joint Venture, 848 F. Supp. 2d at 28 (reiterating the

Ninth Circuit’s conclusion that former PRM-II § 1102.3L “conflicted with the must-bill policy

and was not enforceable”). The Court agrees with this analysis. There can be no dispute that the
                                                25
Secretary revoked the above language in 2004 through JSM-370, through which the Secretary

reiterated the requirements of the “must bill” policy. Thus, to the extent that former PRM-II §

1102.3L would now permit the Providers to obtain bad debt reimbursements without having to

bill the State and secure State determinations on these claims—as the Providers necessarily

argue—its language conflicts with the Secretary’s longstanding interpretation of the “must bill”

policy and cannot be enforced. 9 Therefore, the Secretary’s denial of the Providers’ claims was

not arbitrary or capricious in this respect.

        Potentially recognizing that former PRM-II § 1102.3L cannot apply, the Providers also

assert that the Secretary should have reimbursed their claims pursuant to the “hold harmless”

provisions that were included in JSM-370 for those providers who validly relied on the now-

defunct language of Section 1102.3L. Specifically, the “hold harmless” provision provided:

        Intermediaries who followed the now-obsolete Section 1102.3L instructions for
        cost-reporting periods prior to January 1, 2004 may reimburse providers they
        service for dual-eligible bad debts with respect to unsettled cost reports that were
        deemed allowable using other documentation in lieu of billing the state.

9
        The resulting conflict is all the more evident to the Court in view of the Secretary’s
repeated application of the “must bill” policy in several adjudicative decisions, many of which
predate the implementation of the now-defunct language of former PRM-II § 1102.3L. See
California Hosps. Crossover Bad Debts Group Appeal, PRRB Dec. No. 2000-D80 (Oct. 31,
2000) (“Reading the sections together, the Administrator concludes that, in situations where a
State is liable for all or a portion of the deductible and coinsurance amounts, the State is the
responsible party and is to be billed in order to establish the amount of bad debts owed under
Medicare.”); Hosp. de Area de Carolina v. Cooperative de Seguros de Vida de Puerto Rico,
Admin. Dec. No. 93-D23 (Apr. 26, 1993) (finding amounts not reimbursable as Medicare bad
debts for 1985 and 1986 cost years where “[p]rovider failed to request payment from the
Commonwealth for deductibles and coinsurance amounts attributable to Medicare/Medicaid
patients for which the Commonwealth was obligated to pay”); St. Joseph Hosp. v. Blue Cross &
Blue Shield Ass’n, PRRB Dec. No. 84-D109 (Apr. 16, 1984) (deeming collection efforts
inadequate for 1984 cost year because “provider did not attempt to bill the State of Georgia for
its Medicaid patients”); Concourse Nursing Home v. Travelers Ins. Co., PRRB Dec. No. 83-
D152 (Sept. 27, 1983) (concluding that, for 1977 and 1978 cost years, the provider “furnished no
documentation which would support its contentions . . . that actual collection efforts were made
to obtain payments from . . . the Medicaid authorities before an account balance was considered
an uncollectible bad debt for Medicare purposes”).
                                                26
       Intermediaries that required the provider to file a State Remittance Advice for cost
       reporting periods prior to January 1, 2004, may NOT reopen providers’ cost
       reports to accept alternative documentation for such cost reporting periods.

(AR at 14, 383-84 (emphasis added)). Significantly, the “hold harmless” provision only applies

to providers whose intermediaries permitted alternative documentation in lieu of State

determinations; conversely, for providers whose intermediaries chose not to allow alternative

documentation and still required some State determination, the “hold harmless provision” cannot

be invoked. (Id.). Here, the Secretary declined to apply the “hold harmless” provision to these

claims, stating that “[t]he Providers also do not meet the hold harmless provisions of JSM-370.”

(AR at 22). The Secretary now explains that, by its very terms, JSM-370 cannot apply because

the testimony of the Providers’ own witness during the Board hearing confirmed that the

Providers’ intermediary never permitted the use of the alternative documentation contemplated

by former § 1102.3L. (Def.’s Mem. at 38 (citing AR at 125, 129, 133)). The Court finds that the

Secretary’s conclusion below on this point, while somewhat scant of reasoning, 10 is supported by

evidence in the administrative record, particularly given the Providers’ failure to even address

this argument in their reply briefing. 11   (See generally Pls.’ Reply).     Therefore, the Court


10
        Concededly, the Court is somewhat troubled by the minimal explanation for this
conclusion within the Secretary’s decision itself. Nevertheless, the Court is also mindful that an
agency that provides further explanation of its decision during the course of litigation is not
always engaging in impermissible post hoc rationalization. Nat’l Oilseed Processors Ass’n v.
Browner, 924 F. Supp. 1193, 1204 (D.D.C. 1996), aff’d in part and remanded sub nom. Troy
Corp. v. Browner, 120 F.3d 277 (D.C. Cir. 1997). The general rule that an agency must defend
its actions on the basis on which they were originally taken does not preclude the Court from
considering “a more detailed explanation” that does not present a new basis for the agency’s
action. Id.; see also Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1233 n.11 (D.C.
Cir. 1994) (rejecting plaintiffs’ argument that the position taken by the agency in litigation was a
post hoc rationalization, even though the agency “could have placed a finer point” on the issue in
its explanation in the record). The Court finds that the Secretary’s explanation for declining to
apply the “hold harmless” provision falls more squarely in the “more detailed explanation” camp
than the “post-hoc rationalization” camp.
11
        Indeed, the Court could elect to treat this argument as conceded simply based on the
Providers’ failure to respond. Newton v. Office of the Architect of the Capitol, 840 F. Supp. 2d
                                                27
concludes that the Secretary’s decision not to apply the “hold harmless” provision was rational

and sufficiently supported by the administrative record.



   G. Cost-Shifting

   Finally, the Providers argue that the Secretary’s decision should be overruled because it

violates the cost-shifting prohibitions under the Medicare program, 42 U.S.C. § 1395x(v)(1)(A),

by impermissibly shifting Medicare costs from Medicare to non-Medicare patients. (Pls.’ Reply

at 9). In making this argument, however, the Providers fail to grasp the fundamental tenet of the

cost-shifting prohibition—it only applies if the costs at issue are, in fact, “reimbursable” under

the statute and applicable regulations. See North Clackamas Cmty. Hosp. v. Harris, 664 F.2d

701, 707 (9th Cir. 1980) (“[T]he [cost-shifting] statute merely provides that reimbursable costs

shall not be shifted to non-Medicare patients, a proposition analytically distinct from the view

that all costs of providing care to Medicare patients should be reimbursed.”) (emphasis added);

Lexington Cty. Hosp. v. Schweiker, 740 F.2d 287, 289 (4th Cir. 1984) (“[I]f the prohibition

against cost-shifting were not so limited, no cost could ever be disallowed.”); Bond Hospitals,

Inc. v. Heckler, 587 F. Supp. 1268, 1272-73 (D.D.C. 1984) (“Since the Secretary reasonably

determined that interest on income taxes is not a reimbursable cost, her decision does not

contravene the prohibition against cost-shifting.”). Accordingly, given the Court’s affirmance of

the Secretary’s decision that these claims were not reimburseable costs, the statutory prohibition

on cost-shifting is not implicated in this case.



384, 397 (D.D.C. 2012) (“When a party files an opposition addressing only certain arguments
raised in a dispositive motion, a court may treat those arguments that the non-moving party failed
to address as conceded.”); Day v. D.C. Dep’t of Consumer & Regulatory Affairs, 191 F. Supp. 2d
154, 159 (D.D.C. 2002) (“If a party fails to counter an argument that the opposing party makes in
a motion, the court may treat that argument as conceded.”).
                                                   28
                                    CONCLUSION

      For the reasons set forth above, the Court concludes that the Secretary’s Motion for

Summary Judgment must be GRANTED and the Providers’ Motion for Summary Judgment

must be DENIED. An Order accompanies this Memorandum Opinion.


                                                              Digitally signed by Judge Robert L.
                                                              Wilkins
                                                              DN: cn=Judge Robert L. Wilkins,
                                                              o=U.S. District Court, ou=Chambers
                                                              of Honorable Robert L. Wilkins,
Date: November 9, 2012                                        email=RW@dc.uscourt.gov, c=US
                                                              Date: 2012.11.09 14:09:13 -05'00'



                                                ROBERT L. WILKINS
                                                United States District Judge




                                           29
