                            UNITED STATES DISTRICT COURT
                            FOR THE DISTRICT OF COLUMBIA


                                              )
SUMMER HILL NURSING HOME                      )
LLC,                                          )
                                              )
               Plaintiff,                     )
                                              )
       v.                                     )      Civil Action No. 08-268 (RMC)
                                              )
KATHLEEN SEBELIUS,1 Secretary,                )
U.S. Department of Health and Human           )
Services, et al.,                             )
                                              )
               Defendants.                    )
                                              )


                                 MEMORANDUM OPINION

               On March 25, 2009, the Court granted Summer Hill Nursing Home LLC summary

judgment, finding the decision of the Secretary of the Department of Health and Human Services

denying Summer Hill’s claim for Medicare reimbursement of “bad debts” to have been arbitrary and

capricious under the Administrative Procedure Act (“APA”), 5 U.S.C. § 706(2)(A), because the

Secretary failed to explain why Summer Hill’s belated submission of “remittance advices” from New

Jersey Medicaid refusing to pay the debts was insufficient to establish that the debts were actually

uncollectible when claimed.2 Summer Hill now moves for costs and attorneys’ fees pursuant to the

Equal Access to Justice Act (“EAJA”), 28 U.S.C. § 2412. See Pl.’s Mot. for Fees & Expenses (“Pl.’s

       1
          Pursuant to Federal Rule of Civil Procedure 25(d), Kathleen Sebelius is substituted as
Secretary of the U.S. Department of Health and Human Services for her predecessor, Michael O.
Leavitt.
       2
         Although the Secretary initially appealed this Court’s decision, she subsequently moved
to dismiss the appeal and the D.C. Circuit granted the motion. See September 3, 2009 Order of the
Court of Appeals [Dkt. # 23].
Mot.”) [Dkt. # 24]. For the reasons explained herein, the motion will be granted in part and denied

in part.

                                                 I. FACTS

                    Summer Hill is a 120-bed nursing facility located in the State of New Jersey. It is a

participating provider in both the federal Medicare program and New Jersey’s Medicaid program.3

On or about May 31, 2005, Summer Hill submitted its Medicare Cost Report for the fiscal year

ending December 31, 2004 to the fiscal intermediary, claiming $170,537 in “bad debts”4 relating to

uncollectible deductible and co-insurance amounts for “dual eligible”5 patients. On or about January

21, 2006, the intermediary disallowed $135,106 of Summer Hill’s bad debt because Summer Hill

“wrote off dual eligible bad debts prior to billing [New Jersey] Medicaid for the deductible and co-

insurance amounts.” AR 88. Summer Hill appealed the intermediary’s disallowance to the Provider

Reimbursement Review Board (“PRRB”) on or about March 28, 2006.

                    Some time between receiving notice of the intermediary’s disallowance and filing its

appeal with the PRRB, Summer Hill billed New Jersey Medicaid for the bad debts and received

remittance advices refusing to pay the debts. AR 100-141. On appeal before the PRRB, Summer

Hill argued, inter alia, that the remittance advices show that it had complied with the agency’s “must




           3
          Medicare is a federally funded program that finances medical care for the aged and
disabled. See 42 U.S.C. § 1395, et seq. Medicaid is a cooperative federal-state program that
finances medical care for the poor. See 42 U.S.C. § 1396, et seq.
           4
         “Bad debts are amounts considered to be uncollectible from accounts and notes receivable
that were created or acquired in providing services.” 42 C.F.R. § 413.89(b)(1).
           5
               “Dual eligibles” are persons who qualify for both Medicare and Medicaid.

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bill” policy6 because they show that “for each of the ‘bad debts’ claimed . . . Medicaid has issued a

Code 670, reflecting its determination that, because the Medicare payment exceeds the Medicaid

allowable payment ceiling, no Medicaid payment is due.” AR 84. The PRRB reversed the

intermediary’s disallowance, but did not decide the effect of Summer Hill’s subsequent receipt of

remittance advices because it found that the must bill policy “has no foundation in law in that it is

beyond the requirements of the regulations and [Provider Reimbursement Manual].”7 AR 77.

               The Secretary reversed the PRRB’s decision on December 20, 2007. Summer Hill

had argued that the Secretary “need not reach the issues of whether the PRRB was correct in finding

insufficient authority for a ‘must bill’ policy for full Medicaid patients or whether such a policy, if

properly authorized, is appropriate” because “remittance advices were received by Summer Hill from

New Jersey Medicaid which conclusively establishes the debts to be ‘actually uncollectible when

claimed.’” AR 16. However, the Secretary ignored that argument, finding that “[t]he bad debts

claimed by the Provider were not worthless when written off” because “[t]he Provider did not bill

the State and receive a remittance advice to meet the reasonable collection effort requirements of the

regulation and manual provisions for the claims at issue in this case.” AR 12.

               As a result, Summer Hill brought this suit against the Secretary and the Administrator

for the Centers for Medicare & Medicaid Services, alleging that the Secretary’s denial of its claim

for Medicare reimbursement was arbitrary and capricious under the APA, which applies pursuant


       6
         The “must bill” policy is an administrative requirement that providers submit evidence that
they have billed state Medicaid programs for uncollectible deductible and co-insurance obligations
and received a refusal to pay, called a “remittance advice,” in order to be reimbursed by Medicare.
       7
          The Ninth Circuit has upheld the Secretary’s must bill policy. See Cmty. Hosp. of the
Monterey Peninsula v. Thompson, 323 F.3d 782 (9th Cir. 2003). So has Judge Kollar-Kotelly on
this Court. See GCI Health Care Ctrs., Inc., v. Thompson, 209 F. Supp. 2d 63 (D.D.C. 2002).

                                                 -3-
to 42 U.S.C. § 1395oo(f)(1). In a Memorandum Opinion, the Court held that the Secretary’s denial

of Summer Hill’s claim for Medicare reimbursement was arbitrary and capricious because the

Secretary failed to explain how the must bill policy was violated in this case. See Summer Hill

Nursing Home LLC v. Johnson, 603 F. Supp. 2d 35, 38 (D.D.C. 2009). The Court reasoned that

“[a]bsent is any explanation why Summer Hill’s subsequent receipt of remittance advices was

insufficient to establish that the debts were actually uncollectible when claimed.” Id. at 39. Because

the Secretary did not explain how the must bill policy was violated in light of Summer Hill’s

subsequent receipt of remittance advices, the Court found that the Secretary’s decision provided no

basis upon which the Court could conclude that the decision was the product of reasoned decision-

making. See id. (quoting Tourus Records, Inc. v. DEA, 259 F.3d 731, 737 (D.C. Cir. 2001)).

                                    II. LEGAL STANDARDS

               A.      Costs

               Costs are governed by Subsection 2412(a)(1) of EAJA. It provides:

               a judgment for costs, as enumerated in Section 1920 of this title, but
               not including the fees and expenses of attorneys, may be awarded to
               the prevailing party in any civil action brought by or against the
               United States or any agency or any official of the United States acting
               in his or her official capacity . . . . A judgment for costs when taxed
               against the United States shall . . . be limited to reimbursing in whole
               or in part the prevailing party for the costs incurred by such party in
               the litigation.

28 U.S.C. § 2412(a)(1). Costs allowable under 28 U.S.C. § 1920 may be recovered against the

United States under Subsection 2412(a)(1) to the extent that the costs relate to a litigant’s obtaining

“the functional equivalent of a final judgment against the government that entitles him to some

relief.” In re Turner, 14 F.3d 637, 641 (D.C. Cir. 1994).



                                                 -4-
               B.      Attorneys’ Fees

               1.      Mandatory Fees

               Mandatory fees are governed by Subsection 2412(d)(1)(A) of EAJA. It provides:

               a court shall award to a prevailing party . . . fees and other expenses .
               . . incurred by that party in any civil action . . . including proceedings
               for judicial review of agency action, brought by or against the United
               States . . . unless the court finds that the position of the United States
               was substantially justified or that special circumstances make an award
               unjust.

28 U.S.C. § 2412(d)(1)(A). “Substantially justified” means “justified in substance or in the main

— that is, justified to a degree that could satisfy a reasonable person. That is no different from . .

. [having] a reasonable basis both in law and in fact.” Pierce v. Underwood, 487 U.S. 552, 565

(1988) (quotation marks and citations omitted); see also F.J. Vollmer Co., Inc. v. Magaw, 102 F.3d

591, 595 (D.C. Cir. 1996) (same). Only fees attributable to civil actions brought by or against the

United States — defined to include “any agency and any official of the United States acting in his

or her official capacity” — may be awarded under Subsection 2412(d)(1)(A). Id. § 2412(d)(2)(C).

In addition, the fees are capped at $125 per hour “unless the court determines that an increase in the

cost of living or a special factor, such as the availability of qualified attorneys for the proceedings

involved, justifies a higher fee.” Id. § 2412(d)(2)(A).

               2.      Discretionary Fees

               Discretionary fees are governed by Subsection 2412(b) of EAJA. It provides:

               a court may award reasonable fees and expenses of attorneys . . . to
               the prevailing party in any civil action brought by or against the
               United States or any agency or any official of the United States acting
               in his or her official capacity . . . . The United States shall be liable
               for such fees and expenses to the same extent that any other party
               would be liable under the common law . . . .


                                                 -5-
28 U.S.C. § 2412(b). Unlike mandatory fees under Subsection 2412(d)(1)(A), there is no statutory

cap for discretionary fees under Subsection 2412(b). See Gray Panthers Project Fund v. Thompson,

304 F. Supp. 2d 36, 38 (D.D.C. 2004). However, fees are available under Subsection 2412(b) only

if the Court finds that the United States acted in bad faith. See Am. Hosp. Ass’n v. Sullivan, 938 F.2d

216, 219 (D.C. Cir. 1991).

                                          III. ANALYSIS

               As a preliminary matter, the Court notes that the Secretary does not dispute that

Summer Hill qualifies as a “prevailing party” within the meaning of EAJA. Because this Court

granted Summer Hill summary judgment, see Summer Hill Nursing Home, 603 F. Supp. 2d 35,

Summer Hill meets EAJA’s definition of “prevailing party.” See Buckhannon Bd. & Care Home,

Inc. v. W. Va. Dep’t of Health & Human Res., 532 U.S. 598, 604 (2001) (party who wins judgment

on the merits is a “prevailing party” for fee-shifting purposes); Select Milk Producers, Inc. v.

Johanns, 400 F.3d 939, 945 (D.C. Cir. 2005) (“it is now clear that Buckhannon’s construction of

‘prevailing party’ also applies to fee claims arising under EAJA”).

               A.      Costs

               Summer Hill asserts that it incurred $776.51 in costs in connection with this litigation.

See Pl.’s Mot., Ex. F (Decl. of Brian Rath) ¶ 9; Ex. G (Itemized Disbursements). The Secretary does

not contest this assertion. Accordingly, the Court will grant as uncontested Summer Hill’s motion

for costs in the amount of $776.51.

               B.      Attorneys’ Fees

               Summer Hill argues that it is entitled to $94,434.50 in attorneys’ fees because the

Secretary’s position was not substantially justified and because the Secretary acted in bad faith. The


                                                 -6-
Court does not agree with either argument.

                “[A] finding in the merits phase that the Government’s underlying action was

‘arbitrary and capricious’ within the meaning of the Administrative Procedure Act, 5 U.S.C.

§ 706(2)(A), does not compel an award of fees.” FEC v. Rose, 806 F.2d 1081, 1087 (D.C. Cir.

1986). “Under the APA, a judicial labeling of an agency’s action as ‘arbitrary and capricious’ sets

forth a legal conclusion. It is a standard against which courts measure all manner of governmental

actions, some of which may represent reasonable policy choices but suffer from some defect in

crafting or execution.” Id. “[W]hether agency action invalidated as arbitrary and capricious might

nevertheless have been substantially justified depends on what precisely the court meant by ‘arbitrary

and capricious.’” F.J. Vollmer Co., 102 F.3d at 595.

                “For example, an agency action accompanied by an inadequate explanation

constitutes arbitrary and capricious conduct. In some circumstances, a judgment as to the adequacy

of an agency’s explanation is not only one on which reasonable minds can and frequently do differ,

but it is also logically unrelated to whether the underlying agency action is justified under the organic

statute.” FEC, 806 F.2d at 1088 (citations omitted). Similarly, “[a] determination that an agency

made a decision without considering a relevant factor leads to condemning the decision as ‘arbitrary

and capricious.’” Id. However, “agency neglect of a relevant factor in reaching its decision does not

invariably doom the decision itself to the ranks of unreasonableness, as is clear from the oft-stated

principle that an agency may lawfully reach the same conclusion after taking the omitted factor into

account.” Id.; see also F.J. Vollmer Co., 102 F.3d at 595 (“a determination that an agency acted

arbitrarily and capriciously because it failed to provide an adequate explanation or failed to consider

some relevant factor in reaching a decision may not warrant a finding that the agency’s action lacked


                                                  -7-
substantial justification”) (quotation marks and citations omitted).

               Such is the case here. The Court found the denial of reimbursement to have been

arbitrary and capricious solely because the Secretary failed to explain how the must bill policy was

violated in light of Summer Hill’s belated submission of remittance advices. Notwithstanding the

absence of an explanation, the Secretary was substantially justified in her position that the must bill

policy was violated. Summer Hill sought reimbursement from Medicare for its debts prior to billing

New Jersey Medicaid. Given that Summer Hill failed to bill New Jersey Medicaid prior to seeking

reimbursement from Medicare, the Secretary’s position that Summer Hill was in violation of the

must bill policy was entirely reasonable. However, because the Secretary failed to explain why

Summer Hill’s belated submission of remittance advices was insufficient to satisfy the must bill

policy, the Court could not conclude that the decision was the product of reasoned decision-making.8

               Nor does the Court agree that the Secretary acted in bad faith. “[T]he substantive

standard for a finding of bad faith is stringent and attorneys’ fees will be awarded only when

extraordinary circumstances or dominating reasons of fairness so demand.” Ass’n of Am. Physicians

& Surgeons, Inc. v. Clinton, 187 F.3d 655, 660 (D.C. Cir. 1999) (quotation marks and citation

omitted). “Further, the finding of bad faith must be supported by clear and convincing evidence,

which generally requires the trier of fact, in viewing each party’s pile of evidence, to reach a firm

conviction of the truth on the evidence about which he or she is certain.” Id. (quotation marks and


       8
          Contrary to Summer Hill’s characterizations, the Court did not find that the Secretary’s
decision was unsupported by substantial evidence or that Summer Hill had fully complied with the
must bill policy. The Court’s holding was much narrower: the Secretary’s decision was found to
have been arbitrary and capricious because the Secretary “failed to explain why Summer Hill’s
subsequent submission of remittance advices was insufficient to establish that the debts were actually
uncollectible when claimed . . . .” Summer Hill Nursing Home, 603 F. Supp. 2d at 36. Had the
Secretary provided such an explanation, the result might have been different.

                                                 -8-
citations omitted). As already discussed, Summer Hill failed to bill New Jersey Medicaid prior to

seeking reimbursement from Medicare. Therefore, it cannot be said that the Secretary acted in bad

faith in denying Summer Hill’s claim for Medicare reimbursement of bad debts for failing to comply

with the must bill policy.

                                     IV. CONCLUSION

               For the foregoing reasons, the Court will grant in part and deny in part Plaintiff’s

Motion for Attorneys’ Fees and Expenses Pursuant to 28 U.S.C. § 2412 [Dkt. # 24]. The Court will

award Plaintiff $776.51 in costs, and the Court will deny Plaintiff’s request for attorneys’ fees.


Date: January 4, 2010                                      /s/
                                                  ROSEMARY M. COLLYER
                                                  United States District Judge




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