                             UNITED STATES DISTRICT COURT
                             FOR THE DISTRICT OF COLUMBIA

 SELECT SPECIALTY HOSPITAL-
 DENVER, INC., et al.,

                        Plaintiffs,                        Civil Action No. 10-cv-1356 (BAH)

                        v.                                 Chief Judge Beryl A. Howell

 ALEX M. AZAR II, Secretary, U.S.
 Department of Health and Human Services,

                        Defendant.

                                  MEMORANDUM OPINION

       The plaintiffs in this consolidated case are seventy-five long-term care hospitals

(“LTCHs”) located in twenty-six states seeking a total of $20,325,174 in reimbursements from

the Department of Health and Human Services (“HHS”), in connection with the plaintiffs’

provision of inpatient care, over the period of 2005 through 2010, for patients eligible for both

Medicare and Medicaid (“dual-eligible patients”), who generally are indigent. Prior to 2007, the

Centers for Medicare and Medicaid Services (“CMS”) had reimbursed LTCHs for their dual-

eligible patients’ unpaid co-insurance and deductible obligations (“bad debt”) without requiring

the LTCHs to bill state Medicaid programs for a formal determination of how much of that bad

debt would be covered by state Medicaid programs. Billing state Medicaid programs was

regarded as unnecessary, because the states were not liable for Medicare bad debts incurred at

LTCHs.

       In 2007, however, CMS abruptly began denying LTCHs reimbursement for dual-eligible

patients’ bad debts unless the LTCHs had both billed their state Medicaid programs and received

a specific document from those state Medicaid programs called a State Remittance Advice

(“RA”)—to prove that the state Medicaid programs were, in fact, not liable for any portion of the
                                                 1
bad debts. This requirement that LTCHs bill the state Medicaid program to confirm that the state

will not pay the Medicare cost-sharing amounts on behalf of a dual-eligible patient is known as

CMS’s “must-bill policy.”

       At the time of CMS’s change in the must-bill policy, no means were available to satisfy

CMS’s new requirements because the LTCHs were not enrolled in their respective state

Medicaid programs, and states would neither process bills nor issue RAs to non-participating

providers. Moreover, when the LTCHs attempted to enroll in their respective state Medicaid

programs, some states rejected the LTCHs as unrecognized provider types under their state

Medicaid programs. When the LTCHs were eventually able to enroll successfully in their state

Medicaid programs, obtaining the requisite RAs remained impossible because states would not

process claims for prior fiscal years.

       The plaintiffs claim, inter alia, that CMS could not change the requirements for Medicare

bad debt reimbursement, at least as to non-participating Medicaid providers, without conducting

notice-and-comment rulemaking, as required by the Medicare Act, 42 U.S.C. § 1395hh(a)(2).

Complaint ¶¶ 120–124 (“S1-Compl.”), Select Specialty Hosp.-Denver, Inc. v. Azar (Select I),

Civ. No. 10-1356 (filed Aug. 12, 2010), ECF No. 1; Complaint ¶¶ 129–134 (“S2-Compl.”),

Select Specialty Hosp.-Birmingham v. Azar (Select II), Civ. No. 17-235 (filed Feb. 2, 2017), ECF

No. 1; Complaint ¶ 66(l) (“H-Compl.”), Select Specialty Hosp.-Tulsa/Midtown, LLC v. Azar

(Hillcrest), Civ. No. 18-584 (filed Mar. 15, 2018), ECF No. 1. The D.C. Circuit’s holding in

Allina Health Servs. v. Price (Allina II), 863 F.3d 937 (D.C. Cir. 2017), aff’d, Azar v. Allina

Health Servs., 139 S. Ct. 1804 (2019), confirms that the plaintiffs are correct. Thus, for the

reasons set forth below, the plaintiffs’ Motion for Summary Judgment (“Pls.’ Mot.”), ECF No.




                                                 2
66, is granted, and HHS’s Cross-Motion for Summary Judgment (“Def.’s Mot.”), ECF No. 67, is

denied.

I.        BACKGROUND

          Summarized below are the relevant statutory and regulatory provisions, including CMS’s

“must-bill” policy and the changes made to this policy leading to the plaintiffs’ claims, followed

by the factual and procedural history of this case.

          A.     Statutory and Regulatory Background

                 1. The Medicare Act and Reimbursement Generally

          “Medicare is a federally funded medical insurance program for the elderly and disabled”

that was “[e]stablished as part of the Social Security Act, 42 U.S.C. § 1395 et seq.” Fischer v.

United States, 529 U.S. 667, 671 (2000). Inpatient hospital care, which is at issue in this lawsuit,

is generally covered under Part A of the Medicare Act. 42 U.S.C. §§ 1395c–1395i-5. CMS,

“formerly the Health Care Financing Administration (HCFA), administers the Medicare program

on behalf of the Secretary” of HHS, St. Luke’s Hosp. v. Sebelius, 611 F.3d 900, 901 n.1 (D.C.

Cir. 2010), and is headed by the CMS Administrator, Forsyth Mem’l Hosp. v. Sebelius, 639 F.3d

534, 535 (D.C. Cir. 2011).

          The Secretary is required by statute to delegate most of “[t]he administration of [Part A]

. . . through contracts with [M]edicare administrative contractors.” 42 U.S.C. § 1395h(a). These

contractors, known as “Intermediaries,” are responsible for, inter alia, “[d]etermining . . . the

amount of the payments required . . . to be made to providers of services, suppliers and

individuals;” for making those payments; and for providing communication, education, and

technical assistance to health care providers treating Medicare patients. Id. § 1395kk-1(a)(4). In

order to receive payment from the Medicare program, through the Intermediaries, health care

providers such as the plaintiffs must submit “cost reports . . . on an annual basis.” 42 C.F.R.

                                                   3
§ 413.20(b). After receiving and reviewing these cost reports, Intermediaries “must within a

reasonable period of time . . . furnish the provider . . . a written notice reflecting the contractor’s

final determination of the total amount of reimbursement due the provider.” Id. § 405.1803(a).

These notices, which “[e]xplain the [Intermediary’s] determination of total program

reimbursement due the provider,” id. § 405.1803(a)(1)(i), are known as notices of program

reimbursements (“NPRs”).

         When dissatisfied with an NPR, a provider may seek review of, and a hearing regarding,

the Intermediary’s decision before the Provider Reimbursement Review Board (“PRRB”), so

long as certain jurisdictional requirements, which are not at issue here, are met. 42 U.S.C.

§ 1395oo(a). “A decision of the Board shall be final unless the Secretary, on his own motion, . . .

reverses, affirms, or modifies the Board’s decision.” Id. § 1395oo(f)(1). The Secretary has

delegated responsibility for hearing appeals from PRRB decisions to the CMS Administrator.

See 42 C.F.R. § 405.1875; Mercy Home Health v. Leavitt, 436 F.3d 370, 374 (3d Cir. 2006). A

dissatisfied provider may file a civil action challenging the PRRB or the Administrator’s final

decision in the “District Court of the United States for the judicial district in which the greatest

number of providers participating in both the group appeal and the civil action are located or in”

this District. 42 C.F.R. § 405.1877(e)(2).1

                  2. The Cost-Shifting Prohibition and Bad Debt Reimbursement

         The Medicare Act requires that the Secretary, in promulgating rules concerning provider

reimbursement for reasonable costs, must (1) “take into account both direct and indirect costs of




1
         The parties agree that jurisdiction and venue properly lie in this District pursuant to 42 U.S.C. § 1395oo(f)
given that the seventy-five plaintiffs are distributed across twenty-six states. Pls’ Mem. Supp. Mot. Summ. J. (“Pls.’
Mem.) at 30, ECF No. 66; Def.’s Answer ¶¶ 9–11 (“S2-Answer”), Select II, Civ. No. 17-235 (filed June 13, 2017),
ECF No. 11; Def.’s Answer (“H-Answer”) ¶¶ 8–10, 41, 66, Hillcrest, Civ. No. 18-584 (filed July 5, 2018), ECF No.
12.

                                                          4
providers of services,” and (2) employ “methods of determining costs” for “efficiently delivering

covered services to [covered] individuals” that ensure such costs are “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.” 42 U.S.C. § 1395x(v)(1)(A).2 The purpose of this cost-shifting prohibition

is to ensure that neither providers nor non-Medicare-covered patients end up paying the costs for

services rendered to Medicare beneficiaries. Although the costs incurred for most of the care

provided to Medicare patients are borne by the federal government, individual Medicare patients

are “often responsible for both deductible and coinsurance payments for hospital care.”

Hennepin Cnty. Med. Ctr. v. Shalala (Hennepin Cnty.), 81 F.3d 743, 745 (8th Cir. 1996). If

Medicare patients fail to pay the deductible or coinsurance amounts they owe for hospital care,

Medicare allows for reimbursement to the provider of these “bad debts” so long as certain

criteria are met. 42 C.F.R. § 413.89(e).

         “Bad debts” in the Medicare context are defined as “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). Such debts are “attributable to the deductibles and

coinsurance amounts” billed to Medicare patients. Id. § 413.89(a). Pursuant to the cost-shifting

prohibition, Medicare reimburses providers for these bad debts, ensuring that the costs are not

“borne by individuals not so covered.” 42 U.S.C. § 1395x(v)(1)(A). Ordinarily, Medicare will

reimburse providers for bad debts they can prove are “allowable.” 42 C.F.R. § 413.89(d). Under


2
           42 U.S.C. § 1395x(v)(1)(A) provides, in pertinent part: “Such regulations shall (i) take into account both
direct and indirect costs of providers of services (excluding therefrom any such costs, including standby costs, which
are determined in accordance with regulations to be unnecessary in the efficient delivery of services covered by the
insurance programs established under this title) in order that, under the methods of determining costs, the necessary
costs of efficiently delivering covered services to individuals covered by the insurance programs established by this
title 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, and (ii) provide for the making of suitable retroactive corrective adjustments
where, for a provider of services for any fiscal period, the aggregate reimbursement produced by the methods of
determining costs proves to be either inadequate or excessive.”

                                                           5
long-standing regulations, four criteria in effect since 1966, determine whether a bad debt is

“allowable” and thus eligible for reimbursement:

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

Id. § 413.89(e); see 31 Fed. Reg. 14808, 14813 (Nov. 22, 1966); see also 20 C.F.R. § 405.420

(1967); 42 C.F.R. § 413.80 (1986).

       The second requirement, that the provider make “reasonable collection efforts,” is

principally at issue here. CMS has set out the requirements constituting a reasonable collection

effort in its Provider Reimbursement Manual, Part I (“PRM-I”) § 310. With respect to dual-

eligible patients, CMS allows providers to presume the beneficiary is indigent and the debt

uncollectible, and therefore providers need not engage in the collection practices described in

PRM-I § 310. See PRM-I § 312 (“Providers can deem Medicare beneficiaries indigent or

medically indigent when such individuals have also been determined eligible for Medicaid as

either categorically needy individuals or medically needy individuals, respectively.”). In order to

rely on a patient’s status as a Medicaid beneficiary to establish indigence and satisfy the

reasonable collection efforts requirement, however, the provider “must determine that no source

other than the patient would be legally responsible for the patient’s medical bill; e.g., title XIX,

local welfare agency and guardian.” Id. Accordingly, the PRM requires providers to determine

that Medicaid is not “legally responsible” for a dual-eligible patient’s medical bills before

seeking reimbursement from Medicare.

               3. The Must-Bill Policy and the Remittance Advice Requirement




                                                  6
         To demonstrate that “no source other than the patient would be legally responsible” for a

dual-eligible patient’s medical bills, PRM-I § 312, CMS currently requires providers to bill their

respective state Medicaid programs and obtain an RA demonstrating that Medicaid is not

responsible for any part of the debt. The Secretary refers to this two-pronged policy as simply

the “must-bill policy,” see Def.’s Mem. Supp. Cross-Mot. Summ. J. & Opp’n Pls.’ Mot. Summ.

J. (“Def.’s Mem.”) at 28–29, ECF No. 67-1, but the policy has two components: (1) the

requirement that providers bill state Medicaid programs for dual-eligible bad debts, and (2) the

requirement that RAs are the only acceptable form of documentation to demonstrate that the state

Medicaid program is not responsible for the bad debt (“the RA requirement”), each of which

came into existence at a separate time.

         The first requirement, that providers generally must bill state Medicaid programs, “has

been consistently articulated in the final decisions of the Secretary” since at least 1983. Cove

Assocs. Joint Venture v. Sebelius, 848 F. Supp. 2d 13, 28 (D.D.C. 2012) (citing Hoag Mem.

Hosp. Presbyterian Provider v. Blue Cross, Admin. Dec. No. 2002-D28, 2002 WL 31548714

(Aug. 2, 2002); Hosp. de Area de Carolina, Admin. Dec. No. 93–D23 (Apr. 26, 1993); St.

Joseph Hosp., PRRB Dec. No. 84–D109 (Apr. 16, 1984); Concourse Nursing Home, PRRB Dec.

No. 83–D152 (Sept. 27, 1983)); see also Community Hosp. of Monterey Peninsula v. Thompson

(CHMP), 323 F.3d 783, 799 (9th Cir. 2003); GCI Health Ctrs., Inc. v. Thompson (GCI), 209 F.

Supp. 2d 63, 67–75 (D.D.C. 2002); Cal. Hosp. 90–91 Outpatient Crossover Bad Debts Grp. v.

Blue Cross of Cal., PRRB 2000-D80, 2000 WL 1460668 (Sept. 6, 2000).3 Nevertheless, the


3
          The Secretary cites a provision from CMS’s 1985 Medicare Intermediary Manual as evidence that the
must-bill policy has existed at least since then. See Def.’s Mem. at 28–29 (citing Def.’s Mem., Ex. B, “Medicare
Intermediary Manual Part 4–Audit Procedures” at 7, ECF No. 67-3 (“If the State has been billed, but did not pay the
amount due, determine if there is a written notice of rejection in the patient’s file. Review the rejection notice and if
it is found to be acceptable, allow the bad debt for Medicare purposes.”)). The plaintiffs urge that the Medicare
Intermediary Manual cannot be considered, as the Manual is not found in the Administrative Record. Pls.’ Reply
Supp. Mot. Summ. J. & Opp’n Def. Cross-Mot. Summ. J. (“Pls.’ Reply”) at 8–9, ECF No. 70 (citing Mercy Gen.

                                                            7
must-bill policy for reimbursement to LTCHs of bad debts for dual-eligible patients was not

applied to any of the plaintiffs, none of which were state-Medicaid-participating providers, for

their claimed reimbursements, “until the Intermediaries issued the first NPRs at issue,” in 2007,

for fiscal year 2005. See Pls.’ Mem. at 12 (citing S1-AR4 at 549, S2-AR at 1297, H-AR at 541–

43).

         Regarding the second requirement, CMS did not impose an “absolute requirement that

the Providers obtain a Medicaid remittance advice (RA),” S1-AR at 56 (Select Specialty ’05

Medicare Dual Eligible Bad Debts Grp. v. Wisc. Physicians Serv., PRRB 2010-D25 (Apr. 13,

2010) (“2010 PRRB Decision”) at 10), until 2004 with the issuance by CMS of Joint Signature

Memorandum 370 (“JSM-370”). A JSM “is not issued to the general public,” S1-AR at 55

(2010 PRRB Decision at 9 n.20), and is “not an appropriate vehicle to set policy,” id. (2010

PRRB Decision at 9); rather, a JSM is “used by CMS to communicate internally with [CMS]

contractors,” id. (2010 PRRB Decision at 9 n.20). JSM-370 instructed Medicare Intermediaries

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 for the bad debt is not reimbursable to the provider by


Hosp. v. Azar, 344 F. Supp. 3d 321, 348-49 (D.D.C. 2018) (noting that the same manual provision would not be
considered because it was not on the Administrative Record in that case)). Irrespective of whether the Manual
provision is considered or not, the Manual only supports the proposition that the must-bill policy existed in some
form before 1987 when Congress imposed the notice-and-comment rulemaking requirement of 42 U.S.C.
§ 1395hh(a)(2), but does not address plaintiffs’ assertions that as non-Medicaid-participating providers they were
exempt from the must-bill policy and that CMS had no RA requirement. The Manual provision cited by the
defendant stating that “[i]f the State has been billed, but did not pay the amount due, determine if there is a written
notice of rejection in the patient’s file,” suggests that although some form of written notice was required, CMS did
not at that time have a requirement that the sole acceptable documentation reflecting that the state Medicaid program
had no obligation to pay the bad debt was an RA.
4
          Four Administrative Records have been filed in this consolidated case. The AR from the first-filed case,
10-cv-1356, is referred to as the Select I Administrative Record (“S1-AR”). See Joint Appendix (“JA”), Appendix
from Select I AR (1 of 2), ECF No. 73-1; JA, Appendix from Select I AR (2 of 2), ECF No. 73-2. The first-filed
case also includes a Supplemental AR (“S1S-AR”) with documents from after the case was remanded to CMS. See
JA, Appendix from Select I AR Supplement, ECF No. 73-3. The AR from the second-filed case, 17-cv-235, is
referred to as the Select II Administrative Record (“S2-AR”). See JA, Appendix from Select II AR (1 of 3), ECF
No. 73-4; JA, Appendix from Select II AR (2 of 3), ECF No. 73-5; JA from Select II AR (3 of 3), ECF No. 73-6.
Finally, the AR from the third-filed case, 18-cv-584, is referred to as the Hillcrest Administrative Record (“H-AR”).
See JA, Appendix from Hillcrest AR, ECF No. 73-7.

                                                          8
Medicare until the provider bills the State, and the State refuses payment (with a State

Remittance advice).” S2-AR at 163 (emphasis added). The Secretary cites nothing in the record

articulating an absolute RA requirement before the issuance of JSM-370, and none of the cited

provisions in reimbursement instruction manuals, or PRMs, for providers make any mention of

“remittance advices.” See generally PRM-I §§ 310, 312, 322; see also Mercy Gen. Hosp. v.

Azar, 344 F. Supp. 3d 321, 351 (D.D.C. 2018) (“[T]he Court concludes that the Administrator’s

finding that a remittance advice requirement existed prior to [August 1, 1987] is not supported by

substantial evidence.”).

         B.       Procedural Background

                  1. The Parties

         As noted, the plaintiffs in this consolidated case are seventy-five LTCHs located in

twenty-six different states, spanning three plaintiff groups.5 The “Select I Plaintiffs” are five

LTCHs located in Arkansas, Colorado, Delaware, Florida, and Louisiana. S1-AR at 674. The

“Select II Plaintiffs” are seventy-three LTCHs located in twenty-six states, including those states

in which Select I plaintiffs are located. See S2-AR at 64–83.6 During the relevant time periods,

2005–2010, hospitals in both groups were operated by subsidiaries of the same parent company,

Select Medical Corporation (“Select”). Answer ¶¶ 11–15 (“S1-Answer”), Select I, Civ. No. 10-

1356, ECF No. 14; S2-Answer ¶ 62. The “Hillcrest Plaintiff” is a single LTCH located in Tulsa,




5
         Select Specialty Hospital-Denver, Select Specialty Hospital-Fort Smith, Select Specialty Hospital-Jefferson
Parish, and Select Specialty Hospital-Wilmington are members of both the Select I and the Select II plaintiff groups,
seeking reimbursement for different fiscal years in each of the two complaints, see S1-Compl. ¶¶ 11–14; S2-Compl.,
Ex. D, List of Hospitals in Group (“S2-Compl. Ex. D”), Select II, Civ. No. 17-235, ECF No. 1-4. Similarly, Select
Specialty Hospital-Tulsa/Midtown is a member of the Select II group and is the lone Hillcrest plaintiff, seeking
reimbursement for different fiscal years, see H-Compl. ¶ 12; S2-Compl. Ex. D.
6
         The states in which the Select II Plaintiffs are located are Alabama, Arkansas, Colorado, Delaware, Florida,
Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, New Jersey,
North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, West Virginia,
and Wisconsin. S2-AR 64–83.

                                                         9
Oklahoma. Pls.’ Mem. at 9; H-Compl. ¶ 12; H-Answer ¶ 12. Each plaintiff participates in

Medicare and provides care to Medicare beneficiaries. S1-AR at 639; S2-AR at 456; H-AR at

555–57, 565–67.

         When CMS began applying the RA requirement to the plaintiffs in 2007, none of the

plaintiffs participated in their respective state Medicaid programs. Pls.’ Mem. at 9 (citing S1-AR

at 640 (Aff. of Wade Snyder (Mar. 6, 2018) ¶ 5 (“Snyder Aff.”) (“At the time the services

resulting in the bad debt at issue in this appeal were provided, the Providers were non-Medicaid

participating. Therefore, they were not able to submit claims to, and obtain reimbursement from,

or claims denials in the form of remittance advices (“RAs”) from such Medicaid programs.”));

S2-AR at 457 (Stipulations ¶ 5 (“The Providers did not participate in their respective state

Medicaid programs during their fiscal year 2006 through 2010 cost reporting periods.”)); H-AR

at 269 (Transcript, PRRB Hearing at 47 (Nov. 13, 2015) (provider’s counsel confirming that the

Hillcrest plaintiff did not participate in the state Medicaid program during the relevant period).7

Indeed, during the relevant years, 2005–2010, at least some of the states would not allow

plaintiffs to enroll in the state Medicaid program, see S2-AR at 44, 61-62, 457 (Stipulations ¶ 6

(“At the relevant times, the laws, regulations, and practices of certain states in which these

Providers offer services did not permit LTCHs to enroll as Medicaid providers.”)), 585–86; H-

AR at 174-75, as evidenced by both formal rejection letters and informal correspondence with

state Medicaid programs, see S2-AR at 230, 282, 320, 328, 1594.



7
          HHS claims that “at least some plaintiff providers appear to have been enrolled in their state Medicaid
programs during the period at issue,” referencing only the Tennessee Medicaid program. Def.’s Mem. at 25 (citing
S2-AR at 360). In response, the plaintiffs state that “[t]his is incorrect,” Pls.’ Reply at 14, and that the Tennessee
plaintiffs “only enrolled after CMS changed its interpretation of the must-bill policy,” id. (citing S2-AR at 213, 350,
397-402, 410-11). The plaintiffs have provided record evidence of the Tennessee providers’ 2007 Medicaid
enrollment applications and acceptances, S2-AR at 350 et seq., and evidence that the Tennessee Medicaid program
“issued retroactive effective dates,” Pls.’ Reply at 14 (citing S2-AR at 354–62), but the retroactivity was “largely
meaningless” because Tennessee Medicaid “had a one year timely billing requirement for Medicaid claims,” id.

                                                          10
               2. The Reimbursement Requests

       In July and August 2007, the Select I Plaintiffs’ Intermediary, Wisconsin Physicians

Service Corporation (“WPS”) (formerly known as “Mutual of Omaha”), denied Select I

Plaintiffs’ reimbursement requests for dual-eligible patients’ bad debts in fiscal year 2005,

totaling $438,693. S1-AR at 674. The Select II Plaintiffs’ Intermediaries, WPS and Novitas

Solutions, Inc. (“Novitas”), began denying such requests in June 2007, and eventually denied

various such requests for fiscal years 2006–2010, totaling $19,317,678 worth of dual-eligible bad

debts. S2-AR at 457 (Stipulations ¶ 9). The Hillcrest Plaintiff had dual-eligible bad debts

reimbursement requests denied for the first time by Intermediary WPS in December 2008, and

was ultimately denied $568,803 in reimbursements for dual-eligible bad debts for fiscal years

2007 and 2008. H-AR at 555–57, 565–67; H-Answer ¶¶ 6.

       The Intermediaries processing the plaintiffs’ dual-eligible bad debts reimbursement

requests consistently cited the must-bill policy and the plaintiffs’ lack of RAs as reasons for the

denials. See S1-AR at 677–742; S2-AR at 6249, 6309, 6323; H-AR at 541–43, 555–57, 1087–

89. The plaintiffs claim that they “were first made aware that the must-bill policy would begin to

be applied to their dual eligible bad debts when Mutual of Omaha communicated with them by

email before finalizing adjustments to the Select I Plaintiffs’ FY 2005 cost reports,” in April

2007. Pls.’ Mem. at 11 (citing S1-AR at 548–49; S2-AR at 1297; H-AR at 541–43). The

Hillcrest Plaintiff received a similar email in November 2008, signaling that fiscal year 2007

reimbursements would be denied. See H-AR at 548.

       Prior to April 2007 for Select I and Select II Plaintiffs, and to November 2008 for the

Hillcrest Plaintiff, the CMS Intermediaries had not applied the must-bill policy and the

concomitant RA requirement to the plaintiffs. The Hillcrest Plaintiff included a pre-2007

Adjustment Report in the record to indicate that no deductions were made for failure to comply
                                                 11
with the must-bill policy before that time. See H-AR at 185–226; see also H-AR at 548 (Email

from Don O’Neal, Audit Supervisor, WPS, to Kevin Vaughn, Vice President of Reimbursement,

Ardent Health Services (Nov. 14, 2008) (indicating that “prior to March of 2007, we may have

treated this situation differently in that we would have allowed the Medicare bad debt”)). The

Select I and Select II Plaintiffs point to statements by Select’s Director of Reimbursement, Wade

Snyder, at a hearing before the PRRB in which he indicated that the Intermediaries did not apply

the must-bill policy to the plaintiffs prior to 2007, see S1-AR at 256–57 (Transcript, Select

Specialty 2005 Medicare Dual Eligible Bad Debts Group, Case No. 08-0251G (PRRB Dec. 3,

2008) at 132–33 (explaining that before April 2007 the intermediaries allowed bad debt

reimbursements without billing Medicaid “as long as [the hospitals] could provide evidence that

those dual-eligible patients were indeed Medicaid beneficiaries”)); S2-AR at 1243–44 (same);

see also S1-AR at 641 (Snyder Aff. ¶ 10 (“The Intermediary has communicated to Select that

proof of indigence for the dual eligible patients is no longer sufficient to support that reasonable

collection efforts were exhausted and that the bad debt was uncollectible and could be written off

despite that the Providers were non-Medicaid participating.” (emphasis added)).

       Moreover, contemporaneous correspondence confirms that CMS’s application of the

must-bill and RA requirements to the plaintiffs beginning in 2007 was a change in policy. See

S1-AR at 549 (Email from Kristi Rohrich, Audit Supervisor, Mutual of Omaha, to Wade Snyder,

Director, Reimbursement, Select Medical Corporation (Apr. 5, 2007) (“From this point forward,

all providers, Medicaid certified or not, MUST bill the State and obtain a valid RA showing

denied or partial payment before we allow the bad debt on the cost report.” (emphasis added));

S2-AR at 1297 (same); H-AR at 543 (Email from Don O’Neal, Audit Supervisor, Wisconsin

Physicians Service, to Kevin Vaughn, Vice President of Reimbursement, Ardent Health Services



                                                 12
(Nov. 14, 2008) (“My understanding is that prior to March of 2007, we may have treated this

situation differently in that we would have allowed the Medicare bad debt.”), 677 (Email from

Kenyetta Smith, Medicare Audit and Reimbursement, Mutual of Omaha, to Lee Ann Burney,

Reimbursement Manager, Ardent Health Services (Feb. 14, 2007) (explaining that the Hillcrest

Intermediary’s bad debt adjustment denying reimbursement had been removed, therefore

allowing reimbursement, after receiving copies of patients’ bills).

        The plaintiffs also point to CMS’s instructions for completing the Provider Cost Report

Reimbursement Questionnaire (“HCFA-339”). These instructions explicitly stated that billing

state Medicaid programs “‘may not be necessary . . . where the provider can establish that

Medicaid is not responsible for payment,’” Pls.’ Mem. at 7 (quoting S1-AR at 512 (HCFA-339 at

2)); S2-AR at 1285 (same); H-AR at 552 (same), lending further support to the proposition that

CMS previously did not apply the must-bill policy to all providers. HHS counters that the

instructions cited by plaintiffs were changed, effective October 1, 2003, “to revert back to pre-

1995 language, which requires providers to bill the individual states for dual-eligibles’ co-pays

and deductibles before claiming Medicare bad debt.” Def.’s Mem. at 10 (quoting S2-AR at 1639

(JSM-370 at 2)); H-AR at 585 (same).8 In other words, even if providers were not required for

some period of years to bill state Medicaid programs, as of October 1, 2003, HHS contends the

must-bill policy was restored with an obligation for providers to bill state Medicaid programs

and obtain an RA for their dual-eligible patients’ bad debt to be reimbursable by Medicare. This

policy change in October 1, 2003 was clearly not understood by CMS’s own Intermediary to

apply universally to all providers, however, because shortly thereafter, on October 15, 2003, the

CMS Intermediary issued a newsletter stating that “[i]f a provider can demonstrate that neither


8
        Nowhere in the record is a copy of the “pre-1995 language” or post-October 1, 2003 instruction language to
compare to the instructions cited by the plaintiffs.

                                                       13
the [state Medicaid program] nor State or local law requires the welfare agency to pay the

Medicare deductible or coinsurance amount, then the provider can be reimbursed for this amount

without billing the welfare agency.” S1-AR at 97 (Providers’ PRRB Brief at 30 (quoting S1-AR

at 401 (CMS’s Oct. 15, 2003 Newsletter))).

         In any event, as the PRRB made clear, “there is no legal requirement that a Medicare-

certified hospital enroll in Medicaid as a condition of participation in Medicare or to obtain

Medicare reimbursement,” S1-AR at 54 (2010 PRRB Decision at 8), despite the fact that CMS’s

new, or revived, must-bill policy imposed such a legal requirement, by denying reimbursement

for dual eligible bad debt claims of non-Medicaid participating providers that were unable to

provide an RA.

                  3. Post-Denial Attempts by Plaintiffs to Obtain RAs and to Enroll in Medicaid

         In response to the first Adjustment Reports denying reimbursement for dual-eligible bad

debts due to the lack of RAs, the Select I and II Plaintiffs began submitting bills to state

Medicaid programs in which they were not enrolled, in an attempt to obtain RAs.9 The Select I

Plaintiffs first submitted a batch of 402 claims in twenty states, followed by a second batch of

102 bills in six states after the instant litigation began. See Pls.’ Mem. at 14–15; S1-AR at 133–


9
          HHS claims that the bills submitted, in at least some cases, were “‘sample’ bills” and that the plaintiffs did
not actually attempt to bill state Medicaid. Def.’s Mem. at 25 (“[I]n at least the [Select I] and [Select II] lawsuits,
Plaintiffs concede that the bills they submitted to certain states were merely ‘sample’ bills and therefore it is
impossible to know whether real bills to the states would have been accepted.” (citing S1-AR at 242, 259; S2-AR at
1229, 1234)). This dispute appears to arise from a misstatement by the Select I Plaintiffs’ prior counsel at a hearing
before another judge on this Court before the case was reassigned to the undersigned, leading to the erroneous
conclusion that “the providers submitted ‘sample’ bills with fabricated claim numbers,” Cove Assocs., 848 F. Supp.
2d at 28, and the withholding of summary judgment for the plaintiffs, see id. (“If, at some point, Plaintiffs can
establish that they have submitted the correct forms and made the right applications, it may in fact, in those
circumstances, be arbitrary and capricious for the Secretary to not accept an alternative form of documentation or to
require that the states comply with her regulations.”). The Select I Plaintiffs’ counsel subsequently clarified that the
bills submitted were “actual” claims, acknowledged the misstatement, and pointed out that Select I Plaintiffs quickly
corrected the mistake. Pls.’ Reply. at 10 n.7 (citing S1S-AR at 19 n.18 (stating “legitimate claims for real patients
and actual dates of service” were submitted to the state Medicaid programs)). Further, the record shows that the
plaintiffs sent actual bills to state Medicaid offices in an effort to obtain RAs, see S2-AR at 538–39, 542, 547, 1099;
and HHS has offered no response to the plaintiffs’ explanation, thereby conceding this issue.

                                                          14
94; S2-AR at 1441–97. The Select II Plaintiffs submitted a total of eighty-three bills in twenty-

three states where these plaintiffs’ hospitals are located, see Pls.’ Mem. at 16; S2-AR at 765–

1104, and fifteen “claims for out-of-state dual eligible patients who were treated at a Plaintiff

hospital during the FY 2008 cost reporting period,” Pls.’ Mem. at 16 (citing S2-AR at 688–92,

700–64). For both sets of Select Plaintiffs, the states denied the RA requests. See S2-AR at

1380, 1487, 1501–02. A common theme in the rejection letters sent to the plaintiffs from state

Medicaid offices was that the plaintiff was not, or could not, be enrolled in Medicaid. See S2-

AR at 1380, 1487, 1501–02.

       In addition to submitting bills, a number of the plaintiffs attempted to enroll in Medicaid

for the limited purpose of obtaining RAs, some before appealing the Intermediaries’ decisions

and others while the appeals were pending. For example, Alabama Medicaid sent a rejection

letter, dated December 9, 2008, to a plaintiff hospital indicating that Alabama Medicaid does not

enroll LTCHs. S2-AR at 215. Similarly, Delaware Medicaid sent a rejection letter, dated

February 27, 2008, to a plaintiff hospital advising that Delaware does not enroll LTCHs. S2-AR

at 230; see also S1-AR at 254. New Jersey Medicaid also denied a plaintiff hospital’s

enrollment application in a letter, dated January 16, 2008, citing N.J. Admin. Code § 8:33F-

2.4(a) for the proposition that LTCHs cannot enroll in New Jersey Medicaid. S2-AR at 320.

North Carolina Medicaid denied a plaintiff hospital’s enrollment application in a letter, dated

October 31, 2007, advising that LTCHs could not enroll. S1-AR at 536. Select Specialty

Hospital-Gulf Coast tried to enroll in Mississippi Medicaid on November 11, 2008, S2-AR at

279–81, but received a rejection letter dated May 26, 2009 advising that LTCHs in Harrison

County, where this hospital was located, could not enroll, S2-AR at 282 (citing Miss. Code Ann.

§ 41-7-191(6)). Select Specialty Hospital-Jackson, located in a different county, was eventually



                                                 15
able to enroll in Mississippi Medicaid, in November 2009, effective September 2008. S2-AR at

316.

       Pennsylvania Medicaid denied an enrollment application of a plaintiff hospital in a letter,

dated August 16, 2007. See S1-AR at 313; S2-AR at 328 (same). Select also attempted to enroll

its hospitals in Pennsylvania as acute care hospitals, S2-AR at 385–92, and was once again

rejected, because LTCHs could not enroll, S2-AR at 1594. The Pennsylvania hospitals were

subsequently allowed to enroll in the state Medicaid program in 2012, S2-AR at 338–49, but

after the period when the reimbursement claims at issue in this lawsuit arose. Similarly, the

Arkansas plaintiffs attempted to enroll in Arkansas Medicaid, S2-AR at 217, and initially

received a rejection letter, dated February 14, 2008, S2-AR at 218–19, citing various provisions

of the Arkansas Code, including Ark. Code § 201.100(c) (“A hospital must be certified as an

acute care/general hospital Title VIII (Medicare) provider.”), but were later able to enroll, see

S2-AR at 222-223.

       In sum, the record contains ample evidence that plaintiffs were unable to enroll in

Medicaid programs in at least seven states: Alabama, Arkansas, Delaware, Mississippi (Harrison

County), New Jersey, North Carolina, and Pennsylvania during the relevant period because of

their status as LTCHs. In the remaining nineteen states, in which the plaintiffs operate and the

state Medicaid programs permitted enrollment of LTCHs, the plaintiffs applied for enrollment

once they became aware of CMS’s new policy requiring an RA for reimbursement of the dual-

eligible patients’ bad debts. See Pls.’ Mem. at 37 (citing S2-AR at 209-416). The plaintiffs’

effort to enroll in state Medicaid programs in order to comply with CMS’s newly revealed

requirement, however, did not produce the requisite RAs for earlier periods, leaving the plaintiffs

holding the proverbial bag of unreimbursed bad debt. According to the plaintiffs, “[i]n many



                                                 16
states the Plaintiffs encountered lengthy delays from the state Medicaid programs when the

Plaintiffs applied for Medicaid enrollment,” Pls.’ Mem. at 37–38, and even after Medicaid

enrollment, “the Plaintiffs still had unpaid bad debts associated with claims with dates of service

prior to the enrollment approval date,” id. at 38; see also S2-AR at 457 (Stipulations ¶ 8: “In no

state could the Providers in these appeals obtain Medicaid RAs for dates of service when the

Providers were not enrolled in Medicaid.”).

                 4. Administrative Appeals

        Following the Intermediaries’ denials of their respective reimbursement requests, each

plaintiff appealed the Intermediaries’ decisions to the PRRB. The Select I Plaintiffs appealed

their Intermediary’s reimbursement decisions on November 16, 2007. S1-AR at 849–51. The

PRRB reversed the Intermediary’s denials in full on April 13, 2010, finding:

        the Intermediary’s application of the bad debt collections policy including the
        must-bill policy’s absolute requirement that the Providers obtain a Medicaid
        remittance advice (RA) prior to claiming Medicare bad debts is unsupported by
        the applicable law, regulations and manual provisions, as it fails to recognize a
        non-Medicaid participating provider’s inability to comply.

S1-AR at 56 (2010 PRRB Decision at 10). The Select II Plaintiffs appealed their Intermediaries’

reimbursement denials in five different groups. S2-AR at 2914–21, 3976–83, 5091–96, 6099–

6102, 6569–73. The PRRB consolidated these appeals and issued an opinion on September 27,

2016, reversing only reimbursement denials by the Intermediaries for the six state Medicaid

plans in which the PRRB concluded the LTCHs could not enroll.10 The PRRB affirmed denials

for those states and years in which the plaintiffs could have enrolled in Medicaid despite being


10
         The Select II Plaintiffs maintain that they could not enroll in the Arkansas state Medicaid plan, see Pls.’
Mem. at 23, 27 n.17, whereas the PRRB found that the LTCHs could have enrolled in Arkansas, see S2-AR at 59
(Select Specialty Medicare Dual Eligible Bad Debts CIRP Grps. v. Novitas Solutions, Inc., PRRB 2016-D22 (Sept.
27, 2016) (“2016 PRRB Decision”) at 9). Both these plaintiffs and the PRRB cite to the same exhibit, S2-AR at 210
(Provider Exhibit P-100), for their contrary conclusions. Provider Exhibit P-100 lists Arkansas among states to
which the plaintiffs applied for Medicaid Enrollment on November 26, 2007, but were rejected on February 14,
2008, then subsequently admitted in 2010. S2-AR at 210. Thus, this exhibit confirms the plaintiffs’ position.

                                                        17
LTCHs. S2-AR at 61–63. The Hillcrest Plaintiff also appealed its Intermediary’s

reimbursement decision, and the PRRB reversed the reimbursement denial in Oklahoma. H-AR

at 56–67 (Hillcrest Specialty Hosp. v. Novitas Solutions, Inc., PRRB 2018-D3 (Nov. 6, 2017)).

        The CMS Administrator, to whom the Secretary has delegated his authority to hear

appeals from the PRRB, sua sponte reversed the PRRB’s decision in each case, insofar as the

PRRB had reversed reimbursement denials, and reinstated the Intermediaries’ decisions to deny

the plaintiffs’ dual-eligible bad debt reimbursements for noncompliance with the RA

requirement. S1-AR at 2–19; S2-AR at 1–22; H-AR at 2–29.

               5. Proceedings before this Court

        The Select I Plaintiffs appealed the Administrator’s decision to this Court on August 12,

2010. See S1-Compl. On March 26, 2012, the Court granted partial summary judgment to the

plaintiffs because the Administrator’s decision may have failed to take into account the

plaintiffs’ legitimate reliance on prior interpretation, and remanded the case to the Administrator

“for reconsideration of the limited issue of whether Plaintiffs were justified in relying on CMS’s

prior failure to enforce the must-bill policy with respect to dual-eligible reimbursement claims

from non-participating Medicaid providers.” Cove Assocs. Joint Venture, 848 F. Supp. 2d at 30.

Although the plaintiffs’ motion for summary judgment on grounds that the Administrator’s

decision was arbitrary and capricious was denied, the Court noted that

        [i]f, at some point, Plaintiffs can establish that they have submitted the correct
        forms and made the right applications, it may in fact, in those circumstances, be
        arbitrary and capricious for the Secretary to not accept an alternative form of
        documentation or to require that the states comply with her regulations.

Id. at 28.

        Four years later, on March 21, 2016, the Administrator affirmed its previous decision.

S1S-AR at 3–9. The Select I Plaintiffs then moved to reopen their case in this Court, which


                                                 18
motion was granted on March 7, 2017.11 The Select II Plaintiffs appealed the Administrator’s

decision in their case to this Court on February 2, 2017. See S2-Compl. at 56. The Hillcrest

Plaintiff appealed the Administrator’s decision to this Court on March 15, 2018. See H-Compl.

at 22. The Court subsequently consolidated all three cases. See Minute Order (Jan. 10, 2019).

         Now pending before the Court are the parties’ cross-motions for summary judgment, see

Pls.’ Mot.; Def.’s Mot., which motions became ripe on May 28, 2019, one week before the

Supreme Court affirmed the D.C. Circuit’s decision in Azar v. Allina Health Services, 139 S. Ct.

1804 (2019).12

II.      LEGAL STANDARD

         Pursuant to Federal Rule of Civil Procedure 56, summary judgment may be granted when

the court finds, based upon the pleadings, depositions, and affidavits and other factual materials

in the record, “that there is no genuine dispute as to any material fact and the movant is entitled

to judgment as a matter of law.” FED. R. CIV. P. 56(a), (c); see Tolan v. Cotton, 572 U.S. 650,

656-57 (2014) (per curiam); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). “A

genuine issue of material fact exists if the evidence, ‘viewed in a light most favorable to the

nonmoving party,’ could support a reasonable jury’s verdict for the non-moving party.”

Muwekma Ohlone Tribe v. Salazar, 708 F.3d 209, 215 (D.C. Cir. 2013) (quoting McCready v.

Nicholson, 465 F.3d 1, 7 (D.C. Cir. 2006)).

         In cases involving claims under the Administrative Procedure Act (“APA”), 5 U.S.C.

§ 706(2), such as this one, and cross-motions for summary judgment, “the district judge sits as an



11
         This case was reassigned to the undersigned Chief Judge on February 10, 2017. See Minute Entry (Feb. 10,
2017).
12
          The parties have not sought to supplement their briefing in the intervening months since the Supreme
Court’s decision in Allina Health Services. Since Allina Health Services affirmed the D.C. Circuit’s decision in
Allina II, which the parties addressed in their briefing, the parties presumably believe no further briefing is
necessary.

                                                         19
appellate tribunal. The ‘entire case’ on review is a question of law.” Am. Bioscience, Inc. v.

Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001) (collecting cases). Accordingly, the court need

not, and ought not, engage in lengthy fact finding, since “[g]enerally speaking, district courts

reviewing agency action under the APA’s arbitrary and capricious standard do not resolve

factual issues, but operate instead as appellate courts resolving legal questions.” James Madison

Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1096 (D.C. Cir. 1996); see also Lacson v. U.S. Dep’t of

Homeland Sec., 726 F.3d 170, 171 (D.C. Cir. 2013) (noting, in APA case, that “determining the

facts is generally the agency’s responsibility, not ours”); Sierra Club v. Mainella, 459 F. Supp.

2d 76, 90 (D.D.C. 2006) (“Under the APA . . . the function of the district court is to determine

whether or not as a matter of law the evidence in the administrative record permitted the agency

to make the decision it did.” (internal quotation marks omitted)). Judicial review is limited to the

administrative record, since “[i]t 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 omitted; second alteration in original); see 5 U.S.C. § 706

(“[T]he Court shall review the whole record or those parts of it cited by a party . . . .”); Fla.

Power & Light Co. v. Lorion, 470 U.S. 729, 743 (1985) (noting when applying arbitrary and

capricious standard under the APA, “[t]he focal point for judicial review should be the

administrative record already in existence . . . .” (quoting Camp v. Pitts, 411 U.S. 138, 142

(1973))).

III.   DISCUSSION

       The plaintiffs are entitled to summary judgment on their claim that CMS was required,

under the Medicare Act, 42 U.S.C. § 1395hh(a)(2), to conduct notice-and-comment rulemaking



                                                  20
before subjecting the plaintiffs, as non-Medicaid-participating providers, to the must-bill policy

and the RA requirement.

       The Supreme Court’s recent decision in Azar v. Allina Health Services, 139 S. Ct. 1804

(2019), controls the outcome of this case and requires that CMS have conducted notice-and-

comment rulemaking before applying the must-bill policy and the RA requirement to these

LTCHs. “[T]he Medicare Act requires notice-and-comment rulemaking for any (1) ‘rule,

requirement, or other statement of policy’ that (2) ‘establishes or changes’ (3) a ‘substantive

legal standard’ that (4) governs ‘payment for services.’” Allina II, 863 F.3d at 943 (quoting 42

U.S.C. § 1395hh(a)(2)). Of these four elements, the parties dispute whether CMS’s application

of the must-bill policy and, in particular, the policy’s RA requirement, to the plaintiffs

constitutes a change in a “substantive legal standard” within the meaning of the statute. See

Def.’s Mem. at 38 (“[N]o substantive legal standard was established or changed here.”).

       The phrase “substantive legal standard” “appears in § 1395hh(a)(2) and apparently

nowhere else in the U.S. Code.” Allina Health Servs., 139 S. Ct. at 1814. Relying on the

dictionary definition of “substantive law,” the D.C. Circuit defined the term as “at a minimum

includ[ing] a standard that ‘creates, defines, and regulates the rights, duties, and powers of

parties.’” Allina II, 863 F.3d at 943 (quoting BLACK’S LAW DICTIONARY (10th ed. 2014)); see

also Clarian Health West, LLC v. Hargan, 878 F.3d 346, 354 (D.C. Cir. 2017) (quoting Allina II,

863 F.3d at 943).

       The Supreme Court affirmed the Circuit’s holding in Allina II that the Medicare Act does

not include the APA’s interpretive-rule exception to the notice-and-comment requirement. See

Allina Health Servs., 139 S. Ct. at 1814. As a result, in some circumstances CMS would not be

obligated to conduct notice-and-comment rulemaking under the APA but is nonetheless required



                                                 21
to do so under the Medicare Act. In so holding, the Supreme Court rejected the government’s

argument that the counterpart to a “substantive legal standard” under the Medicare Act would be

an “interpretative legal standard,” tracking the respective meanings under the APA of a

“substantive rule,” which must be promulgated using the notice-and-comment procedure, and an

“interpretative rule,” which may be promulgated without notice-and-comment. Id. at 1811. The

Supreme Court found significant the fact that the term “substantive rule” had become a term of

art by the 1980s when the Medicare Act provision was enacted, but that Congress chose to use a

different term, noting that the term adopted in the statute “appears to carry a more expansive

scope than that borne by the term ‘substantive rule’ under the APA.” Id. at 1813.

       Notably, however, in addition to rejecting the government’s theory that a substantive

legal standard is functionally equivalent to a substantive rule under the APA, the Supreme Court

also declined to endorse “in every particular” the definition of “substantive legal standard” that

the D.C. Circuit expressed, preferring instead to “await other cases” before resolving additional

“questions about the statute’s meaning.” Id. at 1814. The Circuit’s definition—which the

Supreme Court thus neither fully endorsed nor rejected—grounded the definition of “substantive

legal standard” in the dictionary definition of “substantive law;” dictionaries define this term in

contrast to “procedural law.” See BLACK’S LAW DICTIONARY (11th ed. 2019) (“Substantive law

[is] [t]he part of the law that creates, defines, and regulates the rights, duties, and powers of

parties. Cf. PROCEDURAL LAW.”); see also id. (“[W]e may say that the substantive law defines

the remedy and the right, while the law of procedure defines the modes and conditions of the

application of the one to the other.”) (quoting John Salmond, Jurisprudence 476 (Glanville L.

Williams ed., 10th ed. 1947)). Notwithstanding the Supreme Court’s hesitation in endorsing the




                                                  22
D.C. Circuit’s definition of “substantive legal standard,” this Court, being bound by the law of

this Circuit, must apply the Circuit’s definition.

       A comparison of the only two cases decided in this Circuit to analyze the term illustrates

why a substantive legal standard is at issue in this case. In Allina II, CMS had changed the

formula used to calculate payments to disproportionate share hospitals (“DSH”), i.e., hospitals

which treat a higher percentage of low-income patients, which had the effect of lowering

payments to such hospitals. CMS’s formula “define[d] the scope of hospitals’ legal rights to

payment for treating low-income patients.” Allina II, 863 F.3d at 943. Therefore, by changing

the formula, the Circuit concluded, CMS had made a change to a substantive legal standard

within the meaning of the Medicare Act.

       By contrast, in Clarian Health West, LLC v. Hargan, 878 F.3d 346 (D.C. Cir. 2017), the

Circuit held that CMS’s statement of the circumstances under which CMS Intermediaries were

required to report hospitals to CMS for the reconciliation of certain prospective payments the

hospitals had received, called “outlier payments,” with the hospitals’ actual costs, was not a

substantive legal standard under § 1395hh(a)(2) because the instructions “merely set forth an

enforcement policy that determines when [the Intermediaries] will report hospitals for

reconciliation.” Id. at 355–56. In the Circuit’s view, these instructions merely “reflect[ed] the

agency’s policy about how best to deploy its contractors’ limited resources.” Id. at 355. The

instructions did not alter “whether an outlier payment is warranted or the amount of an outlier

payment,” id. at 354, because ultimately, duly-enacted regulations “subjected all outlier

payments to reconciliation and set forth the formula for calculating payments during the

reconciliation process,” id. at 355.




                                                  23
       At first blush, the instant case may appear akin to Clarian. CMS’s insistence that

plaintiffs obtain a certain document—an RA—and submit that document to the Intermediaries as

a prerequisite to reimbursement for dual-eligible patients’ bad debt, sounds like an administrative

or procedural requirement, merely specifying the type of filing necessary to effectuate

entitlement to a sum of money, a sum which the new requirement does not change. That is, in

contrast to Allina II, CMS has not attempted to change the amount owed to providers. Moreover,

the mere fact that failure to comply with the RA requirement could result in the plaintiffs

receiving no bad debt reimbursements at all, cf. Pls.’ Mem. at 64 (“The Plaintiffs’ legal

entitlement to bad debt payments was abruptly denied.”), does not alone remove the RA

requirement from the realm of procedural rather than substantive law, as failure to comply with

procedural requirements can of course also carry severe consequences, including complete loss

of an otherwise valid claim.

       Yet, closer analysis confirms that this case falls squarely within the holding of Allina II.

When CMS instructed Intermediaries to apply the must-bill policy and RA requirement to all

providers, the plaintiffs were non-participants in state Medicaid programs and could not comply.

Further, the plaintiffs in many instances were not permitted to enroll in state Medicaid programs

or, if permitted to enroll, were out-of-time to submit the dual-eligible patients’ bad debts. To bill

state Medicaid programs and obtain RAs, providers must now necessarily participate in state

Medicaid programs, “even though [Medicaid participation] is not a condition of participation or

payment for purposes of Medicare reimbursement.” Pls.’ Mem. at 34; see also S1-AR at 54

(2010 PRRB Decision at 8). To participate in state Medicaid programs, providers must enter

into legal contracts with states. See Spectrum Health Continuing Care Grp. v. Anna Marie

Bowling Irrecoverable Trust, 410 F.3d 304, 313 (6th Cir. 2005) (“A health-care provider is not



                                                 24
required to participate in the Medicaid program, but rather voluntarily contracts with the state to

provide services to Medicaid-eligible patients in return for reimbursement from the state at the

specified rates.”).

        As a result of CMS’s implementation of the must-bill policy to the plaintiffs,

compounded by the RA requirement, CMS changed not just the steps that existing LTCHs must

take, vis-à-vis CMS, to be reimbursed, but also changed whether such entities must form

contracts with third parties, the state Medicaid programs. Deeming CMS’s imposition of this

new obligation a mere change in procedure, as opposed to a change in substantive law, would be

out of place. This new requirement of providing an RA, even if superficially appearing to be

merely procedural, had significant substantive consequences for the contractual obligations that

LTCHs had to undertake. The RA requirement has essentially changed the eligibility criteria for

reimbursement under the Medicare Act for dual-eligible patients, by requiring provider

participation in the state Medicaid program. This change makes the RA requirement

“substantive.”

        Remarkably, HHS asserts that “Plaintiffs need not participate in Medicaid to comply with

the must-bill policy,” Def.’s Mem. at 24; see also Def.’s Reply at 4 (“Plaintiffs are not required

to participate in Medicaid in order to receive Medicare reimbursement . . . .”), a seemingly broad

proposition, but one that HHS’s own briefing later indicates means only that providers need not

‘fully’ participate in Medicaid, because states “are ‘required to permit the provider to enroll for

the limited purpose of obtaining adjudication of the [Qualified Medicare Beneficiary] cost-

sharing amount,’” Def.’s Mem. at 24 (quoting S1-AR at 1098–1101 (CMS Informational

Bulletin (June 7, 2013)). In its reply, HHS more explicitly admits that “[i]n order for the state to

return an RA, it would have to be able to identify the provider, which a state could determine



                                                 25
only if the provider was actually enrolled in Medicaid at least for the limited purposes of

obtaining RAs from the state.” Def.’s Reply at 9 (emphasis added). Tellingly, HHS cites to

nothing in the record dated prior to 2013 that articulates to the state Medicaid programs an

obligation to enroll providers for the limited purpose of issuing RAs. See Def.’s Mem. at 24

(citing CMS Informational Bulletin (June 7, 2013)). The plaintiffs contend that CMS is

misrepresenting the level of Medicaid participation required and point out that “states refuse to

allow the Plaintiffs to bill if they are not enrolled as full-fledged Medicaid providers.” Pls.’

Mem. at 40. Irrespective of whether best characterized as ‘full’ or ‘limited,’ CMS changed a

substantive legal standard by newly requiring LTCHs to assume some form of Medicaid

participation.

         Whatever reasons CMS offers for imposing the must-bill policy and RA requirement on

non-Medicaid-participating LTCHs, the agency has not argued that these requirements are

compelled by the Medicare Act itself. Rather, CMS is filling a “gap” as to how best to

administer the Medicare program. As the Supreme Court has made clear, however, CMS “can’t

evade its notice-and-comment obligation under § 1395hh(a)(2),” just because the agency is

changing a “‘gap’-filing policy.” Allina Health Servs., 139 S. Ct. at 1817. Thus, when CMS

imposed the RA requirement, it changed a “substantive legal standard”—state Medicaid

participation—that the LTCHs had to satisfy for reimbursement to occur, and CMS was required

to conduct notice-and-comment rulemaking pursuant to § 1395hh(a)(2).13



13
         HHS argues that § 1395hh(a)(2)’s rulemaking requirement is inapplicable in the instant case because the
provision was enacted in 1987, whereas the “must-bill policy challenged by the Plaintiffs as articulated by the
Secretary in several PRM provisions . . . became effective in 1968.” Def.’s Mem. at 37–38. Under this reasoning,
“for 42 U.S.C. § 1395hh(a)(2) to apply to the policy, it must be applied retroactively,” id. at 38, which is
“‘disfavored in the law,’” id. (quoting Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988)). Though
unsupported by the record, even if true, HHS’s efforts to date the challenged policy back to 1968 would nonetheless
be inapposite because the plaintiffs “are not challenging the must-bill policy generally; Plaintiffs challenge the
agency’s change in interpretation or enforcement of the must-bill policy to non-Medicaid participating providers that

                                                         26
IV.     CONCLUSION

        CMS created a bureaucratic nightmare by requiring a certain type of paperwork that the

plaintiffs simply could not provide without sufficient advanced notice, and by obstinately

continuing to deny reimbursement claims rather than working to find a reasonable solution in

conjunction with the state Medicaid programs. For many of the plaintiffs, this has already been a

twelve-year journey to obtain reimbursement for dual-eligible patients’ bad debts. Indeed, this

whole affair is likely just the sort of scenario Congress sought to avoid by enacting the notice-

and-comment requirement of § 1395hh(a)(2), ensuring that all parties would receive sufficient

advanced notice of meaningful changes to reimbursement requirements. At any rate, without

satisfying the notice-and-comment obligation of § 1395hh(a)(2), CMS could not, and indeed

cannot, impose the must-bill policy and RA requirement on the plaintiffs for the period when

they were non-Medicaid-participating providers. On remand, the Administrator is directed

promptly to reconsider whether, absent the must-bill and RA requirements, the plaintiffs are

entitled to bad debt reimbursement.

        An Order consistent with this Memorandum Opinion will be filed contemporaneously.

Date: August 22, 2019




                                                            __________________________
                                                            BERYL A. HOWELL
                                                            Chief Judge




was applied to them beginning in April 2007,” including the RA requirement. Pls.’ Reply at 31. Accordingly,
HHS’s no-retroactivity argument is unpersuasive.

                                                       27
