DC District Court Affirms Hospitals' Indigence Determinations for Bad Debts Using Information Provided by Credit Reporting Agency |  King and Spalding
DC District Court Affirms Hospitals’ Indigence Determinations for Bad Debts Using Information Provided by Credit Reporting Agency |  King and Spalding

On March 29, 2022, the DC District Court granted summary judgment in favor of a group of hospitals operated by Sentara Healthcare seeking reimbursement of bad debts from fiscal years 2010-2013. The court determined that Sentara complied with applicable reimbursement rules despite its reliance on information provided by a credit reporting agency.

Medicare reimburses hospitals for 70% of unpaid bills accrued by patients who are Medicare beneficiaries but have not paid the hospital the amount owed for their Medicare deductible or coinsurance. To receive this “bad debt” reimbursement, hospitals must meet several requirements. The relevant requirement at issue in Sentara discusses the hospital’s obligation to make a “reasonable collection effort” before deeming the patient’s debt uncollectible. The Provider Reimbursement Manual (PRM) allows a hospital to skip this step if the hospital determines the patient is indigent according to its own “usual methods”, for which CMS provides additional guidance.

Upon review of Sentara’s cost reports, the Medicare contractor denied reimbursement of bad debts claimed by Sentara due to the manner in which Sentara assessed and concluded the patient’s indigence. Primarily, the contractor took issue with Sentara’s use of Equifax scores and the fact that Equifax has a proprietary scoring methodology. Sentara appealed the Medicare contractor’s decision to the Provider Reimbursement Review Board, which overturned most, but not all, of the contractor’s denials. The CMS administrator later overturned the advice, relying in part on a newly published CMS rule. The Administrator has concluded that the resource test of the PRM is mandatory, even though the wording of the PRM says “[t]he supplier should consider a patient’s total resources”, rather than “should”. Next, the Administrator applied the new CMS rule retroactively, rather than prospectively as stated in the rule’s preamble. And finally, the administrator considered the categorization of indigence to be primarily determined by Equifax rather than the hospitals, as allegedly required by regulation. Sentara appealed in DC District Court.

In the District Court, the government argued that PRM § 312(B) requires a hospital to verify patient assets itself. Therefore, using Equifax to obtain financial information caused Sentara to fail this requirement. Second, the government argued that Sentara had also failed PRM § 312(A) which requires the hospital, not the patient, to determine the patient’s indigence. And third, the government argued that Sentara failed to satisfy PRM § 312(D) because Sentara allegedly failed to provide adequate documentation for indigence determinations since MAC could not audit assessment methodologies. exclusive to Equifax.

The district court did not decide whether, despite the PRM’s use of the word “should” instead of “shall”, the asset and expense test was mandatory as argued by CMS. Instead, the court held that “even though PRM § 312(B) was mandatory for the cost years in question, Sentara complied with its requirements.”

Specifically, the court determined that Sentara’s use of the Equifax reports was sufficiently based on the actual assets and liabilities of the patient such that the record did not support the administrator’s decision to the contrary. Equifax reports compile a lot of information, including the estimated value of a person’s home or car based on any mortgages or loans in the person’s name, estimates of a person’s income in based on the person’s credit history and a check against a national income database, a review of all monetary judgments, and more. Equifax reports include assets as well as liabilities, such as loans, credit card debt, delinquencies, and more. Rejecting the government’s argument, the court found that Equifax’s reports were sufficiently specific to individual patients and were not based on overly broad patient categories. Additionally, Sentara verified the data provided by the patient against the patient’s Equifax report and investigated any discrepancies. The court observed:[i]It is hard to imagine what else a provider could do to reasonably assess the patient’s ability to pay.

The government argued that Sentara failed to satisfy PRM § 312(A) because, it alleged, Sentara had outsourced the determination of indigence to Equifax. The court rejected this argument because the record showed that Sentara did not rely on any score from Equifax. Instead, Sentara developed and used its own method of comparing three different scores, along with any other relevant data it had, to determine indigence. The court found that Sentara “did more than just rubber-stamp” the information provided by Equifax.

Finally, the court determined that Sentara provided adequate documentation and analysis to satisfy PRM § 312(D) which requires “documentation of the method by which indigence was determined.” Equifax’s use of a proprietary modeling method did not violate the Section 312(D) documentation requirement because Sentara’s reliance on Equifax’s predictive scores was permitted and Sentara documented the method. in their patient records. The court rejected any suggestion that the rules would require hospitals “to collect (and maintain) more granular financial information” than Sentara. The court independently rejected the government’s argument here because the Administrator did not rely on it in his decision. In a footnote, the court also reversed the administrator’s decision regarding denial of reimbursement for married patients.

Accordingly, the court determined that Sentara was entitled to reimbursement of its bad debt costs in fiscal years 2010-2013.

The government has until May 30, 2022 to decide whether to appeal the decision to the DC Circuit.

The full text of Sentara Hospitals, et al. v. Azar is available here.


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