Forty-six hospitals have filed a lawsuit against Alex M. Azar II, secretary of the Department of Health and Human Services, arguing for the reversal of a policy that is preventing the hospitals from getting reimbursed for over $1.3 million in bad debt payments.
Medicare beneficiaries are responsible for paying coinsurance and deductible amounts, and if they fail to do so, the costs may have to be borne by people not covered by the Medicare program. To ensure this does not happen, the costs attributable to the amounts that remain unpaid are reimbursed by Medicare as “bad debts.”
In 2006, HHS issued a policy that reversed a long-term practice of providing reimbursement for hospitals’ bad debt, claimed on cost reports, while the accounts were still pending at an outside collection agency. Consequently, the hospitals’ Medicare appeals contractors — HHS agents who provide reimbursement to Medicare providers — denied all reimbursements for Medicare-related bad debts sent to outside collection agencies for fiscal years 2006 through 2009, amounting to approximately $1.35 million.
The hospitals that filed the suit in the U.S. District Court for the District of Columbia are seeking a reversal of the policy. They claim reversal is warranted, in part, because the hospitals’ “bad debts are explicitly allowable under applicable law.”
“The final decision upholding the disallowance of the Medicare bad debts at issue on the ground that they were still pending at an outside collection agency at the time they were written off is arbitrary and capricious, an abuse of discretion, or unsupported by substantial evidence in the record,” the lawsuit states.
Further, the hospitals are not only seeking reimbursement for the bad debts in full, but also interest and other relief.
Twenty five of the 46 hospitals that are plaintiffs in the current lawsuit were previously involved in a case that examined the same issue — District Hospital Partners v. Sebelius in 2013. At the time, the same court granted the hospitals’ motion for summary judgment, and the HHS secretary did not appeal the court’s decision and paid the hospitals with interest.
The need to cut costs and save money where possible has escalated over the past year as the Covid-19 pandemic threw hospital finances into a tailspin. Providers are still struggling to fend off the deadly virus that is spreading quickly across the country while their operating margins grow slimmer.
A recent report from healthcare consultancy Kaufman Hall shows that hospital operating margins fell by 56.4% (5.1 percentage points) during the period of January to November 2020 compared with the same period in 2019, when not incorporating funding received from the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act.
With the CARES funding, operating margins declined by 16.7% (1.9 percentage points) through November 2020 versus the year prior.
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