Mulberry Square Elder Care and Rehabilitation Center, Petitioner
Department of Human Services, Respondent
Argued: April 11, 2018
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE ROBERT SIMPSON, Judge HONORABLE PATRICIA A.
McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge HONORABLE
MICHAEL H. WOJCIK, Judge HONORABLE CHRISTINE FIZZANO CANNON,
Judge HONORABLE ELLEN CEISLER, Judge.
complex and mature litigation, Mulberry Square Elder Care and
Rehabilitation Center (Nursing Facility) petitions for review
from an order of the Secretary of the Department of Human
Services (Department). The Secretary affirmed the Bureau of
Hearings and Appeals' (BHA) order adopting the
Administrative Law Judge's (ALJ) recommendation denying
relief and rejecting Nursing Facility's billing practice.
Specifically, the Department disallowed Nursing
Facility's practice of recouping unpaid copayments from
residents eligible for medical assistance by billing the
Department for the copays as medical expenses. The Department
also concluded this practice constituted balance-billing
prohibited by applicable law. Nursing Facility argues the
Department did not promulgate a regulation explicitly
precluding its billing practice. Discerning no error below,
case involves the interplay between the Medicare and Medicaid
programs, and the ultimate source of funding for covered
services, when a participating provider renders services to
individuals eligible for medical assistance under both
programs. Nursing Facility billed the Department for amounts
corresponding to services for which payment was limited to
the Medicaid rate, resulting in the Department paying more
than the maximum Medicaid rate for the services.
established by Title XIX of the Social Security Act, 42
U.S.C. §§1396-1396v, is a cooperative federal-state
program through which the federal government funds the states
to provide medical assistance to low-income persons.
Participating states must submit a "State Plan" to
the federal Department of Health and Human Services for
approval. The State Plan establishes financial eligibility
criteria and identifies covered services and corresponding
rates. The federal Department of Health and Human Services
approved Pennsylvania's State Plan, the Medical
Assistance (MA) Program.
addition to need-based Medicaid, medical assistance is
available to individuals aged 65 or older under Title XVIII
of the Social Security Act through Medicare. Medicare is
comprised of two principle parts: Part A (for inpatient
hospital and post-hospital care), 42 U.S.C.
§§1395c-1395i-5; and Part B (for physician services
and outpatient services), 42 U.S.C.
§§1395j-1395w-4. Individual enrollment in Medicare
Part A is automatic based on age. Enrollment in Part B is
voluntary, offering participating individuals supplemental
insurance for services not covered by Part A.
imposes cost-sharing obligations on participating individuals
for co-insurance, including deductibles, monthly premiums,
and copays. Generally, this means an individual enrolled in
Medicare Part B will pay co-insurance amounts, including
copays corresponding to Part B services. As the elderly poor
may not have the financial means to pay cost-sharing amounts,
Medicaid funds are used to enroll individuals qualifying for
both Medicare and Medicaid, known as "dual
eligibles," in Medicare Part B by paying their
cost-sharing obligations. 42 U.S.C. §1395v,
§1396a(a)(10)(E). Once dual eligibles are enrolled,
Medicare directly reimburses providers for 80% of the
reasonable charges for Part B services. Part B copays,
including those payable through Medicaid, are intended to
cover the remaining 20%.
Congress amended Medicaid through Section 4714 of the
Balanced Budget Act of 1997, regarding state liability for
Medicare cost-sharing (1997 Amendment), 42 U.S.C.
§1396a(n). The 1997 Amendment clarified that a state is
not required to make any payment for any incurred expenses
"relating to payment for … copayments for
[M]edicare cost-sharing to the extent the payment under
[Medicare] for the service would exceed the payment amount
that otherwise would be made under the State Plan."
Id. at §1396a(n)(2) (emphasis added).
1997 Amendment expressly caps a state's payment at the
Medicaid rate for Medicare cost-sharing, including Part B
copays. This Medicaid rate cap applies even when the Medicare
rate is equal to or greater than the rate set forth in the
State Plan, thereby eliminating a state's payment
obligation. 42 U.S.C. §1396a(n)(3). The 1997 Amendment
also provided in pertinent part:
(A) for purposes of applying any limitation under title XVIII
on the amount that the [qualified Medicare beneficiary] may
be billed or charged for the service, the amount of payment
made under title XVIII plus the amount of payment (if
any) under the State plan shall be considered to be
payment in full for the service;
(B) the [qualified Medicare beneficiary] shall not have
any legal liability to make payment to a provider
… for the service; and
(C) any lawful sanction that may be imposed upon a provider
… for excess charges under this title or title XVIII
shall apply to the imposition of any charge imposed upon the
individual in such case.
Id. (emphasis added). Thus, under this provision,
the legal liability of a qualified Medicare beneficiary, such
as the legal liability of a resident in a nursing facility to
pay that facility, is limited.
Department administers the MA Program (Medicaid) for the
Commonwealth. The Human Services Code (the
Code) vests the Department with the authority to
establish rules, regulations, and standards for programs it
administers. The Department's administration of the MA
Program must comply with federal law. Thus, the approved
State Plan must comply with federal law.
after enactment of the 1997 Amendment, the Department issued
a notice in the Pennsylvania Bulletin that it was amending
the State Plan "to specify that the Department will
not pay Medicare cost-sharing amounts related to any
services to the extent that the payments made under the
Medicare Program exceed the payments that would be made by
the [MA] Program for such services if provided to an
eligible [MA] recipient." Reproduced Record (R.R.) at
745a (emphasis added). The amendment to the State Plan,
effective January 1, 1998, conformed to federal law as set
forth in the 1997 Amendment. Id.
amended, the State Plan provides the MA Program will pay for
unsatisfied Medicare cost-sharing for Part B services
provided to dual eligibles up to the fee allowable under
the MA Program for covered services. See R.R.
at 750a. It specified MA "will not pay Medicare
cost-sharing" when the Medicare payment for the
service "exceeds the applicable [MA] fee or
payment" for the service. Id. (emphasis added).
Department explained its change to the State Plan in MA
Bulletin No. 35-98-10, 36-98-10 (MA Bulletin). The MA
Bulletin echoed the language of the 1997 Amendment, stating
the MA fee - which is Pennsylvania's Medicaid rate for
services - "is the maximum payment that may be
received by the facility for services provided to both [dual
eligible] residents and non-QMB MA
residents." R.R. at 669a (bold in original). It
also restated this Medicaid rate cap applied to Medicare
cost-sharing amounts, including Part B copays.
MA Participation and Payments to Nursing Facilities
Program pays nursing facility providers a "per diem
rate" on behalf of MA-eligible residents for room,
board, and related services. 55 Pa. Code §1187.2
(corresponding to facility rate of payment per resident day).
The MA Program also pays the allowable fees for Medicare Part
B services provided to MA-eligible residents in participating
nursing facilities. However, the MA Program does not pay
any fees for Part B services if the amount paid to
the nursing facility by Medicare covers or exceeds the fee
set by the MA Program. Because the MA fees are "almost
always lower" than the amount Medicare pays,
participating providers may receive only 80% of the
reasonable charge for Part B services from Medicare, with no
payment from the MA Program for the remaining 20%
(i.e., Part B copay). R.R. at 1172a (ALJ
patient "who is eligible for MA and has monthly income
([Social Security], pensions, etc.) may be responsible for a
patient pay liability to the facility." ALJ's
Recommendation, 7/28/16, Finding of Fact (F.F.) No. 7. The
local County Assistance Office calculates the amount based on
the patient's financial eligibility (Patient Liability).
This Patient Liability is subtracted from the per diem rate
paid to a nursing facility under the MA Program. For example,
if the monthly Patient Liability is $1, 000, and the MA per
diem rate is $200, equaling $6, 000 (30 days x $200/day), the
Department will pay a nursing facility $5, 000 ($6, 000-$1,
000). Id. at n.2.
that elect to participate in the MA Program enter into
provider agreements setting the terms for MA-covered
services. Participating providers must agree to accept
reimbursement from the state at its Medicaid rate as
"payment in full." 42 C.F.R. §447.15.
Providers are prohibited from demanding additional payment
from patients. 42 U.S.C. §1396a(a)(25)(C),
Pennsylvania, participating providers are subject to
Pennsylvania's Provider Handbook, PROMISe'. Section
4.9 of the Provider Handbook explains that for dual
eligibles, "the Medicare [P]rogram must be billed first
if the service is covered by Medicare. Payment will be made
by MA for the Medicare Part B deductible and co[-]insurance
[such as copays] up to the MA fee." R.R. at
573a (emphasis added). So when the MA fee is insufficient,
Part B copays are left unpaid.
from the Patient Liability amount are permitted for
"Other Medical Expenses." "Other Medical
Expenses" are costs of medical goods or services
"incurred during that month." F.F. No. 10
(emphasis added). The nursing facility debits the Patient
Liability for these "other medical expenses" that
are ultimately paid under the MA Program. The nursing
facility then bills the MA Program for the amount of the
"other medical expenses" to offset the amount
subtracted from the Patient Liability. Billing for
"other medical expenses" in this manner, and
deducting costs from Patient Liability, is permitted. F.F.
practice, when a nursing facility resident receives a pair of
glasses that costs $300, the glasses qualify as "other
medical expenses." Id. at n.3. In this example,
a nursing facility deducts the $300 cost incurred for the
glasses from the resident's $1, 000 Patient Liability,
resulting in a Patient Liability of $700. Importantly, a
reduction in the otherwise unrecoverable Patient Liability
for "other medical expenses" effectively increases
the amount paid to a nursing facility by the MA Program.
Using the eyeglasses example, because the Department pays the
nursing facility its per diem rate for room and board ($6,
000) minus the Patient Liability ($700) through the MA
Program, the MA Program pays the nursing facility $5, 300,
instead of $5, 000 in the absence of a deduction for
"other medical expenses."
Disputed Billing Practice
case involves Nursing Facility's attempt to recover part
of the otherwise unrecoverable Part B copays by utilizing its
residents' Patient Liability amounts.
2009, on the advice of counsel, Nursing Facility, and other
nursing facilities owned by Guardian Elder Care LLC
(Guardian), began billing the MA Program for dual eligible
residents' Part B copays by including them as an
"other medical expense" (Disputed Billing
Practice). Most of Nursing Facility's residents
are dual eligibles. Using the Disputed Billing Practice,
Nursing Facility attempted to recoup unpaid copays
corresponding to Part B services by deducting the amount of
the copays from Patient Liability amounts as it is permitted
to do for "other medical expenses." Then, Nursing
Facility billed the Department for Part B copays as for any
other "other medical expenses." Because they were
included as routine "other medical expenses," the
MA Program paid the Part B copays. In so billing, Nursing
Facility sought more than the MA fee for the Part B service.
As a result, the MA Program paid more than the maximum MA
Facility receives 80% of the "reasonable charge"
for Part B services directly from Medicare. In almost all
cases, the Medicare amount (80%) is higher than the maximum
allowed fee for the same service under the MA Program. R.R.
at 279a. Because providers agree to accept the MA fee as
payment in full, and Medicare paid the MA fee amount,
providers may not recover the Part B cost-sharing,
i.e., copays, from the state. Nursing Facility
engaged in the Disputed Billing Practice in order to recoup
the remaining 20% corresponding to Part B copays.
Facility executed a provider agreement with the Department,
to participate in the MA Program, effective January 1, 1997.
R.R. at 757a (Provider Agreement). Nursing Facility agreed to
comply with applicable federal and state law governing the
Medicare and Medicaid programs. As a participating provider,
Nursing Facility received the Provider Handbook explaining
proper billing practices.
litigation stems from the Department's review of Nursing
Facility in 2011 for the billing cycle of January 2009
through December 2009. During this period, Nursing Facility
and other Guardian-owned facilities engaged in the Disputed
Department prepared a Field Operations Review Summary seeking
claims adjustments based on the Disputed Billing Practice. It
disallowed the Disputed Billing Practice for using incorrect
Patient Liability amounts, and for billing Part B copays as
"other medical expenses." Nursing Facility appealed
the Department's Field Summary and related claims
adjustments in April 2011.
Facility agreed to an administrative hearing to allow the
underlying appeal as a test case, such that the ruling would
apply to all 22 Guardian facilities that engaged in the
Disputed Billing Practice.
held a two-part hearing in February 2015. The ALJ found the
testimony of all of the witnesses credible. F.F. No. 21.
Based on the briefs and the evidence, the ALJ determined the
Department properly denied the claims in which Nursing
Facility used its Disputed Billing Practice to recoup Part B
copays as "other medical expenses." Accordingly,
the ALJ denied relief. Nursing Facility appealed to the BHA.
issued an order adopting the ALJ's recommendation.
Nursing Facility timely requested reconsideration. After
granting reconsideration, the Secretary upheld the BHA's
decision. Nursing Facility then petitioned this Court for
briefing and argument before this Court en banc, the
matter is ready for disposition.