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Mulberry Square Elder Care and Rehabilitation Center v. Department of Human Services

Commonwealth Court of Pennsylvania

July 26, 2018

Mulberry Square Elder Care and Rehabilitation Center, Petitioner
Department of Human Services, Respondent

          Argued: April 11, 2018




         In this 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, we affirm.

         I. Background

         This 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.

         A. Statutory Framework

         1. Generally

         Medicaid, 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[1] 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.

         In 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.

         2. Cost-Sharing/Copay Limits

         Part B 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%.

         However, 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).

         The 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.

         The Department administers the MA Program (Medicaid) for the Commonwealth. The Human Services Code (the Code)[2] 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.

         Shortly 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.

         As 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).

         The 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[3] 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.

         B. MA Participation and Payments to Nursing Facilities

         The MA 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 Recommendation).

         A 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.

         Providers 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), §1396o, §1396(n)(3)(B).

         In 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.

         Deductions 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. No. 10.

         In 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."

         C. Disputed Billing Practice

         This case involves Nursing Facility's attempt to recover part of the otherwise unrecoverable Part B copays by utilizing its residents' Patient Liability amounts.

         In 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).[4] 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 fee.

         Nursing 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.

         Nursing 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.

         D. Procedural History

         This 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 Billing Practice.

         The 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.

         Nursing 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.[5]

         The ALJ 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.

         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 review.

         After briefing and argument before this Court en banc, the matter is ready for disposition.

         II. ...

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