Sixth Circuit holds Medicaid Caps on “Bad Debt” Valid
The Sixth Circuit Court of Appeals recently held that hospitals cannot recoup unpaid costs attributable to dual Medicare/Medicaid patients, where the “bad debts” exceed state Medicaid payment caps. Essentially, the opinion held that hospitals are forced to take losses on services provided to dual-enrolled Medicare and Medicaid patients, where such patients cannot pay the applicable co-pays and deductibles.
In Detroit Receiving Hospital, et al. v Sebelius, No. 08-1920, the plaintiff group consisted of numerous hospitals conducting business in Michigan and Missouri who provide services to patients covered under both Medicare and Medicaid. Under Medicare Part A, hospitals are paid based on a fixed-rate system for inpatient hospital care, while Medicare beneficiaries are charged co-pays and deductibles for services provided to them. In some instances, the Medicare beneficiaries either refuse to or are unable to pay these charges.
Previously, these “bad debts” were reimbursed to hospitals by the Medicare program. However, the Balanced Budget Act of 1997 placed a limit on the amount of “bad debt” reimbursement from Medicare, leaving hospitals with the choice of either accepting the loss or continuing to pursue debt collection from the Medicaid beneficiary.
Hospitals attempting to recoup such “bad debts” are faced with an additional hurdle when these delinquent patients are also Medicaid beneficiaries. While state Medicaid agencies are responsible for “Medicare cost-sharing” (i.e. paying a dual-enrolled patient’s co-payments and deductibles), both Michigan and Missouri have place caps on the Medicare cost-sharing under their Medicaid programs. Specifically, under a provision of the Balanced Budget Act, if the Medicare payment rate is above the rate that the state Medicaid program pays for the same treatment, Medicaid will not pay additional amounts for co-pays or deductibles. If the Medicare payment is below the Medicaid rate, the Medicaid program only pays the amount necessary to provide the hospital with the Medicaid rate amount.
For example, if the hospital charges $100 for a service to a dual-enrolled patient, and Medicare pays $80, a $20 co-pay is left. If the state Medicaid rate for the service is $70, Medicaid will not make any additional payments and the provider is short-changed $20. If the state Medicaid rate is $90, Medicaid pays the $10 difference between the two and the provider loses the other $10. Further, hospitals cannot undertake debt-collection efforts against the dually-enrolled beneficiaries.
In light of this reimbursement scheme, the hospitals filed suit alleging that their obligations to reimburse the bad debt violated the Medicare Act’s cross-subsidization ban, which provides that “necessary costs of efficiently delivering covered services to [Medicare patients] 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…” See 42 USC 1395x(v)(1)(A). Essentially, the hospitals alleged, since they cannot recover the losses attributable to the “bad debts” caps for dual-enrollees, they must instead recoup these amounts through cross-subsidizing through non-Medicare funds (i.e. charging private insurances more.)
At the trial level, the federal court for the Eastern District of Michigan held that the statutory scheme was clear on its face and does not allow for the exception requested by plaintiffs. The Sixth Circuit affirmed on appeal, reasoning that the hospital’s suit was essentially an attempt to lower the costs of Medicare services. The Court specifically noted that “The hospitals chose to provide Medicare services… and lower rates can be considered a cost of doing business with Medicare. If Congress had simply lowered its Medicare payment rates to Medicaid levels, the hospitals would hardly have a claim that the cross-subsidization ban was violated. Nor do they here.”
The Detroit Receiving Hospital decision will certainly cause increased fervor amongst hospitals as the federal legislature hammers out the Obama health care plan. Hospitals continually lament that Medicare payments do not adequately cover the costs of hospital care, and given that lawmakers have hinted that payments under any national health care plan would be on par with Medicare payments, further dissent is a certainty.
