HHS had argued that it didn't have to reimburse Kindred Healthcare for bad debt incurred by dual-eligible patients at post-acute facilities because the health system didn't provide evidence—called "remittance advice"—that it received Medicaid payments from the states where it operated.
Kindred Healthcare said it billed states for the care, but the states never paid so the provider couldn't show the needed evidence. Kindred's facilities weren't eligible for payment because they weren't enrolled in Medicaid. Many states, including Pennsylvania, had barred post-acute facilities from taking part in their Medicaid programs.
In 1987, Congress blocked CMS from making any changes to policy related to bad debt reimbursement for Medicare providers.
U.S. District Judge Richard Leon in Washington D.C. wrote that HHS had to prove its billing policy hadn't changed since the freeze on bad debt policy went into effect if it wanted to deny the payments based on a lack of remittance advice, as the agency stated in its denial decisions to Kindred Healthcare.
"Nothing in the record demonstrates that CMS's must-bill policy required providers to obtain a state-issued (remittance advice) before 2004, let alone when the bad debt moratorium was passed in 1987," Leon wrote in his decision. HHS also didn't "submit evidence ... suggesting that providers failed to bill the relevant state Medicaid agencies."
The judge said that CMS' 2004 addition of the remittance advice requirement was illegal because the agency made the change after the Congressional ban.
According to the decision, HHS will have to decide whether Kindred Healthcare is entitled to bad debt reimbursement without considering whether it obtained remittance advice from states.
Medicare beneficiaries are often responsible for deductible and coinsurance payments for hospitals, but CMS can reimburse providers for unpaid debts if they make a reasonable effort to collect them. In many instances, people for Medicaid are automatically considered indigent and, therefore, unable to pay.
For dual-eligibles, Medicare requires providers to bill states for Medicaid-eligible amounts like Medicaid's portion of deductibles or coinsurance. CMS will reimburse providers for eligible debts that aren't covered by Medicaid or Medicaid-covered debts that states refuse to pay.