Mission Hosp. Reg’l Med. Ctr. v. Burwell, ___ F.3d ___, No. 13-56264, 2016 WL 1399335 (9th Cir. Apr. 11, 2016).
Mission Hospital Regional Medical Center (a Medicare-approved acute care hospital) purchased South Coast Medical Center (also a Medicare-approved facility) in Laguna Beach. Mission attempted to avoid South Coast’s potential liabilities under its Medicare provider agreement by purchasing only South Coast’s assets. South Coast’s liabilities included possible mandated reimbursements to Medicare for previous overpayments received by South Coast. As a consequence, the Secretary of Health and Human Services did not allow Mission to bill Medicare several million dollars for patient services at its new Laguna Beach campus before it acquired a Medicare provider agreement for that facility.
The Secretary’s decision to disallow Mission’s bills was upheld by an administrative law judge and by an agency appeals board. Mission sought judicial review, and the district court affirmed the agency decision.
The Ninth Circuit also affirmed. The court held that when Mission extinguished South Coast’s Medicare provider agreement and refused to assume South Coast’s contractual liability to return overpayments to Medicare, Mission did not and could not take assignment of South Coast’s provider agreement. The Laguna Beach campus became, for Medicare purposes, a “new hospital” without a provider agreement. Moreover, the Laguna Beach campus could not enroll as a Medicare provider until it was separately accredited and entered into its own provider agreement. The court also rejected Mission’s reliance on 42 C.F.R. § 489.13(d)(2), which states that the effective date of Medicare enrollment for a provider like Mission may be retroactive for up to one year from unpaid covered services provided to a Medicare beneficiary. The use of the word “may” in this regulation gives the Secretary discretion about when to grant retroactive coverage. The Secretary’s policy was to exercise her discretion under this rule only in favor of accredited providers in compliance with the Medicare participation requirements. The court held that the Secretary reasonably determined that § 489.13(d)(2) was inapplicable here because there was no assurance that Mission’s Laguna Beach campus was in compliance with the participation requirements at the time the services were provided.
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