New LifeCare Hospitals v. Xavier Becerra

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 22, 2021 Decided August 10, 2021

No. 20-5227

NEW LIFECARE HOSPITALS OF NORTH CAROLINA, LLC, DOING

BUSINESS AS LIFECARE HOSPITALS OF NORTH CAROLINA, ET

AL.,

APPELLANTS

v.

XAVIER BECERRA, IN HIS OFFICIAL CAPACITY AS SECRETARY,

UNITED STATES DEPARTMENT OF HEALTH AND HUMAN

SERVICES,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:17-cv-00237)

Jason M. Healy argued the cause and filed the briefs for

appellants.

Dennis Fan, Attorney, U.S. Department of Justice, argued

the cause for appellee. With him on the brief were Brian M.

Boynton, Acting Assistant Attorney General, and Alisa B.

Klein, Attorney.

Before: HENDERSON, WILKINS and WALKER, Circuit

Judges.

2

Opinion for the Court filed by Circuit Judge WILKINS.

WILKINS, Circuit Judge: Appellants are four long-term

care hospitals located in North Carolina, Pennsylvania, Texas,

and Louisiana. The hospitals treat patients who are dually

eligible for the Medicare and Medicaid programs. In 2008, the

hospitals were denied reimbursement by the Secretary of

Health and Human Services for “bad debts”—i.e., unpaid

coinsurances and deductibles owed by patients. The Secretary

denied reimbursement on the grounds that the hospitals failed

to comply with the “must-bill” policy, which requires providers

to first seek payment from Medicaid before seeking

reimbursement from Medicare for the bad debts of patients

covered by both programs. The hospitals sought judicial

review of the reimbursement denial, and the District Court

granted summary judgment to the Secretary. For the reasons

explained below, we affirm the District Court.

I

A

Medicare is a federally funded program that reimburses

healthcare providers for delivering medical care to qualifying

elderly and disabled individuals. See 42 U.S.C. § 1395 et seq.

Medicaid is a cooperative federal-state program—administered

by states, and subject to federal guidelines—that pays for

medical care provided to eligible low-income individuals. See

42 U.S.C. § 1396 et seq. Medicare is administered by the

Centers for Medicare and Medicaid Services (“CMS”) on

behalf of the Secretary of Health and Human Services.

Notably, because Medicare does not cover the full cost of care,

patients are responsible for paying deductible and coinsurance

fees for inpatient hospital services received. See 42 U.S.C. §

1395e; 42 C.F.R. §§ 409.82, 409.83.

3

This case concerns several hospitals that treat “dual-

eligible” patients—i.e., individuals who qualify for both

Medicare and Medicaid. Often, these patients are unable to

afford the coinsurances and deductibles required of them under

Medicare. When that happens, state Medicaid programs may

fill the gap by requiring the state Medicaid agency to cover the

unpaid fees. Grossmont Hosp. Corp. v. Burwell, 797 F.3d

1079, 1081 (D.C. Cir. 2015). The Medicaid statute requires

states to determine what cost-sharing liability they bear for

dual-eligible patients. See 42 U.S.C. § 1396a(a)(10)(E)(i).

If the state does not cover the deductibles and coinsurances

of dual-eligible patients through Medicaid, then those missing

payments can be designated as “bad debts,” and healthcare

providers can seek reimbursement through Medicare. See 42

C.F.R. § 413.89; see also CMS Provider Reimbursement

Manual Part 1, § 322, https://www.cms.gov/Regulations-and-

Guidance/Guidance/Manuals/Paper-Based-Manuals-

Items/CMS021929. Medicare reimburses bad debts to prevent

hospitals from shifting the cost of Medicare-related services

onto non-Medicare patients. See 42 U.S.C. § 1395x(v)(1)(A)

(requiring the Secretary to regulate in such a way that “the

necessary costs of efficiently delivering covered services to

individuals covered by the insurance programs established by

this subchapter will not be borne by individuals not so

covered”).

Before a provider can seek reimbursement of bad debt

from Medicare, CMS requires the provider to demonstrate that

“reasonable . . . efforts were made” to collect payment from the

party responsible for the bill. 42 C.F.R. § 413.89(e)(2). In its

Provider Reimbursement Manual (“PRM”), CMS explains

what a “reasonable collection effort” means. See Provider

Reimbursement Manual § 310. Section 310 of the PRM

explains that providers must “issu[e] . . . a bill . . . to the party

responsible” for the patient’s payments. CMS Provider

4

Reimbursement Manual § 310. Section 322 of the PRM further

explains that when a state Medicaid program is “obligated

either by statute or under the terms of its plan to pay all, or any

part, of the Medicare deductible or coinsurance amounts, those

amounts are not allowable as bad debts under Medicare.” Id.

§ 322 (emphasis added). Medicare thus allows “[a]ny portion

of such deductible or coinsurance amounts that the State is not

obligated to pay [to] be included as a bad debt[.]” Id.

(emphasis added).

CMS addressed the bad debt reimbursement policy in a

joint memorandum (“JSM”) issued to all fiscal intermediaries

in 2004. At that time, CMS explained that:

In order to fulfill the requirement that a provider

make a “reasonable” collection effort with

respect to the deductibles and co-insurance

amounts owed by dual-eligible patients, our bad

debt policy requires the provider to bill the

patient or entity legally responsible for the

patient’s bill before the provider can be

reimbursed for uncollectible amounts.

J.A. 238. The 2004 memorandum referred to this pre-

reimbursement requirement as the “must-bill” policy, and it

outlined the steps a provider must take to comply with the

policy before seeking bad debt reimbursement for dual-eligible

patients:

[I]n those instances where the state owes none

or only a portion of the dual-eligible patient’s

deductible or co-pay, the unpaid liability for the

bad debt is not reimbursable to the provider by

Medicare until the provider bills the State, and

the State refuses payment (with a State

Remittance Advice).

5

Id. In short, CMS’s must-bill policy requires hospitals to: (1)

bill the state Medicaid program to determine whether Medicaid

will cover the bad debts first, and (2) obtain a document known

as a “remittance advice” (“RA”) indicating whether the state

“refuses payment,” before seeking reimbursement under

Medicare. Id.; see also Grossmont, 797 F.3d at 1086.

Bad debt reimbursement claims are ultimately processed

by private insurance companies (fiscal intermediaries) serving

as contractors for CMS. See 42 U.S.C. §§ 1395h(a), 1395u(a),

1395kk-1. Healthcare providers file annual cost reports with

these contractors, 42 C.F.R. § 413.20(b), and the contractors

issue notices indicating which payments Medicare will cover,

id. § 405.1803(a). Providers can then appeal reimbursement

decisions from the contractors to the Provider Reimbursement

Review Board (“Board”), an administrative tribunal within

HHS. 42 U.S.C. § 1395oo(a). The Board’s decision is final

unless the Secretary—acting through the CMS

Administrator—“reverses, affirms, or modifies” the Board. Id.

§ 1395oo(f)(1); see also 42 C.F.R. § 405.1875(a). From there,

a provider may seek judicial review by filing a civil action in

district court. 42 U.S.C. § 1395oo(f); 42 C.F.R. § 405.1877(b).

Relevant here, Congress froze any changes to CMS’s bad

debt reimbursement policy in 1987. Grossmont, 797 F.3d at

1083; see also Omnibus Budget Reconciliation Act of 1987,

Pub. L. No. 100-203, § 4008(c), 101 Stat. 1330–55. This

freeze, known as the “Bad Debt Moratorium,” prevents CMS

from making “any change in the policy in effect on August 1,

1987, with respect to payment” for “unpaid deductible and

coinsurance amounts.” Pub. L. No. 100-203, § 4008(c).

B

Appellants (“the hospitals”) are long-term care facilities in

North Carolina, Pennsylvania, Texas, and Louisiana. In April

2008, the hospitals were denied over $3 million in bad debt

6

reimbursement claims they submitted to CMS contractors. The

contractors denied the claims on the grounds that the hospitals

failed to comply with the must-bill policy. During the relevant

time period, the hospitals were not enrolled in Medicaid and

were thus unable to bill their respective state Medicaid

programs. Central to this appeal, the hospitals claim that CMS

contractors previously reimbursed bad debt claims without

requiring proof that the hospital followed the must-bill policy.

According to the hospitals, contractors only began enforcing

the policy against them in April 2008.

The hospitals appealed the denial of reimbursement to the

Board. The Board upheld the contractors’ decisions for half of

the hospitals, but reversed as to the other half. With respect to

the hospitals in Louisiana and Texas, the Board found that they

had “made a business decision” not to enroll in Medicaid, and

that nothing prevented them from complying with the must-bill

policy except for their own decision not to enroll in Medicaid.

As to the hospitals in North Carolina and Pennsylvania, the

Board found that those hospitals were not permitted to enroll

in their state Medicaid programs during the relevant period, and

were thus unable to bill Medicaid through no fault of their own.

As a result, the Board ordered the contractors to accept an

alternative form of documentation (something other than the

RA) and reconsider the reimbursement claims.

The CMS Administrator took up review of the Board’s

decision. The parties filed comments for the Administrator, see

42 C.F.R. § 405.1875, but the hospitals failed to raise one

argument at issue in this appeal—namely, that CMS violated

Congress’s 1987 Bad Debt Moratorium by suddenly enforcing

the must-bill policy in 2008.

The Administrator partially reversed the Board and denied

all of the hospitals’ reimbursement claims. The Administrator

reasoned that the must-bill policy applies to all hospitals,

regardless of Medicaid enrollment status, because state

7

Medicaid programs are required to allow limited enrollment for

the purpose of complying with the must-bill policy. J.A. 729–

30. The Administrator also noted that if a state refuses to allow

a hospital to enroll and thereby comply with the must-bill

policy, then the hospital’s recourse is to “take legal action with

the[] state[].” J.A. 730.

The hospitals filed suit in the District Court, raising several

challenges to CMS’s application of the must-bill policy. The

hospitals did not challenge the must-bill policy per se. J.A.

109. Rather, they challenged CMS’s sudden enforcement of

the policy in April 2008—an enforcement which they claim

violated the Medicare Act, the Administrative Procedure Act,

and the Bad Debt Moratorium. J.A. 30–32.

The parties cross-moved for summary judgment. The

District Court granted summary judgment to the Secretary,

finding that most of the hospitals’ challenges failed because the

hospitals did not prove CMS changed its application of the

must-bill policy. The District Court also declined to reach the

hospitals’ argument that CMS violated the Bad Debt

Moratorium, because the hospitals did not raise it before the

Administrator. The hospitals filed a motion for

reconsideration, arguing that it was both clear error and

fundamentally unfair to preclude judicial review of a claim not

presented to the Administrator so long as the claim was

developed before the Board. After a hearing, the District Court

denied the motion, holding again that the hospitals waived the

Bad Debt Moratorium argument by failing to present it at all

stages of administrative review. The hospitals timely appealed.

II

The hospitals argue that the Administrator’s decision was

unlawful for several reasons, and they ask us to reverse the

District Court’s grant of summary judgment to the Secretary.

We review de novo the District Court’s summary judgment

8

decision. Grossmont, 797 F.3d at 1082. But because the

District Court reviewed an administrative decision, “our task is

the same as that performed by the district judge. In other words,

we review the administrative record to determine whether the

agency’s decision was arbitrary and capricious, and whether its

findings were based on substantial evidence.” Forsyth Mem’l

Hosp., Inc. v. Sebelius, 639 F.3d 534, 537 (D.C. Cir. 2011)

(citing Troy Corp. v. Browner, 120 F.3d 277, 281 (D.C. Cir.

1997)). We ask whether the agency “examine[d] the relevant

data and articulate[d] a satisfactory explanation for its action

including a rational connection between the facts found and the

choice made.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State

Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (internal

quotation marks omitted).

According to the hospitals, CMS abruptly changed its

policy and began enforcing the must-bill requirement against

the hospitals in April 2008, resulting in the denial of $3 million

in reimbursement claims. The hospitals contend that this

sudden enforcement violated the Medicare Act and the APA.

We address each argument in turn.

A

The hospitals first argue that the Administrator’s decision

violated the Medicare Act, 42 U.S.C. § 1395hh(a)(2). They

reason that the sudden enforcement of the must-bill policy in

April 2008 amounted to an interpretive rule, and the Medicare

Act requires notice-and-comment rulemaking for changes in

interpretive rules. See Azar v. Allina Health Servs., 139 S. Ct.

1804, 1814 (2019) (holding that the Medicare Act does not

incorporate the APA’s exception to notice-and-comment

rulemaking for interpretive rules).1 The hospitals also argue

1

The Medicare Act, 42 U.S.C. § 1395oo(f)(1), incorporates the

APA’s standard of review. See Thomas Jefferson Univ. v. Shalala,

512 U.S. 504, 512 (1994).

9

that this interpretive rule was arbitrary and capricious under the

APA, because it represented an abrupt change in policy with

no reasoned explanation. See FCC v. Fox Television Stations,

Inc., 556 U.S. 502, 515 (2009).

The problem for the hospitals is that they identify no

change in CMS policy taking place in 2008. As noted above,

CMS outlined its must-bill policy in a 2004 joint memorandum

(“JSM”) sent to all intermediary contractors. The hospitals do

not challenge that memorandum; at oral argument, counsel for

the hospitals explained that the only challenge here is to CMS’s

“decision to impose the remittance advice requirement on [the

hospitals] beginning in April 2008.” Oral Arg. Recording

5:45–6:05. The hospitals presume that CMS somehow altered

the must-bill policy in 2008 or issued a new interpretive rule

suddenly enforcing the policy against them, but the

Administrator determined otherwise based on the record.

First, the Administrator found that there was no evidence

of a change in agency policy in 2008: Prior to 2008, “no

statement in the JSM, related PRM sections, or prior

Administrator decisions” exempted the hospitals from the

must-bill policy. J.A. 731. Second, the Administrator found

that intermediary contractors may have reimbursed bad debts

in the past without enforcing the must-bill policy (“without

[requiring] appropriate documentation”), but even so, the

actions of contractors did not set agency policy. Id. In other

words, a failure by contractors to properly enforce the must-bill

policy against the hospitals in years past did “not constitute an

explicit or affirmative agency action on policy.” Id. The

Administrator found that even if the hospitals were previously

reimbursed without adhering to the must-bill policy, evidence

of those reimbursements was consistent with the conclusion

that the contractors must have erred when reviewing and

auditing previous claims. See id. As the Administrator

explained: “[I]t is not always possible to review every item of

10

the cost report every year . . . . Such an error also does not

demonstrate that CMS has abandoned or changed a policy.” Id.

The Administrator concluded that prior failures of contractors

did not “relieve [a hospital] of its responsibility to follow the

rules and regulations of CMS.” Id.

On appeal, the hospitals point to nothing in the record to

undermine the Administrator’s determination. Instead, the

hospitals assume that the actions of contractors signaled a

change in agency policy in 2008. See Appellants’ Br. at 15

(referring to “CMS’s change in interpretation of the must-bill

policy”); id. at 16–19 ( “CMS changed a substantive legal

standard . . . .”); id. at 23 (“CMS abruptly changed its policy

. . . .”). Here, as in the District Court, the hospitals rely

primarily upon a set of statements from their Vice President for

Reimbursement, who testified that “[p]rior to the years at issue,

the intermediaries did not require . . . an RA,” and “that was

the audit treatment up until April of 2008.” J.A. 616. The Vice

President also stated that contractors “started requiring a valid

. . . RA with a valid denial code” in April 2008, id., and even

though CMS issued a joint memorandum outlining the must-

bill policy in 2004, the contractors “accepted documentation

just supporting Medicaid eligibility” between 2004 and 2008,

id. at 618. The hospitals also cite a letter sent by the hospitals

to an auditor in March 2008 with alternative documentation

(not an RA), along with redacted copies of forms showing

patient Medicaid eligibility. See Appellants’ Br. at 21; J.A.

298. None of this evidence undermines the Administrator’s

finding: While contractors may have failed to properly audit

the hospitals’ must-bill compliance before April 2008, those

errors do not amount to a change in CMS policy.

In addition, the hospitals argue that the District Court

should have followed Select Specialty Hospital-Denver, Inc. v.

Azar, 391 F. Supp. 3d 53 (D.D.C. 2019). In Select, the district

court held that CMS was “required, under the Medicare Act . .

11

. to conduct notice-and-comment rulemaking” before imposing

the “must-bill policy and the RA requirement” on a group of

“non-Medicaid-participating providers.” 391 F. Supp. 3d at 67.

There, as here, a group of hospitals that participated in

Medicare but not Medicaid challenged the denial of their

reimbursement claims for dual-eligible bad debts. Id. at 55. On

cross-motions for summary judgment, the district court held for

the hospitals. Id. at 56. But Select involved a different

administrative record. As the District Court correctly noted

here, its review of the Administrator’s decision is “limited [to]

and confined by the record in front of it.” New LifeCare Hosps.

of N. Carolina LLC v. Azar, 416 F. Supp. 3d 11, 22 (D.D.C.

2019), reconsideration denied, 466 F. Supp. 3d 124 (D.D.C.

2020). “It is black-letter administrative law that in an

Administrative Procedure Act case, a reviewing court should

have before it neither more nor less information than did the

agency when it made its decision.” CTS Corp. v. EPA, 759 F.3d

52, 64 (D.C. Cir. 2014) (internal quotation marks and brackets

removed). The record before us does not indicate a change in

agency policy in 2008.

Because we conclude that the Administrator’s finding of

no change in CMS policy was supported by substantial

evidence, we reject the hospitals’ arguments that CMS violated

the Medicare Act or the APA by changing an interpretive rule

in 2008.

B

The hospitals next argue that the District Court should

have considered whether the Administrator’s decision violated

the Bad Debt Moratorium. The District Court held that this

issue was waived by the hospitals’ failure to exhaust it at the

administrative level, because the hospitals did not raise the

argument to the Administrator despite raising it before the

Board.

12

As noted above, the must-bill policy has two requirements:

1) a requirement to bill the state Medicaid agency, and 2) a

requirement to obtain an RA. Here, the Board found that the

first requirement predates the Bad Debt Moratorium, and the

Board declined to reach whether the second requirement

violates the Moratorium. See J.A. 707 (“[T]he Board finds that

pre-1987 bad debt policy in the PRM clearly established that

providers have an obligation to bill ‘the responsible party.’”);

J.A. 709 n.49 (citing “examples of pre-1987 agency statements

and Board cases applying CMS’ bad debt policy”); J.A. 709

n.48 (“[T]he Board need not address . . . whether the CMS’

position that the ‘must bill’ policy necessarily includes

obtaining an RA from a state even when that state has no

responsibility violates the Bad Debt Moratorium.”). The

Board’s finding was not disturbed by the Administrator.

Although the Administrator provided several reasons for

denying the hospitals’ claims, at least one of the reasons was

the hospitals’ “failure to timely bill the State.” J.A. 729; see

also J.A. 728 (“[T]here are two types of situation[s] under

which the Providers did not bill and receive a remittance advice

from the respective State in which they were located in this

case.” (emphasis added)); see also J.A. 726 (citing Cmty. Hosp.

of Monterey Peninsula v. Thompson, 323 F.3d 782 (9th Cir.

2003), and noting that “unpaid liability for the bad debt is not

reimbursable until the provider bills the State and the State

refuses payment, all of which is demonstrated through a

Remittance Advice”).

On appeal, the hospitals do not argue that the billing

requirement in fact violates the Moratorium. Rather, they

argue that the RA requirement—the second half of the must-

bill policy—violates the Moratorium, and that the District

Court should have addressed this issue. See Appellants’ Br. at

28. But the Government points out that we need not reach this

issue, because the hospitals never complied with the billing

requirement which the Board found predates 1987. Gov’t Br.

13

at 24–26. In their reply brief, the hospitals argue they did

properly comply with the billing requirement. See Appellants’

Reply Br. at 17, 23. This argument is not timely, not only

because it first appears in the reply brief, but also because it

was not raised in the District Court, as it is not our role to

resolve a factual dispute on appeal. “[W]e are a court of

review, not of first view.” Capitol Servs. Mgmt., Inc. v. Vesta

Corp., 933 F.3d 784, 789 (D.C. Cir. 2019) (internal quotation

marks and brackets omitted).

The hospitals correctly note that other district courts have

found the RA requirement violates the Bad Debt Moratorium

based on different administrative records. See Kindred

Healthcare, Inc. v. Azar, No. 1:18-cv-650, 2020 WL 3574614,

at *8 (D.D.C. July 1, 2020); Select, 391 F. Supp. 3d at 59,

reconsideration denied, No. 1:10-cv-1356, 2019 WL 5697076

(D.D.C. Nov. 4, 2019), appeal dismissed, No. 20-5004, 2020

WL 768266 (D.C. Cir. Jan. 28, 2020) (“The Secretary cites

nothing in the record articulating an absolute RA requirement

before the issuance of JSM-370 . . . .”); Mercy Gen. Hosp. v.

Azar, 410 F. Supp. 3d 63, 77 (D.D.C. 2019). But we agree with

the Government that these cases are inapplicable given the

record before us. Here, the Board found that the hospitals did

not comply with the billing requirement that predates the

Moratorium, and the hospitals have not pointed to anywhere in

the record where they challenged these findings for lack of

substantial evidence. Under the circumstances of this case, the

District Court did not need to address whether the RA

requirement violates the Bad Debt Moratorium.2

2

The hospitals also argue that the District Court made this Bad Debt

Moratorium argument reviewable by ordering the hospitals to

address, in a sur-reply, “whether the must-bill policy, both generally

and as applied to non-Medicaid-participating providers, violates the

Bad Debt Moratorium.” Minute Order, New LifeCare Hosps. Of N.

Carolina LLC v. Cochran, No. 1:17-cv-237 (D.D.C. July 26, 2019)

14

C

The hospitals’ remaining arguments fare no better. First,

the hospitals contend that the Administrator’s decision violated

Medicare’s prohibition against cost-shifting. As noted above,

the Medicare Act prohibits shifting costs of Medicare services

onto non-Medicare patients. It also prohibits shifting costs

from non-Medicare services onto the Medicare program. See

42 U.S.C. § 1395x(v)(1)(A) (“[T]he necessary costs of

efficiently delivering covered services to individuals covered

by the insurance programs established by this subchapter 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[.]”). The hospitals argue that the

Administrator’s decision to deny them over $3 million in

reimbursement for Medicare patients violates this anti-cost-

shifting provision.

We agree with the District Court that this argument

amounts to a claim that “the Administrator [cannot] deny any

bad debt reimbursement claims—no matter how frivolous.”

New LifeCare Hosps., 416 F. Supp. 3d at 18. And we decline

to adopt that reading of the anti-cost-shifting provision. While

the Medicare Act prohibits shifting costs onto non-Medicare

patients, it also “authoriz[es] the Secretary to refuse to

reimburse costs when the provider has failed to ‘furnish such

information as the Secretary may request in order to determine

the amounts due such provider.’” Id. (citing 42 U.S.C. §

1395g(a) (emphasis added)).

(emphasis added). It is unclear why the District Court ordered the

sur-reply, but the hospitals do not challenge the “must-bill policy

. . . generally,” and the District Court ultimately noted that in its

opinion. See New LifeCare Hosps., 416 F. Supp. 3d at 18. The

hospitals challenge only the April 2008 decision on their

reimbursement claims.

15

Second, the hospitals argue that the Administrator’s

decision impermissibly requires them to enroll in Medicaid,

despite the fact that Medicaid participation is voluntary. But,

as the Government notes, Medicare participation is also

voluntary. Here, the Administrator explained that the decision

of a provider not to enroll in Medicaid does not relieve a state

of its responsibility to share the costs of dual-eligible patients’

bad debts. See J.A. 729 (“The non-Medicaid enrollment status

of a provider does not change the legal responsibilities that

result from the dual eligible status of a Medicare beneficiary

for which a State may be liable for cost sharing[.]”). If a

hospital treats dual-eligible patients, incurs bad debts, and

seeks reimbursement of those debts from Medicare, then the

hospital must contend with the statutory and regulatory

requirements for obtaining reimbursement. See, e.g., 42 U.S.C.

§ 1396a(a)(10)(E)(i) (requiring a state Medicaid plan to

provide “for making medical assistance available for

[M]edicare cost-sharing (as defined in section 1396d(p)(3) of

this title) for qualified [M]edicare beneficiaries”). We do not

mean to understate the practical burden on the hospitals here,

but as the Administrator’s decision explained, these

requirements stand apart from—and do not dictate—a

provider’s decision to participate in Medicaid.

Third, the hospitals contend that the Administrator’s

decision was arbitrary and capricious or unsupported by

substantial evidence for a few reasons. They argue that the

Administrator failed to consider that the hospitals had “no way

to comply with CMS’s new interpretation of the must-bill

policy” because they were prevented from enrolling in

Medicaid by certain states. Appellants’ Br. at 47–48. But the

Administrator considered this argument and reasonably

explained its reasons for rejecting it. J.A. 728 (“[N]one of the

Providers were enrolled in Medicaid. The Providers alleged

they could not conform to the [m]ust bill policy . . . .”).

Specifically, the Administrator noted that states are obligated

16

by the Medicaid statute to process claims for dual-eligible

patients and to determine their cost-sharing liability for those

patients. J.A. 730. As a result, the Administrator concluded

that providers should “take legal action with their states” if a

state prohibits enrollment for the purpose of dual-eligible

billing. Id. Most importantly, the Administrator found that

even in the two states where the hospitals were previously

excluded from Medicaid enrollment, those states permitted

enrollment “in order to bill and receive RAs” after the hospitals

“reach[ed] out and explain[ed] the circumstances to NC and PA

State officials.” J.A. 730. Thus, while it was “no doubt

frustrating” for the hospitals to enroll in Medicaid, it was not

impossible. New LifeCare Hosps., 416 F. Supp. 3d. at 23.

Next, the hospitals claim it was arbitrary and capricious

for the Administrator to require compliance with the must-bill

policy by some providers while certain other providers are

exempt from the policy. Specifically, the hospitals point to

community mental health centers in California which are

exempt from bad debt billing because the state does not license

them, and they are thus unable to enroll in Medicaid. The

hospitals also point to institutions for mental disease (“IMDs”),

which receive an exemption from the bad debt policy. See id.

at 23–24. But the Administrator reasonably explained why

these exemptions differ from the hospitals’ case. Unlike the

California community mental health centers, the hospitals are

licensed by their states. J.A. 732. Also unlike the hospitals,

the IMDs serve patients who, due to age, are excluded from

Medicaid payments by statute and regulation. Id.; see also 42

U.S.C. § 1396d(a)(14); 42 C.F.R. §§ 435.1009(a)(2),

441.13(a)(2). The hospitals, in contrast, are capable of

enrolling in Medicaid and obtaining reimbursement for their

patients’ bad debts under the terms of the must-bill policy.

The hospitals’ final arbitrary-and-capricious claims fail for

the same reasons addressed above. They contend that the

17

Administrator’s decision was arbitrary and capricious because

it departed from how CMS treated reimbursement requests

before April 2008. But again, the hospitals cite only to their

own Vice President’s testimony about reimbursements

received before 2008—and as the Administrator found, this

evidence did not establish that CMS changed policy in 2008.

The hospitals’ final argument, relying on FCC v. Fox

Television, is that CMS changed a policy or past practice on

which the hospitals had relied, because CMS “consistently

exempted Hospitals from its must-bill policy” in years past.

Appellants’ Br. at 54; see also Fox Television, 556 U.S. at 515.

The Administrator found no such exemption in the record, and

as explained above, the hospitals have pointed to nothing to

undermine the Administrator’s determination. See J.A. 731.

We therefore conclude that the Administrator’s decision was

not arbitrary and capricious.

III

For the foregoing reasons, we affirm the judgment of the

District Court.

So ordered.