Avon Nursing & Rehab. v. Azar

• Decision Date: 24 September 2019
• Docket Number: No. 18 CV 2390-LTS-SDA,18 CV 2390-LTS-SDA
• Parties: AVON NURSING AND REHABILITATION et al., Plaintiffs, v. Alex M. AZAR II, Secretary of the United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — Southern District of New York

410 F.Supp.3d 648

AVON NURSING AND REHABILITATION et al., Plaintiffs,

v.Alex M. AZAR II, Secretary of the United States Department of Health and Human Services, Defendant.

No. 18 CV 2390-LTS-SDA

United States District Court, S.D. New York.

Signed September 24, 2019

Brian Marc Feldman, Harter, Secrest & Emery, LLP, Rochester, NY, Lauren Renee Mendolera, Harter, Secrest & Emery, LLP, Buffalo, NY, for Plaintiffs.

Arastu Kabeer Chaudhury, U.S. Attorney Office, New York, NY, for Defendant.

MEMORANDUM OPINION AND ORDER

LAURA TAYLOR SWAIN, United States District Judge

Plaintiffs, a group of thirty-one skilled nursing facilities, bring this action seeking pre-enforcement review under the Administrative Procedure Act, 5 U.S.C. §§ 701 et seq. (the "APA"), of a final rule promulgated by the Centers for Medicare and Medicaid Services ("CMS"), a division of the Department of Health and Human Services ("HHS"), which permits investigative surveys of nursing facilities that are initiated in response to complaints to be conducted without the participation of a registered nurse. See Survey Team Composition, 82 Fed. Reg. 36530, 36623-36625 (Aug. 4, 2017) (the "Final Rule"). Defendant moves pursuant to Federal Rule of Civil Procedure 12(b)(1) to dismiss Plaintiffs' Second Amended Complaint (docket entry no. 23, the "SAC") for lack of subject matter jurisdiction. (Docket entry no. 25.) Plaintiffs oppose Defendant's motion and seek summary judgment on the merits of their APA claim. (Docket entry no. 31.) Defendant cross-moves for summary judgment dismissing Plaintiffs' APA claim on the merits. (Docket entry no. 39.) The Court has considered carefully the submissions of the parties in connection with the instant motion practice and the brief amicus curiae filed by the American Health Care Association, New York State Health Facilities Association, Alabama Nursing Home Association, Georgia Health Care Association, and Kentucky Association of Health Care Facilities (docket entry no. 47). For the following reasons, Defendants' motion to dismiss the Second Amended Complaint for lack of subject matter jurisdiction is granted, and the parties' respective cross-motions for summary judgment are denied as moot.

BACKGROUND

The following recitation of relevant facts is drawn from the SAC, including exhibits incorporated therein by reference. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002). Where relevant, the Court has also drawn upon the factual declarations submitted by the parties in connection with Defendant's Rule 12(b)(1) motion. See Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000) ("In resolving a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), a district court ... may refer to evidence outside the pleadings.").

Plaintiffs are nursing facilities located in New York or Rhode Island. (SAC ¶¶ 11-44.) All Plaintiffs participate in both the Medicare and Medicaid programs. (Docket entry no. 27, Reinersten Decl. ¶ 6.) Medicare Part A provides payment to eligible individuals for the cost of hospital and related post-hospital nursing home and home health services. 42 U.S.C. §§ 1395c – 1395i-5. Medicaid is a state-administered program that provides payments for medical care to individuals whose income and resources fall below certain limits. 42 U.S.C. § 1396d(a). Medicare and Medicaid both provide coverage to certain eligible individuals for care provided in a nursing home. 42 U.S.C. §§ 1395x(h), 1396a(a)(28), 1396d(a)(4).

Nursing homes must meet certain participation requirements in order to receive payments under Medicare and Medicaid. 42 U.S.C. § 1395i-3 ; 42 U.S.C. § 1396r. To continue participating in Medicare and Medicaid, facilities must remain in "substantial compliance" with each program's requirements for participation. 42 U.S.C. § 1395i-3(a)(3), (b) - (d) ; 42 U.S.C. § 1395r(a)(3), (b) - (d) ; 42 C.F.R. Part 483.¹ To assess compliance with Medicare participation requirements, CMS enters into agreements with state survey agencies to conduct surveys of nursing facilities. 42 U.S.C. § 1395aa ; 42 C.F.R. § 488.10.² 42 U.S.C. § 1395i-3(g)(2), which is titled "Surveys," prescribes, among other things, the timing, content, and frequency of several different types of surveys. 42 U.S.C. § 1395i-3(g)(2)(E)(i) provides that "[s]urveys under this subsection shall be conducted by a multidisciplinary team of professional (include a registered professional nurse)." Plaintiffs argue in their motion for summary judgment that this staffing provision applies to investigative surveys conducted in response to complaints that a nursing home has violated the program requirements for participation in Medicare and Medicaid.

After a survey is completed, the state survey agency provides a certification of substantial compliance or noncompliance to CMS. 42 C.F.R. §§ 488.11, 488.12. If necessary, the certification will include a "statement of deficiencies" and will identify the scope and severity of the deficiency. 42 C.F.R. § 488.404(b). Based upon the state survey agency's recommendations, CMS determines whether a facility is eligible to participate in Medicare and, on the basis of any noncompliance found during a survey, CMS may terminate a facility's Medicare or Medicaid provider agreement or apply alternative remedies instead of, or in addition to, termination procedures. 42 C.F.R. § 488.12 ; 488.330(b). Alternative remedies include, among other things, the imposition of a civil money penalty, the denial of payment for new admissions, and the appointment of temporary management. 42 U.S.C. § 1395i-3(h)(2)(B) ; 42 C.F.R. § 488.406.

HHS provides for the administrative appeal to an Administrative Law Judge ("ALJ") of any "initial determination" by CMS, including a "finding of noncompliance leading to the imposition of enforcement actions."³ 42 C.F.R. § 498.3(b)(13) ; 42 C.F.R. § 498.5(b) ; 42 C.F.R. § 488.408(g)(1). An ALJ's decision may be appealed to the Appellate Division of the Departmental Appeals Board (the "DAB"). 42 C.F.R. § 498.80. The DAB's decision is binding unless a party "has a right to judicial review and timely files a civil action in a United States District Court or, in the case of a civil money penalty, in a United States Court of Appeals." 42 C.F.R. § 498.90(a)(1).

On August 19, 2013, Plaintiff Avon Nursing and Rehabilitation ("Avon") reported to the New York State Department of Health ("NYSDOH") that a resident had spilled a bowl of soup on her lap during dinner, resulting in a burn. (SAC ¶ 85.) On September 6, 2013, in response to that report, NYSDOH conducted an abbreviated standard survey at Avon. (SAC ¶ 86.) The survey team did not include a registered nurse. (SAC ¶ 87.) The September 6, 2013, survey concluded, and CMS agreed, that Avon was not in substantial compliance with two participation requirements obligating Avon to ensure that the "resident environment remains as free of accident hazards as is possible" and to investigate thoroughly all incidents involving allegations of neglect. (Reinertsen Decl. ¶ 9, Ex. B.) CMS imposed a civil money penalty, which Avon appealed to an ALJ. (SAC ¶¶ 92-93.)

On August 2, 2016, the ALJ issued a decision finding that the state agency had violated section 42 U.S.C. § 1395i-3(g)(2)(E)(i)⁴ of the Social Security Act and 42 C.F.R. § 488.314(a)(1) by permitting a survey team without a registered nurse to conduct the September 2013 survey. (Docket entry no. 20-2, the "ALJ Decision" at 16.) The ALJ further concluded that "the findings and conclusions of the survey team, which was constituted in violation of the [Social Security] Act and regulations, are invalid and cannot be the bases for the imposition of any enforcement remedy." (Id. )

CMS appealed the ALJ Decision, and the DAB vacated the decision on November 6, 2017. (Docket entry no. 20-5, the "DAB Decision.") The DAB concluded that, "[e]ven if NY[S]DOH violated a statutory or regulatory directive concerning the composition of its survey team, the ALJ erred in overturning CMS's noncompliance determination and remedy on that basis." (Id. at 10.) Beginning with the statutory text of 42 U.S.C. § 1395i-3, the DAB observed that nothing in that section "support[s] the proposition that CMS's enforcement authority is conditioned on a state agency's compliance with survey-performance requirements." (Id. ) Citing 42 C.F.R. § 488.318(b), 42 C.F.R. § 488.320(b), and its own prior decisions, the DAB noted that "inadequate survey performance does not relieve a [skilled nursing facility] ... of its obligation to meet all requirements for program participation or invalidate adequately documented deficiencies." (Id. at 11 (internal quotation marks omitted).) Thus, because the ALJ failed to consider whether the evidence presented by the parties at the hearing substantiated CMS's noncompliance determination, the DAB remanded the appeal for a decision "addressing, at a minimum, whether Avon was in substantial compliance with 42 C.F.R. §§ 483.13(c)(2)-(4) and 483.25(h) during the relevant period." (Id. at 19.) In reaching this conclusion, the DAB explicitly stated that it was "unnecessary for us to decide—and we do not decide—whether section [ 42 U.S.C. § 1395i-3(g)(2)(E)(i) ] or the regulations in 42 C.F.R. Part 488 required NY[S]DOH to include a registered nurse on the September 2013 survey team, or whether a state survey agency has lawful ‘discretion’ to perform a survey without a registered nurse when the survey has been triggered by a ‘complaint.’ " (Id. at 10.) On remand, CMS and Avon agreed to settle the administrative appeal and the ALJ dismissed the appeal on January 18, 2018. (Reinertsen Decl. ¶¶ 10, 12, Exs. A, C.)

On May 4, 2017, in response to the ALJ's decision, HHS published a proposed rule addressing, among other things, survey team composition. See Survey Team Composition, 82 Fed. Reg. 21014, 21087-21088 (proposed May 4, 2017). The proposed rule sought to relocate certain regulations and to revise...