Beverly Enterprises v. Califano

• Decision Date: 17 February 1978
• Docket Number: Civ. A. No. 77-0459.
• Citation: 446 F. Supp. 599
• Parties: BEVERLY ENTERPRISES, Plaintiff, v. Joseph A. CALIFANO, Jr., Secretary, Health, Education, and Welfare, and Mutual of Omaha, Defendants.
• Court: U.S. District Court — District of Columbia

446 F. Supp. 599

BEVERLY ENTERPRISES, Plaintiff, v. Joseph A. CALIFANO, Jr., Secretary, Health, Education, and Welfare, and Mutual of Omaha, Defendants.

Civ. A. No. 77-0459.

United States District Court, District of Columbia.

February 17, 1978.

Robert L. Ackerly, Herbert L. Fenster, Allen B. Green, Washington, D. C., for plaintiff.

Earl J. Silbert, U. S. Atty., Robert N. Ford, Joseph Guerrieri, Jr., Asst. U. S. Attys., Washington, D. C., for defendants.

MEMORANDUM OPINION

CHARLES R. RICHEY, District Judge.

This case is before the Court on cross-motions for summary judgment. Upon consideration of the memoranda filed, the affidavits, and the administrative record, the Court finds that there are no genuine issues as to any material facts remaining in this case and that plaintiff's motion for summary judgment be granted in part and denied in part.

I. BACKGROUND

1. Plaintiff, Beverly Enterprises (Beverly) owns and operates four facilities involved in this case, and has since the time this dispute arose. Each of these facilities participates in the Medicare program as a "provider" of skilled nursing care. These providers are:

Beverly Manor Convalescent Hospital Capistrano Beach, California Beverly Manor Convalescent Hospital Seal Beach, California Beverly Manor of Laguna Laguna Hills, California Beverly Manor of Petosky Petosky, Michigan

2. Each facility further is properly described as a "distinct-part provider," rendering care as a "skilled nursing facility" (SNF) to Medicare patients in a distinct part of its physical plant. This distinct part must be physically separated from the rest of the institution.

3. The distinct part in which Medicare-eligible patients are cared for is termed the "certified" part. The other part of the facility is termed the "noncertified" part. A patient in a room located in the noncertified part of a distinct-part provider cannot qualify for reimbursement under the Medicare program.

4. Most "providers" under the program do not receive their Medicare reimbursements directly from the Department of Health, Education and Welfare (HEW), but rather from a fiscal intermediary, usually an insurance company. The intermediary then is reimbursed by HEW. The fiscal intermediary pays the hospital on a monthly estimated basis for services rendered to certified Medicare patients, audits on a yearly basis the hospital's cost records in order to make the final determination of "reasonable costs," and notifies the provider if, in its opinion, any "overpayments" have been made to the provider in monthly estimated payments made during that year. If the intermediary considers overpayments to have been made, it furnishes the provider with a Notice of Program Reimbursement (NPR), which itemizes adjustments to the provider's Medicare cost reports for that year. The provider then is deemed to owe the intermediary and HEW the amount stated in the NPR. If the provider disagrees with the intermediary's decision, it may appeal to the Provider Reimbursement Review Board (PRRB). The fiscal intermediary for the four Beverly facilities was and is Mutual of Omaha.

5. In August 1973, the Social Security Administration published section 2342 of the Provider Reimbursement Manual (HIM-15) (PRM). The PRM is a guide for fiscal intermediaries in their decision-making processes concerning reimbursement claims submitted by providers each fiscal year.

6. Section 2342 and subsection 1 of the PRM read as follows:

Where the unoccupied beds in a partially certified institution are concentrated in the certified portion, the standby costs attributable to the unoccupied beds (e. g., depreciation, operation of plant, etc.) would not be allocated equitable under existing cost find methods. This section indicates the manner in which costs attributable to a provider's unoccupied beds are allocated under such circumstances so that the burden of these costs is proportionally shared by all patients in the institution. This section is applicable to all cost reporting periods beginning after September 30, 1973.

2342.1 General Rule — Where the average occupancy rate of a certified portion of an institution is substantially less than the average occupancy rate in the noncertified portion, the routine costs attributable to the unoccupied beds of the institution allocated on the basis of space (see subparagraph B) are reallocated using the following basis:

                Total Patient Days in                           Cost of Unoccupied
                the Certified Portion  ×  Costs of Unoccupied = Beds
                Total Patient Days in     Beds                  Allocable to
                the Entire Institution                          Certified Portion
                

Only costs allocated to the inpatient areas on the basis of space are adjusted since other costs are allocated in a manner related to the actual usage of services in the institution — e. g., hours of services, meals served, etc.

A. Substantial Difference in Occupancy Rates — For this purpose, a difference of 25 percentage points or more in the occupancy rates in any Medicare cost reporting period is considered substantial. Thus, if the occupancy rate in the certified portion of an institution is 50 per cent and the occupancy rate is 75 per cent or more in the noncertified portion, the procedure described in this section is applicable.

B. Costs Allocated on Basis of Space — All costs actually allocated or required to be allocated to the inpatient areas on the basis of space under the cost-finding requirements are included in the computation.

7. Section 2342.2 provides an exception to the allocation procedure set forth in section 2342.1. A distinct-part provider qualifies for the exception where its certified, or Medicare portion:

A. has in its inpatient areas staffing separate from that of the inpatient areas in the remainder of the institution, and also

B. furnishes a level of care that is not substantially equivalent to that furnished in the noncertified portion of the institution. (For this purpose, the level of care furnished by the noncertified portion is considered substantially equivalent to the level of care furnished by a skilled nursing home if that portion meets at least the requirement that it is primarily engaged in providing skilled nursing care and related services to inpatients who require medical or nursing care, or rehabilitation services for injured, disabled, or sick persons.) The information as to the level of care in both portions of a skilled nursing facility (SNF) is contained in the Directory of Medical Facilities issued by the Social Security Administration and made available to fiscal intermediaries under the program.

8. As of August 1973, each distinct part, or certified Medicare portion of plaintiff's four facilities, had in its inpatient area staffing separate from that of its noncertified part. Plaintiff thus satisfied section 2342.2(A).

9. Plaintiff, however, was uncertain as to whether the certified portions of any or all of its four facilities were furnishing a level of care "not substantially equivalent" to the level of care in the noncertified portions, in accordance with the second test for the exemption. Section 2342.2(B).

10. Mr. L. E. Addleman, Supervisor, Government Programs, Beverly Enterprises, determined that, unless the four facilities could qualify for the exception provided in section 2342.2, Beverly would have to increase fees in the coming fiscal year 1974 for patients in the noncertified portions of these facilities, in order to compensate for the substantial Medicare reimbursement revenue which would be lost if the allocation of standby fees mandated by section 2342.1 were applied.

11. On December 19, 1973, Mr. Addleman telephoned Mr. Terry F. Hamaker, Desk Audit Supervisor, Audit and Reimbursement, for plaintiff's fiscal intermediary.

12. On behalf of Mutual, Mr. Hamaker followed up that telephone conversation the same day by letter to Mr. Addleman. Mr. Hamaker wrote:

This is in regard to the phone conversation we had today concerning Section 2342 of HIM-15 "allocating standby costs in a distinct-part provider having a substantial difference in occupancy rates between the certified portion and the noncertified portion."

We find that the Beverly facilities which we are intermediary for do not appear to be subject to this allocation for the 1972 fiscal year. This is based upon two exceptions in 2342.2 stating that this allocation is not applicable if the facility (1) has separate staffing, and (2) provides a level of care in the certified area which is not equal to the level of care provided in the non-certified area.

However, if it was found that a substantial number of patients were in the noncertified area and required the level of care provided in the certified area, the allocation of standby costs under this computation would likely be applicable. You must keep in mind that the exceptions listed in Section 2342.2 are very general and to determine their applicability could require an in-depth analysis of nursing care. Should such an analysis reveal that the exceptions were not met, then, of course, an adjustment would be necessary.

If you should have any further questions, feel free to contact me.

13. Plaintiff determined that, because its intermediary had stated that plaintiff qualified for the exemption in section 2342.2, it would not be necessary to increase fees in the 1974 fiscal year for its non-Medicare patients in the noncertified portions of its facilities to account for the allocation in section 2342.1. Plaintiff therefore did not increase its fees for noncertified patients in 1974.

14. On December 18, 1975, the fiscal intermediary rendered its reimbursement decision for the year ending December 31, 1974. The intermediary applied the allocation procedure of section 2342.1 to the four plaintiff facilities. The intermediary did not contest that staffing was separate for the certified and noncertified portions. The intermediary did, however, state that the...