Bp Care, Inc. v. Thompson

• Decision Date: 15 February 2005
• Docket Number: No. 03-4365.,03-4365.
• Citation: 398 F.3d 503
• Parties: BP CARE, INC., Plaintiff-Appellant, v. Tommy THOMPSON, Secretary, United States Department of Health and Human Services; Department of Health and Human Services, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

398 F.3d 503

BP CARE, INC., Plaintiff-Appellant, v. Tommy THOMPSON, Secretary, United States Department of Health and Human Services; Department of Health and Human Services, Defendants-Appellees.

No. 03-4365.

United States Court of Appeals, Sixth Circuit.

Argued: November 5, 2004.

Decided and Filed: February 15, 2005.

COPYRIGHT MATERIAL OMITTED

ARGUED: Geoffrey E. Webster, Columbus, Ohio, for Appellant. James P. Walsh, Assistant Regional Counsel, United States Department of Health & Human Services, Chicago, Illinois, for Appellees. ON BRIEF: Geoffrey E. Webster, J. Randall Richards, Columbus, Ohio, for Appellant. James P. Walsh, Assistant Regional Counsel, United States Department of Health & Human Services, Chicago, Illinois, Jan M. Holtzman, Assistant United States Attorney, Cincinnati, Ohio, for Appellees.

Before: COLE and ROGERS, Circuit Judges; COHN, District Judge.^*

OPINION

ROGERS, Circuit Judge.

In this case, BP Care, Inc., contests the Department of Health and Human Services' policy of imposing successor liability for money penalties incurred because of a violation of a Medicare provider agreement. The Department of Health and Human Services assessed civil money penalties ("CMPs") against West Chester Management Company, doing business as Barbara Parke Care Center ("Barbara Parke"), because of inadequate patient care at a nursing home Barbara Parke leased and operated under a Medicare provider agreement. The agency issued Barbara Parke a notice of its right to a hearing to contest the CMPs. Over the ensuing two years, Barbara Parke (1) requested a hearing before an administrative law judge on the charges, (2) ceased operating the facility and assigned its provider agreement to another company, (3) declared bankruptcy, and (4) withdrew its request for a hearing on the CMPs. The Department of Health and Human Services seeks to collect the CMPs from BP Care, the new lessee/operator of the nursing home, under a successor liability theory. BP Care sued in federal district court, alleging that the successor liability scheme violated the Medicare Act's CMP provisions, denied BP Care procedural due process, and constituted arbitrary and capricious agency action under the Administrative Procedure Act. The district court found that it lacked subject-matter jurisdiction over some claims but reached the merits of one: it found that BP Care failed to state a claim in alleging that successor liability for CMPs denied successor Medicare providers due process of law. We affirm, but on different grounds. The district court lacked subject-matter jurisdiction over all of BP Care's claims and therefore should not have reached the due process issue.

I. Background

Barbara Parke operated the nursing home under a lease until August of 1999. In February 1999, a Department of Health and Human Services ("HHS") inspector surveyed the nursing home and found that the facility did not meet Medicare requirements concerning quality of care, quality of life, provision of services, and staff treatment of patients. As Medicare regulations require, HHS served Barbara Parke with a notice of its intent to assess CMPs totaling $35,650.00 on the basis of the deficiencies found in the survey. Regulations require HHS to explain in the notice that the facility has the option of requesting a hearing regarding the CMPs, or accepting the penalty and receiving a thirty-five percent reduction in the amount due. 42 C.F.R. §§ 488.434, 488.436 (2004). On April 30, 1999, Barbara Parke responded to the notice by challenging the validity of each charge and demanding a hearing before an administrative law judge ("ALJ").

In August 1999, Barbara Parke became insolvent and was unable to continue lease payments. Meanwhile, BP Care, Inc., formed on July 16, 1999. The same attorney who represented Barbara Parke in the early stages of the CMP proceedings, Geoffrey Webster, also incorporated and represented BP Care. In August 1999, Barbara Parke assigned both its lease and its Medicare provider agreement to BP Care. Because BP Care used Barbara Parke's Medicare provider number, it was able to continue operating the nursing home without interruption. This continuity, however, also carried a downside: under HHS policy, BP Care became liable for the outstanding CMPs when it assumed the lease.¹

BP Care received no communication at this point from HHS notifying BP Care of its potential liability. One month later, on September 13, 1999, Barbara Parke filed for Chapter 11 bankruptcy. It then notified the ALJ charged with conducting the CMP appeal hearing of this development. On October 1, 1999, counsel for the Center for Medicare and Medicaid Services ("CMS")² moved the ALJ to stay proceedings on the CMP appeal for ninety days until Barbara Parke decided whether it wished to continue its appeal in light of its bankruptcy. On November 5, 1999, the ALJ, rather than issuing a stay, dismissed and remanded the case to CMS, ordering that CMS "issue a new notice letter to Petitioner" if all new issues were not resolved on remand. The order designated "Barbara Parke Care Center" as the petitioner. The order explained that Barbara Parke's bankruptcy would likely be drawn out, making it difficult for the ALJ to maintain administrative oversight of the case. Id.

CMS responded by moving to vacate the order of remand and dismissal. In its motion, CMS signaled for the first time its intent to impose successor liability, stating that a stay of proceedings pending termination of the bankruptcy matter would "not only [delay CMS's] ability to recover any sums from the bankruptcy estate, but ... also [delay CMS's] ability to exercise its right to recover from [Barbara Parke's] successor, BP Care, Inc., to whom it appears the provider agreement has been automatically assigned." J.A. at 237. CMS served this motion on both Barbara Parke's bankruptcy trustee and BP Care's president. The ALJ granted the motion, reinstating the proceedings before him, on January 22, 2001. In vacating his previous decision to remand to CMS, the ALJ concluded that Barbara Parke's bankruptcy created no new issues in the case, since the bankruptcy did not automatically stay the CMP proceedings, and since CMS was authorized to impose successor liability for the CMPs on BP Care. In May 2001, Barbara Parke's bankruptcy trustee withdrew Barbara Parke's request for a hearing in the CMP proceeding.

Rather than appealing the Secretary's decision to impose CMPs through the narrow means provided in the Medicare and Social Security Acts, see 42 U.S.C. §§ 405(h), 1320a-7a(e), 1320ii, BP Care filed this action in the United States District Court for the Southern District of Ohio. The complaint avers that BP Care has no administrative remedy under the Medicare scheme. The complaint asserts jurisdiction under 28 U.S.C. §§ 1331, 1343, 1346, 1361, and 1651. It alleges that, because BP Care was not named as a party in the CMP proceedings and was not served with a right to hearing notice, it was unable to request a hearing regarding imposition of the penalties. Further, the complaint alleges, HHS's permitting Barbara Parke to withdraw unilaterally its request for a hearing "removed any available administrative remedy related to the CMPs" for BP Care. The complaint asserts that the imposition of CMPs without notice or an opportunity to be heard violates BP Care's procedural due process rights, and also, more generally, that the successor liability concept advanced by HHS violates procedural due process. The complaint alleges that HHS's conduct of the CMP proceedings violated 42 U.S.C. § 1395i-3(h)(2) (the section of the Medicare Act permitting HHS to impose CMPs for substandard performance of Medicare nursing facilities) and was arbitrary and capricious and an abuse of agency discretion in violation of 5 U.S.C. § 706.

The complaint seeks a declaratory judgment and injunction ordering HHS to issue a notice to BP Care affording it the right to a hearing on the CMPs. It prays the court to void the ALJ's January 22, 2001 findings that the automatic stay in bankruptcy did not apply to the CMP proceedings, and that CMS may properly impose successor liability for the CMPs on BP Care. BP Care's parent company, the King Entities, also cross-claimed in Barbara Parke's bankruptcy proceedings, seeking a declaration that any liability for the CMPs be paid out of the bankruptcy estate or paid from an escrow account established at the time of the Barbara Parke-BP Care transaction to cover Medicare overpayments. The district court consolidated that cross-claim with the declaratory judgment action. The Secretary of Health and Human Services moved to dismiss the complaint for lack of jurisdiction and for failure to state a claim.

42 U.S.C. § 405 requires those contesting the decisions of the Commissioner of Social Security to present their claims to the agency and to exhaust avenues of administrative relief before filing an action in federal court. BP Care concedes that it has not obeyed the strictures of § 405, and that this case is not an appeal of an agency action over which this court would have original jurisdiction. See 42 U.S.C. § 1320a-7a(e). Under the narrow reading of Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 106 S.Ct. 2133, 90 L.Ed.2d 623 (1986), adopted in Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000), parties affected by Medicare administrative determinations may sue in federal court under 28 U.S.C. § 1331, bypassing § 405 preclusion, only where requiring agency review pursuant to § 405(h) "would mean no review at all." Ill. Council, 529 U.S. at 19, 120 S.Ct. 1084. (This concept will be called the Michigan Academy exception.) The issue here, therefore, is whether BP Care could have challenged the agency's successor liability scheme administratively.

The district court grouped BP Care's claims into two categories, finding that the first lacked...