Delta Health v. U.S. Dept. of Health and Human

• Decision Date: 17 October 2006
• Docket Number: No. 3:05-CV-436/RV/EMT.,3:05-CV-436/RV/EMT.
• Parties: DELTA HEALTH GROUP, INC., A Delaware Corporation for Profit, Plaintiff, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, and Mike Leavitt, in his official capacity as Secretary of the United States Department of Health and Human Services, Defendants.
• Court: U.S. District Court — Northern District of Florida

459 F.Supp.2d 1207

DELTA HEALTH GROUP, INC., A Delaware Corporation for Profit, Plaintiff, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, and Mike Leavitt, in his official capacity as Secretary of the United States Department of Health and Human Services, Defendants.

No. 3:05-CV-436/RV/EMT.

United States District Court, N.D. Florida, Pensacola Division.

October 17, 2006.

Order Denying Reconsideration November 20, 2006.

David Keller Miller, Donna H. Stinson, Broad & Cassel, Tallahassee, FL, for Plaintiff.

Pamela A. Moine, U.S. Attorney, Pensacola, FL, for Defendants.

ORDER

VINSON, Senior District Judge.

This litigation arises under the Medicare program. Plaintiff, Delta Health Group, Inc., has filed a 30-page Complaint (with 65 pages of exhibits) against Defendants, the United States Department of Health and Human Services and Secretary of the agency, Mike Leavitt. Pending before this Court is Defendants' 18-page motion to dismiss the Complaint (with 51 pages of exhibits) (Doc. 25), and Plaintiffs 23-page memorandum in opposition thereto (with 40 pages of exhibits). Also pending is Plaintiff's request for oral argument (Doc. 30), in which Plaintiff has suggested that oral argument may help the Court in deciding the novel and complex issues raised in these voluminous papers.

I. APPLICABLE LAW

A. Motion to Dismiss Standard

A motion to dismiss cannot be granted unless the complaint alleges no set of facts which, if proved, would entitle the plaintiff to relief. E.g., Blackston v. Alabama, 30 F.3d 117, 120 (11th Cir.1994). On a motion to dismiss, the facts as stated in the complaint and all reasonable inferences therefrom must be taken as true. Stephens v. Dep't of Health and Human Services, 901 F.2d 1571, 1573 (11th Cir.1990); accord Cruz v. Beto, 405 U.S. 319, 92 S.Ct. 1079, 31 L.Ed.2d 263 (1972); Hunnings v. Texaco, Inc., 29 F.3d 1480, 1484 (11th Cir. 1994). In deciding a motion to dismiss, the district court is limited to a review of the allegations as set forth in the complaint, as well as to any attached or incorporated documents that are central to the plaintiffs claim. Brooks v. Blue Cross & Blue Shield of Florida, 116 F.3d 1364, 1369 (11th Cir.1997). The court may also properly consider documents of which it may take judicial notice, without converting a motion to dismiss into a motion for summary judgment. See generally Fed. R.Evid. 201; Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1280 (11th Cir.1999) (in deciding a motion to dismiss the court will primarily consider the allegations in and documents attached to/incorporated into the complaint, "`although matters of public record ... may be taken into account'" as well) (quoting 5A Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure § 1357 (2d ed.1990)).

B. The Medicare Program

Medicare is a federally-subsidized health insurance program for the elderly and certain disabled persons. See generally 42 U.S.C. §§ 1395 et seq. ("Medicare Act" or "Medicare program"); see also United States ex rel. Sarasola v. Aetna Life Ins. Co., 319 F.3d 1292, 1293 (11th Cir.2003). The Medicare program is administered by the Centers for Medicare and Medicaid Services ("CMS"), previously known as the Health Care Financing Administration ("HCFA"), which is a component of the United States Department of Health and Human Services ("HHS").¹

The Medicare Act is comprised of two principal parts, Part A and Part B. See generally 42 U.S.C. §§ 1395c to 1395i-4 (Part A); and 1395j to 1395w-4 (Part B). Medicare Act Part A, at the center of this controversy, provides coverage to qualified beneficiaries for hospital and post-hospital services, including skilled nursing care. See id.; see also Sarasola, supra, 319 F.3d at 1293.

To participate in the Medicare program, and be reimbursed for providing nursing care to Medicare beneficiaries, a skilled nursing facility ("SNF") must enter into and file a "provider agreement" with the Secretary of HHS. See 42 U.S.C. § 1395cc(a); see also Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000); Sarasola, supra, 319 F.3d at 1293. The provider agreement, at bottom, acts as a contract with the federal government in which the provider agrees to furnish quality nursing services to Medicare beneficiaries in compliance with all the applicable federal and state regulations. To ensure that the SNF is capable of meeting its obligations under the contract, the provider must first go through a comprehensive certification process to confirm that it meets statutory standards vis-a-vis beneficiary health, safety, and care. See 42 U.S.C. §§ 1395i-3(a) to (d), 1395cc(b)(2); see also 42 C.F.R. §§ 489.10, 489.12 (setting forth the conditions for accepting and grounds for denying provider agreements); BP Care, Inc. v. Thompson, 337 F.Supp.2d 1021, 1023 (S.D.Ohio 2003), aff'd on other grounds, 398 F.3d 503 (6th Cir.2005). Once the initial certification is complete and the SNF is approved, the provider will be given a "provider number." See In re Raintree Healthcare Corp., 431 F.3d 685, 687 (9th Cir.2005). The provider will then be reimbursed directly for services provided to Medicare patients. Sarasota, supra, 319 F.3d at 1293.

The would-be owner of a provider agreement may avoid the initial certification process, which can be quite lengthy, if it is "assigned" an existing provider agreement. This may be done, -.!or example, if there is a "change of ownership," as defined in the regulations, see generally 42 C.F.R. § 489.18, and the new owner wants to avoid a break in service or lapse in coverage. See United States v. Vernon, Home Health, Inc., 21 F.3d 693 (5th Cir.), cert. denied, 513 U.S. 1015, 115 S.Ct. 575, 133 L.Ed.2d 491 (1994).² In such a situation, the new owner will assume the provider agreement, which is then "automatically ... assigned to the new owner." 42 C.F.R. § 489.18(c). Notably, the "assigned agreement is subject to a...1 applicable statutes and regulations and to the terms and conditions under which it was originally issued." See id. at § 489.18(d). If the new owner does not want to be subject to the terms and conditions of the already-existing provider agreement, it must refuse the assignment, go through the initial certification process, enter into a new provider agreement, and, if authorized, obtain a new provider number. See Vernon Home Health, Inc., supra, 21 F.3d at 696. Unless and until the certification is complete, the provider will be unable to participate in the Medicare program, thus disrupting Medicare coverage and payment for services. See id.; see also Raintree Healthcare Corp., supra, 431 F.3d at 687 ("When RainTree transferred operation of the nursing home facility to Suncrest, Suncrest accepted the automatic assignment of that provider number by operation of law. If Suncrest instead had chosen to apply for a new number, the nursing home could not have participated in the Medicare program while its application was pending."); BP Care, Inc., 337 F.Supp.2d at 1029 (new owner may avoid liability under existing agreement by entering into a new agreement; "[t]his would require a new application process, however, and the continuous operation of the nursing home during the change in ownership might be disturbed while the new operator awaited certification"). As the phrase implies, a "change of ownership" only means the owner of the provider agreement has changed; the actual provider itself remains the same.

After becoming certified, or assuming an already-existing provider agreement, the provider must comply with myriad statutory and regulatory requirements. See, e.g., Illinois Council, supra, 529 U.S. at 6, 120 S.Ct. 1084. State and federal agencies enforce these requirements via periodic inspections. Id. The inspectors will report any violations, or "deficiencies," discovered during the inspections and these deficiencies, in turn, may lead to the imposition of sanctions, or "remedies." Id. Congress has authorized a host of different remedies for deficiencies uncovered during survey inspections, and these sanctions may run the spectrum from a civil money penalty ("CMP") for less serious violations, to the termination of a provider agreement in more serious cases. See 42 U.S.C. § 1395i-3(h); see also Illinois Council, supra, 529 U.S. at 6-8, 120 S.Ct. 1084. After being cited by CMS, the provider must fix the deficiencies and return to "substantial compliance" under the Medicare regulations. To that end, the provider must file a plan of correction ("POC") for approval by CMS or the state surveying agency. 42 C.F.R. § 488.402(d). CMS is not, however, required to accept an unverified statement or claim as to when compliance is accomplished. See 42 C.F.R. § 488.440(h). Thus, upon submission of the POC, the surveying agency is ordinarily required to revisit the facility to determine if the facility is, in fact, compliant. See Mentor Nursing Centers, L.P. v. Shalala, 63 F.Supp.2d 1, 10 (D.D.C.1999) (noting that under HHS procedure, an onsite resurvey is "generally required" and "almost always necessary" after the POC is submitted); see also 42 C.F.R. § 488.110(l). If the facility believes it achieved substantial compliance during the gap of time between the date of the POC and the resurvey, and it wants to avoid liability for that interim period, it must submit "written credible evidence" that compliance was achieved before the resurvey. See 42 C.F.R. § 488.440(h).

Prior to imposing a CMP, such as the one at issue here, CMS must provide the facility with a written notice of the penalty. See 42 C.F.R. § 488.434(a). The notice must include, inter alia, a description of the alleged noncompliance, the statutory basis for the penalty, the amount and nature of the penalty, and instructions for responding to the notice letter, including a statement of the provider's right to a hearing before an Administrative Law Judge ("ALJ"). See id. If the provider...