Eagle Healthcare, Inc. v. Sebelius

• Decision Date: 10 October 2013
• Docket Number: (BJR), Case No. 1:09–cv–02118,(BJR), Case No. 1:09–cv–00292,(BJR), Case No. 1:09–cv–02119 (BJR),(BJR), Case No. 1:09–cv–00293,Case No. 1:09–cv–00291
• Citation: 969 F.Supp.2d 38
• Parties: Eagle Healthcare, Inc. and Hope Care, Inc., Plaintiffs, v. Kathleen Sebelius, Secretary Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

969 F.Supp.2d 38

Eagle Healthcare, Inc. and Hope Care, Inc., Plaintiffs,

v.Kathleen Sebelius, Secretary Department of Health and Human Services, Defendant.

Case No. 1:09–cv–00291 (BJR), Case No. 1:09–cv–00292 (BJR), Case No. 1:09–cv–00293 (BJR), Case No. 1:09–cv–02118 (BJR), Case No. 1:09–cv–02119 (BJR)

United States District Court, District of Columbia.

Filed October 10, 2013

James P. Holloway, Susan Ann Turner, Ober Kaler Grimes & Shriver, PC, Washington, DC, for Plaintiffs.

Mitchell P. Zeff, Jeremy S. Simon, U.S. Attorney's Office, Washington, DC, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS, OR IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT

Barbara Jacobs Rothstein, U.S. District Court Judge

I. INTRODUCTION

These five consolidated cases arise under the Medicare provisions of the Social Security Act. In each case, Plaintiffs, Eagle Healthcare, Inc. (“Eagle”) and/or Hope Care, Inc. (“Hope”) (collectively, the “Plaintiffs”), filed substantially identical Complaints whereby they challenge the Centers of Medicare & Medicaid Services' (“CMS”) authority to recoup alleged Medicare overpayments from the Plaintiffs. Dkt. No. 1.¹ The Complaints contain three counts. In Counts I and II, Plaintiffs challenge the Medicare fiscal intermediary's (“FI”) overpayment determinations. In Count III, Plaintiffs challenge the Provider Reimbursement Review Board's (the “PRRB”) determination that it lacks jurisdiction to review Plaintiffs' challenge to the FI's overpayment determinations.

Currently before the Court is Defendant's Motion to Dismiss, or in the Alternative, for Summary Judgment filed by Kathleen Sebelius, Secretary of the Department of Health and Human Services (the “Secretary” or “Defendant”) (Dkt. No. 20 “Mot.”). The Secretary moves to dismiss Counts I and II, arguing that the FI's overpayment determinations do not constitute final agency decisions within the meaning of the Administrative Procedures Act (“APA”), and as such, are not subject to judicial review. The Secretary also moves to dismiss Count III, arguing that the PRRB's jurisdictional determination is correct as a matter of law, and therefore, must be affirmed by this Court.

Because this Court determines that the FI's overpayment determinations are not final agency decisions, and thereby not subject to judicial review, Counts I and II are DISMISSED. In addition, because this Court's review of the Secretary's final decision is limited to the PRRB's jurisdictional determination, and this Court hereby affirms the jurisdictional determination, Count III is DISMISSED. The reasoning for the Court's ruling is set forth below.²

II. REGULATORY BACKGROUND

These cases arise under Title XVIII of the Social Security Act, which establishes a program of health insurance for the aged and disabled, commonly known as “Medicare.” 42 U.S.C. §§ 1395–1395iii. In general, the federal government, through the Medicare program, reimburses Medicare-certified healthcare facilities for services provided to Medicare beneficiaries. In order to be Medicare-certified, a healthcare facility must obtain a Health Insurance Benefit Agreement (commonly referred to as a “Provider Agreement”) from the Centers of Medicare & Medicaid Services (“CMS”).³42 U.S.C. § 1395cc. The certification process enables CMS to ensure that Medicare beneficiaries are served by qualified healthcare providers. 42 C.F.R., Part 483.

A Provider Agreement may be transferred if there is a “change of ownership” of a Medicare-certified healthcare facility. 42 C.F.R. § 489.18. When CMS determines that there has been a valid change of ownership, the existing Provider Agreement is automatically assigned to the new owner, effective on the date of transfer, unless the new owner rejects that assignment. 42 C.F.R. § 489.18(c). An assigned Provider Agreement is subject to all of the terms and conditions under which it was originally issued. 42 C.F.R. § 489.18(d); United States v. Vernon Home Health, Inc., 21 F.3d 693, 696 (5th Cir.), cert. denied,513 U.S. 1015, 115 S.Ct. 575, 130 L.Ed.2d 491 (1994).

The assignee of a Provider Agreement is not required to prove that it meets the initial Medicare certification requirements. Vernon, 21 F.3d at 696. This is because the new owner is merely stepping into the shoes of the prior owner—the healthcare facility remains the same. Id.; 42 C.F.R. § 489.18(d). If, however, the new owner rejects the assignment, the prior owner's Provider Agreement terminates and the new owner must seek to enter the Medicare program as a new applicant. 42 C.F.R. § 489.10.

As discussed above, the Federal government, through Medicare, pays Medicare-certified healthcare facilities for services rendered to Medicare beneficiaries. Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87, 91, 115 S.Ct. 1232, 131 L.Ed.2d 106 (1995); 42 U.S.C. §§ 1395g and 1395h. These payments are made through fiscal intermediaries (“FI”) that serve under contract with CMS. § 1395h. At the end of each fiscal year, the healthcare facility is required to submit a cost report to the FI that sets forth the Medicare costs the facility incurred during that year. 42 C.F.R. §§ 413.20; 413.24(f). The FI audits the cost report and issues a Notice of Program Reimbursement (“NPR”), indicating the amount of Medicare reimbursement due to the facility for that fiscal year. 42 C.F.R. §§ 413.60, 405.1803.

For the years at issue in these cases, the amount of Medicare reimbursement a healthcare facility received was based primarily on the facility's actual “reasonable costs” incurred in serving Medicare beneficiaries. Guernsey Mem'l Hosp., 514 U.S. at 91, 115 S.Ct. 1232 (citing 42 U.S.C. § 1395x(v)(1)(A)). Because actual reasonable costs cannot be determined until after the close of the fiscal year, the healthcare facility's FI makes estimated payments to the facility at least once a month. 42 U.S.C. § 1395g(a). The FI is required to adjust these payments when necessary so that the payments most closely approximate the amount of reimbursement actually due to the facility. Id.; 42 C.F.R. § 413.64(b).

After a healthcare facility's cost report is audited by the FI, the interim payments made to the facility throughout the year are offset against the total amount that the FI determines is due based on the facility's actual reasonable costs for that fiscal year. 42 U.S.C. §§ 1395g(a); 1395x(v)(1)(A)(ii). If the NPR shows that the total of the interim payments received throughout the year was less than the amount determined to be due after audit, the Medicare program owes the facility the difference; if the NPR shows that the total of the interim payments received throughout the year was more than the amount determined to be due after audit, the facility owes the difference to the Medicare program. Id.

A healthcare facility may challenge the FI's NPR determination by filing an administrative appeal with the Provider Reimbursement Review Board (“PRRB”). 42 U.S.C. § 1395oo(a)(1). Decisions of the PRRB may be reviewed by the Administrator of CMS. The final decision of the CMS Administrator, or the PRRB's decision (if not reviewed by CMS) is subject to judicial review and may be set aside under the terms of the Administrative Procedure Act (“APA”). Richney Manor, Inc. v. Schweiker, 684 F.2d 130, 133–34 (D.C.Cir.1982).

III. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Plaintiffs own and operate five Medicare-certified skilled nursing facilities located in Washington State. (Dkt. No. 1 “Comp.” at ¶ 2). The nursing facilities were at one time owned by Sun Healthcare Group, Inc. (“Sun”). Id. at ¶ 18. In August, 1999, Sun and Plaintiffs entered into transfer agreements, pursuant to which the operational and financial responsibility for the five nursing facilities was transferred from Sun to Plaintiffs. Id at ¶ 19. Thereafter, on October 14, 1999, Sun and approximately 185 of Sun's subsidiaries filed for bankruptcy protection in the District of Delaware. Id. at ¶ 20; Mot. at 10. On May 18, 2000, CMS processed Plaintiffs' change of ownership application and assigned Sun's Medicare Provider Agreements for the five nursing facilities to Plaintiffs with a retroactive effective date of December 1, 1999. Comp. at ¶ 22.

At some point after Sun filed for bankruptcy protection, CMS determined that Sun, while it operated the nursing facilities, was overpaid by its FI for certain fiscal years, and underpaid for other fiscal years. Comp.; Ex. 1 at 13. Sun and CMS decided to “avoid the administrative and litigation expenses associated with resolving the amounts due between Sun and [CMS] arising from the routine administration of the Medicare program ... and thus agree[d] to liquidate and settle such amounts.” Id. at 14. To that end, on or about February 5, 2002, CMS and Sun (as well as other third parties unrelated to this action) entered into a settlement agreement whereby “Sun and CMS [ ] mutually release[d] each other from any Medicare claims ... relating to the Sun Entities' participation in the Medicare program through October 13, 1999” (the “Settlement Agreement”). Id. at 19. The Settlement Agreement also states that “such release of claims shall not be construed to release CMS' rights, if any, against transferees of such provider agreements.” Id. at 16. The Settlement Agreement further states that it shall be “binding on all successors, transferees, heirs, and assigns of the Parties” and is intended for the “benefit of the Parties only. The Parties do not release any claims against any other person or entity, except to the extent provided for in [provisions unrelated to this dispute].” Id. at 40 and 44.

On January 11, 2002, the above Settlement Agreement was presented to U.S. Bankruptcy Judge Mary F. Walrath for approval pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure. Dkt. No. 22; Ex. 25. Judge Walrath granted the requested approval on February 8, 2002, and Sun and its Entities were authorized to implement the Settlement Agreement. Id. at 2. In...