Lake County Rehabilitation Center, Inc. v. Shalala

• Decision Date: 10 June 1994
• Docket Number: Civ. No. 2:94-CV-120-RL.
• Citation: 854 F. Supp. 1329
• Parties: LAKE COUNTY REHABILITATION CENTER, INC., Plaintiff, v. Donna SHALALA, Secretary, United States Department of Health & Human Services, et al., Defendants.
• Court: U.S. District Court — Northern District of Indiana

854 F. Supp. 1329

LAKE COUNTY REHABILITATION CENTER, INC., Plaintiff, v. Donna SHALALA, Secretary, United States Department of Health & Human Services, et al., Defendants.

Civ. No. 2:94-CV-120-RL.

United States District Court, N.D. Indiana, Hammond Division.

June 10, 1994.

William Davis, Trueblood and Davis, Gary, IN, J. Michael Grubbs, Anthony W. Mommer, Krieg Devault Alexander & Capehart, Indianapolis, IN, for plaintiff.

Asst. U.S. Atty. Orest Szewciw, Dyer, IN, Rebecca Brown and Terry G. Duga, Indiana Atty. General's Office, Indianapolis, IN, Alan S. Dorn, Asst. Regional Counsel, U.S. Dept. of Health and Human Services, Chicago, IL, for defendants.

ORDER

LOZANO, District Judge.

This matter is before the Court on Plaintiff's Motion for Preliminary Injunction and Defendants' Motions to Dismiss. After due consideration of the Motions, this Court hereby DENIES Plaintiff's Motion for Preliminary Injunction and GRANTS Defendants' Motions to Dismiss.¹

BACKGROUND

Plaintiff, Lake County Rehabilitation Center, Inc. ("LCRC") is a not-for-profit corporation in East Chicago, Indiana, operating as a comprehensive care nursing facility. LCRC is a 122 bed facility which was certified to participate in the Medicare program as a "skilled nursing facility" and in Indiana's Medicaid program as a "nursing facility." Currently, it houses 113 Medicaid residents and one Medicare resident. Defendant, Donna Shalala, is the Secretary ("Secretary") of the United States Department of Health and Human Services ("HHS"), the federal agency which is responsible for the administration of the Medicare program under Title XVIII of the Social Security Act and the Medicaid program under Title XIX of the Social Security Act. Defendant, William Pfeifer, is Branch Chief, Survey and Certification Operations Branch of the Division of Health Standards and Quality of Health Care Financing Administration, Region V ("HCFA"), the federal agency which supervises the implementation of the Medicare and Medicaid programs in Indiana. Defendant, James Hmurovich, is the Director of the Indiana Family and Social Services Administration ("IFSSA"), the state agency responsible for administration of the Medicaid program in Indiana. Defendant, John Bailey, is the Health Commissioner of the Indiana State Department of Health ("ISDH"), the state agency designated to assist HCFA and IFSSA by surveying nursing facilities to determine whether the facilities meet the requirements for Medicare and Medicaid programs.

From January 10 to January 26, 1994, ISDH conducted its annual survey of LCRC. On March 16, 1994, ISDH informed LCRC of the following deficiencies: Resident Assessment (42 C.F.R. § 483.20) and Quality of Care (42 C.F.R. § 483.25). ISDH indicated that LCRC's Medicaid participation would be terminated April 26, 1994, unless LCRC requested further proceedings on the matter and demonstrated correction of the deficiencies. Further, ISDH specified that it would be recommending to HCFA that LCRC's approval as a Medicare provider under Title XVIII be terminated.

On March 31, 1994, LCRC submitted a request for reconsideration of ISDH's findings of noncompliance. On April 5, 1994, HCFA notified LCRC of its determination, based on the findings of ISDH's surveys, that the deficiencies at LCRC "limit the capacity of the facility to render adequate care and insure the health and safety of the residents." Thus, HCFA informed LCRC that it was terminating LCRC's Medicare provider agreement effective April 26, 1994. HCFA further notified LCRC that it had advised IFSSA that LCRC no longer was eligible to participate in the Medicaid program as the requirements for the two programs are uniform. See letter from William Pfeifer to Joanne Johnson of April 5, 1994, Plaintiffs Complaint, Ex. D. HCFA indicated that another survey could be authorized if LCRC made a credible allegation of compliance; it also informed LCRC that it could request an administrative hearing.

On April 13, 1994, LCRC requested that HCFA authorize another survey prior to April 26, 1994. It also requested an administrative hearing regarding the termination of its Medicare provider agreement. A survey of LCRC was conducted from April 18-26, 1994. ISDH still found LCRC noncompliant and presented LCRC with a statement of deficiencies requiring correction.

On April 26, 1994, LCRC requested an administrative review of HCFA's official determination regarding termination of LCRC's Medicare and Medicaid certification. On April 29, 1994, ISDH notified LCRC that its Medicaid certification was terminated effective April 26, 1994. Also, on April 29, 1994, IFSSA notified LCRC that its Medicaid provider agreement was terminated effective April 26, 1994.

On May 2, 1994, LCRC sought a temporary restraining order from this Court in order to prevent the immediate termination of Medicare and Medicaid payments. In the Complaint, Plaintiff asserts that termination of its participation in the Medicaid and Medicare programs without a determination of immediate jeopardy to its residents exceeds the authority set forth in the Social Security Act and violates due process of law. Moreover, Plaintiff asserts in the Complaint that it will be forced to close the facility if its Medicaid and Medicare payments are terminated. This Court granted the temporary restraining order with the condition that LCRC not accept any new patients pending these proceedings. The parties voluntarily agreed to extend the temporary restraining order until June 10, 1994. On June 2, 1994, a hearing was held to determine whether a preliminary injunction should be ordered in this matter.

STATUTORY AND REGULATORY BACKGROUND

The dispute in this matter arises regarding the Secretary's authority to terminate a nursing facility's participation in the Medicare and Medicaid programs when there has been a finding of noncompliance with minimum requirements for participation but no finding that the deficiencies immediately jeopardize the health or safety of the facility's residents. As various statutory provisions are relevant to this dispute, it may be helpful to set forth the pertinent statutory provisions and to explain the general framework of the Medicare and Medicaid programs in order to provide a proper backdrop for understanding the parties' arguments.

Medicare is a federally administered program that provides for in-patient hospital care and related post-hospital nursing home health services to aged or disabled individuals who are eligible for Social Security benefits under Title II of the Social Security Act. 42 U.S.C.A. § 426, § 1395c (West 1992). Although HHS administers the Medicare program, it has delegated the function of determining compliance with minimum health and safety standards to HCFA. See Medicare/Medicaid State Operations Manual, U.S. Department of Health and Human Services, HCFA-Pub. 7, § 1000 (1989) ("Medicare/Medicaid Manual"). HCFA then contracts with state health agencies, such as ISDH in Indiana, to help determine whether skilled nursing facilities meet minimum standards under Medicare by conducting on-site surveys of the premises. 42 U.S.C.A. § 1395aa (West 1992); 42 C.F.R. § 488.10 (1992); Medicare/Medicaid Manual at § 1002. The state agency then forwards its survey findings and recommendation to HCFA. 42 U.S.C.A. § 1395aa (West 1992); 42 C.F.R. § 488.12 (1992).

Medicaid is a state administered program providing payment for a range of medical care services to individuals whose income and resources are below certain limits. 42 U.S.C.A. § 1396d(a) (West Supp.1994). The federal government reimburses each participating state for a portion of its Medicaid expenditures. 42 U.S.C.A. § 1396b (West Supp.1994). In Indiana, IFSSA administers the state's Medicaid program and, similar to HHS with Medicare, has ISDH help determine whether a nursing facility complies with Medicaid requirements by conducting on-site surveys.

In order to qualify to receive payments under Medicare and/or Medicaid, a nursing facility periodically must be certified as meeting certain minimum requirements. 42 U.S.C.A. § 1395i-3(a)(3), (b)-(d) (West Supp. 1994); 42 U.S.C.A. § 1396r(a)(3), (b)-(d) (West Supp.1994); 42 C.F.R. § 483.1 et seq. (1992). A facility that is certified then enters into a provider agreement with the federal government and/or the state. 42 U.S.C.A. § 1395cc(a) (West 1992); 42 U.S.C.A. § 1396a(a)(27) (West Supp.1994). If it is determined, through later surveys, that a previously certified facility no longer meets participation requirements, various sanctions may be imposed. 42 U.S.C.A. § 1395i-3(g), (h) (West Supp.1994); 42 U.S.C.A. § 1395cc(b)(2) (West 1992); 42 U.S.C.A. § 1396a(a)(33)(B) (West Supp.1994); 42 U.S.C.A. § 1396r(h) (West Supp.1994).

Prior to 1987, when HCFA or the state determined that a facility was out of compliance with Medicare or Medicaid participation requirements but the noncompliance did not pose an immediate and serious threat to the health or safety of residents, the only remedies available were either termination of the facility's provider agreement or denial of payment for new admissions. 57 Fed.Reg. 39,278, 39,279 (1992). However, the Omnibus Budget Reconciliation Act of 1987, which amended the Social Security Act with respect to the Medicare and Medicaid enforcement process, expanded the choice of remedies available to HCFA and the state. Currently, the enforcement provision of Medicare, pertinent to this case, reads as follows:

(2) Secretarial authority

(A) In general

With respect to any skilled nursing facility in a State, if the Secretary finds, or pursuant to a recommendation of the State under paragraph (1) finds, that a skilled nursing facility no longer meets a requirement of subsection (b), (c), (d), or (e) of this section, and further finds that the facility's deficiencies—

(i) immediately jeopardize the health or safety of its residents, the Secretary shall take immediate action to remove the

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