Nursing Center of Buckingham and Hampden, Inc. v. Shalala, 91-5403
| Decision Date | 23 April 1993 |
| Docket Number | No. 91-5403,91-5403 |
| Citation | 990 F.2d 645 |
| Parties | , 40 Soc.Sec.Rep.Ser. 560, Medicare & Medicaid Guide P 41,388 NURSING CENTER OF BUCKINGHAM AND HAMPDEN, INC., Appellant, v. Donna E. SHALALA, Secretary of Health and Human Services. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Thomas H. Brock, Washington, DC, for appellant. Donald L. Bell, Washington, DC, also entered an appearance for appellant.
Robert L. Roth, Counsel, Dept. of Health and Human Services, with whom Stuart Gerson, Asst. Atty. Gen., Jay B. Stephens, U.S. Atty. at the time the brief was filed, and Henry R. Goldberg, Deputy Associate Gen. Counsel, HHS, Washington, DC, were on the brief, for appellee.
Before EDWARDS, SENTELLE and HENDERSON, Circuit Judges.
Opinion for the Court filed by Circuit Judge SENTELLE.
The Nursing Center of Buckingham and Hampden, Inc. ("NCBH"), appeals from an adverse decision of the District Court. The District Court affirmed the decision of the Secretary of Health and Human Services ("Secretary") that NCBH's 1984 agreement to purchase a nursing home in Pennsylvania was not an "enforceable agreement entered into before [July 18, 1984]," within the meaning of the Deficit Reduction Act of 1984. NCBH argues that the Secretary's interpretation of the statutory phrase as applied in this case is arbitrary and capricious. Because the Secretary considered the relevant factors and did not commit a clear error of judgment, we affirm.
Title XVIII of the Social Security Act of 1965, 42 U.S.C. § 1395 et seq. (1988), provides federal reimbursement for the "reasonable cost" qualified health care providers incur in furnishing covered services to Medicare beneficiaries. Id. § 1395f(1). To participate in the Medicare program, a provider enters into an agreement with the Secretary and nominates a "fiscal intermediary" to administer the reimbursement process. The provider files annual cost reports with the intermediary, which the intermediary reviews, under guidelines promulgated by the Secretary via the Health Care Financing Administration ("HCFA"), in order to determine whether to allow the reimbursement sought.
The Secretary has interpreted Title XVIII to allow reimbursement for capital-related costs, such as depreciation expense and interest expense on capital indebtedness. See 42 C.F.R. §§ 413.134(a), 413.153(a)(1) (1992). That interpretation allowed a purchaser of a health care provider to increase ("step-up") the basis in the acquired provider's depreciable assets to the full purchase price, regardless of what the seller's basis had been. The new owner was then able to recover reimbursement for the stepped-up basis and other capital-related costs, which increased the level of reimbursements the federal government had to provide. See H.R.CONF.REP. No 861, 98th Cong., 2d Sess. 1338 (1984), reprinted in 1984 U.S.C.C.A.N. 697, 2026.
In the 1970s and 1980s, there was a sharp increase in the number of sales of nursing homes participating in the Medicare program. In this changed market, Congress determined that the practice of stepping-up basis to purchase price was abusive and was draining the federal fisc, and decided to put an end to it. To that end, Congress enacted section 2314(c)(1) of the Deficit Reduction Act of 1984 ("DEFRA"), Pub.L. No. 98-369, § 2314(a), 98 Stat. 1079 (1984) (codified at 42 U.S.C. § 1395x(v)(1)(O) (1988)).
DEFRA provided that the purchaser of a Medicare provider shall be limited to a basis equal to "the lesser of the allowable acquisition cost of such asset to the owner of record as of July 18, 1984 (or, in the case of an asset not in existence as of such date, the first owner of record of the asset after such date), or the acquisition cost of such asset to the new owner." 42 U.S.C. § 1395x(v)(1)(O)(i). Concerned about problems of retroactivity and unfairness, Congress provided that § 1395x(v)(1)(O)(i) "shall not apply to changes of ownership of assets pursuant to an enforceable agreement entered into before the date of the enactment of [DEFRA]." Pub.L. No. 98-369, § 2314(c)(1), 98 Stat. 1079 (1984). Congress did not define the term "enforceable agreement."
Through the HCFA, the Secretary issued guidelines explaining to fiscal intermediaries how the enforceable-agreement exception should be applied. See MEDICARE INTERMEDIARY MANUAL: AUDIT PROCEDURES PUB. 13-4 § 4408.1 (Apr. 1987) (hereinafter, "MANUAL"). In relevant part, the guidelines provide as follows:
When reviewing a provider's claim to this exception, use the following guidelines to assist you in determining whether the transaction was governed by the terms of an enforceable agreement.
* The agreement must be in writing.
* It must be signed by authorized representatives of both buyer and seller and should be notarized to establish the effective date of the agreement.
* It should contain specific performance provisions which permit both buyer and seller to compel the other to complete the sale. Question agreements which do not contain penalty or forfeiture provisions, such as the loss of deposit or other monetary penalties....
* It should specify most or all of the conditions upon which the transaction will be consummated....
* Contingent agreements may also be considered enforceable. In general, the more contingencies upon which an agreement is based, the less enforceable it will be viewed. To be considered enforceable for purposes of DEFRA, a contingent agreement would, at a minimum, be one that is outside the power of either party to influence; or, the contingency is one that requires reasonable, business-like actions on the part of either party. Contingent agreements require careful scrutiny.
American Healthcare Corp. ("AHC"), its wholly owned subsidiary American Treatment Centers ("ATC"), and certain individuals entered into an "Agreement of Merger," on April 23, 1984, to purchase a nursing home in Pennsylvania. Professional Care Services ("PCS") owned the nursing home, which its wholly owned subsidiary, Buckingham Valley Convalescent Nursing Center, Inc. ("BVCNC"), operated as a participant in the Medicare program. BVCNC had purchased the nursing home in 1967 for $818,000 and therefore had a Medicare basis of $818,000 in the nursing home's depreciable assets. Under the Agreement, AHC and its fellow signatories agreed to purchase the nursing home for $3,230,000. Though signed, as stated, on April 23, 1984, the Agreement did not specify a precise effective date, stating only that
[A]s soon as practicable after (a) the requisite vote of the PCS stockholders as contemplated by Section 6.02 hereof, and (b) the satisfaction or waiver of each condition to the obligations of the parties hereunder, the parties will take such action as is required by law to make the Merger effective, including the filing of duly executed certificates of merger meeting the requirements of applicable state laws. The date and time of such filing are herein referred to as the "Effective Date."
Agreement of Merger § 1.02 (Apr. 23, 1984) (hereinafter, "Agreement ") (emphasis added).
The Agreement called for a series of complex corporate transactions to effectuate the purchase. The individual signatories were to form a corporation, Smith-Passerin ("SP"), to merge with PCS. PCS, the survivor of the merger, and BVCNC, its wholly owned subsidiary, would, in turn, merge with AHC and its wholly owned subsidiary, ATC. AHC, as the survivor of the last merger, would then create a wholly owned subsidiary, NCBH, appellant here, ultimately to take title to the nursing home.
The Agreement contained numerous "Conditions Precedent to the Merger," id. art. VIII, at 25, six of which are relevant here. First, before May 1, 1984, a specified investment banking firm had to issue a letter opining that the terms of the PCS-AHC merger "are fair, from a financial point of view, to the minority shareholders of PCS." Id. §§ 8.01(e), 8.02(e). Second, the agreement had to be approved by a majority of the common stockholders of PCS and AHC, id. §§ 8.01(d), 8.02(d), and two-thirds of AHC's preferred stockholders had to approve of the concomitant issuance of subordinated debt. Id. §§ 8.01(k), 8.02(l ). Third, the respective counsel to PCS and ATC had to provide certain legal opinions, and an accounting firm had to provide an "unqualified opinion ... that any taxable gain recognized by [the individual signatories] as a result of the Merger ... will be taxable at long-term capital gains rates." Id. § 8.01(c); see also id. § 8.02(c).
Fourth, the SP-PCS merger had to be completed, and "all filings or other requirements ... satisfied so as to make [it] a legal and binding merger under all applicable laws." Id. §§ 8.01(j), 8.02(k). Fifth, regulatory and other approval had to have been obtained for the PCS-AHC merger. Id. §§ 8.01(f), 8.02(f). Finally, AHC had to elect one of the individual signatories to its Board of Directors and execute employment contracts with all of them. Id. §§ 8.01(m)-(n), 8.02(j).
In addition, the Agreement expressly gave AHC and PCS the right to terminate the Agreement in two circumstances. First, they had the right unilaterally to terminate the contract after December 31, 1984, provided, inter alia, that the party wishing to terminate the agreement was in compliance with it. Id. § 10.01(b). Second, AHC and PCS had the right to terminate the contract by mutual consent at any time. Id. § 10.01(a). Upon invocation of either ground of termination, the termination clause provided, "this Agreement shall become void and have no effect, without any liability on the part of any party." Id. § 10.02.
The mergers occurred as contemplated; AHC created appellant NCBH; and on September 6, 1984, the transfer was consummated. Only then did appellant become the legal owner of the nursing home in...
To continue reading
Request your trial
-
Tenet HealthSystems HealthCorp. v. Thompson, 99-5064
...HHS will reimburse and the smaller the gain or greater the loss it will calculate upon sale. See Nursing Ctr. of Buckingham & Hampden, Inc. v. Shalala, 990 F.2d 645, 646 (D.C. Cir. 1993). The Medicare regulations permit a provider that purchased a hospital after July 31, 1970 and before Jul......
-
Landmark Hosp. of Salt Lake City v. Azar, Civil Case No. 1:19-01227 (TNM)
...reviews the Board's final decisions under the APA's standards of review. 42 U.S.C. § 1395oo(f)(1) ; Nursing Ctr. of Buckingham & Hampden, Inc. v. Shalala , 990 F.2d 645, 650 (D.C. Cir. 1993). Normally, a court will grant summary judgment when there "is no genuine dispute as to any material ......
-
AMISUB, Inc., (St. Joseph Hosp.) v. Shalala
...and fairness to parties that had negotiated and entered into binding agreements before the effective date of DEFRA. See Nursing Center, 990 F.2d at 647. The material difference between the Agreement in Principle and the definitive agreement demonstrates that negotiations were ongoing and th......