S.C. Management, Inc. v. Leavitt
| Decision Date | 09 November 2005 |
| Docket Number | No. 1:05CV12 CDP.,1:05CV12 CDP. |
| Citation | 413 F.Supp.2d 1041 |
| Parties | S.C. MANAGEMENT, INC., formerly d/b/a Twin Rivers Regional Medical Center, Plaintiff, v. Mike LEAVITT, Secretary of the United States Department of Health and Human Services, Defendant. |
| Court | U.S. District Court — Eastern District of Missouri |
James F. Bennett, Bryan Cave LLP, Megan S. Heinsz, Bryan Cave LLP, St. Louis, MO, Jordan B. Keville, Hooper Lundy & Bookman, Inc., Jon P. Neustadter, Hooper Lundy & Bookman, Inc., Los Angeles, CA, for Plaintiff.
Andrew J. Lay, Office of U.S. Attorney, St. Louis, MO, for Defendant.
Plaintiff S.C. Management (Twin Rivers) seeks judicial review of a decision by the Secretary of Health and Human Services, denying it a new provider exemption from routine cost limits for the skilled nursing facility it opened in 1992. Both parties now move for summary judgment. Because the Secretary's decision ignored the plain language and purpose behind the new provider exemption, I will reverse the Secretary's decision and remand this case for further proceedings consistent with this opinion.
Congress enacted the Medicare program to provide federally funded health insurance to aged and certain disabled persons. 42 U.S.C. § 1395, et seq. Among its many provisions, Medicare provides for the reimbursement of "reasonable costs" of skilled nursing or rehabilitative care for Medicare beneficiaries to Medicare-certified facilities. 42 U.S.C. § 1395f(b)(1). This case concerns two types of Medicare-certified facilities that administer skilled nursing and rehabilitative care: (1) skilled nursing facilities (SNF), and (2) swing-bed hospitals.
A SNF is a "institution (or distinct part of an institution) which is primarily engaged in providing to residents (A) skilled nursing care and related services for residents who require medical or nursing care, or (B) rehabilitation services for the rehabilitation of injured, disabled, or sick persons." 42 U.S.C. § 1395i-3(a)(1). A SNF may be freestanding, or it may be part of a hospital. See 42 U.S.C. § 1395yy(a) ().
A swing-bed hospital is a hospital that is certified by Medicare to use its hospital beds to provide both routine inpatient hospital services as well as SNF services. 42 U.S.C. § 1395tt(a)(1); 42 C.F.R. § 413.114. The name derives from the fact that the swing-bed certification permits a hospital to "swing" its hospital beds between providing routine inpatient hospital care and furnishing skilled nursing care. This certification is limited to smaller hospitals (more than 49 beds, but less than 100 beds), and is designed to grant rural hospitals the flexibility to provide SNF services where a specific geographic region may lack sufficient SNF beds. 42 U.S.C. § 1395tt(c); 42 C.F.R. § 413.114(a)(1).
Although both types of facilities have similar reimbursement schemes under Medicare, this dispute only concerns the SNF scheme. Medicare provides that a certified SNF shall be reimbursed for the reasonable cost of providing services to Medicare beneficiaries, subject to several limitations. 42 U.S.C. §§ 1395f(b)(1), 1395x(v). Recognizing that a pure cost-based reimbursement scheme would reward inefficient providers with larger reimbursements, Congress granted the Secretary the discretion to limit these reimbursements. 42 U.S.C. § 1395yy(c). With this discretion, the Secretary has created routine cost limits (RCLs), which establish caps on SNF reimbursements. 42 C.F.R. § 413.30. See also Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 404-06, 113 S.Ct. 2151, 124 L.Ed.2d 368 (1993) ().
RCLs, however, do not apply to all SNFs. In 42 C.F.R. 413.30(e)(1996), the Secretary created an exemption from RCLs for new providers of SNF services. The Secretary designed the new provider exemption to "allow a[new] provider to recoup the higher costs normally resulting from low occupancy rates and start-up costs during the time it takes to build its patient population." Paragon Health Network v. Thompson, 251 F.3d 1141, 1149 (7th Cir.2001); 42 C.F.R. 413.30(e). The regulation provides:
Exemptions from the limits imposed under this section may be granted to a new provider. A new provider is a provider of inpatient services that has operated as the type of provider (or the equivalent) for which it is certified for Medicare, under present and previous ownership, for less than three full years. An exemption granted under this paragraph expires at the end of the provider's first cost reporting period beginning at least two years after the provider accepts its first patient.
As one court explained, this language indicates that St. Elizabeth's Medical Center of Boston, Inc. v. Thompson, 396 F.3d 1228, 1231 (D.C.Cir.2005) (emphasis in original). This case concerns Twin Rivers' eligibility for a new provider exemption for its 1993 and 1994 cost reporting years.
Twin Rivers is a short-term acute care hospital located in Kennett, Missouri. Twin Rivers became a Medicare-certified hospital on September 1, 1966. In 1989, Twin Rivers entered into an agreement with the Secretary certifying the institution as a swing-bed hospital. This certification applied to all of Twin Rivers' 97 hospital beds. Twin Rivers operated its swing-bed program from September 28, 1989 until the hospital voluntarily terminated the program on May 1, 1991.
Fifteen months later, on August 22, 1992, Twin Rivers opened a newly constructed hospital-based SNF. The Twin Rivers SNF became Medicare-certified three days later. On February 23, 1994, Twin Rivers formally requested a new provider exemption under 42 C.F.R. § 413.30(e) for its new SNF for the fiscal years ending December 31, 1992, 1993, 1994, and 1995. In accordance with Medicare's reimbursement procedure, this initial request was reviewed by a Medicare Fiscal Intermediary. The Fiscal Intermediary recommended to the administrator of Medicare reimbursements, the Health Care Financing Administration (HCFA), that it approve Twin Rivers' request.
HCFA denied Twin River's new provider exemption request on June 15, 1994. HCFA reasoned that "the type of skilled care rendered to a patient under a Medicare swing bed agreement is equivalent to the level of care provided in a SNF." HCFA concluded that Twin Rivers had effectively operated as a SNF or its equivalent since it accepted its first swing-bed patient on September 28, 1989, thus disqualifying the hospital from eligibility for the new provider exemption.
Twin Rivers timely appealed this decision to the Provider Reimbursement Review Board (PRRB). The PRRB conducted a live hearing on November 18, 2003. The Centers for Medicare and Medicaid Services (CMS), formerly HCFA, slightly altered its position before the PRRB and agreed with Twin Rivers that the hospital should be entitled for a new provider exemption through the cost reporting period ending December 31, 1992.2 The parties still disputed whether Twin Rivers was entitled to the new provider exemption for the cost reporting periods ending December 31, 1993 and 1994. According to the Fiscal Intermediary's brief in support of the Twin Rivers' appeal, the additional reimbursement Twin Rivers sought equaled $810,705.
The PRRB upheld the Secretary's determination that Twin Rivers was not entitled to the exemption. One member of the PRRB dissented. The PRRB majority concluded that because the Twin Rivers swing-bed hospital provided some SNF services, and those services were first provided on September 28, 1989, Twin Rivers' new provider exemption ended on December 31, 1992. Thus, Twin Rivers was not entitled to an exemption for the 1993 and 1994 cost reporting periods.
The CMS Administrator declined to review the PRRB's decision, making the PRRB decision the final agency decision. Pursuant to 42 U.S.C. § 1395oo(f), Twin Rivers sought judicial review of the PRRB's decision by filing this lawsuit on January 14, 2005.
Jurisdiction over this action is based exclusively on 42 U.S.C. § 1395oo(f)(1), which provides that the applicable provisions of the Administrative Procedure Act (APA), 5 U.S.C. § 701, et seq., shall govern the dispute. Under the APA, a court must hold the Secretary's action unlawful and set it aside if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" or "unsupported by substantial evidence . . . reviewed on the record of an agency hearing provided by statute." 5 U.S.C. § 706(2)(A), (E).
A court must defer to an agency's interpretation of its own regulations unless an "alternative reading is compelled by the regulation's plain language or by other indications of the Secretary's intent at the time of the regulation's promulgation." Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) (quoting Gardebring v. Jenkins, 485 U.S. 415, 430, 108 S.Ct. 1306, 99 L.Ed.2d 515 (1988)). If a regulation is plain on its face, a court shall give no deference to an agency's attempt at interpretation. St. Luke's Methodist Hosp. v. Thompson, 315 F.3d 984, 987 (8th Cir. 2003). Additionally, "[i]f the [agency's] interpretation of its own regulation is unreasonable, [a court] is free to reject it." Advanta USA, Inc. v. Chao, 350 F.3d 726, 728-31 (8th Cir.2003).
This dispute presents the question of whether a facility that has previously provided limited or...
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