South Shore Hosp. v. Thompson, Civ.A. 99-11611-JLT.
| Decision Date | 03 January 2002 |
| Docket Number | No. Civ.A. 99-11611-JLT.,Civ.A. 99-11611-JLT. |
| Citation | 204 F.Supp.2d 76 |
| Parties | SOUTH SHORE HOSPITAL d/b/a South Shore Hospital Transitional Care Center Plaintiff, v. Tommy G. THOMPSON, Secretary of the U.S. Department of Health and Human Services Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Peter R. Leone, McDermott, Will & Emery, Boston, MA, for plaintiff.
Thomas E. Kanwit, U.S. Attorney's office, Boston, MA, for defendant.
Plaintiff South Shore Hospital Transitional Care Center ("South Shore"), is a 25-bed skilled nursing facility ("SNF"), which opened in January 1995. South Shore provides skilled nursing care to inpatients and those needing such care for short term recovery periods.
South Shore brought this suit against the Secretary of the U.S. Department of Health and Human Services ("Secretary") to review a decision of the Medicare Provider Reimbursement Review Board ("Board"). That decision denied South Shore "new provider" status, making it ineligible for reimbursements for its start-up costs.
The Medicare Act establishes a system of health insurance for the aged and disabled.1 Eligible beneficiaries are entitled to have payment made by Medicare on their behalf for services provided by a participating SNF.2 In order to be approved for participation in the Medicare program as a SNF, a provider must meet the requirements of 42 U.S.C. § 1395i-3. In particular, it must be:
an institution (or a distinct part of an institution) which—(1) 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, and is not primarily for the care and treatment of mental diseases.3
Under the Medicare Act and regulations, the Secretary is generally required to reimburse providers for Medicare's share of the total cost of Provider operations, so that non-Medicare patients are not required to bear the costs related to services furnished to Medicare patients.4
The Secretary, via the Health Care Financing Administration ("HCFA"), reimburses SNFs for "reasonable costs" incurred in providing SNF services to eligible Medicare beneficiaries, subject to "routine cost limits."5 New providers are permitted to request an exemption from the "routine cost limits" to assist the new facility with the costs associated with the initial development of the facility.6
The HCFA has defined a new SNF or provider as: "a provider of inpatient services that has operated as the type of SNF (or the equivalent) for which it is certified for Medicare, under present and previous ownership, for less than three full years."7 The three year period is referred to as the "three year look back period."8
In Massachusetts, health care facilities are not only regulated by Federal law, but also by Massachusetts law. Massachusetts health planning law limits the total number of long-term care beds available in the Commonwealth and requires facilities to obtain a Determination of Need ("DON") prior to beginning operation of an SNF.9
In the instant case, in order to comply with Massachusetts law, South Shore needed to acquire a DON from another facility in the same Health Service Area to open a SNF.10 South Shore decided to purchase the DON rights of Prospect Hill, a formerly certified Medicaid Nursing Facility ("NF") located in the same Health Service Area.11 Prospect Hill was a minimal care, 40-bed level III12 nursing facility that had been in receivership since March 1993 and ultimately went out of business in December 1993.13 South Shore purchased the DON rights to 40 beds once owned by Prospect Hill from Prospect Hill's receiver on January 24, 1994.14 South Shore acquired only the intangible DON rights from Prospect Hill.15 No tangible assets were purchased and no patients were transferred to South Shore.16
On May 17, 1995, South Shore requested that the Health Care Financing Administration ("HCFA")17 grant it a new provider exemption,18 regarding the routine cost limits.19 The HCFA denied the request and South Shore appealed that decision to the Board. A hearing before the Board was held on July 10, 1998.20 The Board affirmed the denial of the new provider exemption, with one member dissenting.21
The Secretary declined to review the Board's findings, thus making the decision final and subject to judicial review pursuant to the Administrative Procedure Act ("APA"), as of June 24, 1999.22 Pursuant to 42 U.S.C. § 1395oo(f)(1), Provider had 60 days from the day the decision became final to file a civil action in United States District court in the District in which the provider of services (South Shore) is located. South Shore filed its complaint in a timely manner, pursuant to the statute.
Secretary and South Shore both moved for summary judgment. Both motions are currently before this court.
South Shore moves for summary judgment on the basis that the Board's finding of a change of ownership is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law."23 The Secretary argues that he is entitled to summary judgment because administrative decisions are entitled to great deference by a district court.
Summary judgment is appropriate where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.24 The moving party must make a showing that there is no material fact which requires resolution at trial; upon this showing the burden shifts to the non-moving party to show that there is a triable issue of fact.25 26 "Cross-motions for summary judgment do not alter the basic Rule 56 standard, but rather simply require [courts] to determine whether either of the parties deserves judgment as a matter of law on facts that are not disputed."27
Pursuant to 42 U.S.C. § 1395oo(f) the final decision of the Secretary is subject to judicial review in federal district court. As noted above, this decision became final on June 24, 1999.
Judicial review of final agency decisions on Medicare provider reimbursement disputes is governed by 42 U.S.C. 1395oo(f), which incorporates the Administrative Procedure Act ("APA").28 The APA requires that a court set aside an agency action, finding or conclusion only if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law ... [or] is unsupported by substantial evidence. . . ."29 When a district court reviews agency action under the "arbitrary and capricious" standard, it must "determine whether the decision was based on a consideration of the relevant factors and whether the agency made a clear error of judgment."30 The Supreme Court has said that "[courts] must defer to the Secretary's interpretation 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."31 But "[w]hile this is a highly deferential standard of review, it is not a rubber stamp."32 This court reviews the Board's reasoning with such discretion.
As has already been pointed out, 42 C.F.R. § 413.30(e) provides exemptions for new SNFs that have "operated as the type of SNF (or the equivalent) for which it is certified for Medicare, under present and previous ownership for less than 3 full years."33 With one member dissenting, the Board denied South Shore the reimbursement. Using the HCFA Pub 15-1 § 1500.734 ("Provider Reimbursement Manual") for guidance, the Board found that South Shore's purchase of the DON rights from the defunct Prospect Hill was a "purchase of assets constituting a change in ownership (`CHOW')."35 The Provider Reimbursement Manual defines "Other Disposition of Assets" as a type of Change in Ownership:
Disposition of all or some portion of a provider's facility or assets (used to render patient care) through sale, scrapping, involuntary conversion, demolition or abandonment if the disposition affects licensure or certification of the provider entity.36
To further support its finding, the Board cited a letter from the Massachusetts Department of Public Health that "clearly stated that there was both a change of ownership and a relocation. . . ."37 Upon determining that the transfer of intangible DON rights constituted a sale, the Board "looked back" into the operational history of Prospect Hill and determined that Prospect Hill had operated as the equivalent of a SNF during the previous three years. Consequently, the Board denied South Shore the reimbursements that it sought.38
This court must first determine whether the Board's decision that the transfer of DON rights constituted a change of ownership sufficient to trigger the "look back" into the operation of Prospect Hill was arbitrary and capricious. Only if there was a change of ownership need the court look into the prior operation of Prospect Hill to determine whether it operated as the equivalent of a SNF. If there was a change of ownership and the prior operation of Prospect Hill was the equivalent of a SNF, then the Board's decision must stand and the denial of the new provider exemption is proper.
The Secretary, of course, agrees with the Board that there was a change in ownership and that South Shore had been operating during the previous three years under different ownership, as Prospect Hill. The Secretary maintains that there need not be a high degree of operational continuity between Prospect Hill and South Shore in order for the operation of the Prospect Hill to be imputed to South Shore.
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South Shore Hosp., Inc. v. Thompson
...(S. Shore I). The federal district court, however, took a different view, reversing the Board's decision. S. Shore Hosp. v. Thompson, 204 F.Supp.2d 76, 83 (D.Mass.2002) (S. Shore II). This timely appeal We conclude that the new provider exemption is less than pellucid; that the Secretary's ......