Triad at Jeffersonville I, LLC v. Leavitt, Civil Action No. 08-329 (CKK).

• Citation: 563 F.Supp.2d 1
• Decision Date: 21 April 2008
• Docket Number: Civil Action No. 08-329 (CKK).
• Parties: TRIAD AT JEFFERSONVILLE I, LLC, et al., Plaintiffs, v. Michael O. LEAVITT, Secretary of the United States Department of Health and Human Services, et al., Defendants.
• Court: United States District Courts. United States District Court (Columbia)

Page 1

563 F.Supp.2d 1

TRIAD AT JEFFERSONVILLE I, LLC, et al., Plaintiffs, v. Michael O. LEAVITT, Secretary of the United States Department of Health and Human Services, et al., Defendants.

Civil Action No. 08-329 (CKK).

United States District Court, District of Columbia.

April 21, 2008.

Opinion Denying Motion to Amend June 2, 2008.

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Jack C. Tranter, Thomas C. Dame, Gallagher Evelius & Jones, LLP, Baltimore, MD, for Plaintiffs.

Wendy M. Ertmer, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION

COLLEEN KOLLAR-KOTELLY, District Judge.

Plaintiffs Triad at Jeffersonville I, LLC; Triad at LaGrange I, LLC; Triad at Lumber City I, LLC; Triad at Powder Springs I, LLC; and Triad at Thomasville I, LLC (collectively "Triad") bring this suit for declaratory and injunctive relief against Michael O. Leavitt, in his official capacity as Secretary of the United States Department of Health and Human Services, Kerry N. Weems, in his official capacity as Administrator of the Centers for Medicare and Medicaid Services, the United States Department of Health and Human Services, and the Centers for Medicare and Medicaid Services (collectively "CMS"). The Parties' dispute arises in the context of a transition between the operators of five nursing care facilities in Georgia. Triad (the current operator) and Brian Center Nursing Care/Austell, Inc., a wholly-owned subsidiary of Mariner Health Care, Inc. ("Mariner") (the former operator), both received Medicare reimbursements for the same services provided at the nursing care facilities from approximately December 2006 to April 2007. CMS determined that Triad was responsible for repaying the overpayment from this period, and Triad contends that CMS must recoup the funds from Mariner.

Triad filed the present Complaint on February 26, 2008, along with a Motion for a Temporary Restraining Order and/or Preliminary Injunction barring CMS from recouping the funds from Triad. The Parties and the Court thereafter agreed to convert Triad's Motion into a decision on the merits through cross-motions, and CMS agreed to hold in abeyance its efforts to recoup the overpayment from Triad until the Court rendered its decision, or May 2, 2008, whichever occurred first. After a thorough review of the Parties' submissions, including the attachments thereto, applicable case law, statutory authority and regulations, the Court shall deny Plaintiffs' [9] Motion for Summary Judgment, grant Defendants' [10] Motion to Dismiss, or in the alternative, Motion for Summary Judgment, and deny Plaintiffs' [12] Motion for Leave to File an Amended Complaint, for the reasons that follow.

I. BACKGROUND

The Court shall first describe the Medicare statutes, regulations, and procedures providing the necessary context for the factual and procedural backgrounds that follow.

A. Medicare Statutes, Regulations, and Procedures

1. Medicare Reimbursement

Established under Title XVIII of the Social Security Act, 42 U.S.C. § 1395, et seq., the Medicare Program is a federal medical insurance program for the aged and disabled. Part A of the Medicare Program provides payments to, inter alia, operators of skilled nursing facilities ("providers"). Id. § 1395i-3. To participate in the Medicare program and receive reimbursement for the services they render to Medicare beneficiaries, providers must enter into Provider Agreements with the Secretary of the Department of Health and Human Services. Id. § 1395cc(a). Reimbursements are handled through "Fiscal Intermediaries," which are public or a private entities that make initial determinations as to the appropriate reimbursement amounts. Id. §§ 1395g, 1395h.

Providers must submit regular billings to their Fiscal Intermediaries.¹ 42 C.F.R. 413.350(b)(2). At the end of each annual period, a provider must submit an annual cost report to its Fiscal Intermediary which reconciles its payments against the actual reasonable costs incurred by the provider. Id. §§ 413.20, 413.60, 413.64. If the Fiscal Intermediary believes an overpayment has occurred, it must notify the provider of its intent to offset or recoup the funds and give the provider an opportunity to respond. Id. § 405.373(a). If the provider submits a response, CMS or the Fiscal Intermediary "must within 15 days ... consider the statement (including any pertinent evidence submitted), together with any other material bearing upon the case, and determine whether the facts justify" the offset or recoupment. Id. § 405.375(a). A determination that an offset or recoupment is justified is not immediately appealable, id. § 405.375(c), and the Fiscal Intermediary may begin offsetting or recouping an overpayment notwithstanding a provider's intention to administratively challenge the overpayment determination, id. §§ 405.373(d), 405.375(a). See also id. § 405.1803(c). After the Fiscal Intermediary completes its audit of the provider's annual cost report, it must issue a Notice of Program Reimbursement ("NPR") that identifies and explains any adjustments, overpayments, or reimbursements. Id. § 405.1803(a), (b). A provider who is dissatisfied with its NPR may appeal to the Provider Reimbursement Review Board ("PRRB"). 42 U.S.C. § 1395oo; 42 C.F.R § 405.1835. The PRRB's decisions are final unless the Secretary reverses, affirms, or modifies the PRRB's decision within sixty days. 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. §§ 405.1875, 405.1877(a).

Medicare procedures recognize that providers may be financially incapable of paying the full amount of the overpayment immediately or continuing to operate without Medicare payments while awaiting administrative review of a Fiscal Intermediary's recoupment decision. Accordingly, a provider facing financial hardship may negotiate an Extended Repayment Plan ("ERP") with its Fiscal Intermediary that takes into account the provider's particular financial circumstances. See Defs.' Reply, Ex. H, Ch. 4, §§ 50.2, 50.3 (Medicare Financial Management Manual) (describing the process for obtaining an ERP, including the Fiscal Intermediary's examination of a provider's financial records, to create an ERP appropriate for the particular provider). Such plans may extend beyond 12 months if the provider sends its Fiscal Intermediary "at least one letter from a financial institution denying the [provider's] loan request for the amount of the overpayment."² Id. § 50.1.

2. Changes of Ownership

When a nursing care facility undergoes a Change of Ownership ("CHOW"),³ the former and the new owners must each submit a CMS-855A application ("855A application") to their respective Fiscal Intermediaries. See Medicare Program Integrity Manual, Ch. 10, § 5.5.C.3. The new owner must indicate in its respective 855A application whether it wants to apply for a new Provider Agreement or accept assignment of the former owner's Provider Agreement. See Medicare Financial Management Manual, Ch. 3, § 130. That decision has significant consequences. By accepting assignment of an existing Provider Agreement, the new owner must assume responsibility for all outstanding or future overpayments associated with the agreement:

With assignment, the new owner assumes all penalties and sanctions under the Medicare program, including the repayment of any accrued overpayments, regardless of who had ownership of the Medicare agreement at the time the overpayment was discovered, unless fraud was involved ... When a provider undergoes a CHOW where the new provider accepts assignment of the previous owner's Medicare agreement, the responsibility for repaying any outstanding and future overpayments resides with the new owner.

Ex. A, FMM, Ch. 3, § 130. A new provider is responsible for all overpayments even when its contract with a former owner provides otherwise. Id. ("A sales agreement stipulating that the new owner is not liable for the overpayments made to the previous owner is not evidence enough for recovery from the new owner to not occur ... If the new owner assumes assignment of the Medicare agreement, Medicare will attempt to recover from the new/current owner regardless of the sales agreement"). By accepting assignment, however, the new owner "receives the benefits of assuming the Medicare provider agreement, such as receiving underpayments discovered after the CHOW," and will automatically receive the agreement "subject to all the terms and conditions under which the existing agreement was issued." Id.

After receiving an 855A application, the new Fiscal Intermediary must review it for consistency with the sales agreement associated with the CHOW, as well as confirm that the transaction qualifies as a CHOW under applicable Medicare regulations. Medicare Program Integrity Manual, Ch. 10, 5.5.C.3. The Fiscal Intermediary then forwards its recommendation for approval to CMS, which verifies and validates the information, and confirms that the new owner is not on the Medicare Exclusion Database and the General Services Administration Debarment list. See Defs.' Mot., Ex. G, ¶ 13 (Decl. of Ronald L. Smith). If CMS approves the CHOW, it issues a "tie-in notice" to the former and new owners and their respective Fiscal Intermediaries, notifying them of the approval.⁴ Id.; Medicare Program Integrity Manual, Ch. 10, §§ 11.1.A, 11.1.B. Until the CMS Regional Office issues a tie-in notice, a Fiscal Intermediary must continue paying claims for a facility to its former owner, and must deny any request "to change the bank account to that of the new owner" during the CHOW period. Id. §§ 5.5.C.3, § 11.1.B ("In a CHOW, the intermediary shall continue to pay the old owner until it receives the tie-in notice from the [CMS Regional Office]"). The Medicare Program Integrity Manual advises the former and new owners to reach an agreement related to payments received during the CHOW period:

It is ultimately the responsibility of the old and new owners to work out any payment arrangements...