Ashtabula County Medical Center v. Thompson , 352 F.3d 1090 ( 2003 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Ashtabula County Med. Nos. 02-3410/3425
ELECTRONIC CITATION: 2003 FED App. 0452P (6th Cir.) Ctr. v. Thompson
File Name: 03a0452p.06
_________________
UNITED STATES COURT OF APPEALS COUNSEL
FOR THE SIXTH CIRCUIT ARGUED: Anthony A. Yang, UNITED STATES
_________________ DEPARTMENT OF JUSTICE, Washington, D.C., for
Appellant. David M. Levine, BENESCH, FRIEDLANDER,
ASHTABULA COUNTY X COPLAN & ARONOFF, Cleveland, Ohio, for Appellee.
MEDICAL CENTER , - ON BRIEF: Anthony A. Yang, Barbara C. Biddle, UNITED
Plaintiff-Appellee/ - STATES DEPARTMENT OF JUSTICE, Washington, D.C.,
- Nos. 02-3410/3425 for Appellant. David M. Levine, BENESCH,
Cross-Appellant, - FRIEDLANDER, COPLAN & ARONOFF, Cleveland, Ohio,
> Mark D. Tucker, BENESCH, FRIEDLANDER, COPLAN &
,
v. - ARONOFF, Columbus, Ohio, for Appellee.
- _________________
TOMMY G. THOMPSON, -
Secretary of Health and - OPINION
Human Services, - _________________
Defendant-Appellant/ -
- ALAN E. NORRIS, Circuit Judge. Plaintiff Ashtabula
Cross-Appellee. -
County Medical Center (“ACMC”), a hospital located in
N Ashtabula, Ohio, sought a higher rate of reimbursement for
Appeal from the United States District Court the care provided in its skilled nursing facility (“SNF”) than
for the Northern District of Ohio at Cleveland. that allowed by the United States Department of Health and
No. 00-01895—Ann Aldrich, District Judge. Human Services (“HHS”). ACMC filed suit in federal court
seeking review of a final decision of the Provider
Argued: September 18, 2003 Reimbursement Review Board (“the Board”), which had
construed the applicable statutes and regulations in a manner
Decided and Filed: December 19, 2003 adverse to the hospital. The district court held that the
Secretary’s interpretation of the governing statute and
Before: BOGGS, Chief Judge; NORRIS and CLAY, regulations was unreasonable and granted summary judgment
Circuit Judges. to ACMC. Ashtabula County Med. Ctr. v. Thompson, 191 F.
Supp. 2d 884 (N.D. Ohio 2002). The Secretary appeals from
that order and ACMC cross-appeals from the district court’s
failure to explicitly rule upon its motion for costs and interest.
1
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I. 1996. When ACMC began operating its SNF, no ACH
personnel became ACMC employees or managers. ACH
This case presents us with a question of statutory continued to operate as a distinct entity, without any
construction viewed through the lens of the Administrative change in its licensure or certification. Furthermore, no
Procedure Act (“APA”), which cautions that agency decisions ACH residents were transferred to ACMC when ACMC
may only be set aside if they are “arbitrary, capricious, an began operating the SNF. Rather, all of the admissions
abuse of discretion, or otherwise not in accordance with law” and residents of ACMC’s distinct part SNF during the
or are “unsupported by substantial evidence . . . or otherwise first six months of operation had home addresses within
reviewed on the record of an agency hearing provided by Health Service Area (“HSA”) # 10, one of the ten regions
statute.” 5 U.S.C. § 706(2)(A), (E). into which Ohio is divided for the purposes of
administering the CON program. Both ACH and ACMC
Because the parties do not contest the facts underlying this are located within HSA # 10, about seven miles from one
dispute, we will rely upon the district court’s factual recitation another.
to set the stage:
In July 1996, ACMC submitted a request for an
. . . Both parties stipulated to the relevant facts in a exemption under the new provider provision from the
hearing before the Board, and the Court agrees with the routine cost limits (“RCLs”) applicable under the
parties that there is no dispute as to any material factual Medicare statutes. The new provider provision is an
issues. ACMC is a hospital located in Ashtabula, Ohio. exemption from the statutory caps placed on Medicare
In May, 1995, ACMC entered into an “Agreement for reimbursement for health care providers, who, under the
Purchase of the Right to Operate Nursing Home Beds” Medicare program, are generally reimbursed up to the
with the County Commissioners of Ashtabula County, statutory limit for their reasonable costs in providing
the owners of the Ashtabula County Home (“ACH”), necessary health care services. On July 25, 1996, the
under which ACMC acquired the right, title, and interest Health Care Financing Administration (“HCFA”) [since
to fifteen of ACH’s 310 beds at a price of $7500 per bed. renamed “The Centers for Medicare and Medicaid
ACMC and ACH are separate and unrelated health care Services”] denied the request. ACMC appealed to the
institutions, and ACMC acquired no other assets from PRRB [the Board], which affirmed HCFA’s decision.
ACH. Under Ohio law, which has imposed a The Board’s opinion became the final decision of the
moratorium on nursing facility beds in the state of Ohio, Secretary pursuant to 42 U.S.C. § 1395oo(f)(1). ACMC
ACMC was required to purchase existing beds from now seeks judicial review of the PRRB’s determination
another provider and apply for a certificate of need that ACMC does not qualify for a new provider
(“CON”) before commencing operations. It applied in exemption to the RCLs.
June 1995 for a CON granting it authority to acquire,
relocate, and place into service fifteen long-term care 191 F. Supp. 2d at 886-87 (footnotes omitted).
beds on its premises, and the application was granted in
October 1995. ACMC, which had not operated as a The Social Security Act, which established the Medicare
nursing facility or a skilled nursing facility (“SNF”) program, provides payment to qualified hospitals and SNFs
previously, became Medicare-certified on March 27, (nursing homes) in return for the services that they provide to
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older and disabled citizens. For the relevant period, the § 2533.1, at 25-12.1C2 (1997). The disputed regulation,
Medicare program restricted payments to SNFs to an amount which has since been amended, defined a “new provider” in
equal to the lesser of the “reasonable cost” of or the these terms:
customary charge for its services:
A new provider is a provider of inpatient services that
The reasonable cost of any services shall be the cost has operated as the type of provider (or the equivalent)
actually incurred, excluding therefrom any part of for which it is certified for Medicare, under present and
incurred cost found to be unnecessary in the efficient previous ownership, for less than three full years. An
delivery of needed health services, and shall be exemption granted under this paragraph expires at the
determined in accordance with regulations establishing end of the provider’s first cost reporting period beginning
the method or methods to be used, and the items to be at least two years after the provider accepts its first
included, in determining such costs for various types or patient.
classes of institutions, agencies, and services . . . .
42 C.F.R. § 413.30(e) (1995). The PRM provides the
42 U.S.C. § 1395x(v)(1)(A). This “reasonable cost” following gloss on this exemption:
restriction applies to “routine service costs,” which include
things like a room, board, and nursing care. Whenever a Although a complete change in the operation of the
SNF’s routine service costs go over per diem cost limitations, institution . . . shall affect whether and how long a
they are deemed unreasonable. The manner in which the provider shall be considered a “new provider,” changes
applicable routine service cost limits, referred to as “RCLs,” of the institution’s ownership or geographic location do
are calculated has been adequately summarized elsewhere by not in itself alter the type of health care furnished and
this court. See St. Francis Health Care Ctr. v. Shalala, 205 shall not be considered in the determination of the length
F.3d 937, 940-41 (6th Cir. 2000). of operation.
As the passage quoted from the district court’s opinion However, for purposes of this provision, a provider
makes clear, the central issue in this appeal is an exception to which relocates may be granted new provider status
the RCL restrictions, known as “the new provider where the normal inpatient population can no longer be
exemption.” As the Provider Reimbursement Manual expected to be served at the new location. . . .
(“PRM”)1 explains, “42 C.F.R. § 413.30(e) provides for an
exemption from the SNF routine service cost limits for new HCFA Pub. 15-1 § 2604.1, at 26-4 (1984).
providers. This provision was implemented to recognize the
difficulties in meeting the applicable cost limits due to As already mentioned, ACMC purchased the right to
underutilization during the initial years of providing skilled operate fifteen nursing home beds from ACH in 1995. For its
nursing and/or rehabilitative services[.]” HCFA Pub. 15-1 part, ACH had provided skilled nursing care since 1989.
ACMC paid $112,500 to acquire the beds from ACH, which
it then relocated to its hospital complex. In the process, it
1
obtained a CON from the State of Ohio, as well as Medicare
The PR M contains the interpretive rules regarding Medicare certification.
reimb ursem ent.
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ACMC sought the new provider exemption described . . . The Court . . . concludes that the term “provider” is
above for its facility. After the HCFA determined that the unambiguous and must refer to an institution (or distinct
SNF did not qualify as a new provider, the hospital appealed part of an institution), not merely to a characteristic or
to the Board, which affirmed the denial in a decision rendered attribute of such an institution. Furthermore, the
on June 29, 2000. In its decision, the Board relied upon the statutory definitions and the PRM interpretation effective
factual stipulations recited by the district court. The Board during the relevant period indicate that Congress and the
based its denial on the theory that a change of ownership had Secretary intended the term provider to refer to an
occurred with respect to the fifteen long term care beds and, institution or distinct part thereof and that the Secretary’s
because ACH had operated those beds as part of a new twist on that definition is contrary to “other
participating nursing facility under the Medicare and indications of the Secretary’s intent at the time of the
Medicaid programs since 1989, ACMC could not be deemed regulation’s promulgation.” Thomas Jefferson Univ.
a new provider. Hosp. [v. Shalala], 512 U.S. [504,] 512, 114 S.Ct. 2381.
ACMC appealed to the district court pursuant to 42 U.S.C. Applying the plain meaning of the regulation, the term
§ 1395oo(f). Both parties filed motions for summary provider refers to the institution applying for the
judgment. The district court reversed the Board and granted exemption – ACMC’s new distinct part SNF – not
judgment to ACMC. After substantial preliminary merely to its intangible characteristics or attributes – the
discussion, the district court attempted to determine whether CON rights purchased from ACH, which allowed it to
the term “provider” as used in the regulation at issue was come into existence. Because ACMC’s distinct part SNF
ambiguous.2 The district court viewed the following as the did not exist until ACMC purchased the CON rights
crucial question: By purchasing ACH’s CON rights to the from ACH, it qualified as a new provider under the
fifteen beds, did ACMC simply take over ownership of an provisions of the new provider exemption regulation.
existing provider and thereby undermine its entitlement to The Board’s decision was therefore contrary to the plain
“new” provider status, or did ACMC’s establishment of a meaning of the regulation.
SNF in a new location, with new personnel, and new patients
constitute the kind of break in operations that entitled it to the 191 F. Supp. 2d at 893.
exemption?
In the alternative, the district court assumed arguendo that
The district court first determined that the term “provider” the term “provider” was ambiguous. If so, then the
as used in the regulation was unambiguous and that the Secretary’s position must be affirmed unless it is “arbitrary,
Secretary had erred in applying it: capricious, an abuse of discretion, or otherwise not in
accordance with law[.]” 5 U.S.C. § 706(2)(A) (APA). The
district court concluded that the Secretary’s interpretation was
arbitrary and capricious. 191 F. Supp. 2d at 893-97. Because
2
As a reminder, the new provider exemption reads, “A new provider we agree with the district court that the term was
is a provider of inpatient services that has operated as the type of provider unambiguous, we need not reach its alternative holding.
(or the equivalent) for which it is certified for Medicare, under present
and previous ownership, for less than three full years.” 42 C.F.R.
§ 413.30 (e) (1995).
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After entry of judgment, ACMC filed a motion for costs necessary for a SNF to “operate[ ]” – that is, not just
and an award of interest pursuant to 42 U.S.C. § 1395oo(f)(2). CON rights, but physical beds, employees,
The Secretary responded by moving for a stay. He conceded administrators, equipment, patients, referral sources, etc.
that the statute provided for the taxing of costs but urged the Paragon backs this up with a citation to PRM § 2604.1,
court “in the interest of judicial economy” to postpone its which states that a “new provider is an institution that
ruling on the matter until “any appeal of the judgment . . . has has operated. . . .” Paragon claims that the use of the
been finally resolved.” The district court granted the stay word “institution” in the PRM underscores the fact that
without explicitly ruling on the motion for costs and interest. “provider” in 42 C.F.R. § 413.30(e) refers to the facility
as a whole, rather than just CON rights. Thus, only when
II. the SNF as an entire operating institution is transferred to
a new owner can the exemption for a new provider be
Deference to the Secretary’s interpretation of the regulation denied.
only comes into play if its plain language is ambiguous.
Recognizing this fact, the Secretary explains why, in his view, . . . [W]e conclude that the regulation is ambiguous on
ambiguity calling for interpretation (and deference) exists. what constitutes a “provider.” Paragon is correct that a
Pointing to Paragon Health Network, Inc. v. Thompson, 251 nursing “provider” is composed of many different
F.3d 1141 (7th Cir. 2001), he contends that the term attributes, but changing one or more of these
“provider” is ambiguous. characteristics does not mean that the SNF becomes a
different “provider.” For example, if a facility fires all its
Paragon is one of several cases bearing a remarkable staff and hires a new one, but makes no other changes, an
similarity with the one now before us. Paragon Health ordinary user of the English language probably would
Network obtained 35 nursing home beds for a new SNF from consider the SNF with the new staff to be the same
Shores Transitional Care and Rehabilitation Center via “provider” as it was before. Similarly, a SNF that
Wisconsin’s CON process. As in the instant case, the two replaced all of its old equipment with new models would
facilities were located in the same health care service area and still be the same “provider” as it was before the
the only asset transferred between the two facilities “were the modernization. Even if a SNF both fired its staff and
CON rights; no residents, staff, or equipment were replaced all of its equipment, one might still call it the
transferred.” Id. at 1144. With respect to the ambiguity same “provider” if the administration and physical plant
question, the Seventh Circuit reasoned as follows: remained the same. Of course, if all the various things
that make up a SNF were new in the sense that they had
. . . Paragon argues that the regulation has a plain not been part of another facility, then one would have to
meaning, which is contradicted by the Secretary’s call that SNF a “new provider.” Conversely, if a nursing
interpretation. Paragon focuses on the phrase “provider facility did not change any of its aspects, it would
of inpatient services that has operated” in the regulation unquestionably continue to be the same provider rather
and its relation to “present and previous ownership.” than a new one. The difficulty in drawing a line between
According to the appellant, the question of ownership these two extremes is what makes the word “provider”
must be decided with respect to the “provider” as a ambiguous as used in the regulation.
whole. A “provider” consists of all those attributes
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Id. at 1148. The district court considered, and rejected, this the term “provider” as used in 42 C.F.R. § 413.30(e) refers to
analysis: a Medicare-certified institution (or Medicare-certified distinct
part) that furnishes specified services (here, SNF services).
This Court respectfully disagrees with the Seventh In this case, ACMC represents the “provider of inpatient
Circuit’s analysis. That analysis appears to conflate the services” contemplated by § 413.30(e).
questions whether the term “new provider” is ambiguous
and whether the term “provider” as used in the phrase The Fourth Circuit has likewise concluded that § 413.30(e)
“provider of inpatient services” is ambiguous. The is not ambiguous, and explicitly rejected the reasoning of
Seventh Circuit’s reasoning actually focuses on the Paragon. Maryland Gen. Hosp., Inc. v. Thompson, 308 F.3d
difficulty of drawing the line between the “same 340 (4th Cir. 2002). In that case, the court confronted a
‘provider’” and a “new provider.” This inquiry relates factual scenario similar to the one before us: Maryland
more to the ambiguity of the term “new” than the General Hospital had purchased nursing home beds from an
ambiguity of the term “provider.” The regulation is unrelated entity and established a “distinct part” SNF within
entirely unambiguous about the meaning of the term its hospital facility. The Board, which was upheld by the
“new,” however. Under the plain terms of the regulation, district court, denied “new provider” status for the reasons
a “new” provider is one that has existed “under present urged by the Secretary in the instant case. The Fourth Circuit
and previous ownership, for less than three full years.” reversed and concluded that the regulation was unambiguous
The inquiry should focus instead on the meaning of the and supported a conclusion “that ‘provider’ as used in section
term “provider,” which this Court finds to be 413.30(e) unambiguously refers to the business institution
unambiguous. Relevant definitions elsewhere in the providing the skilled nursing services. It therefore follows
statute and PRM as well as ordinary English usage lead that the regulation permits consideration of the institution’s
this Court to conclude that the term provider can only be past and current ownership, but not the past and current
understood to refer to an institution or distinct part of an ownership of a particular asset [i.e., beds] of that institution.”
institution, not to a mere characteristic or attribute of Id. at 347. The court provided the following reasoning in
such an institution. The relevant inquiry is simply reaching its judgment:
whether a second, new institution has come into
existence as a result of the transaction. . . . Section 413.30(e) does not define “provider,” but the
structure and wording of the regulation suggest that the
Ashtabula County Medical Ctr., 191 F. Supp. 2d at 892-93 provider is the business entity or institution providing the
(footnote omitted). skilled nursing services. This reading is consistent with
the meaning attached to a similar term in another part of
Although the term “provider” is not defined in § 413.30(e), the Medicare Act. See 42 U.S.C.A. § 1395x(u) (defining
its meaning is made clear by referencing related statutes: the “provider of services” as “a hospital, critical access
term “provider of services” includes a “skilled nursing hospital, skilled nursing facility, comprehensive
facility,” 42 U.S.C. § 1395x(u); “skilled nursing facility,” in outpatient rehabilitation facility, home health agency,
turn, is “an institution (or a distinct part of an institution),” [or] hospice program”). This business-entity-specific
that is primarily engaged in providing skilled nursing care to reading of the regulation is also supported by the
its residents, 42 U.S.C. § 1395i-3(a). Given these definitions, explanation of the “new provider” exemption contained
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in the version of Medicare’s “Provider Reimbursement Id. at 346 (emphasis in original).3
Manual” . . . in effect at the time MGH purchased the
beds . . . . These repeated references to an “institution” The fact that a circuit split exists on this question indicates
indicate that application of the new provider exemption that it is a very close call and, in one sense, supports the
depends upon the ownership and operation of the Secretary’s contention that the regulation is ambiguous.
business entity that is providing the skilled nursing However, we conclude that the language of section 413.30(e)
services. There is no dispute that neither MGH nor any has a plain meaning. As the Fourth Circuit held, a “provider”
previous owner of MGH had provided inpatient skilled is nothing more than a “business institution that is providing
nursing services before the Transitional Care Center was . . . skilled nursing services.” Maryland General, 308 F.3d at
established. Thus, it would appear that MGH meets the 346. Everything about ACMC’s facility is new except for the
requirements for a “new provider” as set forth in 42 CON rights. It is housed in a new building and has new
C.F.R. § 413.30(e). patients, a new staff, and a new corporate identity. The kind
of corporate shenanigans feared by the Secretary did not
Id. at 343-44. After distinguishing Paragon, the court occur here. Rather, ACMC set up a SNF in its hospital. In
suggests the following analysis: order to do so, it purchased a single asset from ACH in the
form of a CON for fifteen nursing home beds, just as if it had
Notwithstanding the absence of a definition of bought a used x-ray machine or kitchen oven. Such a
“provider,” we simply cannot conclude that section purchase does not make ACMC into ACH repackaged.
413.30(e) is ambiguous. Given the ordinary meaning of Accordingly, we hold that ACMC is entitled to “new
the word “provider” and the manner in which it is used provider” status pursuant to section 413.30(e).
in the regulation, section 413.30(e) can only be
understood as focusing on the business institution that is III.
providing the skilled nursing services. If that institution,
whether under its current or prior ownership, has Having affirmed the judgment of the district court, we turn
operated as a skilled nursing facility for more than three to ACMC’s motion for costs and interest filed pursuant to
years, then it is not entitled to the new provider 42 U.S.C. § 1395oo(f). The costs sought are negligible:
exemption. If that institution under current or prior $399.10; interest, which is yet to be determined, will
ownership has not previously operated as a skilled presumably be more significant. As mentioned earlier, the
nursing facility, then it is entitled to the new provider district court did not explicitly rule on this matter when it
exemption, even if the institution has purchased some of granted a stay.
its assets from skilled nursing facilities that have
operated for more than three years.
3
Shortly after the Fourth Circuit reached its conclusion, the First
Circuit came out precisely the other way. South Shore Hosp., Inc. v.
Thompson, 308 F.3d 9 1 (1st Cir. 2002) (citing Paragon with approval).
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While it appears that ACMC is entitled to costs and
interest, we shall remand the matter to permit the district
court to make that determination in the first instance.
IV.
The judgment of the district court is affirmed and the cause
remanded for further proceedings consistent with this
opinion.