UPMC-Braddock Hospital v. Sebelius , 592 F.3d 427 ( 2010 )

GARTH, Circuit Judge,

concurring and dissenting:

Are Braddoek Medical Center (“BMC”) and University of Pittsburgh Medical Center System (“UPMCS”) “related”?

If so — they are not entitled to a depreciation adjustment.

If not — they are.¹⁵

I.

Let me begin by reciting the sequence of findings by the administrative entities and the Magistrate Judge with respect to the “relatedness” issue.

1. The Intermediary¹⁶ found that the parties were related (looking post-merger).

2. The PRRB ¹⁷ found that the parties were not related (looking pre-merger).

3. The Administrator¹⁸ found that the parties were related (looking post-merger).

4. The Secretary (of the Department of Health and Human Services) found that the parties were related (adopting the Administrator’s decision).

5. The Magistrate Judge did not reach, and therefore did not decide, the “relatedness” issue.

6. The majority members of the this panel, relying in part on the parties (BMC and UPMCS) themselves, have now held that the parties are not related. See Maj. Op. at 437 (“If we do not accept the Secretary’s interpretation, it is clear that the merger was not between related parties, since both parties agree that BMC and UPMCS were unrelated prior to the transaction on November 30,1996.”).

Having in mind the language of the Regulation that defines “related to the provider,” see supra n. 1, I submit that I cannot — at this point in time — possibly know whether BMC is indeed “related” to UPMCS or not, because neither the Magistrate Judge nor any of the Administrative adjudicators undertook the tasks of fact-finding and applying the facts found to the requirements of the Regulation. Thus, I cannot agree at this stage that the parties to the merger were not “related” as that term is defined in 42 C.F.R. § 413.17(b)(1) & (3).

II.

I have no problem accepting the majority’s view that we should confine our decision to pre-merger inquiries. See Via Christi Reg’l Med. Ctr. v. Leavitt, 509 F.3d 1259, 1273 (10th Cir.2007). What concerns me, however, is that the various Administrative adjudicators below, when addressing the “relatedness” issue, focused almost entirely on the question of whether the “relatedness” inquiry looks only at the premerger circumstances, or whether it takes into account the post-merger relationship between the parties. Virtually no attention was paid to the substantive portion of the Regulation, i.e., whether BMC and UPMCS were “associated” or “affiliated” in any way, or had the ability, directly or indirectly, to “direct” or “influence” the actions and policies of the other.¹⁹

The Majority Opinion at 439 asserts that “[i]t is uncontested that BMC and UPMCS were unrelated at the time of the merger agreement,” and in support cites to the Intermediary’s Supplemental Position Paper, which states that “when BMC and UPMCS were working towards the affiliation, there was no cross-ownership and control between and/or among any of the organizations involved.” App. 742. I note, however, that the Intermediary made no factual findings, while focusing on post-merger influences, and, perhaps most significantly, addressed only one of the three elements that comprise “relatedness” under § 413.17 — namely, the element of “control.”²⁰ Findings regarding the remaining elements — association, affiliation, direction, and influence — are conspicuously absent not only from the Intermediary’s determination, but also from the record as a whole.

As examples: if indeed there was — or is — “lurking in the woods” a common stockholder of both BMC and UPMCS, such an individual might very well constitute a sufficiently tangible link between the two entities so as to render them “associated” or “affiliated” — and therefore “related” — pursuant to § 413.17. By the same token, if a BMC director is related, by blood or otherwise, to a UPMCS director, there might very well have been influence or direction exerted by one over the other that would render BMC “to a significant extent ... associated or affiliated with” UPMCS. 42 C.F.R. § 413.17(b)(1). However, I, for one, cannot ascertain the reality of these' — or countless other hypothetical scenarios— from the record, because the issue of “relatedness” was never explored by the Magistrate Judge.

We can only assume that the Department of Health and Human Services used a plethora of terms — association, affiliation, control, direction, and influence — in defining relatedness “because it intended each term to have a particular nonsuperfluous meaning.” Bailey v. United States, 516 U.S. 137, 146, 116 S.Ct. 501, 133 L.Ed.2d 472 (1995). In other words, the inclusion of terms other than “control” must be read as an intention to extend the category of “relatedness” to scenarios where some connection or influence exists between the merging entities.

Accordingly, to answer the “related” inquiry, which the Regulation requires,²¹ a factual inquiry must be undertaken that explores all of the indicia of “relatedness” listed in § 413.17. It has not been. In the absence of such an inquiry and concomitant fact-finding, I cannot conclude that the merging parties were either “related” or “unrelated.” I suggest that neither can my colleagues in the majority.

I therefore would require that, on remand, (which in any event the majority is ordering to review the bona fide sale issue,) we also direct the Magistrate Judge to explore the pre-merger question of whether there was any affiliation, influence, direction, or association between BMC and UPMCS, leading to the ultimate conclusion of “related” or “unrelated.” Only then can we exercise the review that appellate courts must employ. Cf. Chalfant v. Wilmington Inst., 574 F.2d 739, 747 (3d Cir.1978) (Garth, J., dissenting) (“Embarking on its own fact finding excursion, the majority of this court has ... acted not as a reviewing authority but rather as an initial fact finder [...][,] [thereby] transgressing] its fundamental function as an appellate court ...”).

To that extent — and to that extent only — I respectfully dissent from the holding of the Majority Opinion.

15 . 42 C.F.R. § 413.17 provides that no depreciation is allowed if the statutory merger is between two or more related corporations. The Regulation states, in pertinent part:

Related to the provider means that the provider to a significant extent is associated or affiliated with or has control of or is controlled by the organization furnishing the services, facilities, or supplies. [...] Control exists if an individual or an organization has the power, directly or indirectly, significantly to influence or direct the actions or policies or an organization or institution.

42 C.F.R. § 413.17(b)(1) & (3) (emphases added).

16 . When providers of covered Medicare services submit claims for reimbursement, such claims are initially assessed by private contractors known as “fiscal intermediaries.” See 42 U.S.C. § 1395h.

17 . If a provider is not satisfied with the fiscal intermediary’s reimbursement determination, it may file an administrative appeal with the Provider Reimbursement Review Board (“PRRB”), a five-person administrative body whose members are appointed by the Secretary of the Department of Health and Human Services. See 42 U.S.C. § 1395oo.

18 . The Administrator of the Centers for Medicare and Medicaid Services ("Administrator”), may, at his or her discretion, review a decision of the PRRB. See 42 C.F.R. § 405.1875.

19 . Moreover, to the (limited) extent that the Administrative adjudicators below did undertake a substantive "relatedness” inquiry, three of the four — including the Administrator and the Secretary — were operating on the premise that the "relatedness” inquiry implicates post-merger relationships. As we hold today, see Maj. Op. at 438-39, only pre-merger circumstances are material for the "relatedness” inquiry. Given that we are holding that the law applied by three of the four Administrative adjudicators was incorrect, the obvious course is to remand to the Magistrate Judge to apply the essential facts (once found) to the correct law. Cf. Hasan v. U.S. Dept. of Labor, 545 F.3d 248, 251 (3d Cir.2008) (“If an administrative agency makes an error of law, we must correct the error of law committed by that body, and after doing so, remand the case to the agency so as to afford it the opportunity of examining the evidence and finding the facts as required by law.”) (quoting ICC v. Clyde S.S. Co., 181 U.S. 29, 21 S.Ct. 512, 45 L.Ed. 729 (1901)) (alterations and quotation marks omitted).

20 . In addition, the wholly conclusory nature of the Intermediary's finding on this issue— no factual basis whatsoever was provided— renders it an inappropriate foundation for a conclusion on the "related” issue.

21 . 42 C.F.R. § 413.134(0(2) states, in pertinent part:

(i) Statutory merger between unrelated parties. If a statutory merger is between two or more corporations that are unrelated (as specified in § 413.17), the assets of the merged corporation(s) acquired by the surviving corporation may be revalued.... dí) Statutory merger between related parties. If the statutory merger is between two or more related corporations (as specified in § 413.17), no revaluation of assets is permitted for those assets acquired by the surviving corporation.

(emphases added).