Forsyth Memorial Hospital, Inc. v. Sebelius
395 U.S. App. D.C. 41
| D.C. Cir. | 2011Background
- Carolina Medicorp, Inc. owned land, buildings, land improvements, and depreciable assets and leased them to Forsyth Memorial Hospital, Medical Park Hospital, Foundation Health Systems, and Carolina Medicorp Enterprises, all non-profit Medicare providers under Carolina's control.
- Carolina merged into Presbyterian Health Services Corporation on July 1, 1997; under North Carolina law, Carolina dissolved and Presbyterian assumed all assets and liabilities and later renamed itself Novant Health, Inc.
- At merger, Carolina's known liabilities were $230.7 million; assets' net book value was $399.8 million, with post-merger appraisal valuing land and depreciable assets at about $215 million; no pre-merger market sale or appraisal was conducted.
- After merger, providers sought about $11 million in depreciation losses; Blue Cross Blue Shield denied the claims; PRRB reversed and ordered reimbursement, but CMS Administrator reversed and denied reimbursement.
- PM A-00-76 clarified that post-merger depreciation adjustments require a bona fide sale with reasonable consideration; the Administrator concluded no bona fide sale occurred and that the parties were related, denying the losses.
- The district court granted summary judgment for the Secretary; appellants challenge under the APA, arguing PM A-00-76 is unlawful or misapplied and that substantial evidence does not support the Administrator's determinations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PM A-00-76's bona fide sale requirement was properly applied. | Forsyth argues PM A-00-76 is unlawful and misapplied. | Sebelius argues PM A-00-76 properly interprets the statute. | Appellants' challenge to PM A-00-76 is rejected; PM A-00-76 applied consistently. |
| Whether the Administrator's finding of no reasonable consideration in the merger is supported by substantial evidence. | Forsyth contends there was reasonable consideration. | The Administrator found disparities in asset value versus consideration and thus no reasonable consideration. | The Administrator's determination is supported by substantial evidence and not arbitrary or capricious. |
| Whether the related-party status affects eligibility for depreciation-loss reimbursement. | Carolina and Presbyterian were related; this should affect outcome. | If no bona fide sale or reasonable consideration, relatedness is not enough to grant relief. | Addressed as not necessary to reach relatedness since there was independent ground for denial; upheld. |
Key Cases Cited
- St. Luke's Hosp. v. Sebelius, 611 F.3d 900 (D.C.Cir.2010) (guides depreciation adjustments after mergers; bona fide sale requirement emphasized)
- Via Christi Reg'l Med. Ctr., Inc. v. Leavitt, 509 F.3d 1259 (10th Cir.2007) (revaluation of assets when net book value differs from consideration)
- Robert F. Kennedy Med. Ctr. v. Leavitt, 526 F.3d 557 (9th Cir.2008) (reaffirms revaluation framework post-merger disposals)
- Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359 (1998) (evidence standard for reviewing agency decisions; substantial evidence framework)
- Troy Corp. v. Browner, 120 F.3d 277 (D.C.Cir.1997) (administrative-review framework and APA standards)
- Mercy Home Health v. Leavitt, 436 F.3d 370 (3d Cir.2006) (substantial-evidence scrutiny of reimbursement decisions)
- Tenet HealthSystems HealthCorp. v. Thompson, 254 F.3d 238 (D.C.Cir.2001) (guidance on related regulatory interpretations)