Forsyth Memorial Hospital, Inc. v. Sebelius
639 F.3d 534
D.C. Cir.2011Background
- Carolina Medicorp, Inc. (Carolina) was a private non-profit with assets including land, buildings, and depreciable equipment, leased to several non-profit Medicare providers controlled by Carolina.
- Carolina merged into Presbyterian Health Services Corporation on July 1, 1997, under North Carolina law, with Carolina dissolving and Presbyterian assuming its assets and liabilities.
- Post-merger, Presbyterian renamed itself Novant Health, Inc. and Carolina’s known liabilities were about $230.7 million; asset value at merger is disputed, with a post-merger appraisal valuing land and depreciable assets at $215 million.
- Depreciable assets’ loss on sale were claimed for reimbursement by the providers; Blue Cross Blue Shield denied these claims, PRRB reversed, and CMS Administrator ultimately denied reimbursement.
- The Administrator concluded no bona fide sale occurred and the parties were related, denying depreciation loss reimbursement under 42 C.F.R. § 413.134 and related provisions, leading to district court summary judgment for the Secretary.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PM A-00-76 interpretation was properly applied | Forsyth argues PM A-00-76 is unlawful to apply | Secretary argues PM A-00-76 correctly governs mergers | Yes, PM A-00-76 properly applied |
| Whether the merger constituted a bona fide sale | Forsyth contends merger was a bona fide sale with reasonable consideration | Secretary found no bona fide sale given asset/liability disparities | No bona fide sale; substantial evidence supports denial of reimbursement |
| Whether the parties were unrelated for purposes of reimbursement | Forsyth asserts lack of relatedness supports reimbursement | Administrator found related parties, foreclosing reimbursement | Parties were related; this supports denial of reimbursement |
Key Cases Cited
- St. Luke’s Hosp. v. Sebelius, 611 F.3d 900 (D.C. Cir. 2010) (depreciation adjustments after mergers; bona fide sale standard)
- Via Christi Reg’l Med. Ctr., Inc. v. Leavitt, 509 F.3d 1259 (10th Cir. 2007) (revaluation of depreciable assets after disposal; substantiates burden of proof)
- Robert F. Kennedy Med. Ctr. v. Leavitt, 526 F.3d 557 (9th Cir. 2008) (valuation and reimbursement principles for depreciable assets)
- Mercy Home Health v. Leavitt, 436 F.3d 370 (3d Cir. 2006) (bona fide sale and reasonable consideration considerations)
- Tenet HealthSystems HealthCorp. v. Thompson, 254 F.3d 238 (D.C. Cir. 2001) (burden of proof for demonstrating reasonable consideration in mergers)
- Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359 (1998) (substantial-evidence standard and administrative review)
- Ass’n of Data Processing Serv. Org., Inc. v. Bd. of Governors of the Fed. Res. Sys., 745 F.2d 677 (D.C. Cir. 1984) (administrative agency decision review standards)