Memorial Hermann Hospital v. Kathleen Sebelius
728 F.3d 400
| 5th Cir. | 2013Background
- Hermann and Memorial merged on November 4, 1997 to form MHHS with probate and AG approval.
- Post-merger, CMS Administrator denied MHHS’s loss payment under 42 C.F.R. § 413.134(l) as not a bona fide sale.
- District court dismissed MHHS’s APA challenge; MHHS appealed.
- Statutory depreciation adjustments are permitted where a merger triggers gains/losses under § 413.134; § 413.134(l)(2)(i) references (f) for gains/losses.
- PM A–00–76 explains that for non-profit mergers, a bona fide sale requires reasonable consideration and a fair market value comparison; if assets are transferred for little/no consideration, no depreciation loss is recognized.
- Administrator concluded the sale lacked consideration for depreciable assets since liabilities assumed roughly equal the value of assets, implying no bona fide sale; court affirms.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bona fide sale requirement applies to statutory mergers | MHHS: mergers are not subject to bona fide sale. | MHHS: plain statute/regulation requires bona fide sale for mergers. | Yes, mergers must be bona fide sales. |
| Whether the Memorial–Hermann merger was a bona fide sale | MHHS contends the merger should be treated as a bona fide sale. | CMS: record shows no reasonable consideration for depreciable assets. | Not a bona fide sale; substantial evidence supports the finding. |
| Whether PM A–00–76’s interpretation is proper (deference required) | MHHS challenges retroactivity/APA notice issues. | CMS interpretation aligns with regulations and other circuits. | CMS interpretation reasonable; entitled to deference. |
| Whether the going-concern valuation or cost approach governs | Going-concern valuation should be used to determine value. | Cost approach preferred by PM A–00–76 for asset fair value. | Cost approach proper; going-concern valuation rejected. |
Key Cases Cited
- Forsyth Memorial Hosp. v. Sebelius, 639 F.3d 534 (D.C. Cir. 2011) (two-pronged test: bona fide sale and unrelated parties required)
- St. Luke’s Hosp. v. Sebelius, 611 F.3d 900 (D.C. Cir. 2010) (bona fide sale requirement reasonable; fair market value essential)
- Albert Einstein Med. Ctr. v. Sebelius, 566 F.3d 368 (3d Cir. 2009) (reasonable consideration consistent with Medicare purposes)
- Robert F. Kennedy Med. Ctr. v. Leavitt, 526 F.3d 557 (9th Cir. 2008) (endorses reasonable consideration and FMV in bona fide sale analysis)
- Via Christi Regional Med. Ctr. v. Leavitt, 509 F.3d 1259 (10th Cir. 2007) (FMV benchmark; allocation order to assets; reasonable consideration)