Case Information
*1 regulations was unreasonable and granted summary judgment
Before: BOGGS, Chief Judge; NORRIS and CLAY, to ACMC. Ashtabula County Med. Ctr. v. Thompson , 191 F. Cirсuit Judges. 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.
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
*2
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 рart 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
beds on its premises, and the application was granted in
October 1995. ACMC, whiсh 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 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 equivalеnt) 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 оf 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 sеrvice costs,” which include Although a complete change in the operation of the things like a room, board, and nursing care. Whenever a institution . . . shall affect whether and how long a SNF’s routine service costs go over per diem cost limitations, *3 provider shall be considered a “new provider,” changes they are deemed unreasonable. The manner in which the of the institution’s ownеrship or geographic location do applicable routine service cost limits, referred to as “RCLs,” not in itself alter the type of health care furnished and are calculated has been adequately summarized elsewhere by shall not be considered in the determination of the length this court. See St. Francis Health Care Ctr. v. Shalala , 205 of operation. F.3d 937, 940-41 (6th Cir. 2000). However, for purposes of this provision, a provider
As the passage quoted from the district court’s opinion
which relocates may be granted new provider status
makes clear, the central issue in this appeal is an exception to
where the normal inpatient population can no longer be
the RCL restrictions, known as “the new provider
exemption.” As the Provider Reimbursement Manual
(“PRM”)
[1]
explains, “42 C.F.R. § 413.30(e) provides for an
expеcted to be served at the new location. . . .
HCFA Pub. 15-1 § 2604.1, at 26-4 (1984).
exemption from the SNF routine service cost limits for new
providers. This provision was implemented to recognize the
As already mentioned, ACMC purchased the right to
difficulties in meeting the applicable cost limits due to
operate fifteen nursing home beds from ACH in 1995. For its
underutilization during the initial years of providing skilled
part, ACH had provided skilled nursing care since 1989.
nursing and/or rehabilitative services[.]” HCFA Pub. 15-1
ACMC paid $112,500 to acquire the beds from ACH, which
reimb ursem ent.
The PR M contains the interpretive rules regarding Medicare
obtained a CON from the State of Ohio, as well as Medicare
it then relocated to its hospital complex. In the process, it
certification.
ACMC sought the new provider exemption described
. . . The Court . . . concludes that the term “рrovider” 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 thе 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,
ACMC appealed to the district court pursuant to 42 U.S.C. Applying the plain meаning 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 ambiguous. [2] The district court viewed the following as the come into existence. Because ACMC’s distinct part SNF 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 exemption? In the alternative, the district court assumed arguendo that the term “provider” was ambiguous. If so, then the
The district court first determined that the term “provider” Secretary’s positiоn must be affirmed unless it is “arbitrary, as used in the regulation was unambiguous and that the capricious, an abuse of discretion, or otherwise not in Secretary had erred in applying it:
accordance with law[.]” 5 U.S.C. § 706(2)(A) (APA). The
district court concluded that the Secretary’s interpretation was
(or the equivalent) for which it is certified for Medicare, under present
is a provider of inpatient services that hаs operated as the type of provider
and previous ownership, for less than three full years.” 42 C.F.R.
§ 413.30 (e) (1995).
As a reminder, the new provider exemption reads, “A new provider
*4
arbitrary and capricious.
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 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.” at 1144. With respect to the ambiguity same “provider” if thе 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 *5 Nos. 02-3410/3425 Ashtabula County Med. 12 Ashtabula County Med. Nos. 02-3410/3425
Ctr. v. Thompson Ctr. v. Thompson
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. Thе is not ambiguous, and explicitly rejected the reasoning of Seventh Circuit’s reasoning actually focuses on the . 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 therefоre 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 оr 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 . . . Section 413.30(e) does not define “provider,” but the
existence as a result of the transaction.
structure and wording of the regulation suggest that the
Ashtabula County Medical Ctr.
,
the meaning attached to a similar term in another part of Although the term “provider” is not dеfined 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 14
in the version of Medicare’s “Provider Reimbursement at 346 (emphasis in original). Manual” . . . in effect at the time MGH purchased the The fact that a circuit split еxists on this question indicates beds . . . . These repeated references to an “institution” that it is a very close call and, in one sense, supports the indicate that application of the new provider exemption Secretary’s contention that the regulation is ambiguous. depends upon the ownership and operation of the However, we conclude that the language of section 413.30(e) business entity that is providing the skilled nursing has a plain meaning. As the Fourth Circuit held, a “provider” services. There is no dispute that neither MGH nor any is nothing more than a “business institution that is providing previous owner of MGH had provided inpatient skilled *6 . . . skilled nursing services.” Maryland General , 308 F.3d at nursing services before the Transitional Care Center was 346. Everything about ACMC’s facility is new except for the established. Thus, it would appear that MGH meets the CON rights. It is housed in a new building and has new requirements for a “new provider” as set forth in 42 patients, a new staff, and a new corporate identity. The kind C.F.R. § 413.30(e).
of corporate shenanigans feared by the Secretary did not 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 Nоtwithstanding 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 serviсes. If that institution, Having affirmed the judgment of the district court, we turn whether under its current or prior ownership, has to ACMC’s motion for costs and interest filed pursuant to operated as a skilled nursing facility for more than three 42 U.S.C. § 1395oo(f). The costs sought are negligible: years, then it is not entitled to the new provider $399.10; interest, which is yet to be determined, will exemption. If that institution under current or prior presumably be more signifiсant. As mentioned earlier, the ownership has not previously operated as a skilled district court did not explicitly rule on this matter when it nursing facility, then it is entitled to the new provider granted a stay. exemption, even if the institution has purchased some of
its assets from skilled nursing facilities that have
operated for more than three years.
Notes
[3]
Shortly after the Fourth Circuit reached its conclusion, the First
Circuit came out precisely the other way.
South Shore Hosp., Inc. v.
Thompson
,