Opinion for the Court filed by Circuit Judge SENTELLE.
St. Elizabeth’s Medical Center of Boston (“St. Elizabeth’s”) appeals from a summary judgment entered by the United States District Court in favor of appellee Thompson, Secretary of Health and Hu
I. Glossary
Because of the numerous acronyms and terms of art employed in this opinion, we provide a brief glossary.
APA Administrative Procedure Act
CMS Centers for Medicare and Medicaid Services
HCFA Health Care Financing Administration
HHS Department of Health and Human Services '
NF nursing facility
PRM Provider Reimbursement Manual
PRRB Provider Reimbursement Review Board
RCLs reasonable cost limits
SNF skilled nursing facility
St. Elizabeth’s St. Elizabeth’s Medical Center of Boston (Appellant)
TCU transitional care unit
II. Background
A. Regulatory Scheme
The Social Security Act provides for the reimbursement of “reasonаble costs” of care for Medicare patients-primarily the elderly and certain disabled people-to Medicare-certified skilled nursing facilities.
See
42 U.S.C. § 1395
et seq.
The Centers for Medicare and Medicaid Services (“CMS”)- (formerly known as the Health Care Financing Administration (“HCFA”)), administers Medicare on the Secretary’s behаlf.
See Community Care Foundation, v. Thompson,
Seeking to encourage Medicare-certified providers to operate efficiently, Congress has instructed the Secretary of HHS (who now acts through CMS) to cap payments under these programs at what he determines to be reasonable cost limits (“RCLs”),
see
42 U.S.C. § 1395f(b), and apply statutory norms in the determination,
see
42 U.S.C. § 1395x(v);
see also
42 U.S.C. § 1395yy (setting specific norms for the determination of RCLs for SNFs). With respect to reimbursements -for routine care at SNFs, the Secretary is authorized to establish appropriate exemptions to these caps.
See
42 U.S.C. § 1395yy(c). One such exemption is the “new provider exemption,” which allows providers of skilled nursing services to reсeive reimbursement at a higher rate for the first two years of operation.
See
42 C.F.R. § 413.30(e) (1997) (now codified at 42 C.F.R. § 413.30(d)). According to the Provider Reimbursement Manual (“PRM”), a compilation of interpretive rules published by HHS,
see St. Luke’s Hospital v. Thompson,
The new provider exemption provided at the time that:
Exemрtions from the limits imposed under this section may be granted to a new provider .... A new provider is a provider of inpatient services that has operated as the type of provider (or the equivalent) for which it is certified under Medicare, under present and previous ownership, for less than three full years.
42 C.F.R. § 413.30(e) (1997). This mеans, that, to qualify for the new provider exemption, a facility must show that it is either (1) new, or (2) operating for the first time as a SNF or equivalent. It follows logically that facilities that (1) have operated before under “present or previous ownership,” and (2) have operated as a SNF or equivalent, cannot qualify аs “new providers.” In some instances, the new provider exemption may also be available to relocated providers, provided they can show that “in the new location a substantially different inpatient population is being served.” PRM § 2604.1.
Given the complex state and federal administrative schemes that nursing сare providers must navigate to set up a SNF, it is not always obvious whether a newly opened facility has operated before under previous ownership. -Several states, for example, require that new facilities purchase the right to offer the new beds they plan to make available, so as to keep the total number of nursing home beds in the state constant.
See, e.g., Ashtabula County Medical Center v. Thompson,
B. Factual and Procedural Background
In 1996, St. Elizabeth’s opened a transitional care unit (“TCU”) using operating rights purchased from the Friel Nursing Home, an extant nursing home in Quincy, Massachusetts. St. Elizabeth’s purchased thоse operating rights for the sole purpose of obtaining a determination of need (“DON”) from the Massachusetts Department of Public Health-then necessary under state law to opening a new nursing facility. (At the time, Massachusetts had imposed a moratorium on creating new nursing home beds in the state, which meant that anyone seeking to open new nursing facilities had to first obtain the operating rights to existing nursing beds.) Before St. Elizabeth’s opened the TCU in October of that year, Friel ceased operations completely.
The TCU, which qualifies as a SNF under the Medicare statute, 42 U.S.C. § 1395x(j), see HHS Letter of November 27, 1996, provides rehabilitativе care for patients recovering from major surgery who “no longer require the intensity and scope of invasive procedures, yet, have complex medical and therapeutic manage
In January 1997, St. Elizabeth’s applied to CMS for the new provider exemption for the new TCU. CMS denied' St. Elizabeth’s request, on the basis that (1) the TCU “was established due to the purchase and relocation of 29 long term care beds from [Friel],” which (2) as a Medicaid-certified nursing facility (“NF”), provided the same “type of services” as the TCU. HHS Letter of June 23, 1997. In other words, CMS determined that because the TCU acquired operating rights from Friel, it in effect operated previously under other ownership.’ ■ Further, CMS determined that- Friel’s status • as a nursing facility qualified it. as- ■ a SNF or its equivalent. Because, according to CMS, the TCU had operated before under “рresent or previous ownership” as a SNF or equivalent,- it could not qualify as a “new” provider under 42 C.F.R. § 413.30(d). The CMS further concluded that the TCU was not entitled to the new provider exemption as a relocated facility, because the TCU’s inpatient population was not substantially different from Friel’s.
St. Elizabeth’s appealed this decision to the Provider Reimbursement Review Board (“PRRB”), which reversed the CMS, determining that the TCU was entitled to the new provider exemption because mere “acquisition of bed rights” did not amount to an existing facility changing-hands.- HHS PRRB Dec. No.2002-D49 (Sept. 30, 2002), reprinted in J.A. 83 at 117, 119.
In December 2002, the Secretary, acting through the CMS Administrator, reversed the PRRB’s decision. Decision of the Administrator, Review of PRRB Dec. 2002-D49. In January 2003, St. Elizabeth’s filed suit in the U.S. District Court for the District of Columbia, challenging the Administrator’s decision as arbitrary and capricious in violation of section 706 of the Administrative Procedure Act (“APA”), 5 U.S.C. § 706. See Complaint, J.A. at 1. The District Court heard the challenge under 42 U.S.C. § 1395oo(f), which provides for judicial review of the final HHS decision.
In its complaint, St. Elizabeth’s argued that the decision was arbitrary and capricious, and unsupported by substantial evidence on three main grounds: (i) Friel’s operating rights were never actually transferred to the TCU; (ii) even if they were transferred, the TCU -was a “new provider” because transfer of -bed operating rights did not, amount to a transfer of ownership, and Friel never operated as a SNF; and (iii) regardless, the TCU qualified for the PRM’s relocated provider exemption. J.A. at 13. Resolving cross motions for summary judgment, the district court ruled in favor of HHS, on the basis that “the Secretary’s determinations that Friel was -the previоus owner of the TCU, Friel operated as the equivalent of a SNF for over 3 years and St. Elizabeth’s is not a relocated proyider [we]re rationally connected to the facts[.]”
St. Elizabeth’s appeals from that decision, reasserting the arguments made in its original complaint before the District Court. We have jurisdiction under 28 U.S.C. § 1291, and reverse on the basis that the Administrator lacked substantial evidence to conclude that Friel operated as
III. Discussion
A. Standard of Review
The Administrator’s decision can be set aside only if it is “unsupported by substantial еvidence,” or “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(E); see 42 U.S.C. § 1395oo(f)(l) (providing that judicial review of HHS reimbursement decisions shall be made under APA standards). Because we apply the same standard of review as the district court, we proceed de novo, as if the case were before us on direct appeal from the administrative hearing below.
Tenet HealthSystems HealthCorp v. Thompson,
B. Equivalent Provider Status
As related above, CMS concluded that the St. Elizabeth’s TCU did not qualify for the new provider exemption because (1) the fact that it was opened using operating rights acquired from Friel meant it had already been in operation under prior ownership, and (2) Friel “was an equivalent provider of skilled nursing and/or rehabilitative services.” Decision of Administrator at 11. Under the terms of the governing regulation, both conclusions had to be made to disqualify the TCU from the exemption. See 42 C.F.R. § 413.30(e) (1997).
To come to the second conclusion-that Friel opеrated as a SNF or its equivalent-CMS relied primarily on the fact that Friel was a Medicaid-certified NF and operated as such. Id. Specifically, the Administrator reasoned:
[B]oth Medicare SNFs and Medicaid NFs are required to provide directly or indirectly, the same basic range of services. These ranges of services include those nursing services and specialized rehabilitative services needed to attain or maintain each resident’s highest practicable level of physical, mental, and psychological well-being. Consequently, the fact that the prior owner of the [TCU’s] DON rights was a NF supports the conclusion that it [was] clearly an equivalent provider оf skilled nursing and/or rehabilitative services ....
Id. As a comparison of the statutory definitions of NFs and SNFs reveals, this reasoning is flawed. The Medicaid statute defines a NF as:
An institution (or a distinct part of an institution) which
(1) is primarily engaged in providing to residents:
(A) skilled nursing-care and related services for residents who require medical or nursing care,
(B) rehabilitation services for the rehabilitation of injured, disabled, or siсk persons, or
(C) on a regular basis, health-related care and services to individuals who because of their mental or physical condition require care and services (above the level of room and board) which can be made available to them only through institutional facilities ....
42 U.S.C. § 1396r(a) (emphasis added). In contrast, Medicare defines a SNF as an institution that:
(1) is primarily engaged in providing to residents—
(A) skilled nursing care and related services for residents who require medical or nursing care, or
(B) rehabilitation services for the rehabilitation of injured, disabled, or sick persons, and is not primarily forthe care and treatment of mental diseases ....
42 U.S.C. § 1395i-3(a) (emphasis added).
It is evident that the range of services provided by a NF can encomрass skilled nursing or rehabilitative care. Some facilities may, indeed, qualify as both NFs and SNFs. However, ’a facility must be primarily engaged' in providing skilled nursing or rehabilitative care to qualify as a SNF, whereas a facility need not even offer such services at all to qualify as a NF. Thus, the bare fact that an institution has gained NF status or is operating as,a NF, without more, is not sufficient to qualify the NF as a SNF or its equivalent. To do so, a NF would additionally have to be “primarily engaged in providing ... skilled nursing care and related services ... or rehabilitation services .... ” 42 U.S.C. § 1395i — 3(a)(1).
The record evidence is all to the effect that Friel was primarily engaged in providing custodial care to its residents; it does not show that Friel was primarily engaged in providing skilled nursing and/or rehabilitative services. The Government points out that Friel provided some treatment of bed sores, vitamin injections, and some unspecified rehabilitation as skilled nursing care, see Govt. Br. at 52-54. But the underlying documentary evidence as tо the provision of these services suffices only to' show that Friel occasionally provided this limited range of services. Thus, the CMS conclusion that Friel was a SNF or equivalent must be overturned for lack of substantial evidence, under 5 U.S.C. § 706(E)(2).
C. Remedy
Because the second CMS decision, representing the final HHS decision, is invalid, we reinstate the September 30, 2002 PRRB decision granting the TCU the new provider exemption. HHS PRRB Dec. No.2002-D49. But one final question remains to be answered: Is the St. Elizabeth’s TCU entitled to reimbursement for the costs above the reasonable cost limits that it incurred in just 1997, or for the successive fiscal year, as well. (Recall that the new provider exemption covers new facilities for their first two years of operation.) St. Elizabeth’s argues that it is entitled to additional monies for both years, because the exemption “has a defined multi-year period of duration.” Aplt. Br. at 62. The Government responds that this court can only order additional reimbursement for the fiscal year ending in September 1997, because, when it started the administrative appeal process, St. Elizabeth’s had only received a CMS opinion on reimbursement for that year. Govt. Br. at 58. The Government further contends that we have no jurisdiction over any subsequent cost reporting period(s), because St. Elizabeth’s only exhausted administrative remedies for 1997. Id. at 59.
This isn’t quite true. In a separate jurisdictional decision, the PRRB determined that its decision, if rendered in favor of the TCU, would apply to “multiple fiscal years.” HHS PRRB Jurisdictional Decision in Case No. 98-0489,
reprinted in
J.A. 131, 133. Which years, exactly, remains to be decided, as the PRRB reserved the right to determine the specific cost-reporting periods for which the TCU is entitled to the exemption “should it find for the [TCU] with regard to the substance of the issue under dispute.”
Id.
The PRRB has not yet done so. The Government is right, in a sense, that we do not have jurisdiction over the issue of the specific years for which the TCU is entitled to additional reimbursement, because there has therefore been no final agency decision on that count. But insofar as it is arguing that we can only order reimbursement for the fiscal year ending in September 1997,
IV. Conclusion
The Secretary’s determination, through the CMS, that St. Elizabeth’s was not entitled to the new provider exemption to reasonable cost limits for Medicare reimbursement is not supported by substantial evidence, because there was no evidentiary basis for the conclusion that Friel operated as a SNF or its equivalent. The district court erred in concluding otherwise. Accordingly, we reverse the summary judgment. We further order that the case be remanded to the Department of HHS for a formal determination of the cost-reporting periods to which that decision applies.