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St. Gertrude's Health Ctr. v. Leavitt: US District Court : HEALTH - statutory interpretation regarding new providers, changes in ownership for nursing beds, limiting supply

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
St. Gertrudes Health Center,
a Minnesota non-profit private corporation,
Plaintiff, MEMORANDUM OPINION
AND ORDER
v. Civil No. 07-3955 ADM/JSM
Michael O. Leavitt,
Secretary of Health and Human Services,
Defendant.
______________________________________________________________________________
Laura S. Weintraub, Esq., Johnson, Killen & Seiler, P.A., Duluth, MN, argued on behalf of
Plaintiff.
David W. Fuller, Esq., Assistant United States Attorney, Minneapolis, MN, argued on behalf of
Defendant.
______________________________________________________________________________
I. INTRODUCTION
On July 23, 2008, the undersigned United States District Judge heard argument on
Plaintiff St. Gertrudes Health Centers (St. Gertrude) Motion for Summary Judgment [Docket
No. 9] and Defendant Secretary of Health and Human Services Michael O. Leavitts (the
Secretary) Motion for Summary Judgment [Docket No. 14]. In its Complaint [Docket No. 1],
St. Gertrude seeks judicial review of the Secretarys denial of St. Gertrudes request for a newprovider
exemption from the routine cost limits on Medicare reimbursements. For the reasons
set forth herein, St. Gertrudes Motion for Summary Judgment is denied and the Secretarys
Motion for Summary Judgment is granted.
1 On a motion for summary judgment, the Court views the evidence in the light most
favorable to the nonmoving party. Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir. 1995). As
both parties have moved for summary judgment, any disputed facts are noted.
2 Generally speaking, a SNF is a facility that is primarily engaged in providing skilled
nursing care and related services or rehabilitation services and not primarily for the care and
treatment of mental diseases. 42 U.S.C. 1395i-3(a).
2
II. BACKGROUND1
A. Regulatory Framework
Before addressing the facts involved in this litigation, an overview of certain Medicare
regulations is warranted.
Under the Medicare Act, 42 U.S.C. 13951395iii, a skilled nursing facility (SNF)2
is entitled to reimbursement for the reasonable costs of care for particular services provided to
Medicare patients. See 42 U.S.C. 1395f(b)(1); 42 C.F.R. 413.1(a)(2)(ii), (b), (g).
Reasonable costs are defined as the cost actually incurred, excluding therefrom any part of
incurred cost found to be unnecessary in the efficient delivery of needed health services. 42
U.S.C. 1395x(v)(1)(A). The Secretary, who acts through the Centers for Medicare and
Medicaid Services (CMS), is vested with the discretion to elaborate on this definition through
regulations and to establish limits on the . . . costs . . . to be recognized as reasonable based on
estimates of the costs necessary in the efficient delivery of needed health services. Id.; see also
Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 405 (1993) (Rather than attempt to define
reasonable cost with precision, Congress empowered the Secretary to issue appropriate
regulations setting forth the methods to be used in computing such costs.).
In an effort to encourage Medicare-certified SNFs to operate efficiently, Congress has
instructed the Secretary to establish routine cost limits (RCLs) to serve as a cap on the
3 The new provider exemption is now codified at 42 C.F.R. 413.30(d).
3
maximum amount that the federal government will reimburse a SNF under the Medicare
program. See St. Elizabeths Med. Ctr. of Boston, Inc. v. Thompson, 396 F.3d 1228, 1230 (D.C.
Cir. 2005) (citing 42 U.S.C. 1395f(b), 1395x(v), 1395yy). The Secretary is authorized,
however, to establish appropriate exemptions and exceptions to the RCLs. 42 U.S.C.
1395yy(c). One such exemption promulgated by the Secretary is the new provider
exemption, which allows new SNFs to receive reimbursements without regard to the RCLs
during their first two years of operation. 42 C.F.R. 413.30(e).3
B. Factual and Procedural Background
St. Gertrude is a fifty-one bed SNF located in Shakopee, Minnesota. Admin. R. (A.R.)
[Docket No. 18] at 2, 673. It is a nonprofit corporation solely owned by Benedictine Health
Systems (Benedictine). Id. at 403, 412-14. Construction on St. Gertrude was completed in
1996, the facility opened on November 4, 1996, and it became Medicare certified on November
8, 1996. Id. at 2. In 1996 and continuing to date, Minnesota applies a moratorium, which began
in 1983, on the licensure and medical assistance certification of new nursing home beds and
construction projects that exceed ,000,000. Minn. Stat. 144A.071 (1996). The stated
purpose of the moratorium is to control nursing home expenditure growth and enable the state
to meet the needs of its elderly by providing high quality services in the most appropriate manner
along a continuum of care. Id., subd. 1. Pursuant to the moratorium, the Minnesota
Department of Health (MDH) is required to deny all requests for new licensed or certified
nursing-home beds, subject to certain exceptions, including an exception for the replacement or
relocation of beds to a new facility. Id., subds. 2(b), 4a. Accordingly, when St. Gertrude
4 Seventy-five of Valley Views beds were certified to participate in the Medicare
program. A.R. at 15.
5 Additional special legislation was passed in 1999 increasing to seventy-five the number
of Valley Views beds that were allowed to be relocated, and, as a result, another twenty-four of
Valley Views beds, as well as its Medicaid-eligible patient population, were transferred to St.
Gertrude. A.R. at 16; see Minn. Stat. 144A.073, subd. 5(g) (2000). Valley View ultimately
closed in May 2000 and its remaining beds were decertified. A.R. at 710.
4
opened, licensure of its nursing-home beds was prohibited unless a corresponding number of
beds were eliminated at an existing facility.
Valley View Health Care Center (Valley View) was a 102-bed SNF built in 1980 in
Jordan, Minnesota. A.R. at 3. It was first certified to participate in the Medicare and Medicaid
programs in 1985.4 Id. at 947. It was the only nursing facility in Jordan and approximately
three-quarters of its residents came from the Jordan, Chaska, and Shakopee areas. Id. at 526. In
October 1993, Valley View applied to MDH for a replacement exception from the moratorium
on new nursing-home beds. Id. at 522-99. Valley Views application proposed relocating to a
newly-constructed 102-bed facility in Jordan. Id. at 526. In January 1994, MDH approved
Valley Views proposal determining there was a demonstrated need for a new building to
replace the current facility. Id. at 521. However, the new facility in Jordan was never built. Id.
at 3. Instead, pursuant to special legislation passed by the Minnesota legislature, Valley View
was allowed to relocate to St. Gertrude fifty-one of the 102 beds, which had originally been
planned to be relocated to Jordan, and on November 4, 1996, MDH issued a license to St.
Gertrude to operate a fifty-one bed nursing home. Id. at 3, 374; see Minn. Stat. 144A.073,
subd. 5(g) (1996). Approximately one month later, the number of Valley Views certified beds
was decreased by fifty-one.5 A.R. at 1081.
5
In January 1997, St. Gertrude submitted a request that it be granted a new-provider
exemption from the RCLs for the cost-reporting periods ending on June 30, 1997, and June 30,
1998. Id. at 3, 349. CMS denied St. Gertrudes request, stating that (1) the reallocation and
relocation of 51 beds from Valley View represented a change of ownership; (2) Valley View
was clearly an equivalent provider of skilled nursing and/or rehabilitative services and
operated as a SNF during the three years before the transfer; and (3) the population served as a
result of the transfer did not substantially change, nor was there a change in the primary service
area. Id. at 617-19. St. Gertrude requested a hearing before the Provider Reimbursement
Review Board (PRRB), which reversed CMSs decision. Id. at 623, 646. On July 18, 2007,
the Secretary, acting through the CMS Administrator, reversed the PRRBs decision. Id. at 21.
The Administrator explained that St. Gertrude did not qualify for the new-provider exemption
because St. Gertrude acquired its beds as a result of a change in ownership and the type of
services provided by the prior owner (Valley View) in the three years prior to the opening of St.
Gertrude were the same services for which St. Gertrude is certified. Id. at 20. St. Gertrude
commenced this action under 42 U.S.C. 1395oo(f)(1) to challenge the Secretarys decision,
claiming that it was arbitrary and capricious. Compl. 39.
III. DISCUSSION
A. Standard of Review
Federal Rule of Civil Procedure 56(c) provides that summary judgment shall issue if the
pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); see Matsushita Elec.
6
Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 252 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
St. Gertrudes challenge to the Secretarys decision is subject to judicial review under the
Administrative Procedures Act, which requires that a reviewing court not overturn an agencys
decision unless it is arbitrary, capricious, an abuse of discretion, unsupported by substantial
evidence, or otherwise not in accordance with law. 5 U.S.C. 706(2). The scope of review
under the arbitrary and capricious standard is narrow and a court is not to substitute its
judgment for that of the agency. Motor Vehicle Mfrs. Assn of U.S., Inc. v. State Farm Mut.
Auto Ins. Co., 463 U.S. 29, 43 (1983). [A]n agencys interpretation of its own regulations is
entitled to substantial deference and must be given controlling weight unless it is plainly
erroneous or inconsistent with the regulation. Thomas Jefferson Univ. v. Shalala, 512 U.S. 504,
512 (1994). This broad deference is all the more warranted when, as here, the regulation
concerns a complex and highly technical regulatory program, in which the identification and
classification of relevant criteria necessarily require significant expertise and entail the exercise
of judgment grounded in policy concerns. Id. (quoting Pauley v. BethEnergy Mines, Inc., 501
U.S. 680, 697 (1991)). If the meaning of regulatory language is ambiguous, the reviewing court
should give effect to the agencys interpretation so long as it is reasonable, that is, so long as the
interpretation sensibly conforms to the purpose and wording of the regulations. Martin v.
Occupational Safety & Health Review Commn, 499 U.S. 144, 150-51 (1991) (quotation
omitted).
7
B. The Secretarys Interpretation
The case turns on the interpretation of the new-provider exemption from the RCLs under
42 C.F.R. 413.30(e). To be eligible for the exemption, a SNF must qualify as a new provider,
which is defined as 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. Id. Although the regulation does not define the terms provider
and previous ownership, the Secretary has issued HCFA Pub. 15-1, commonly referred to as
the Provider Reimbursement Manual (PRM), to give further guidance on the new-provider
exemption. The PRM expresses the administrative interpretation of the Medicare statute and
regulations and the considerations involved in determining whether a particular SNF qualifies for
the new-provider exemption. See Shalala v. Guernsey Meml Hosp., 514 U.S. 87, 101-02 (1995)
(referring to the PRM as a set of interpretive rules).
In elaborating on the applicability of the new-provider exemption, the PRM clarifies that
a change of ownership (CHOW) does not in itself make an institution . . . eligible for a new
provider exemption. PRM 2533.1.E. The PRM defines a CHOW as including the
[d]isposition of all or some portion of a providers facility or assets (used to render patient care)
through sale, scrapping, involuntary conversion, demolition or abandonment if the disposition
affects licensure or certification of the provider entity. Id. 1500.7. In addition, the PRM
states, by way of example, that a CHOW occurs when an institution . . . purchases the right to
operate . . . long term care beds from an existing institution . . . that has or is rendering skilled
nursing or rehabilitative services to establish . . . a longer term care facility or to enlarge an
existing long term care facility. Id. 2533.1(E)(1)(b).
8
The Secretary has thus interpreted section 413.30(e) to mean that if a SNF seeking newprovider
status was established through a transfer of assets or rights that are necessary to those
servicesin this case, the transfer of nursing-home beds certified by MDH to participate in the
Medicare programand the previous owner of those assets or rights provided equivalent
services, a CHOW has occurred, and, accordingly, the operation history of the previous owner is
imputed to the SNF. See A.R. at 13-14, 18. If that operation history includes the previous
owner having provided equivalent services during the prior three years, the SNF will be denied
new-provider status. See 42 C.F.R. 413.30(e).
1. Ambiguity
The Secretary contends that section 413.30(e) is ambiguous, and that in light of such
ambiguity, his interpretation is entitled to deference. See Martin, 499 U.S. at 150-51. St.
Gertrude claims that the Secretarys interpretation of section 413.30(e) contradicts the plain
meaning of the regulations and is therefore arbitrary and capricious. Pl.s Mem. in Supp. of
Mot. for Summ. J. [Docket No. 11] at 17. The issue of whether section 413.30(e) is ambiguous
has yet to be addressed by the Eighth Circuit. The circuit courts that have considered the issue
have split. Compare Providence Health System-Washington v. Thompson, 353 F.3d 661, 665
(9th Cir. 2003) (holding that section 413.30(e) is inherently ambiguous); South Shore Hospital,
Inc. v. Thompson, 308 F.3d 91, 98 (1st Cir. 2002) (same); Paragon Health Network v.
Thompson, 251 F.3d 1141, 1148 (7th Cir. 2001) (same), with Ashtabula County Med. Ctr. v.
Thompson, 352 F.3d 1090, 1097 (6th Cir. 2003) (rejecting Paragon and holding that section
413.30(e) is unambiguous), and Maryland Gen. Hosp., Inc. v. Thompson, 308 F.3d 340, 347 (4th
9
Cir. 2002) (rejecting Paragon and holding that the Secretarys interpretation of section 413.30(e)
was inconsistent with the regulations unambiguous language).
The source of apparent ambiguity in section 413.30(e) lies in the terms provider and
previous ownership. See South Shore, 308 F.3d at 98. It is the interplay of those terms that
renders the regulation inherently ambiguous. Providence, 353 F.3d at 665. As the Seventh
Circuit observed in Paragon:
[A] nursing provider is composed of many different attributes, but
changing one or more of these characteristics does not mean that the
SNF becomes a different provider. For example, if a facility fires
all its staff and hires a new one, but makes no other changes, an
ordinary user of the English language probably would consider the
SNF with the new staff to be the same provider as it was before.
Similarly, a SNF that replaced all of its old equipment with new
models, would still be the same provider as it was before the
modernization. Even if a SNF both fired its staff and replaced all of
its equipment, one might still call it the same provider if the
administration and physical plant remained the same. Of course, if
all the various things that made up a SNF were new in the sense that
they had not been part of another facility, then one would have to call
that SNF a new provider. Conversely, if a nursing facility did not
change any of its aspects, it would unquestionably continue to be the
same provider rather than a new one. The difficulty in drawing a line
between these two extremes is what makes the word provider
ambiguous as used in the regulation.
251 F.3d at 1148.
The Secretary claims that St. Gertrude could not function as a SNF without Valley
Views bed rights acquired by means of Minnesotas special legislation, and thus, the transfer of
those bed rights constituted a CHOW that disqualifies St. Gertrude from the new-provider
exemption. St. Gertrude responds that the Secretarys focus on the bed rights is unreasonable
and that because Valley View and St. Gertrude shared no employees, medical staff or
administrators; operated under separate Medicare certifications and separate license; and there
10
was no significant overlap of patients served, no CHOW occurred and St. Gertrude is therefore
a new provider. See Pl.s Mem. in Supp. of Mot. for Summ. J. at 11-12.
Under similar circumstances and in response to similar arguments, the Ninth Circuit aptly
explained that [n]either interpretation is plainly foreclosed by the regulation. Providence, 353
F.3d at 666. Because the regulation is not drawn in blacks and whites but leaves significant
gray areas unresolved, it is ambiguous. South Shore, 308 F.3d at 98. The Court is persuaded
by the reasoning of the First, Seventh, and Ninth Circuits and finds the language of section
413.30(e) to be ambiguous.
2. Reasonableness
Having concluded that section 413.30(e) is ambiguous, the Court must defer to the
Secretarys interpretation if that interpretation is reasonable. See Thomas Jefferson, 512 U.S. at
512. Medicare is a highly complex and technical program, and so deference to the Secretarys
determinations in the course of administering the system is especially warranted. Paragon, 251
F.3d at 1149 (citing Thomas Jefferson, 512 U.S. at 512). In addition, change of ownership is a
term of art in the Medicare context, and, [a]s such, interpretation of the term lies peculiarly
within the compass of the Secretarys expertise. South Shore, 308 F.3d at 100. Furthermore,
the burden is not on the Secretary to prove that his interpretation is reasonable, but rather, [t]he
burden is on the party challenging the Secretarys reasoning to show that it fails to pass muster
under the reasonableness standard. Id. at 101. With these principles in mind, the pivotal
question here is whether the Secretarys position that the operation history of Valley View
should be imputed to St. Gertrude on the ground that the transfer of bed rights from Valley View
11
to St. Gertrude constituted a CHOW is a reasonable interpretation of the regulation. For several
reasons, the Court concludes that the Secretarys interpretation was reasonable.
The end result of the transfer of Valley Views bed rights to St. Gertrude was that no
new nursing home beds were added to the system, but rather, the existing licensed capacity was
moved from one location to another. A.R. at 18. Conceding that Valley View and St. Gertrude
had different employees, medical staff, and administrators; had separate Medicare certifications
and separate licenses; and were owned by different entities, the Secretarys focus on bed rights in
determining that a CHOW occurred may still be reasonable. Because bed rights are an essential
characteristic of providership, it was not unreasonable for the Secretary to focus on bed rights.
Providence, 353 F.3d at 666; see also South Shore, 308 F.3d at 98-99 (stating that bed rights
were a sine qua non for the operation of a nursing home, and holding that it was reasonable for
the Secretary to use the transfer of such rights as a basis for imputing a previous owners
operations to a provider); Paragon, 251 F.3d at 1149 (upholding as reasonable the Secretarys
interpretation that because the transfer of bed rights did not result in any new services, there had
not been a new provider). Moreover, this Court finds the logic of the dissent in Maryland Gen.
Hosp. to be particularly persuasive in evaluating the reasonableness of the Secretarys focus on
bed rights:
Ultimately, it is the Secretarys task to give content to the term new
provider. Unlike the majority, I find that focusing on [bed] rights is
a reasonable exercise of interpretive discretion. . . . Given the
centrality of [bed] rights in defining the class of existing service
providers under state law, it is quite reasonable for the Secretary to
rely on these bed rights in giving meaning to related federal
regulations. . . . Because Medicare is such a complex, regulatory
program, this Court should decline to displace the Secretarys policy
choices in favor of its own.
12
308 F.3d at 350 (Gregory, J., dissenting) (citations omitted).
In addition, the Secretarys determination that a transfer of bed rights such as that
between Valley View and St. Gertrude is a CHOW is consistent with the purpose of the newprovider
exemption. See A.R. at 14; Def.s Mem. in Opp. to Pl.'s Mot. & in Supp. of Def.s Mot.
for Summ. J.[Docket No. 16] at 19. The new-provider exemption was implemented to
recognize the difficulties in meeting the applicable cost limits due to underutilization during the
initial years of providing skilled nursing and/or rehabilitative services. PRM 2533.1(A). Put
another way, the exemption was meant to allow a [new] provider to recoup the higher costs
normally resulting from low occupancy rates and start-up costs during the time it takes to build
its patient population. St. Elizabeths, 396 F.3d at 1230-31 (alteration in original) (quotation
omitted). But in states such as Minnesota, where moratoriums on new nursing-home beds have
been enacted, the moratoriums effectively limit the number of permitted beds and thus reduce
competition among [SNFs]. South Shore, 308 F.3d at 100; see also Paragon, 251 F.3d at 1150
(stating that institutions in moratorium states are insulated from the effects of competition with
new entrants). A new SNF in a moratorium state will therefore be less likely to experience low
occupancy ratesor underutilization to use the PRMs choice of wordsin its early years.
See South Shore, 308 F.3d at 100. Consequently, denying reimbursement above the amount
established by the RCLs to such a SNF is consistent with the purpose of the new-provider
exemption.
Nevertheless, St. Gertrude maintains that the transfer of bed rights from Valley View did
not constitute a CHOW because it did not involve an actual asset exchange, did not affect
Valley Views licensure, and was entirely out of the control of [St. Gertrude]. Pl.s Mem. in
13
Supp. of Mot. for Summ. J. at 9-11. But a CHOW is not limited to dispositions that involve the
exchange of assets and instead can include scrapping, involuntary conversion, demolition or
abandonment. PRM 1500.7. And despite St. Gertrudes argument to the contrary, the
transfer of bed rights here most certainly affected Valley Views licensure. Within one month
after the transfer had been completed, MDH decreased by fifty-one the number of certified
nursing-home beds at Valley View. A.R. at 1081. Thus, as a direct result of the transfer, Valley
Views licensure regarding certified nursing-home beds was reduced to half the number of beds
as before the transfer. See Providence, 353 F.3d at 666 (concluding that a reduction in the
number of licensed beds affected [a providers] licensure). Addressing the argument that the
transfer was accomplished by special legislation and thus was out of St. Gertrudes control,
nothing in the language of the regulation or the PRM precludes the determination that a transfer
under these circumstances constitutes a CHOW. Moreover, St. Gertrude was not an unwilling
recipient of the bed rights, and, in fact, the record includes evidence that the company that
managed St. Gertrude and assisted in its development played a role in lobbying the Minnesota
legislature to pass the special legislation that allowed the bed rights to be transferred to St.
Gertrude in 1996. See A.R. at 514-15.
Because St. Gertrude and Valley View were allegedly not owned by the same entity, St.
Gertrude argues it is in a different posture than the facility in Paragon. This argument was
rejected in South Shore: Insofar as we can discern, relationship through a common corporate
parent will have little effect on whether the transfer of [bed] rights does (or does not) ameliorate
a facilitys underutilization. 308 F.3d at 100. That being the case, there is no principled
reason for treating a SNF that has common ownership with the predecessor facility differently
14
from one that does not when determining eligibility for the new-provider exemption. Id. This
Court agrees with the First Circuits reasoning.
St. Gertrude also makes the related argument that the Secretarys interpretation and
application of section 413.30(e) arbitrarily penalizes states such as Minnesota that have a
moratorium on new nursing-home beds. Specifically, St. Gertrude contends that because the
Secretary deems a transfer of bed rights as constituting a CHOW, no provider in a moratorium
state could ever receive new provider status. Pl.s Mem. in Supp. of Mot. for Summ. J. at 17. It
follows, St. Gertrude maintains, that in a moratorium state, a new SNF would not be able to open
without obtaining bed rights from an existing facility, thus causing the operation history of the
existing facility to be imputed to the new SNF. But as the Seventh Circuit in Paragon explained
persuasively in response to the same argument, the Secretary can rely in part on the states
determination that no new nursing facilities are needed to support a decision that additional beds
are unnecessary to the efficient delivery of health care services in that state. 251 F.3d at 1150.
In sum, the Court concludes that the language of section 413.30(e) is ambiguous and that
the Secretarys decision to impute the operating history of a previous owner of bed rights (Valley
View) to the acquiring SNF (St. Gertrude) is a reasonable interpretation of that ambiguity.
3. Equivalency
Although the transfer of bed rights from Valley View to St. Gertrude constituted a
CHOW, St. Gertrude is disqualified from new-provider status only if a consideration of Valley
Views operation history reveals that it has operated as the [same] type of provider (or the
equivalent) during the prescribed three-year period. 42 C.F.R. 413.30(e). Valley View was a
SNF and was first certified as a Medicare provider in 1985. A.R. at 18, 947. As such, Valley
15
View, like St. Gertrude, provided skilled nursing care and related services and had been doing so
for more than three years prior to St. Gertrudes opening.
In challenging the Secretarys determination that St. Gertrude and Valley View were
equivalent providers, St. Gertrude argues that the patients that it serves are different from those
served by Valley View. Specifically, St. Gertrude alleges that (1) the majority of its patients are
Medicare patients, whereas the majority of Valley Views patients were Medicaid patients and
(2) the patients at St. Gertrude received post-acute care and most stayed only a few days to a
few weeks, while the patients at Valley View were primarily long-term residents, some of
whom stayed for years. Pl.s Mem. in Supp. of Mot. for Summ. J. at 5; Pl.s Mem. in Rep. to
Def.'s Mem. [Docket No. 20] at 5. This argument was also rejected in South Shore, and the
Court is again persuaded by the reasoning of the First Circuit. See 308 F.3d at 105-06.
It is within the discretion of the Secretary to focus not on the particular level of care
provided by a facility but rather on a broader definition of equivalency. Id. at 105. The
Secretarys position is that SNFs that serve Medicare patients and SNFs that serve Medicaid
patients both provide the same basic range of services. See id. at 106. Similarly, a SNF that
serves patients whose stay is relatively shorter and a SNF that serves patients whose stay is
relatively longer both provide the same kind of services, namely, skilled nursing care and related
services. In this regard, the Secretary has advanced a policy as to what costs are reasonable (or
unreasonable) and should (or should not) be reimbursed by the Medicare program. The
Secretarys decision should not be reversed when doing so would require displacing that policy.
Id. at 106. The Court is not persuaded that the claimed differences between the patients served
at Valley View and those served at St. Gertrude renders unreasonable the Secretarys
6 The Administrator determined, in the alternative, that St. Gertrude does not qualify as a
new provider due to the Administrators finding that both St. Gertrude and Valley View were
owned by the same entity. A.R. at 17-18. St. Gertrude challenges this finding of common
ownership, claiming that it is without any factual support in the record. Because St. Gertrude
does not qualify for the new-provider exemption on the ground that the transfer of bed rights
constituted a CHOW and the previous owner operated as an equivalent provider in the three
years prior to St. Gertrudes opening, the challenge regarding the finding of common ownership
will not be addressed here.
16
determination that Valley View and St. Gertrude were equivalent providers. Because Valley
View operated as an equivalent provider in the three years prior to St. Gertrudes opening, St.
Gertrude does not qualify as a new provider under section 413.30(e).6
4. Relocation
The Secretary has interpreted section 413.30(e) to allow existing providers to be eligible
in certain circumstance for the new-provider exemption when the provider relocates. See
Paragon, 251 F.3d at 1150. The PRM explains the circumstances under which a relocation will
warrant new-provider status:
[A] provider which relocates may be granted new provider status
where the normal inpatient population can no longer be expected to
be served at the new location. The distance moved from the old
location will be considered but will not be the determining factor in
granting new provider status. . . . A provider seeking new provider
status must . . . demonstrate that in the new location a substantially
different inpatient population is being served.
PRM 2604.1. When a SNF is established in a new location through the purchase or
reallocation of bed rights, the Secretary considers such an event to be a relocation, thus raising
the question of whether the SNF qualifies as a new provider under the criteria in section 2604.1.
See id. 2533.1.B.3.
17
Here, the Administrator determined that St. Gertrude did not qualify as a new provider
under the relocation provision in section 2604.1 because the patient population served at
[Valley View] can continue to expect to be served at [St. Gertrudes] location, and, therefore,
St. Gertrude cannot demonstrate that, in the new location, a substantially different inpatient
population is being served. A.R. at 19. In support of this determination, the Administrator
found that seventy-three percent of the patients at St. Gertrude came from the same cities and
towns as did the patients at Valley View. See id. at 19. The record supports this finding, and,
accordingly, the Court upholds the Administrators determination that St. Gertrude does not meet
the requirements for qualification as a new-provider based on a relocation. See id. at 914;
Paragon, 251 F.3d at 1150-52 (upholding a determination that a provider did not qualify as a new
provider by virtue of a relocation on the ground that the majority of the patients at the new
location came from the same cities and towns as the patients at the original location did).
18
IV. CONCLUSION
Based upon the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that St. Gertrudes Motion for Summary Judgment [Docket No. 9] is
DENIED and the Secretarys Motion for Summary Judgment [Docket No. 14] is GRANTED.
LET JUDGMENT BE ENTERED ACCORDINGLY.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: October 8, 2008.
 

 
 
 

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