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LIBBIE REHABILITATION CTR., INC. v. SHALALA

October 30, 1998

LIBBIE REHABILITATION CENTER, INC, Plaintiff,
v.
DONNA E. SHALALA, SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, Defendant.



The opinion of the court was delivered by: SPORKIN

On September 18, 1998 plaintiff, Libbie Rehabilitation Center, Inc. ("Libbie" or "the Facility"), filed this action seeking a temporary restraining order to enjoin defendant, Donna E. Shalala, Secretary of the United States Department of Health and Human Services ("the Secretary") from terminating Libbie from the federal Medicare and the joint federal-state Medicaid Acts based on certain deficiencies which the Secretary found at Libbie.

 This Court held a hearing on September 25, 1998 and the parties subsequently drafted a stipulated Order which the Court signed on October 6, 1998. The Order, inter alia, temporarily restrained the Health Care Financing Administration ("HCFA" or "the Government"), a Division of the Department of Health and Human Services, from terminating Libbie's Provider Agreement and provided for the appointment of a temporary manager to operate the Facility. *fn1"

 On October 10, 1998, the Virginia Department of Medical Assistance Services ("DMAS"), which is responsible for administration of the Virginia Medicaid Program, appointed Douglas Wright of Agape Healthcare, Inc. as the temporary manager and this Court approved that appointment. Mr. Wright reported to this Court on October 14, 1998 that the Facility would be ready for a resurvey within a short time. On October 13, 1998 Libbie filed a Motion to Convert the Temporary Restraining Order Into a Preliminary Injunction. The Government subsequently filed a Motion to Dismiss. The Court conducted a hearing on the motions on October 27, 1998. After hearing arguments from both parties and testimony from five witnesses, and after reviewing the papers, including fifteen exhibits submitted by the plaintiff and eleven submitted by the defendant, the Court issues the following findings of fact and conclusions of law.

 I. Background

 Libbie owns and operates a 195-bed skilled nursing facility known as "Libbie Convalescent Center" located in Richmond, Virginia. The Facility is licensed by the State of Virginia. Libbie is a wholly-owned subsidiary of Retirement Care Associates, Inc., which in turn, is a wholly-owned subsidiary of SunRise Healthcare Group, Inc. ("SunRise"), a New York Stock Exchange listed corporation organized and existing under the laws of Delaware. SunRise's principal place of business is in Albuquerque, New Mexico. SunRise has managed Libbie since mid-1997. In July 1998 SunRise acquired Retirement Care Associates, Libbie's parent company. Libbie has received payments from the Medicare program since 1995 and has received payments from the Medicaid program for more than 20 years.

 Facilities that receive payments from the Medicare and Medicaid programs must be certified pursuant to federal regulations set forth in 42 C.F.R. §§ 483.1 et seq. (Medicare) and 42 C.F.R. §§ 442.1 et seq. (Medicaid). The facilities are surveyed periodically by state agencies which make findings and recommendations to the Secretary regarding each facility's compliance with the regulations. The Virginia Department of Health ("VDH") is the designated state survey agency for the state of Virginia.

 Libbie had a mixed record of compliance over the years, but after SunRise took over management of the facility in 1997, VDH found no deficiencies at its regular survey in December 1997. Shortly thereafter, in February 1998, VDH received a complaint about Libbie and a "complaint survey team" conducted a "complaint survey," during which it found a number of deficiencies and found that Libbie's residents were in "immediate jeopardy" and were receiving a "substandard quality of care." Libbie corrected certain of its problems and VDH withdrew the "immediate jeopardy" finding.

 Following the February survey Libbie submitted a plan of correction and was re-inspected in May 1998. The survey team found that some of the previously cited deficiencies had been corrected, some had not and some new deficiencies had arisen. The new deficiencies were not deemed to pose "immediate jeopardy" to the residents or to constitute a "substandard quality of care." On June 22, 1998 Claudette V. Campbell, the Associate Regional Administrator of HCFA informed Libbie that if it had not regained "substantial compliance" by September 3, 1998, the Secretary would impose various remedies against it, including possible substantial civil penalties, a ban on new admissions, and "termination" (the termination date was later extended to September 23, 1998). Following the May survey Libbie submitted another plan of correction and in August the VDH team conducted another follow-up survey. The team made the same findings that it had made after the May survey (i.e., some deficiencies had been corrected, some remained and some new ones had arisen).

 On August 25, 1998 Libbie submitted additional information to the Secretary and VDH to demonstrate compliance and requested a follow-up survey. However, on September 10, 1998 the Secretary informed Libbie that no further surveys would be conducted and that the Facility would be terminated as of September 28, 1998. Relocation of Libbie's residents was scheduled to begin on September 16, 1998, but was postponed pending resolution of Libbie's motion for a temporary restraining order.

 II. Discussion

 A. Jurisdiction

 Libbie appealed the results of the August survey and requested an expedited administrative hearing to challenge HCFA's findings of non-compliance. At the October 27, 1998 Court proceeding, counsel informed the Court that the Administrative Law Judge had scheduled the administrative hearing for January.

 The Medicare and Medicaid Acts contain requirements that claimants must pursue their administrative remedies before seeking judicial review, 42 U.S.C. §§ 405(g) and (h). While Libbie has not yet had its administrative hearing, this Court finds that it has jurisdiction over this cause of action because a claim challenging the Secretary's authority for failure to adhere to the specific requirements of the Medicare Act in ordering a "termination" of benefit payments is "entirely collateral" to a claim for benefits and, therefore, falls outside the jurisdiction restrictions of §§ 405(g) and 405(h). See International Long Term Care, Inc. v. Shalala, 947 F. Supp. 15 (D.D.C. 1996). As found by Judge Friedman in a similar case:

 
Despite the ALJ's effort to reach a decision before plaintiff's funding terminates, plaintiff's funding will end. . . the day before the administrative hearing begins. As a result, plaintiff might well be forced to close its doors, and the residents might have to be transferred during the very period when the hearing and post-hearing briefing. . . are taking place. This is just the ...

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