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September 18, 2002


The opinion of the court was delivered by: Huvelle, District Judge.


Plaintiffs are Beverly Health and Rehabilitation Services, Inc., which owns and operates 300 nursing homes nationwide, and its subsidiary Beverly Enterprises — Florida, Inc., the licensee in the State of Florida for Beverly Health and Rehabilitation — Spring Hill ("Spring Hill"). Prior to June 2, 1998, Spring Hill had contracts with the Health Care Financing Administration ("HCFA"), a subagency of the Department of Health and Human Services ("HHS"), and the State of Florida, to provide nursing home services to beneficiaries of the federal Medicare program and the Florida Medicaid program, pursuant to sections 1819 and 1919 of the Social Security Act, 42 U.S.C. § 1395i-3, 1396r.

On June 2, 1998, the Secretary of HHS terminated Spring Hill's contract to participate in the Medicare and Medicaid programs. This termination decision was upheld by an Administrative Law Judge, and thereafter affirmed by the Appellate Panel, Departmental Appeals Board, HHS. Plaintiffs have now sued Tommy Thompson, in his official capacity as the Secretary of HHS, and Thomas A. Scully, in his official capacity as Administrator of CMS.*fn1

Section II: Do Plaintiffs Have Standing to Challenge the Survey Protocol?
Section III: Does Defendants' Use of the Survey Protocol Violate the Statute, the APA, or the Fifth Amendment?
Section IV: Can the Survey Protocol Be Used as An Enforcement Tool If It Was Not Promulgated Through Notice and Comment Rulemaking Proceedings?
Section V: Are Defendants' Enforcement Regulations Invalid Because of a Failure to Respond to Comments Regarding the Invalidity of the Survey Protocol or to Disclose the Abt Study?
Section VI: Was the Termination Decision Arbitrary and Capricious, Not in Accordance with Law, or In Violation of Plaintiffs' Rights to Due Process and Equal Protection under the Law?

As explained more fully below, the Court will not reverse defendants' decision to terminate Spring Hill, enjoin the agency's use of the protocol, or invalidate the agency's enforcement regulations. Therefore, plaintiffs' motion for summary judgment will be denied, and summary judgment is entered in favor of defendants.


A. Pre-OBRA '87 History

Congress has maintained a longstanding, continuing concern with the well being of America's elderly population, and today the nursing home industry is heavily regulated and monitored by the government through HHS and its subagency HCFA. The government began its attempts to regulate nursing homes in 1935 with the passage of the Social Security Act. (R.R.*fn3 at 253, Institute of Medicine, Improving the Quality of Care in Nursing Homes (1986).)*fn4 The creation of Medicare and Medicaid in 1965 changed the landscape regarding regulation of nursing homes, as federal funding and agency oversight of nursing homes expanded. (See id. at 256.) Ultimately, a major overhaul of the nursing home regulatory system occurred in 1987 with the passage of the Omnibus Budget Reconciliation Act of 1987 ("OBRA '87"), H.R.Rep. No. 100-391(I), at 452 (1987), reprinted in 1987 U.S.C.C.A.N. 2313-1, 2313-272. It is this Act and the regulations promulgated thereunder, as well as the survey protocol used to monitor compliance with the regulations, that is at issue here.

However, before the Court can address these legislative and regulatory developments, it is necessary to digress momentarily to discuss the protracted litigation in Smith v. Bowen that took place beginning in the 1970s and lasted through the 1990s. In 1975, Medicaid recipients filed a class action lawsuit seeking to require the agency to meet its statutory duty to provide residents of nursing homes with adequate care. See Estate of Smith v. O'Halloran, 557 F. Supp. 289 (Colo. 1983), rev'd sub. nom., Estate of Smith v. Heckler, 747 F.2d 583 (10th Cir. 1984). In 1984, the Tenth Circuit reversed the district court's decision and held that the agency had failed to meets its statutory duty of examining whether facilities were providing adequate care. See Estate of Smith, 747 F.2d at 589-90. The Tenth Circuit concluded:

The Secretary of Health and Human Services ha[d] a duty to establish a system to adequately inform herself as to whether the facilities receiving federal money are satisfying the requirements of the Act. These requirements include providing high quality patient care. This duty to be adequately informed is not only a duty to be informed at the time a facility is originally certified, but is a duty of continued supervision. Nothing in the Medicaid Act indicates that Congress intended the physical facilities to be the end product. Rather, the purpose of the Act is to provide medical assistance and rehabilitative services. 42 U.S.C. § 1396. The Act repeatedly focuses on the care to be provided, with facilities being only part of that care.

Id. at 589. The Tenth Circuit issued an order requiring the Secretary "to promulgate regulations which will enable her to be informed as to whether the nursing facilities receiving federal Medicaid funds are actually providing high quality medical care." Id. at 591. As to implementation of the remedy, the Court, however, recognized that it was not a "super agency" and could not control "the specifics of how the Secretary satisfie[d] the duty." Id.

Thereafter, on remand in 1985, the district court ordered the Secretary of HHS to "develop and publish a notice of proposed rule making, consistent with the requirements of the APA, regarding a new survey system which will enable the Secretary to perform the duty prescribed by the Tenth Circuit Court of Appeals." Estate of Smith v. Heckler, 622 F. Supp. 403, 411 (Colo. 1985). In March 1987, the court required the Secretary to publish a Notice of Proposed Rule Making ("NPRM") that included the guidelines and forms of the survey protocol. Estate of Smith v. Bowen, 656 F. Supp. 1093 (Colo. 1987). In response, the Secretary published an NPRM on July 1, 1987. See 52 Fed. Reg. 24752 (July 1, 1987). In December 1987, upon plaintiffs' motion for contempt, alleging that the NPRM was defective because it contained only substantive standards of care, the court concluded that the agency was technically in contempt of court and must "promulgate regulations to effectuate the congressional purpose. . . . Under the Act, the states are responsible for establishing health standards and for determining whether institutions meet and continue to satisfy the requirements for participation in the Medicaid program." Estate of Smith v. Bowen, 675 F. Supp. 586, 589 (Colo. 1987). The court stated:

Id. at 589 (emphasis added).

As the Smith litigation was proceeding, the legal landscape was shifting throughout the 1980s. Congress and HCFA increased their focus on remedying the serious deficiencies in the nursing home regulatory system. In 1983, HCFA contracted with the Institute of Medicine to conduct a study on nursing home care in America and how it could be improved. HCFA was concerned that nursing homes were not providing a sufficient level of care and that the enforcement system was too lax. As a result, IOM published its report in 1986, entitled Improving the Quality of Care in Nursing Homes ("IOM Report"), which concluded that "[t]here is broad consensus that government regulation of nursing homes, as it now functions, is not satisfactory, because it allows too many marginal or substandard nursing homes to continue in operation." (R.R. at 17.) The IOM Report noted that too many government certified nursing homes provided "very inadequate — sometimes shockingly deficient — care." (Id.) It also indicated that many studies of nursing home care, which were conducted in the 1970s and 1980s, identified "both grossly inadequate care and abuse of residents." (Id. at 18.)*fn5 The IOM Report reached the following conclusions:

(1) quality of care and quality of life in many nursing homes are not satisfactory;
(2) more effective government regulation can substantially improve quality in nursing homes and a stronger federal role is necessary;
(3) specific improvements are needed in the regulatory system;
(4) there are opportunities to improve quality of care independent of changes in Medicaid payment policies or bed supply;
(5) regulation is necessary but not sufficient for high-quality care;
(6) a system to obtain standardized data on residents is essential; and
(7) the regulatory system should be dynamic and evolutionary in outlook.

(Id. at 36-39.)

With respect to the regulatory system, the IOM Report recommended that the requirements imposed on nursing homes to participate in the Medicare and Medicaid programs be strengthened. IOM concluded that the three central requirements needed to provide sufficient nursing home care were: "(1) a competently conducted, comprehensive assessment of each resident; (2) development of a treatment plan that integrates the contributions of all relevant nursing home staff, based on the assessment findings; and (3) properly coordinated, competent, and conscientious execution of all aspects of the treatment plan." (Id. at 63.) Among its recommendations for improving the regulatory system, IOM proposed a two-stage survey process with a standard and an extended survey taking place after a preliminary assessment. (Id. at 129-30.)

B. OBRA '87

On December 22, 1987, Congress passed OBRA '87, Pub.L. No. 100-203, which imposed strict new requirements on nursing homes and enacted measures to improve the enforcement process. In an effort to improve the quality of care that Medicare and Medicaid recipients were receiving in such facilities, Congress adopted many of the recommendations of the IOM Report and revised the conditions it required for facilities to participate in the Medicare and Medicaid programs, the survey, and certification process used to oversee participating facilities, and the sanctions that were to be imposed on noncompliant facilities. In enacting OBRA '87, "the central purpose . . . [wa]s to improve the quality of care for Medicaid-eligible nursing-home residents, and either to bring substandard facilities into compliance with Medicaid quality of care requirements or to exclude them from the program." H.R.Rep. No. 100-391(I) at 452, reprinted in 1987 U.S.C.C.A.N. at 2313-272.

In OBRA '87, Congress established over 100 conditions for facilities to receive Medicare and Medicaid funds. To monitor compliance with these conditions, nursing homes have to enter into provider agreements that permitted unannounced annual standard surveys under 42 U.S.C. § 1395i-3(g) and 1396r(g). Pursuant to contracts with state agencies, state surveyors have to conduct yearly surveys to determine whether nursing homes are meeting their statutory requirements. See id. §§ 1395aa, 1395i-3(g), 1396r(g). Surveyors must use a "case-mix stratified sample of residents," and conduct "a survey of the quality of care furnished" by the facility as measured by various quality of life and of care indicators, an evaluation of resident assessments, and a review of the facility's compliance with residents' rights. Id. §§ 1395i-3(g)(2)(A)(ii), 1396r(g)(2)(A)(ii). If surveyors conclude that a nursing home provides "substandard quality of care," then an extended survey is done immediately. See id. §§ 1395i-3(g)(2)(B), 1396r(g)(2)(B).

Under OBRA '87, state "surveyors" must conduct these surveys using a "survey protocol" that has been "developed, tested, and validated." 42 U.S.C. § 1395i-3(g)(2)(C), 1396r(g)(2)(C). The survey protocol consists of the forms, procedures, and guidelines that state surveyors use in assessing compliance by nursing homes with their statutory obligations. The survey is to be conducted by a "multidisciplinary team of professionals," which must include a registered professional nurse. Id. §§ 1395i-3(g)(2)(E), 1396r(g)(2)(E). The Secretary must provide for "the comprehensive training of State and Federal surveyors in the conduct of standard and extended surveys." Id.*fn6

With respect to the requirements of the survey protocol, OBRA '87 specifies that:

Standard and extended surveys shall be conducted —

(i) based upon a protocol which Secretary has developed, tested, and validated by not later than January 1, 1990, and
(ii) by individuals, of a survey team, who meet such minimum qualifications as the Secretary establishes by not later than such date.

Id. §§ 1395i-3(g)(2)(C)(i), 1396r(g)(2)(C)(i). OBRA '87 also specifies that: "Each State shall implement programs to measure and reduce inconsistency in the application of survey results among surveyors." Id. §§ 1395i-3(g)(2)(D), 1396r(g)(2)(D).

C. Post-OBRA '87 Agency Action

Given OBRA '87's sweeping substantive changes to the regulatory framework governing nursing homes, defendants were required to publish substantive rules regarding participation and enforcement requirements.*fn7 The rules containing participation requirements, which are located at 42 C.F.R. § 483.1-483.75, became fully effective on October 1, 1990. See 54 Fed. Reg. 5316; see also 56 Fed. Reg. 48826 (Sept. 26, 1991) (containing rules effective April 1, 1992, which contained changes following comment period). They were much more outcome-oriented than the pre-OBRA '87 regulations, and they changed the focus to how services are provided to residents and the actual or potential effect on residents rather than on a facility's capacity to provide services. See 56 Fed. Reg. at 48826. The new regulations contained a host of new substantive provisions enacted pursuant to OBRA '87 and its emphasis on quality of life concerns. For example, the regulations require facilities to respect dignity, privacy, and the right of self-determination and to provide for medically-related social services. See 42 C.F.R. § 483.15. In short, the post-OBRA '87 regulatory scheme was far more comprehensive in scope than its predecessor.

After passage of OBRA '87, but before its effective date on October 1, 1990, HCFA sought relief from the 1987 court orders in Smith requiring promulgation of survey forms, guidelines, and procedures through notice and comment proceedings. The agency argued that congressional action had mooted any need for formal rulemaking. On February 18, 1988, the district court denied the agency's Motion To Vacate Judgment and Order In Light Of New Legislation. Smith v. Bowen, 1988 WL 235574, at *1 (Colo. Feb. 18, 1988). Since the court appreciated that there would be a substantial period of time before the pertinent OBRA '87 amendments would be effective, it concluded that there was no reason to allow the agency to delay implementation any longer. Id. In response, on June 17, 1988, the Secretary published regulations that contained the forms, procedures, and guidelines in use at the time. See 53 Fed. Reg. 22,850 (June 17, 1988) (codified at 42 C.F.R. Part 488, Subpart C).

Pursuant to OBRA '87, the agency promulgated its participation regulations through notice and comment rulemaking proceedings. These regulations became effective as of OBRA '87's effective date — October 1, 1990. Given the fundamental changes to the system brought about by OBRA '87, the agency again sought relief from the district court with respect to its prior orders. In response, the court found on September 27, 1990, that it was "necessary to permit the Secretary to implement the survey forms, procedures, and interpretive guidelines . . . without requiring notice and comment rulemaking pursuant to the Administrative Procedures Act. . . ." in order to "facilitate the implementation of the nursing home reforms of OBRA '87 without final resolution of the issues before the Court." (Pls.' Mem.Ex. 33, Smith v. Sullivan, Order at 2 (Sept. 27, 1990).) Based on this finding, the court held that "[e]ffective October 1, 1990, the Secretary shall be permitted on an interim basis to require the use of the new survey forms, procedures, and interpretive guidelines. . . ." (Id.) The court also held that the survey and certification forms and guidelines located at 42 C.F.R. Part 488, Subpart C "shall be suspended but not repealed pending further orders of this Court regarding the appropriateness of the relief sought by the Defendant's Motion." (Id.) Since this order in 1990, the court has not again taken up this issue, and the protocol that was passed without notice and comment, has now been in effect since October 1, 1990.

Consistent with the court's order, the agency has used this new survey protocol based on the duly promulgated participation regulations and the requirements of OBRA '87, and it has required that it be used by all surveyors to investigate nursing homes. Thereafter, it released revised procedures to the survey protocol in the April 1992 State Operations Manual ("SOM"). (See A.R. at 14349.)*fn8 The agency also subsequently released two revised versions of the survey protocol, Appendix P to the SOM, released in 1995 (see Pls.' Mem.Ex. 21), and Appendices P and PP to the SOM, released in 1999. (See Defs.' Mem.Exs. 6 and 7.)*fn9

Section 2712 of the SOM, "Use of the Survey Protocol in the Survey Process," notes that:

Survey protocols are established to provide you with guidance in conducting surveys to assess the compliance of providers and suppliers participating in the Medicare and Medicare programs with certain regulatory requirements. . . . [Their purpose] is to provide instructions, check lists, and other tools for use both in preparation for the survey and when you are on-site performing the survey.

(Pls.' Mem.Ex. 21 at 2-137.) The SOM further indicates that:

Survey protocols identify relevant areas and issues to be surveyed as specified in each regulation, and, in some cases, the methods to be used to survey those areas and issues. These protocols promote consistency in the survey process. They also assure that a facility's compliance with the regulations is reviewed in a thorough, efficient, and consistent manner.


Part I of the survey protocol — "Survey Procedures for Long Term Care Facilities" — outlines the survey tasks:

Task 1: Offsite Survey Preparation (see id. at P-5 — P-7);
Task 2: Entrance Conference/Onsite Preparatory Activities (see id. at P-7 — P-10);

Task 3: Initial Tour (see id. at P-10 — P-13);

Task 4: Sample Selection (see id. at P-13 — P-19);

Task 5: Information Gathering (General Observations of the Facility; Kitchen/Food Service Observation, Resident Review, Quality of Life Assessment, Medication Pass, and Quality Assessment and Assurance Review) (see id, at P-20 — P-41);
Task 6: Information Analysis for Deficiency Determination (see id. at P-41 — P-46); and

Task 7: Exit Conference. (See id. at P-46 — P-48.)

Part I describes the steps that surveyors must take when performing each task. Appendix P also contains instructions for conducting extended and partial extended surveys. (See id. at P-46.) It also instructs surveyors on writing the statement of deficiencies, noting that the statement should:

• Specifically reflect the content of each requirement that is not met;
• Clearly identify how/why the requirement is/was not met;
• Identify the extent of the deficient practice, including systemic practices, where appropriate;
• Identify the source(s) of evidence (e.g., interview, observation, or record review); and
• Identify the impact or potential impact of the facility's noncompliance on the resident, and how it prevents the resident from reaching his/her highest practicable physical, mental, or psychosocial well-being.

(Id. at P-48.) The Appendix also addresses deficiency categorizations and provides guidance on severity and scope levels (see id. at P-49), and it discusses confidentiality and respect for resident privacy. (See id. at P-54).

Part II of the survey protocol, "Guidance to Surveyors — Long Term Care Facilities," provides surveyors with multiple forms designed to provide guidance on various regulations. Each form is organized in three tabular columns. The first column identifies the tag number, the second provides the text of the regulation, and the third contains guidelines, procedures, and probes.



Before addressing the merits of plaintiffs' claims, the Court must first determine whether plaintiffs have standing to challenge the validity of the survey protocol. The question of standing involves both constitutional limitations on federal court jurisdiction, as well as prudential limitations on its exercise. See Bennett v. Spear, 520 U.S. 154, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997); see also Mountain States Legal Found. v. Glickman, 92 F.3d 1228, 1233 (D.C.Cir. 1996). Article III constitutional standing limits judicial intervention to genuine disputes between adverse parties which are "`in a form . . . capable of judicial resolution,'" Florida Audubon Society v. Bentsen, 94 F.3d 658, 663 (D.C.Cir. 1996) (quoting Flast v. Cohen, 392 U.S. 83, 101, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968)), and ...

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