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February 25, 2004.

MERIDIAN L.P. d/b/a HAMMONDS LANE CENTER, et al., Plaintiffs,

The opinion of the court was delivered by: ROSEMARY COLLYER, District Judge


Medicare and Medicaid are insurance programs that protect the elderly and infirm. The federal Department of Health and Human Services ("HHS") and delegated State agencies oversee health care providers and ensure that congressional intentions and human needs are met. The programs are immense in size and complex in operation. The associated red tape can bedevil the beneficiaries and confuse the administrators. This case presents an example of the problem.

Tommy G. Thompson, Secretary of HHS, is sued in his official capacity by four skilled nursing facilities ("SNF") that provide long-term health care to the elderly; all participate in both Medicare and Medicaid. The plaintiffs are Meridian L.P., d/b/a Hammonds Lane Center ("Hammonds Lane"); Meridian Healthcare, Inc, d/b/a Spa Creek Center ("Spa Creek"); Rose View Manor, Inc., d/b/a Rose View Center ("Rose View"); and Peninsula Regional/Genesis Eldercare, LLC, d/b/a Salisbury Center ("Salisbury").*fn1 The plaintiffs challenge a policy promulgated informally Page 2 by former HHS Secretary Donna Shalala in September 2000. Collectively, plaintiffs seek to recover some $1.2 million in Medicare and Medicaid reimbursements that the policy denied them. Secretary Thompson rescinded the policy in the spring of 2001, but defends Secretary Shalala's policy vigorously despite its rescission. The Court does not address the questionable legitimacy of the HHS enforcement policy because the four plaintiffs failed to file timely administrative appeals and failed to establish good cause to extend the deadline for filing hearing requests. Summary judgment will be granted to the Secretary.


  A. Statutory and Regulatory Background

  The statutes and regulations that govern the Medicare and Medicaid Programs have been described as "among the most completely impenetrable text within human experience." Rehab. Ass'n of Va. v. Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994). Luckily, the provisions relevant here can be discussed without a translator.

  The Medicare Program is a federal health insurance program for the aged and disabled under which nursing facilities, among others, are reimbursed by the federal government for the care and treatment they provide to Medicare beneficiaries. The Medicaid Program is a cooperative state-federal program that provides medical assistance, including nursing facility benefits, to certain needy persons. The Centers for Medicare & Medicaid Services ("CMS") is the federal agency that administers the Medicare and Medicaid programs.*fn2 A participating SNF must comply with numerous Long Term Care Requirements of Participation relating to their physical plants, staffing, Page 3 resident rights, clinical operations, and other requirements. See 42 C.F.R. § 483.1 et seq. (Medicare); id. at §§ 442.1 et seq. (Medicaid). Enforcement regulations at 42 C.F.R. § 488.301 et seq., require a SNF to maintain "substantial compliance" with the regulations at all times. Substantial compliance entails no deficiencies that would pose the risk of causing more than minimal harm to resident health and safety. See id. at §§ 488.301, 488.402, 488.404, & 488.406.

  HHS has the authority to audit compliance with the regulations but delegates most of that work to state survey agencies ("SSAs"). The SSAs that surveyed the plaintiffs are the Maryland Department of Health and Mental Hygiene and the Pennsylvania Department of Health. Following a survey, the SSA sends a facility a "statement of deficiencies;" it appears that 89% of all nursing facilities surveyed in 2001 were cited for one or more deficiencies. In response, the facility must file a plan of correction. Thereafter, except for cases involving the most minor deficiencies, the SSA conducts a "revisit" survey to confirm that the nursing facility actually implemented the corrective action and that it was effective. According to the Medicare Act and regulations, the Secretary must impose a Denial of Payment for New Admissions ("DPNA") no later than three months after a deficiency is cited if the facility has not corrected all pending deficiencies before that date. See 42 U.S.C. § 1395i-3(h)(2)(D); 42 C.F.R. § 488.417(b)(1). Upon imposition of a DPNA, Medicare will not reimburse a healthcare provider for newly admitted patients until the DPNA is terminated. The denial of payment period ends "when the Secretary finds that the facility is in substantial compliance" with the regulations. 42 U.S.C. § 1395i-3(h)(3). The Medicaid Act contains a comparable provision. See id. at § 1396r(h).*fn3 Page 4

  Because the regulations give nursing facilities three months to correct deficiencies before imposition of a DPNA, SSAs attempt to schedule their revisits within that deadline. Plaintiffs assert that prior to September 22, 2000, the Secretary permitted SSAs to conduct revisits more than three months after the initial survey and to find that a facility had resumed substantial compliance as of a date prior to the revisit. In this way, a facility could avoid a DPNA if an SSA found that it had resumed substantial compliance as of a date within the three month period. On September 22, 2000, however, Secretary Shalala issued what Plaintiffs claim was a new "revisit policy," in the form of a guidance memorandum, to the effect that HHS would no longer permit SSAs to find that a facility had resumed substantial compliance prior to the date of the actual revisit. See A.R. 00351-53. According to the Plaintiffs, the Secretary also determined to apply this new policy to surveys that had been completed prior to September 22, 2000.

  Neither the SSAs nor the nursing facilities were happy with the September 22 guidance memorandum. SSAs objected that HHS was imposing a burden on them to conduct revisits on short notice and the healthcare providers complained that DPNAs could be issued even when a facility had actually come into compliance before the DPNA became effective. Secretary Thompson withdrew the guidance on March 9, 2001,*fn4 and returned to he former policy whereby an SSA can find that a nursing facility came into compliance at a time prior to the re-visit. See A.R. 00378-382. Page 5

The September 22 policy required an onsite visit to certify compliance as well as to stop sanctions. Various stakeholders contended that the policy placed further reliance on States to perform revisits timely since the date of the revisit (that verifies facility compliance) also would become the effective date of compliance as well as the date used to stop any sanctions imposed. When revisits cannot be conducted timely, facilities would continue to operate with sanctions in place. This is particularly significant when those sanctions are monetary penalties that continue to accrue until stopped as of the date of the revisit.
In contrast, the revised draft policy set forth below provides requirements for certifying compliance . . .[W]e have removed the expectation that revisits would generally be the only acceptable method for verification when deficiencies involved quality of care issues.
A.R. 00378

  A DPNA, like other remedies for non-compliance, can be appealed to the HHS Departmental Appeals Board ("Appeals Board"). See 42 C.F.R. § 498.1 et seq. A Request for Hearing must be filed within 60 days from receipt of written Notice of a DPNA, unless a facility demonstrates "good cause" for a late filing. See id. at §§ 498.40, 488.408(g), 498.3. The review process includes an evidentiary hearing and decision by an administrative law judge, an appeal to the appellate division of the Appeals Board, and an appeal to court. See 42 C.F.R. § 498.5, .40, .58, .60-.63, .80. Appeals of remedies other than civil monetary penalties are to the district court. See 42 U.S.C. § 405(g). The 60-day appeals timetable starts running from receipt of an initial Notice of a DPNA, even though the DPNA may not take effect for up to three months thereafter. See Lopatcong Ctr. v. HCFA, Dec. No. CR726 (2001) reported at CCH Medicare and Medicaid Guide ¶ 120, 216. If a facility is found by an SSA to have come into compliance and the DPNA is rescinded, the administrative appeal is deemed moot and is dismissed. See Arcadia Acres, Inc. v. HCFA, DAB No. 1607 (1997) reported at CCH Medicare & Medicaid Page 6 Guide ¶ 45,140. Thus, a timely appeal followed by a determination that a facility had resumed substantial compliance before the effective date of the DPNA leads to a dismissal.

  B. Individual Plaintiffs

  The Maryland SSA completed a survey at Hammonds Lane on April 28, 2000, and cited various deficiencies. On June 29, 2000, the SSA conducted its first revisit, found that one prior deficiency remained and cited new deficiencies. On July 13, 2000, the Maryland SSA sent Hammonds Lane a Notice that it would impose a DPNA on July 31, 2000. Hammonds Lane did not file an appeal by the 60th day, approximately September 17, 2000. On October 4, 2000, the Maryland SSA conducted a second revisit and on October 24, 2000, the SSA notified Hammonds Lane that it had achieved substantial compliance.*fn5 Pursuant to Secretary Shalala's September 22 policy, on December 5, 2000, the Secretary ...

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