United States District Court for the District of Columbia
March 11, 2004.
ST. ELIZABETH'S MEDICAL CENTER OF BOSTON, INC., Plaintiff
TOMMY G. THOMPSON, in his official capacity as Secretary of the United States Department of Health and Human Services, Defendant
The opinion of the court was delivered by: RICARDO URBINA, District Judge
MEMORANDUM OPINION GRANTING THE DEFENDANT'S MOTION FOR
SUMMARY JUDGMENT AND DENYING THE PLAINTIFF'S MOTION FOR SUMMARY
This case comes before the court on the parties' motions for summary
judgment. The plaintiff, St. Elizabeth's Medical Center of Boston, Inc.
("St. Elizabeth's"), is a charitable corporation that operates a
non-profit hospital in Boston, Massachusetts. St. Elizabeth's seeks
judicial review of a decision by the defendant, Tommy G. Thompson,
Secretary of the Department of Health and Human Services ("the
Secretary"), denying St. Elizabeth's a new provider exemption under
42 C.F.R. § 413.30(e). Because the Secretary has examined the relevant
data and made a rational connection between the facts found and the
choices made, the court grants the defendant's motion for summary
judgment and denies the plaintiff's motion for
A. Factual Background
1. Statutory and Regulatory Framework
Title XVIII of the Social Security Act ("the Medicare statute") sets
forth the federal health insurance program commonly known as Medicare.
42 U.S.C. § 1395 et seq. Medicare provides payment for covered
services to aged and disabled persons. Pl.'s Mot. at 2; Def.'s Mot. at 2.
Part A of the statute provides payment for certain inpatient hospital and
post-hospital extended care services, including skilled nursing services.
Def.'s Mot. at 2; see generally 42 U.S.C. § 1395-1395ggg.
The Centers for Medicare and Medicaid Services ("CMS") administer
Medicare under the authority of the Secretary.*fn2 Pl.'s Mot. at 2;
Def.'s Mot. at 2. A facility or part of a facility that primarily
furnishes either skilled nursing care and related services or
rehabilitation services is known as a skilled nursing facility ("SNF").
Id.; 42 U.S.C. § 1395i-3 (a). Under Medicare, an SNF is
entitled to reimbursement of reasonable costs that it incurs in treating
a Medicare patient. 42 U.S.C. § 1395x(v)(1)(A); Pl.'s Mot. at 3;
Def.'s Mot. at 3. CMS effectuates this reasonable cost restriction
through its implementation of routine cost limits ("RCLs"), which are
caps on the amount of reimbursement that Medicare provides for certain
medical supplies and services. 42 C.F.R. § 413.30; Pl.'s Mot. at 3;
Def.'s Mot. at 3-4.
The regulations, however, allow for reimbursement above the RCLs in
certain circumstances. Under 42 C.F.R. § 413.30:
Exemptions from the limits imposed under this
section may be granted to a new SNF[.] A new SNF
is a provider of inpatient services that has
operated as a SNF (or the equivalent) for which it
is certified under Medicare, under present and
previous ownership, for less than 3 full years."
42 C.F.R. § 413.30(e).*fn3
This exemption from RCLs, commonly
known as the "new provider exemption," was created in 1979 to mitigate
the business risks, such as low patient occupancy, that a new inpatient
facility might face that would reduce the amount of reimbursement. Pl.'s
Mot. at 3; Def.'s Mot. at 6. In addition, even if a provider does not
qualify as a new provider under the express terms of § 413.30(e), the
Secretary may still grant an exemption from RCLs if the provider
"relocates" and demonstrates that it serves a substantially different
inpatient population at the new location. Def.'s Mot. ¶ 8; Provider
Reimbursement Manual ("PRM") § 2604.1.*fn4
To demonstrate that a
provider has relocated, the provider must show that in the new location
(1) the provider serves a substantially different inpatient population,
and (2) the total inpatient days at the new location were substantially
less than at the old location for a comparable period [of at least three
2. The St. Elizabeth's-Friel Transaction
St. Elizabeth's is a general acute care hospital in Boston,
Massachusetts. Administrative Record ("A.R.") at 67, 96. In the
mid-1990's, St. Elizabeth's staff identified a clinical need for on-site
skilled nursing and rehabilitative care. Id. at 1601-05. To
address this need, St.
Elizabeth's decided to open a SNF, which it called the Transitional
Care Unit ("TCU"). Id. at 443, 502. Under Massachusetts law,
construction of a SNF may not begin until the Massachusetts Department of
Public Health ("DPH") issues a "determination of need" ("DON").
Id. at 406-09. At the time St. Elizabeth's wished to construct
its SNF, the only mechanism for obtaining a new DON was by acquiring the
operating rights of an existing long-term care facility. Id. at
1193, 1465-68. This method for obtaining a DON was known as the "transfer
of operating rights" method. Id. at 1465-68. Accordingly, St.
Elizabeth's identified Friel Nursing Home ("Friel"), a family-owned
nursing home located in Quincy, Massachusetts, as an existing long-term
care facility from which St. Elizabeth's might acquire operating rights
and thereby obtain a DON. Id. at 469-71, 1066.
On February 28, 1996, St. Elizabeth's entered into an Asset Purchasing
Agreement to purchase the operating rights to Friel's 29 beds.
Id. at 422-35. The agreement defined the term "assets" to mean
only bed operating rights, and did not cover the acquisition of any other
of Friel's assets. Id. On July 24, 1996 the Massachusetts
legislature enacted a new statute, Chapter 203 of the 1996 Acts and
Resolves of Massachusetts ("Chapter 203"), which permitted hospitals to
open new SNFs without acquiring the operating rights of pre-existing
facilities. Id. at 418. On October 11, 1996, St. Elizabeth's
formally requested a DON for its TCU. Id. at 730. On October 21,
1996, DPH issued a letter finding that St. Elizabeth's had satisfied the
requirements of Chapter 203 and granted St. Elizabeth's a new DON to
establish the TCU. Id. at 440, 2000-01.
On January 15, 1997, the plaintiff applied to CMS for a new provider
exemption to the RCLs. Id. at 1878-81. On June 18, 1997, CMS
denied the plaintiff's application. Id. at 1885-88. In
explaining its decision, CMS stated that the TCU "was established due to
and relocation of 29 long term care beds from [Friel]."
Id. at 1887. CMS noted that Friel had received certification as
a Medicaid nursing facility and that as a result, Friel was "considered
an equivalent provider of skilled nursing or rehabilitative services."
Id. CMS further found that Friel had operated as the equivalent
of a SNF by virtue of having provided skilled nursing and rehabilitation
services. Id. Finally, CMS determined that the relocation
provision contained in PRM § 2604.1 did not entitle St. Elizabeth's
to an exemption because the TCU's inpatient population was not
substantially different from the population Friel served. Id.
Dissatisfied with this result, on December 17, 1997, the plaintiff
appealed CMS's decision to the Provider Reimbursement Review Board
("PRRB"). Id. at 63. The PRRB agreed with St. Elizabeth's
interpretation of the new provider exemption, and on October 4, 2002,
reversed CMS's decision. Id. at 65-112. In doing so, the PRRB
found that St. Elizabeth's "acquisition of bed rights in the instant case
does not represent a change of ownership." Id. at 99. Because
the TCU was not established through the mere change in ownership of an
already existing provider, St. Elizabeth's was entitled to a new provider
exemption. Id. Further, the PRRB determined that "[t]he TCU
serves a distinguishably different population than that served by Friel."
Id. at 100.
On December 4, 2002, the Secretary, acting through the CMS
Administrator ("the Administrator"), reversed the PRRB, finding that St.
Elizabeth's did not meet the criteria for the new provider
exemption.*fn5 Id. at 1-14. In contrast to the PRRB's decision,
the Secretary found that St. Elizabeth's established the TCU through a
change in ownership because St. Elizabeth's
purchased the operational rights to Friel's beds. Id. at
10. The Secretary further concluded that because a change in ownership
occurred, there was no new service provided, and therefore, St.
Elizabeth's was not a new provider. Id. at 11. The Secretary
then determined that Friel provided skilled nursing and/or rehabilitative
services for more than three years. Id. at 12. Accordingly, the
Administrator concluded that, including the TCU's previous ownership, St.
Elizabeth's had operated an SNF for more than three full years.
Id. Finally, the Secretary reasoned that St. Elizabeth's could
not qualify for a new provider exemption as a relocated provider because
it served a substantially similar inpatient population as Friel and that
St. Elizabeth's did not demonstrate that the total inpatient days at the
new location were substantially less than at the old location.
Id. at 13-14.
B. Procedural History
On January 30, 2003, St. Elizabeth's filed a complaint with this court
seeking judicial review of the Secretary's decision pursuant to
42 U.S.C. § 1395oo(f)(1). On June 16, 2003, St. Elizabeth's filed its motion
for summary judgment. On August 18, 2003, the Secretary followed with his
own motion for summary judgment. The court now turns to the parties'
motions for summary judgment.
A. Legal Standard for Summary Judgment
Summary judgment is appropriate when "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 a judgment as a
matter of law." FED. R. CIV. P. 56(c); see also Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986); Diamond v. Atwood,
43 F.3d 1538, 1540 (D.C. Cir. 1995). To determine which facts are
"material," a court must look to the substantive law on which each claim
rests. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A "genuine issue" is one whose resolution could establish an
element of a claim or defense and, therefore, affect the outcome of the
action. Celotex, 477 U.S. at 322; Anderson, 477 U.S. at
In ruling on a motion for summary judgment, the court must draw all
justifiable inferences in the nonmoving party's favor and accept the
nonmoving party's evidence as true. Anderson, 477 U.S. at 255. A
nonmoving party, however, must establish more than "the mere existence of
a scintilla of evidence" in support of its position. Id. at 252.
To prevail on a motion for summary judgment, the moving party must show
that the nonmoving party "fail[ed] to make a showing sufficient to
establish the existence of an element essential to that party's case, and
on which that party will bear the burden of proof at trial."
Celotex, 477 U.S. at 322. By pointing to the absence of evidence
proffered by the nonmoving party, a moving party may succeed on summary
In addition, the nonmoving party may not rely solely on allegations or
conclusory statements. Greene v. Dalton, 164 F.3d 671, 675 (D.C.
Cir. 1999); Harding v. Gray, 9 F.3d 150, 154 (D.C. Cir. 1993).
Rather, the nonmoving party must present specific facts that would enable
a reasonable jury to find in its favor. Greene, 164 F.3d at 675.
If the evidence "is merely colorable, or is not significantly probative,
summary judgment may be granted." Anderson, 477 U.S. at 249-50
(internal citations omitted).
B. Legal Standard for APA Review
Pursuant to the Medicare statute, this court reviews the Secretary's
decisions in accordance with the standard of review set forth in the APA.
42 U.S.C. § 1395oo(f)(1); Thomas Jefferson Univ. v. Shalala,
512 U.S. 504, 512 (1994); Mem'l Hosp./Adair County Health Ctr., Inc.
v. Bowen, 829 F.2d 111, 116 (D.C. Cir. 1987). The APA requires a
reviewing court to set aside an agency action that is "arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with
law" or "unsupported by substantial evidence in a case . . . otherwise
reviewed on the record of an agency hearing provided by statute."
5 U.S.C. § 706(2)(A), (E). The arbitrary-and-capricious standard and
the substantial-evidence standard "require equivalent levels of
scrutiny."*fn6 Adair County, 829 F.2d at 117. Under both
standards, the scope of review is narrow and a court must not substitute
its judgment for that of the agency. Motor Veh. Mfrs. Ass'n v. State
Farm Mutual Ins. Co., 463 U.S. 29, 43 (1983); Gen. Teamsters
Local Union No. 174 v. Nat'l Labor Relations Bd., 723 F.2d 966, 971
(D.C. Cir. 1983). As long as an agency has "examined the relevant data
and articulated a satisfactory explanation for its action including a
rational connection between the facts found and the choice made," courts
will not disturb the agency's action. Md. Pharm., Inc. v. Drug
Enforcement Admin., 133 F.3d 8, 16 (D.C. Cir. 1998). The burden of
showing that the agency action violates the APA standards falls on the
provider. Diplomat Lakewood Inc. v. Harris, 613 F.2d 1009, 1018
(D.C. Cir. 1979); St. Joseph's Hosp.
(Marshfield, Wis.) v. Bowen, 1988 WL 235541, at *3 (D.D.C.
Apr. 15, 1988).
In reviewing an agency's interpretation of its regulations, the court
must afford the agency substantial deference, giving the agency's
interpretation "controlling weight unless it is plainly erroneous or
inconsistent with the regulation."*fn7 Thomas Jefferson, 512
U.S. at 512 (internal quotations omitted); Presbyterian Med. Ctr. of
Univ. of Pa. Health Sys. v. Shalala, 170 F.3d 1146, 1150 (D.C. Cir.
1999); see also Qwest Corp. v. Fed. Communications Comm'n,
252 F.3d 462, 467 (D.C. Cir. 2001) (stating that the court would reverse an
agency's reading of its regulations only in cases of a clear
misinterpretation). "So long as an agency's interpretation of ambiguous
regulatory language is reasonable, it should be given effect." Wyo.
Outdoor Council v. United States Forest Serv., 165 F.3d 43, 52 (D.C.
Cir. 1999). Where the regulations involve a complex, highly technical
regulatory program such as Medicare, broad deference is "all the more
warranted." Thomas Jefferson, 512 U.S. at 512 (internal
quotations omitted); Presbyterian Med. Ctr., 170 F.3d at 1151.
As for interpretive guides, they are without the force of law but
nonetheless are entitled to some weight. Furlong v. Halala,
156 F.3d 384, 393 (2d Cir. 1998).
C. The Court Grants the Secretary's Motion for
and Denies St. Elizabeth's Motion for Summary
1. The Parties' Arguments
In its challenge to the Secretary's decision, St. Elizabeth's makes
three main arguments. First, it contends that the defendant erred by
concluding that St. Elizabeth's purchased Friel's bed operating rights,
making Friel the previous owner of the TCU. Pl.'s Mot. at 19-24.
St. Elizabeth's states that Friel could not be considered the
previous owner of the TCU because Friel never transferred its DON to St.
Elizabeth's and that DPH granted St. Elizabeth's DON pursuant to Chapter
203. Id. at 19-20. Because the TCU did not have a previous
owner, St. Elizabeths's asserts, the Secretary erred in finding that a
new provider exemption was not warranted. Id. at 24. Second, St.
Elizabeth's argues that even if the court concludes that Friel was the
previous owner of the TCU, the Secretary should have granted St.
Elizabeth's a new provider exemption because Friel did not operate as the
equivalent of a SNF. Id. at 31-36. Rather, St. Elizabeth's
maintains that Friel primarily provided custodial care, not skilled
nursing or rehabilitative services. Id. Finally, St. Elizabeth's
asserts that even if the court determines that Friel was the previous
owner of the TCU and that Friel operated as a SNF, St. Elizabeth's is
still entitled to an exemption because the TCU "relocated" as defined by
CMS. Id. at 36-41. St. Elizabeth's points out that the TCU draws
the majority of its patients from areas that Friel did not serve and that
the total inpatient days at the new location were substantially less than
at the old location during the year prior to the TCU's relocation.
In response, the Secretary first argues that he permissibly interpreted
the regulations to define Friel as a previous owner because the
regulatory language creating the new provider exemption is ambiguous.
Def.'s Mot. at 17-33. Specifically, the Secretary contends that Friel
transferred its DON to St. Elizabeth's, and that as a result, St.
Elizabeth's merely took over the existing nursing operations of Friel via
establishment of the TCU. Id. Therefore, the Secretary argues,
St. Elizabeth's could not be considered a new provider. Id.
Second, the Secretary alleges that St. Elizabeth's is not entitled to a
new provider exemption because Friel's operations were equivalent to that
of an SNF. Id. at 33-36. In support of its position, the
Secretary notes that
Friel provided treatment of pressure ulcers and widespread skin
disorders, intra-muscular injections, and rehabilitation services.
Id. at 35. Thus, argues the Secretary, Friel provided services
that fell within the definition of a SNF. Id. at 34. Finally,
the Secretary asserts that St. Elizabeth's is not entitled to a new
provider exemption as a relocated provider because the population Friel
served was substantially similar to the population that the TCU currently
serves. Id. at 36-37. The Secretary observes that Friel and St.
Elizabeth's both serve patients in the metropolitan Boston area.
Id. at 36. Accordingly, the Secretary concludes that St.
Elizabeth's does not qualify for an exemption. Id.
2. The Secretary's Decision to Deny St. Elizabeth's
a New Provider Exemption Was Not
Arbitrary, Capricious, or Unsupported by Substantial
As stated earlier, Section 413.30(e) provides that exceptions to RCLs
may be granted to a new SNF, which is defined as "a provider of inpatient
services that has operated as a SNF (or the equivalent) for which it is
certified for Medicare, under present and previous ownership, for less
than 3 full years." 42 C.F.R. § 413.30(e). Because the Secretary's
determinations that Friel was the previous owner of the TCU, Friel
operated as the equivalent of a SNF for over 3 years and St. Elizabeth's
is not a relocated provider are rationally connected to the facts, the
court concludes that the Secretary's decision to deny St. Elizabeth's a
new provider exemption was not arbitrary, capricious or unsupported by
substantial evidence. 5 U.S.C. § 706(2)(A), (E); Md. Pharm.,
133 F.3d at 16. The court therefore may not disturb the Secretary's
decision. Md. Pharm., 133 F.3d at 16.
a. The Secretary's Finding That St. Elizabeth's
established the TCU With Bed Operating
Rights Purchased from Friel is Rationally Connected to
As a threshold matter, St. Elizabeth's disputes the Secretary's
conclusion that St.
Elizabeth's established the TCU through purchase of Friel's bed
operating rights. Pl.'s Opp'n at 1. In support of this contention, St.
Elizabeth's points out that two Massachusetts state officials testified
that the TCU opened solely on the basis of new bed operating rights
issued by DPH. Id.; A.R. 1475, 1554. St. Elizabeth's stresses
that whether the TCU opened with operating rights transferred from Friel
is a question of state law and that the court should not defer to the
Secretary's interpretation of state law. Pl.'s Opp'n at 2. The Secretary
responds by noting that the Administrator found, as a matter of fact,
that St. Elizabeth's established the TCU through St. Elizabeth's purchase
of Friel's bed operating rights. A.R. 10. Thus, the first question to
answer is whether the court accepts the Secretary's finding that St.
Elizabeth's established the TCU pursuant to a purchase of Friel's bed
Under the APA, a district court generally does not engage in
fact-finding. Hecht v. Ludwig, 82 F.3d 1085, 1096 (D.C. Cir.
1996). Rather, the court determines whether the agency articulated a
rational connection between the facts it found and the choice made.
Id. In support of the Secretary's conclusion that St.
Elizabeth's established the TCU pursuant to a purchase of Friel's bed
operating rights, the Secretary notes that St. Elizabeth's paid $350,000
to Friel; on July 3, 1996, Friel executed an instrument of transfer where
Friel transferred its bed rights to St. Elizabeth's; Friel gave up its
operational rights to the beds and Friel closed after the sale of the
operational rights. A.R. 3, 10. Based on these found facts, the court
upholds the Secretary's determination that St. Elizabeth's established
the TCU with bed operating rights purchased from Friel is rationally
connected to the facts of the case. Md. Pharm., 133 F.3d at 16.
The court recognizes that the Secretary's conclusion is inconsistent
with the views of the DPH director responsible for issuing licenses to
health care facilities and DPH's deputy general
counsel. Both of these DPH officials opine that St. Elizabeth's
established the TCU pursuant to a DON granted under Chapter 203. Pl.'s
Mot. at 21. The deputy general counsel further stated that Friel's could
not have sold its bed operating rights to St. Elizabeth's because the bed
operating rights expired on September 30, 1996. Id. The deputy
general counsel's conclusion, however, raises two questions: first, why
St. Elizabeth's paid $350,000 to Friel and second, why Friel closed if
St. Elizabeth's did not in fact purchase its operating rights. Further,
the date reflected on the instrument of transfer regarding the bed
operation rights is July 3, 1996, well before the state issued a DON to
St. Elizabeth's. A.R. at 2571. Moreover, the letter from DPH purporting
to grant the DON under Chapter 203 explicitly states that one of the
reasons that DPH is issuing the DON is because St. Elizabeth's entered
into a binding contract that resulted in Friel's "surrender of its
license." Id. at 440. These facts support the Secretary's
contention that Friel sold its bed operating rights to St. Elizabeth's.
In light of these facts, the testimony of the state officials does not
persuade the court to overturn the Secretary's findings. The fact that
some state officials opine that the Secretary's conclusion is
inconsistent with their own interpretation of state law does not
contradict the court's conclusion that the Secretary's interpretation of
federal law, namely 42 C.F.R. § 413.30(e), is rationally
related to the facts. Accordingly, the court will not disturb the
Secretary's findings. Md. Pharm., 133 F.3d at 16.
b. The Secretary's Finding That Friel Was the
Previous Owner of the TCU Is Rationally
Connected to the Facts
St. Elizabeth's asserts that even if the court concludes that it
acquired bed operating rights from Friel, Friel was not the previous
owner of a "provider of inpatient services" under § 413.30.
Pl.'s Mot. at 25. Specifically, St. Elizabeth's argues that a
"provider of inpatient services" unambiguously refers to a health-care
institution such as a hospital, home health agency or a SNF. Id.
at 26. Because St. Elizabeth's only acquired bed operating rights, St.
Elizabeth's argues that Friel's previous ownership of these intangible
rights does not make Friel the prior owner of the TCU. Id. at
25. Therefore, St. Elizabeth's asks the court to find that the TCU has
operated as a SNF for less than three full years and is entitled to the
new provider exemption to RCLs. Id. at 30-31.
The Secretary counters by asserting that the term "provider" is
ambiguous and that in light of such ambiguity, the court should defer to
the Secretary's interpretation that when one facility takes over the bed
operating rights from another facility, there is simply a change in
ownership of the provider and a new provider has not been created. Def.'s
Mot. at 25. Consequently, the Secretary argues, a mere change in the
ownership that does not create a new SNF does not allow the SNF to take
advantage of the new provider exemption. Id. at 27.
This court is not the first to address whether § 413.30 is
ambiguous, and it is likely that it will not be the last. In fact, this
exact question has already been addressed by five circuits. The Seventh,
Ninth and First Circuits have held that § 413.30 is ambiguous.
Providence Health Sys. Wash. v. Thompson, 353 F.3d 661,
665-66 (9th Cir. 2003) (concluding that the interplay between "provider"
and "previous ownership" renders § 413.30 ambiguous); South Shore
Hosp., Inc. v. Thompson, 308 F.3d 91, 98-102 (1st Cir. 2002)
(holding that § 413.30 is "manifestly ambiguous"); Paragon
Health Network, Inc. v. Thompson, 251 F.3d 1141, 1148 (7th Cir.
2001) (holding that § 413.30 is ambiguous as to what constitutes a
"provider"). In contrast, the Sixth and Fourth Circuits have held that
§ 413.30 is not ambiguous. Ashtabula County Med. Ctr. v.
Thompson, 352 F.3d 1090, 1094-95 (6th Cir. 2003) (holding
that the term "provider" as used in § 413.30 is unambiguous and
refers to a business institution that is providing skilled nursing
services); Md. Gen. Hosp., Inc. v. Thompson, 308 F.3d 340,
343-48 (4th Cir. 2002) (concluding that "provider" as used in §
413.30 unambiguously refers to a business institution and not a
particular asset of that institution). Given this circuit split, the
question of whether or not § 413.30 is ambiguous is a "very close
call." Ashtabula, 352 F.3d at 1097.
The court's own reading of the regulation leads the court to conclude
that the 1st, 7th and 9th Circuits' reasoning is persuasive. While
42 U.S.C. § 1395x defines a "provider of services" as, inter
alia, a hospital or skilled nursing facility, that same section
defines a "skilled nursing facility as "[a]n institution (or distinct
part of an institution) which is primarily engaged in providing to
residents skilled nursing care and related services, or rehabilitation
services[.]" 42 U.S.C. § 1395i-3(a), 1395x(j). As the 7th Circuit
reasoned, because a provider may be merely a distinct part of an
institution, a provider can be seen as an amalgamation of tangible
things, such as beds and staff, and intangible things such as bed
operating rights. Paragon, 251 F.3d at 1148. Changes to any of
those components may or may not lead one to deduce that a new provider
has been created. South Shore, 308 F.3d at 98. As the Seventh
[I]f a facility fires all its staff and hires a
new one, but makes no other changes, an ordinary
user of the English language would consider 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 make 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."
Paragon, 251 F.3d at 1148. The court agrees that because the
term "provider" is ill-defined,
determining the "previous ownership" of the "provider" is equally
unclear. Id.; Providence Health, 353 F.3d at 665-66 (citing
Paragon to find § 413.30 ambiguous); South Shore,
308 F.3d at 98 (same).
When an agency regulation is silent or ambiguous, the court must defer
to the agency's interpretation as long as it is reasonable. Tenet
Healthsystems Healthcorp. v. Thompson, 254 F.3d 238, 248 (D.C. Cir.
2001). As noted, "this broad deference is all the more warranted when
regulation concerns a complex and highly technical regulatory program
like Medicare[.]" Id. (citing Thomas Jefferson, 512
U.S. at 512). In light of this guidance, the court concludes that the
Secretary's determination that St. Elizabeth's acquisition of bed
operating rights from Friel makes Friel the previous owner of the TCU is
rationally connected to the facts of the case. Paragon, 251 F.3d
at 1149. Thus, the court will not disturb the Secretary's findings.
Tenet, 254 F.3d at 248; Md. Pharm., 133 F.3d at 16.
c. The Secretary's Finding That Friel Operated as the
Equivalent of a SNF During the
Three Years Prior to Opening the TCU is Rationally
Connected to the Facts
St. Elizabeth's next argues that even if the court concludes that Friel
was the previous owner of the TCU, St. Elizabeth's still would be
entitled to a new provider exception because Friel did not operate as a
SNF or the equivalent. Pl.'s Mot. at 31. As noted earlier, the Medicare
Statue defines a SNF as "[a]n institution (or distinct part of an
institution) which is primarily engaged in providing to residents skilled
nursing care and related services, or rehabilitation services[.]"
42 U.S.C. § 1395i-3(a), 1395x(j). In support of its argument, St.
Elizabeth's claims that Friel was not primarily engaged in providing
skilled nursing or rehabilitative care to its residents. Pl.'s Mot. at
The administrative record reflects the fact that Friel provided skilled
services such as treatment of pressure ulcers, intra-muscular injections
and rehabilitation services. A.R. 12, 1070-71, 1247, 2005. Moreover, St.
Elizabeth's concedes that Friel occasionally provided basic skilled
services. Pl.'s Mot. at 34. In light of the substantial deference owed to
the Secretary in interpreting Medicare regulations, the fact that Friel
provided, at a minimum, a low level of skilled nursing services, leads
the court to conclude that the Secretary's finding that Friel operated as
the equivalent of a SNF was rationally connected to the Secretary's found
facts. Md. Pharm., 133 F.3d at 16; accord Larkin Chase
Nursing & Restorative Ctr. v. Shalala, 2001 WL 34035688, at *9
(D.D.C. Feb. 6, 2001) (holding that a nursing facility ("NF") that
provided some skilled services was the equivalent of a SNF under §
413.30. Further, the court notes that Friel was a Medicaid certified
nursing facility ("NF"). A.R. 12. Under the Medicare and Medicaid
statutes, both NFs such as Friel and SNFs are defined as institutions
that are "primarily engaged in providing . . . skilled nursing care
and related services . . . or rehabilitation services."
42 U.S.C. § 1395i-3(a), § 1396r(a). The fact that the Medicare and Medicaid
statutes define a SNFs and NFs' functions as virtually identically only
bolsters the court's conclusion that the Secretary's finding is
rationally connected to the facts of the case. Consequently, the court
will not disturb the Secretary's holding. Md. Pharm., 133 F.3d
d. The Secretary's Finding That St. Elizabeth's Is
Not a Relocated Provider is Rationally Connected to
Finally, St. Elizabeth's contends that it is entitled to a new provider
exemption because the TCU's move from the Friel location constituted a
relocation. Pl.'s Mot. at 36. As stated previously, regardless of
previous ownership, if a provider changes location, the Secretary may
grant a new provider exemption so long as the provider can
demonstrate that in the new location (1) the new provider serves a
substantially different inpatient population and (2) the total inpatient
days at the new location are substantially less than at the old location
for a comparable period [of at least three months]. PRM § 2604.1.
In support of its argument, St. Elizabeth's states that its TCU mainly
served patients from areas that Friel did not serve. Pl.'s Mot. at 37.
St. Elizabeth's points out that (1) 64% of its patients came from the
Quincy/Wallaston area whereas only 1.4% of the TCU's patients came from
Quincy; (2) Friel did not have patients from any of the towns that
accounted for 70% of the TCU's discharges, except for three Boston
patients; and (3) that the remaining towns from which Friel drew patients
accounted for only 1% of the TCU's discharges. Id. at 38-39. In
addition, St. Elizabeth's asserts that the Secretary's application of PRM
§ 2533, which permits a provider to qualify for a new provider
exemption only if it moves to another Health Service Area is
impermissibly retroactive. Id.
While the Secretary mentions the subsequent revision to the PRM in his
decision, he specifically stated that his finding that the TCU did not
serve the same inpatient population was reasonable and consistent with
PRM § 2604.1 because both the TCU and Friel drew patients from the
greater Boston area. A.R. 13. Although the Secretary did noted that he
did not read § 2533 as conflicting with § 2604.1, he did not base
his decision on § 2533. Id. St. Elizabeth's TCU serves over
17 times the number of patients that Friel served. Id. at
461-63, 1067. Thus, looking only at the percentages of admitted patients
can be misleading. The administrative record reflects that both Friel and
the TCU drew patients from Quincy, Boston, Hanover,
Rockland, Dorchester, Weymouth, Milton and Marlboro.*fn8
Id. at 461-63, 2137-38; Pl.'s Mot. at 39. Thus the evidence
supports the Secretary's conclusion that, at a minimum, over 63% of the
towns that sent patients to Friel also sent patients to the TCU. Based on
this record, and bearing in mind the substantial deference accorded to
the Secretary, the court cannot say that the Secretary's finding was
unreasonable. Thomas Jefferson, 512 U.S. at 512. Accordingly,
the court concludes that the Secretary's determination that Friel and the
TCU did not serve a substantially different population was rationally
related to the facts, and therefore, the court will not disturb the
Secretary's decision. Md. Pharm., 133 F.3d at 16.
For the foregoing reasons, the court grants the defendant's motion for
summary judgment and denies the plaintiff's motion for summary judgment.
An order consistent with this Memorandum Opinion is separately and
contemporaneously issued this day of March, 2004.