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Jordan Hospital v. Leavitt

August 15, 2008


The opinion of the court was delivered by: John D. Bates United States District Judge


Plaintiff Jordan Hospital brings this civil action against Michael O. Leavitt, Secretary of the United States Department of Health and Human Services ("Secretary"), pursuant to the Medicare statute, 42 U.S.C. § 1395oo(f), the federal question statute, 28 U.S.C. § 1331, the Declaratory Judgment Act, 28 U.S.C. § 2201, and the federal mandamus statute, 28 U.S.C. § 1361, challenging a remand decision of the Administrator of the Centers for Medicare and Medicaid Services. Currently before the Court is the Secretary's motion to dismiss the amended complaint for lack of subject-matter jurisdiction. Upon careful consideration of the motion, the parties' memoranda, the arguments advanced at the motion hearing held on August 1, 2008, the applicable law, and the entire record, and for the reasons set forth below, the Court will grant the Secretary's motion to dismiss.


I. Statutory and Regulatory Background

The Medicare program, set forth in Title XVIII of the Social Security Act, is a federally funded health insurance program that furnishes health benefits to participating individuals age sixty-five and older and to qualifying disabled persons. See 42 U.S.C. §§ 1395-1395hhh. Part A of the Medicare statute covers payment for provider services, such as inpatient hospital services and skilled nursing services. See id. §§ 1395c, 1395d, 1395i, 1395x(b), (i). Although the program is administered by the Centers for Medicare and Medicaid Services ("CMS"), the Secretary has contracted out many payment functions to organizations known as fiscal intermediaries.

One type of institution that may participate in the Medicare program is a "skilled nursing facility," which primarily provides "(A) skilled nursing care and related services for residents who require medical or nursing care, or (B) rehabilitation services for the rehabilitation of injured, disabled, or sick persons." Id. § 1395i-3(a). During the relevant time period for this action, the Medicare program paid skilled nursing facilities the "reasonable cost" of covered services. Id. § 1395x(v). The "reasonable cost" of a service is "the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services." Id. § 1395x(v)(1)(A). Federal regulations place certain caps on the costs that may be recognized as reasonable, and these caps are known as "routine service cost limits." See 42 C.F.R. § 413.30(a)-(b) (1996).

Because new skilled nursing facilities usually incur increased costs during their first years of operation, the "new provider exemption" establishes that reimbursement for certain new facilities is not constrained by routine service cost limits. To qualify for the new provider exemption, a skilled nursing facility must be "a provider of inpatient services that has operated as a [skilled nursing facility] (or the equivalent) for which it is certified for Medicare, under present and previous ownership, for less than 3 full years." Id. § 413.30(d). A new provider exemption "expires at the end of the [skilled nursing facility's] first cost reporting period beginning at least 2 years after the provider accepts its first inpatient." Id.

To receive Medicare reimbursement, a provider must file a cost report with its fiscal intermediary at the close of a fiscal year. Id. § 413.24(f). The fiscal intermediary then analyzes and audits the cost report, makes a final determination of the Medicare reimbursement amount due to the provider, and issues an initial notice of program reimbursement. Id. § 405.1803. Within 180 days of the initial notice of program reimbursement, a provider may request a hearing on the reimbursement amount before the Provider Reimbursement Review Board ("Board" or "PRRB"), see 42 U.S.C. § 1395oo(a), (b), or the provider may make a request to the fiscal intermediary for a new provider exemption, which tolls the 180 day period, see 42 C.F.R. § 413.30(c). If the provider files a request for a new provider exemption, the intermediary makes a recommendation to the agency, which then makes the ultimate decision whether an exemption will be granted. See id. § 413.30(d). The provider may then appeal the agency's decision to the Board. See 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. § 405.1875.

Once the Board issues its decision, it is final unless the Administrator chooses to review it. See 42 C.F.R. § 405.1877(a). In that situation, the Administrator "will affirm, reverse, modify or remand the case" within sixty days after the provider received notice of the Board's decision. Id. § 405.1875(g). A provider may "obtain judicial review of any final decision of the Board, or of any reversal, affirmance, or modification by the Secretary, by a civil action commenced within 60 days of the date on which notice of any final decision by the Board or of any reversal, affirmance, or modification by the Secretary is received." 42 U.S.C. § 1395oo(f)(1).

II. Factual and Procedural Background

Jordan Hospital is a not-for-profit hospital located in Plymouth, Massachusetts. Am. Compl. ¶ 1. In 1992, Massachusetts law provided a procedure for an entity to obtain a Determination of Need to open a skilled nursing facility if the entity first arranged for the closure of another nursing facility. Id. ¶ 24. Jordan Hospital therefore entered into a contract with Shirley Dionne, the operator of Greenlawn Nursing Home, a Level III nursing facility in Middleboro, Massachusetts, whereby Dionne agreed to surrender her license to operate Greenlawn and to assist Jordan Hospital in obtaining the right to operate a skilled nursing facility. Id. ¶¶ 25-26. In December 1995, Jordan Hospital opened and admitted the first patient to its twenty-five bed skilled nursing facility known as the Peter Chapman Transitional Care Unit, and in that same month the unit received certification to participate in the Medicare program. Id. ¶¶ 1, 28.

On June 17, 1997, Jordan Hospital applied to its fiscal intermediary for a new provider exemption pursuant to 42 C.F.R. § 413.30(c), (d). Id. ¶ 30. Because Jordan Hospital had been reassigned to a new fiscal intermediary, the exemption application was resubmitted on December 31, 1997. Id. CMS denied the request for a new provider exemption, and the notice of program reimbursement for Jordan Hospital's fiscal year 1998 cost report was issued on September 25, 2000. Id. ¶¶ 31-32. Jordan Hospital timely appealed the 1998 notice of program reimbursement and later added to its appeal the issue of whether the new provider exemption had been properly denied. Id. ¶ 32.

After an evidentiary hearing, the Board issued a decision on February 27, 2007, reversing CMS's determination and granting Jordan Hospital the new provider exemption. Id. ¶ 36. Because a new provider exemption "expires at the end of the [skilled nursing facility's] first cost reporting period beginning at least 2 years after the provider accepts its first inpatient," 42 C.F.R. § 413.30(d), the Board majority determined that Jordan Hospital was entitled to the new provider exemption for three years by operation of law. The Board majority therefore granted the exemption for 1996, 1997, and 1998, while two Board members dissented and argued that the Board's jurisdiction was limited to the 1998 cost reporting period that was on appeal. Am. Compl. ¶ 36. After the Administrator reviewed the record, he vacated the Board's decision on April 30, 2007, and remanded the matter to the agency to consider the criteria set forth in a recent decision of the D.C. Circuit, St. Elizabeth's Med. Ctr. v. Thompson, 396 F.3d 1228 (D.C. Cir. 2005). Id. ¶ 37.

Jordan Hospital thereafter filed its complaint with this Court on June 28, 2007. Jordan Hospital alleges that the Administrator's remand to the agency violated the Medicare statute and its implementing regulations and denied Jordan Hospital due process of law; that the Administrator's action was arbitrary, capricious, an abuse of discretion, and contrary to law in violation of the Administrative Procedure Act; and that the Administrator has a non-discretionary, mandatory duty to implement the Board's February 27, 2007 decision. The Secretary has moved to dismiss the complaint for lack of subject-matter ...

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