Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
In the Case of:
Kings View Hospital,
Petitioner,
- v. -
Health Care Financing Administration.
Date: November 5, 1996
Docket No. C-96-233
Decision No. CR442
DECISION
I decide that Petitioner, Kings View Hospital, terminated its
participation in Medicare, effective October 11, 1991. I
decide additionally that the Health Care Financing
Administration (HCFA) determined correctly to recertify
Petitioner to participate in Medicare, effective August 11,
1993.
I. Background
The following background facts are not disputed by the
parties. Petitioner is a psychiatric hospital, located in
Reedly, California. Prior to October 11, 1991, Petitioner
was certified by HCFA to participate in the Medicare program
as a psychiatric hospital. By letter dated April 20, 1995,
HCFA advised Petitioner that HCFA had determined that,
between October 11, 1991 and April 8, 1993, none of
Petitioner's beds were licensed by the State of California as
acute psychiatric beds. HCFA advised Petitioner that there
was no basis for HCFA to have recognized Petitioner as a
psychiatric hospital during this period, because of
Petitioner's failure to have a license to operate acute
psychiatric care beds during the period. HCFA determined
that Petitioner had terminated its participation in Medicare
beginning October 11, 1991, based on Petitioner's failure to
maintain a license to operate as a psychiatric hospital,
effective that date.
In a previous letter, dated April 20, 1994, HCFA advised
Petitioner that it had accepted Petitioner's agreement to
participate as a psychiatric hospital, effective August 11,
1993. When the April 20, 1994 and April 20, 1995 letters
from HCFA are read together, it is apparent that HCFA
determined that Petitioner should not have been certified to
participate in Medicare as a psychiatric hospital between
October 11, 1991 and August 11, 1993.
On May 25, 1995, Petitioner requested a hearing from HCFA's
determination that, between October 11, 1991 and August 11,
1993, Petitioner was not certified to participate in Medicare
as a psychiatric hospital. Petitioner asserted that HCFA
should not have decertified Petitioner from participating in
Medicare. Petitioner asserted additionally as a secondary
position that, if Petitioner was not properly certified by
HCFA to participate in Medicare effective October 11, 1991,
then it should have been certified to participate in Medicare
effective April 8, 1993 and thereafter.
On April 30, 1996, HCFA advised Petitioner that, after review
of Petitioner's hearing request by the Department of Health
and Human Services Office of Regional Counsel, HCFA had
determined to forward Petitioner's hearing request to the
Departmental Appeals Board. The case was assigned to me for
a hearing and a decision. I held a prehearing conference by
telephone, at which HCFA advised me that it was not disputing
that Petitioner was entitled to a hearing. The parties
eventually agreed that the case could be heard and decided
based on written submissions, including exhibits and briefs.
II. Issues, findings of fact, and conclusions of law
The issue in this case is whether Petitioner ought to have
been certified to participate in Medicare at any time between
October 11, 1991 and August 11, 1993. I make the following
findings of fact and conclusions of law (Findings) to support
my decision that HCFA correctly determined: that Petitioner
terminated its certification effective October 11, 1991; and
to recertify Petitioner, effective August 11, 1993. I
discuss each Finding below, at Part III of this decision.
1. In order to meet the statutory definitions of a
hospital and of a psychiatric hospital, for purposes of
participation in Medicare, an entity must be licensed as
may be required under applicable State law. In lieu of
a license, the entity may be approved under applicable
State law as meeting the requirements for a license.
2. An entity terminates its participation in Medicare
as a hospital if that entity ceases to meet the
statutory definition of a hospital.
3. An entity whose participation in Medicare is
terminated may not participate in Medicare again until
it has been recertified by HCFA as meeting participation
requirements.
4. In order to be recertified to participate in
Medicare, an entity whose previous participation in
Medicare is terminated must apply for participation and
must be surveyed by or on behalf of HCFA to determine
whether the entity meets Medicare participation
requirements.
5. The earliest date that an applicant for
certification whose previous participation in Medicare
is terminated may participate is the date of completion
of the survey, assuming that the applicant meets all
participation requirements on that date.
6. Under California law, the effect of placing an
inpatient hospital bed in suspension is to place in
suspense the license to operate that hospital bed. If
all of a facility's inpatient hospital beds are placed
in suspense, then the effect is to place in suspense the
license of that facility to operate its inpatient
hospital beds.
7. Effective October 11, 1991, the State of
California, acting at Petitioner's request, placed in
suspense all 37 of the inpatient hospital beds operated
by Petitioner.
8. The effect of placing all of Petitioner's
inpatient beds in suspense was to place in suspense
Petitioner's California license to operate its inpatient
hospital beds. Petitioner was not permitted to operate
as a hospital, under California licensing requirements,
from October 11, 1991 to April 8, 1993.
9. By having all of its inpatient hospital beds
placed in suspense, Petitioner ceased to meet the
statutory definitions of a hospital and of a psychiatric
hospital, effective October 11, 1991.
10. Effective April 8, 1993, the State of California
granted Petitioner a license to operate eight acute care
psychiatric beds. The April 8, 1993 license provided
that the license for four of the eight beds would remain
in suspense until June 30, 1994.
11. HCFA properly determined that Petitioner
terminated its participation in Medicare, effective
October 11, 1991.
12. Petitioner applied for recertification by HCFA
and, on August 11, 1993, was surveyed on behalf of HCFA
to determine whether Petitioner met Medicare
participation requirements. Based on the survey
results, HCFA determined that Petitioner met Medicare
participation requirements, effective August 11, 1993.
13. HCFA properly determined that Petitioner should
be recertified to participate in Medicare, effective
August 11, 1993.
III. Discussion
A. Governing law (Findings 1 - 6)
1. The requirement that an entity have a State
license in order to meet the statutory definitions
of a hospital and of a psychiatric hospital
(Finding 1)
An entity must either be licensed under State law as a
hospital, to the extent that a license is required under
State law, or receive authority to operate from a State in
lieu of a license, in order to meet the statutory definition
of a hospital for purposes of participating in Medicare.
Social Security Act (Act), section 1861(e)(7). A
"psychiatric hospital" is defined in section 1861(f)(1) and
(2) of the Act to be an entity which meets the definition of
a "hospital" contained in section 1861(e) of the Act, and
which provides psychiatric services primarily.
Thus, the statutory definition of a psychiatric hospital in
section 1861(f) of the Act incorporates the State license
requirement contained in section 1861(e)(7) of the Act.
2. Termination of participation by an entity
that no longer meets the statutory definition of a
hospital (Finding 2)
An entity which participates in Medicare as a hospital no
longer meets the statutory definition of a hospital where
that entity ceases to be authorized under State law to
provide inpatient services. In that circumstance, the entity
terminates its participation in Medicare. The entity's
termination of its participation in Medicare is effective on
the date that the entity ceases to meet the statutory
definition of a hospital.
As I discuss above, the definitions of a hospital and of a
psychiatric hospital under the Act include the requirement
that the entity be licensed under State law, to the extent
that a license is required. Therefore, when a psychiatric
hospital loses its State license, or when that license is
placed in a state of suspense, then the psychiatric hospital
is no longer a hospital as defined by section 1861(e)(7) of
the Act, or a psychiatric hospital, as defined by section
1861(f) of the Act, and it ceases to qualify to participate
in Medicare.
Petitioner argues that, even if an entity that participates
in Medicare as a hospital ceases to meet the statutory
definition of a hospital, that entity's participation may not
terminate until HCFA provides the entity with notice of
termination as is required by 42 C.F.R. § 489.53(c). I am
not persuaded by this argument. HCFA is obligated to give a
provider notice in advance of effectuating a determination by
HCFA to terminate a provider's participation in Medicare.
Id. But the regulation does not require HCFA to hold in
abeyance a termination of participation, until the notice
requirements of the regulation are met, where the provider no
longer meets the definition of a provider under the Act.
The regulation requiring advance notice of a determination by
HCFA to terminate a provider's participation lists 14
circumstances which might justify a determination by HCFA to
terminate a provider's participation. 42 C.F.R. §
489.53(a)(1) - (14). All of these circumstances comprise
situations in which the provider fails to comply with a
requirement of participation. None of those circumstances
describe instances where the entity no longer meets the
definition of a provider. In that latter circumstance, there
is no need for HCFA to terminate the provider's
participation. By no longer meeting the definition of a
provider, the hospital that loses its State authority to
operate has ceased to be a hospital within the meaning of the
Act.
3. The circumstances under which an entity whose
participation in Medicare is terminated may
participate again in Medicare (Findings 3 - 5)
An entity whose participation in Medicare is terminated may
not participate again unless HCFA finds that: the reason for
termination has been removed and there is reasonable
assurance that it will not recur; and the entity has
fulfilled, or has made satisfactory arrangements to fulfill,
all of the statutory and regulatory responsibilities of its
previous agreement with HCFA. 42 C.F.R. § 489.57(a), (b).
The regulation which governs reinstatement of an entity whose
participation is terminated does not spell out how that
entity may satisfy the requirements of the regulation, in
order to qualify for reinstatement. See 42 C.F.R § 489.57.
It is apparent from the regulation that it vests in HCFA the
discretion to determine the manner in which an entity whose
participation is terminated may be recertified for
participation.
An entity must apply to HCFA to be certified to participate
in Medicare. 42 C.F.R. § 489.10(a). In order to be
certified, an applicant for participation first must be
surveyed in order to determine whether that applicant meets
all Medicare participation requirements. 42 C.F.R. §§
488.10, 489.10(d). HCFA has delegated to State survey
agencies the authority to conduct surveys on HCFA's behalf.
Id. HCFA will accept an applicant's participation agreement
on the date that a survey of that applicant is completed,
assuming that the applicant meets all participation
requirements on that date. 42 C.F.R. § 489.13(a). There is
no provision in the regulations governing applications for
participation and surveys which would enable HCFA to accept
an application for participation earlier than the date of
completion of the survey.
The regulations which govern applications for participation
and surveys of applicants do not distinguish between
applicants who have not participated previously and
applicants who have participated previously, but whose
participation is terminated. The regulations do not suggest
that a previous participant that applies for recertification
will be treated any differently than an applicant for
provider status that has not participated previously.
Therefore, a previous participant may not qualify to
participate at any date earlier than completion of the State
agency survey that HCFA has conducted to determine whether
the applicant meets participation requirements.
4. The effect under California law of placing
either a hospital license or licensed beds in
suspense (Finding 6)
The State agency in California which is responsible for the
granting of licenses to operate hospitals is the State of
California Department of Health Services, Licensing and
Certification (California licensing agency). HCFA Ex. 5 at
1. 1/ Under California law, a licensed hospital may
voluntarily request the California licensing agency that its
entire license, or licensed beds, be put in a state of
suspension. HCFA Ex. 9 at 1 - 2.
The effect under California law of placing a hospital license
in suspense is that the hospital loses its authority to
operate during the suspension period. HCFA Ex. 5 at 2. The
effect under California law of placing licensed hospital beds
in suspension is that the hospital loses its authority to
operate the beds that are in suspense during the suspension
period. Id. A hospital may not operate as an inpatient
hospital under California law where all of its licensed beds
are placed in suspension. Id. Thus, under California law,
if all of a hospital's licensed inpatient beds are in
suspense, then the result -- that the hospital may not
operate as an inpatient facility -- is the same as if the
hospital's license to operate as an inpatient facility is in
suspense. Id.
B. The relevant facts (Findings 7, 10, 12)
I find that Petitioner had no license authority to operate
acute care psychiatric beds from October 11, 1991 until April
8, 1993. Effective October 11, 1991, Petitioner voluntarily
eliminated 38 of its acute care psychiatric beds. It placed
the remaining 37 beds in suspense on that date, and did not
ask that any of these beds be activated on any date prior to
April 8, 1993. Effective April 8, 1993, four of the beds
that were in suspense were activated.
On October 16, 1991, Petitioner's Acting Executive Director
wrote on behalf of Petitioner to the California licensing
agency. HCFA Ex. 1. Petitioner represented that, as of that
date, Petitioner was licensed for 77 acute inpatient beds.
Id. Petitioner asserted that it was in the process of
converting 38 of the 77 beds to residential beds under
Community Care licensing and that it wished to drop those 38
beds from its acute care bed license. Id. Petitioner
asserted also that it wished to request application to
suspend its license for the remaining 37 beds for the next
year. Id. Petitioner averred that it planned to close its
inpatient program effective October 11, 1991. Id. 2/
The California licensing agency issued a license to
Petitioner for 37 acute care psychiatric beds, effective on
October 11, 1991 through June 30, 1992. HCFA Ex. 2 at 1.
However, consistent with what Petitioner had requested, the
license recited that the license for the 37 acute care
psychiatric beds would be in suspense from October 11, 1991
until October 10, 1992. Id.
On March 11, 1992, the California Department of Health
Services wrote to Petitioner, advising it that it had been
notified that Petitioner's facility closed on October 11,
1991. HCFA Ex. 8. 3/ Petitioner was advised that its
certification to participate in the Medi-Cal program
terminated effective October 11, 1991. Id. Petitioner was
advised additionally that, if it wished to participate in
Medi-Cal, it would have to apply for participation and
successfully complete the requisite survey process. Id.
The California licensing agency then issued a license to
Petitioner, which was effective on July 1, 1992, and until
April 7, 1993. HCFA Ex. 2 at 2. This license, again, was
for 37 acute care psychiatric beds. Id. However, as with
the previously issued license, the license recited that the
license for the 37 psychiatric beds would be in suspense
effective October 11, 1991 through October 10, 1992. Id.
In one respect, the license that was issued effective July 1,
1992 was incorrect. While the license recited that
Petitioner's 37 acute care psychiatric beds would remain in
suspense through October 10, 1992, the intent of the
California licensing agency was to issue a license that would
state that the 37 beds were in suspense through April 7,
1993. HCFA Ex. 2 at 2; HCFA Ex. 5 at 3. However, although
there was an error in the license effective July 1, 1992, I
do not find that the consequence of that error was to
activate any of Petitioner's acute care psychiatric beds.
Petitioner did not request a license to activate any of these
beds prior to April 8, 1993, nor did it receive a license to
do so.
On March 18, 1993, Petitioner filed a license application
with the California licensing agency. HCFA Ex. 3.
Petitioner applied for a license to operate as a psychiatric
acute care unit. Id. at 1. Petitioner averred that the
requested capacity of its facility was to be eight beds, four
of which would remain in suspense. Id. On May 2, 1993,
Petitioner advised the California licensing agency that,
effective May 9, 1993, it intended to officially open its
acute care unit for any necessary admissions from its
residential treatment program. HCFA Ex. 4 at 2. Petitioner
stated that its acute care unit would consist of four beds.
Id.
Effective April 8, 1993, the California licensing agency
issued a new license to Petitioner to operate as an acute
psychiatric hospital. HCFA Ex. 2 at 3. This license, which
expired on June 30, 1993, was for eight acute care
psychiatric beds, four of which would be in suspense. Id.
Effective July 1, 1993, the California licensing agency
issued an additional license to Petitioner to operate a
psychiatric hospital. HCFA Ex. 2 at 4. This license, which
expired on June 30, 1994, was for eight acute care
psychiatric beds, four of which were to remain in suspense
throughout the duration of the license. Id. The California
licensing agency issued an additional license to Petitioner,
effective July 1, 1994, with an expiration date of June 30,
1995. HCFA Ex. 2 at 5. This license also was for eight
acute care psychiatric beds, four of which would remain in
suspense through the expiration date of the license. Id.
In August 1993, Petitioner filed an application to
participate in Medicare and Medi-Cal as a psychiatric
hospital. HCFA Ex. 7. Petitioner was surveyed and, based on
the survey, was certified to participate in Medicare and
Medi-Cal, effective August 11, 1993. See HCFA Ex. 6.
Although Petitioner had no authority from the State of
California to operate inpatient acute care psychiatric
beds from October 11, 1991 until April 8, 1993,
Petitioner continued to provide some inpatient services
to Medicare beneficiaries throughout the period. P.
Exs. 3, 4, 7. Petitioner provided outpatient hospital
services as well, to Medicare beneficiaries during the
period from October 11, 1991 until April 8, 1993. P.
Ex. 7 at 3. C. Application of the law to the
facts (Findings 8, 9, 11, 13)
Petitioner ceased to meet the statutory definition of a
psychiatric hospital on October 11, 1991. As I find above,
the Act's definition of a psychiatric hospital includes the
requirement that any such hospital be licensed as may be
required under applicable State law. Act, sections
1861(e)(7), 1861(f). In California, the consequence of a
hospital placing all of its beds in suspense is that the
hospital is not licensed to provide inpatient care for the
period when the beds are in suspense. Thus, by placing all
37 of its inpatient beds in suspense from October 11, 1991
until April 8, 1993, Petitioner ceased to be licensed to
provide inpatient psychiatric care. 4/ And, because
Petitioner was not licensed to provide inpatient care,
Petitioner no longer met the statutory definition of a
psychiatric hospital as of October 11, 1991. Petitioner did
not again meet the definition of a psychiatric hospital until
April 8, 1993, when the license to operate four of
Petitioner's acute care beds was taken out of suspense.
Petitioner terminated its participation in Medicare effective
October 11, 1991. It became eligible to participate in
Medicare, again effective April 8, 1993, when it regained the
authority to operate four inpatient acute care psychiatric
beds. However, under applicable HCFA regulations, Petitioner
could not be recertified to participate in Medicare until it
was surveyed. HCFA certified Petitioner to participate in
Medicare effective August 11, 1993, the date that the survey
was completed. Under applicable regulations, August 11, 1993
is the earliest date that Petitioner could be recertified to
participate in Medicare. 42 C.F.R. § 489.13.
The fact that Petitioner provided inpatient and outpatient
hospital services after October 11, 1991 is irrelevant to
deciding the question of whether Petitioner terminated its
participation as a provider. Petitioner could not have
participated as a provider if it no longer met the statutory
definition of a provider. That Petitioner may have provided
some services that may qualify as hospital services if they
are provided by a hospital, does not mean that Petitioner
participated in Medicare after it no longer met the statutory
definition of a hospital or of a psychiatric hospital.
Petitioner asserts that HCFA could not terminate Petitioner's
participation in Medicare without first providing Petitioner
with notice of the determination to terminate Petitioner's
participation, pursuant to 42 C.F.R. § 489.53(c). I have
addressed this argument above, at Part III.A.2. of this
decision. HCFA had no duty to provide Petitioner with notice
of Petitioner's termination of participation because HCFA did
not terminate Petitioner's participation in Medicare.
Petitioner terminated its participation in Medicare by
ceasing to meet the statutory definition of a hospital or of
a psychiatric hospital.
Petitioner argues that it is inequitable and unlawful to
retroactively terminate Petitioner's participation in
Medicare. Petitioner asserts that it incurred substantial
expenses for services that it provided to Medicare
beneficiaries during the period from October 11, 1991 until
the date that it was recertified to participate. Petitioner
argues that a termination which is retroactive to October 11,
1991 would operate to cause an unlawful forfeiture by
Petitioner of the cost reimbursement that it received for the
services it provided to Medicare beneficiaries.
I am not persuaded by Petitioner's arguments. First, there
is no retroactive termination by HCFA of Petitioner's
participation in Medicare. HCFA did not terminate
Petitioner's participation in Medicare. Petitioner
terminated its participation in Medicare by requesting the
State licensing agency to place in suspense Petitioner's
license to operate acute care beds.
Petitioner cannot claim credibly to have been surprised by
HCFA's conclusion that Petitioner terminated its
participation in Medicare, effective October 11, 1991.
Petitioner knew, on or about March 11, 1992, that the State
of California considered Petitioner not to be doing business
as a hospital, and not a Medi-Cal participant, effective
October 11, 1991. HCFA Ex. 8. Petitioner was advised that,
in order to be recertified to participate in Medi-Cal,
Petitioner would have to reapply and be surveyed. Id. There
is nothing in the record of this case which suggests that
Petitioner is so naive or unsophisticated as not to realize
the implications of this communication. It is true that the
March 11, 1992 letter did not specifically mention the
Medicare program. On the other hand, Petitioner would have
had to know that the criteria which govern participation
under State Medicaid programs and Medicare are, in many
respects, identical. At the least, the March 11, 1992 letter
put Petitioner on notice that, effective October 11, 1991,
Petitioner's eligibility to participate in Medicare was open
to question.
Nor can Petitioner assert credibly that it is entitled to
continue to provide services to Medicare beneficiaries and
claim reimbursement for those services as if it is certified
to participate in Medicare, where it has, on its own
volition, ended its participation in Medicare. That is
particularly the case where the services Petitioner provided
after October 11, 1991 contravened the terms of Petitioner's
California license. Petitioner has not offered any
explanation of how it could lawfully supply inpatient
hospital services after October 11, 1991, much less claim
reimbursement for those services, when it had voluntarily
placed in suspense all of the beds that were licensed to
provide inpatient services.
I make no findings in this decision as to the validity of the
reimbursement claims or cost claims Petitioner made between
October 11, 1991 and August 11, 1993. The validity of these
claims is not an issue in this case. Nor do I make any
finding that Petitioner is obligated to refund the monies it
may have received for those claims. I do not have the
authority to consider these issues, in any event. The
authority to hear and decide cost reimbursement disputes is
delegated to the Provider Reimbursement Review Board. The
authority to conduct administrative hearings involving
specific provider reimbursement claims under either Part A or
Part B of Medicare is delegated to the Office of Hearings and
Appeals of the Social Security Administration.
Finally, I am not persuaded by Petitioner's argument that
HCFA should have recertified it to participate in Medicare
effective April 8, 1993, the effective date that Petitioner
received a license from the California licensing agency to
operate inpatient beds. As I discuss at Part III.A.3. of
this decision, the earliest date at which an entity whose
participation is terminated may be recertified to participate
is the date of completion of a certification survey. In this
case, the date of completion of the survey was August 11,
1993.
IV. Conclusion
I conclude that Petitioner terminated its participation in
Medicare effective October 11, 1991. I conclude further that
HCFA properly determined to recertify Petitioner to
participate in Medicare effective August 11, 1993.
________________________
Steven T. Kessel
Administrative Law Judge
* * * Footnotes * * *
1. HCFA offered 12 exhibits in support of its
arguments (HCFA Exs. 1 - 12). Petitioner offered six
designated exhibits in support of its arguments (P. Exs. 1 -
6). In addition, Petitioner submitted a declaration, and a
supplemental declaration, of Michael Waters. Petitioner did
not designate Mr. Waters' declaration or his supplemental
declaration as exhibits, although Petitioner plainly intends
that both be received into evidence. I am designating Mr.
Waters' declaration as P. Ex. 7 and I am designating Mr.
Waters' supplemental declaration as P. Ex. 8. I am receiving
into evidence HCFA Exs. 1 - 12 and P. Exs. 1 - 8.
After the parties had completed their submissions, and after
I closed the record in this case, HCFA offered an additional
exhibit, HCFA Ex. 13. HCFA offered this exhibit untimely and
therefore I am not receiving it into evidence.
2. Even though Petitioner was licensed for 77
acute beds, 38 beds were to be dropped from its acute care
license and 37 beds were to be suspended. This accounts for
75 beds, not 77. However, it is apparent from Petitioner's
communications with the California licensing agency that
Petitioner did not intend to maintain any inpatient beds
after October 11, 1991. HCFA Ex. 1.
3. It is evident that the California Department
of Health Services operates both as the California licensing
agency and as the State agency responsible for certification
of participants in Medi-Cal, the California Medicaid program.
4. Petitioner has not alleged that it received
approval from the California licensing agency, in lieu of a
license, to operate inpatient beds.