SUBJECT:

The Memorial Hospital at Easton,

Petitioner,

Health Care Financing Administration

I decide that seven facilities operated by Petitioner, Memorial Hospital at Easton (MHE), known as Denton Diagnostic, Centreville Diagnostic, Digestive Disease Center, Regional Cancer Center, Idlewild Diagnostic Center, Rehabilitation Center, and Shore Health Laboratory (also referred to as "seven facilities") are part of MHE for Medicare reimbursement purposes. I do not decide the specific manner in which Medicare costs or charges incurred by the seven facilities are to be reimbursed nor do I decide whether any specific costs or charges are reimbursable.

BACKGROUND

The facts which I discuss in this section are not disputed. MHE operates a general acute care 159-bed hospital located in Easton, Maryland. During the 1980s, the local government placed limits on MHE's expansion on its original site. At the same time, there was an increased demand for services and increased space requirements for new technologies. As a result, between 1985 and 1990, MHE opened five off-site facilities in Easton, Maryland known as Digestive Disease Center, Regional Cancer Center, Idlewild Diagnostic Center, Rehabilitation Center, and Shore Health Laboratory. Two additional off-site facilities, known as Denton Diagnostic and Centreville Diagnostic, are located in Denton, Maryland and Centreville, Maryland respectively. Denton and Centreville are both approximately 20 miles from Easton. Petitioner Exhibit (P. Ex.) 2 at pp. 3 - 4.

On March 31, 1998 and April 13, 1998, Maryland Medicare Part A (the Intermediary) issued seven letters determining that these seven facilities be classified for Medicare reimbursement purposes as separate entities from MHE. The determination letters directed MHE to cease billing the Intermediary for services at the seven facilities rendered on or after May 1, 1998 as if they were services provided by MHE. P. Ex. 1.

MHE filed a request for reconsideration with the Health Care Financing Administration (HCFA) on April 30, 1998, contesting the Intermediary's determinations that the seven facilities are not part of MHE. P. Ex. 2. On September 29, 1998, HCFA issued a reconsideration determination affirming the Intermediary's determinations that these seven facilities are not part of MHE for Medicare reimbursement purposes because the facilities do not meet all of the criteria of a program memorandum numbered A-98-15 (PM A-98-15). HCFA's September 29, 1998 Reconsideration Determination. HCFA concluded that six of the facilities, Denton Diagnostic, Centreville Diagnostic, Digestive Disease Center, Regional Cancer Center, Idlewild Diagnostic Center, and Rehabilitation Center, do not meet criteria numbers two and seven of PM A-98-15. HCFA concluded also that Shore Health Laboratory fails to meet criterion number seven of PM A-98-15. Id.

With respect to criterion number two, relating to the common licensure requirement, HCFA reasoned that this criterion was not met because "the hospital's license does not include six of the seven facilities." Id.. HCFA determined that the seventh facility, Shore Health Laboratory, is exempt from the common licensure requirement because it has a distinct state license of its own. Id. As to criterion number seven, relating to being held out to the public as part of MHE, HCFA determined that all seven facilities do not meet this criterion based on the fact that the facilities "are not considered part of the hospital for purposes of rate regulation by the Maryland Health Services Cost Review Commission which sets rates for hospital services in the State." Id.

On November 25, 1998, MHE filed a request for hearing with the Departmental Appeals Board (DAB). The case was assigned to me for hearing and decision. By letter dated February 5, 1999, MHE sought clarification of the issues in this case. Specifically, MHE requested me to consider whether criteria numbers two and seven relied upon by HCFA in its September 29, 1998 Reconsideration Determination framed the issues in this appeal, or whether compliance with all of the criteria set forth in PM A-98-15 would be at issue. Following a prehearing conference, I established a briefing schedule to address this question. By letter dated March 25, 1999, HCFA stipulated that it would rely only upon the two criteria set forth in its September 29, 1998 Reconsideration Determination, and that it would not initiate a reevaluation of MHE's compliance with the other criteria of PM A-98-15. In a letter also dated March 25, 1999, Petitioner stated that these stipulations fully satisfied the concerns raised in its February 5, 1999 letter. The parties subsequently submitted a Joint Notice setting forth a proposed schedule for the submission of briefs and proposed exhibits which I approved in an order dated May 26, 1999.

On June 7, 1999, I issued a decision in Johns Hopkins Health Systems, DAB CR598 (1999) which addresses issues which are relevant to this case. In denying hospital-based status to the provider in Johns Hopkins, HCFA had relied on the same two criteria which are at issue in this case. On appeal, I disagreed with HCFA's determination as it pertained to these two criteria, and I reversed HCFA's denial of hospital-based status. HCFA received a copy of this decision as a matter of course, and for Petitioner's convenience, a copy of the decision was sent to Petitioner on the day it was issued.

Petitioner submitted an initial brief as well as 11 proposed exhibits. HCFA has not objected to my receiving any of these exhibits into evidence, and I receive into evidence P. Ex. 1 - 11. Additionally, Petitioner submitted 20 attachments with its brief (Attachment A - Attachment T). These attachments are documents, including statutes, policy statements, and judicial decisions, which Petitioner cites in support of its legal arguments. I do not receive any of Petitioner's attachments into evidence, although I have considered them as reference materials.

In lieu of filing a response brief in accordance with the briefing schedule, HCFA submitted a statement in which it responded to Petitioner's brief by stating that "HCFA believes that the outcome of Judge Kessel's decision in the present case is controlled by his decision in the Johns Hopkins case." As a result, HCFA stated that "no purpose will be served by HCFA rearguing the same position for its determination which Judge Kessel rejected in Johns Hopkins."

Petitioner submitted a reply statement in which it agreed with HCFA that this case is controlled by the decision in Johns Hopkins, and stated that no purpose would be served by elaborating on its arguments in light of HCFA's concession that the Johns Hopkins decision is controlling.

I subsequently became aware of a decision issued by an appellate panel of the DAB in the case Metropolitan Methodist Hospital, DAB No. 1694 (1999). Upon reading this decision, I became concerned about whether I have the authority to hear and decide this case. I requested the parties to brief the issue of my authority to hear and decide the case in light of the Metropolitan Methodist Hospital decision. Both parties subsequently filed submissions in which they asserted that the facts and issues in Metropolitan Methodist Hospital are distinguishable from the facts and issues in this case, and that I do have the authority to hear and decide this case.

A. Issue

The issue in this case is whether the seven facilities are part of MHE for purposes of claiming Medicare reimbursement for services provided by the seven facilities.

B. Findings of fact and conclusions of law

I make finding of facts and conclusions of law (Findings) to support my decision that the seven facilities are part of MHE for purposes of claiming Medicare reimbursement for services provided by the seven facilities. I set forth each Finding below as a separately numbered heading. I discuss each Finding in detail.

I will first discuss the threshold issue of whether I have the authority to hear and decide this case. In this case, the issue before me is not whether the seven off-site facilities meet certification requirements. Rather, the issue is whether the seven off-site facilities operate in a way which allows them to be considered to be combined with a hospital for reimbursement purposes. Thus, this case appears to involve a classification issue and not an issue of certification of a provider to participate in Medicare. The issue before me in this case is indistinguishable from the issue before me in Johns Hopkins.

At the inception of the Johns Hopkins case I was concerned about whether I had the authority to hear and decide it. I agreed to hear and decide it only after both the petitioner and HCFA asserted that I had such authority. Subsequent to my decision in Johns Hopkins, an appellate panel of the DAB issued a decision in Metropolitan Methodist Hospital. Based on Metropolitan Methodist Hospital, I concluded in Specialty Hospital of Southern California - La Mirada, DAB CR630 (1999), that I lacked the authority to hear and decide that case. In that decision, I pointed out that the issues before me in Johns Hopkins were analogous to the issues in Speciality Hospital, and I stated that my conclusion that I had the authority to hear and decide Johns Hopkins was probably wrong. I continue to believe that based on Metropolitan Methodist Hospital, my authority to hear Johns Hopkins was questionable.

However, in view of the fact that both parties in this case agree that I have the authority to hear and decide it, I will proceed to consider the case on its merits. I do not reach any final conclusions on the issue of authority, but instead I am relying on HCFA's position that I have the authority to hear and decide this case. In relying on HCFA's position on the authority issue in this case, I note that HCFA's regional offices have not been consistent in advocating a position as to the hearing rights of parties in contesting reimbursement actions such as the one at issue here.

2. The seven facilities satisfy the second and seventh criteria of PM A-98-15
and, therefore, the seven facilities are part of MHE for purposes of claiming
Medicare reimbursement for services provided by the seven facilities.

I reach my decision on the merits based on an independent review of the record. I base my decision on the exhibits which I have received into evidence, the applicable law, and the parties' written submissions. I conclude that HCFA's assertion that the outcome of this case is controlled by my decision in Johns Hopkins is correct.

In Johns Hopkins, I discuss criteria set forth in a program memorandum numbered A-96-7. The parties agree that this program memorandum was re-issued as PM A-98-15, the program memorandum at issue in this case. One of the reasons HCFA denied hospital-based status in Johns Hopkins was because the off-site facility was not licensed by the state as part of Johns Hopkins Hospital. HCFA's denial of hospital-based status in Johns Hopkins was also based on the fact that the Maryland Health Services Cost Review Commission, which sets rates for hospital services in the state, did not regulate the rates charged by the off-site facility. Consequently, HCFA determined that the off-site facility could not be held out to the public as part of Johns Hopkins Hospital. HCFA determined that the failure of the state to license the off-site facility, and the failure of the Maryland Health Services Cost Review Commission to regulate rates of the off-site facility, demonstrated that criteria numbers two and seven of the requirements for hospital-based status, set forth in the applicable program memorandum, were not met. On appeal, I disagreed with HCFA's determination as it pertained to these criteria, and I reversed HCFA's denial of hospital-based status. Johns Hopkins Health Systems, DAB CR598 (1999).

In the present case, HCFA relied on these same criteria for its determination denying hospital-based status to the seven facilities operated by MHE. Based on my independent review of the material underlying facts of this case, I reject HCFA's position that six of the seven facilities do not meet criterion number two, relating to common licensure with MHE. I reject also HCFA's position that all seven facilities do not meet criterion number seven, relating to being held out to the public as part of MHE. Accordingly, I disagree with HCFA's determination denying hospital-based status in this case and I find that the seven facilities are part of MHE for Medicare reimbursement purposes. In reaching this decision, I rely on my reasoning in Johns Hopkins. My discussion pertaining to criteria numbers two and seven in Johns Hopkins applies to this case, and I adopt it for purposes of this decision.

I confine my reasons for concluding that criteria numbers two and seven are met in this case to those set forth in Johns Hopkins. In its initial brief, Petitioner made several arguments which were not addressed in Johns Hopkins. For example, Petitioner argued that PM A-98-15 constitutes a legislative rule that was not promulgated in accordance with the Administrative Procedure Act and therefore is unenforceable. Petitioner argued also that there was a four-month gap during which a relevant program memorandum was not in effect, and that the criteria relied on by HCFA should not have applied to this case because the Intermediary's determination was made within the four-month period during which a program memorandum was not in effect. In addition, Petitioner argued that even if it were determined that the seven facilities were not provider-based, services delivered at the seven facilities may still be reimbursed as hospital outpatient services, on the basis of reasonable costs.

In conceding that the outcome of this decision is controlled by my decision in Johns Hopkins, HCFA declined to address these additional arguments. I agree with HCFA that this case is controlled by Johns Hopkins. In view of my decision that the seven facilities are part of MHE for Medicare reimbursement purposes, these additional arguments are moot and there is no need to address them in this decision.

Steven T. Kessel
Administrative Law Judge