I sustain the determination of the Health Care Financing Administration (HCFA) to deny certification to Petitioners, Behavioral Health Center of Petaluma (Petitioner Petaluma), Ross Hospital - Sequoia Mental Health and Recovery Services (Petitioner Sequoia), and Ross Hospital - Behavioral Health Center of Ukiah (Petitioner Ukiah) to participate in the Medicare program as provider-based facilities of Petitioner, Ross Hospital (Petitioner Ross), effective March 16, 1998.

Background, undisputed material facts and law

Background

On January 25, 1999, HCFA advised Petitioner Ross that it had determined to deny provider-based status to Petitioners Petaluma, Sequoia, and Ukiah effective March 16, 1998. Petitioners requested hearings before an administrative law judge. The cases were assigned to Administrative Law Judge Edward Steinman who ordered that they be consolidated. The parties then agreed that the consolidated case involved undisputed issues of material fact and issues of law and agreed further that the case could be heard and decided based on written submissions. Administrative Law Judge Steinman established a briefing schedule which the parties have complied with. The case was then reassigned to me.

HCFA offered five exhibits with its brief which it designated as HCFA Exhibits A - E. HCFA offered an additional exhibit with its reply brief which it designated as HCFA Exhibit F. Petitioner offered eight exhibits with its brief which it designated as P. Ex. 1 - P. Ex. 8. I am receiving all of the parties' exhibits into evidence.

Undisputed material facts and law

The facts in this case and the law which I discuss in this section are not disputed. I base my statement of the facts on the parties' briefs and on their exhibits.

Petitioner, Ross Hospital (Petitioner Ross) is a psychiatric hospital that is located in Kentfield, California. Petitioner Ross is certified to participate as a psychiatric hospital in the Medicare program. In 1993 and 1994 Petitioner Ross determined that there was a need to provide partial hospitalization services to individuals in the communities of Petaluma, Santa Rosa, and Ukiah, California. P. Ex. 3 at 1.

"Partial hospitalization services" are defined under section 1861(ff) of the Social Security Act (Act) to include a comprehensive set of mental health services that are prescribed by a physician and which are furnished by a physician pursuant to a physician-written individualized plan of treatment. Act, sections 1861(ff)(1), (2). A program of partial hospitalization services is a program which is furnished by a hospital to its outpatients or by a community mental health center and which is a distinct and organized intensive ambulatory treatment service offering less than 24-hour-daily care. Act, section 1861(ff)(3)(A). Medicare will not reimburse for partial hospitalization services unless they are provided by a hospital or by a community mental health center. Id.

Petitioner Ross established partial hospitalization programs which included Petitioners Petaluma, Sequoia, and Ukiah. Petitioner Ross held out to the public that these three programs were being operated as departments of Petitioner Ross. P. Ex. 3 at 2.

Petitioner Ross submitted reimbursement claims to Medicare for the services provided by Petitioners Petaluma, Sequoia, and Ukiah from the inception of these programs. P. Ex. 3 at 2. The services that were provided by Petitioners Petaluma, Sequoia, and Ukiah were claimed by Petitioner Ross as if they had been provided by Petitioner Ross. Additionally, Petitioner Ross included the costs incurred by Petitioners Petaluma, Sequoia, and Ukiah on its Medicare cost reports. Id.

For a time, Medicare reimbursed Petitioner Ross for the services and the costs that it claimed on behalf of Petitioners Petaluma, Sequoia, and Ukiah. However, on April 30, 1998, HCFA advised Petitioner Ross that it could not claim reimbursement for the services that were provided by Petitioners Petaluma, Sequoia, and Ukiah. P. Ex. 4. HCFA issued its final determination in a letter that is dated January 25, 1999. P. Ex. 6. In that letter, HCFA advised Petitioners that it would not reimburse for the partial hospitalization services provided by the three programs effective March 16, 1998.

As a consequence of HCFA's April 30, 1998 letter, Petitioner Ross determined to cease operating the three partial hospitalization programs. It transferred Petitioner Petaluma's operations to another entity effective July 1, 1998. P. Ex. 3 at 4. It closed Petitioner Sequoia effective July 17, 1998. Id. It closed Petitioner Ukiah effective June 30, 1998. Id.

A. Issue

The issue in this case is whether HCFA properly determined that, effective March 16, 1998, Petitioners Petaluma, Sequoia, and Ukiah failed to qualify for Medicare reimbursement as provider-based facilities.

Under applicable HCFA criteria, an outpatient facility must be located in "close proximity" to a hospital in order to be eligible to be considered as part of the hospital for Medicare reimbursement purposes. Johns Hopkins Health Systems, DAB CR598 (1999). HCFA determined that Petitioners Petaluma, Sequoia, and Ukiah did not meet applicable criteria because none of these programs was located in close proximity to Petitioner Ross. Petitioner Petaluma was located 27 miles from Petitioner Ross, Petitioner Sequoia was located 42 miles from Petitioner Ross, and Petitioner Ukiah was located 100 miles from Petitioner Ross.

Petitioners do not dispute that HCFA determined correctly that the three programs did not qualify for provider-based reimbursement status. What Petitioners dispute is the effective date - March 16, 1998 - that HCFA determined Petitioners Petaluma, Sequoia, and Ukiah failed to meet the applicable reimbursement criteria. Petitioners characterize HCFA's determination that Petitioners Petaluma, Sequoia, and Ukiah failed to meet the applicable criteria as of March 16, 1998 as a determination to terminate retroactively these three programs' participation in Medicare, or alternatively, as a retroactive denial of the three programs' provider-based status. They argue from these characterizations that HCFA unlawfully terminated or denied retroactively the three programs' provider-based reimbursement status. Petitioners contend that, at a minimum, Petitioner Ross should be permitted to claim reimbursement for the services that were provided by Petitioners Petaluma, Sequoia, and Ukiah through the dates that these programs were closed or transferred to another entity.

B. Findings of fact and conclusions of law

I make findings of fact and conclusions of law (Finding) to support my decision that HCFA properly determined to deny certification to Petitioners Petaluma, Sequoia, and Ukiah effective March 16, 1998. I set forth each Finding below as a separately numbered heading. I discuss each Finding in detail.

1. HCFA did not terminate improperly the participation
in Medicare of Petitioners Petaluma, Sequoia, and Ukiah
inasmuch as none of these Petitioners ever participated in Medicare.

Petitioners characterize HCFA's determination in this case as a determination that Petitioners Petaluma, Sequoia, and Ukiah were entitled to be recognized as provider-based prior to March 16, 1998 but were not entitled to such status after that date. Petitioners' brief at 8; see P. Ex. 6. Petitioners rely on the fact that HCFA issued its final determination in this case on January 25, 1999 as a basis for asserting that the alleged termination of provider-based status of Petitioners Petaluma, Sequoia, and Ukiah was a "retroactive" termination of these Petitioners' participation in Medicare. Petitioners assert that a "retroactive" termination of participation is contrary to HCFA's established policy and is, therefore, unlawful.

Petitioners premise their argument on an incorrect characterization of HCFA's determination. Consequently, Petitioners' argument fails. HCFA never determined that Petitioners Petaluma, Sequoia, and Ukiah were provider-based participants in Medicare at any point in time. And, HCFA never "terminated" - retroactively or otherwise - the participation in Medicare of these Petitioners or their provider-based status.

Participation in Medicare is subject to legal requirements. In order to qualify to participate in Medicare a provider must file a provider agreement with HCFA. Act, section 1866(a)(1); 42 C.F.R. § 489.11(b). HCFA will not enter into a provider agreement to enable a provider to participate in Medicare until HCFA has determined that the provider is complying substantially with Medicare participation requirements. See Act, section 1866(b)(2)(A); 42 C.F.R. § 489.10(a).

There is no such thing as de facto participation. Nor is there such a thing as a de facto provider-based program. An entity either has been certified to participate in Medicare or it has not. The fact that HCFA may, through inadvertence or error, reimburse an uncertified entity for Medicare reimbursement claims that the entity submits or which are submitted on behalf of that entity does not confer participant status or provider-based status on that entity.

Neither Petitioner Petaluma, Petitioner Sequoia, nor Petitioner Ukiah ever was certified by HCFA to participate in Medicare. HCFA never determined that any of these programs were complying substantially with Medicare participation requirements. Nor did HCFA determine at any time that any of these programs were provider-based programs of Petitioner Ross. None of these programs ever was invited to file, nor did it file, a provider agreement with HCFA. HCFA never told Petitioner Ross that any of the programs qualified as a provider-based program.

Contrary to Petitioners' assertions, the determinations which HCFA sent to Petitioners cannot be read as acknowledgments by HCFA that Petitioners Petaluma, Sequoia, or Ukiah ever were provider-based programs. On April 30, 1998, HCFA told Petitioners that it had determined that "the Ukiah, Santa Rosa [Sequoia] and Petaluma programs cannot be considered provider-based with . . . [Petitioner Ross] for Medicare purposes." P. Ex. 4. This determination says only that the three programs did not qualify as provider-based programs. Nothing in the determination states or suggests that any of these programs had qualified as provider-based programs at some previous point in time.

HCFA sent its final determination to Petitioners on January 25, 1999. P. Ex. 6. In this letter, HCFA told Petitioners that:

Id. (emphasis in original).

This language cannot reasonably be construed as a statement from HCFA that any of the three programs qualified as provider-based programs at any point in time. The January 25, 1999 determination is a reaffirmation of HCFA's determination that it is denying that any of the three programs qualified as provider-based programs. It is true that HCFA allowed Petitioner Ross to claim reimbursement for the three programs prior to March 16, 1998. But that action by HCFA is not an acknowledgment that any of the programs were provider-based prior to March 16, 1998. Rather, it is a conclusion by HCFA that, as a matter of discretion, it would allow Petitioner Ross to claim reimbursement for the programs prior to March 16, 1998, despite the fact that they were not provider-based, due to the good-faith efforts of these programs to obtain State licensure. HCFA's determination was an act of discretionary largesse by HCFA and was not a finding that any of the programs ever qualified as provider-based programs.

2. HCFA did not contravene its policy in determining
to deny provider-based status to Petitioners Petaluma,
Sequoia, and Ukiah effective March 16, 1998.

Petitioners assert that, if HCFA's determination was not a retroactive termination of participation of Petitioners Petaluma, Sequoia, and Ukiah, then it was a "retroactive denial" of provider-based status for these three programs. According to Petitioner, this alleged retroactive denial is inconsistent with HCFA's own policies and is, therefore, arbitrary, capricious, and unlawful.

Petitioners premise this argument on their characterization of the facts and on the contents of a program memorandum issued by HCFA. Petitioners contend that they were first advised by a notice from HCFA that is dated April 30, 1998 that HCFA was questioning whether Petitioner Ross lawfully could claim reimbursement for the partial hospitalization services that were being delivered by Petitioners Petaluma, Sequoia, and Ukiah. P. Ex. 3 at 3; P. Ex. 4. Petitioners argue from this contention that HCFA's ultimate denial of participation is "retroactive" inasmuch as HCFA ultimately determined that Petitioner Ross could not claim provider-based reimbursement for the three programs effective March 16, 1998.

Petitioners argue that such a "retroactive" denial is contrary to the terms of a provider policy document first issued by HCFA in August, 1997 as PMI A-96-7. P. Ex. 2. Petitioners assert that PMI A-96-7 expressly prohibits "retroactive" denials of provider-based status such as the denial which allegedly occurred here.

It is not clear from HCFA's April 30, 1998 letter that Petitioners were unaware prior to that date that HCFA was questioning whether Petitioner Ross could claim reimbursement for the partial hospitalization services that were being provided by Petitioners Petaluma, Sequoia, and Ukiah. The letter discusses HCFA's review of requests that were made to HCFA on behalf of the three programs and evaluates information that these programs or Petitioner Ross had supplied to HCFA. P. Ex. 4. That strongly suggests that discussions and communications between Petitioners and HCFA concerning the programs' status predated April 30, 1998. However, for purposes of this decision, I accept Petitioners' representation that they did not know prior to receiving HCFA's April 30, 1998 notice that HCFA was questioning whether the partial hospitalization services given by Petitioners Petaluma, Sequoia, and Ukiah were provider-based. See P. Ex. 3 at 3.

But, the facts as contended by Petitioners do not support a conclusion that HCFA contravened its policy in denying Petitioners Petaluma, Sequoia, and Ukiah provider-based status effective March 16, 1998. I conclude, contrary to Petitioner's arguments, that HCFA's determination in this case was not inconsistent in any respect with HCFA's policy governing provider-based status determinations.

The HCFA policy language cited by Petitioners does not suggest that HCFA may not deny provider-based status effective a date which predates the date of the determination. The policy addresses the circumstance where a HCFA Regional Office is required to correct a previous determination that it made erroneously. It does not address the circumstance - which is present in this case - where a HCFA Regional Office determines to deny a request for provider-based status in the absence of any previous determination by that office that the applicant enjoyed provider-based status.

The language in PMI A-96-7 on which Petitioners rely states:

P. Ex. 2 at 12 (emphasis added).

What PMI A-96-7 plainly states is that where a HCFA Regional Office has made a determination that an entity qualifies for provider-based status which predates the date of the policy statement (August 1997) and which is erroneous in light of the policy statement, the Regional Office may correct its previous determination. However, in the event that the Regional Office does correct a previous determination, it should do so prospectively and not retroactively.

PMI A-96-7 does not address the circumstance where HCFA reviews a request to confer provider-based status on an entity in the absence of any previous determination by HCFA that the entity enjoyed provider-based status. In that circumstance there is nothing in the policy statement which precludes HCFA from denying provider-based status effective a date which predates the date of the determination to deny provider-based status.

HCFA never determined that Petitioners Petaluma, Sequoia, and Ukiah qualified for provider-based status. When HCFA ultimately determined to deny provider-based status to these programs it was not "correcting" a prior determination that these programs were provider-based. It is true that for a period of several years Medicare had made payments for partial hospitalization services provided by these programs based on the representations to HCFA that were made by Petitioner Ross. From the vantage point of hindsight, such payments never should have been made to Petitioner Ross. Payments were made for the services without HCFA having made any affirmative determination of provider-based status.

However, the fact that payments may have been made in error is not equivalent to an affirmative determination that the three programs had provider-based status. The payments to Petitioner Ross for the services that were provided by Petitioners Petaluma, Sequoia, and Ukiah were erroneous payments and were not the consequence of any affirmative determination by HCFA that the three programs were provider-based.

Petitioners argue that it was unfair for HCFA to deny provider-based reimbursement status to Petitioners Petaluma, Sequoia, and Ukiah, effective March 16, 1998. They assert that after these programs received notice from HCFA of the "termination" of their participation status, they were obligated to find alternative care for their patients in a way that minimized interruptions in the course of treatment for these patients. Petitioners assert that the three programs could not simply close their doors upon receipt of notice from HCFA. Rather, they were required to stay open for a transitional period of time during which they incurred substantial expenses. Petitioners contend that HCFA should be required to reimburse the claims generated and the costs accrued during the transitional period.

This argument is in large respect a claim for equitable relief. Petitioners assert, essentially, that HCFA's actions put them in a no-win situation in which they were forced to subsidize the care that they provided to their patients. Petitioners assert that it would be inequitable to compel them to provide this care without compensation. Additionally, Petitioners argue that HCFA's refusal to compensate them for the transitional period contravenes the letter and spirit of regulations that HCFA proposes to adopt which address the issue of provider-based status.

I find Petitioners' assertions to be without merit. First, I do not have the authority to grant relief to Petitioners based on equitable considerations. There is nothing, either in the Act, or in implementing regulations, which gives me that authority. Charity Behavioural Services, Inc., DAB CR635 (1999); T.L.C. Mental Health Center, DAB CR636 (1999).

Even if I had the authority to grant equitable relief to Petitioners I would not find such relief to be appropriate in this case. The facts of this case are that Petitioner Ross received Medicare reimbursement for several years based on Petitioner Ross' incorrect representations that Petitioners Petaluma, Sequoia, and Ukiah were providing hospital-based services. In fact, Petitioner Ross was not entitled to receive any of that reimbursement. Not only did the three programs not qualify as provider-based, but Petitioner Ross had never applied to HCFA to have these Petitioners certified as provider-based facilities. It is apparent from the exhibits submitted by the parties that, at no time prior to 1998 did Petitioners ever seek a designation of provider-based status from HCFA.

Moreover, the evidence in this case does not suggest that Petitioners were harmed by HCFA's actions. The costs associated with the transitional period that occurred after HCFA determined not to compensate Petitioner Ross for the partial hospitalization services that were being provided by Petitioners Petaluma, Sequoia, and Ukiah are only a small percentage of the payments that HCFA made to Petitioner Ross for services that were not compensable under Medicare as provider-based services. HCFA has allowed Petitioner Ross to retain far more than it was entitled to keep. Petitioner Ross was the beneficiary of a windfall that greatly exceeded any costs that it may have incurred in the transitional period during which it divested itself of the three programs.

HCFA's action in this case is not in any respect inconsistent with the letter or spirit of proposed regulations. The proposed regulations do not govern this case. But, had the proposed regulations been applicable to this case, they would make it clear that, as a matter of law, Petitioners would not be entitled to any relief. The regulations in question are proposed amendments to 42 C.F.R. Part 413. 63 Fed. Reg. 47552 - 47610 (Sept. 8, 1998); P. Ex. 1. These proposed regulations are intended to established criteria for determining whether outpatient facilities may be certified as provider-based. In some respects, they incorporate the policies that are contained in PMI A-96-7.

The proposed regulations prohibit a provider from claiming reimbursement for a program on the ground that it is provider-based without first obtaining explicit approval from HCFA. Petitioner Ross' actions in claiming reimbursement for the services provided by Petitioners Petaluma, Sequoia, and Ukiah without first obtaining HCFA's approval to do so thus plainly contravenes the proposed regulations. Proposed regulation 42 C.F.R. § 413.65(b)(1) states:

A facility or organization is not entitled to be treated as provider-based
simply because it or the main provider believe it is provider-based.

And, proposed regulation 42 C.F.R. § 413.65(b)(2) states:

Second, the proposed regulations do not suggest that HCFA must pay claims for services for allegedly provider-based programs until it makes a prospective determination to disallow those claims. As was the case with PMI A-96-7, the proposed regulations authorize HCFA to correct past erroneous determinations to confer provider-based status. Proposed regulation 42 C.F.R. § 413.65(j) allows HCFA to review a past determination of provider status if it believes that the determination is inappropriate. The proposed regulation provides, essentially, that if HCFA determines to cease an entity's provider-based status, then reimbursement for that entities services will cease prospectively, with the first day of the next cost report period following notification of HCFA's redetermination.

However, nothing in this section suggests that HCFA's policy is or will be to provide a prospective cessation of reimbursement in a circumstance like the present case. As is the case with PMI A-96-7, the purpose of the proposed regulation is to enable HCFA to change a prior determination. The policy is wholly inapplicable to the present case because there is no prior determination by HCFA that partial hospitalization services provided by Petitioners Petaluma, Sequoia, or Ukiah were provider-based.

Steven T. Kessel
Administrative Law Judge