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Department of Health and Human Services DEPARTMENTAL APPEALS BOARD Civil Remedies Division |
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| IN THE CASE OF | |
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Loess Hills Nursing & Rehabilitation Center, |
DATE: December 6, 2001 |
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Centers for Medicare & Medicaid
Services
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Docket Nos. C-01-578 |
| DECISION | |
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DECISION I grant summary disposition in these cases in favor of
the Centers for Medicare & Medicaid Services (CMS). I deny the cross-motion
for summary disposition of Petitioner, Mid-America Healthcare Management,
Inc., doing business as Loess Hills Nursing & Rehabilitation Center.
In doing so, I grant Petitioner's motion to consolidate two cases which
had been docketed as Civil Remedies Docket No. C-01-578 and as Civil Remedies
Docket No. C-01-751. My decision, therefore, decides both of these cases.
I also deny as moot motions by CMS to dismiss Petitioner's hearing request
on the ground that it did not comply with the requirements of 42 C.F.R.
§ 498.40 and to stay the directions to the parties that I made in an order
dated August 9, 2001. I. Background and undisputed facts
On April 9, 2001, Petitioner filed a request for a hearing
in order to challenge a determination by CMS to impose remedies against
it. These remedies included imposition of civil money penalties totaling
$29,200 and termination of Petitioner's participation in the Medicare
program effective April 13, 2001. The case was assigned to me for a hearing
and a decision. This hearing request was docketed as Civil Remedies Docket
No. C-01-578. On May 29, 2001, Petitioner filed a second hearing request.
This hearing request was docketed as Civil Remedies Docket No. C-01-751. CMS moved for summary disposition. Petitioner opposed
the motion and cross-moved for summary disposition. Neither party contended
that an in-person hearing was necessary in order to resolve evidentiary
issues. In connection with its motion, CMS submitted exhibits which it
labeled as exhibits A through H. I identify these exhibits as CMS Ex.
1 - CMS Ex. 8 and I receive them into evidence. Petitioner submitted exhibits
which it labeled as exhibits A through D. I identify these exhibits as
P. Ex. 1 - P. Ex. 4 and I receive them into evidence. After the parties had briefed their respective motions,
Petitioner moved to consolidate Docket No. C-01-578 with Docket No. C-01-751.
Petitioner represented that the two cases involved identical legal issues.
CMS did not object to the two cases being consolidated. I am granting
that motion based on the parties' representations. Moreover, I conclude
from review of the two hearing requests that the two cases involve the
identical issue, which I describe below, at Part II.A. of this decision.
Therefore, I am deciding both cases with this decision. B. Undisputed facts The following facts are undisputed. On May 15, 1998, TLC Health Care, Inc. (TLC or Lessee), an Oklahoma corporation, entered into a lease agreement with Iowa N.H., L.L.C. (Iowa N.H. or Lessor), an Iowa limited liability company. Under the lease agreement, Iowa N.H. leased to TLC the nursing facility which is the subject of this case. That facility (which I refer to throughout this decision as "the facility") is a skilled nursing facility that is located in Council Bluffs, Iowa. TLC agreed to be entirely responsible for operating the facility and to make monthly lease payments to Iowa N.H. The lease contains three articles which, when read together,
empower Iowa N.H. to assume control of, and to operate Petitioner, in
the event of a termination of the lease or a default by TLC and which
require TLC to indemnify Iowa N.H. for any liabilities which accrue during
the operation of the lease. At Article 36.1 the lease defines the date
of termination or expiration of the lease as the "Closing Date." CMS Ex.
1 at 28. That article states that:
Id. The intangibles that are listed in this article
include any provider agreements between TLC and Medicare or a State Medicaid
program. Id. Article 36.4 of the lease specifically empowers Iowa N.H. to operate the facility in the event of a default by TLC. The article states:
CMS Ex. 1 at 30. The lease provides additionally, at Article
36.9, that TLC will indemnify Iowa N.H. for claims arising from a breach
of the lease or from any administrative actions that might arise from
TLC's operation of the facility during the term of the lease. CMS Ex.
1 at 31. This article provides that TLC's indemnity obligations would
survive expiration or termination of the lease. Id. The facility was surveyed on March 2, 2001 and on March
22, 2001 by employees of the Iowa Department of Inspections and Appeals
for the purpose of determining whether the facility complied with federal
Medicare participation requirements. The facility was found to manifest
several failures to comply substantially with participation requirements.
Based on these findings, CMS determined to impose remedies which included
civil money penalties and termination of the facility's participation
in Medicare effective April 13, 2001. On April 4, 2001, TLC abandoned its operation of the facility.
On that date, attorneys representing Iowa N.H. sent a letter to TLC declaring
the lease to be in default. CMS Ex. 2. The letter advised TLC that Iowa
N.H. was proceeding to obtain a new license from the State of Iowa in
order to permit a new operator to administer the facility. It advised
TLC that, while Iowa N.H. was seeking a new license, Iowa N.H. would have
the right to manage the facility under TLC's existing license and Medicare
provider agreement. Id. at 2. The letter informed TLC that the
lease termination date of April 4, 2001 was being construed to be the
Closing Date under Article 36 of the lease. Id. Iowa N.H. formed Petitioner as a management company to
operate the facility at the same time or very shortly after the above-described
letter was sent to TLC. Petitioner operated the facility through April
13, 2001, when CMS terminated the facility's participation in the Medicare
program. Petitioner continues to be the operator of the facility. On May
15, 2001, Petitioner entered into a Health Insurance Benefit Agreement
with the Secretary of the Department of Health and Human Services (Secretary).
Petitioner has applied for certification to participate in the Medicare
program but had not yet been certified as of September 26, 2001. II. Issue, findings of fact and conclusions of law
The sole issue in this case is whether Petitioner may be held liable by CMS for remedies that CMS imposed based on deficiencies that were identified as being present at Petitioner's facility prior to April 13, 2001, the date when CMS terminated the facility's participation in Medicare.
I make findings of fact and conclusions of law (Findings) to support my decision in this case. I set forth each Finding below as a separately numbered heading. I discuss each Finding in detail.
Summary disposition is appropriate in a case where there
are no disputed issues of material fact and where the only disputed issues
are legal issues. That is the case here. The parties disagree as to whether,
as a matter of law, Petitioner may be held liable for remedies that CMS
determined to impose for deficiencies that were present at the facility
prior to April 13, 2001. The facts which I rely on to decide this case
are those undisputed facts which I recite at Part I.B. of this decision. Summary judgement might not have been appropriate here
if Petitioner had challenged the findings of deficiency that are the basis
for CMS' remedy determination or if it had asserted that the amounts of
civil money penalties that CMS determined to impose are unreasonable.
In that event there would be disputed issues of fact. But Petitioner did
not raise these issues in its hearing requests that it filed on April
9 and May 29, 2001, in its report of readiness to proceed in this case,
or in its opposition to CMS' motion for summary disposition and cross-motion
for summary disposition. Indeed, Petitioner asserts that it is appropriate
to decide this case summarily. I note that in its report of readiness, Petitioner contends
that there are two fact disputes in this case. First, Petitioner contends
that there is a factual dispute concerning the steps that were taken by
Petitioner to obtain a new provider number for the facility. Second, Petitioner
contends that there is a fact dispute as to whether it is operating the
facility due to the emergency circumstances which arose when TLC failed
to operate the facility pursuant to the terms of its lease. I do not find
either of these two asserted fact issues to be relevant to this case for
reasons which I explain below at Finding 2. Moreover, Petitioner does
not at this time appear to contend that there are any disputed issues
of fact. But, for purposes of this decision, I am assuming that Petitioner
has made efforts in good faith to obtain a new provider number from CMS
for the facility. I am also assuming that Petitioner would not have assumed
the responsibility to operate the facility, but for TLC's default on its
lease obligations.
The undisputed facts of this case establish that Iowa
N.H. opted to assume control over and to operate the facility as assigned
property when TLC defaulted on its lease with Iowa N.H. by abandoning
its operation of the facility on April 4, 2001. Under Articles 36.1 and
36.4 of the lease, TLC's default caused an "absolute assignment" of the
facility and of intangibles to Iowa N.H. CMS Ex. 1 at 28; 30. Assigned
intangibles included TLC's provider agreement with Medicare. Id.
at 30. Immediately thereafter, Iowa N.H. reassigned management of the
facility to Petitioner. Petitioner operated the facility between April
4, 2001 and April 13, 2001 when CMS terminated the facility's participation
in Medicare. Petitioner has continued to operate the facility as a non-certified
facility since April 13, 2001 and has made efforts to obtain certification
from CMS as a Medicare participant. It is evident that Petitioner bears no responsibility
for causing the deficiencies that are the basis for CMS' remedy determination.
The remedies that CMS determined to impose against the facility are based
on findings of noncompliance with participation requirements that predate
the transfer of control of the facility from TLC to Petitioner via Iowa
N.H. CMS' determination to impose civil money penalties and to terminate
Petitioner's participation in Medicare emanates from surveys that took
place in March 2001. Petitioner did not begin to operate the facility
until on or about April 4, 2001. On the other hand, Petitioner has not
asserted that it corrected any of these deficiencies prior to the termination
date of April 13, 2001; so, it is also evident that the deficiencies persisted
during the period of time that Petitioner operated the facility as a Medicare
participant on the basis of TLC's provider agreement. The question is whether Petitioner is liable as an assignee
of TLC's Medicare provider agreement for remedies that have been imposed
for deficiencies that predated the assignment, but which persisted afterwards?
I conclude that CMS is authorized to hold Petitioner accountable for the
deficiencies and to impose the remedies that it determined to impose in
this case. The authority to impose remedies against a noncompliant
facility that participates in Medicare is set forth in two sections of
the Social Security Act (Act). These are sections 1819 and 1866. The Secretary
is authorized by section 1819(h)(2)(B)(ii) to impose civil money penalties
against a noncompliant facility. He is authorized by section 1866(b)(2)(A)
to terminate the participation of a noncompliant facility. The two sections
are remedial. The intent of these sections is to give the Secretary authority
to assure that Medicare beneficiaries are protected against failures by
nursing facilities and skilled nursing facilities to comply with Medicare
participation requirements. The Act does not contain language, either in section 1819
or in section 1866, which expressly states that an assignment of a provider
agreement is subject to any remedies that may be imposed by CMS for failure
by the assigning entity to comply with participation requirements. However,
it is consistent with the Act's remedial purpose to conclude that an entity
which takes assignment of a facility and operates it pursuant to a predecessor's
provider agreement is liable for any remedies that may be based on either
its or its predecessor's failure to comply with the terms of that agreement
or with participation requirements to which that
agreement is subject. Otherwise, the Act's remedial provisions could be
evaded where a provider agreement is assigned. Regulations that the Secretary published to implement
sections 1819 and 1866 of the Act provide that assignment of a provider
agreement carries with it any obligations that may have been incurred
by the assigning entity. An assigned provider agreement is "subject to
all applicable statutes and regulations and to the terms and conditions
under which it was originally issued . . . ." 42 C.F.R. § 489.18(d). In
United States v. Vernon Home Health, Inc., 21 F.3d 693 (5th
Cir. 1994), cert. denied, 115 S.Ct. 575 (1994), the United
States Court of Appeals for the Fifth Circuit held that, under this regulation,
responsibilities that are assumed by the party that accepts assignment
include obligations that predate the date of transfer of the provider
agreement. Petitioner makes several arguments that it should not
be responsible for the remedies that were imposed by CMS including, especially,
the civil money penalties that CMS determined to impose. I find these
arguments not to be persuasive. First, Petitioner asserts that it did not assume TLC's
provider number on default of the lease between TLC and Iowa N.H. Petitioner
argues that Iowa N.H. stepped in under "emergency circumstances to continue
providing services to residents" after TLC ceased operating the facility
without notice to Iowa N.H. P. Br. at 3. Petitioner points to the indemnification
language in the lease to argue that, pursuant to that language, it did
not assume any of the obligations of TLC. Petitioner argues also that
it never intended to operate using TLC's provider number and agreement
but intended all along to obtain its own provider number and agreement
from CMS. I find this argument not to be persuasive. As Petitioner
acknowledges, Iowa N.H. relied expressly on the language of Articles 36.1
and 36.4 of the lease to assume control of and operate the facility. Assumption
of the lease included assumption of TLC's provider participation agreement.
Moreover, Petitioner did operate the facility between April 4 and 13,
2001. Petitioner now asserts that it received no Medicare funds for the
services it provided during this period but - assuming this assertion
to be true - that does not mean that Petitioner was not operating the
facility during the period or that it was not holding itself out as a
Medicare participant during the period. Petitioner is correct in asserting that there were indemnification
provisions in the lease. But, the presence of these provisions does not
mean that the provider agreement was not assigned when Petitioner took
over operation of the facility. Article 36.1 of the lease expressly provides
for an assignment of the provider agreement as an intangible in the event
of a default. CMS Ex. 1 at 28. The agreement to indemnify - Petitioner's
arguments notwithstanding - does not suggest that there was no assignment
of the provider agreement upon TLC's default. The fact that TLC agreed
to indemnify Iowa N.H. for its liabilities means only that Iowa N.H. or
Petitioner, as its assignee, has legal recourse against TLC for those
liabilities. Petitioner did not cause the deficiencies that are the
basis for CMS' remedy determination. Moreover, I accept as true Petitioner's
representation that it agreed to operate the facility because of the emergency
caused by TLC's sudden abandonment of it. But, that is not a reason to
conclude that Petitioner is exempt from liability for any remedies that
CMS determined to impose. Petitioner voluntarily accepted assignment of
the facility and its provider agreement. Petitioner was under no obligation
to do so. Presumably, there were some financial incentives that inured
to Petitioner's benefit that gave Petitioner a reason for accepting assignment
of the facility and the provider agreement. But, regardless, by agreeing
to accept assignment Petitioner became liable under 42 C.F.R. § 489.18(d). Furthermore, I note that, although Petitioner may not
have caused the deficiencies that are the basis for CMS' remedy determination,
those deficiencies persisted after Petitioner accepted assignment
of the facility and TLC's provider agreement. Thus, Petitioner operated
a deficient facility until CMS terminated the facility's participation
in Medicare. There plainly is a remedial basis for CMS to impose remedies
against the facility in light of its continued deficiencies. That would
be the case whether or not the facility and the provider agreement had
been assigned. Second, Petitioner urges that 42 C.F.R. § 489.18 (a),
(c), and (d) is unclear and should not be read expansively to apply to
the provider agreement assignment that occurred here. Petitioner points
out that 42 C.F.R. § 489.18(a) describes a change of ownership to consist
only of: (1) removal, addition, or substitution of a partner; (2) transfer
of title and property to another party where a facility is owned by an
unincorporated sole proprietorship; (3) merger of a provider corporation
or consolidation of two or more corporations into a new corporation; and,
(4) leasing of all or part of a facility to another entity. Petitioner
argues that the regulation should be read to mean that an assignment of
a provider agreement will be subject to the requirements of 42 C.F.R.
§ 489.18(d) only where it is the consequence of one of the change
of ownership categories described in 42 C.F.R. § 489.18(a). It contends
that an assignment resulting from a breach of lease is not a "change of
ownership" within the meaning of the regulation and, consequently, the
provisions of 42 C.F.R. § 489.18(d) do not apply here.
To support its argument that the assignment that took
place in this case is not covered under 42 C.F.R. § 489.18, Petitioner
cites to the provisions of 42 C.F.R. § 489.18(c). This subsection states
that:
Id. I disagree with Petitioner's analysis. The regulation
is not unclear. The intent of the regulation is to assure that implicit,
as well as explicit, assignments of provider agreements carry identical
consequences. 42 C.F.R. § 489.18(c), when read with 42 C.F.R. § 489.18(a),
describes circumstances where a transfer of ownership may not explicitly
assign a provider agreement but where the Secretary has deemed that an
assignment has occurred. The Secretary has concluded that in these circumstances
an assignment of the provider agreement is implied. The fact that the
regulation does not contain a section which says that an explicit
transfer of a provider agreement via an assignment is an "assignment"
merely means that the regulation has omitted to state that which is obvious. Third, Petitioner argues that Vernon Home Health, Inc.
is distinguishable from this case. Petitioner argues that the case involved
a sale of assets whereas the present case involves a lease default. Petitioner
asserts that the transaction in the Vernon Home Health, Inc. case
was an "arms-length" transaction whereas the assignment of lease that
occurred here was involuntary. Petitioner suggests that the transfer that
occurred in Vernon Home Health, Inc. was a voluntary arrangement
that benefitted the acquiring party whereas the assignment that occurred
here was forced on Petitioner. I do not find Petitioner's asserted distinction to be
meaningful because the assignment that took place in this case was not
forced on Petitioner. It is true that the event which precipitated Petitioner's
acquisition of TLC's provider agreement was TLC's abandonment of the facility
and its default of the lease between TLC and Iowa N.H. But, in fact, the
assignment that took place when TLC defaulted was as much the product
of an arm's length negotiation as was the sale that occurred in Vernon
Home Health, Inc. The default and assignment provisions of the lease
were negotiated provisions. Nothing compelled Iowa N.H. to enter into
such an agreement with TLC. And, indeed, there was no requirement - even
in the event of default - that Iowa N.H. take assignment of TLC's provider
agreement. Iowa N.H. or Petitioner could have elected to close the facility
and to apply for a new provider agreement in Petitioner's name. Petitioner cites another case, Deerbrook Pavilion,
L.L.C. v. Shalala, 235 F.3d 1100 (8th Cir. 2000), pet.
for cert. filed 69 USLW 3001, June 20, 2001, No.
00-1920, as support for its contention that the lease assignment that
occurred in this case is distinguishable because it allegedly is not an
arms-length transaction. As was true in Vernon Home Health, Inc.,
the court in Deerbrook held that the purchaser of a facility is
liable for its predecessor's obligations. Petitioner argues that Deerbrook
reinforces the conclusion that liability transfers to the purchaser only
where there is a voluntary sale of a facility. I do not find that the Deerbrook decision provides support for Petitioner's analysis. Deerbrook is a case which addressed only the consequences of a voluntary sale of a facility. The court in that case did not consider the consequences of an assignment resulting from a lease default and it did not draw the distinction that Petitioner now urges. Furthermore, as I discuss above, the assignment and indemnification articles in the lease between Iowa N.H. and TLC were arms length transactions even as were the facility sales in Vernon Home Health, Inc. and in Deerbrook.
CMS filed additional motions which it argues as alternatives to its motion for summary disposition. First, CMS moved to dismiss Petitioner's hearing requests on the ground that they failed to comply with the specificity requirements of 42 C.F.R. § 498.40. Second, CMS moved to stay the directions to the parties in an order that I issued on August 9, 2001. I dismiss both of these motions. They are made moot by my decision in this case. |
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| JUDGE | |
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Steven T. Kessel Administrative Law Judge
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