SUBJECT:

Arizona Surgical Hospital, LLC,

Petitioner,

Centers for Medicare & Medicaid Services

DECISION

I find that the Centers for Medicare & Medicaid Services (CMS) properly terminated the Medicare provider agreement with Arizona Surgical Hospital, LLC (Petitioner), effective April 6, 2002. As explained below, based on all of the parties' briefs, submitted exhibits, oral arguments, and the applicable law, I grant CMS's motion for summary judgment.

I. Background

After purchasing the subject facility, Petitioner became a Medicare provider effective November 15, 1999. Also, effective November 15, 1999, the Arizona Department of Health Services (ADHS or State agency) issued a special hospital license to Petitioner. The ADHS is charged with the responsibility of licensing, inspecting, and regulating health care institutions in Arizona. A.R.S. � 36-401 et seq.

ADHS completed a complaint investigation of Petitioner on January 11, 2002. Subsequently, CMS authorized two Medicare complaint validation surveys that were completed on January 28, 2002 and March 8, 2002. The surveyors found that Petitioner was not in substantial compliance with the Conditions of Participation for providers of hospital services in the Medicare program as required by Title XVIII of the Social Security Act (Act). The surveyors determined that Petitioner was not primarily engaged in providing, by or under the supervision of physicians, services to inpatients and, therefore, did not meet the statutory definition of a hospital as found in section 1861 of the Act [42 U.S.C. � 1395x(e)(1)].

By letter dated February 13, 2002, CMS first notified Petitioner that based on the results of the January 2002 survey findings of noncompliance as well as Petitioner's failure to meet the statutory definition of a "hospital" under section 1861(e) of the Act, Petitioner would be terminated unless a resurvey demonstrated that Petitioner was in compliance with all conditions of participation and was functioning as a "hospital." By letter dated March 19, 2002, CMS notified Petitioner that, based on the results of the resurvey, CMS planned to terminate Petitioner's Medicare provider agreement for: (1) failure to comply with applicable conditions of participation; and (2) because Petitioner was not primarily engaged in providing services to inpatients and, therefore, did not qualify as a hospital for purposes of the Medicare statute. CMS terminated Petitioner's provider agreement effective April 6, 2002.

In the meantime, and after ADHS completed its survey on January 11, 2002, ADHS solicited Petitioner to voluntarily suspend inpatient admissions in lieu of ADHS issuing a formal order imposing State sanctions against Petitioner. Petitioner agreed, but later attempted to rescind its voluntary agreement to suspend inpatient admissions. ADHS, therefore, on February 27, 2002, issued a formal Order against Petitioner because of ADHS's findings of Petitioner's substantial noncompliance with state licensing requirements. CMS Ex. 7. This Order imposed "intermediate" sanctions against Petitioner prohibiting it from admitting inpatients. On June 7, 2002, ADHS lifted its sanctions against Petitioner. CMS Ex.13. CMS, as noted above, had already terminated Petitioner's Medicare provider agreement.

Petitioner timely filed a request for hearing on April 12, 2002. Because Petitioner's provider agreement had been terminated, I agreed to expedite proceedings in this case. I scheduled the hearing to begin on October 31, 2002 and set up prehearing procedures in accord. On July 26, 2002, CMS filed a motion for summary judgment (CMS Br.). CMS attached documents related to the State agency proceedings. CMS Exs. 7, 13, and 31. Petitioner filed its response (P. Br.) on August 23, 2002 and attached exhibits marked "A" and "B" (P. Exs. A - B). CMS filed a reply on September 9, 2002 (CMS R. Br.). I held a prehearing telephone conference on October 3, 2002 and heard argument from both parties on the motion for summary judgment. With this Decision, I am cancelling the scheduled hearing because I have determined there are no material issues of fact in this case and, as a matter of law, CMS correctly terminated Petitioner's Medicare provider agreement effective April 6, 2002.

II. Applicable Law

In order to participate in the Medicare program, a hospital must meet statutory and regulatory requirements. Section 1861 of the Act; 42 C.F.R. Part 482. CMS may terminate a hospital from participation in the Medicare program if CMS finds that the hospital is not in substantial compliance with the provisions of title XVIII of the Act and the applicable regulations or if the hospital no longer substantially meets the appropriate conditions of participation. Act, section 1866(b)(2); 42 C.F.R. �489.53(a)(1).

A hospital that is dissatisfied with CMS's determination to terminate it from participation in the Medicare program is entitled to a hearing. Act, sections 205(b), 1866 (h)(1); 42 C.F.R. �� 498.5(b), 498.3(b)(7).

Summary disposition is appropriate where either: there are no disputed issues of material fact and the only questions that must be decided involve application of law to the undisputed facts; or, the moving party must prevail as a matter of law even if all disputed facts are resolved in favor of the party against whom the motion is made. A party opposing summary disposition must allege facts and proffer evidence which would refute the facts relied upon by the moving party. See, e.g., Fed. R. Civ. P. 56(c).

III. Issues

The issues presented are: (1) whether summary disposition is appropriate in this case; (2) whether that portion of the statutory definition of "hospital" as an institution which is "primarily engaged" in providing certain services to inpatients operates as a condition of participation, such that if an entity does not meet that definition its provider agreement may be terminated; and (3) if so, whether a hospital can be "primarily engaged" in providing inpatient services even if a State agency has issued an order prohibiting the entity from admitting inpatients.

IV. The Parties' Arguments

A. CMS's Arguments

In its motion for summary judgment, CMS argues that as part of Petitioner's Medicare provider agreement dated January 12, 2000, Petitioner was informed that it must comply with all of the hospital provider participation requirements and one such requirement is that the facility must meet the statutory definition of a hospital, in that it must be "primarily engaged in providing [covered services] to inpatients." (CMS Ex. 31). Because ADHS imposed sanctions prohibiting Petitioner from providing inpatient care from February 27, 2002 to June 7, 2002, Petitioner could not possibly qualify as a "hospital" as defined by the Act during that period of time. Further, CMS argues that because Petitioner was not actually functioning as a "hospital," Petitioner was operating in violation of the express terms of its Medicare provider agreement.

B. Petitioner's Arguments

In its response to CMS's motion for summary judgment, Petitioner makes four main arguments.

(1) Petitioner claims that the statutory clause cited by CMS, i.e., 42 U.S.C.� 1395x(e)(1) [section 1861(e)(1) of the Act] is a definition only and is not a condition of participation, contains no substantive standards for compliance, has never been implemented in regulation or policy, and is not the subject of any reported case. Petitioner claims that the miscellaneous definition cited by CMS broadly defines a variety of terms so that the terms may be used as terms of art consistently throughout the Act and regulations. Petitioner argues that nowhere in the regulations does the "primarily engaged in" language serve as the basis for survey activities or as a survey standard for participation. The absence of any federal survey tag for this alleged deficiency, Petitioner argues, "is strong evidence that the agency never intended to apply a rule as CMS has here articulated, and, naturally the hospital community had no notice of any such intention." P. Br. at 4. ⁽¹⁾

(2) Petitioner claims that even if the definition were a standard by which a hospital must be judged, whether the Petitioner met the standard must be addressed through a thorough finding of fact after a hearing. Petitioner claims it has submitted pages and pages of proposed exhibits that show the Petitioner's mission is to provide high quality surgical services in a hospital setting. Petitioner also argued that the facts underlying the state's decision to impose the section are relevant and should be flushed out during a hearing and the sanction should not be an independent reason to terminate the Petitioner.

(3) Petitioner argues that CMS has relevant evidentiary material which Petitioner has requested and CMS has not disclosed. Petitioner has primarily requested documents which would show whether there has been a similar prosecution of a hospital. ⁽²⁾

(4) Petitioner claims that a favorable ruling for CMS will create unfortunate public policy results. Petitioner asserted that many hospitals, licensed as such by their states, and certified to participate in Medicare, may be in jeopardy of losing their Medicare certifications due to fluctuating admissions patterns.

C. CMS's Responsive Arguments

CMS responds that Petitioner has failed to articulate any facts to dispute that it was not providing medical services to inpatients at its hospital during the surveys completed on January 28, 2002 and March 8, 2002 or on the termination date of April 6, 2002. Therefore, Petitioner could not meet the statutory definition of a hospital. CMS counters Petitioner's arguments, essentially by stating that whether a facility is to be considered a "hospital" under the Medicare statutes is not based on whether the facility has policy documents on file at its corporate offices of "unimplemented policies and procedures," but on the actual operation of the facility as a "hospital" as defined under the Act. CMS R. Br at 6. CMS also argues that 42 C.F.R. � 488.3(a)(1) provides that in order to be approved for participation in or coverage under the Medicare program, a prospective provider must meet the applicable statutory definition in section 1861 of the Act. Finally, CMS argues that ALJs "are not called on to factor public policy concerns into their decisions." CMS R. Br. at 9. ⁽³⁾

V. Findings of Fact and Conclusions of Law

A. Summary judgment is appropriate here because Petitioner has not established any dispute over genuine issues of material fact for a pivotal issue.

"Summary judgment is intended to pierce the pleadings, and assess the parties' proof in order to determine if there is a genuine need for trial." Crestview Parke Care Center, DAB No. 1836, at 7 (2002), citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). In Crestview, the Departmental Appeals Board (Board) discussed in some detail the appropriate criteria for awarding summary judgment. Summary disposition is appropriate where the parties raise no genuine issue of material fact. To defeat a motion for summary judgment, the non-moving party must provide evidence of specific facts and must show that the fact in contention is material, that is, a fact that might affect the outcome of the suit.

[I]n order to demonstrate a genuine issue, the opposing party must do more than show that there is "some metaphysical doubt as to the material facts . . . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'"

Crestview, at 7, quoting Matsushita, at 587.

Petitioner contends that genuine issues of material fact are in dispute here, citing first, whether Petitioner was "primarily engaged" in providing services to inpatients. When an entity has been prohibited by a state authority from admitting patients, however, or whether an entity is "primarily engaged" in providing services to inpatients and, thus, can meet the statutory definition of a hospital, constitutes a question of law, not a question of fact. See Crestview Parke Care Center, DAB CR867, at 9, aff'd, DAB No. 1836, at 8 ("Conclusions and legal arguments do not establish material facts in dispute").

B. A facility must meet the statutory definition of a hospital in order to maintain a Medicare provider agreement.

The statute explicitly provides that "[t]he Secretary . . . may refuse to renew or may terminate [a provider] agreement after the Secretary . . . has determined that the provider fails substantially to meet the applicable provisions of section 1861 . . . ." Act, section 1866(b)(2)(B). Moreover, the regulations clearly state that "[i]n order to be approved for participation in or coverage under the Medicare program, a prospective provider or supplier must: (1) meet the statutory definition in section . . . 1861 . . . of the Act . . . ." 42 C.F.R. � 488.3.

Section 1861 of the Act defines a hospital as an institution which:

(1) is primarily engaged in providing, by or under the supervision of physicians, to inpatients (A) diagnostic services and therapeutic services for medical diagnosis, treatment, and care of injured, disabled or sick persons, or (B) rehabilitation services for the rehabilitation of injured, disabled, or sick persons;

(2) maintains clinical records on all patients;

(3) has bylaws in effect with respect to its staff of physicians;

(4) has a requirement that every patient with respect to whom payment may be made under this title must be under the care of a physician except that a patient receiving qualified psychologist services (as defined in subsection (ii) may be under the care of a clinical psychologist with respect to such services to the extent permitted under State law;

(5) provides 24-hour nursing service rendered or supervised by a registered professional nurse, and has a licensed practical nurse or registered professional nurse on duty at all times . . .;

(6)(A) has in effect a hospital utilization review plan which meets the requirements of subsection (k) and (B) has in place a discharge planning process that meets the requirements of subsection (ee);

(7) in the case of an institution in any State in which State or applicable local law provides for the licensing of hospitals, (A) is licensed pursuant to such law or (B) is approved, by the agency of such State or locality responsible for licensing hospitals, as meeting the standards established for such licensing;

(8) has in effect an overall plan and budget that meets the requirements of subsection (z); and

(9) meets such other requirements as the Secretary finds necessary in the interest of the health and safety of individuals who are furnished services in the institution.

Act, section 1861(e). The Act contains nine separate on-going requirements for meeting the statutory definition of hospital. Subsection (e)(1) of section 1861 which requires the institution to be "primarily engaged" in providing services to inpatients, is also an on-going requirement; that is, an institution that is "primarily engaged" in providing the noted services at the time it is a "prospective provider" must continue to be "primarily engaged" in providing those services after its provider agreement has been accepted in order to continue in the Medicare program.

I find that meeting the statutory definition of a hospital is a continuing requirement for Medicare participation. Subsection 1861(e)(1) is just as much a "condition of participation" as are subsections 1861(e)(2) - (9). Simply because section 1861(e) is not quoted word-for-word in the Code of Federal Regulations in Part 482 as part of the "Conditions of Participation" does not mean that providers are free to ignore any of the subsections of section 1861(e).

Whether or not an institution was "primarily engaged" in providing services to inpatients as described in the Act would normally be a question of fact and would require a full presentation of facts related to that issue. As noted above, however, the more narrow question of whether a sanction against inpatient admissions by a state agency is determinative of whether an institution can be "primarily engaged" in providing services to inpatients is a question of law, not fact.

C. During the time period when ADHS prohibited Petitioner from accepting inpatients, Petitioner could not meet the statutory definition of a hospital.

After the ADHS determined through either voluntary compliance or sanction that Petitioner could not provide the services indicated in (e)(1) of section 1861, Petitioner simply could not meet the statutory definition of a hospital for the period of time the State agency sanctions were in effect. ⁽⁵⁾ During any period of time in which an institution could not provide services to inpatients, it would not meet the statutory definition of a hospital.

During the oral argument, the parties discussed the possibility of an institution that did not meet each of the requirements listed in section 1861(e) of the Act for a very short period of time. For example, a hospital may have lost its clinical records or had to shorten its period of nursing coverage because of an emergency. I find that in every situation of even a short time period, the institution does not meet the statutory definition for that short period of time. I specifically do not find, however, that in every such situation CMS could properly terminate an institution's provider agreement as that circumstance is not before me here. In this case, however, Petitioner could not meet the statutory definition of a hospital (therefore, Petitioner was noncompliant with section 1861 of the Act) because it could not be primarily engaged in providing services to inpatients from February 1, 2002 until June 7, 2002, a period of four months. Because of the length of time involved, I find that Petitioner's noncompliance was substantial.

D. CMS properly terminated Petitioner's Medicare provider agreement because Petitioner did not meet the statutory definition of a hospital.

ADHS prohibited Petitioner from admitting inpatients for a period of several months and CMS could not anticipate when or if the sanctions would be lifted. The ADHS prohibition against admissions had been in place for a month at the time of the Medicare survey of March 8, 2002 and was still in place a month later when CMS terminated Petitioner's provider agreement.

Section 1866(b)(2) of the Act gives the Secretary authority to terminate after notice a provider agreement when the Secretary determines that a provider has failed to comply substantially with the provider agreement or has failed substantially to meet the applicable provisions of section 1861 of the Act. Petitioner's inability to meet the statutory definition of a hospital for three months was a substantial noncompliance with its provider agreement and was a substantial noncompliance with section 1861 of the Act.

Although CMS argues in its brief that ALJs are not called on to factor public policy concerns into their decisions, during the oral argument CMS emphasized that the statutory provisions establishing conditions of Medicare participation for a provider of services were enacted to protect the health and safety of Medicare beneficiaries. It would be inappropriate for CMS to have an entity certified as a hospital for use by Medicare beneficiaries when the hospital cannot accept inpatients. I agree with CMS's reasoning in this instance.

V. Conclusion

Petitioner could not be primarily engaged in providing services to inpatients during the time period from February 1, 2002 to June 7, 2002 because the State agency barred Petitioner from admitting inpatients. As a result, Petitioner did not meet the statutory definition of a hospital and, thus, was not in substantial compliance with its provider agreement or the provisions of section 1861 of the Act. CMS properly terminated Petitioner's provider agreement effective April 6, 2002, and is granted summary judgment in this case.

Anne E. Blair

Administrative Law Judge

1. Petitioner makes the point that because CMS cited no regulations or administrative decisions permitting 42 U.S.C. � 1395x(e)(1) to be used as suggested by CMS proves the definition is not a condition of participation. I note that in Kemper Community Hospital, DAB CR825 (2001), the ALJ listed as governing law, without further discussion, that a hospital must meet the statutory definition of a hospital at section 1861(e) of the Act and sustained termination of the hospital's provider agreement partially for that reason.

2. During the telephone prehearing conference on October 3, 2002, I denied Petitioner's request to obtain documents from CMS about CMS's interpretation of and past enforcement practice regarding 42 U.S.C. � 1395x (e)(1). I find Petitioner's request could not uncover any documents relevant to whether Petitioner was "primarily engaged" in providing care to inpatients. Per Petitioner's request, I note in the record Petitioner's objection to my ruling.

3. This is an assertion to which I have some disagreement, but my concerns need not be addressed in this decision.

4. I do not need to address herein the adequacy or evidentiary value of Petitioner's claims made in response to CMS's summary judgment motion that its purpose as an institution is to provide high quality surgical services in a hospital setting.

5. I note that Petitioner apparently did have four inpatients between February 7, 2002 and February 19, 2002, in contravention of its voluntary agreement with ADHS, not to admit inpatients. These admissions triggered ADHS' formal order of sanctions. CMS Ex. 7.