Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
In the Case of:
Professional Nurses Service, Inc., Appellant,
-v.-
Health Care Financing Administration.
DATE: December 15, 1995
Decision No. 1553
FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION
Professional Nurses Service, Inc. (PNS) appealed a
December 3, 1993 decision of Administrative Law Judge
(ALJ) William J. Wilkin (ALJ Decision). The ALJ Decision
sustained a determination by the Vermont Agency of Human
Services (State agency) denying a request by Associates
in Comprehensive Nursing Care, Inc. (ACNC) for
certification as a home health agency under the Medicare
program. PNS, which was an affiliate of ACNC and was to
provide the services for which certification was
requested, appealed as the successor to ACNC. The ALJ
found that PNS had not obtained a certificate of need
(CON) or otherwise been authorized to deliver home health
agency services, as required by the Vermont CON statute.
The ALJ concluded that the State agency therefore
correctly determined that ACNC did not comply with the
requirement of the Social Security Act (Act) and the
implementing regulations that, as a condition of
participation in the Medicare program, a home health
agency comply with all applicable state and local laws
and regulations. Specifically, the ALJ found that,
although a CON issued to PNS in 1980 authorized it to
offer skilled nursing services, PNS was required under
the Vermont CON statute and regulations to obtain a new
or modified CON in order to provide additional services
needed to qualify as a home health agency under Medicare.
On appeal, PNS took the position that the 1980 CON
authorized it to operate as a home health agency in Vermont, and that a new
or modified CON was not required
in order for it to provide home health agency services
under Medicare.
We have reviewed the law, the record before the ALJ, the
ALJ Decision, and the parties' briefs and documentary
evidence submitted on appeal. 1/ Based on the following
analysis, we sustain the ALJ Decision.
Relevant Federal and State Law
Under the Medicare program, a home health agency is a
public agency or private organization which provides
health care services to a patient on a visiting basis in
a place of residence used by the patient as his or her
home. See sections 1861(m) and (0) of the Act. A home
health agency is primarily engaged in providing skilled
nursing services and other therapeutic services. Section
1861(o) of the Act. The implementing regulations provide
that a home health agency must offer "[p]art-time or
intermittent skilled nursing services and at least one
other therapeutic service (physical, speech, or
occupational therapy; medical social services; or home
health aide services)." 42 C.F.R. 484.14(a).
Section 1891(b) of the Act imposes on the Secretary of
Health and Human Services the duty and responsibility to
enforce conditions of participation applicable to home
health agencies. See also 42 C.F.R. Part 484. Section
1864 of the Act authorizes the use of state agencies to
determine a provider's compliance with conditions of
participation. The regulations implementing section
1891(b) require, as one condition of participation, that
the provider "operate and furnish services in compliance
with all applicable Federal, State and local laws and
regulations." 42 C.F.R. 484.12(a).
Under the Vermont CON statute, no new institutional
health service may be offered or developed without a
determination of need and issuance of a certificate of
need by the Vermont health care authority board. 18
V.S.A. 9434(a). All new institutional health services
must be offered or developed "in a manner which avoids
unnecessary duplication, contains or reduces increases in
the cost of delivering services, while at the same time
maintain[s] and improve[s] the quality of and access to health care services,
and promotes rational allocation of
health care resources in the state . . . ." 18 V.S.A.
9431. A "new institutional health service" is defined to
include, inter alia, the construction, development, or
other establishment of a new health care facility. 18
V.S.A. 9434(a). A "health care facility" is defined as
"all facilities and institutions. . . which offer
diagnosis, treatment, inpatient or ambulatory care to two
or more unrelated persons." 18 V.S.A. 9432(10). The
term "health care facility" includes, but is not limited
to, a number of specified types of facilities such as
"home health agencies." Id.
The Vermont CON statute also provides:
In the event that after a project has been approved,
its proponent wishes to materially change the scope
or cost of the approved project, all such changes
are subject to review under this subchapter. If a
change itself would be considered a new
institutional health service . . ., it shall be
considered as material. If the change itself would
not be considered a new institutional health service
. . ., the council may decide not to review the
change and shall notify the applicant and all
parties of such decision. Where the council decides
not to review a change, such change will be deemed
to have been granted a certificate of need.
18 V.S.A. 9444. Regulations adopted by the Department
of Health to implement the CON statute provide:
When a holder proposes to make an expenditure or
take an action not authorized by the Certificate
of Need . . . , and such expenditure or action
constitutes a change in the kind, scope or capacity
of services to be developed or offered (but does not
constitute a material change), the Department, in
its discretion, may elect to review the changes and
then, after consultation with the Council, may
approve, approve in part, or deny the change.
Section 8.5.3.
Factual Background
We note at the outset that PNS stated on appeal that it
did not dispute the factual findings in the ALJ Decision.
PNS brief dated 7/17/95, at 3. We therefore affirm these
findings (which are not numbered, but are incorporated in
the text of the decision). PNS also stated that it did not dispute the factual
findings in a decision issued by
the Vermont Health Care Authority (VHCA) (which is
referred to later in this decision). Id. at 4. The
facts stated in our decision are derived from the ALJ and
VHCA decisions.
On April 8, 1980, PNS submitted an application for a CON
after having been advised by the State agency that, under
the recently-adopted health facility planning law, it
needed a CON in order to continue offering its services.
On December 1, 1980, PNS was issued a CON by the State
agency. 2/ Record for ALJ Decision, Ex. 1, at 2. This
CON authorized PNS to offer private duty nursing,
homemaking, and supplemental staffing.
ACNC filed a request for Medicare certification as a home
health agency in June 1992. By letter dated July 10,
1992, the State agency denied the request on the ground
that ACNC failed to comply with the Medicare condition of
participation requiring compliance with all state and
local laws and regulations in that it failed to go
through the CON process. The Commissioner of the
Department of Aging and Disabilities (within the State
agency) affirmed this denial by letter dated October 5,
1992. Record for ALJ Decision, Ex. 4. Pursuant to
ACNC's request for reconsideration, the Commissioner re-
affirmed his determination by letter dated March 4, 1993.
Record for ALJ Decision, Ex. 6.
On April 30, 1993, ACNC requested an ALJ hearing on the
Commissioner's determination pursuant to 42 C.F.R.
498.5. Record for ALJ Decision, Ex. 9. At a pre-hearing
conference held by the ALJ, ACNC and HCFA (which appeared
as a party pursuant to 42 C.F.R. 498.42) agreed that a
formal hearing was not required and to submit briefs in
support of their respective legal positions. Record for
ALJ Decision, Ex. 13. An ALJ Decision upholding the
Commissioner's determination on reconsideration was
issued on December 3, 1993. The ALJ entered the
following findings:
1. Under the Vermont Certificate of Need statute, 18
V.S.A. 9431 et seq., neither the petitioner nor its
affiliate, Professional Nurses Service, has obtained
a certificate of need or otherwise been authorized
to deliver home health agency services.
2. The petitioner has failed to comply with the
requirements of the Social Security Act Set forth at
Section 1891(a)(5), 42 U.S.C. 1395bbb (a)(5), and
Regulations contained at 42 C.F.R. 484.12(a) which
specify that as a condition of participation in the
Medicare program, a home health agency "must operate
and furnish services in compliance with all
applicable Federal State and local laws and
regulations."
3. The Agency of Human Services of the State of Vermont
correctly determined that Associates in Comprehensive
Nursing Care did not comply with the Vermont CON
statute and thus did not comply with Section
1891(a)(5) of the Social Security Act or Regulations
set forth in 42 C.F.R. 484.12(a).
4. The Petitioner's request for Medicare certification
is denied.
ALJ Decision at 13-14.
On February 3, 1994, PNS requested review of the ALJ
Decision by the Appeals Council, Office of Hearings and
Appeals, Social Security Administration pursuant to
42 C.F.R. 498.80. The Office of Hearings and Appeals
granted the request for review on May 18, 1995. The
parties completed written briefing in the case on
August 31, 1995. 3/ Their briefs addressed not only the
ALJ Decision but also the effect of a July 28, 1994
decision by the Vermont Health Care Authority (VHCA)
clarifying the CON issued to PNS in 1980. The VHCA found
that PNS was required to obtain a new or modified CON in
order to provide home health agency services which
qualify for Medicare reimbursement. This decision was
appealed to the Vermont Supreme Court, but that court has
issued no decision to date.
On October 2, 1995, the Secretary of the Department of
Health and Human Services delegated the authority to
review the ALJ Decision to the Departmental Appeals
Board. The Board notified the parties of the delegation
by letter dated October 25, 1995, and requested that the
parties advise the Board if they believed any additional
proceedings were necessary. Neither party indicated that
additional proceedings were necessary.
Analysis
We conclude that the ALJ correctly determined that, under
Vermont's CON statute, a new or modified CON was required
in order for PNS to provide the services necessary to
qualify as a home health agency under Medicare. 4/ Under
the applicable federal regulations, to be eligible for
Medicare reimbursement, a home health agency must offer
skilled nursing services and at least one of the
following therapeutic services: physical, speech, or
occupational therapy; medical social services; or home
health aide services. There is no dispute that the CON
issued in 1980 authorized PNS to offer skilled nursing
services. PNS acknowledged that this CON specifically
precluded it from offering nurse aide services, but
argued that the CON permitted it to offer physical,
speech or occupational therapy (referred to here as
"therapeutic services"). (PNS never sought to offer
medical social services.) Thus, the issue before us is
whether PNS needed a new or modified CON to provide
therapeutic services. The standard of review on a
disputed issue of law is whether the ALJ decision is
erroneous. Our conclusion that the ALJ did not err in
concluding that a new or modified CON was required to
provide these services rests on three principal grounds:
o Vermont's interpretation of its own law as
precluding PNS from offering therapeutic services
without a new or modified CON is controlling.
o The 1980 CON on its face requires a new or
modified CON in order for PNS to provide home health
agency services which qualify for Medicare
reimbursement.
o The Vermont CON statute and regulations require a
new or modified CON in order for PNS to provide
therapeutic services.
We discuss each of these grounds separately below.
Vermont's interpretation of its own law as precluding PNS
from offering therapeutic services under its 1980 CON is
controllinq.
In its July 28, 1994 decision, the VHCA stated that PNS
was "authorized under its CON to provide skilled nursing
services, the approved homemaking services, and
supplemental staffing services only." PNS brief dated
7/17/95, enclosed VHCA decision at 46. It further stated
that "PNS shall not offer, either directly or indirectly
through contractual relationships, . . . physical, speech
or occupational therapies. . . ." Id. Thus, Vermont
interpreted its own law as precluding PNS from offering
therapeutic services without a new or modified CON. 5/
Indeed, PNS acknowledged that "by virtue of the VHCA's -
decision it cannot, as a matter of Vermont law, offer
therapeutic services until and unless this portion of the
VHCA's decision is reversed on appeal or negated as a
result of state legislative or administrative action."
PNS brief dated 8/31/95, at 2.
PNS took the position, however, that the State agency and
the Appeals Council (now the Board) must make their own
determination whether PNS needs a new or modified CON to
offer therapeutic services "because the issue of
compliance with Vermont law is effectively incorporated
into the process for determining eligibility to be a
Medicare-certified provider." Id.
We disagree. In our view, the requirement at 42 C.F.R.
484.12(a) for compliance with all state laws necessarily
refers to state law as interpreted by the proper state authorities using the
proper state procedures. (PNS did
not dispute that the VHCA was the proper state authority
to decide whether PNS needed a new or modified CON or
that the VHCA followed the proper procedures in reaching
a decision.) Any other reading might give rise to an
untenable situation where a state law is interpreted one
way for purposes of Medicare certification and another
way within the state itself. Moreover, the regulation
simply requires compliance with state laws. The drafters
of the regulation could have expressly stated that the
requirement was for compliance with state law as
interpreted by the federal government if this had been
their intent.
Furthermore, section 484.12(a) implements section
1861(o)(4) of the Act, which provides that a home health
agency must either be licensed or be approved by the
responsible state agency as meeting the standards
established for licensing. 6/ A CON is comparable to
licensure in that home health agencies must receive a
CON in order to operate in Vermont. 7/ Although the Act
requires that various types of Medicare providers be
licensed by the state, we are not aware of any instance
in which the federal government has looked behind a
state's determination denying licensure in determining
whether such a requirement has been met.
Accordingly, we conclude that the VHCA's determination
that PNS needed a new or modified CON before providing
therapeutic services is controlling, and we adopt it.
Contrary to PNS's argument, our conclusion is not
inconsistent with the ALJ's conclusion that he had
jurisdiction to decide this case notwithstanding the fact
that two proceedings involving PNS were then pending
before the VHCA. 8/ HCFA had requested dismissal of
PNS's request for an ALJ hearing pending the outcome of
these proceedings, in the interest of judicial comity and
economy. The ALJ held that it would unduly delay a final
determination on PNS's request for Medicare certification
to dismiss PNS's hearing request pending exhaustion of
Vermont's administrative review process. 9/ See ALJ
Decision at 5-6. Here, however, the VHCA has held that
PNS requires a new or modified CON in order to offer
services which would qualify it as a Medicare provider
(or at least that PNS must undergo CON review to
determine whether a new or modified CON is required).
Unless and until the Vermont Supreme Court issues a
decision overturning the VHCA decision, the latter
decision remains in effect.
In any event, as discussed below, even in the absence of
a VHCA determination, we would conclude that PNS was
required to obtain a new or modified CON to provide
therapeutic services.
The 1980 CON on its face requires a new or modified CON
in order for PNS to provide home health agency services.
The 1980 CON states in pertinent part that PNS--
is authorized to offer the following services:
1. Private duty nursing
2. Homemaking
3. Supplemental staffing
Homemaking includes meal preparation,
shopping, dressing, transferring, foot care,
housekeeping, cleaning, laundry, assisting
with walking, bathing and eating, respite and
other non-judgmental supportive services.
Homemaking, as defined here, does not include
monitoring vital signs, range of motion
exercises, or supervision of medications.
Record for ALJ Decision, Ex. 1. Attached to the CON is a
"Statement of Decision" which provides in relevant part:
A Certificate of Need is required because
Professional Nurses Service assumes corporate
responsibility for the provision of services.
This distinguishes Professional Nurses Service
from a pure employment registry.
The recommendation of the Vermont Health Policy
Corporation emphasizes the difference between
Professional Nurses Service and the certified Home
Health Agencies in Vermont. The Department of
Health agrees with this difference and notes that
Professional Nurses Service is not seeking or
receiving authorization to operate as a Home Health
Agency.
Subsequent efforts by Professional Nurses Service
to become certified as a Home Health Agency for
Medicaid/Medicare payment may require a new
Certificate of Need.
Id. The ALJ found, and we agree, that it is clear from
the face of the CON itself as well as the attached
Statement of Decision that a new or modified CON is
required in order for PNS to provide therapeutic
services. The CON itself does not include therapeutic
services in the list of authorized services. We do not
see any basis for concluding that PNS was authorized to
provide a service not included in the list of authorized
services.
Moreover, the Statement of Decision states that PNS is
"not . . . receiving authorization to operate as a Home
Health Agency," and that PNS may require a new CON "to
become certified as a Home Health Agency for
Medicaid/Medicare payment." We read this as indicating
that the CON does not authorize PNS to offer all the
services which are necessary to obtain Medicare
certification as a home health agency. PNS argued,
however, that this language was not intended to preclude it from providing home
health agency services but rather
to require it to seek a new or modified CON in order to
claim Medicare reimbursement for its services. This
argument has no merit. A CON is required under state law
in order to provide any new institutional health care
services. How those services are reimbursed is of no
concern to the state. Thus, the Statement of Decision
does not mean that PNS must obtain a new or modified CON
to achieve Medicare provider status, but rather that a
new or modified CON would be required if PNS sought to
provide the type of services which a home health agency
must provide in order to be certified as a Medicare
provider, services which were not authorized by the
existing CON.
Under the Vermont CON statute and requlations, a new or
modified CON is required in order for PNS to provide
therapeutic services.
Under the Vermont CON statute, a CON must be issued, or
a previously issued CON modified, before any new
institutional health service can be offered. The
establishment of a health care facility such as a home
health agency constitutes a new institutional health
service. 10/ The ALJ found that the offering of
therapeutic services by PNS would constitute the
establishment of a health care facility because PNS would
then qualify as a home health agency as defined in the
Medicare regulations. 11/
PNS disputed the ALJ's finding, arguing that it was
authorized by the CON issued in 1980 to operate a home
health agency, albeit not a Medicare-certified home
health agency, and that the addition of therapeutic
services therefore did not establish a health care
facility. According to PNS, a home health agency is
commonly understood to be an agency which provides health
care services and care to individuals in their homes, and
the 1980 CON authorized it to provide such services and
care. However, PNS did not point to any authority which
showed that this was the common understanding of what
constituted a home health agency. Indeed, the VHCA
found that, in 1980, a home health agency "was being
consistently defined for purposes of CON review as it
was defined by the federal government" in 42 C.F.R.
484.14(a). VHCA decision at 8.
PNS also asserted that it had applied for a CON as a home
health agency, and argued that Vermont would not have had
jurisdiction to issue the CON in 1980 if Vermont was not
approving PNS as a home health agency. We do not find
this argument persuasive for several reasons.
First, PNS's assertion that it applied for a CON as a
home health agency is subject to question. The VHCA
found that, although PNS maintained before it "that
its 1980 CON application was to become a Medicare-
reimbursable home health agency," PNS did not describe
its proposed services consistently throughout the
1980 CON proceeding and never specifically requested
certification as a home health agency during that
proceeding. VHCA decision at 7 and 8.
Second, it appears that Vermont would have had
jurisdiction to issue a CON even if it did not view PNS's
application as an application to offer home health agency
services. As noted above, the CON statute provides that
no new institutional health service may be offered
without a CON. A new institutional health service is
defined to include the development of a new health care
facility. PNS clearly fell within the general definition
of a health care facility as a facility which offers
"diagnosis, treatment, inpatient or ambulatory care to
two or more unrelated persons." Thus, this could have
been another basis for CON jurisdiction.
Third, we see nothing in the Vermont CON statute which
indicates that the CON actually issued must be
coextensive with the basis for CON jurisdiction. Thus,
assuming that Vermont determined that it had jurisdiction
to issue a CON because it viewed PNS's application as an
application to offer home health agency services, this
would not preclude Vermont from issuing a CON which
authorized PNS to offer more limited services.
PNS also noted that in 1990 it was both accredited as
a home health agency by the Joint Commission on
Accreditation of Healthcare Organizations (JCAHO) and
licensed by the State of New Hampshire as a home health
agency. As the ALJ observed, however, the accreditation
"does not establish that PNS has functioned as a home
health agency in Vermont or that it has complied with the
Vermont CON statute." ALJ Decision at 11. Similarly,
"there is no basis in this record for finding that the
licensing requirements in New Hampshire are the same as
the CON process which exists in Vermont. . . ." Id.
Accordingly, we find that a new or modified CON was
required under the terms of the Vermont CON statute in
order for PNS to offer therapeutic services.
Conclusion
For the foregoing reasons, we uphold the ALJ Decision.
We affirm and adopt each of the ALJ's numbered findings,
as well as the unnumbered findings of fact and
conclusions of law in the text of the ALJ Decision.
____________________________
Donald F. Garrett
____________________________
M. Terry Johnson
____________________________
Judith A. Ballard
Presiding Board Member
1.
The submission of new evidence is permitted by 42
C.F.R. 498.86(a). The documents submitted on appeal
are identified in PNS's July 17, 1995 brief.
2.
The CON states that it "shall expire one year after
issuance." It appears that this CON was renewed annually.
3.
In its last submission on that date, PNS withdrew its
earlier request for oral argument before the Appeals
Council.
4.
The fact that a new or modified CON may be required
under the CON statute does not mean that Vermont must
issue a CON. Under the CON statute and regulations,
there are a number of factors which must be taken into
account in determining whether a CON should be issued.
PNS challenged initially whether it was required to
undergo the CON review process to change the scope of the
services described in the 1980 CON. Thus, there was
never any determination by Vermont whether a new or
modified CON should be issued.
5.
The VHCA also issued a clarified CON which provided in
part that "PNS will advise the Health Policy Council of
any proposed change in the scope of the approved
services, which will make a determination as to whether
the change is material and subject to review in
accordance with 18 V.S.A. 9444." Id. (following page
46). The VHCA thus arguably held only that PNS must
present its proposal to offer therapeutic services for a
determination whether it constituted a change for which a
new or modified CON was required, not that a new or
modified CON was in fact required. Even if the holding
was limited in this fashion, however, PNS was in
violation of the Vermont CON statute since PNS did not
submit its proposal to provide therapeutic services for
such a determination.
6.
Under the provisions of section 1861(o) in effect until
July 1, 1981, for-profit organizations which did not have
a state license were not eligible for Medicare
certification. This prohibition was deleted by Public
Law No. 96-299, section 930(n)(2).
The regulation was originally adopted
in substantially the same form in 1968. 33 Fed. Reg.
12090, 12094 (August 8, 1968). This pre-dated the
addition to the Act (by Public Law No. 100-203, section
4021) of section 1891(a)(6), which specifies as a
condition of participation: "The agency operates and
provides services in compliance with all applicable
Federal, State, and local laws and regulations . . . ."
7.
The record indicates that Vermont law does not provide
for the licensure of home health agencies. Record for
ALJ Decision, Stipulation of the Parties dated 11/5/93,
at 134.
8.
The two proceedings involved (1) PNS's request for a
jurisdictional ruling on whether a February 1993 proposal
by PNS to offer nurse aide services required a new or
modified CON; and (2) a petition by the Vermont Assembly
of Home Health Agencies, Inc. to revoke PNS's 1980 CON
and to reinstate it with additional conditions. VHCA
decision at 1.
9.
Moreover, the ALJ noted that the issues raised before
the VHCA were not directly presented by this case. Thus,
it was unclear at that time that a decision by the VHCA
would be dispositive.
10.
The CON statute also defines a "new institutional
health service" as the offering of health services which
were not previously offered on a regular basis if such
services have an annual operating expense in excess of
$150,000. 18 V.S.A. 9434(a). PNS contended that it
did not satisfy this definition since the maximum amount
of expenses it projected for therapeutic services was
less than $25,000 per year. We need not reach this
issue since we find that another definition of "new
institutional health service" is applicable.
11.
The ALJ also found that PNS's proposal to offer
therapeutic services constituted a proposal to offer a
new institutional health service because the CON statute
(at 18 V.S.A. 432(10)(B)) defines an "outpatient
therapy program" as a type of health care facility. PNS
argued that it would be contracting with independent
therapists, and that the provision of services by
independent therapists has never been treated as an
outpatient therapy program for which a CON is required.
We need not address this issue since we conclude that the
ALJ properly found that PNS was proposing to establish a
new health facility, and thus offer a new institutional
health service, by providing home health agency services.