SUBJECT: Arizona Surgical Hospital, LLC,

Petitioner,

Centers for Medicare & Medicaid Services

FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

Arizona Surgical Hospital, LLC (Petitioner) appealed the October 7, 2002 decision of Administrative Law Judge (ALJ) Anne E. Blair granting the Centers for Medicare & Medicaid Services' (CMS) motion for summary judgment without a hearing and upholding the termination of Petitioner's Medicare provider agreement, effective April 6, 2002. Arizona Surgical Hospital, LLC, DAB CR959 (2002) (ALJ Decision). The ALJ found that Petitioner, as a matter of law, did not meet the definition of "hospital" in title XVIII (Medicare) of the Social Security Act (Act) because the Arizona Department of Health Services (AZDHS) had barred Petitioner from accepting inpatients for approximately four months, including as of the time of termination. On appeal, Petitioner argued that whether it met the standards in that definition is a question of fact requiring consideration of circumstances other than the AZDHS sanction, and on which it should have been permitted to present evidence at a hearing to demonstrate that it was a hospital for the purposes of the Act. Petitioner also argued that the Act's definition of hospital was not a Medicare condition of participation imposed by the regulations and thus could not by itself be a basis for termination. As explained below, we sustain the ALJ's determination to terminate Petitioner's Medicare provider agreement.

Applicable law and standards of review

Our standard of review on appeal from an ALJ decision of a disputed issue of law is whether the initial decision is erroneous. See Guidelines for Appellate Review of Decisions of Administrative Law Judges Affecting a Provider's Participation in the Medicare and Medicaid Programs, http://www.hhs.gov/dab/ guidelines/prov.html; Carehouse Convalescent Hospital, DAB No. 1799 (2001); Lake Cook Terrace Nursing Center, DAB No. 1745 (2000).

The key issue in this case involves whether Petitioner's facility met the definition of "hospital" at section 1861(e)(1) of the Act. That section states that the term "hospital" means an institution which (among nine numbered requirements)--

. . . 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; . . .

CMS may terminate a provider's agreement to participate in the Medicare program if CMS determines that the provider "fails substantially to meet the applicable provisions of section 1861." Section 1866(b)(2)(B) of the Act. CMS may also terminate a provider's agreement to participate in the Medicare program where the provider is not in substantial compliance with the provisions of title XVIII of the Act or the applicable regulations or if the hospital no longer substantially meets the appropriate conditions of participation or requirements. Section 1866(b)(2)(A) of the Act; 42 C.F.R. �� 489.53(a)(1), (3).

A hospital that is dissatisfied with CMS's determination to terminate it from participation in the Medicare program is entitled to a hearing. Sections 205(b), 1866(h)(1) of the Act; 42 C.F.R. �� 498.5(b), 498.3(b). However, the ALJ may grant a motion in the nature of summary judgment without an evidentiary hearing with witnesses and cross-examination when the record, viewed in the light most favorable to the non-moving party, shows that there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. See, e.g., Lackawanna Medical Group Laboratory, DAB No. 1870 (2003); Everett Rehabilitation and Medical Center, DAB No. 1628 at 3 (1997), citing Travers v. Shalala, 20 F.3d 993, 998 (9^th Cir. 1994), affirming Travers v. Sullivan, 801 F.Supp. 394, 403 (E.D. Wash. 1992); Carmel Convalescent Hospital, DAB No. 1584 (1996). ⁽¹⁾

Background

The following facts from the ALJ Decision are not in dispute. Petitioner held a special hospital license issued by AZDHS, the state agency charged with responsibility for licensing, inspecting, and regulating health care institutions in Arizona. 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.

Based on the January 28, 2002 survey, CMS notified Petitioner in a letter dated February 13, 2002, that CMS had determined that, as relevant here, Petitioner failed to meet the statutory definition of a "hospital" under section 1861(e) of the Act, and that CMS would terminate Petitioner's provider agreement unless a resurvey demonstrated that Petitioner was in compliance with all conditions of participation and was functioning as a hospital. ALJ Decision at 1-2.

On February 1, 2002, at the request of AZDHS, Petitioner agreed to suspend inpatient admissions in lieu of a formal AZDHS order imposing sanctions. On February 27, 2002, after Petitioner sought to rescind its agreement to the suspension, AZDHS imposed a sanction on Petitioner forbidding it from admitting inpatients. Id.

AZDHS completed a second survey on March 8, 2002. Based on that survey, CMS notified Petitioner in a letter dated March 19, 2002, that CMS had again determined that Petitioner was not primarily engaged in providing services to inpatients and did not qualify as a hospital for purposes of the Medicare statute. CMS thus terminated Petitioner's provider agreement effective April 6, 2002. ⁽²⁾ Id. AZDHS lifted the sanction against accepting inpatients on June 7, 2002. Id. at 1-2, 9, 10.

Petitioner timely requested a hearing, and CMS moved for summary judgment on the grounds that AZDHS had barred Petitioner from accepting inpatient admissions for approximately four months, including as of the date of the second survey.

The ALJ granted CMS's motion after receiving Petitioner's opposition and receiving oral argument. The ALJ concluded that Petitioner's inability to admit inpatients as a result of the AZDHS action meant that Petitioner was not "primarily engaged" in providing services to inpatients for the purposes of the definition of "hospital" at section 1861(e) of the Act. Although observing that compliance with the definition would ordinarily be a question of fact requiring the presentation of evidence, the ALJ found that the prohibition on Petitioner accepting inpatients in effect during the March survey and the day of termination modified the issue into a more narrow question of law: whether a state agency sanction against inpatient admissions is determinative of whether an institution can be "primarily engaged" in providing services to inpatients. She found that the Act's definition of hospital contained requirements that facilities must continue to meet to maintain their status as hospitals under Medicare, and concluded that, as a matter of law, Petitioner simply could not meet the definition when the AZDHS sanction was in effect. The ALJ found that Petitioner could not be primarily engaged in providing inpatient services during the duration of the AZDHS sanction. She further found that the length of the sanction meant that the noncompliance was substantial. For the purposes of ruling on CMS's motion for summary judgment, she found her conclusion on this legal question unaltered by accepting Petitioner's representations that its "main purpose, past history and general care arrangements have been to be an inpatient facility, and that the reason Petitioner has had historically few inpatient admissions is a coincidence." ALJ Decision at 6.

In reviewing an ALJ decision granting CMS's motion for summary judgment, we examine what facts are alleged by either party, whether those facts are material to the outcome of the case, and whether those material facts are genuinely disputed. Among CMS's allegations of fact in its motion for summary judgment were: on February 1, 2002, Petitioner agreed to voluntarily suspend inpatient admissions, in lieu of AZDHS issuing a formal order imposing intermediate state sanctions against the facility; on February 27, 2002, AZDHS issued a formal order prohibiting the admission of inpatients, which it lifted on June 7, 2002; and two Medicare complaint validation surveys authorized by CMS and completed on January 28 and March 8, 2002, found that Petitioner's facility had no inpatients and was not engaged in providing inpatient hospital services. CMS introduced the reports of the two Medicare complaint validation surveys and the AZDHS orders.

Petitioner did not deny any of these assertions of fact in its response to CMS's motion for summary judgment. Petitioner did not deny that it had no inpatients and was not engaged in providing inpatient hospital services as of the dates of the two Medicare complaint validation surveys. Instead, Petitioner argued that its hospital policies, procedures, records and correspondence were "all designed by the Hospital to carry out the functions of a hospital." Petitioner's opposition to motion for summary judgment at 6. Petitioner offered to present hearing testimony regarding-

the core business plan of the Hospital that clearly demonstrates that the mission of the Hospital is to provide high quality surgical services in a hospital setting; the applications for state licensure and Medicare provider status, which were prepared with the assistance of the Regional Office staff as well as the state survey agency, clearly contemplated a hospital-based care model; professionals in the community believe the Hospital is providing hospital services; and the operations of the Hospital are designed around the hospital model.

Id. at 6-7. Petitioner argued that these facts "are reliable evidence that the Hospital is primarily engaged in providing hospital services to inpatients, as well as outpatients" and that CMS had "alleged no facts to support the position that the central business model of the Hospital had changed either before or after the survey in question." Id. at 7 (emphasis in original).

Similarly, before the Board, Petitioner did not argue that it had inpatients or had been providing services to inpatients as of the two Medicare complaint validation surveys. Instead, Petitioner argued that whether or not it was "primarily engaged" in providing services to inpatients was a question of fact to which the ALJ should have applied a "totality of the circumstances test" that would have entailed "examining the facility as a whole, over an extended period of time, taking into consideration the underlying business purpose and how the facility actually operated." Request for review at 3-4. Petitioner stated that it had functioned as a hospital, providing care to inpatients and outpatients, for more than 30 years, with the treatment of inpatients at all times its objective and practice, and thus met the common dictionary definition of "primarily" as meaning "for the most part," "chiefly," or "in the first place." Id. at 4, citing The American Heritage Dictionary of the English Language, 4^th ed. Petitioner argued that the ALJ instead inappropriately interpreted the statutory requirement as meaning "at all times actually providing" services to inpatients. It described the AZDHS sanction as a brief interruption in providing services to inpatients that did not change the character of the facility.

Although the determination of whether a provider exhibits characteristics that the Act describes using common English words but which the Act does not specifically define may involve a question of fact, Petitioner has not demonstrated error in the ALJ's analysis of the statutory language, and further has not proffered evidence that would have permitted the ALJ to conclude that it complied with the statutory definition.

Petitioner's resort to the dictionary definition of "primarily" to show a dispute requiring evidentiary proceedings overlooks the common meaning of the word that "primarily" modifies in section 1861(e)(1): "engaged." "Engage" and "engaged" have myriad definitions; those obviously applicable here include, as a verb, "to involve oneself or become occupied; participate," and as an adjective, "employed, occupied, or busy." The American Heritage Dictionary of the English Language, 4^th ed., accessed via dictionary.com. At the time of the March survey and the termination, Petitioner was under a state sanction that prevented it from accepting inpatients. Petitioner did not dispute CMS's findings that it had no inpatients and was not engaged in providing inpatient services as of the dates of the two Medicare complaint validation services. As of those surveys, then, Petitioner was not employed, occupied, busy, involved in or participating in providing services to inpatients. We fail to see how Petitioner could have been "primarily engaged" in providing services to inpatients when it was not "engaged" in providing those services in the first place. Given Petitioner's inability to comply with the statutory definition, the ALJ was not required to take additional evidence. The length of Petitioner's failure to engage in providing services to inpatients, which included the March survey and CMS's notice of termination, supports the ALJ's conclusion that Petitioner failed substantially to meet the provisions of section 1861(e) of the Act.

The evidence that Petitioner proffered, even viewed in the light most favorable to Petitioner, did not provide the ALJ a basis to conclude that Petitioner was primarily engaged in providing inpatient services and thus met the statutory definition during the relevant period. Petitioner's proffers in response to the motion for summary judgment would only have established peripheral facts that are not material to the decision making here, in light of the undisputed facts. Petitioner offered evidence only to show that its policies, history and business model indicated an intent to operate as a hospital. Clearly, Petitioner's proffers do not establish that it was a compliant inpatient hospital forced into a situation of temporary noncompliance due to the AZDHS prohibition on inpatient admissions. Moreover, our review of the ALJ record discloses evidence that Petitioner was functioning almost entirely as an outpatient surgical facility and not as an inpatient hospital at the time the state sanction was imposed. The January 28, 2002 survey report states that the facility conducted approximately 150 surgical procedures a month but had a total of only 11 inpatients admitted overnight since November 15, 1999, the time that the facility assumed its current ownership, of which eight were admitted for two nights each as part of a research study of an arthritis drug conducted during October 29 though December 10, 2001. CMS Ex. 2, at 2, 12, 19. The facility's Administrator stated that inpatient admissions were very rare. Id. at 3. Petitioner did not dispute these findings, except to argue in its initial request for hearing that it had treated a "much larger number" of inpatients since changing ownership than the 11 inpatients alleged by CMS. Request for hearing at 5. However, Petitioner offered no evidence to show how many inpatients had been admitted.

CMS's core concern that Petitioner was not "primarily engaged" in providing services to inpatients arose prior to the AZDHS prohibition on inpatient admissions. Petitioner knew from CMS's first notice that it had to establish that it was operating as a hospital. Petitioner's contentions on appeal and before the ALJ instead focused more on its structure as a business and the plans and intent of its managers, rather than on its actual operations and the universe of patients to which it provided services. Before the ALJ, Petitioner did not argue or proffer evidence, for example, that prior to the AZDHS sanction it was admitting any significant number of inpatients, or that during the period of the AZDHS sanction it was engaged in providing services to previously admitted inpatients, or that for any length of time prior to the termination action it had attempted to exist as a going concern through the admission of a significant number of inpatients. By failing to tender such evidence, Petitioner failed in its obligation to demonstrate the existence of a genuine dispute over whether or not it was "primarily engaged" in providing services to inpatients.

In arguing that the ALJ Decision was incorrect as a matter of law, Petitioner speculated that the ALJ Decision would support the inappropriate termination of facilities that have been temporarily forced to cease treating inpatients due to circumstances such as "labor unrest and work-stoppages, weather emergencies, environmental clean-up, or 'sick building syndrome.'" Request for review at 8. These purely hypothetical circumstances that some other provider could theoretically face have no bearing on our analysis, which we limit to the particular case before us. The Board process does not provide for deciding hypothetical disputes in advance. See New Jersey Dept. of Human Services, DAB No. 1652 (1998). None of the situations Petitioner cited are comparable to a state ban on inpatient admissions of the type and duration Petitioner faced and its undisputed effect on Petitioner's operations and ability to provide services to inpatients. It is not disputed that even prior to the state ban, the evidence indicates that inpatient stays were a rarity and not Petitioner's "primary" service, even under the most liberal interpretation of "primary." Thus, the ALJ rightly declined to address whether CMS could terminate a hospital that briefly failed to meet any of the definitional requirements of section 1861(e) due to situations such as loss of clinical records or emergency reductions in nursing staff, as that question was not before her. ⁽³⁾

Petitioner also argued that failure to meet the definition of hospital at section 1861(e) of the Act could not be a basis for termination of its provider agreement because CMS has neither implemented that definition by regulation nor included it in the Medicare conditions of participation, and because the definition is not contained among the numbered "tags" that CMS uses to identify and categorize deficiencies in reports of facility surveys. ⁽⁴⁾ Petitioner argued that, to its knowledge, CMS had not taken similar action against another hospital, and that CMS's termination here thus amounted to promulgation of a condition of participation without the rulemaking process required by the Administrative Procedure Act.

These arguments are unavailing. Section 1866(b)(2) of the Act specifically provides for the termination of a provider that substantially fails to meet the requirements of section 1861. The Medicare regulations, at 42 C.F.R. � 488.3(a), under the heading "conditions of participation," state that, in order to be approved for participation in or coverage under the Medicare program, a prospective provider or supplier must meet the applicable statutory definitions in (among others) section 1861 of the Act. ^{(5), (6)} The ALJ noted these provisions in her decision.

The ALJ's holding that Petitioner was required to meet the definition at section 1861 is consistent with the Board's observation that determining whether an entity qualifies as a provider within the meaning of the Act and regulations is not limited to determining whether it meets the quality of care or health and safety requirements, and that meeting any aspect of the statutory definition of a hospital or other entity that may be a provider of services is a prerequisite to qualifying as a provider. Specialty Hospital of Southern California-La Mirada, DAB No. 1730, at 8-9, n.9 (2000), aff'd, Specialty Healthcare Servs. v. Thompson, No. 00-08438-ABC (CTX) (S.D.Ca. Aug. 1, 2001). Moreover, in another type of case involving the application of language in a statute, the Board noted that it is well settled that an agency is authorized to carry out its statutory duty even in the absence of regulations. Jack W. Greene, DAB No. 1078 (1989), aff'd, Greene v. Sullivan, 731 F. Supp. 835 (E.D. Tenn. 1990), citing Patchogue Nursing Center v. Bowen, 797 F.2d 1137, 1143 (2^nd Cir. 1986), cert. denied, 479 U.S. 1030 (1987). In this case, the statutory requirement was so fundamental and plainly stated that additional interpretation in the form of regulations was not required.

We also find that Petitioner's allegation that CMS has not taken similar actions against other hospitals does not demonstrate any error in the ALJ Decision. Petitioner advanced this argument, and sought discovery, denied by the ALJ, concerning CMS's interpretation and enforcement of section 1861(e)(1), to show that CMS lacked a clear policy or interpretation of the statutory definition and its "primarily engaged" language. However, as we concluded above, the statutory language, which was binding by itself and also imposed by regulation at 42 C.F.R. � 488.3(a), was clear enough that further interpretation was not required for its application. CMS's actions or lack thereof regarding other facilities would provide no basis for the ALJ to ignore or decline to enforce the statute's clear requirements. ⁽⁷⁾

We modify the ALJ's findings of fact and conclusions of law

In her finding of fact and conclusion of law (FFCL) number 'C,' the ALJ held that "[d]uring the time period when [AZDHS] prohibited Petitioner from accepting inpatients, Petitioner could not meet the statutory definition of a hospital." ALJ Decision at 9 (emphasis added). The ALJ based this FFCL on the effect, and length, of the AZDHS sanction. We decline to adopt this FFCL as written, because the AZDHS sanction, by its terms, merely barred the admission of inpatients, raising the possibility that a facility could continue to provide services to previously admitted inpatients, and thus continue to be "primarily engaged" in providing covered services to inpatients, despite the existence of a state ban on inpatient admissions. However, this distinction does not alter our result, because, as discussed above, Petitioner failed to dispute CMS's allegations that Petitioner had no inpatients as of the two Medicare complaint validation surveys authorized by CMS and completed on January 28 and March 8, 2002, and was thus not "engaged" in providing services to inpatients. Indeed, Petitioner failed to argue or proffer evidence that even prior to the state sanction, it was providing services to a significant number of inpatients. Accordingly, we modify FFCL number 'C' to read: "The undisputed findings conclusively establish that Petitioner failed substantially to meet the statutory definition of a "hospital" used for Medicare purposes." We also modify the ALJ's FFCL number 'D' to read: "CMS properly terminated Petitioner's Medicare provider agreement effective April 6, 2002 because Petitioner did not meet the statutory definition of a hospital" (modification in bold).

Conclusion

For the reasons above, we affirm the ALJ Decision upholding the termination of Petitioner's Medicare provider agreement, effective April 6, 2002. In doing so, we affirm and adopt the ALJ's findings of fact and conclusions of law as modified above.

Judith A. Ballard

Cecilia Sparks Ford

Donald F. Garrett
Presiding Board Member

1. While Travers also discussed the standards for summary judgment applied by federal courts, its relevance here is that it found no denial of due process at the administrative agency level where an ALJ granted summary judgment without an evidentiary hearing with witnesses and the opportunity for cross-examination in a proceeding under 42 C.F.R. Part 498.

2. A review of the record shows that CMS also determined that Petitioner was out of compliance with Medicare conditions of participation other than the requirement that it be functioning as a hospital. Among the findings from the survey completed January 28, 2002 were that Petitioner was deficient in having an effective governing body and having or enforcing bylaws for the conduct of the hospital, including those related to daily physician visits and the timely completion of medical examinations; in implementing a quality assurance program; in evaluating services for appropriateness of diagnosis and treatment; in the administration of medication, and in the provision of adequate nursing and dietetic services. CMS Ex. 2. The survey completed March 8 found Petitioner deficient in carrying out physician orders, administering medications, and providing radiologic services. CMS Ex. 4.

3. The existence and effect of the AZDHS sanction distinguishes this case from one cited by Petitioner, where the ALJ conducted evidentiary proceedings prior to sustaining CMS's termination of a hospital provider agreement for failing to meet the statutory definition of a hospital. Kemper Community Hospital, DAB CR825 (2001). Unlike here, there were in that case no overriding, undisputed facts that rendered further evidentiary proceedings unnecessary.

4. "Conditions of participation" means the requirements providers other than skilled nursing facilities must meet to participate in the Medicare program. 42 C.F.R. � 488.1.

5. Petitioner did not contest the ALJ's specific conclusion that this requirement for prospective providers applies on a continuing basis to providers following their acceptance into the Medicare program.

6. We also note that regulations governing the scope of hospital insurance benefits under Medicare employ the "primarily engaged" language in defining a "qualified hospital" as a facility that, among other requirements-

Is primarily engaged in providing, by or under the supervision of doctors of medicine or osteopathy, inpatient services for the diagnosis, treatment, and care rehabilitation of persons who are or sick, injured, or disabled;. . .

42 C.F.R. � 409.3.

7. To the extent Petitioner could be seen as charging CMS with inconsistent enforcement of section 1861 of the Act, that argument provides no basis for relief. The Board has held that alleged failure to take equally harsh steps against other similarly noncompliant service providers may not itself be made to constitute a defense or a bar to future enforcement. Beverly Health and Rehabilitation -- Spring Hill, DAB No. 1696 (1999), aff'd, Beverly Health & Rehabilitation Servs. v. Thompson, 223 F.Supp.2d 73 (D.D.C. 2002). Moreover, the existence of a prior CMS termination of a provider agreement for failure to meet the applicable statutory definition, Kemper Community Hospital, cited by Petitioner, casts some doubt upon Petitioner's assertion that CMS's action here is unique.