Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
In the Case of:
Everett Rehabilitation and Medical Center,
Petitioner,
v.
Health Care Financing Administration.
DATE: January 28, 1997
Docket No. C-96-108
Decision No. CR455
DECISION
I conclude that the effective date of the Medicare provider
agreement is September 18, 1995, and no earlier, for
Petitioner, Nursing Home, Inc., doing business as Everett
Rehabilitation and Medical Center.
PROCEDURAL BACKGROUND
Petitioner is a skilled nursing facility (SNF) and a
participating provider in Medicare. The requirements for
participation in Medicare by SNFs are set forth in
regulations contained in 42 C.F.R. Part 483. As a SNF,
Petitioner is subject to the survey, certification, and
remedies provisions of 42 C.F.R. Part 488. Petitioner's
right to a hearing concerning an adverse determination by the
Health Care Financing Administration (HCFA) of the United
States Department of Health and Human Services (DHHS), made
pursuant to 42 C.F.R. Parts 483 and 488, is established by 42
C.F.R. Part 498.
By letter dated November 21, 1995, HCFA notified Petitioner
that September 18, 1995, was Petitioner's correct effective
date of certification for Medicare. By letter dated January
19, 1996, Petitioner requested a hearing, contending that
Petitioner is entitled to Medicare certification with an
effective date of June 23, 1995.
A concise summary of the process at issue here is provided by
Golden State Manor Nursing and Rehabilitation Center, DAB
1597 (1996):
Title XVIII of the Social Security Act establishes a
federally subsidized health insurance program for the
elderly and disabled, commonly known as Medicare.
Medicare provides reimbursement for certain services
rendered by providers, such as SNFs [skilled nursing
facilities], who participate in the Medicare program
under "provider agreements" with the Department of
Health and Human Services. In order to enter into such
an agreement to participate in the Medicare program,
SNFs must meet certain requirements imposed by
applicable statute and regulations. [citations omitted]
The survey process is the means by which State surveyors
on HCFA's behalf assess providers' compliance with these
requirements. The State survey agency performs the
surveys of SNFs and makes recommendations to HCFA on
whether such facilities meet the federal requirements
for participation in the Medicare program. The results
of such surveys are used by HCFA as the basis for its
decisions regarding a facility's initial or continued
participation in the program. HCFA, therefore, makes
the determination as to whether a facility is eligible
to participate or to remain in the program.
Id. at 3.
The parties filed cross motions for summary judgment,
supporting memoranda, and other documents. Also, the parties
submitted their Stipulation on "Relocation of Colby Manor,"
which I incorporate herein and admit into evidence.
Petitioner submitted exhibits (P. Exs.) 1 through 37. I have
marked the Declaration of Kim Hagen as P. Ex. 37. During the
prehearing conference on June 3, 1996, HCFA indicated it did
not object to P. Exs. 1 through 34 being admitted into
evidence, and I admitted into evidence P. Exs. 1 through 34.
HCFA does not object to P. Exs. 35 through 37 being admitted
into evidence, and I admit into evidence P. Exs. 35 through
37.
HCFA submitted exhibits (HCFA Exs.) 1 through 52. During the
prehearing conference on June 3, 1996, Petitioner indicated
that it did not object to HCFA Exs. 1 through 40 being
admitted into evidence, and I admitted HCFA Exs. 1 through 40
into evidence.
HCFA Exs. 42 and 43, the Third Declaration of Teresa Trimble,
was marked by HCFA as HCFA Ex. 43, but HCFA's cover letter
dated June 7, 1996 indicated that the Third Declaration of
Teresa Trimble is HCFA Ex. 42. I then remarked the Third
Declaration of Teresa Trimble as HCFA Ex. 42. Thereafter, I
received the Declaration of David M. Haffie, marked as HCFA
Ex. 42, and HCFA's cover letter dated July 23, 1996 indicated
that the Declaration of David M. Haffie is HCFA Ex. 42.
Consequently, I remarked the Third Declaration of Teresa
Trimble as HCFA Ex. 43 and the Declaration of David M. Haffie
as HCFA Ex. 42 [as HCFA had marked them originally].
Regarding HCFA Exs. 41 through 52, Petitioner does not object
to HCFA Exs. 41 through 50 and HCFA Ex. 52 being admitted
into evidence, but Petitioner does object to HCFA Ex. 51
being admitted into evidence. Petitioner's objection to HCFA
Ex. 51 is overruled, as I do find it relevant to show, among
other things, that HCFA never did assign Colby Manor's
provider number to Petitioner. I admit into evidence HCFA
Exs. 41 through 52.
During the prehearing conference on July 9, 1996, I scheduled
July 30, 1996, as the date the record would close. During
the July 9th conference, HCFA advised me that it would
comment by July 30, 1996 on Petitioner's submissions, which
it did. HCFA commented also on Petitioner's non-submissions.
HCFA included a copy of a Decision and Order for my
consideration. Petitioner has moved to strike at least part
of HCFA's July 30, 1996 submission [see Petitioner's letter
dated July 31, 1996]. Petitioner's Motion to Strike is
overruled, as I find HCFA's July 30, 1996 submission to be
timely and appropriate.
I find that no facts of decisional significance are in
dispute, and consequently there is no need for an in-person
hearing. 1/ Based on the evidence in the written record
and the law, in light of the parties' written arguments, 2/
I affirm HCFA's determination that the effective date of
Petitioner's Medicare provider agreement is September 18,
1995.
ISSUE
The issue is whether Petitioner is entitled to an effective
date of its Medicare provider agreement any earlier than
September 18, 1995.
STIPULATION ON "RELOCATION OF COLBY MANOR" 3/
1. Consumer Homes, Inc., d/b/a Colby Manor, had a Medicare
provider agreement to provide SNF services.
2. During the pertinent time period, Consumer Homes, Inc.
was owned 100 percent by Tom Brown.
3. Prior to January 1, 1994, Nursing Home, Inc. was also
owned 100 percent by Tom Brown. The two corporations were
sister corporations.
4. The Washington State Department of Health issued a
Certificate of Need (CON) in April 1992 to Nursing Home,
Inc., to replace the 69 beds at Colby Manor, Everett, and
combine those beds with 31 beds being acquired from Aurora-
Edmonds Nursing Homes, Edmonds, to construct a 100-bed
nursing home.
5. Consumer Homes, Inc. ceased operating Colby Manor as a
SNF at the end of June 1995.
6. Nursing Homes, Inc. did not purchase the stock of
Consumer Homes, Inc. and did not purchase the Colby Manor
plant or building.
7. Consumer Homes, Inc. is not Nursing Homes, Inc.
8. Tom Brown is not Sunrise Healthcare, Inc.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
1. Petitioner is a corporation, Nursing Home, Inc., doing
business as Everett Rehabilitation and Medical Center. P.
Exs. 1, 15.
2. On June 23, 1995, Petitioner opened for business in a
newly built physical plant and began providing skilled
nursing facility services in Everett, Washington.
3. Petitioner was a "new facility" in several respects:
(a) the physical plant Petitioner was occupying was
newly built;
(b) Petitioner's license from the State to operate a SNF
was newly issued;
(c) Petitioner was newly utilizing its 100-bed nursing
home CON from the State; and
(d) Petitioner was to become a new participant in
Medicaid and Medicare.
4. Petitioner did not purchase or otherwise acquire the
Medicare provider agreement and Medicare provider number of
Consumer Homes, Inc., doing business as Colby Manor.
5. Between June 23 and 26, 1995, all Colby Manor residents,
including one Medicare patient, 4/ relocated from Colby
Manor to Petitioner's newly built physical plant. P. Exs.
11, 31.
6. A transfer of a Medicare patient does not constitute
transfer of a Medicare provider agreement.
7. What transpired between June 23 and 26, 1995, between
Consumer Homes, Inc., doing business as Colby Manor, and
Petitioner, may be termed a "relocation" in two respects:
(a) all Colby Manor residents relocated from Colby Manor
to Petitioner's newly built physical plant; and
(b) Colby Manor's 69-bed nursing home CON from the State
"relocated" to Petitioner.
8. What transpired between June 23 and 26, 1995, between
Consumer Homes, Inc., doing business as Colby Manor, and
Petitioner, was not a relocation in two pivotal respects:
(a) the business entity itself, Consumer Homes, Inc.,
doing business as Colby Manor, did not relocate; and
(b) the Medicare provider agreement and Medicare
provider number of Consumer Homes, Inc., doing business
as Colby Manor, were not transferred to Petitioner.
9. "Relocation" of a Medicare provider cannot apply to an
entity that has no Medicare provider agreement and no
Medicare provider number. HCFA Exs. 41, 43.
10. The transaction may have been a "relocation" insofar as
the residents and the CON were concerned, but the transaction
was not a relocation with regard to any entity having a
Medicare provider agreement and Medicare provider number.
11. If the move had been a relocation of a Medicare
provider, the effective date of Petitioner's Medicare
provider agreement would have been June 23, 1995.
12. Colby Manor did not change its address. Colby Manor
closed. Colby Manor did not transfer its Medicare provider
agreement or its Medicare provider number.
13. On May 19, 1995, Tom Brown, as President of Colby Manor,
anticipating completion and licensure for occupancy of the
new Everett Medical and Rehabilitation Center, wrote to Kamla
Mehta, Manager, District 3, of the State, to give notice of
the termination of the Medicare and Medicaid contracts of
Consumer Homes, Inc., doing business as Colby Manor. P. Ex.
12.
14. On May 22, 1995, Kamla Mehta of the State called Tom
Brown to tell him that he had to withdraw his letter giving
notice of the termination of the Medicare and Medicaid
contracts of Consumer Homes, Inc., doing business as Colby
Manor; that Everett Rehabilitation Center was a replacement
facility, and residents had a right to move into the new
building. P. Ex. 11; HCFA Ex. 38 at 5-6.
15. When Consumer Homes, Inc., doing business as Colby
Manor, terminated its business at the end of June 1995, it
still had its Medicare provider agreement and Medicare
provider number.
16. A provider who ceases providing services is deemed to
have terminated voluntarily its Medicare provider agreement.
A cessation of business is deemed to be a termination by the
provider, effective with the date on which it stopped
providing services to the community. 42 C.F.R. §
489.52(b)(3).
17. Petitioner had no Medicare provider agreement and no
Medicare provider number when it opened for business on June
23, 1995.
18. The State's certification for Medicare and Medicaid
coverage effective June 23, 1995 was based upon a mistake --
the State erroneously asserted that Colby Manor had moved to
a new location.
19. Whether Petitioner knew the State was mistaken when the
State termed the transaction a relocation of a Medicare
provider is irrelevant for purposes of this Decision.
20. Pursuant to the regulations, the effective date of
Petitioner's Medicare provider agreement can be no earlier
than September 18, 1995. Findings 21-29.
21. Petitioner applied to become a Medicare SNF provider on
September 6, 1995. HCFA Ex. 6; HCFA Ex. 32 at 3.
22. Petitioner's administrator signed copies of the Medicare
provider agreement on September 8, 1995. P. Ex. 19.
23. Medicare regulations require direct observations of
patient care prior to certification. 42 C.F.R. § 488.26.
24. The on-site survey to determine whether Petitioner was
in substantial compliance with Medicare participation
requirements occurred on September 5-8 and September 11,
1995. HCFA Exs. 7, 8, 12, 15.
25. The effective date of the Medicare provider agreement is
the date the on-site survey is completed, if all Medicare
participation requirements are met on that date. Otherwise,
it is the earlier of: (a) the date on which the deficiencies
were corrected or (b) the date on which the provider
submitted a plan of correction acceptable to HCFA. 42 C.F.R.
§ 489.13(a), (b)(3).
26. Petitioner was found not to be in substantial compliance
with Medicare participation requirements, specifically,
Quality of Care and Resident Assessment. HCFA Exs. 12, 15.
27. On September 18, 1995, Petitioner submitted a plan of
correction acceptable to HCFA for the deficiencies found
during the on-site survey.
28. When a provider is found not to be in substantial
compliance, correction of the deficiencies or submission of a
plan of correction acceptable to HCFA is a condition
precedent to the SNF's ability to begin its participation in
the Medicare program. 42 C.F.R. § 489.13(b)(3).
29. Petitioner's Medicare provider agreement was approved
effective September 18, 1995. HCFA Exs. 19, 20.
30. On June 26, 1995, Kamla Mehta of the State wrote
Petitioner's administrator to indicate approval for occupancy
in the new location effective June 23, 1995 and an increase
to 24 Medicare beds. P. Ex. 2.
31. Petitioner fully expected to receive Medicare payments
for the care Petitioner provided to Medicare patients, based
on Kamla Mehta's advice during the May 22, 1995 meeting and
Kamla Mehta's letter dated June 26, 1995.
32. One Medicare patient relocated to Petitioner from Colby
Manor on June 26, 1995, and soon thereafter Petitioner began
to accept and provide care for additional Medicare patients.
P. Ex. 28.
33. Petitioner has been notified that it will not receive
Medicare payments accrued prior to September 18, 1995, the
effective date of its Medicare provider agreement.
34. From June 26, 1995 until September 18, 1995, Petitioner
provided care to Medicare patients, for whom Medicare
reimbursement "accrued" in the amount of nearly one-half
million dollars, which Petitioner has been notified HCFA will
not pay.
35. There were two sources of delay in Petitioner's
obtaining approval as a Medicare provider -- Petitioner and
the State.
36. HCFA did not contribute to the delay in Petitioner's
obtaining approval as a Medicare provider.
37. HCFA cannot delegate its decision-making powers.
Charter Hospital of Indianapolis, OHA Docket No. 000-51-7186
(1991) [hereinafter Charter Hospital]. HCFA Memorandum on
Agency at 1-3, plus Attachment A.
38. The State survey agency should ascertain whether a SNF
meets the requirements of participation and make its
recommendations to HCFA. 42 C.F.R. § 489.10(d). Mountain
View Hospital District and Nursing Home, OHA Docket No. 000-
01-7036 (1990) [hereinafter Mountain View]. HCFA Declaration
in Response to Kim Hagen at 2, plus attachment.
39. The State has no decision-making authority regarding a
provider's Medicare agreement. The State merely recommends;
HCFA decides. HCFA Ex. 48; Mountain View; Charter Hospital.
40. Estoppel is an equitable principle which, if applied
here, would conflict with the regulations.
41. An administrative law judge does not have the authority
to relieve Petitioner of the requirements under the
regulations for beginning its Medicare participation.
DISCUSSION
I. Petitioner thought it had a Medicare provider agreement
and provider number, effective June 23, 1995.
Petitioner's representatives had planned carefully the
opening of Everett Rehabilitation and Medical Center. On
April 26, 1995, Petitioner's representatives met with Carolyn
Enloe of the State. P. Exs. 30, 31. During the April 26,
1995 meeting, Petitioner's representatives were advised of
the process for a new SNF provider to obtain a Medicare
provider agreement, that is, for the facility to be surveyed
after patients (usually private pay patients) had been
admitted, so that the care given could be assessed.
This process has been termed the "Richmond Beach" process,
because Petitioner's representatives had been involved in
obtaining a Medicare provider agreement in that way for their
Richmond Beach facility the year before. HCFA Ex. 36; P.
Exs. 32, 33.
On April 28, 1995, Petitioner's representatives applied for a
State license to operate a 100-bed nursing home. P. Ex. 15.
Petitioner's representatives had previously acquired, when
they bought the stock of Nursing Home, Inc., a Certificate of
Need from the State for 100 nursing home beds (to replace
Colby Manor's 69 beds and to add 31 more beds from Aurora-
Edmonds Nursing Homes). P. Ex. 14. The exhibits do not
contain an updated Certificate of Need.
Petitioner's representatives purposely did not acquire an
already existing Medicare provider agreement and provider
number. As a new provider, Petitioner was entitled to a
higher rate of reimbursement than that of Colby Manor. HCFA
Exs. 42, 52. See 42 C.F.R. §§ 413.13, 413.30(e)(2).
Consequently, Petitioner's representatives chose not to
obtain the Medicare provider agreement and Medicare provider
number of Consumer Homes, Inc., doing business as Colby
Manor. HCFA Exs. 42, 52.
On the morning of May 22, 1995, Petitioner's representatives
met with Kamla Mehta of the State. P. Exs. 30, 31. During
the May 22, 1995 meeting, Petitioner's representatives were
advised by Kamla Mehta that Petitioner was a replacement
facility for Colby Manor, and that the current Medicare and
Medicaid certification for Colby Manor would transfer with
the patients and begin June 23, 1995, the date the patient
transfer would begin. HCFA Ex. 38; P. Exs. 32, 33.
On May 31, 1995, Petitioner signed a Medicaid contract with
the State. Petitioner was identified in the contract as
Nursing Home, Incorporated, doing business as Everett
Rehabilitation and Medical Center. HCFA Ex. 47.
On June 23, 1995, the State licensed Petitioner and certified
it for Medicare and Medicaid, including 24 Medicare beds.
The Medicare and Medicaid Certification and Transmittal is
signed by Kamla Mehta, Manager, District 3, of the State. P.
Ex. 17.
"Certification" is defined by the regulations as "a
recommendation made by the State survey agency on the
compliance of providers and suppliers with the conditions of
participation, requirements (for SNFs and NFs), and
conditions of coverage." 42 C.F.R. § 488.1.
The Medicare and Medicaid Certification by the State includes
the following State Survey Agency Remarks (which are
erroneous): "[e]ffective June 23, 1995 Colby Manor has moved
to a new location, increased their total number of beds and
changed its name to Everett Rehabilitation Medical Center.
State agency approves occupancy." P. Ex. 17.
On June 26, 1995, Kamla Mehta of the State wrote Petitioner's
administrator to indicate approval for occupancy in the new
location effective June 23, 1995 and an increase to 24
Medicare beds. P. Ex. 2.
Petitioner fully expected to receive Medicare payments for
the care Petitioner provided to Medicare patients, based on
the State's Certification dated June 23, 1995. P. Ex. 17.
One Medicare patient relocated to Petitioner from Colby Manor
on June 26, 1995, and soon thereafter Petitioner began to
accept and provide care for additional Medicare patients. P.
Ex. 28.
From June 26, 1995 until September 18, 1995, Petitioner
provided care to Medicare patients, for whom Medicare
reimbursement "accrued" in the amount of nearly one-half
million dollars, which Petitioner has been notified HCFA will
not pay.
II. The move of Colby Manor residents to Petitioner's newly
built physical plant was not a relocation of a Medicare
provider.
The move of Colby Manor residents to Petitioner's newly built
physical plant on June 23-26, 1995, was not a relocation of a
Medicare provider. If the move had been a relocation of a
Medicare provider, the effective date of Petitioner's
Medicare provider agreement would have been June 23, 1995.
5/
"Relocation" of a Medicare provider cannot apply to an entity
that has no Medicare provider agreement and no Medicare
provider number. HCFA Exs. 41, 43. Petitioner, Nursing
Home, Inc., doing business as Everett Rehabilitation and
Medical Center, had no Medicare provider agreement and no
provider number when it opened for business in its newly
built physical plant.
The entity that had a Medicare provider agreement and a
provider number, Consumer Homes, Inc., doing business as
Colby Manor, did not move into Petitioner's newly built
physical plant. Neither did it transfer to Petitioner its
Medicare provider agreement and provider number.
III. The State mistakenly certified Petitioner's Medicare
coverage effective June 23, 1995.
On June 5 and 9, 1995, Petitioner was surveyed by the State.
P. Ex. 2. The June 5 and 9, 1995 survey was a preoccupancy
survey, one that does not include observations of patient
care. HCFA Exs. 36, 37.
On June 23, 1995, the State licensed Petitioner and certified
it for Medicare and Medicaid, including 24 Medicare beds.
6/ The Medicare and Medicaid Certification and Transmittal
is signed by Kamla Mehta, Manager, District 3, of the State.
P. Ex. 17.
The State's certification for Medicare and Medicaid coverage
effective June 23, 1995, was based upon a mistake. The
State's finding that "[e]ffective June 23, 1995 Colby Manor
has moved to a new location, increased their total number of
beds and changed its name to Everett Rehabilitation Medical
Center" was erroneous. P. Ex. 17.
Beginning in May 1995, the State mistakenly treated as a
relocation of a Medicare provider the upcoming move of Colby
Manor residents to Petitioner's newly built physical plant.
One way that move could have been a relocation of a Medicare
provider was for Petitioner to have obtained the Medicare
provider agreement and Medicare provider number of Consumer
Homes, Inc., doing business as Colby Manor. That is not,
however, what the corporations involved had in mind.
Petitioner bought the stock of the corporation that held the
CON; Petitioner did not buy the stock of the corporation that
had a Medicare agreement.
The State was mistaken when it determined that the
transaction was a relocation of a Medicare provider. Whether
Petitioner knew the State was mistaken is irrelevant for
purposes of this Decision.
IV. Petitioner obtained a Medicare provider agreement,
effective September 18, 1995.
Pursuant to the regulations, the effective date of
Petitioner's Medicare provider agreement can be no earlier
than September 18, 1995. Petitioner's requirements under the
regulations for beginning its Medicare program participation
are summarized as follows:
Petitioner is required by the regulations to make
application to participate in Medicare. 42 C.F.R. §
489.10. Petitioner applied to become a Medicare
provider of skilled nursing facility services on
September 6, 1995. HCFA Ex. 6; HCFA Ex. 32 at 3.
Petitioner is required by the regulations to sign copies
of the Medicare provider agreement. 42 C.F.R. § 489.11.
Petitioner's Administrator signed the agreement on
September 8, 1995. P. Ex. 19.
Petitioner is required by the regulations to undergo an
on-site survey to determine whether Petitioner is in
substantial compliance with Medicare participation
requirements. 42 C.F.R. §§ 488.10, 488.11. Medicare
regulations require direct observations of patient care
prior to certification. 42 C.F.R. § 488.26. Pre-
occupancy license surveys do not assess actual patient
care. HCFA Ex. 37. The effective date of the Medicare
provider agreement is the date the on-site survey is
completed, if all Medicare participation requirements
are met on that date. 42 C.F.R. § 489.13(a).
Petitioner's on-site survey occurred on September 5-8
and September 11, 1995. HCFA Exs. 7, 8, 12, 15.
Petitioner is required by the regulations to be in
substantial compliance 7/ with Medicare participation
requirements, or at least to submit a plan of
correction 8/ acceptable to HCFA. 42 C.F.R. §
489.13(b)(3). Petitioner was found not to be in
substantial compliance with Medicare participation
requirements, specifically Quality of Care and Resident
Assessment. HCFA Exs. 12, 15. On September 18, 1995,
Petitioner submitted a plan of correction acceptable to
HCFA for the deficiencies found during the on-site
survey.
Petitioner's Medicare provider agreement was approved
effective September 18, 1995. HCFA Exs. 19, 20.
V. Petitioner's approval as a Medicare provider was delayed
for more than two months.
The on-site survey to determine whether Petitioner was in
substantial compliance with Medicare participation
requirements would likely have been done promptly after
Petitioner opened, had the process for a new provider, the
"Richmond Beach" process, been implemented. Consequently,
the direct observations of actual patient care, which are
required for a new provider to obtain a Medicare agreement
and provider number, would likely have occurred promptly
after Petitioner opened. Petitioner would likely have
addressed promptly in a plan of correction any deficiencies
found. HCFA would likely have communicated promptly whether
Petitioner's plan of correction was acceptable.
My expectation that these actions would all have occurred
promptly, had the process for a new provider been initiated,
is based on actual events once Petitioner "got on the right
track" for a new provider, during September 1995, and based
also on the Richmond Beach experience, when the process from
the facility's opening to Medicare certification took about
20 days. P. Exs. 32, 33. Had Petitioner's certification as
a new Medicare provider taken roughly the same amount of time
after opening as demonstrated by those two events, Petitioner
would likely have been approved for a Medicare agreement by
mid-July 1995. 9/ Since the effective date of Petitioner's
Medicare agreement is September 18, 1995, I conclude that
Petitioner's approval as a Medicare provider was delayed for
more than two months. 10/
There were two sources of delay in Petitioner's obtaining
approval as a Medicare provider: Petitioner and the State.
A. Examples of Petitioner's contribution to the delay:
1. When Petitioner's representatives -- i.e., Richard
Marcotte, Russell Kubik -- met with Kamla Mehta of the
State on the morning of May 22, 1995, they failed to
tell her specifically that Petitioner's representatives
had chosen not to obtain the Medicare provider agreement
and Medicare provider number of Consumer Homes, Inc.,
doing business as Colby Manor. P. Exs. 32, 33; HCFA Ex.
38.
2. It is not clear when Petitioner's representatives
got a copy of the Medicare and Medicaid Certification by
the State. The remarks therein, "[e]ffective June 23,
1995 Colby Manor has moved to a new location, increased
their total number of beds and changed its name to
Everett Rehabilitation Medical Center" were a red flag
-- Petitioner's representatives knew that Colby Manor
didn't move and didn't change its name. P. Ex. 17. Yet
Petitioner's representatives failed to correct the
record.
3. As early as July 5, 1995, Petitioner's
representatives expected to follow up with HCFA, but
failed to do so, regarding the Medicare and Medicaid
Certification by the State. HCFA Ex. 46; HCFA Comments
on HCFA Exhibits 44-47 at 7.
4. On or about July 26, 1996, in response to HCFA's
inquiry about whether Petitioner "should be treated as a
relocation or as a new facility for purposes of the
Medicare program," Petitioner's representative Russell
Kubik advised Petitioner's paralegal, Kim Hagen, "that
the matter was already taken care of and was a moot
issue." P. Ex. 37. Consequently, Kim Hagen responded
to Kirk Pagett's inquiry, that Russ Kubik had said
everything was taken care of, so why was he even working
on this. HCFA Ex. 45.
B. Examples of the State's contribution to the delay:
1. When Kamla Mehta, Manager, District 3, of the State,
met with Petitioner's representatives on the morning of
May 22, 1995, she failed to inquire specifically whether
Petitioner was acquiring the Medicare provider agreement
and Medicare provider number of Consumer Homes, Inc.,
doing business as Colby Manor. HCFA Ex. 38; P. Exs. 32,
33.
2. Kamla Mehta failed to make adequate inquiry upon her
receipt of a letter from Tom Brown on the afternoon of
May 22, 1995. HCFA Ex. 38. On May 19, 1995, Tom Brown,
as President of Colby Manor, anticipating completion and
licensure for occupancy of the new Everett Medical and
Rehabilitation Center, had written to Kamla Mehta, to
give notice of the termination of the Medicare and
Medicaid contracts of Consumer Homes, Inc., doing
business as Colby Manor. P. Ex. 12; HCFA Ex. 38.
Kamla Mehta apparently did not want to believe Tom
Brown's letter. She wrote, on or about September 15,
1995:
May 22 . . . Received Letter from Tom Brown
re: Colby Manor Terminating
Medicare/Medicaide [sic] contract. He also
mailed similar letter to residents.
May 22 . . . I called and told him that he
has to withdraw that letter. Everett Rehab
Center is a replacement facility, residents
have right to move to new building.
P. Ex. 11.
3. Kamla Mehta assumed that Tom Brown would "withdraw
that letter," as she had instructed. P. Ex. 11.
Kamla Mehta consequently failed thereafter to
determine the status of the Medicare provider
agreement and Medicare provider number of Consumer
Homes, Inc., doing business as Colby Manor.
4. Kamla Mehta failed to grasp the significance of the
SUN HEALTHCARE GROUP, INC. and SUNRISE HEALTHCARE
CORPORATION letterhead of the letters she received
from Petitioner's representatives prior to
Petitioner's opening. P. Exs. 4, 9, 15, 16.
5. The State failed to note Petitioner's identity as
specified in Petitioner's Application for License
to Operate a Nursing Home: "Nursing Home, Inc. is
100% owned by Sunrise Healthcare Corporation and
Sunrise Healthcare Corporation . . . [is] 100%
owned by Sun Healthcare Group, Inc." P. Ex. 1 at
6.
6. The State may have failed until about July 19,
1995, 11/ to forward to HCFA the State's
Medicare and Medicaid Certification for Petitioner,
which contained the remarks: "[e]ffective June 23,
1995 Colby Manor has moved to a new location,
increased their total number of beds and changed
its name to Everett Rehabilitation Medical Center."
HCFA Ex. 4; P. Ex. 11.
7. In August 1995, the State failed to act promptly
upon information from Hannah Hirabayashi of HCFA
that Sun Health Care Group was the new corporation
and was a CHOW -- "CHOW" means change of ownership.
Kamla Mehta's response was that the State was not
considering [the transaction] as a CHOW. P. Ex. 11
at 2.
8. Through September 7, 1995, Kamla Mehta failed to
alert Petitioner's representatives to the potential
consequences of Petitioner failing to have a
Medicare provider agreement and Medicare provider
number. P. Exs. 12, 32.
I find specifically that HCFA did not contribute to the
delay.
In May 1995, Kamla Mehta described the transaction for
Hannah Hirabayashi at HCFA by telling her that Colby
Manor was moving. Based on the information Kamla Mehta
gave her, Hannah Hirabayashi concluded that the
transaction was a relocation. HCFA Exs. 39, 38. Thus,
Kamla Mehta wrote on May 26, 1995: "I have discussed
with Hanna [sic] at ROX [Hannah Hirabayashi at HCFA
Regional Office, Region X], as all Colby Manor residents
will be moving, she says they do not have to get new
[M]edicare/Medicaid certification. WE should only
notify ROX date of move, name and address change and
change of ownership if any." P. Ex. 10.
About July 24, 1995, HCFA became aware that further
investigation was necessary: "[q]uestions from Kirk
Pagett [Petitioner's representative, Sunrise Senior
Reimbursement Analyst] cast doubt on the state's
recommendation, and we began to collect information to
determine the facts after his phone call July 24, 1995
[emphasis added]." HCFA Ex. 43 at 4-5; HCFA Ex. 4.
HCFA may not have received the State's Medicare and
Medicaid Certification for Petitioner until about July
19, 1995. P. Ex. 11; HCFA Ex. 4. The State indicated
they sent it to HCFA on June 28, 1995. HCFA Ex. 46.
As early as July 26, 1995, Petitioner knew that HCFA was
trying to determine whether Colby Manor had relocated or
whether Petitioner was a new provider that needed a
survey and a new provider number. This is confirmed in
the notes of Petitioner's paralegal, Kim Hagen. HCFA
Ex. 44 at 10; HCFA Comments on HCFA Exhibits 44-47 at 3-
4; HCFA Memorandum in Opposition to Subpoena at 8. HCFA
never did assign Colby Manor's provider number to
Petitioner. HCFA Ex. 43 at 4-5; HCFA Ex. 51.
On August 22 or 23, 1995, Hannah Hirabayashi of HCFA
called Kamla Mehta of the State to let her know that it
was HCFA's opinion that Petitioner was a new facility
and that an initial survey should be conducted as soon
as possible. HCFA Ex. 33 at 4. On August 23, 1995,
Hannah Hirabayashi of HCFA advised Kirk Pagett that
"after talking to their in-house attorney that it
appears Everett is a brand new facility which needed to
be surveyed and given their own Medicare #." HCFA Ex.
45 at 2. On August 25, 1995, Hannah Hirabayashi of HCFA
advised Kirk Pagett that she hoped the patients would be
paid for that were in the facility, but there was no
guarantee. She also explained the survey process for a
new facility. HCFA Ex. 45 at 4; P. Ex. 31.
On September 6, 1995, Hannah Hirabayashi of HCFA advised
Kirk Pagett that Petitioner should not admit any more
Medicare and Medicaid patients until Petitioner was
certified. HCFA Ex. 48. On September 7, 1995, HCFA's
message that HCFA would not pay for Medicare residents
until a survey is done was relayed by Kamla Mehta to
Petitioner. P. Exs. 11, 32.
VI. HCFA is not bound by the mistakes that were made in
determining the effective date of Petitioner's Medicare
provider agreement.
Petitioner argues that HCFA is bound by the State's erroneous
determinations, because the State is HCFA's agent:
Of course, the agency relationship does not preclude
HCFA, as principal, from later deciding an initial
survey is required. The relationship, however, prevents
HCFA from avoiding the authorized actions of its agent,
DSHS [the State]. Because HCFA cannot avoid its agent's
decision that a relocation occurred, [Petitioner] is
entitled to the full benefit of that decision and the
June 23 1995 effective date.
P. Reply Memorandum on Agency at 10.
The State has no decision-making authority regarding a
provider's Medicare agreement. The State merely recommends;
HCFA decides. HCFA Ex. 48; Mountain View; Charter Hospital.
HCFA has a contractual relationship with the State, which is
further defined and clarified by statutes and regulations.
Certain responsibilities are assigned to the State, including
the certification-related duties of "explaining the
requirements and conditions for qualifying as a provider or
supplier of services," and "surveying for the purpose of
certifying to the Secretary compliance or non-compliance of
providers and suppliers. . . ." P. Ex. 35 at 8-9.
"Certification" is defined as "a recommendation made by the
State survey agency on the compliance of providers and
suppliers with the conditions of participation, requirements
(for SNFs and NFs), and conditions of coverage." 42 C.F.R. §
488.1.
Certifications by the State survey agency represent only
recommendations to HCFA. On the basis of those
recommendations, HCFA will determine whether a provider is
eligible to participate in or be covered under the Medicare
program. Mountain View.
As provided by Mountain View:
42 CFR 488.10 and 488.11 provide that State agencies
that have agreements under Section 1864(a) of the Social
Security Act (42 U.S.C. 1395aa) may survey and make
recommendations whether prospective providers meet the
Medicare conditions of participation. 42 CFR 488.12
provides that certifications by the State survey agency
represent recommendations to HCFA and that on the basis
of those recommendations, HCFA will determine whether a
provider is eligible to participate in or be covered
under the Medicare program. 42 CFR 489.10(b) provides
that the State survey agency will ascertain whether the
provider meets the conditions of participation or
requirements (for skilled nursing facilities) and make
its recommendations to HCFA.
Based on these regulations, it is clear that the State
agency is responsible for making recommendations
regarding Medicare participation, and that HCFA is
solely responsible for entering into Medicare agreements
with providers. The survey recommendations which
resulted after the surveys done in February, March and
April 1988 did not have any greater significance. They
formed the basis upon which HCFA would execute an
agreement for Medicare participation. The survey
results could not, under the regulations, amount to the
agreement itself.
The last concern to be addressed is whether Respondent
should be estopped from establishing the effective date
of the Medicare agreement later than February 5, 1988,
based on the erroneous advice petitioner received from
the State survey agency and upon which Petitioner relied
to its detriment. However, there is no authority which
allows the petitioner to prevail on this argument.
While the result in this case is unfortunate it is
mandated by the controlling authority of the Social
Security Act and implementing regulations.
Mountain View, at 2-3.
HCFA cannot delegate its decision-making powers. Charter
Hospital. Regarding the effective date of the Medicare
provider agreement, Charter Hospital concludes:
Sections 1861, 1864 and 1866 [of the Social Security
Act 12/] specifically delegate authority to HCFA to
contract with State agencies to perform virtually any
form of facility survey needed and make recommended
findings to HCFA. The regulations set forth the State
agencies' responsibility and role with clarity and
repeat the caveat that their decisions are only
recommendations. See 42 CFR 488.11(a), (c) and
488.12(a).
Charter Hospital, at 5-6.
The Act grants HCFA the authority to delegate its
investigative powers, but it does not allow HCFA to
delegate its decision-making powers. Since only HCFA
may decide who participates in Medicare, any comments or
assertions made by the surveyors must be treated as
dicta. HCFA cannot delegate the decision-making power
exclusively conferred upon it by statute.
Furthermore, inasmuch as the regulations make it clear
that the surveyors are only empowered to recommend, the
provider or prospective provider must be deemed to
proceed at its own risk if it anticipates what action
HCFA will take.
Charter Hospital, at 6.
VII. Petitioner claims estoppel.
Petitioner claims that HCFA is estopped from denying
Petitioner a June 23, 1995 effective date of its Medicare
provider agreement. Estoppel is an equitable principle
which, if applied here, would conflict with the regulations.
My authority is limited. I do not have the authority to
relieve Petitioner of the requirements under the regulations
for beginning its Medicare participation.
Further, an estoppel theory presents an uneasy fit in these
circumstances, where the State has no decision-making
authority regarding a provider's Medicare agreement. The
State merely recommends; HCFA decides. HCFA Ex. 48. HCFA
decided, correctly under the regulations, to approve
Petitioner's Medicare provider agreement with an effective
date of September 18, 1995. HCFA Exs. 19, 20, 43 at 4-5;
HCFA Ex. 51.
CONCLUSION
The effective date of Petitioner's Medicare provider
agreement is September 18, 1995, and no earlier.
Jill S. Clifton
Administrative Law Judge
* * * Footnotes * * *
1. The documentary evidence appeared to be
sufficient for my decision, so I did not hold the in-
person hearing that was scheduled to occur in Seattle,
Washington during the week of June 17, 1996. An in-
person hearing could address the limited issue of whether
Petitioner met Medicare participation requirements on
September 11, 1995. Following a telephone conference
with the parties on November 4, 1996, I again decided to
rely on the documentary evidence.
2. Petitioner filed the following
documents: Motion for Summary Judgment and Supporting
Memorandum; Response to HCFA's Summary Judgment
Motion; Memorandum on Agency; Reply Memorandum on Agency;
Motion for Subpoena; Response to HCFA Comments on HCFA
Exs. 44- 47.
HCFA filed the following documents: Motion for
Summary Judgment and Memorandum in Support; Reply
Memorandum, Opposing Petitioner's Motion for Summary
Judgment; Memorandum on Agency; Memorandum in Opposition
to Subpoena; Comments on HCFA Exs. 44-47; Memorandum in
Response to Kim Hagen Declaration.
3. I adopt the stipulation as executed
by the parties but have modified it according to the
style of the DAB.
4. The Medicare patient's initials are M. D.
See P. Ex. 28.
5. Petitioner's representatives chose
not to acquire Colby Manor's Medicare provider agreement
and provider number. A benefit of beginning anew is the
higher rate of reimbursement. HCFA Exs. 42, 52. A
disadvantage is the waiting period.
6. Petitioner argues that it relied on
the State's determinations that its Medicare and Medicaid
coverage would begin when it opened its doors, June 23,
1995. Petitioner maintains that "HCFA's recourse is to
make an initial survey a condition of continued Medicare
participation." P. Reply Memorandum on Agency at 2.
Petitioner's Medicare coverage could not have begun the
day it opened its doors, because of the roughly 20 days
(or more) required for a new provider to demonstrate that
it meets Medicare participation requirements. See
Discussion at V.
7. Substantial compliance means a level of
compliance with the requirements of participation such
that any identified deficiencies pose no greater risk to
resident health or safety than the potential for causing
minimal harm. 42 C.F.R. § 488.301. See also 59 Fed.
Reg. 56,183 (1994).
8. Plan of correction means a plan developed
by the facility and approved by HCFA or the survey agency
that describes the actions the facility will take to
correct deficiencies and specifies the date by which
those deficiencies will be corrected. 42 C.F.R. §
488.401.
9. Whether Petitioner could have opened
earlier than June 23, 1995, had Petitioner known it would
be undergoing the "Richmond Beach" process, is not clear.
Whether any of the beds under Petitioner's Certificate
of Need from the State [P. Ex. 14], was available to it
earlier than June 23, 1995, such as any of the 31 beds it
was acquiring from Aurora-Edmonds Nursing Homes, Edmonds,
is not clear.
10. During the more than two month-delay,
Petitioner provided care to Medicare beneficiaries.
Medicare reimbursement would have amounted to nearly one-
half million dollars. HCFA Ex. 42; P. Ex. 32 at 9.
11. The Certification had been signed on
June 27, 1995. The State indicated they sent it to HCFA
on June 28, 1995. HCFA Ex. 46.
12. 42 U.S.C. § 1395x, 42 U.S.C. § 1395aa,
and 42 U.S.C. § 1395cc.
(..continued)