Two Palms Care Center, DAB CR7000 (2026)

DECISION

Petitioner, Two Palms Care Center, was a skilled nursing facility in California that participated in the Medicare program.  Surveyors from the California Department of Public Health (CDPH) attempted to conduct complaint surveys at the facility on January 7, 2025 and February 3, 2025.  CDPH reported that the facility was closed and non-operational during both attempts.  After communicating with the facility leadership and administration, it was determined that the facility was non-operational.  As a result, the Centers for Medicare & Medicaid Services (CMS) terminated Petitioner’s Medicare provider agreement.  For the reasons discussed below, I affirm the termination of Petitioner’s Medicare provider agreement.

Background

Petitioner participated in the Medicare program as a skilled nursing facility.  CMS Ex. 1.  As a result of the Eaton wildfire in California, Petitioner’s facility at 2637 E. Washington Boulevard, Pasadena, California, burned to the ground on January 8, 2025.  P. Ex. 7 at 1; CMS Exs. 2, 3.  Prior to the fire reaching Petitioner’s facility, Petitioner evacuated all of its residents and transferred them to other skilled nursing facilities.  P. Ex. 7 at 1-2.

On January 7, 2025, CDPH attempted to conduct a complaint survey at Petitioner’s facility but found the facility closed and non-operational.  CMS Ex. 1.

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On January 8, 2025, Petitioner submitted a report to CDPH informing it of the January 7, 2025 evacuation.  CMS Ex. 2.  On January 21, 2025, CDPH reached out to Petitioner and informed Petitioner it would be monitoring its plan to rebuild or restore.  P. Ex. 7; P. Ex. 5 at 55-56.  On January 29, 2025, Petitioner submitted a report advising CDPH of the status and location of the residents following the evacuation.  Id. 

On February 3, 2025, CDPH attempted to conduct a complaint survey for the second time and found that the facility was closed and non-operational.  CMS Ex. 1.

On April 17, 2025, CDPH reached out to Petitioner for an update and Petitioner informed CDPH that it was reviewing its options.  P. Ex. 5 at 54; P. Ex. 7.  Similar conversations were held between CDPH and Petitioner in June, July, and August 2025.  P. Ex. 5 at 40, 48-49, 52; P. Ex. 7 at 3; CMS Ex. 1.

In September and December 2025, CDPH reached out for updates and Petitioner again informed CDPH that it was finalizing plans to rebuild and waiting for information from its insurance carrier.  P. Ex. 5 at 36, 47.

Petitioner explained that cleanup of the site was not completed by the County until the week of December 8, 2025.  P. Ex. 6 at 2.

On December 16, 2025, CMS reached out to Petitioner and asked that Petitioner agree to voluntarily terminate it Medicare agreement.  P. Ex. 6 at 2.  On January 8, 2026, Petitioner provided CDPH with an anticipated reopening date of June 2, 2028.  P. Ex. 7 at 4; CMS Ex. 1.

On January 14, 2026, CMS sent a notice letter informing Petitioner that it was terminating its participation in the Medicare Program, effective January 29, 2026.  CMS Ex. 1.

Petitioner appealed, and the matter is now before me.

Decision on the written record.  CMS filed a prehearing brief and a motion for summary judgment.  Petitioner filed a brief in opposition.  CMS filed a reply.  CMS submitted three exhibits (CMS Exs. 1-3).  Petitioner submitted twenty-one exhibits (P. Ex. 1-21).  Petitioner included the sworn statements of two witnesses with its exhibits.

CMS filed objections to many of Petitioner’s exhibits.  I have considered CMS’s objections and find that they go to the weight of the evidence.  As a result, I will admit the exhibits into evidence but will decide what weight, if any, should be given to the exhibits.  Absent objection, I also admit CMS Exhibits 1-3 into evidence.

“An in-person hearing to cross-examine witnesses will be necessary only if a party files admissible, written direct testimony, and the opposing party asks to cross-examine the

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witness(es).”  Standing Order at 9.  Because neither party requested to cross-examine any witnesses, an in-person hearing would serve no purpose.  See Standing Order at 8-9 (January 30, 2026).  I may therefore decide this case based on the written record, without considering whether the standards for summary judgment are satisfied.  See Anil Hanuman, D.O., DAB No. 3080 at 12 (2022) (citations omitted).

Issue

Whether CMS had a legitimate basis to terminate Petitioner’s Medicare provider agreement.

Jurisdiction

I have jurisdiction in this matter pursuant to Act § 1866(h)(1) and 42 C.F.R. §§ 489.53(e), 498.3(b)(8), 498.5(b).

Discussion

1. A facility must meet the statutory definition of a skilled nursing facility in order to maintain a Medicare provider agreement.

In order to participate in the Medicare program, a skilled nursing facility must meet statutory and regulatory requirements.  Act § 1861; 42 C.F.R. Part 483.  CMS may terminate a skilled nursing facility from participation in the Medicare program if CMS finds that the facility is not in substantial compliance with the provisions of title XVIII of the Act and the applicable regulations or if the facility no longer substantially meets the appropriate conditions of participation.  Act § 1866(b)(2); 42 C.F.R. § 489.53(a)(1).

For Medicare program purposes, an SNF is an institution that is primarily engaged in providing skilled nursing care and/or rehabilitation services for its residents but is not primarily engaged in the care and treatment of mental diseases.  Act § 1819(a); 42 U.S.C. §§ 1395x(j), 1395i-3(a)(1).  Meeting the statutory definition of a skilled nursing facility is a continuing requirement for Medicare participation.

2. After Petitioner’s facility burned down and its residents were transferred, Petitioner could not meet the definition of a skilled nursing facility.

Once Petitioner’s facility was no longer operational, regardless of the fact that it ceased operations because of a tragic fire, it could not meet the definition of a skilled nursing facility.  Petitioner’s facility became non-operational when it closed and evacuated its residents on January 7, 2025, and Petitioner admits that it will not be operational again until at least June 2, 2028.  CMS Ex. 1 at 1.

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3. CMS properly terminated Petitioner’s Medicare provider agreement because Petitioner no longer met the statutory definition of a skilled nursing facility.

It is undisputed that Petitioner’s facility was closed and non-operational during the CDPH attempted complaint survey inspections.  Additionally, Petitioner admits that its facility was destroyed in the wildfire and will not be rebuilt until at least June 2, 2028.  This means that Petitioner’s facility will have been non-operational for over 3.5 years when it reopens.

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

Petitioner argues that the termination was permissive, not mandatory; that the termination was without legal authority; that Petitioner did not cease operations; that the termination was arbitrary and capricious; and that it was not fair or equitable to terminate the agreement.  P. Br.  However, none of Petitioner’s arguments change the fact that CMS had a legitimate basis to terminate Petitioner’s provider agreement effective January 29, 2026.

Petitioner explains in its brief that CMS had discretion and was not required to terminate Petitioner’s provider agreement.  However, I do not have the authority to second-guess CMS’s exercise of discretion.  The issue that I may decide is not whether I might have imposed the remedy that CMS determined to impose, but whether CMS had the authority to do so.  I find that CMS had that authority in this case.  The facts establish that Petitioner was non-operational at the time of the CDPH attempted complaint survey inspections and that Petitioner admits that its facility will not be rebuilt until June 2, 2028.

Additionally, Petitioner argues that CMS lacked authority to terminate its provider agreement because Petitioner’s failure to follow the regulatory requirements was not attributable to the provider.  Petitioner explains the wildfire caused it to be non-operational.  CMS responded by stating that the Petitioner is not and cannot be a Medicare provider because it does not meet the definition of a skilled nursing facility and that the statute does not limit CMS’s authority based on the cause of the failure.  Given the facts in this case, I agree with CMS that Petitioner cannot be a Medicare provider because there is no facility to hold a Medicare provider agreement.  Petitioner’s facility was burned down and there is no anticipation of a new facility for Petitioner until June 2, 2028.

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Petitioner also argues that it did not cease operations but instead temporarily closed and relocated while it rebuilds.  This argument seems to be little more than an attempt to rebrand what Petitioner admits happened in this case.  Petitioner’s facility is gone, and the residents, and apparently some of the staff, have been transferred to other facilities.  Those facilities are now responsible for the transferred residents.  Additionally, when CDPH attempted to complete its complaint survey, the facility was closed and non-operational.

Next, Petitioner asserts that I should declare CMS’s determination to terminate Petitioner from the Medicare program unlawful on the ground that the determination was arbitrary and capricious.  However, in NMS Healthcare of Hagerstown, the Board explained: 

The arbitrary and capricious standard . . . is an Administrative Procedure Act (APA) standard for court review of final agency actions set forth at 5 U.S.C. § 706.  The [administrative law judges] and the Board are adjudicators in an administrative appeal process, not courts, and neither CMS’s determination nor the [administrative law judge] Decision is a final agency action in matters subject to appeal under Part 498.  See 42 C.F.R. § 498.90 (providing that the Board decision is the final agency action that may be appealed to federal court). . . .  Thus, there is no merit to [Petitioner’s] argument that the [administrative law judge] was required to consider whether CMS’s actions were arbitrary and capricious.

DAB No. 2603 at 6 (2014).  Therefore, whether CMS’s decision to terminate Petitioner’s Medicare enrollment and billing privileges was arbitrary and capricious is not an issue I may hear and decide.

Lastly, Petitioner pleads that it is not fair that Petitioner is penalized for being the victim of a natural disaster.  As much as I can recognize that this situation is extremely difficult for Petitioner, I do not have the authority to overturn CMS’s lawful use of its regulatory authority based on principles of equity.  Cent. Kan. Cancer Inst., DAB No. 2749 at 10 (2016).  More succinctly, when CMS acts within the scope of its regulatory authority, I may not substitute my discretion because of fairness or other equitable grounds.  See James Shepherd, M.D., DAB No. 2793 at 9 (2017); US Ultrasound, DAB No. 2302 at 8 (2010).

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Conclusion

For the reasons set forth above, CMS properly terminated Petitioner’s Medicare provider agreement.